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Daily Newsletter, Tuesday, 08/19/2003

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The Option Investor Newsletter                 Tuesday 08-19-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Over the Backs of Bears
Futures Markets: Stocks, Bonds and Metals Rally, Dollar Dives
Index Trader Wrap: Taking Stock
Market Sentiment: Consumer sentiment eases, investor sentiment holds
strong
Weekly Fund Screen: Dividend Growth Funds


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      08-19-2003           High     Low     Volume Advance/Decline
DJIA     9438.90 + 16.50  9445.08  9351.73 1.59 bln   2076/1135
NASDAQ   1761.11 + 21.60  1761.63  1737.37 1.70 bln   2068/1167
S&P 100   503.92 +  1.13   504.28   499.77   Totals   4144/2302
S&P 500  1002.35 +  2.61  1003.30   995.30
W5000    9683.31 + 40.10  9685.77  9618.22
RUS 2000  488.70 +  7.78   488.70   480.92
DJ TRANS 2663.95 + 20.10  2665.59  2642.61
VIX        19.23 -  0.05    20.19    18.11
VXN        26.50 -  0.12    27.76    26.50
Total Volume 3,568M
Total UpVol  2,537M
Total DnVol    978M
52wk Highs  747
52wk Lows    66
TRIN       0.93
NAZTRIN    0.69
PUT/CALL   0.64
************************************************************

Over the Backs of Bears

Most of the major indexes closed at new 52-week highs and it
was done by climbing over the backs of screaming bears. Well,
maybe sleeping bears. The volume was still light and the gains
were not strong but those bears who were run over were in
denial. I know I was there. The Dow hit a new high at 11:00
of 9445 and then traded down the rest of the day until the low
of 9351 was hit at 2:40. Bears were backslapping each other
that the long awaited failure at the top had arrived when the
market suddenly reversed. No problem. Just like the three
lower highs since 11:00 they hit the short button again, and
again, and again, only to see a strong ramp into the close.
The Dow did not return to its high of the day but did close
at a new 52-week high.

Dow Chart - Monthly



Nasdaq Chart - Monthly





The morning started off bad with the Retail Sales falling -0.5%
from last week but that was written off as blackout related.
Also the end of sales tax holidays in several states made the
prior week comparisons hard. Helping hold the line were more
tax checks and good weather for back to school shopping. WMT
said unit sales of school supplies were up but dollar volume
was down due to discounting and competition. ShopperTrak said
over two-thirds of sales lost due to the blackout were
recovered before the weekend was out.

Residential Construction soared to 18-year highs at 1.87
million on an annual basis as builders race to complete houses
before the interest rate rises any further. The housing permits
fell, which indicate a future slowing but for now they are
racing weather and interest rates to complete available units
before the fall rains. The June starts were revised upward to
+5.7% from +3.7%. This was another shot of speed to investors
looking for signs of economic strength. Futures soared in the
premarket and setup a gap to new highs despite the impending
Michigan Sentiment report 15 min later.

The Sentiment report for August fell to 90.2 from 90.9 and was
less than the expected 91.2. Ho-hum. Traders completely ignored
it and continued to push the Dow higher. The sentiment has
moved sideways in the 90 range since its high of 92.1 in May.
For those that have jobs things are improving with lower taxes,
tax rebate checks and retail prices dropping on everything but
energy. Despite the interest rate gains they are still low when
compared to levels seen over the last ten years. When this
number is updated later this month the blackout is sure to
lower it significantly but the new market highs may be an
offset.

After the bell tonight the Semi Book-to-bill number of 0.97 was
released. This was an improvement over the 0.93 in June and
should help the semiconductor index explode even higher. The
index broke strong resistance already this week at 400 and
closed on Tuesday at 425. Despite the level of orders still
flat for the year the +5.7% increase for the month broke a
3-month downtrend. Orders are down -21% from last year and
shipments are down -19%. While .97 is better than .93 it just
means the rate of decline is slowing. Until the number climbs
over 1.0 the chip companies are receiving fewer orders than
they are shipping. The numbers are much better than the three
month slump to .90 in Mar-May and traders will get high on
semi again tomorrow.

Also impacting tomorrows trading will be the Hewlett Packard
earnings after the close. They missed earnings by -3 cents and
lowered guidance going forward. They said the PC sector was
still weak and only laptops were seeing any gains. HPQ said
it was a tough quarter despite losses being erased in several
divisions. The CEO said aggressive pricing and weak demand
contributed to the earnings miss. Personal system sales saw
a loss of -$56 million for the quarter but that was still
better than the -$140 million for the same quarter last year.
They said volume had declined in Unix servers and that was
one area of strength before. While HPQ dropped to $19.76 from
its close at 22.12 the futures were not showing that much
impact. Many analysts claimed the HPQ results were specific
to HWP and should not be taken as an industry wide problem.

The Dow managed to close up +16 points after spending much
of the day in negative territory. The Nasdaq was never in
doubt and rebounded +21 to 1761. The big winner however was
the Russell-2000, which gained +1.61% or nearly +8 points to
close at 488. This was an explosion over downtrend resistance
at 480. The S&P closed at 1002 for a gain of +2.61 and a close
over the 100 DMA for the second day. The Wilshire 5000 was the
party pooper with a +40 point gain to 9683 but still under
strong resistance at 9700.

With the only economic reports tomorrow the Mortgage Application
Index and the Monthly Mass Layoff report traders should be taking
their cue from the book-to-bill and pressing their bets to the
long side. The wildcard is the HPQ earnings and their impact on
the sentiment. After today I am not sure if anything will damage
sentiment but that is normally when the worst events happen. The
two bombings in Iraq and Israel today had little or no impact on
sentiment so it is doubtful the HPQ news will either.

Bonds closed near the highs of the day and yields dropped
impressively. The stock market failed to take money from bonds
and with positive economic numbers they performed very well.
Is there anything that can derail this train?

The challenge now is the downtrend resistance on the Dow from
April 2001, which intersects at just over 9500. Nasdaq resistance
is the July high at 1776 then it is pretty much clear sailing to
1900. If all this sounds a little like the Twilight Zone it is
probably because it is. With the September/October period in
front of us the concept of a rally that reaches 1900 on the
Nasdaq is about as foreign as sauerkraut on strawberries instead
of whipped cream. If you are long, congratulations and keep those
stops tight. If you are flat, hold your nose and go long and
definitely keep those stops tight. The VIX put in a nearly sub
19 day and the VXN traded at a new all time low. VIX at new lows,
markets at new highs? Just keep looking around every corner as
the bulls climb the wall of worry because that is a recipe for
eventual disaster. The VIX can go lower and many times does.
Something in the 17 range would be my storm cellar warning but
until then hang on to your parachute as we move higher.

I apologize for the short wrap and the lateness tonight. I got
the blue screen of death about 2 hrs into it and spent another
2 hrs trying to recover before giving up and starting over on
another PC. Thank you Microsoft for another wonderful evening.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Stocks, Bonds and Metals Rally, Dollar Dives
Jonathan Levinson

The Fed is back in town, with the US Dollar Index diving off its
highs, and all other asset classes rising together.

Here's how it looked on the ES:

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 rallied all night, peaking just above 97.80
before beginning its decline just before 10AM, contemporaneously
with the University of Michigan consumer sentiment data.  I
hesitate to ascribe any importance whatsoever to this very soft
statistical data, but the dollar decline coincided with its
release and the slight disappointment in its results.  The action
was bullish for gold and silver, equities and treasuries.  Gold
rose first, followed by treasuries, and equities flopped around
before reversing all of the day's decline in the final hour after
the treasury market closed.

Daily chart of December gold




Gold bugs got a big boost from today's trading, with the December
contract printing a bullish outside reversal, adding 3.10 to
close at 363.00.  The precious metals indices were higher as
well, HUI up 8.43 to 186.29, XAU up 3.3 to 89.42.  December
silver also outperformed, adding 9 cents to 5.035 as of this
writing.

Daily chart of the ten year note yield





The fed added another 5B in 2 day repos today.  To give you an
idea of just how much intervention money, aka open market
operations, are currently in the market, the fed currently has
19B in repos expiring on Thursday.  No wonder the volatility
indices are so low.  In any event, treasuries were up nicely
today, the five year note yield losing 9 basis points, the ten
lower by 9.6 bps to close at 4.381%, and the thirty –10.8 bps to
close at 5.253%.


Daily NQ candles




A sharp rally in the last hour either stalled or obliterated what
appeared to be a daily top printed on the ES and YM, while
powering the NQ to new highs above the bull flag.  The
oscillators on the daily chart are on buy signals, and the
ascending trendline in being tested for the first time since its
failure at the beginning of August.


30 minute 20 day chart of the NQ




The bear market in volatility continues, and given the action
today, it's little wonder, with ten of billions of the Fed's
money being thrown at anything with an offer price.  The NQ was
the leading equity again, up 1.20% and breaking out of a long
bear flag to the upside.  As noted last night, this was the lower
probability occurrence, but it occurred today.  The rally highs
of 1320 do not look particularly far from here, and while the
index is very extended following yesterday's and Friday's low
volume advances, the ball is in the Fed's court.  More huge repos
like we've seen since Friday, and the NQ, along with the Comex,
the cafeteria and parking garage could all be relocated to the
moon.


Daily ES candles




The S&P futures lagged the NQ throughout the session, printing a
bullish hammer with a closing print just below its high of the
day.  It was looking like a shooting star until the bond market
closed.  The ES is also on well-developed buy signals by now, and
the higher low at 994.25 was a very bullish development.

20 day 30 minute chart of the ES




The bear flag on the 30 minute candles remains intact, with
upside resistance on this formation now at 1008.  The vertical
rally in the last hour brought the oscillators around to buy
signals, and the chart currently looks good for a run to the
upper trendline at least.  That said, false signals abound
lately, and bullish traders will want to see how the ES does at
upper resistance before committing for anything longer than a
scalp.

Daily YM candles





The YM most closely matches the ES cyclically, trading slightly
weaker and challenging the lower trendline on the 30 minute bear
flag before the end of session launch.

20 day 30 minute chart of the YM




There's little to say in the face of repeated, day after day
intervention from the Fed.  I've read that M3 money supply grew
by $49.9 billion for the week ended August 4, at which rate M3
would increase over 2.5T annualized.  Gold, and particularly the
miners, were sharply higher today.

As traders, we must learn from the past and tread carefully.  The
Spring rally saw the same combination of stocks, bonds and
commodities rallying together, with the dollar falling.  If, as
many readers feel, you are bearish on equities, then you need to
be careful in the extreme, entering methodically and entering
your stops in advance.  Entering a long term bearish position and
hedging against it with shorter term trades is one way among
many.  What I'm to convey is that the waters are very dangerous
for bears, and whether we agree with the reasons for that
situation or not, we must trade what we see.  I find it difficult
to be bullish in light of the low volume for the past week of
advances, the lack of pullback, the extreme bottomy readings on
the volatility indices, breadth indices, extreme toppy readings
on the bullish percents,  record insider selling to buying
ratios, number of bullish advisors over bearish advisors, et
cetera.  Either way, there are numerous entries, both bullish and
bearish, and we will continue to trade what the market gives us.
See you at the bell!


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

Consumer sentiment eases, investor sentiment holds strong

Despite some softening in the University of Michigan's
preliminary August consumer sentiment survey and terrorist
bombings overseas, investors remained optimistic in today's
session pushing the Dow Industrials (INDU) 9,428 +0.17% higher by
16 points to a second-consecutive 52-week closing high, while at
the same time bidding the tech-heavy NASDAQ-100 Index (NDX.X)
1,299.69 +1.15% to a 52-week closing high and near its July 14
intra-day highs of 1,316.42.

A mixed session among financials, retailers and energy had
technology gains being offset marginally, with the broader S&P
500 Index (SPX.X) 1,002.35 +0.26% recouping some mid-session
losses to finish 2.6-points higher and highest close in more than
a month.

Treasuries found a strong round of buying, sending YIELDS lower
and helping calm fears that the recent rise in mortgage rates
might dampen the housing market.  The longest dated 30-year YIELD
($TYX.X) fell 10.8 basis points to 5.253% after nearing the 5.4%
level earlier in the month and as recently as last week, while
the benchmark 10-year YIELD ($TNX.X) fell 9.6 basis points to
4.381%.  The setback in Treasury yields with still robust new
home sales in July found the Dow Jones Home Construction Index
(DJUSHB) 444.21 +3.24% challenging the AMEX Gold Bugs Index
($HUI.X) 186.29 +4.73% for today's sector winner.

Gains among precious metals stocks were bolstered by geopolitical
events, and today's release from the Treasury, which showed a
$54.2 billion deficit for the month, and larger than the $53.0
billion deficit forecasted by economists.  Monthly receipts
totaled $123.5 billion compared to $177.8 billion in outlays.
For fiscal 2003 (ending September 30) the Treasury's deficit has
grown to $323.9 billion, more than double fiscal year 2002's
$157.7 billion.

Investors interested in a detailed account of the monthly
Treasury statement can view the 32-page document at this


Volume levels picked up from yesterday with 1.2 billion shares
traded on the NYSE, while NASDAQ turned 1.62 billion share.
Advancers outnumbered decliners by a 5 to 3 margin at both the
NYSE and NASDAQ, while the number of new 52-week highs neared
those levels found on July 14th.

Market Internals - July 9 to August 19, 2003




Just yesterday, the NYSE NH/NL 10-day average reversed back
higher into "bull confirmed" status and shows a resumption of
bullish leadership over a two-week period.  The NASDAQ's 10-day
NH/NL 10-day average remains in "bull correction" status, but
recent daily ratios upward of 95%, would most likely find its 10-
day average steadying if not turning back higher.

Focusing in on the new high/new low ratios, some shorter-term
traders may not find the above 10-day average ratio useful by
itself.  Below is a table showing 5-day average ratios, where
I've attempted to color code bullish (green) and bearish (red)
crossovers between the 5-day average and 10-day average ratios.
In typical fashion, the NASDAQ has been more volatile.

5-day and 10-day NH/NL ratios for NYSE and NASDAQ




We'll take a look at some bar charts tonight and benchmark the
bullish and bearish crossovers as to near-term shifts from
bullish leadership to bearish leadership.  It will become
apparent that these crossovers aren't necessarily short-term
predictors for major indices price action, but current assessment
would be that short-term indication (5-day or less) are bullish,
with NYSE intermediate-term (5 to 10 day) bullish leadership
resuming, while NASDAQ intermediate-term firms.

The only word/observation of caution for bulls that I saw again
in today's session was lack of bullish participation from the
financial sectors.  While both the S&P Insurance Index (IUX.X)
277.96 +0.15% and Securities Broker/Dealer Index (XBD.X) 572.50
+0.41% managed gains, the money-center KBW Bank Index (BKX.X)
884.97 (unch) and regional S&P Bank Index (BIX.X) 304.68 -0.15%
have gone nowhere for 5 consecutive sessions and I would have
thought the banking sectors would have seen greater bullishness
with the 10-year YIELD now below its WEEKLY pivot.  Instead, the
BIX.X followed the lower YIELD move with a trade at its WEEKLY
pivot today and seemed to have the SPX/OEX and to an extent the
Dow Industrials trading either side of unchanged in today's
session.

An upgrade this morning on Bank of America (NYSE:BAC) $81.21
+0.17% found a gap higher open at $81.81 finding sellers at its
rounding lower 21-day SMA of $81.77, while a still rising 50-day
SMA at $80.76 has been providing noticeable support the past 11
sessions.

Suffice it to say, I'm suspicious as to why the regional banks
aren't participating more in the recent broader-market rebound,
but would think a settling back Treasury YIELD, which should calm
fears regarding higher consumer loan rates, should have found a
bid in the regional banks today.

Pivot Analysis Matrix -




Correlative resistance levels for the INDU along with the OEX/SPX
are represented in the DAILY R1 and WEEKLY R2s.  The tech-heavy
NASDAQ-100 Index (NDX.X) 1,299.69 +1.15% and its Tracking Stock
(AMEX:QQQ) $32.37 +1.25% sprinted higher, to close above their
WEEKLY R2's, and a while Dow/SPX/OEX component Hewlett Packard
(NYSE:HPQ) $22.11, which disappointed on quarterly earnings and
trade down 10.5% at $19.79 is not an NDX/QQQ component,
correlative NDX/QQQ support at WEEKLY R1 and DAILY S2s may be
tested.

I've marked BIX.X correlative resistance at the MONTHLY Pivot and
tomorrow's DAILY R2, with near-term support at its DAILY S2 and
WEEKLY S1 of 301.14/301.42.

S&P 500 Index Chart - 5 and 10-point box size




The SPX's point and figure chart has the SPX right back at a
point of near-term resistance, where the SPX has had some trouble
achieving the 1,010 level, but MONTHLY R1 of 1,016 ties in with
the three consecutive tests of 1,010.  When I think back to
recent bullish entry at 965, I was looking for formidable
resistance to form at the MONTHLY Pivot of 989.27 as overhead
supply was encountered, however the rebound in technology sectors
has been stronger than forecasted.  Only the lack of
participation from the financial sectors keeps the SPX from
breaking above the 1,016-964 range.

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




S&P futures (sp03u) settled 1,002.90 and tick by at 1,001.30, so
HPQ's after-hours earning's hasn't had the bear's den opening up
with an angry crowd at this point.

As it relates to the NYSE and NASDAQ new hi/new low breadth, the
July 14th high (marked by bullish % reading 79.8%) was where the
NYSE 5-day crossed below the 10-day NH/NL.  The recent August 6th
low (marked by bullish % 74.2% reading) didn't find the 5-day
NH/NL average crossing above the 10-day NH/NL average until the
SPX first traded its MONTHLY pivot of 989.25 on this recent move
back higher.

The various bullish % reading marked on the above SPX chart at
various inflection points show the SPX's internals depicting that
of bearish divergence.  Not overly so, but notably so.

Today's action saw the broader S&P 500 Bullish % ($BPSPX) see a
net gain of 3 stocks to new point and figure buy signals.  Still
"bull correction" status at 75.4%, and would currently need a
reading of 80% to reverse back up into "bull confirmed" status.

S&P 100 Index Chart - Daily Interval




The SPX is closer to its weekly R2 than the OEX is to its WEEKLY
R2 of 506, and I think its is only because the OEX lacks some of
the broader technology and 4-lettered stocks that are found in
the NASDAQ.  Should the financials "catch fire" like technology
has done then OEX has upside to its MONTHLY R1.  However, the
lagging of the banks and any type of negativity toward tech after
HPQ's earnings, finds the OEX working its way back lower to 485.

For the most part, we can see that the narrower OEX bullish %,
which has ranged from 80% to 84% is probably most analogous to
the current MONTHLY R1 and S1 range, with each being more of an
extreme type of range.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval




It has been a long time since we looked at a bar chart using
Bollinger bands (21-day SMA/close, 2 std dev), but a trader (I
think holding long) was wondering what to do when MACD had given
bullish crossover above its Signal, yet Stochastics were
"overbought."  His observations were that the QQQ tended to inch
higher for a couple more days along the upper-end of the
Bollinger band, before falling back below the 21-day and
stabilizing, if not finding support at the lower end of the
Bollinger band.

I would concur with that observation, but things are a little
different today than perhaps the past 5-months.  I'd monitor the
upward trend (green) from the March lows, which was recently
broken on August 1st as coming into play as resistance.

The trader also made note to increasing volume the last two
sessions.  I would make note of that too, and would think about
1/2 of it is short-covering.

Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net
gain of 1 stock to a new point and figure buy signal.  This has
the bullish % rising to 68%, but still "bear confirmed."  It
would take a reversal higher reading of 70% to achieve "bear
correction" status.

Another subscriber sent e-mail today regarding my posting short
interest on the DIA, SPY and QQQ.

I looked again last night, but NASDAQ hasn't updated short
interest at this point.  Short interest is usually posted as of
the 15th of each month.

Dow Diamond (DIA) $94.49 +0.22% has seen short interest building
steadily since Januar 15th and July's short interest was 21.3
million shares with days to cover at 2.96, up from June's 2.52.

S&P Depository Receipt (SPY) $100.86 +0.37% has been building
since March 14 (60.2 million) to July 15 levels of 96.3 million
shares short with 2.39 days to cover.

QQQ short interest as been building since April 15th (151.7
million) to July 15th levels of 250.1 million shares, with days
to cover at 3.09.  That's the highest days-to-cover ratio in the
last 12-months.

Dow Industrials Chart - Daily Interval




The Dow Industrials (INDU) 9,428.90 +0.17% traded their MONTHLY
R1 and into my last "zone of resistance" to the WEEKLY R2.  If
the Dow can shrug off HPQ's disappointment tomorrow, and make the
move above 9,460, then more power to them, but I think its time
for a rest and pullback to 9,150.  With the Dow making a new
high, I think most technicians are going to be raising some near-
term downside targets.  At this point, it would have to take a
CLOSE below 9,385 to signal any type of pullback in the making
for the Dow.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU) and status remains "bull
correction" status at 80%.

Jeff Bailey


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

Taking Stock
Jonathan Levinson

It's difficult to find anything bearish in the intraday charts of
the major indices, while the indicators continue to urge caution.
We see the Nasdaq-related volatility indices setting new record
lows, and the VIX following along with its own low readings.

Bullish percents remain at levels commensurate with market tops,
as do the various breadth measures.  Despite all of these
compelling signals, the indices have been extending their gains
steadily, with volume increasing today.

These indicators urge caution for bulls and warn that our
risk/reward calculations favor downside over upside.
Unfortunately, price has not obliged.  It does not pay to ignore
indicators, but they must be taken in context.  Every indicator
gives a different snapshot of a current facet of the market.  As
we've discussed in the past, a very low TRIN reading either
indicates a blowoff spike in buying pressure, of the beginning of
a trending wave of buying pressure.  The reading in each case is
the same, but its message can vary 180 degrees.

It is for this reason that account management and trading
discipline are essential.  Let the data here and in the charts
suggest the trades, but use stop losses and appropriate account
management to control your risk.


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

Market Averages

DJIA ($INDU)

52-week High:  9445
52-week Low :  7197
Current     :  9428

Moving Averages:
(Simple)

 10-dma: 9265
 50-dma: 9170
200-dma: 8580



S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     : 1002

Moving Averages:
(Simple)

 10-dma:  985
 50-dma:  989
200-dma:  916



Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1299

Moving Averages:
(Simple)

 10-dma: 1243
 50-dma: 1247
200-dma: 1104



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

The volatility indices continue to trade at or new near lows and
they should continue to do so as long as the broader indices
continue to scratch out new gains.  As Jon reminds us above, trade
carefully.

CBOE Market Volatility Index (VIX) = 19.23 –0.05
Nasdaq Volatility Index (VXN)      = 26.50 –0.12


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.64        623,106       396,897
Equity Only    0.50        541,483       268,511
OEX            1.04         13,461        14,050
QQQ            0.87         40,606        35,144


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

Bullish Percent Data

           Current   Change   Status
NYSE          69.4    + 1     Bull Confirmed
NASDAQ-100    68.0    + 3     Bear Confirmed
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       75.4    + 1     Bull Correction
S&P 100       82.0    + 0     Bull Confirmed


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

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

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

 5-Day Arms Index  0.86
10-Day Arms Index  0.86
21-Day Arms Index  0.97
55-Day Arms Index  1.07


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    1838      2004
Decliners     993      1094

New Highs     230       278
New Lows       26         7

Up Volume   1094M     1240M
Down Vol.    471M      448M

Total Vol.  1579M     1710M
M = millions


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

Commitments Of Traders Report: 08/12/03

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

Commercials added slightly to their long positions in the S&P,
whilesmall traders maintained their positions, adding a net 761
contracts for the week.


Commercials   Long      Short      Net     % Of OI
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%)
08/12/03      399,414   456,767   (57,353)   (6.7%)

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
07/22/03      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%
08/12/03      158,821    71,040    87,781    38.2%

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


E-MINI S&P 500

Commercials added heavily to their long positions in the e-mini,
posting their most bullish reading of the year, while small
traders added further to their short positions.


Commercials   Long      Short      Net     % Of OI
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%
08/12/03      306,014   217,233     88,781    17.0%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:   88,781   - 08/12/03

Small Traders Long      Short      Net     % of OI
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%)
08/12/03       62,534   106,403   (43,869)  (26.0%

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


NASDAQ-100

Commercials and small traders moved in the same direction on the
NDX, as commercials lightened up slightly on their short
positions, while small traders added to their longs.


Commercials   Long      Short      Net     % of OI
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%)
08/12/03       34,374     53,015   (18,641) (21.3%)

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
07/22/03       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%
08/12/03       23,957     7,871    16,086    50.5%

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

Commercials added slightly to their long positions on the Dow, but
the move was sufficient to post a new bullish high for the year,
close to reaching the October 2001 high of 15,135 contracts.
Small traders added more substantially to their shorts.


Commercials   Long      Short      Net     % of OI
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%
08/12/03       24,942     9,878   15,064      43.3%

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
07/22/03        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%)
08/12/03        6,933    13,248   (6,315)   (31.3%)

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

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


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

Dividend Growth Funds

These four U.S. equity funds are among those that could benefit
from recent tax cuts on dividend taxes.  President Bush's $350
billion tax cut in May of 2003 included a big break on dividend
taxes, making dividends more valuable.  These funds seek growth
of capital by investing in companies that exhibit the potential
for increases in their current dividend payments (or commencing
dividends, if none are currently paid).

While there are plenty of equity-income funds to choose from in
the retail marketplace, these four funds are unique in that they
place the emphasis on "dividend growth" by putting that in their
fund names.  Most equity income funds emphasize dividend income
over dividend growth; these four funds emphasize capital growth
over income through investments in dividend-paying stocks.  The
four funds we'll compare and contrast this week are shown below.

  Dividend Growth Funds:
  ECDGX  Electric City Dividend Growth Fund
  FDGFX  Fidelity Dividend Growth Fund
  DIVAX  Morgan Stanley Dividend Growth Securities Fund Class A
  PRDGX  T. Rowe Price Dividend Growth Fund

In this week's fund screen, we'll compare these four funds on the
basis of performance, risk, expense, style and other factors, and
then tell you which fund(s) we like the best now.


Screening/Evaluation Process


To compare these four funds, we used the Fund Compare tool online
at www.morningtar.com and other online sources.  One of the funds
(Electric City Dividend Growth Fund) began operations in 2002 and
has not yet reached $1 million in total assets.  Accordingly, the
fund does not come up in Morningstar's system and there is little
information in Lipper's system, making comparisons difficult.  In
contrast, two of the funds - Fidelity Dividend Growth and T. Rowe
Price Dividend Growth - started operations more than 10 years ago
and can serve as benchmarks for other dividend growth funds.  The
Morgan Stanley Dividend Growth Securities Fund (Class A) has been
around for more than five years.

Electric City Dividend Growth Fund has a 4.75% load and an annual
expense ratio of 1.65%, the highest of the four funds on the list
so that also detracts from its overall appeal.  While we like the
Electric City fund for its investment style and strategy, you may
want to wait until the fund has reached some critical mass, asset
wise, and annual expenses (as a percentage of assets) comes down.
On the other hand, the fund's year-to-date total return of 12.1%
is competitive with the other three funds.

That leaves the Fidelity, T. Rowe Price and Morgan Stanley funds
to consider now.  The $15.7 billion Fidelity Dividend Growth Fund
has a large-cap core fund objective per Lipper, and normally puts
at least 65% of assets in common stock of firms that they believe
have the potential for dividend growth by either increasing their
dividends or commencing dividends if none are currently paid.  It
can invest in both domestic and foreign issuers.  Charles Mangum,
a Fidelity veteran, has managed the fund for 7 years.

The $610 million T. Rowe Price Dividend Growth Fund has a large-
cap core objective as well, and seeks dividend income, long-term
capital appreciation and a reasonable level of current income by
investing at least 65% of assets in the common stock of dividend
paying companies.  Thomas Huber has managed the fund for 3 years.

The Class A shares of Morgan Stanley's Dividend Growth Securities
Fund have total net assets of $121 million.  It has a large-value
objective per Lipper, and pursues reasonable current income and
long-term growth of income and capital by investing primarily in
common stocks of companies with a record of paying dividends and
the potential for increasing dividends.  The fund has been "team
managed" since 2001.

Below is a summary of the each fund's YTD and 1-year return as of
August 18, 2003 per the online edition of the New York Times (see
www.nytimes.com).  We used the NYTimes.com website because it has
performance information for the Electric City fund.

 YTD     1-Yr
+12.1%  +8.9%  Electric City Dividend Growth Fund (ECDGX)
+12.3%  +10.1%  Fidelity Dividend Growth Fund (FDGFX)
+14.8%  +6.4%  Morgan Stanley Dividend Growth Sec. A (DIVAX)
+13.0%  +7.8%  T. Rowe Price Dividend Growth Fund (PRDGX)
+14.9%  +9.5%  S&P 500 Index (Vanguard 500 Index Fund)

We put the total returns of the S&P 500 index up there so you can
see how the four funds have performed relative to the broad stock
market benchmark.  While the Morgan Stanley fund has kept pace on
a YTD 2003, only the Fidelity fund is ahead of the benchmark on a
trailing 1-year return basis.  So, these funds aren't necessarily
the types of funds to lead in a market advance.

To really see the value of these funds, you have to look at long-
term time periods, where the power of compounding income helps to
generate strong long-term investment results.  Below is a summary
of trailing 5-year and 10-year annualized returns.

 5-Yr   10-Yr
+3.7%  +13.9%  Fidelity Dividend Growth Fund (FDGFX)
-0.6%   N/a  Morgan Stanley Dividend Growth Sec. A (DIVAX)
+0.7%  +9.8%  T. Rowe Price Dividend Growth Fund (PRDGX)
-0.5%  +10.1%  S&P 500 Index (Vanguard 500 Index Fund)

Here, you can see that Morgan Stanley's fund generated a trailing
5-year loss commensurate with the S&P 500-index benchmark with no
10-year figure to compare.  Thanks to solid equity research, good
stock picking and a dividend-growth strategy, Fidelity's fund and
T. Rowe Price's fund both sport a positive annualized return over
the trailing 5-year period in contrast to the 0.5% average market
decline.  While the T. Rowe Price fund has kept pace with the S&P
500 over the past decade, the Fidelity fund has beaten the S&P by
a wide margin over the long term.

All three funds have similar portfolio characteristics as the S&P
500 index in terms of their average P/E ratios and average 3-year
earnings growth rates, but vary somewhat in their yield emphasis.
Fidelity Dividend Growth has the smallest trailing 12-month yield
of the three funds (0.89%), while the Morgan Stanley fund has the
highest trailing yield (1.79%) using Morningstar data.  T. Rowe's
fund sports a trailing yield of 1.19%.  So, the Fidelity fund has
a greater emphasis on capital growth than the other two funds, it
would appear.  It is a little more risky than the other two funds
but may offer greater long-term return potential.


Our Favorite Funds


Based on what we've seen so far, we like all three of these funds
for different reasons.  Fidelity Dividend Growth Fund is a proven
long-term performer, but it may stretch the bounds of a "dividend
growth" fund.  It looks and behaves more like a core growth stock
fund that emphasizes capital growth over dividend income.  Mangum
enhances value through stock selection, favoring common stocks of
companies with strong earnings growth potential, whose shares are
trading at below-market prices.  Fidelity Growth Fund may just as
well be its name - but there is already a Fidelity Growth Company
Fund.

T. Rowe Price Dividend Growth Fund is a little truer to its name,
focusing on income-producing blue chip stocks that are trading at
attractive prices.  But as Morningstar points out, the fund isn't
a plain vanilla large-value fund, with a broader portfolio than a
lot of other large-value funds.  In other words, it tends to have
more exposure to growth sectors such as technology and healthcare
than similar funds.  Like Fidelity's fund, the T. Rowe Price fund
benefits from strong equity research and security selection.

Perhaps, the truest "dividend growth" fund is the Morgan Stanley
Dividend Growth Securities Fund, but it's undergone several fund
management changes.  Richard Behler, a portfolio manager with MAS
(Miller Anderson Sherrerd) before its merger with Morgan Stanley,
has managed the portfolio since April 30, 2001.  While historical
performance is not that great, Behler looks to have put this fund
on the right track in 2003.  Since December 31, the fund has gone
up in value by nearly 15 percent, keeping pace with the S&P index
benchmark.  A 12-month yield of 1.79% is indicative of the fund's
dividend emphasis.


Conclusion


If you seek a fund that emphasizes dividend income and dividend
growth, you may want to expand your search to include so-called
equity income funds.  The four funds we identified in this fund
screen report have the phrase "dividend growth" in their names,
but other funds may emphasize yield more and consequently, they
may be better positioned to benefit from tax breaks on dividend
income.  Electric City Dividend Growth Fund is an equity income
fund, but it's tiny size and lack of long-term history may keep
investors on the sidelines.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                  Tuesday 08-19-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: YHOO
Call Play Updates: EBAY, HIG, LLL, PCAR, SPW, STJ,
New Calls Plays: GILD, OMC
Put Play Updates: None
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:
*****

Yahoo! Inc. - YHOO - close: 31.98 change: +0.69 stop: 31.50

If you had any doubt that sentiment is trumping price patterns,
then all you have to do is look at our failed bearish play on
YHOO.  After the stock broke down below $29, violating the 50-dma
for the second time in the past several weeks, the stock looked
good for a continued decline towards the $26 area.  Well, the
bulls propped it up last week and then sent the price soaring on
Monday, closing the stock just below both the 50-dma and our
$31.50 stop.  As though those dual measures of resistance didn't
even exist, the stock gapped higher this morning and never looked
back, ending just a smidge below $32.  In addition to the broken
resistance mentioned above, YHOO broke above the descending
trendline connecting the highs from 7/09 and 7/24, removing the
last vestiges of a bearish picture.  Clearly, we've no choice but
to drop YHOO, as the bullish sentiment has once again taken center
stage in the Internet group.

Picked on August 7th at   $28.87
Change since picked:       +3.11
Earnings Date           10/08/03 (unconfirmed)
Average Daily Volume =  13.1 mln


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

eBay, Inc. - EBAY - close: 110.23 change: +1.97 stop: 106.00*new*

Internet bulls are partying like it's 1999 again and why not?
EBAY is set to split its shares 2-for-1 on August 29th and it
seems that everyone wants a piece of the action.  After rebounding
from the $100 level last week, the stock coiled up near the $103
level and exploded higher yesterday, smashing through the 50-dma
$106.37) and continued to rise today, ending the day over $110 for
the first time since the end of July.  Removing any doubt that
there is conviction behind this bullish move, volume has been
running strong, falling just shy of 10 million shares on Tuesday
vs. the ADV of 6.66 million.  Our initial target for the play was
for a return to the $110 level and as noted in the Market Monitor
today, this makes a good level for conservative traders to harvest
some of the stellar gains accrued this week.  With more than a
week until the split though, EBAY looks like it could very well
reach our final profit target at $115 (just below the top of the
post-earnings gap on July 25th) ahead of the event.  After the
strong move already this week, we aren't interested in chasing the
stock higher with new momentum entries, and the best case for
secondary entries will be on a pullback and rebound from the
$107.50-108.00 area, which should provide support.  After such a
sharp vertical move, it is hard to find a reasonable level to
place our stop, but we're going to use $106, as it was intraday
resistance yesterday and just below the 50-dma.

Picked on August 12th at   $103.43
Change since picked:         +6.80
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =    6.66 mln


---

Hartford Fin. Svcs - HIG - close: 54.10 change: -0.18 stop: 51.75

"I think I can, I think I can", you can almost here the HIG bulls
chant throughout the day.  Last week's breakout through the $54
level certainly looked enticing, but the stock has been unable to
really gain any traction this week and that is discouraging in
light of the broad market strength.  On the other hand there
hasn't been any real weakness either, as the stock has traded in a
very narrow range between $53.50-54.50.  We're hoping this is
simply consolidation before the next upward leg, but we need to
see the conviction in the price action, with a resumption of the
breakout showing itself with a trade over $54.50.  Conservative
traders may want to look for new entries on intraday dips that
find support above the 10-dma ($53.24), while momentum traders
need to wait for that trade at $54.50 before adding new positions.
Look for confirming strength from the Insurance index (IUX.X) and
keep stops set at $51.75, just below the bottom of the 8/07 gap.

Picked on August 14th at    $54.14
Change since picked:         -0.04
Earnings Date             11/05/03 (unconfirmed)
Average Daily Volume =    2.69 mln


---

L-3 Communications -LLL - cls: 50.01 chng: +0.31 stop: 48.40*new*

Talk about a comeback!  Last week at this time, our LLL play had
just narrowly avoided stopping us out of our bullish play and now
the stock is right back at the pivotal $50 resistance.  This is
the moment of truth, as we will either get the anticipated
breakout, or confirmation that the stock is stuck in a range.
Recall that our trigger for momentum entries is $50.50, and the
bulls couldn't quite get the job done on Tuesday, with the stock
pulling back after posting an intraday high of $50.48.  The dip
buyers got their chance at an entry last week as LLL rebounded
from the 20-dma (now at $48.62) and the next likely entry setup
will be on that elusive breakout.  Momentum traders still need to
wait for the trade at $50.50, preferably on the type of stronger
volume we've been seeing over the past couple days.  Once through
that level, look for next resistance near $52, at which point we
can re-evaluate and decide if our higher targets of $54 and $58
still look achievable.  Raise stops to $48.40 tonight, as LLL
should not be able to fall under the 20-dma if this rebound has
any legs at all.

Picked on August 3rd at    $49.90
Change since picked:        +0.11
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =      935 K


---

PACCAR - PCAR - close: 85.40 change: +1.25 stop: 84.00 *new*

Whoa!  The bulls are really pouring on the gas and driving PCAR
to higher and higher levels.  Any smart trader knows that this
trend can't last forever.  Stocks, even trending ones, tend to
cycle up a few days and then correct a couple of days.  It's easy
to see that PCAR is in need of a correction.  Of course that
doesn't mean it's going to happen tomorrow.  Given the strong run
into Tuesday's closing bell we could see more new highs tomorrow.
We're currently up more than 10 percent and our hypothetical
gains have almost doubled from Friday's close.  We're thinking
this is a really good spot to close out a profitable position or
make take profits by selling half of a bullish position and using
a good stop on the rest.  Placing a stop is going to be a tough
call since the closest support level is $80.00.  We don't want to
leave PCAR that much room.  Less aggressive traders might
consider stops at $82.50 or even $83.50.  We like the strong
intraday trading range hovering near $85 in today's session.
Therefore we are going to use a TIGHT INTRADAY STOP at $84.00.
If PCAR dips, then we'll close out the play at $84.00.
Otherwise, we'll let it run. Looking at the weekly chart of PCAR
the stock looks excessively overbought and screaming "short me"
but it could be shorts that are fueling this rally.  Keep in mind
that PCAR has almost tripled its price from October 2002 and
doubled in price from early spring 2003.

Picked on July 31 at $77.24
Change since picked:  +8.16
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.15 million


---

SPX Corporation - SPW - cls: 49.48 chng: +0.58 stop: 46.00*new*

We certainly can't complain about the positive start to our SPX
play, as the apparent breakout over $48 resistance on Friday has
been confirmed by further price gains this week and volume is on
the rise.  Yesterday, the stock closed above its early December
closing high and extended those gains on Tuesday, with an assault
on the $50 resistance looking likely tomorrow.  To be sure, there
will be a fair amount of resistance encountered near that level,
but so long as SPW continues to post methodical gains on
increasing volume, it looks like an enjoyable ride.  Price action
is pressing against the upper Bollinger band, causing it to curve
upward at a steeper slope and our $53 initial price target is
looking quite achievable.  Now that the stock has solidly broken
out, conservative traders can look for a pullback and rebound from
the $47.50-48.00 area as a viable secondary entry point.  We're
raising our stop to $46.00 tonight, as that is below last
Thursday's intraday low, as well as the 10-dma ($46.83) and the
20-dma ($46.19).

Picked on August 14th at    $48.14
Change since picked:         +1.33
Earnings Date             10/27/03 (unconfirmed)
Average Daily Volume =       902 K


---

St. Jude Medical - STJ - close: 53.98 change: -0.40 stop: 53.50

Have you ever seen a price level act as such a strong magnet?  The
intraday swings in STJ have been extremely muted over the past
week, with the past five closes all falling between $53.98-54.38,
a 40-cent range!  After the sharp reversal following last week's
failed breakout over $56, we've actually been amazed to see the
stock hold above our $53.50 stop, but now things may be shaping up
for the better.  As price has held firm near $54, the daily
Stochastics (5,3,3) have now fallen into overbought territory and
are trying to turn bullish again.  Concurrently, the 20-dma
($53.85) is rising to meet price and should reinforce the $54
support level.  Additionally, it has been encouraging to see that
volume has dropped off considerably in the past few days (only
about 35% of the ADV on Tuesday) and this seems to indicate that
selling pressure is very light.  That said, we're still not eager
to enter new positions at this time.  At a minimum, we need to see
STJ rally through the 50-dma ($55.38) and preferably get back over
$56 before committing fresh capital to the play.  Maintain stops
at $53.50 and honor those stops if hit.

Picked on August 10th at   $54.23
Change since picked:        -0.25
Earnings Date            10/15/03 (unconfirmed)
Average Daily Volume =   2.17 mln



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

Gilead Sciences - GILD - close: 65.32 chg: +1.78 stop: 61.49

Company Description:
Gilead Sciences is a biopharmaceutical company that discovers,
develops and commercializes therapeutics to advance the care of
patients suffering from life-threatening diseases worldwide. The
company has seven marketed products and focuses its research and
clinical programs on anti-infectives. Headquartered in Foster
City, CA, Gilead has operations in the United States, Europe and
Australia. (source: company press release)

Why We Like It:
There has been some very strong news in the biotech sector
recently and shares of GILD are reacting positively.  Many on
Wall Street believe that the recent round of clinical trials
could drive a whole new round of revenue-generating drugs for the
likes of Genentech (NYSE:DNA), Gilead, and Genaera (GENR).  All
three stocks have bounced higher with the market's rally this
week.  Both DNA and GENR are at or near new highs while GILD
could "appear" to trade at a discount and hence attract more
buyers.  We suggest that this appearance is merely an illusion,
especially when commenting on "value" in biotech stocks, since
many of them don't have a P/E to speak of.

The allure for investors to buy GILD is the entry point provided
by the early August sell-off.  It looks like someone had
forewarning that the FDA was going to scold GILD (again) on its
Viread drug.  Viread is an AIDS drug and the FDA claims that GILD
is overstating its approved uses and downplaying its risks (Dow
Jones News).  This profit taking helped bring GILD back towards
the $60 level, which has now become new support.  You'll note the
chart shows a strong gap higher in early to mid-July.  That was
caused by positive results from GILD's phase III trials for its
Emtriva drug, another AIDS treatment.  Given the current U.S.
administration's strong words on the AIDS epidemic there is
certainly a positive undertone for any companies who can produce
effective treatments.

We like the recent bounce and close above psychological
resistance of $65.00 and think GILD can trade back to its old
highs near $70.00, if not higher.  We're seeing positive signals
in its stochastics and momentum indicators and its MACD is
hinting at a bullish buy signal soon.  GILD's P&F chart is a
little less confident but its bearish signal has reversed into a
column of X's (still on a sell signal, though).  We do suggest
that traders keep an eye on the BTK biotech index.  The BTK is
still under the 450 level and its simple 50-dma.  Plus the BTK
has yet to break out of the current trend of lower highs.  We're
going to initiate our play in GILD with a stop loss at $61.49.
That's not the best risk-reward ratio but if we see any bullish
confirmation we'll raise the stop.


Suggested Options:
GILD currently has September, October, November and January
options.  We're going to suggest the September and Octobers with
a preference for the September 65s and 70s.

BUY CALL SEP-65 GDQ-IM OI= 2194 at $3.20 SL=1.65
BUY CALL SEP-70 GDQ-IN OI= 4697 at $1.20 SL=0.65
BUY CALL OCT-65 GDQ-JM OI=    8 at $4.60 SL=2.25
BUY CALL OCT-70 GDQ-JN OI=   27 at $2.30 SL=1.15

Annotated Chart:



Picked on August 19 at $65.32
Change since picked:    +0.00
Earnings Date        07/31/03 (confirmed)
Average Daily Volume:    3.31 million
Chart =



---

Omnicom Group - OMC - close: 76.67 chg: +0.84 stop: 72.99

Company Description:
Omnicom is a leading global marketing and corporate
communications company. Omnicom's branded networks and numerous
specialty firms provide advertising, strategic media planning and
buying, direct and promotional marketing, public relations and
other specialty communications services to over 5,000 clients in
more than 100 countries. (source: company press release)

Why We Like It:
Keeping with the biotech-drug theme we're going to suggest a
bullish play on OMC, an advertising company.  Makes sense,
doesn't it?  Oh wait, maybe we should explain.  American
consumers are about to witness a three-way rumble for their
dollars over erectile dysfunction.  Right now if someone mentions
any sort of drug related to this topic you're probably going to
think of Pfizer's (PFE) little blue pill called Viagra.  It's
been a huge success for the drug maker.  However, the U.S. is
about to approve two more competitors.  Bayer AG and
GlaxoSmithKline have produced a drug called Levitra and Eli Lilly
& Co (LLY) and Icos Corp (ICOS) have developed Cialis.

It's going to become a battle-royale and some of the biggest
winners could be the advertising agencies hired to promote these
products.  OMC is certainly going to be a benefactor.  Yet this
isn't the only reason we're suggesting calls on OMC.  The
improving economy is a much more big-picture influence for rising
business for ad agencies.  Plus it doesn't hurt to see a new
closing 52-week high and positive technicals.  We listed OMC on
the OptionInvestor.com watch list on Monday with its breakout
over $75.00.  Today's move just confirms it and we feel that
bulls might be able to cash in on a move to $80 (initial target)
and potentially $85 (secondary target).  We're going to start the
play with a stop loss at $72.99, which keeps it under the simple
50-dma.

Suggested Options:
Currently OMC has September, October and January calls to choose
from.  Our preference is for the September 75s and 80s.

BUY CALL SEP-75 OMC-IO OI= 1543 at $3.30 SL=1.65
BUY CALL SEP-80 OMC-IP OI= 1192 at $0.90 SL=0.45
BUY CALL OCT-75 OMC-JO OI= 1427 at $4.50 SL=2.25
BUY CALL OCT-80 OMC-JP OI= 1713 at $2.00 SL=1.00

Annotated Chart:




Picked on August 19 at $76.67
Change since picked:    +0.00
Earnings Date        07/29/03 (confirmed)
Average Daily Volume:     881 thousand
Chart =



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The Option Investor Newsletter                  Tuesday 08-19-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - GILD


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

Gilead Sciences - GILD - close: 65.32 chg: +1.78 stop: 61.49

Company Description:
Gilead Sciences is a biopharmaceutical company that discovers,
develops and commercializes therapeutics to advance the care of
patients suffering from life-threatening diseases worldwide. The
company has seven marketed products and focuses its research and
clinical programs on anti-infectives. Headquartered in Foster
City, CA, Gilead has operations in the United States, Europe and
Australia. (source: company press release)

Why We Like It:
There has been some very strong news in the biotech sector
recently and shares of GILD are reacting positively.  Many on
Wall Street believe that the recent round of clinical trials
could drive a whole new round of revenue-generating drugs for the
likes of Genentech (NYSE:DNA), Gilead, and Genaera (GENR).  All
three stocks have bounced higher with the market's rally this
week.  Both DNA and GENR are at or near new highs while GILD
could "appear" to trade at a discount and hence attract more
buyers.  We suggest that this appearance is merely an illusion,
especially when commenting on "value" in biotech stocks, since
many of them don't have a P/E to speak of.

The allure for investors to buy GILD is the entry point provided
by the early August sell-off.  It looks like someone had
forewarning that the FDA was going to scold GILD (again) on its
Viread drug.  Viread is an AIDS drug and the FDA claims that GILD
is overstating its approved uses and downplaying its risks (Dow
Jones News).  This profit taking helped bring GILD back towards
the $60 level, which has now become new support.  You'll note the
chart shows a strong gap higher in early to mid-July.  That was
caused by positive results from GILD's phase III trials for its
Emtriva drug, another AIDS treatment.  Given the current U.S.
administration's strong words on the AIDS epidemic there is
certainly a positive undertone for any companies who can produce
effective treatments.

We like the recent bounce and close above psychological
resistance of $65.00 and think GILD can trade back to its old
highs near $70.00, if not higher.  We're seeing positive signals
in its stochastics and momentum indicators and its MACD is
hinting at a bullish buy signal soon.  GILD's P&F chart is a
little less confident but its bearish signal has reversed into a
column of X's (still on a sell signal, though).  We do suggest
that traders keep an eye on the BTK biotech index.  The BTK is
still under the 450 level and its simple 50-dma.  Plus the BTK
has yet to break out of the current trend of lower highs.  We're
going to initiate our play in GILD with a stop loss at $61.49.
That's not the best risk-reward ratio but if we see any bullish
confirmation we'll raise the stop.


Suggested Options:
GILD currently has September, October, November and January
options.  We're going to suggest the September and Octobers with
a preference for the September 65s and 70s.

BUY CALL SEP-65 GDQ-IM OI= 2194 at $3.20 SL=1.65
BUY CALL SEP-70 GDQ-IN OI= 4697 at $1.20 SL=0.65
BUY CALL OCT-65 GDQ-JM OI=    8 at $4.60 SL=2.25
BUY CALL OCT-70 GDQ-JN OI=   27 at $2.30 SL=1.15

Annotated Chart:



Picked on August 19 at $65.32
Change since picked:    +0.00
Earnings Date        07/31/03 (confirmed)
Average Daily Volume:    3.31 million
Chart =



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