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 ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** **************** 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 ----------------------------------------------------------------- ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** 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 email@example.com ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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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 ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** 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 = ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* None ************* NEW PUT PLAYS ************* None ************************Advertisement************************* No time to follow the Market Monitor? 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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 = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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