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Daily Newsletter, Tuesday, 09/02/2003

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The Option Investor Newsletter                 Tuesday 09-02-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Bulls School The Bears
Futures Markets: Equities Rip, Bonds Tank
Index Trader Wrap: New highs
Market Sentiment: One Word


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
     09-02-2003            High     Low     Volume Advance/Decline
DJIA     9523.27 +107.45  9535.97  9389.58 1.75 bln   2082/ 768
NASDAQ   1841.48 + 31.03  1841.48  1804.30 1.77 bln   2190/ 948
S&P 100   510.86 +  7.50   511.16   502.39   Totals   4272/1716
S&P 500  1021.99 + 13.98  1022.59  1005.67
RUS 2000  507.50 + 10.08   507.65   496.73
DJ TRANS 2745.84 + 64.60  2747.81  2683.46
VIX        19.95 +  0.46    20.93    19.79
VXN        30.06 +  0.54    31.78    30.05
Total Volume 3,902M
Total UpVol  3,127M
Total DnVol    724M
52wk Highs     987
52wk Lows       19
TRIN          0.73
PUT/CALL      0.72
************************************************************

Bulls School The Bears
by James Brown

It was a good day if you had horns on your head.  A flood of
positive broker comments combined with positive economic data and
a little history helped lift the markets to new highs.  Both the
Dow Jones Industrials and the S&P 500 are at 15-month highs and
the NASDAQ closed at 17-month highs.  The bullish mood was very
broad based with nearly all the major sector indices in the green
and many breaking out to new highs or above resistance.

The Industrials added more than 100 points to close above the
9500 level of resistance.  Also breaking out above resistance was
the S&P 500, up nearly 14 points to 1022.  The NASDAQ couldn't
help but soar with buzz over technology stocks this morning.  The
COMPX added another 31 points to close at 1841.  Market internals
were very positive.  Advancing stocks trampled decliners almost
21 to 7 on the NYSE and nearly 22 to 9 on the NASDAQ.  New highs
between the two exchanges were a towering 627 against 9 new lows.
We actually had some decent volume for a change and up volume
beat down volume by almost 2.7 to 1 on the NYSE and 2.3 to 1 on
the NASDAQ.

Chart of the Dow Jones Industrials




Chart of the S&P 500 index




Chart of the NASDAQ




Brokers were in a bubbly mood this morning and technology stocks
were the focus of the day.  First Albany came out with positive
comments about the technology sector in general and advised
clients to "overweight" in tech based on growing momentum in the
markets and company fundamentals.  Goldman was more specific and
raised their outlook on the software sector from "neutral" to
"attractive" claiming the mounting evidence for improving U.S.
market conditions and the upcoming seasonally strong fourth
quarter.  Some of the bulls out there probably agree with Mark in
our market monitor today.  Goldman seems to be a little late to
the party.  The GSO software index is already up more than 40
percent from its April 2003 lows and up more than 75 percent from
its October 2002 lows.  Sounds like GS is merely "buying" the
breakout we all witnessed in the GSO last week.  However, Goldman
wasn't the only one with positive words for software stocks.
Prudential (PRU) upped their view on PeopleSoft (PSFT) from a
"hold" to a "buy" and shares of PSFT added 3.4 percent.  Rival
software firm Oracle (ORCL) was also upgraded today, this time by
Thomas Weisel from "peer perform" to "out perform".  Shares of
ORCL added 4.4 percent.

The hardware and semiconductor sectors also saw a lot of action.
Goldman Sachs raised their view on the enterprise hardware sector
from "cautious" to "neutral".  GS also singled out Dell Computer
(DELL) and raised their rating on the stock from "in line" to
"out perform" based on the company's growth prospects and
valuation.  In an interesting move, DELL responded this afternoon
with a very clear message; that the computer industry is NOT
seeing massive growth.  Who are you going to believe?  Goldman's
view of Dell's business or Dell's view of Dell's business?

Shifting from hardware and PC's to the chips that drive them and
we see Bank of America (BAC) initiating coverage on chip stocks
Micron (MU), Intel (INTC) and Advanced Micro Devices (AMD) all
with "buy" ratings.  More importantly, one should note why they
are all getting buy ratings.  The BAC analyst, John Lau, stuck
his neck out and said we're in the "early stages of a multi-year
PC recovery" (-DJ Newswires).  Now I know at this very moment
there is a multitude of bears out there trying hard not to die of
laughter.  Hey, I guess you have to ask, what if he's right?  Mr.
Lau believes that the recovery will be lead by Centino-based
(Intel) notebooks in global sales and by desktop sales in Asia.
I wonder if Lau also covers DELL.  Maybe they should talk.

Potentially supporting Mr. Lau's assumptions was a positive
report from the Semiconductor Industry Association (SIA).  The
SIA claims that worldwide sales of semiconductors rose more than
10 percent in July compared to July last year.  Furthermore this
is the fifth consecutive monthly increase for chip sales.
Despite all this positive news the SOX chip index completely
lagged the markets all day long and only closed in the green by
the smallest of margins.

Not to be left out of this broker-tech lovefest was Smith Barney
raising their price targets on several networking stocks.  The
NWX networking index rose 2.5 percent.  Meanwhile, Dan Niles, the
famous (or infamous) analyst with Lehman Brothers offered
positive comments on IBM today.  He believes that Big Blue's
service business is gaining speed and they could potentially sign
upwards of $15 billion in just the third quarter alone.  Shares
of IBM added 4.6 percent and was a lead contributor to the INDU's
rally, right behind Eastman Kodak's 6.8 percent gain.

This flood of analyst comments was enough to launch the markets
higher early in the day and then everyone held their breath for
the August ISM report.  Economists had been looking for a bump
higher to 53.5 percent.  The Institute of Supply Management
manufacturing index actually rose to 54.7 percent in August.
This is a big jump from July's 51.8 percent.  Readings over 50
percent are translated as growth and readings under 50 as
contraction in the economy.  So with wild applause bullish
investors, analysts and economists all shouted and jumped up and
down pointing enthusiastically to this evidence that yes, indeed,
the economy was improving.  Well, that what you would have
expected.  In reality the markets sold off on the positive
economic news.  There are various components that make up the ISM
manufacturing report and therein may be the clue to the market's
reaction.  The new orders component was strong, up to 59.6 from
56.6 and the production component was very strong, up to 61.6
from 53.3.  What bothered Wall Street was the ISM employment
index component, which declined 0.2 percent to 45.9.  Hence the
entire report became yet another billboard declaring the economy
was improving but without any jobs.  By late morning the major
indices had all traded in their gains for small losses.

In reality we can't discount the entire ISM report just based on
the employment component.  The rising production numbers and new
orders rate is a very strong sign for the U.S. and it's even more
encouraging as we head towards the October third quarter earnings
announcements.  Offering potentially good news was the Challenger
Monthly Planned Layoffs report.  The outplacement firm reported
that planned layoffs in August actually dropped six percent to
79.9 thousand; down from July's 85.1 thousand.  The good news
here is that August marked the fourth month in a row that planned
layoffs numbered less than 100,000.  Planned job cuts for August
2003 were also 32 percent less than the same month a year ago.
Unfortunately, Challenger's vice president, Rick Cobb was quoted
as saying August could be the "calm before the storm".
Evidently, the last four months of the year average a 36 percent
higher job loss rate.  Merry Christmas, here's your pink slip.  I
wonder if President Bush and Alan Greenspan discussed that over
lunch today.

The historical trend for the day after Labor Day can chalk up
another one for the bulls.  Today marks the eighth win out of the
last nine years for a rally.  You already know, the recent trend
for a late afternoon rally held true again and it was breakouts
galore.  However, if one is to believe these historical trends,
take note.  The last 52 years have shown September to be the
worst month of the year for equities.  Of course August is
supposed to be the second worst month of the year and we just
closed August with a gain.  Traders need to keep this in mind.
Thus far, 95 percent of the S&P 500 has reported their second
quarter results.  The average profit was a gain of 9.6 percent
compared to the same time period last year.  Analysts are now
predicting an average gain of 14.5 percent for the third quarter
and a lofty 21.3 percent gain for the fourth quarter.  Everyone
knows the bar was set pretty low the first two quarters of 2003
but if corporations fail to deliver it could be an ugly second
half for the bulls.  We're stepping right into corporate
confession season (a.k.a. earnings warning).  Just in case you
missed their announcements and back pedaling two weeks ago, Intel
starts us off with a mid-quarter update on Thursday.

Watch those stop losses.


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

Equities Rip, Bonds Tank
Jonathan Levinson

Equities printed new 52 week highs, while treasury yields moved
up sharply and gold sold off.

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



10 minute chart of the US Dollar Index




The US Dollar Index broke below 98 briefly but rallied back to
the 99 level where it was working on resistance as of this
writing.  The toppiness in the oscillators bodes ill for dollar
bulls, but for the moment the uptrend above 97.50 remains intact.
Commodities pulled back, with the CRB dropping 2.27 to 241.43 led
by oil and gasoline to the downside, and gold and the mining
indices corrected some of last week's gains.

Daily chart of December gold




December gold is lower by 3.90 to 372.90 as of this writing,
still holding the lion's share of last week's gains.  The
precious metals indices, XAU and HUI, were positive for much of
the session but pulled back more significantly toward the end of
the afternoon, with HUI –2.37 to 191.42, XAU –1.05 at 89.95.

Daily chart of the ten year note yield




Treasury yields gapped higher and closed at their highs, a new 12
month closing high, printing a bullish hammer as treasury bonds
got sold aggressively.  The oscillator downtrend on the daily ten
year note yield remains intact, but it won't take many sessions
like today to reverse that.  The TNX closed above the secondary
rising trendline, which is a problem for t-note bulls, and added
14.7 basis points to close at 4.601%.  The FVX added 16.6 bps to
close at 3.613%, and the TYX added 11.2 to 5.336%.


Daily NQ candles




After a timid morning and early afternoon, the NQ strapped on
boosters and launched to new 52 week highs starting at 2:30 PM
EST almost to the minute.  It lagged both the ES and YM contracts
for most of the session until the 2:30 rally began.  The move
confirmed Friday's low volume recovery of the broken daily
ascending trendline, and extended the oscillator up-phase to what
appears to be the top of their range.  Further gains are
certainly possible but it will not take much to cause the
stochastic to begin trending, which is the lower probability
outcome.  At least, that's what the oscillators are telling us.
I found that today's trading was very bullish, particularly given
the hesitation.  A straight vertical blast would have been much
less credible than what the tape gave us today.


30 minute 20 day chart of the NQ




There's little of note on the 30 minute chart of the NQ, except
that the oscillator downphases that predicted a failure of the
lower ascending trendline truncated very early.  A short pullback
was all bears got before a resumption of the uptrend, as the
daily cycle oscillators on the chart above continued to dominate
these shorter cycles.  The move brought the NQ to a new 52 week
closing high.


Daily ES candles




The ES set a new 52 week closing high today as well.  I'd call
the formation 3 white soldiers, except that it's closer to 6.
The ES led the NQ for a few hours today for the first time in a
week, but the 2:30 PM rally changed that and restored the NQ to
its perch.  The daily cycle oscillators have undone their sell
signals and have begun to trend in overbought territory.  Traders
in bearish and bullish camps are expecting some sort of pullback
after one week of low volume gains, but it appears that the Stock
Trader's Almanac, which favored a bullish post-Labor Day session,
won out.


20 day 30 minute chart of the ES




After what proved to be a short trip below the lower rising bear
wedge trendline, the ES advanced back to the critical 1015 area,
where it struggled until 2:30 PM, at which time it gapped up and
never looked back, pausing only briefly at 1020-21.  The move cut
short the oscillator downphases as it did on the NQ, and I
believe that bulls were only slightly less surprised than bears
at the move.  It's worth noting that the Fed had added a net
1.75B gain by refunding today's expiring 4B weekend repurchase
agreement with a 5.75B overnight repo.  Given the absence of
bidders in treasuries and the almost to-the-minute jump in the
futures, we can wonder as to who was in such a hurry to buy an
extended equity market.  Either way, this remains an uptrending
market, and as Linda noted, buyer the morning dip and selling the
afternoon surge has been the winning place for one week.  The
dips remain a buy (with tight stops) above the lower rising
trendline, currently at 1010 ES.


Daily YM candles




Same story on the YM, which, like the ES, gave us another low-
odds upside failure of a bearish ascending wedge on the 30 minute
chart.


20 day 30 minute chart of the YM




With John Snow in China discussing the issue of revaluing the Yuan
or allowing it to float against the US Dollar, the intermarket
relationships are no clearer than where we left off last week.
Note that treasuries sold off aggressively and equities rallied,
with the TNX, ES, YM and NQ setting new 52 week closing highs.
This refutes the liquidity thesis if it persists, as we'd expect
stocks and bonds to trade together as they did during the spring
rally.  If we're seeing some variation on the inflation theme,
gold and commodities certainly did not confirm it today.

For tomorrow, equities remain in what is either a blowoff top, or
the beginning of the next leg of the Spring Rally above their
previous highs.  As we've been seeing throwovers and pattern
headfakes for months now with increasing frequency, I am far from
convinced that judgment has been rendered on the bear case.  Bulls
need to watch their stops like hawks, and bears need to be
patient.  As Warren Buffett said, Rule #1 is about not losing
money.


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


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

New highs
Jonathan Levinson

Equities broke to new 52 week highs today, with the Nasdaq
posting its highest close since April 2002, the Russell 2000 its
highest close since May 2002, and the Dow Trasnports its highest
close since July 2002.  The Dow, SPX and Nasdaq all set new 52
week closing highs.


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





Daily COMPX candles




The COMPX daily chart shows today's parabolic move higher, adding
a sixth straight day of gains.  The move has brought the COMPX
back to the broken trendline from the end-of-July correction.
This could be construed as a "return to the scene of the crime"
rally, whereby the price returns to the failed trendline that had
kicked off an earlier correction.  Such an interpretation would
fit with the topping stochastic and the "blowoff" type move that
brought the index to close at its highs in what proved to be a
sharp one and half hour closing rally.

That said, the COMPX set a new 52 week high, and shorting
breakouts isn't the quickest way to financial freedom.  There
were 246 new 52 week highs to 4 new 52 week lows, with 852M
advancing shares to 332M declining.  Volume was strong at 1.78B
shares.  My instinct is bullish above 1800, but I won't think of
going long before seeing the quality of the bounce following the
now-overdue pullback.

The 30 minute chart shows the oscillators in sharp uptrends, with
the Macd trending uselessly in overbought territory.  Note the
upside breakout from the bearish wedge today, catching both bulls
and bears by surprise.

30 minute 20 day chart of the COMPX





Daily INDU candles




The INDU has also gone parabolic, launching from a moderate
uptrend with this afternoon's vertical move.  The 10 day
stochastic has been putting in a steady pattern of higher lows
since July.  Today set yet another record for the NYSE A/D line,
with up volume nearly tripling down volume (671M : 243M) on
moderate volume of 1.443B shares.

As the bear wedge failure and the sharp oscillator up-trends on
the 30 minute chart below illustrate, this is nothing less than a
perilous market for bears.  Bulls have only needed to buy the
dips, which have tended to be near the open, and either sell the
afternoon surge or just hold on.  How long we can expect to see
this continue is anyone's guess, but trading without stops simply
isn't an option in markets like this.  Above the lower wedge
trendline, traders can look to buy the dips with tight active
stops.  With the upper Bollinger band broken on the afternoon
surge, some kind of pullback is expected at the open, and the
resulting bounce will tell us a great deal about this rally above
9500.

20 day 30 minute chart of the INDU





Daily OEX candles




In the weekend wrap I noted the possibility of an imperfect
reverse head and shoulders on the OEX above the descending
trendline.  This occurred today.  Reverse h&s patterns belong at
the bottom of a decline, and not at the top of an advance, but so
it goes.  The move, if it is indeed that formation, projects to
520 OEX if it fulfils completely.  Note, meanwhile, that the OEX
did not set a new 52 week high, as the June high has yet to be
exceeded.  Nevertheless, I had to squint at my chart to compare
the price levels, and unless the daily oscillator downphase
reasserts itself, we should see it tomorrow.

The upside break on the OEX 30 minute chart has caused the
oscillators to begin trending in overbought, and while we might
be seeing a parabolic blowoff "return to the scene of the crime",
bears will have to be courageous to step in front of this move.
520 is setting up as an important resistance level.

20 day 30 minute chart of the OEX




Daily QQQ candles





The break to its 52 week was less violent on QQQ.  The daily
cycle oscillators appear to be topping but show no sign of
rollover as yet.  Again, it looks bullish above the lower
ascending trendline at 33.50, with numerous supports below.
Recall that last week's advance was on low volume, and so a break
of that lower trendline will find less support than we'd normally
expect.  In other words, there's great downside risk from here,
and bulls need to watch their stops.


20 day 30 minute chart of the QQQ





For tomorrow, the game plan is to be patient.  Bears have no way
of knowing how far this speeding train can run, while bulls are
holding a very extended, relatively unsupported market.


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

One Word
- J Brown

Investor sentiment was pretty easy to describe today.  Most of us
could answer that with one word: bullish.  Unless you prefer
"euphoric" or maybe you're a bear.  In that case "awestruck"
might be a better word.  There were so many bullish break outs
today that it appeared as if the bears were still on vacation.

The deluge of positive analyst comments this morning for the
technology sectors launched the indices into an early lead.  Then
investors waited for the ISM report.  Surprise, the report was
good and markets sold off on the news.  However, as has become
the norm lately, the midday sell off had no follow through and by
the end of the day it was new highs for everyone.  Well at least
it seemed that way with more than 600 new highs between the NYSE
and NASDAQ.

The trend is obviously up but buying this breakout may take a lot
of faith.  The strong ISM report helps but the job component
remained weak.  We're walking right into earnings warning season
and with all the bulls looking skyward it maybe be all too easy
for the bears to blindside them.


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

Market Averages

DJIA ($INDU)

52-week High:  9499
52-week Low :  7197
Current     :  9523

Moving Averages:
(Simple)

 10-dma: 9392
 50-dma: 9202
200-dma: 8617



S&P 500 ($SPX)

52-week High: 1022
52-week Low :  768
Current     : 1021

Moving Averages:
(Simple)

 10-dma: 1001
 50-dma:  990
200-dma:  921



Nasdaq-100 ($NDX)

52-week High: 1361
52-week Low :  795
Current     : 1361

Moving Averages:
(Simple)

 10-dma: 1318
 50-dma: 1263
200-dma: 1118



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


Surprise!  Volatility indices normally trade lower when the markets
shoot higher.  This morning both the markets and the VIX and VXN
all jumped higher on the open.  However, while the markets drifted
to new highs the volatility indices melted lower.

CBOE Market Volatility Index (VIX) = 19.95 +0.46
Nasdaq Volatility Index (VXN)      = 30.03 +0.54

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.72        665,638       482,303
Equity Only    0.51        555,036       284,064
OEX            1.34         29,313        39,275
QQQ            4.02         23,960        96,402


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

Bullish Percent Data

           Current   Change   Status
NYSE          71.3    + 0     Bull Confirmed
NASDAQ-100    76.0    + 1     Bear Correction
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       79.6    + 2     Bull Correction
S&P 100       85.0    + 3     Bull Confirmed


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

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

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

 5-Day Arms Index  1.18
10-Day Arms Index  1.42
21-Day Arms Index  0.90
55-Day Arms Index  1.38


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    2082      2190
Decliners     768       948

New Highs     360       386
New Lows       11         7

Up Volume   1452M     1389M
Down Vol.    285M      370M

Total Vol.  1748M     1771M
M = millions


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

Commitments Of Traders Report: 08/26/03

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

There is no significant change in the long or short positions
for the large S&P futures contracts.  We continue to see the
commercials or "smart money" inch up their short positions while
retail traders inch up their long positions.  Since they both
tend to take the opposite sides of the market, this is normal.


Commercials   Long      Short      Net     % Of OI
08/05/03      395,633   450,988   (55,353)   (6.5%)
08/12/03      399,414   456,767   (57,353)   (6.7%)
08/19/03      404,665   455,381   (50,716)   (5.9%)
08/26/03      410,378   472,987   (62,609)   (7.1%)

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
08/05/03      159,971    72,951    87,020    37.4%
08/12/03      158,821    71,040    87,781    38.2%
08/19/03      162,034    87,064    74,970    30.1%
08/26/03      170,424    76,967    93,457    37.8%

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

In contrast we're seeing the commercials add strongly
to their long positions in the e-minis.  The latest reading
shows the most bullish position in a very long time.
Just as expected the small traders has loaded up on short
positions and this marks the strongest net short position
for months.


Commercials   Long      Short      Net     % Of OI
08/05/03      310,662   249,004     61,658    11.0%
08/12/03      306,014   217,233     88,781    17.0%
08/19/03      296,971   235,779     61,192    11.5%
08/26/03      338,766   234,841    103,925    18.1%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  103,925   - 08/26/03

Small Traders Long      Short      Net     % of OI
08/05/03       56,663    95,919   (39,256)  (25.7%)
08/12/03       62,534   106,403   (43,869)  (26.0%)
08/19/03       90,428   125,980   (35,552)  (16.4%)
08/26/03       52,131   120,853   (

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 remain net short on the NASDAQ 100 futures
while small traders are still swinging for the fences
with heavy net longs.


Commercials   Long      Short      Net     % of OI
08/05/03       32,813     52,383   (19,570) (23.0%)
08/12/03       34,374     53,015   (18,641) (21.3%)
08/19/03       32,107     53,665   (21,558) (25.1%)
08/26/03       33,991     55,849   (21,858) (24.3%)

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
08/05/03       22,188     7,783    14,405    48.1%
08/12/03       23,957     7,871    16,086    50.5%
08/19/03       25,607    10,134    15,473    43.3%
08/26/03       26,108     8,864    17,244    49.3%

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

The flurry of short positions for the DJ Industrials
two weeks ago have mostly evaporated, meanwhile the
small trader has eliminated a few short positions as well.


Commercials   Long      Short      Net     % of OI
08/05/03       23,981     9,264   14,717      44.3%
08/12/03       24,942     9,878   15,064      43.3%
08/19/03       21,088    18,984    2,104       5.3%
08/26/03       24,586    10,386   14,200      40.6%

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
08/05/03        5,716    10,422   (4,706)   (29.2%)
08/12/03        6,933    13,248   (6,315)   (31.3%)
08/19/03       15,717     9,143    6,574     26.4%
08/26/03       14,115     5,592    8,523     43.2%

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   8,523  -  8/26/03

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


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The Option Investor Newsletter                  Tuesday 09-02-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: LEH
Call Play Updates: CCMP, ERTS, GILD, LLL, OMC, PCAR, PGR, SPW, UTX
New Calls Plays: GS
Put Play Updates: ESRX, XL
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:
*****

Lehman Brothers - LEH - close: 67.40 change: +1.67 stop: 67.25

We took our shot at relative weakness in the Brokerage sector,
but it clearly didn't work out.  After rising to just below
critical resistance at $66 last Friday, the stock bolted higher
at the open today and never looked back, consistently marching
higher on the back of strength in the XBD index, which handily
broke out to new 2-year highs above $590.  While LEH didn't
violate our stop until late in the day, the strength of the
volume that accompanied the breakout makes it a no-brainer to
pull the plug tonight.

Picked on August 24th at    $64.41
Change since picked:         +2.99
Earnings Date             09/18/03 (unconfirmed)
Average Daily Volume =    2.94 mln
Chart =



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

Cabot Microelect. - CCMP - close: 66.43 change: +1.24 stop: 62.50

The Semiconductor index (SOX.X) spent most of the day in negative
territory, significantly underperforming the rest of the market,
but when the final push came in the final 90 minutes, the index
managed to move fractionally into the green.  Our CCMP play spent
most of the day hovering near the $65 level, but that end of day
boost propelled the stock sharply higher for a 1.90% gain and its
best close since 8/22.  Volume was still rather light, but it
looks like the bulls are finally ready to stage that expected
move back towards the August highs and quite possibly towards our
initial target of $71 at the top of the rising channel.  As we've
been saying for the past week, intraday dips to support look like
the best setup for new entries, and that was once again proved on
Tuesday.  Another dip towards the bottom of the channel (now at
$63.50) can be used for aggressive entries, as can a breakout
over $66.55, which has been a solid ceiling for the past 3 days.
Keep a sharp eye on the SOX, as a breakout over the $460 level
should generate a fresh wave of buying and have CCMP challenging
those August highs in short order.  Maintain stops at $62.50 for
now.

Picked on August 27th at    $64.45
Change since picked:         +1.98
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =       873 K
Chart =


---

Electronic Arts - ERTS - close: 91.01 chg: +1.04 stop: 85.75*new*

Positive comments from the likes of Goldman Sachs on the software
sector combined with the general enthusiasm for technology stocks
were a powerful combination today.  The GSO software index added
2.5 percent and helped push ERTS to another new high over the $90
mark.  As Jeff Bailey likes to point out most stocks that trade
$90 also tend to trade $100 as the trend pushes for that
psychological number.  At the going rate that could take ERTS
another four to five weeks to reach the century mark.  Right now
we'd be happy with a quick pop to $95.  With the current bounce
already three days old we are going to raise our stop loss to
$85.75.  Investors looking for headlines on ERTS will note that
the company put out a press release today.  EA Sports Madden NFL
2004 has already sold more than two million units in just three
weeks.  The NCAA football 2004 has already sold nearly one
million units.  Lot of video football fans out there!

Picked on August 28 at $89.06
Change since picked:    +1.95
Earnings Date        07/23/03 (confirmed)
Average Daily Volume:     3.3 million
Chart =


---

Gilead Sciences - GILD - cls: 67.69 chg: +1.01 stop: 62.99 *new*

Today was a good day for biotech bulls.  The market rally helped
push the BTK index up and through its descending trendline of
lower highs.  The close above 460 for the BTK looks very bullish.
Any bears not yet fearful enough to cover their shorts might soon
become that way if we see any follow through.  Today's session
was also a good one for GILD.  Shares saw the same intraday dip
but rebounded into the afternoon for another new relative high.
GILD is quickly approaching out short-term target of $70.00.
Very conservative traders can use a very tight stop under today's
low.  We are going to raise our stop to $62.99.

Picked on August 19 at $65.32
Change since picked:    +2.37
Earnings Date        07/31/03 (confirmed)
Average Daily Volume:    3.31 million
Chart =



---

L-3 Communications -LLL - close: 50.70 change: -0.39 stop: 49.25

It was a bit disappointing to see LLL unable to participate in
the broad market rally on Tuesday, as even the Defense index
(DFI.X) closing in positive territory couldn't drag the stock out
of the red.  On the positive side though, LLL managed to hold
above the $50 level throughout the day, and the third consecutive
close over the $50.55 breakout level is helping to solidify that
breakout.  We need to see stronger buying volume to consider new
bullish entries at this point, and with today's volume above
average and the strongest since the first week of August, bulls
need to be careful.  We're maintaining a fairly tight stop at
$49.25 (just below the 20-dma), but LLL needs to break above
$51.50 on strong volume before we will want to consider new
entries.

Picked on August 3rd at    $49.90
Change since picked:        +0.80
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =      907 K
Chart =


---

Omnicom Group - OMC - close: 80.00 chg: +1.90 stop: 75.75*new*

The bullish play on OMC has followed our script perfectly.  After
the breakout above $75-76 it pulled back into the same area on a
dip allowing buyers another chance to jump on.  Since then it's
been a straight run for the $80 mark.  The intraday high actually
hit $80.33 and that produced a fresh spread triple-top breakout
on its P&F chart.  As we mentioned in the monitor this morning,
short-term traders who took advantage of the dip might want to
close the play for a profit or consider selling part of their
position for a profit.  Not to tempt anyone but the strong close
at $80 and the big volume on the move looks very encouraging for
our secondary target of $85.  The tough part now is defining the
stop.  The most logical place is still under the $75 mark.
However, we're going to bump it up a notch to $75.75.

Picked on August 19 at $76.67
Change since picked:    +3.33
Earnings Date        07/29/03 (confirmed)
Average Daily Volume:     881 thousand
Chart =


---

PACCAR - PCAR - close: 86.11 change: +0.74 stop: 82.45

Could we be seeing a little tired blood in PCAR?  Or did
investors just ignore the big winners for August in favor of new
breakouts today?  We really have nothing to complain about as
PCAR has continued its rebound but it would have been nice to see
a bit more participation in the market rally today.  If the stock
can maintain its position above $85 we're not going to worry.
Next stop still looks like $90, assuming it can break the
previous high as $87.50.

Picked on August 31 at $85.37
Change since picked:    +0.74
Earnings Date        07/24/03 (confirmed)
Average Daily Volume:    1.15 million
Chart =


---

Progressive Corp. - PGR - cls: 71.75 chng: +1.01 stop: 68.95*new*

On its first day on the Call list, PGR had something for
everyone.  Beginning with a dip and rebound from just above $70,
the stock offered an entry point for those looking for a pullback
entry.  Shortly thereafter, the stock broke above $70.75
resistance and then charged higher with the rest of the market,
ending with a gain of just over 1.4%.  It looks like the 2 week
consolidation is playing out in bull flag fashion as we
speculated over the weekend, and that means our upside target in
the $75-76 is looking quite feasible.  Now we can look at a dip
into the $70.50-71.00 area for new entries, while more aggressive
traders can use a breakout over $72 as their entry trigger.
We're raising our stop just slightly to $68.95, as that is just
below the intraday lows from last week.

Picked on August 31st at    $70.74
Change since picked:         +1.01
Earnings Date             10/15/03 (unconfirmed)
Average Daily Volume =       815 K
Chart =


---

SPX Corp. - SPW - close: 50.12 change: +0.77 stop: 47.50

A new week and a new month were all the markets needed to charge
to new highs and our SPW play followed suit, finally breaking
above $50 and holding that breakout into the closing bell.  We've
been waiting for this breakout and while we would have liked to
have seen it come on stronger volume, we're certainly not going
to argue with a new 10-month high.  As noted before, there's a
fair amount of resistance near the $50 level and that's the
primary reason we've been advocating entries on pullbacks rather
than breakouts.  That is still our preferred entry strategy and
intraday pullbacks that find support above the rising trendline
(now at $48.50) look like the best bet for initiating new
positions.  The initial target for the play is at the $53
resistance level, where we would recommend conservative traders
harvest some gains.  Those with a more aggressive style can hold
out for the big score, in the event that SPW is able to push up
into the $55-56 area, where strong resistance from last year is
lying in wait.  We're maintaining our stop at $47.50 (just below
last week's intraday lows) for now, but more conservative traders
may want to use a tighter stop of $48.10, just under the
ascending trendline.

Picked on August 14th at    $48.14
Change since picked:         +1.97
Earnings Date             10/27/03 (unconfirmed)
Average Daily Volume =       904 K
Chart =


---

United Technologies - UTX - cls: 79.97 chg: -0.28 stop: 75.99

It was a disappointing day for UTX.  This Dow component took a
back seat to fellow components EK +6.8%, IBM +4.5%, GM +3.3% and
many more, which pushed the average up 107 points.  We're
surprised we didn't see a more positive reaction in UTX with the
ISM number coming in positive.  It could just be the stock is
taking a breather since it was a leader last week.  The intraday
dip towards the $79.25 area might be an entry point for traders
still looking to play UTX.

Picked on August 29 at $80.05
Change since picked:    -0.08
Earnings Date        07/17/03 (confirmed)
Average Daily Volume:     2.1 million
Chart =



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

Goldman Sachs Grp. - GS - close: 90.45 change: +1.96 stop: 86.00

Company Description:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high net-
worth individuals. The company provides investment banking, which
includes financial advisory and underwriting, and trading and
principal investments, which includes fixed income, currency and
commodities, equities and principal investments.  GS recently
completed the acquisition of Spear, Leeds & Kellog, which is
engaged in securities clearing, execution and market making, both
floor-based and off-floor.

Why we like it:
After taunting both the bulls and the bears for the past 2
months, the Broker/Dealer index (XBD.X) finally shook off the
rangebound blues on Tuesday, surging more than 3% to end the day
at a fresh 2-year high.  Breakout moves abounded in the sector,
and rather than be left behind, GS broke above the $90 resistance
level that has stymied each rally attempt since the middle of
June.  There's still some resistance to deal with in the $91.50-
92.00 area, but judging by the strong buying volume and the
unequivocal breakout in the XBD, this bullish move looks like it
has some room to run.  The PnF chart is casting its vote in favor
of the bulls with a Triple Top breakout and a new tentative
bullish price target of $99.  We're initially going to target the
$95 level, as that was an important resistance level in December
of 2001/January 2002, but with the new bullish price target and
momentum in the bulls' favor, we've got our eye on a run towards
the century mark.

New entries look the most favorable on a pullback near the $88
level, as the stock will likely need to retest that broken
resistance level before making a concerted push higher.
Clustered just below that level we have the 20-dma ($86.95), 30-
dma ($86.68) and the 50-dma ($86.52), all of which are just
curling upwards and should provide very strong support just above
our $86 initial stop.  Momentum traders can look to enter on a
breakout over today's intraday high ($90.63), but need to be
willing to take some heat in the near-term as GS is currently
pressing on its upper Bollinger band and will probably be unable
to break the $92 resistance on the first attempt.  If entering on
strength, make sure to confirm continued strength in the XBD
index, which may run into resistance near $600.  If the XBD can
get over that level, then it seems likely that it can continue to
run towards next major resistance in the $640-650 area, and that
should provide enough strength to help vault GS up towards $100.

Suggested Options:
Shorter Term: The September 90 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 95 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the October 90 Call.

BUY CALL SEP-90 GS-IM OI= 4340 at $2.40 SL=1.25
BUY CALL SEP-95 GS-IN OI= 1093 at $0.55 SL=0.25
BUY CALL OCT-90 GS-JN OI=21774 at $4.00 SL=2.50
BUY CALL OCT-95 GS-JO OI= 7248 at $1.85 SL=0.90

Annotated Chart of GS:




Picked on September 2nd at  $90.45
Change since picked:         +0.00
Earnings Date              9/24/03 (unconfirmed)
Average Daily Volume =    3.98 mln
Chart =



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

Express Scripts - ESRX - close: 64.74 change: -0.07 stop: 65.75

That's three days in a row that ESRX has failed to clear the $65
resistance level, but the lack of downside action has us getting
more nervous about the play.  Certainly, it is encouraging to see
that the stock couldn't tag along on the broad market rally
today, but ESRX has the feel of a stock that will go along with
the dominant market trend, just delayed by a day or two.  For
traders currently holding open positions, we're recommending
strict adherence to that $65.75 stop in the event that it does
manage to break above resistance.  Unless ESRX can drop back
under $63, we are not recommending new positions.  It is a
relatively weak stock in a rising market, but if the broad market
rally continues, ESRX is likely to be buoyed higher in spite of
that relative weakness.

Picked on August 24th at   $63.48
Change since picked:        +1.26
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =   1.40 mln
Chart =


---

XL Capital Ltd. - XL - close: 76.00 change: +0.25 stop: 77.50

Is this an entry point, or a warning to the bears?  After last
week's breakdown, shares of XL have been slowly buy methodically
crawling higher, leaving behind a pattern of higher highs and
higher lows.  It could either be the prelude to a breakout over
resistance or a bear flag that will resolve itself to the
downside (as we hope).  Today's close over the 10-dma ($75.73)
looks particularly troublesome for the bears, as it is the first
time the stock has been able to close over that level in nearly 3
weeks.  The critical test will come at the descending trendline
(currently $76.70), which is just above the $76.50 broken support
level.  A rollover below that level can be used for aggressive
bearish entries, but only if it is accompanied by stronger volume
and weakness in the overall Financial sector, two ingredients
that have been sorely lacking in recent days.  Conservative
players looking to enter the play will need to wait for a close
back under $75 at a minimum and preferably a drop under $73.50.
Maintain stops at $77.50.

Picked on August 21st at   $75.92
Change since picked:        +0.08
Earnings Date            10/30/03 (unconfirmed)
Average Daily Volume =      837 K
Chart =



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

None


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Note: Options involve risk. Risk disclosure:

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


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

Please read our disclaimer at:



**************************************************************
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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 09-02-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - GS


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

Goldman Sachs Grp. - GS - close: 90.45 change: +1.96 stop: 86.00

Company Description:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high net-
worth individuals. The company provides investment banking, which
includes financial advisory and underwriting, and trading and
principal investments, which includes fixed income, currency and
commodities, equities and principal investments.  GS recently
completed the acquisition of Spear, Leeds & Kellog, which is
engaged in securities clearing, execution and market making, both
floor-based and off-floor.

Why we like it:
After taunting both the bulls and the bears for the past 2
months, the Broker/Dealer index (XBD.X) finally shook off the
rangebound blues on Tuesday, surging more than 3% to end the day
at a fresh 2-year high.  Breakout moves abounded in the sector,
and rather than be left behind, GS broke above the $90 resistance
level that has stymied each rally attempt since the middle of
June.  There's still some resistance to deal with in the $91.50-
92.00 area, but judging by the strong buying volume and the
unequivocal breakout in the XBD, this bullish move looks like it
has some room to run.  The PnF chart is casting its vote in favor
of the bulls with a Triple Top breakout and a new tentative
bullish price target of $99.  We're initially going to target the
$95 level, as that was an important resistance level in December
of 2001/January 2002, but with the new bullish price target and
momentum in the bulls' favor, we've got our eye on a run towards
the century mark.

New entries look the most favorable on a pullback near the $88
level, as the stock will likely need to retest that broken
resistance level before making a concerted push higher.
Clustered just below that level we have the 20-dma ($86.95), 30-
dma ($86.68) and the 50-dma ($86.52), all of which are just
curling upwards and should provide very strong support just above
our $86 initial stop.  Momentum traders can look to enter on a
breakout over today's intraday high ($90.63), but need to be
willing to take some heat in the near-term as GS is currently
pressing on its upper Bollinger band and will probably be unable
to break the $92 resistance on the first attempt.  If entering on
strength, make sure to confirm continued strength in the XBD
index, which may run into resistance near $600.  If the XBD can
get over that level, then it seems likely that it can continue to
run towards next major resistance in the $640-650 area, and that
should provide enough strength to help vault GS up towards $100.

Suggested Options:
Shorter Term: The September 90 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 95 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the October 90 Call.

BUY CALL SEP-90 GS-IM OI= 4340 at $2.40 SL=1.25
BUY CALL SEP-95 GS-IN OI= 1093 at $0.55 SL=0.25
BUY CALL OCT-90 GS-JN OI=21774 at $4.00 SL=2.50
BUY CALL OCT-95 GS-JO OI= 7248 at $1.85 SL=0.90

Annotated Chart of GS:




Picked on September 2nd at  $90.45
Change since picked:         +0.00
Earnings Date              9/24/03 (unconfirmed)
Average Daily Volume =    3.98 mln
Chart =



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

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


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

Please read our disclaimer at:



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