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Daily Newsletter, Sunday, 09/28/2003

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The Option Investor Newsletter                   Sunday 09-28-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Storm Warnings
Futures Market: Equities Drift, Gold Sells, Treasuries Gain
Index Trader Wrap: Pullback
Editor's Plays: Cold Day In Hell
Market Sentiment: Bully Scurry On Wall Street
Ask the Analyst: A quick QCharts tutorial; focus on retracement
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 9-26         WE 9-19         WE 9-12         WE 9-05 
DOW     9313.08 -331.74 9644.82 +173.27 9471.55 - 31.79 + 87.52 
Nasdaq  1792.07 -113.63 1905.70 + 50.67 1855.03 -  3.21 + 47.79 
S&P-100  499.61 - 21.01  520.62 +  8.32  512.30 -  0.19 +  9.13 
S&P-500  996.85 - 39.45 1036.30 + 17.67 1018.63 -  2.76 + 13.38 
W5000   9646.48 -407.5910054.07 +176.76 9877.31 - 29.38 +136.23 
RUT      485.28 - 34.92  520.20 + 11.14  509.06 +  0.19 + 11.45 
TRAN    2663.83 -130.88 2794.71 + 59.11 2735.60 - 11.69 + 64.05 
VIX       22.23 +  3.16   19.07 -  1.18   20.25 +  0.88 -  0.12 
VXN       30.88 +  1.14   29.74 -  2.94   32.68 + 11.98 +  1.18 
TRIN       1.42            1.35            1.11            1.04  
Put/Call   0.98            0.68            0.90            0.72  
******************************************************************

Storm Warnings
by Jim Brown

No, not another hurricane but the rumblings on the horizon are
growing and the storm clouds are beginning to gather. Investors
are putting the shutters on the windows and loading up on extra
put insurance as October approaches. Bullish investor sentiment
was extremely high last week so it is no surprise there may
be a change in climate ahead.

Economically Friday contained another batch of mixed messages
for the market with the GDP being revised up once again for
the 2Q to +3.3%. The gains came from a stronger inventory
build up than previously expected and gains in residential
building. While the headline number rose higher than expected
there were still some internal problems. Consumer spending
remained unchanged at +3.8% and the bounce in the headline
number was due mostly to the +6.6% jump in housing. Inventory
investment still remained negative as businesses continue to
lower risk and question future demand. Corporate after tax
profits fell even further to -5.0%. Overall the report was
positive but the buy the rumor sell the news crowd started
to whine that maybe the Q3 estimates which range from +4.9%
to as high as +7.0% could be too high. Duh! It appears the
bulls are starting to come off their six month high and the
headache of sobriety is starting to appear. Yes, the economy
is recovering, yes, earnings are going to be up and the GDP
could be over +4.0% but +7.0%? What were they thinking? 

We also need to remember that the 2Q contained two months of
post war positioning for the coming recovery. You know, the
one that did not appear as expected. That GDP was built on
the hope that a quick war would take the worry out of the
economy and we would rebound to the moon. Also, the 2Q GDP
benefited in a +45.8% increase in the defense spending
component. This is the largest increase since 1951 and a
component that is not likely to be repeated. This sets up
the 3Q and 4Q for a disappointment if the economy does not
pick up the slack. A bright point in the GDP that could be
pointing to the next quarter leader was the jump in capital
spending for computers and software of +8.2%. 

The only other major report was the Michigan Sentiment final
for September and it fell to 87.7 from 89.3. This makes the
3rd month of the last four that the index has declined from
the high of 92.1 in post war May. Present conditions and 
future expectations both fell with the present conditions 
taking the biggest hit. Lack of jobs continues to be the 
biggest drag on sentiment followed by high energy prices. 
Now that the tax rebate checks have passed consumers have 
nothing to look forward to but winter. We will get the 
nonfarm payrolls report next Friday and it is expected to 
show a drop of -25,000 jobs or more. 

The shortage of economic reports did not give the market
any good news to break it out of its dive. The news at the
open from Motorola was that they were going to have to 
delay the delivery of their new highly featured phones for
the holidays. MOT traded down all day along with the chip
companies that feed the phones. About 3:PM MOT said that
the delay would not impact their broader line and they
would be shipping 31 new phones in the 4Q including 12
with cameras and 21 with color screens. This produced a
sharp rebound in its stock as shorts got squeezed. 

The markets lost ground again on Friday and the Dow would
have been much worse had it not been for MMM. Banc of 
America upgraded MMM from neutral to a buy and the stock 
gained nearly +2.00 on a bad day. 3M also has a 2:1 stock
split that takes place after the close on Monday. Only
eight of the Dow components were positive for the day 
and only MMM gained more than 50 cents. 

You can scratch September off your investment calendar. 
All the new highs and all the gains made in September are
now history. Without a miraculous recovery by Tuesday of
next week the month will close in the red. The Dow lost
-3.5% or -331 points last week. The Nasdaq dropped -6.0%,
-113 points. The Wilshire-5000 lost -407 points. Even the
transportation index got into the act with a drop of -131
points. The Russell dropped a whopping -35 points or nearly
-7%. Sectors that had been leaders got whacked badly. The
Biotech sector dropped -8.6%, Semiconductor -6.3% and 
computers -6.6%. The Dow posted its worst weekly loss in 
six months, the S&P in 8 months and the Nasdaq saw the worst
drop in 17 months. While all those negative numbers sound 
terrible they have to be taken in context. The Nasdaq was 
up +52% over just the last six months. Losing -6% is a 
minor correction. The markets are still above the mid 
August gains and well above July. That could be good news
or bad news depending on your point of view. It means we 
have a nice cushion but it also means that cushion is likely
to get thinner. 

The excuses for the correction are appearing from every
direction. Earnings worries, profit taking, portfolio
adjustment, year end fund selling, etc. I do not think it
is any one of those specifically but more likely just a 
normal calendar correction that we have been expecting for
weeks. Nothing to worry about unless you are long. Whenever
the market tanks the talking heads on stock TV start grasping
for reasons to fill the airwaves and make it appear they know
what is going on. Sometimes they get it right. Regardless 
of the reason for this drop it was expected and it will be
over soon. Soon on my calendar could be 1-3 weeks. Our
only task now is deciding where to go long. 

According to First Call earnings for the 3Q are expected
to rise +19% for the S&P. The 4Q is currently pegged at
+22% to +26%. This is an amazing rebound on paper but when
you look at the same periods last year the comparisons 
should be easy. Tech earnings for the year are expected
to be up +80%. Think about it, +80% from what? Many tech
companies lost money last year or barely broke even. Only
the big guys like MSFT, CSCO and INTC really piled it on
at the bottom of the bear market. The 3Q of last year was
the bottom of the bear market and that makes the comparisons
easy for Q3-2003 but it does not mean techs are raking in
the dough. 

The economy must be getting better or companies have simply
cut their estimates to the point they have no risk in
making them. This time last year there had been over 500
earnings warnings for the quarter. This year there is less
than 50% of that number. Companies announcing positive
guidance are up +20% in the same period. The only problem 
facing the markets now is confidence in the numbers. With
some analysts literally predicting a GDP over +6% for the
3Q there is a significant amount of hesitation on what to 
believe. 

Funds with large profits are trapped between holding on 
to see if the fairy tale comes true or taking profits now
to preserve their strong gains. Hedge fund managers who 
get paid out of the profits to the tune of 20%-50% of
the gains have got a huge bet riding on the line. If your
fund is up +30% to +70% for the year the urge to take 
profits and lock in bonuses is very strong. This occurs
every year at this time so the event is not new. The only
difference is that there are huge profits this year instead
of the huge losses over the last two years. This makes the
urge to lock in now much stronger. 

There is also an axiom on Wall Street to Sell Rosh Hashanah
(9/27) and buy Yom Kippur (10/06). Whether that is a valid 
cycle or not remains to be seen but it definitely corresponds
with the normal end of September drop. Whatever the reason
you want to blame on the selling you have to admit that the
market sentiment has taken a negative turn. That turn may
not have much farther to go before it reaches the first
pause point. 

The Dow stopped falling at 9300 Friday and that was the 
initial support point we have been discussing. Should the 
9300 level fail and I think that could happen next week we 
could easily see the 25% retracement level at 9100 be the 
next pause point. I am too bullish despite my skepticism 
over the rate of recovery to expect the Dow to break 9000.
There is simply too much support between 9000-9100 for the
bears to break. It is possible but we should see a huge buy
the dip move between 9000-9100. Should that break it could
severely damage the bullish case and a rapid drop to the
50% retracement level at 8550 could result. Again, I do 
not expect that but we need to be aware of the potential.
One critical note from Friday was the break of the Dow
50-dma at 9350. It was actually broken slightly on Thursday
but the Dow rebounded to 9358 on Friday and then failed
again significantly. This should be seen as a definite sign
of more weakness ahead. 
  
Dow Chart


 

The Nasdaq was the biggest loser for the week but it is still
in danger of dropping further. The next support is 1750 which
is about 42 points away. The most likely target is still the
risk range between 1600-1650. That sounds terrible but even
the worst case drop to 1600 is only another -10% drop and 
considering the gains would just be a normal October 
correction. The Nasdaq broke a critical level on Friday and
closed under 1800. This was a psychological level and was
critical for bullish sentiment. Every century mark the index
gives up puts it just that much farther from 2000 in the eyes
of the bulls. The odds are very good we are not going to drop
straight to 1600 next week or the week after. Any drop under
1750 will be accompanied by plenty of kicking and screaming 
and dip buying. The Nasdaq has not broken the 50-dma at 1775
but it is very close. 

Nasdaq Chart


 

The broader market index of the S&P came within 2 points of
decent support at 992 on Friday. The next critical support
is 975 and 965. The 975 level should be a substantial stopping
point and we could see a decent bounce. Under 965 support is
pretty thin until 943 or so but if we break the 965 level the
market will have worse problems to deal with. The S&P also
broke its 50 DMA at 1001 on Friday. It was support in late
August but has already failed in the current drop. 

S&P Chart


 


Next week is filled with economic reports that could be 
critical to sustaining the longer term rally or accelerating
the dip. Monday is light with Personal Income and Spending
but the pace picks up on Tuesday with NY-NAPM, Consumer
Confidence, PMI and Risk of Recession. Wednesday has ISM,
Construction Spending and Challenger Layoff Report. Thursday
has Jobless Claims and Factory Orders followed by Nonfarm
Payrolls on Friday. The biggies of course are the NAPM, ISM
and Nonfarm Payrolls. ISM is expected to be flat and that
should raise some eyebrows. If the GDP is going to blow out
at +7% then why should the ISM show no growth? Could be some
reeling in of expectations. The Nonfarm Payrolls report is 
expected to show a loss of -25,000 jobs. Last month they 
were expecting it to be flat and it lost -93,000. If they 
miss on the downside again it could cause concern. The upside
would be another serious drop in jobs could provoke the Fed 
to launch another stimulus program. I doubt it would be a 
rate cut but they might feel driven to do something else 
to provide stimulus. 

For next week traders should look to be light on their feet
and not get married to any longs OR shorts for that matter. 
With the previous bullishness in the market the volatility
could be huge. Whenever I say that I get emails saying "what
does that mean?" It is a polite way of saying we could move
a hundred points in either direction at a moments notice.
You never know what level will trigger a monster buy program
that causes shorts to run for cover on heavy volume. Also, 
for every buy program there could be a hedge fund just hoping
for the next rebound to dump another load into the bounce. 
This erratic behavior means you can be stopped out on both
longs and shorts in the same day and possibly more than once.



 

The best plan for the next two weeks is sell any unreasonable
spikes and buy any bounces off support. The chart above shows
an example of an unreasonable spike. After two days of 
declines a strong buy program triggered at 985 in the middle
of the day and the shorts were caught completely off guard. 
The buy program was in response to the unreasonable drop at
the beginning of the day which was also totally out of 
character. So buy unreasonable drops, sell unreasonable 
spikes and buy known support levels. That support on the S&P,
rather use that than the Dow for obvious reasons, is 990-992,
975, 965. Resistance is 1012, 1020, 1030. Sell resistance, 
buy support and take profits early. 
 
Enter Very Passively, Exit Very Aggressively!

Jim Brown


**************
FUTURES MARKET
**************

Equities Drift, Gold Sells, Treasuries Gain
Jonathan Levinson

Friday’s session capped off a losing week for equity and precious 
metals futures and the US Dollar Index, with treasuries emerging 
as the big winner. 

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



Note regarding pivot matrix:  The support, pivot and resistance 
levels above are derived from the high, low and closing price 
levels by a simple mathematical formula.  They are not intended 
to be predictive of market turning points or to serve as targets, 
but rather represent the range retracement levels as generated by 
the pivot algorithm.  Do not think of them as market "calls" or 
predictions.  Like any technically-derived indicator or price 
level, the pivot matrix values should be regarded as decision 
points at which to evaluate current market conditions.  Visit us 
in the Futures Monitor for our realtime views of the various 
markets covered here.


15 minute chart of the US Dollar Index




The US Dollar Index completed its fifth consecutive down week, 
printing a doji star on an unfilled downside breakaway gap from 
last Sunday night’s disastrous open.  Friday’s session saw 
multiple successful tests of 93.70 support, but the DX00Y spent 
all afternoon drifting up to close below 93.90.  Despite the 
ongoing weakness in the US Dollar Index, the CRB dropped 2.54 on 
Friday to close at 239.97, while gold and silver both saw 
significant selling as well.

Daily chart of December gold


 

December gold did its best to scare goldbugs into submission, and 
the Thursday-Friday decline was in many cases successful.  
Friday’s low was 380, right on the lower rising trendline of the 
bear wedge that had been invalidated to the upside earlier on 
Thursday. The two days of intense selling flattened off the 
nascent buy signals on the daily chart oscillators and made them 
look bearish again, but until the lower wedge trendline breaks, 
it remains up for grabs.  Below the lower trendline, we have a 
possible wedge target of 346.  The more serious punishment, 
however, was reserved for the gold mining shares, with HUI down 
from above 210 on Thursday to a low above 190 Friday.  See 
Thursday’s Futures Wrap for a deeper look at HUI.  On Friday, HUI 
dropped 9.52 to close at 191.68, while XAU lost 3.86 to close at 
89.66.  December gold dropped 4.40 to close at 381.50, December 
silver -.079 to 5.143.  For the week, the HUI printed a bearish 
engulfing candle, and December gold a bearish shooting star doji.


Daily chart of the ten year note yield


 


Treasuries found more bids Friday, continuing the week’s winning 
streak with the ten year note yield (TNX) breaking below the apex 
of the bullish descending wedge.  The TNX dropped 7.9 basis 
points to close at 4.023% and closed the week on a fifth 
consecutive negative candle.  The bearish close to the week 
continues a clear trend as confirmed by the ongoing daily 
oscillator downphase, painting a bullish picture for treasuries. 
The weekly chart oscillators (not shown) are also pulled into 
early sell signals for the TNX, bullish again for the ten year 
note yield.


Daily NQ candles


 

The NQ gave us a difficult trading range on Friday, closing lower  
by 8.50 at 1311.  The oscillator sell signals extended their 
breadth slightly, but it was all that was needed to confirm the 
ongoing downphase commenced this week.  While there are numerous 
supports on the way down, the bear wedge broken this week targets 
a possible visit to 1210 if it plays out fully, though I expect a 
significant battle at the 1280 level first. 

The NQ completed its first negative week in over one month, with 
all buy-and-hold positions from the past three weeks now in the 
red.   

30 minute 20 day chart of the NQ


 

The 30 minute NQ continued lower in what I believe to be a 
bullish descending wedge.  With such a steep angle of decline, 
trendlines are open to wider interpretation than usual.  The 
bounce implied by the oversold 30 minute chart oscillators, and 
particularly the 300 minute stochastic, took the form of a 
sideways upphase as discussed in Thursday’s Futures Wrap.  
However, the failure of that upphase had no downside energy 
whatsoever.  Perhaps traders were hesitant to take on new 
positions ahead of the weekend.  Either way, Monday will tell the 
tale.  Above 1236, the bull wedge is in play, and below 1300, the 
bulls have a problem.

While the upphase failed early, the absence of a sharp subsequent 
decline at the end of the afternoon is not bearish.  More 
importantly, the oscillators on this chart are at or near the 
bottoms of their ranges, and the odds favor their bouncing from 
here.  It’s the same story as reported on Thursday.  With the 
daily and weekly chart oscillators in downphases, any shorter 
cycle upphase is running against the current and is expected to 
yield lower price highs.  For this reason, I don’t expect to see 
the bull wedges on NQ (or ES or YM) play out to their maximum 
upside targets. Furthermore, the next downphase from here should 
take out this week’s lows.


Daily ES candles


 


The ES spent Friday going net nowhere, dropping 2.75 to close at 
995, but like the NQ, it did so most interestingly.  The daily 
chart oscillators are on clear, sharp sell signals as can only be 
the case from the kind of clear, sharp selloff that the daily 
chart depicts.  The bear wedge target of 957 remains, with the 
battlezone shaping up for 985.  


20 day 30 minute chart of the ES


 

On the 30 minute chart, the anticipated upphase moved sideways, 
failing on numerous attempts to break the upper descending bear 
wedge trendline.  The failure extended the losing streak on this 
timeframe as evidenced by the pattern of lower highs on the 
stochastic and Macd oscillators.  The working range for this 
wedge is now 989 to 996, and while the action on Friday was 
certainly not bullish, upside energy for a bounce continues to 
get compressed within the context of the longer cycle downphases 
now in progress.  I’d expect a bounce to a lower high, with solid 
resistance above at 1008, 1012, and 1015.  The next downphase 
that follows should, in theory, break the ES to lows below the 
994 set this week.  As for the NQ, I expect a weak bounce 
followed by a deeper plunge. 


Daily YM candles


 

We have the same story on the YM, except that it closed in the 
green, up 6 points at 9286.  Note that on the 30 minute charts 
for ES and YM, the attempted upphase did not fail to the same 
degree as it did on the NQ.  Whether the NQ is portending a 
failure on the ES and YM, or whether the NQ selloff at the end of 
Friday’s session is false will have to be seen on Monday.


20 day 30 minute chart of the YM


 


This week showed us lower prices for the dollar, precious metals, 
and equities, with bonds closing positive.  The lower dollar does 
not fit with weakness in precious metals and other commodities.   
Whether we’re looking at the beginning stages of a general 
deflation cannot be known yet.  The bid in treasuries looks 
defensive, but the slam that took place in gold and silver during 
the last two days of this week is puzzling. Perhaps it was merely 
a consolidative shakeout to trim some of the froth built up from 
recent speculation.

What is evident is that the Spring Rally’s pattern of a lower 
dollar, higher treasuries, equities and metals is no longer in 
play.  With talk of foreign liquidation of dollars and dollar-
denominated assets, we may be about to see what the true winners 
from the recent rally are.  So far, equities look to be bringing 
up the rear, with treasuries in the lead and metals somewhere in 
between.  For next week, we will continue to follow the charts, 
and look for possible reversals of the broader trends that 
continue to develop.


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

Pullback
Jonathan Levinson

Friday saw the indices extend their losses, with the Dow dropping 
30, the S&P 6.4 and the Nasdaq 25 points to finish their first 
negative week in one month and a half.  Volume expanded on 
Wednesday and Thursday, the days which saw the strongest selling, 
but was lighter on Friday ahead of the Jewish holidays.  


2 year weekly chart of the COMPX


 

Viewed on the weekly (above) and daily candles (below), the 
technical damage wrought by this week’s selling is not 
particularly catastrophic.  If anything, the selling was more 
surprising than anything else, for the simple reason that there 
hasn’t been any for so many consecutive weeks.  The move did not 
challenge the broader rising trendlines on either the weekly or 
the daily Nasdaq charts, though it did give oscillator sell 
signals on the longer timeframes.

On the weekly, we see a bearish stochastic divergence since June, 
with the 10 week stochastic declining against advances in weekly 
price.  The selloff this week gave us a fresh stochastic sell 
signal on that oscillator, and the laggier Macd is not far 
behind.  Trendline support between 1760-70, but the oscillators 
indicate that a deeper move could occur.  If that lower trendline 
support breaks, the bear wedge targets a possible move to 1260.

Note that the 1760 area coincides with those levels on the daily 
chart below. The oscillators on this shorter daily timeframe are 
also in gear to the downside, and it’s only the intraday 30 
minute chart oscillators (shown for our trading vehicles, the OEX 
and QQQ below) that give reason to expect a bounce.  However, 
1760 is 32 points below Friday’s Nasdaq close, and we can expect 
a battle in that area if the bulls do not appear sooner. 


Daily COMPX candles


 



2 year weekly chart of the INDU


 

This week’s selling hurt the Dow more than it did the Nasdaq, as 
can be seen in the trendline violations on the daily and weekly 
Dow charts.  On the weekly above, this week caused a clear wedge 
break, suggesting a possible wedge target of 7400, while the 
daily wedge breaks suggest first 9000, followed by possible 
support at 8300.  Again, the bearish oscillator divergence on the 
weekly and the coincident daily and weekly cycle downphases 
should have bulls looking to secure their profits and bears 
looking for short entries on every bounce in the timeframes they 
trade.  That said, there are bounces to be expected.  9275 Dow is 
the start of significant support, and as we will see on the 
shorter term views of the OEX and QQQ, there’s already buying 
pressure building from the declines we saw this week.


Daily INDU candles


 



Daily OEX candles


 

The OEX dropped 3 points on Friday to close at 499, one point 
above Fibonacci support at 498.  The VXO (the old VIX, measuring 
option volatility for the OEX) closed higher by .38 at 23.8 after 
being below 20 last week.  As we saw on the daily COMPX and INDU 
charts, the 10 day stochastic is in a full bear roll, confirmed 
by the sharp sell signal on the Macd.  With the weekly 
oscillators (not shown) rolling over as well, investors in this 
timeframe are in ‘short and hold’ mode, having gotten short 
earlier this week.

Those trading shorter timeframes were covering today and/or 
looking to go long on a dip to ride the bounce implied by the 30 
minute chart oscillators below.  As we see, the selling this week 
set a pattern of lower highs in price as well as on the 
oscillators. However, the most recent downphase today ended 
prematurely on the 300 minute stochastic, suggesting at least 
some type of bounce to begin from current levels.  However, the 
upper descending bull wedge trendline capped every attempt on the 
part of bulls to mount a charge, and the upphase could not get 
beyond a sideways drift.

As the longer cycles are headed south, I expect the pattern of 
lower highs on the 30 minute chart oscillators to continue.  This 
should reflect itself in lower price highs as well.  Traders can 
buy the cycle bottoms and sell the tops at resistance, using 
tight stops on opening positions.  So far, the overall decline 
has been relatively orderly. 


20 day 30 minute chart of the OEX


 


Daily QQQ candles


 

On the Qubes, we see the same picture presented on the daily and 
30 minute charts.  The bear wedge target on this move is 30.0, 
which lines up with Fibonacci support as well.  Note how well the 
Fibonacci retracement captures the different price confluence 
zones in both directions.  Like the OEX, QQQ closed Friday right 
at support.

Like the VXO, the QQV made a 10% advance this week, showing a 
clear spike in options volatility (often likened to ‘fear’) as 
price declined.  The Friday bounce attempt was weaker than that 
on the OEX, which I would tend to view as a bearish sign.  
Nevertheless, the easy part of this decline has been seen, and 
bulls and bears alike are on the alert for at least a short term 
bounce from current levels.  Look for resistance at 32.80, 
followed by 33, then 33.35.

20 day 30 minute chart of the QQQ


 

For next week, traders will want to keep an open mind and stay 
nimble.  While my analysis confirms my gut feeling, the Spring 
Rally and its summer followthrough contained a number of shocking 
moves that defied analysis and caught bear and bulls by surprise.  
For this reason, plan your trade and trade your plan, but don’t 
get married to an idea, and use stops always.  See you at the 
bell!


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**************
Editor's Plays
**************

Cold Day In Hell

It must be a cold day in hell or Christmas in September
because THE drop finally appeared. For almost six weeks
I kept expecting the historical calendar trends to kick
in and every week the market just kept teasing with a
small dip and a bigger bounce. Well, if this is the next
small dip then I can't wait for the next bounce. 

The QQQ and DJX puts from last week are rocking and we
still have a couple weeks to go. I find it hard to believe
a rebound will instantly appear next week so the game plan
is to hold for another week.  

The Oct-$34 QQQ put that was recommended at last Friday's
close of 75 cents gapped open to 95 cents on the Nikkei 
crash last Monday. It traded down as low as 65 cents as
the fear subsided on Wednesday but closed at $1.80 on
this Friday. Regardless of where you entered that trade
it is successful. 

The most likely scenario presented was a QQQ drop to $32
and that looks like a pretty good chance today. If you 
are in this trade I would look to exit at least half at
$32 and another 1/2 at $31. Trail the stop at a level you
are comfortable with once the $32 level is hit but not more
then $33. You should have a 125% return or better at $32 
and selling half guarantees you a profit. Just do not let
the rest get away from you. The $33 put that was listed as
a wild card play at 45 cents is now $1.20. 
 
QQQ Chart 


 

The DJX play was the Oct $95 put at $1.10. That put opened
at $1.30 and traded as low as $1.15 during the week. It
closed this Friday at $2.60 with a high of $2.75. We already
got the drop to 93.00 that was expected and I would target
92.00 to exit at least 1/2 position with another 1/2 at 91.
I have a hard time believing 90 will actually get hit with 
all the bulls looking to buy the dip. 

DJX Chart


 

 


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

Play Recaps

LUV Calls (recommended 9/14)

The oil production cutback by OPEC has depressed the airline
sector and LUV has pulled back to $17.64 from the 18.58 when
recommended. The overall market weakness is also not helping.
We are using January $20 options at 75 cents so we have plenty
of time and not much risk. The 50 DMA at 17.31 should be the
next support.   

http://members.OptionInvestor.com/editorplays/edply_091403_1.asp


Powerball 

The massive -6% drop in the Nasdaq sank the value of the 
portfolio back significantly from last weeks highs but we
have plenty of time left. We have expected the October dip
all along so it was no surprise.   

It would have taken $1,255 to buy one contract of each on 
January-2nd. Any bets on what this will be worth on 12/31/03 

Powerball Chart 


  

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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Bully Scurry On Wall Street
-J. Brown

Five out of the last six sessions for the DJIA and the S&P 500 
have been negative with the selling picking up speed in the last 
three days.  Bulls are running for cover as the bears finally 
make an appearance during their traditional September feeding 
time.  The $INDU lost 3.5 percent last week with the NASDAQ 
Composite dropping even faster, down 5.5 percent. 

The recent weakness was very wide spread as bears made their late
September appearance an international one.  The G7 finance summit 
launched a worldwide drop after issuing a statement to deter 
currency manipulation.  The dollar quickly fell against the yen 
and the Japanese NIKKEI average lost almost 900 points off its 
fresh 15-month high.  European exchanges also lost ground as 
traders took profits, expecting the weaker dollar to impact 
exporters to the U.S. 

At the same time gold bugs witnessed their beloved metal mark a 
fresh 7-year high before promptly falling.  The XAU gold & silver 
index has really taken a beating the last two sessions, falling 
out of its rising channel.  Yet gold (December) futures remain in 
their own rising channel and above the $380 an ounce mark.

The profit taking has been strong and all of September's gains 
have evaporated into losses marking 2003 as yet one more year 
where the historical trends have held in place.  Yet as Jim 
mentions in the wrap this weekend, looking at the YTD gains for 
the major indices this week's drop is nothing but overdue.  We 
still have one week before the October earnings season begins and 
this coming week is full of economic reports to stall the fall or 
accelerate it.

From the looks of it the markets still have further downside with 
the DJIA's breakdown below the 50-dma, which was duplicated by 
the S&P 500.  Furthermore, we could still see more window 
"undressing" with the end of the quarter on Tuesday as funds take 
some profits.


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

Market Averages

DJIA ($INDU)

52-week High:  9686
52-week Low :  7197
Current     :  9313

Moving Averages:
(Simple)

 10-dma: 9505
 50-dma: 9342
200-dma: 8687



S&P 500 ($SPX)

52-week High: 1040
52-week Low :  768
Current     :  996

Moving Averages:
(Simple)

 10-dma: 1020
 50-dma: 1001
200-dma:  930



Nasdaq-100 ($NDX)

52-week High: 1406
52-week Low :  795
Current     : 1309

Moving Averages:
(Simple)

 10-dma: 1362
 50-dma: 1305
200-dma: 1144



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

The volatility indices are still bouncing higher but have yet to
truly mark a trend change or any relative new highs but this could
change if the major indices keep dropping.

CBOE Market Volatility Index (VIX) = 22.23 -0.03
Nasdaq Volatility Index (VXN)      = 30.88 +0.23

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.98        575,209       562,769
Equity Only    0.87        420,092       364,314
OEX            0.55         31,050        17,233
QQQ            5.63         17,408        98,060


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

Bullish Percent Data

           Current   Change   Status
NYSE          71.8    - 1     Bull Confirmed
NASDAQ-100    79.0    + 0     Bear Correction
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       78.2    - 3     Bull Confirmed
S&P 100       80.0    - 4     Bull Correction


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  1.66
10-Day Arms Index  1.29
21-Day Arms Index  1.17
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     876       778
Decliners    1917      2281

New Highs      51        83
New Lows       23         8

Up Volume    441M      178M
Down Vol.   1225M     1642M

Total Vol.  1716M     1831M
M = millions


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

Commitments Of Traders Report: 09/23/03

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

The latest option/futures expiration appears to have reduced
some outstanding positions and commercial shorts saw the biggest
drop.  Suddenly, professional longs are dead even with shorts.
Meanwhile, small traders closed a large chunk of long positions.


Commercials   Long      Short      Net     % Of OI
08/26/03      410,378   472,987   (62,609)   (7.1%)
09/02/03      417,973   482,392   (64,419)   (7.2%)
09/09/03      418,958   486,209   (67,251)   (7.4%)
09/23/03      395,123   397,858   ( 2,735)   (0.0%)

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
08/26/03      170,424    76,967    93,457    37.8%
09/02/03      169,030    75,748    93,282    38.1%
09/09/03      176,401    81,444    94,957    36.8%
09/23/03      139,482    87,981    51,501    22.6%

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

We have a major reversal in the works here.  Commercial long
positions dropped about 260K, instantly changing sentiment to
bearish.  Small traders had a change of heart and suddenly 
went excessively long, which is ironic now that the SPX just
broke support.


Commercials   Long      Short      Net     % Of OI 
08/26/03      338,766   234,841    103,925    18.1%
09/02/03      347,724   224,011    123,713    21.6%
09/09/03      370,909   237,610    133,299    21.9% 
09/23/03      109,417   204,026   ( 94,609)  (30.2%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
08/26/03       52,131   120,853   (68,722)  (39.3%)
09/02/03       56,709   134,094   (77,385)  (40.6%)
09/09/03       59,692   130,270   (70,578)  (37.1%)
09/23/03      175,750    62,558   113,192    47.5%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

The recent expiration appears to have reduced the number
of outstanding positions but sentiment remains bearish for
commercials and bullish for small traders.


Commercials   Long      Short      Net     % of OI 
08/26/03       33,991     55,849   (21,858) (24.3%)
09/02/03       37,002     55,379   (18,377) (19.9%)
09/09/03       44,677     62,369   (17,692) (16.5%)
09/23/03       32,648     42,565   ( 9,917) (13.2%

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
08/26/03       26,108     8,864    17,244    49.3%
09/02/03       23,168    10,561    12,607    37.4%
09/09/03       28,788    13,370    15,418    36.6%
09/23/03       17,862     9,880     7,982    28.8%

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 same can be said for the $INDU futures with outstanding
positions dropping, the sentiment remains the same with
commercials feeling bullish.  However, small traders are
feeling a lot more neutral with a drop in short positions.


Commercials   Long      Short      Net     % of OI
08/26/03       24,586    10,386   14,200      40.6%
09/02/03       25,462    10,447   15,015      41.8%
09/09/03       25,807    10,756   15,051      41.2%
09/23/03       15,911     9,123    6,788      27.1%

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
08/26/03       14,115     5,592    8,523     43.2%
09/02/03        6,629    13,402   (6,773)   (33.8%)
09/09/03        7,429    13,796   (6,367)   (30.0%)
09/23/03        7,505     7,779   (  274)   ( 1.8%)

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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***************
ASK THE ANALYST
***************

A quick QCharts tutorial; focus on retracement

Jeff:  I really like the 5-minute bar day trading technique, but 
having to do this on 5 stocks I like to short-term trade each day 
is taking me a lot of time, when each time I have to go back and 
type in all the different levels.  Isn't there a place where I 
can set some defaults within QCharts?

A lot of subscriber at OptionInvestor.com and premierinvestor.net 
like to use QCharts, so they can follow along on with similar 
charts that will be shown in various intra-day updates and market 
wraps, and after last weekend's column titled "Day trader's 5-
minute bar technique" I received several e-mails from traders 
that were having difficulty figuring out how to get their 
retracement set, and then KEEPING those settings without having 
to go through a bunch of complicated steps, each time they wanted 
to place a new retracement on their chart.

I received other questions regarding how to get things done 
quickly, but also how to the upper and lower retracement to match 
each other, with the first 5-minute bar in the neutral zone.

Let's start with While last weekend's article may have stimulated 
many questions regarding QCharts, over the course of a week, I 
will get questions from traders and investors on how to set some 
preferences that they like to use on a regular basis, but just 
don't know where to go.

I could probably write a 500 page instruction manual an all the 
things QCharts trading platform offers, but I'm going to show 
some of the basics, with a focus on the retracement tool.  Does 
everyone know you can actually set an alert (automatically) at 
various retracement levels, where your computer will alert you 
when a level has been traded?

QCharts Tool Bar buttons - 


 

I like to have my various QCharts charting tools on the left side 
of my trading terminal.  I've labeled the various tools that 
QCharts offers.  Many of them I use regularly (Bar Chart, Cursor 
Tracking, Data Box, Daily Snapshot, Pointer (turned on), Line 
Segment, Line Ray, Extended Line, Retracement, Regression, Price 
Magnet) and the MAIN focus of this article will be on the 
Preferences button, where a trader would want to set his/her own 
preferences for any of the tools listed.

While I won't explain in detail how to use all of the tools, I 
learned what I know about QCharts from simply paying around with 
them before finally figuring out what they did.  

On the above chart, I've also placed two retracement brackets and 
labeled certain parts of the retracement that we will want to 
know what they are when we start setting some defaults for these 
settings.  Only difference between the two retracement brackets 
above (other than their color) is that the upper retracement and 
where the anchor line is shown, would be used to measure a stocks 
retracement that had previously declined from $56 to $50, where a 
trade at $51.14 would be a 19.1% retracement of the recent 
decline.  The lower retracement and anchor line show would be 
just the inverse, where a trader is measuring percentage 
retracement of a range after a stock had advanced in price.  

We will note that in the upper retracement we would see its 
80.9%, where in the lower retracement (red) we see 19.1% at a 
similar level.  Add the two together at we get 100% of a RANGE.

When we use the 5-minute retracement technique, we don't really 
care if these percentage (%) levels grammatically depict what the 
stock is currently doing in relation to a prior move.  All we 
would care about is the levels, and price associated with those 
levels.

When I firs started using QCharts, I too was constantly having to 
draw a retracement on a chart, and edit that retracement's 
preferences (for that one chart) and type in the 7 levels I like 
to use (0%, 19.1%, 38.2%, 50%, 61.8%, 80.9%, 100%).  It wasn't 
until I realized I could actually set PREFERENCES for my 
retracement that things got a heck of a lot easier, and faster.

To set your preferences on retracement (or any other tool shown) 
you will LEFT CLICK (mouse button) on the PREFERENCES button when 
you have a chart window open.

SPECIAL NOTE:  I only have 3 chart windows open on my QCharts 
trading station.  The reason for this is that once I place a 
retracement, line, or regression on a chart, it will only be 
there in the future as long as that chart window is open.  If I 
CLOSE that chart window, all the work I did will be lost if I 
ever come back to it.  Some traders have 50-different chart 
windows open, some minimized, on their QCharts trading station 
and this eats up memory, as your computer is trying to update all 
50 charts at once.

When you have LEFT CLICKED on the PREFERENCES tool button, you 
should get this window popup.

QCharts Tool Prefersences - Retracement



 

Here are the settings I used to draw the BLUE retracement bracket 
in the explanation for the various QCharts tools shown earlier.  

Point (A) is where you can select any color you want for the 
Anchor Line, and can either have this line displayed (checked 
box) or not displayed (unchecked box).

Point (B) is the Vertical Line for your retracement bracket with 
the same color/display options.

Point (C) allows you to display or not display certain labels for 
the retracement bracket.  I've enabled (chosen to show) the % and 
price levels with right justification.  At times, when I may be 
showing overlapping retracement, I may disable the right 
justification before placing a new retracement on a chart.

Point (D) is where a trader can enable (checked box) the display 
of certain levels.  Sometimes, when I'm showing a stacked 
retracement) where there is overlap at 0%, I will chose to not 
display the 0% level in the newly added retracement, which is 
simply overlapping the 100%, or 0% retracement level in a prior 
retracement bracket that I am stacking to.

Point (E) is a nice feature.  If you enable alerts at the various 
levels, this will allow you to set trading alerts, at these 
levels, once you have a retracement bracket in place.  I'll show 
you how to do this in a minute.

Point (F) shows that I've decided to have my retracement brackets 
extend to the right of the chart forever.  As time passes, a 
retracement drawn with the above settings would stay in place 
forever.

Point (G) is an alternative to (F).  Sometimes you will note that 
one of my retracement brackets on a chart extends forever, while 
a different retracement on the same chart is abbreviated.  The 
abbreviated length simply depends on the distance between anchor 
points, and I will usually just plink around with this number on 
an individual retracement basis to then get the look that I want.

Once you have things set up like you want, simply click the OK 
button and you should now have a set of DEFAULT tool setting for 
retracement that will be in place until you change them.

Now that you have a basic set of parameters in place for your 
retracement, lets say you are setting up your chart one morning 
for the 5-minute trading technique.  Your default settings are 
for a BLUE retracement, and the first 5-minute bar has been 
formed.  (In the following example, I'm using Friday's last 5-
minute bar, in order to show how the first retracement would be 
applied for the 5-minute retracement technique.  I'm using the 
last 5-minutes ONLY for example, as we use the FIRST five minutes 
for this technique to day trade a security)

Getting your retracement exact - Clone, Preferences, Alerts


 

Several traders were having problems getting their 100% and 80.9% 
retracement to mark the LOW and HIGH of the first 5-minutes.  If 
you have your PRICE MAGNET enabled, you should be able to "snap" 
your anchor point to the bottom of the bar.  It's the 80.9% that 
is tricky.  You will not that I've really expanded the vertical 
scale, as if to magnify the 5-minute bars.  You can do this by 
placing your cursor in the price column and left click your 
mouse.  With mouse button still held down, you can compress or 
expand the vertical scale.  Expanding the vertical scale as shown 
makes it MUCH easier to get your 80.9% retracement right on top 
of the 5-minute bar.  Remember, all the levels above 80.9% (or 
19.1% depending on where your anchor line is headed) are RESULTS 
of your 5-minute interval technique.

Once you have your first retracement set up, you may want to do a 
couple of things with this retracement.  By RIGHT clicking your 
mouse, with cursor on or near the retracement, it should "light 
up" and a pop up menu should appear as shown, with four options.

Point (A) will be used in a minute as we are going to "clone" 
this BLUE retracement as it will become the RED retracement for 
the lower retracement used for the 5-minute bar trading 
technique.  What's 100% - 80.9%?  19.1% right?  Once we have our 
blue retracement accurately in place, all we have to do is clone 
it, and move it lower, then change the color to RED on the lower 
one.

Point (B) is where you could change the preferences of the 
retracement ON THIS CHART ONLY.  I emphasize THIS CHART ONLY as 
the changes made from this preferences menu is not what we did 
earlier, where we changed the preferences from the tools menu, 
and that was for the ENTIRE default settings we preferred.

Point (C) is where I could have QCharts alert me to a level being 
traded on the retracement bracket.  As long as I had enabled the 
alert setting in the preference menu, then by LEFT clicking on 
the Add Alert in the pop up menu, alerts will now be set at 
retracement levels.  This is a handy feature for ANY 
trader/investor using retracement.  You may be a swing trader, 
have bought a stock at 50% retracement, and wanted to be alert 
when it rose to 80.9% retracement several weeks later.

Now we want to get our LOWER level of retracement in place.  
Let's "clone" the BLUE retracement and copy it lower like this.  
Your going to select "clone" from the pop up menu by LEFT 
clicking on "clone" and you should see another blue retracement 
attacked you your cursor.  Simply drag that retracement lower and 
overlay the 32.59 and 32.52 levels of this cloned retracement, 
with the upper retracement.  Like this.

After cloning upper, and sliding cloned lower


 

By cloning the retracement, and moving it lower, a trader may 
have saved a little time, instead of trying to create the lower 
retracement by anchoring 0% at 32.58 and then trying to once 
again fit the 19.1% at 32.52.  Once you set your alerts (if your 
watching the cart throughout the day you don't need to set 
alerts) and changed the lower retracement color to RED, your 
chart should look like this.

Completed Chart - Quick reference to alerts


 

There you have it!  After you do this 5 or 6 times a day, 200-
days a year, you'll be able slap two retracement brackets on a 
chart and rather exact levels in about 30-seconds per chart.

I think this covers the bulk of questions received this week on 
QCharts and retracement.  I also received some questions from 
traders using other trade platforms that I am not familiar with, 
but maybe the above tool and preference options are available in 
the platform you are using, but you just don't know how to get to 
them.  

Jeff Bailey


*************
COMING EVENTS
*************

-----------------
Earnings Calendar
-----------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

WAG    Walgreen              Mon, Sep 29  Before the Bell   0.27

------------------------- TUESDAY ------------------------------

STZ    Constellation Brands  Tue, Sep 30  After the Bell    0.64
PBG    Pepsi Bottling Group  Tue, Sep 30  Before the Bell   0.66


-----------------------  WEDNESDAY -----------------------------

FDO    Family Dollar         Wed, Oct 01  Before the Bell  0.28


------------------------- THURSDAY -----------------------------

None


------------------------- FRIDAY -------------------------------

ATYT   ATI Technologies      Fri, Oct 03  Before the Bell  0.10
AVT    Avnet                 Fri, Oct 03  -----N/A-----    0.09


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable


SAFE    Invivo Corp               3:2      Sep  26th   Sep  29th
CCBI    Commercial Capital Bancorp3:2      Sep  29th   Sep  30th
KVA     KV Pharmaceutical         3:2      Sep  29th   Sep  30th
MMM     3M                        2:1      Sep  29th   Sep  30th
ABVA    Alliance Bankshares Corp  3:2      Sep  29th   Sep  30th
PLMD    PolyMedica Corp           2:1      Sep  29th   Sep  30th
WERN    Werner Enterprises Inc    5:4      Sep  30th   Oct   1st
GPRO    Gen-Probe Inc             2:1      Sep  30th   Oct   1st
BMTC    Bryn Mawr Bank Corp       2:1      Oct   1st   Oct   2nd
MYL     Mylan Laboratories Inc    3:2      Oct   8th   Oct   9th

--------------------------
Economic Reports This Week
--------------------------

It's the end of the Quarter on Tuesday.  Will we see window 
dressing or undressing?  With just a week or two before the
Q3 earnings announcements, the markets will be driven by the
parade of economic reports this week.


==============================================================
                       -For-           

----------------
Monday, 09/29/03
----------------
Personal Income (BB)     Aug  Forecast:    0.3%  Previous:     0.2%
Personal Spending (BB)   Aug  Forecast:    0.8%  Previous:     0.8%


-----------------
Tuesday, 09/30/03
-----------------
Consumer Confidence(DM) Sep  Forecast:    82.0  Previous:     81.3
Chicago PMI (DM)        Sep  Forecast:    55.5  Previous:     58.9


-------------------
Wednesday, 10/01/03
-------------------
Auto Sales (NA)         Sep  Forecast:    6.1M  Previous:     6.1M
Truck Sales (NA)        Sep  Forecast:    8.1M  Previous:     9.3M
ISM Index (DM)          Sep  Forecast:    55.0  Previous:     54.7
Construction Spendng(DM)Aug  Forecast:    0.4%  Previous:     0.2%
API weekly statistics
Goldman Sachs Communacopia Conference
RBC Capital Markets Consumer Conference

------------------
Thursday, 10/02/03
------------------
Initial Claims  (BB)  09/27  Forecast:     N/A  Previous:     381K
Factory Orders (DM)     Aug  Forecast:    0.6%  Previous:     1.6%
Natural Gas Inventories

----------------
Friday, 10/03/03
----------------
Nonfarm Payrolls (BB)   Sep  Forecast:    -30K  Previous:     -93K
Unemployment Rate (BB)  Sep  Forecast:    6.2%  Previous:     6.1%
Hourly Earnings (BB)    Sep  Forecast:    0.2%  Previous:     0.1%
Average Workweek (BB)   Sep  Forecast:    33.7  Previous:     33.6
ISM Index (DM)          Sep  Forecast:    63.8  Previous:     65.1


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 09-28-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Potential Entry Points!
Put Play of the Day: ITT
Dropped Calls: AXP, IBM
Dropped Puts: None


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Watch List
**********

Potential Entry Points!

Wellpoint Health Network - WLP - close: 74.59 change: -0.45

WHAT TO WATCH: The trend of lower highs continues for shares of 
WLP as the stock once again breaks under its simple 200-dma.  The 
selling pressure has also broken WLP's $75 level but it looks 
like the true double bottom is at $74 (from the August low).  
Bears could use a trigger with a break under $74 target a quick 
move down to $70.  The same move under $74 would etch a new P&F 
sell signal.

Chart=


---

National Semiconductor - NSM - close: 33.43 change: -0.79

WHAT TO WATCH: The SOX has been no exception to the profit taking 
in technology stocks but traders may want to take note of NSM.  
Bulls will see it and recognize its relative strength against the 
recent weakness.  Aggressive bears might want to consider playing 
the rollover with a target at $30 but be careful.  The bottom of 
the "gap" higher between 31.50-32.00 could be support.

Chart=


---

Scientific Atlanta - SFA - close: 31.61 change: -0.27

WHAT TO WATCH: Shares of SFA have thus far been able to maintain 
some strength in spite of the market's weakness.  Old resistance 
at the $31 level has become new support.  However, we're not 
quite convinced this is an entry point for new bullish plays as 
the stock did break its simple 50-dma on Friday.  A bounce from 
the $30 level with a very tight stop might work.  Otherwise, keep 
an eye on it for a move back above $34.50.

Chart=


---

Symantec Corp - SYMC - close: 62.00 change: -1.39

WHAT TO WATCH: SYMC is another stock that has shown some decent 
relative strength despite the market pull back.  The stock is 
extremely overbought but there appears to be a lack of willing 
sellers.  The stock is showing a new bearish sell signal in its 
MACD but we'd wait for a breakdown at the $60 mark to evaluate 
bearish positions.  If you're a bull who'd rather play the bounce 
then look for a possible bounce at $60.  Otherwise, the $57.50 
mark might work, which is a 50% retracement of the $50-$65 move 
and the low from mid September.

Chart=



----------------------------------
RADAR SCREEN: more stocks to watch
----------------------------------

LSI $9.76 - It's a bit cheap to be playing options on but traders 
will note the breakdown under the $10.00 psychological mark and 
its simple 50-dma.  There is some congestion in the $9.00 area 
but bears might target a move to $8.00, which would be a 50% 
retracement of the $4-to-$12 move.

PCAR $74.71 - Shares of PCAR have fallen out of their rising 
channel as investors lock in some profits.  The rally from $41 to 
$87 would put a 38 percent retracement near $70 and a 50 percent 
retracement near $65, both are current support levels.

CCL $32.91 - CCL isn't the fastest moving stock but it might drop 
a lot faster than it climbs.  Shares have broken their bullish 
trend on strong volume but there is some support/congestion near 
$32.  

MMC $48.00 - This insurance stock has a very consistent trend of 
lower highs and it has brought shares back to support at $48.  
Bears might want to consider a trigger under the August 4th low 
of $47.70 or under the 200-dma currently at $47.38.  The weekly 
chart suggest some support at $45 and then very strong support 
near $40.


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*******************
THE PLAY OF THE DAY
*******************

Put Play of the Day:
********************

I T T Industries - ITT - cls: 59.64 chg: +0.12 stop: 62.51

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

American Express - AXP - close: 44.86 chg: -0.75 stop: 44.49

We have not yet been stopped out in this AXP call play but given 
its weakness and the weakness in the DJIA it didn't seem 
worthwhile to just sit here and wait for our stop to be hit.  The 
roll back under what should have been support near $46 was bad 
enough but Friday's session put AXP under its simple 50-dma.  The 
intraday chart shows a steady trend of lower highs and it looks 
like this stock is headed for a retest of $44.00.  Bullish 
traders who believe in the story might want to wait and look for 
a bounce from $44 as a potential entry point for new plays.

Picked on September 18 at $47.08
Change since picked:      - 2.22
Earnings Date           10/27/03 (unconfirmed)
Average Daily Volume:        3.9 million 
Chart =


---

Intl Business Machines -IBM- cls: 89.05 chg: -0.36 stop: 87.90

Wednesday was bad enough when IBM fell through what should have 
been support at $90.  Thursday's failed rally and roll over back 
under $90 didn't help.  Friday was the second failed rally at $90 
and looks like a clear signal that Big Blue is headed lower.  We 
are being a little premature by closing IBM out here.  The stock 
could still have support at $88 (and the minor support at $89) 
just as the DJIA has "support" at 9300 and 9250.  Unfortunately, 
the new mood on Wall Street is profit protection and there is 
still a lot of money on the table.  Besides, we certainly don't 
like the new sell signal on IBM's MACD.  Combined with the roll 
over under support and IBM looks like a put play with a target 
near $85.

Picked on September 23 at $91.34
Change since picked:      - 2.29
Earnings Date           10/15/03 (unconfirmed)
Average Daily Volume:        6.7 million
Chart =



PUTS
^^^^

None


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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

Contact Support
The Option Investor Newsletter                   Sunday 09-28-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: AMZN, APOL, LEA, SLB
New Calls: EXC
Current Put Plays: KKD, CCMP, GILD, JCI
New Puts: ITT


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******************
CURRENT CALL PLAYS
******************

Amazon.com - AMZN - close: 48.56 change: -1.49 stop: 46.50

Company Description:
Amazon.com is a website where customers can find virtually 
anything they want to buy online.  The company lists millions of 
unique items in categories such as books, music, DVDs, consumer 
electronics, toys, software, computer and video games, lawn a 
patio items, kitchen products and wireless products.  Through its 
Amazon Marketplace, Auctions and zShops services, any business or 
individual can sell virtually anything to AMZN's approximately 30 
million cumulative customers.

Why we like it:
As much as we would have liked to see AMZN power higher following 
last Tuesday's blast above $50, it just wasn't feasible, 
especially with the rest of the market going into serious profit 
taking mode.  AMZN held up fairly well right through Thursday's 
session, stubbornly refusing to relinquish the $49.50-50.00 area, 
but by Friday the bulls finally gave in a little and allowed the 
stock to fall back.  It should come as no great surprise that 
AMZN was turned back from the $50-51 area, as that was the top of 
the rising channel, not to mention our initial profit target for 
the play.  Now we'll see if there's another bullish run in store, 
and we really think there is.  Look for support to be strong in 
the $47.00-47.50 area, as this is the site of former resistance 
(now support), the center of the rising channel, not to mention 
the 20-dma ($47.21).  Look to initiate new positions on a rebound 
from this area and then hold for a breakout to new highs above 
$52.  Our ultimate target remains $55 for those traders 
aggressive enough to shoot for that goal.  Maintain stops at 
$46.50.

Suggested Options:
Shorter Term: The October 47 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 November 50 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 November 47 Call.

BUY CALL OCT-47 ZQN-JW OI=11966 at $2.85 SL=1.50
BUY CALL OCT-50 ZQN-JJ OI=16745 at $1.60 SL=0.75
BUY CALL JAN-47 ZQN-KW OI=  116 at $4.50 SL=2.75
BUY CALL JAN-50 ZQN-KJ OI=10353 at $3.20 SL=1.50

Annotated Chart of AMZN:


 

Picked on September 18th at  $47.89
Change since picked:          +0.67
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     8.79 mln
Chart =


---

Apollo Group - APOL - close: 65.90 chg: +0.31 stop: 64.00     

Company Description:
Apollo Group Inc. has been providing higher education programs to 
working adults for more than 25 years. Apollo Group Inc. operates 
through its subsidiaries The University of Phoenix Inc., 
Institute for Professional Development, The College for Financial 
Planning Institutes Corp., and Western International University 
Inc. The consolidated enrollment in its educational programs 
makes it the largest private institution of higher education in 
the United States. It offers educational programs and services at 
67 campuses and 118 learning centers in 37 states, Puerto Rico 
and Vancouver, British Columbia. (source: company press release)

Why We Like It:
One of the major beneficiaries of the economic slow down are the 
purveyors of higher education.  Stocks like EDMC, CECO, COCO and 
APOL have all done extremely well for investors this year based 
on higher enrollment numbers.  Out of work employees have decided 
to go back to school and make themselves more attractive and 
marketable to employers when the recovery finally does start 
hiring again.  

We like APOL out of the group above because shares have been 
consolidating its gains for the last couple of months.  The 
recent breakout to a new all-time high has much stronger legs to 
stand on than some of the other stocks.  The company actually 
raised its guidance in late August telling Wall Street it expects 
fiscal 2004 to beat estimates fueled by higher enrollment and new 
campus openings.  APOL forecasts that its University of Phoenix 
division (with its own tracking stock) should see enrollment grow 
from 12 to 14 percent just in the first quarter.  APOL raised its 
Q1 revenue numbers to $392 - 395 million compared to estimates of 
$389 million.  This Friday the company announced that its UOPX 
subsidiary had received approval to do business in the state of 
New Jersey.

While the fundamental story looks good the recent trading action 
has been bearish, influenced by the falling broad market indices.  
Bullish traders can use the pull back to support near the $65 
mark as an entry point.  However, it takes a bit of faith to buy 
today's intraday bounce at $65 when the markets are tumbling.  
Cautious investors should feel free to wait and see if the bounce 
continues on Monday.  

Suggested Options:
Short-term traders can choose between Octobers and Novembers.  We 
still like the 65s and 70s.

BUY CALL OCT 60 OAQ-JL OI= 144 at $6.90 SL=4.50
BUY CALL OCT 65 OAQ-JM OI=1833 at $3.10 SL=1.65
BUY CALL OCT 70 OAQ-JN OI=3335 at $0.90 SL= -- 
BUY CALL NOV 65 OAQ-KM OI=1115 at $4.30 SL=2.15
BUY CALL NOV 70 OAQ-KN OI= 889 at $2.00 SL=1.00
BUY CALL FEB 70 OAQ-BN OI=2268 at $4.00 SL=3.05

Annotated Chart:


 

Picked on September 16 at $68.45
Change since picked:      - 2.55
Earnings Date           10/07/03 (confirmed)
Average Daily Volume:        1.9 million 
Chart =


---

Lear Corp - LEA - close: 53.48 change: -0.14 stop: 53.25     

Company Description:
Lear Corporation, a Fortune 500 company headquartered in 
Southfield, Mich., USA, focuses on integrating complete 
automotive interiors, including seat systems, interior trim and 
electrical systems. With annual net sales of $14.4 billion in 
2002, Lear is the world's largest automotive interior systems 
supplier. The company's world-class products are designed, 
engineered and manufactured by 115,000 employees in more than 280 
facilities located in 33 countries.
(source: company press release)

Why We Like It:
The auto-related stocks had been hot this last quarter and LEA 
is certainly one of them.  Shares of LEA almost doubled from 
their March lows near $32.50.  Not only has LEA's share price 
appreciated but they're earnings have actually been worthy of the 
gains.  The company last announced earnings on July 17th and LEA 
beat estimates by 28 cents with $1.54 a share.  On top of the 
blow out numbers they raised guidance for Q3.  Prudential 
followed up the next day with a very encouraging upgrade.  PRU 
raised their own outlook for LEA for 2003 and believes the 
company could have its credit rating improved soon while the 
stock might be added to the S&P 500 index over the next 12 
months.  A couple of weeks later in early August Barron's 
highlighted the stock in a positive light.

The recent bounce in shares of LEA continues to wither under the 
market's weakness.  The pull back in Lear has been somewhat 
orderly and the stock stalled at the simple 50-dma.  
Unfortunately, we fear that if the markets drop again we'll 
quickly be stopped out at the $53.25 stop loss price. We're 
certainly not suggesting new bullish plays at this time.  

Suggested Options:
Short-term bullish traders should probably consider the October 
or December calls on LEA while long-term traders can look to 
January and March calls.  Our preference will be for the 
Octobers.

! Remember, we're not suggesting new plays until we see another 
bounce.

BUY CALL OCT 50 LEA-JJ OI= 19 at $4.30 SL=2.25
BUY CALL OCT 55 LEA-JK OI=169 at $1.10 SL=0.65
BUY CALL DEC 50 LEA-LJ OI=410 at $5.50 SL=3.25
BUY CALL DEC 55 LEA-LK OI=467 at $2.65 SL=1.40

Annotated chart:


 

Picked on September 16 at $54.05
Change since picked:      - 0.57
Earnings Date           10/17/03 (confirmed)
Average Daily Volume:        694 thousand
Chart =


---

Schlumberger Ltd. - SLB - close: 48.72 change: -0.67 stop: 47.50

Company Description:
Schlumberger Limited is a global technology services company 
consisting of three business segments: Schlumberger Oilfield 
Services, SchlumbergerSema and Other Businesses.  Schlumberger 
Oilfield Services is a provider of technology services and 
solutions to the international petroleum industry.  
SchlumbergerSema is an information technology services company, 
providing consulting and systems integration services and network 
and infrastructure solutions, primarily to the global energy 
sector, including oil and gas, and other regional markets 
spanning the telecommunication, finance and public sectors.  The 
Other Business segment includes the manufacture of smart cards, 
pay telephones, point-of-sale terminals, parking and mass transit 
terminals, meters and trading systems.  In addition, this segment 
provides advanced test and diagnostic systems, as well as 
engineering services to the semiconductor industry.

Why we like it:
Failure comes to the oil patch.  As convincing as SLB's breakout 
over the $50 level appeared at the time, there was an apparent 
lack of bullish conviction.  So after tagging the $52 level, the 
stock succumbed to the weakness in the rest of the market, and 
has since fallen all the way back to test the long-term rising 
trendline.  Falling back inside a bullish pattern like the 
bullish triangle SLB broke out of just over a week ago is never a 
good sign.  But we're encouraged by the fact that the stock did 
bounce from that rising trendline on Friday afternoon, with the 
$48.50 level providing support.  In addition to the primary 
trendline, there's a shorter and slightly shallower one that has 
been building for roughly a month (see chart) and it should help 
to reinforce primary support above $48.  We're not in a hurry to 
initiate new positions here, with daily Stochastics still falling 
back to earth, but the best odds for a solid entry will come on a 
successful rebound from one or both of these trendlines.  Then we 
can turn our focus back to the upside, using the recent highs 
near $52 as a primary target.  Maintain stops at $47.50.

Suggested Options:
Shorter Term: The October 45 Call will offer short-term traders 
the best return on an immediate move, as it is currently in the 
money.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the November 50 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 November 45 Call.

BUY CALL OCT-45 SLB-JI OI= 1457 at $4.20 SL=4.50
BUY CALL OCT-50 SLB-JJ OI= 8601 at $0.80 SL=0.40
BUY CALL NOV-45 SLB-KI OI= 4223 at $4.80 SL=3.00
BUY CALL NOV-50 SLB-KJ OI=13151 at $1.60 SL=0.75

Annotated Chart of SLB:


 

Picked on September 21st at  $50.99
Change since picked:          -2.27
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     3.18 mln
Chart =



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

Exelon Corporation - EXC - close: 62.64 change: +0.95 stop: 60.25

Company Description:
Exelon Corp. is the parent corporation for each of Commonwealth 
Edison Company (ComEd) and PECO Energy Company (PECO), which are 
electric utilities.  Exelon, through its subsidiaries, operates 
in three business segments: Energy Delivery, Generation and 
Enterprises.  The Energy Delivery segment consists of the retail 
electricity distribution and transmission businesses of ComEd in 
northern Illinois and PECO in southeastern Pennsylvania and the 
natural gas distribution of PECO in the Pennsylvania counties 
surrounding the city of Philadelphia.  Generation is made up of 
the electric generating facilities, energy marketing operations 
and equity interests in Sithe Energies, Inc. and AmerGen Energy 
Company, LLC.  Enterprises consists of competitive retail energy 
sales, energy and infrastructure services, communications and 
other investments weighted towards the communications, energy 
services and retail services industries.

Why we like it:
With the Utility index (UTY.X) making steady upward progress over 
the past several weeks, and avoiding most of the carnage seen in 
the broad markets last week, there just might be something there 
to catch a bull's attention.  What caught our attention was the 
very bullish action in shares of EXC, which broke out strongly 
over the $60.50 level a couple weeks ago before continuing upward 
into the $62-63 area.  Last week saw a bit of a pullback to fill 
in the 9/18 gap and it looks like the buyers are eager to see 
fresh 2-year highs.  Friday's action say the stock advance 1.5% 
on the best volume since early August (roughly 40% above the 
ADV), and that pushed the stock back into the upper half of the 
rising channel that has been governing price action since the low 
in the middle of August.  EXC is not a fast moving stock, but it 
does tend to trend rather well.  So as long as the stock remains 
in this bullish channel, we have a trend to ride.  According to 
the PnF chart, there's plenty of upside remaining, as EXC is 
still on a Buy signal, with a vertical count of $85.

We'll content ourselves with a more modest goal, looking 
initially for a move up to $66, with an optimistic target of $68-
70, which would represent a retest of the 2000-2001 highs.  
Either move will take awhile to unfold, unless EXC is able to 
break out of the channel to the upside.  Otherwise, by the time 
earnings roll around, the $66-67 area is probably all we can 
expect, as that is the projected top of the channel by late 
October.  Our preference for new entries is on intraday pullbacks 
near support, first in the $61.50-62.00 and then closer to $61, 
which happens to coincide with the rising 20-dma.  We're setting 
our initial stop at $60.25, just below the recent breakout, as 
well as the 30-dma.

Suggested Options:
Shorter Term: The October 60 Call will offer short-term traders 
the best return on an immediate move, as it is currently in the 
money.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the January 65 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 January 60 Call.  There 
are November strikes available, but open interest is too low to 
be deserving of serious consideration.

BUY CALL OCT-60 EXC-JL OI= 1116 at $3.20 SL=1.50
BUY CALL OCT-65 EXC-JM OI=  205 at $0.30 SL=0.00
BUY CALL JAN-60 EXC-AL OI= 2982 at $4.00 SL=2.50
BUY CALL JAN-65 EXC-AM OI=  441 at $1.15 SL=0.50

Annotated Chart of EXC:


 

Picked on September 28th at  $62.64
Change since picked:          +0.00
Earnings Date              10/28/03 (unconfirmed)
Average Daily Volume =     1.15 mln
Chart =



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*****************
CURRENT PUT PLAYS
*****************

Krispy Kreme - KKD - cls: 37.90 chg: +0.07 stop: 40.36      

Company Description:
Founded in 1937 in Winston-Salem, North Carolina, Krispy Kreme is 
a leading branded specialty retailer of premium quality 
doughnuts, including the Company's signature Hot Original Glazed. 
Krispy Kreme currently operates more than 305 stores in 41 
states, Canada and Australia. An estimated 7.5 million Krispy 
Kreme doughnuts are made every day and more than 2.7 billion are 
produced each year. (source: company press release)

Why We Like It:
It's been a rough few weeks for KKD.  The stock topped out near 
$50 near its earnings report and have sharply fallen since then.  
The company actually beat earnings estimates of 20 cents by a 
penny with strong revenue growth but the Street was not happy 
with the earnings quality.  Average sales were flat and a couple 
of major brokerage downgrades quickly followed.  We initially 
wrote the play with a trigger to go short at $41.69 and we were 
quickly triggered on the first drop towards $40.  The bounce from 
Sept. 9th-15th was market related.  Then shares got hit hard 
again when a new Wall Street Journal article revealed some 
concerning news for KKD.

The company's average-store weekly sales were down to $35K, which 
is significantly less than the $64K they're used to.  On top of 
weekly sales drops KKD's biggest franchisee, Great Circle Family 
Foods LLC, reported a 10% drop in wholesale shipments and a 20% 
drop in visitor traffic.  The article also revealed that Great 
Circle had put themselves up for sale early this year with no 
takers yet.  

(WEEKEND UPDATE) The trend of lower highs continue for KKD as the 
stock finds no relief in the broader market weakness.  We're very 
close to our exit range between $35 and $37.50 (I realize I said 
$36 on Thursday).  Given that the simple 200-dma is sitting at 
$36.50 that would be a good target to shoot for but there is no 
rule that says you can't harvest gains at current levels.  This 
is especially true now since KKD has fallen nearly two weeks 
straight without a bounce.  Thus, it's overdue for one. Should a 
bounce occur, the most likely range is back towards the $40 mark.  
We're going to set an official exit price of $36.50 and if the 
stock trades there, we're out!

Suggested Options:
Since we are so close to our exit, we're not suggesting new 
plays.

Annotated Chart:


 


Picked on September 8 at $41.69
Change since picked:     - 3.79
Earnings Date          08/21/03 (confirmed)
Average Daily Volume:       1.0 million 
Chart =


---

Cabot Microelect. - CCMP - cls: 55.83 chng: -0.74 stop: 59.25*new*

Company Description:
Cabot Microelectronics is a supplier of high performance 
polishing slurries used in the manufacture of advanced integrated 
circuit (IC) devices, within a process called chemical mechanical 
planarization (CMP).  CMP is a polishing process used by IC 
device manufacturers to flatten many of the multiple layers of 
material that are built upon silicon wafers and necessary in the 
production of advanced ICs.  CMP enables IC device manufacturers 
to produce smaller, faster and more complex IC devices with fewer 
defects.

Why we like it:
The Semiconductor stocks got pummeled last week for the first 
time in several months and by the time Friday's closing bell 
rang, the Semiconductor index (SOX.X) had endured a 7.6% 5-day 
slide.  That leaves the SOX resting just above $420 support, and 
we would expect a near-term rebound from either that level or 
$400 early next week.  Our CCMP play has been performing right to 
script, and last week's tally left the stock sitting on a 9.8% 
loss.  A consistent pattern of lower highs and lower lows has 
taken price below initial support at $58 and then $56.50 and 
we're looking at a very likely test of the $55 (our initial 
profit target) early next week.  Conservative traders ought to 
harvest partial gains at that point, as the odds of a rebound in 
the SOX spilling over into shares of CCMP is pretty good.  Better 
to take the gains off the table and then look for a fresh entry 
opportunity when that rebound loses steam.  The most likely point 
for new entries will be on a failed rebound in the $58.00-58.50 
area, in conjunction with a failed rebound in the SOX near $445.  
Lower stops to $59.25, just above the intraday highs from last 
Tuesday.

Suggested Options:
Aggressive short-term traders will want to focus on the October 
55 Put, as it will provide the best return for a short-term play.  
If looking for a longer-term play, then we would favor the 
November 50 Put.  Even though it is currently out of the money, 
it should provide sufficient time for the move to unfold without 
time decay becoming a significant factor.

BUY PUT OCT-55 UKR-VK OI=2717 at $2.25 SL=1.10
BUY PUT OCT-50 UKR-VJ OI=1731 at $0.75 SL=0.30
BUY PUT NOV-50 UKR-WJ OI= 232 at $2.20 SL=1.10

Annotated Chart of CCMP:


 

Picked on September 23rd at    $59.05
Change since picked:            -3.22
Earnings Date                10/23/03 (unconfirmed)
Average Daily Volume =          767 K
Chart =


---

Gilead Sciences - GILD - close: 55.42 chg: -0.33 stop: 60.01     

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:
The sell-off in shares of GILD have continued pretty nicely.  
It's still producing a series of lower highs and volume has been 
strong on the declines indicating some conviction.  Now the stock 
has paused near the $55 level and it's time for a decision. 
Short-term traders should be planning their exits now.  We 
suspected that $55 might be support and shares are down almost 
three weeks straight with almost no bounce.  However, even though 
GILD is overdue for a bounce the weakness in broader markets 
could keep the current bearish trend intact.  

GILD's point-and-figure chart displays the rising bullish support 
level near $53.00.  Yet the normal weekly candlestick chart shows 
virtually no support until the $50 area, which would almost 
coincide with the daily's 200-dma about $48.50.  We're going to 
leave the play open and see if GILD can drop to the $50 area but 
we do suggest that traders consider taking some profit off the 
table.  We have a wide stop at $60 but more conservative 
investors might be able to get by with a stop near $58.00.  Keep 
an eye on the BTK biotech index.  The BTK has broken its 50-dma 
and is currently near round-number support at 450.  Another 
breakdown here would be even more discouraging for the bulls.


Suggested Options:
The October and November puts are probably the best bet for 
short-term traders.  We like the 60s but the 55s should work well 
too.

BUY PUT OCT 55 GDQ-VK OI=2233 at $2.30 SL=1.15
BUY PUT OCT 60 GDQ-VL OI=1463 at $5.60 SL=3.25
BUY PUT NOV 50 GDQ-WJ OI= 925 at $1.90 SL=0.90
BUY PUT NOV 55 GDQ-WK OI=1187 at $3.80 SL=1.75
BUY PUT NOV 60 GDQ-WL OI=1139 at $6.80 SL=4.00

Annotated Chart:

 

Picked on September 16 at $59.40
Change since picked:       -3.98
Earnings Date           07/31/03 (confirmed)
Average Daily Volume:       3.31 million  
Chart =


---

Johnson Controls - JCI - close: 95.32 change: -0.43 stop: 99.25

Company Description:
Johnson Controls, Inc. is engaged in automotive systems and 
facility management and control.  In the automotive market, the 
company is a major supplier of seating and interior systems and 
batteries.  For non-residential facilities, JCI provides building 
control systems and services, energy management and integrated 
facility management.  

Why we like it:
Close, but no cigar!  We were looking for shares of JCI to 
confirm their bearish intentions by trading below $95 last week.  
Price action was looking favorable for such a development on 
Friday, but buyers appeared just in the nick of time, limiting 
the low to $95.01.  That level is critical because it is 
historical support, as well as the site of the ascending 
trendline from the March lows.  But perhaps most important, $95 
is the level at which the PnF chart will issue a new PnF signal.  
We haven't set this play up with a trigger, but conservative 
traders may want to wait for a break below that level before 
initiating new positions.  At that point, either the break below 
support or a subsequent failed rebound below $95-96 looks good 
for an entry point.  More aggressive traders can try to front run 
that breakdown, by looking for a failed bounce below the 50-dma 
($97.59).  Once that breakdown occurs, we'll be looking for an 
initial drop to the $90 level, with an outside chance of a 
decline all the way to strong support near $86.  Leave stops set 
at $99.25.

Suggested Options:
Aggressive short-term traders will want to focus on the October 
95 Put, as it will provide the best return for a short-term play.  
Longer term traders will want to look to the November 90 Put, as 
it should provide ample time for JCI to move in our favor without 
time decay becoming a major factor.  But take note that these 
were just listed on Monday and open interest is still very low.

BUY PUT OCT-95 JCI-VS OI=407 at $1.95 SL=1.00
BUY PUT OCT-90 JCI-VR OI=192 at $0.60 SL=0.30
BUY PUT NOV-90 JCI-WR OI= 12 at $1.60 SL=0.75

Annotated Chart of JCI:

 

Picked on September 25th at    $95.75
Change since picked:            -0.43
Earnings Date                10/22/03 (confirmed)
Average Daily Volume =          479 K
Chart =



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

I T T Industries - ITT - cls: 59.64 chg: +0.12 stop: 62.51

Company Description:
ITT Industries, Inc. (www.itt.com) supplies advanced technology 
products and services in key markets including electronic 
interconnects and switches; defense communication, opto-
electronics, information technology, and services; fluid and 
water management; and specialty products. Headquartered in White 
Plains, NY, the company generated $4.99 billion in 2002 sales. In 
addition to the New York Stock Exchange, ITT Industries stock is 
traded on the Midwest, Pacific, Paris, and Frankfurt exchanges.
(source: company press release)

Why We Like It:
We like ITT as a put play for several reasons.  The month of 
September should have been more bullish for the stock.  The 
company reiterated their financial guidance twice and received a 
nice upgrade from Goldman Sachs.  Yet investors ignored all of it 
and have sent shares strongly lower.  As a matter of fact shares 
of ITT have been slowly eroding over the last few months while 
most of the market has been climbing.  The slow trend of lower 
highs and lower lows has given way to a technical breakdown at 
the simple 200-dma and the $60 psychological level.  Volume has 
been pretty strong the last several days of declines indicating 
some conviction by the bears.  

The recent breakdown on Wednesday was confirmed with additional 
weakness Thursday and Friday with Friday's session displaying new 
selling pressure at the $60 mark (see the intraday chart).  We 
also note that ITT's point-and-figure chart looks pretty bearish.  
Our target is going to be for a move to the $55 level.  Look for 
some support near the 57.50 area but we don't expect it to hold.

Suggested Options:
Our preference to play the drop in ITT would be the October and 
November 60's and 55's but investors who prefer a higher delta 
can consider the 65's.

BUY PUT OCT 55 ITT-VK OI= 82 at $0.40 SL= --
BUY PUT OCT 60 ITT-VL OI= 81 at $1.65 SL=0.85
BUY PUT OCT 65 ITT-VM OI=170 at $5.60 SL=3.25 (low premium)
BUY PUT NOV 55 ITT-WK OI=  0 at $0.85 SL= --
BUY PUT NOV 60 ITT-WL OI= 90 at $2.50 SL=1.25
BUY PUT NOV 65 ITT-WM OI=  0 at $5.90 SL=3.50

Annotated Chart:


 

Picked on September 28 at $59.64
Change since picked:       -0.00
Earnings Date           07/28/03 (confirmed)
Average Daily Volume:        546 thousand 
Chart =



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The Option Investor Newsletter                   Sunday 09-28-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: If I Had Known...
Traders Corner: We All Need A Little Action – And This Week We 
     Got It!
Traders Corner: Where is the Dow Going?


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*****
LEAPS
*****

If I Had Known...
By Mark Phillips
mphillips@OptionInvestor.com

If I had known I could put a top in the market so easily, I would 
have done it long ago!  About three weeks ago, I finally threw in 
the towel and decided to quit banging my bearish drum and try to 
get with the bullish program.  I did so with the full knowledge 
(that I alluded to on several occasions) that the market would 
probably take my capitulation as the final signal that it was time 
to reverse to the downside.

The major indices banged around near their highs just long enough 
for me to stick some bullish play candidates out there and start 
feeling like we might have another buyable dip.  The problem with 
the bearish case all along is that there hasn't been the catalyst 
or fundamental change to spook the bulls.  I believe that catalyst 
arrived last weekend in the form of the G7 meeting, which sent all 
the major markets plunging lower.  The specific statement that I 
think sparked the selloff in equities was the basic agreement that 
the dollar needed to be allowed to weaken.  Ok, our Treasury 
Secretary came out with the same line of BS about no change to the 
strong dollar policy, but come on.  

There has really been nothing done from a policy standpoint to 
support the dollar since early in 2002.  During that roughly 20-
month span of time, the Dollar index (DX00Y) has dropped by 22%!  
All the while, the Fed has been printing money like mad (which 
weakens the value of the dollar), the administration has been 
running up record setting deficits and running a wildly expanding 
and record-setting current account balance.  What has our 
administration done to shore up the dollar?  Issue statements 
about how we still support a strong dollar and then follow that up 
with more BS about how the dollar is strong if it is viewed as a 
stable store of value.  I'm sorry, I just don't see anything here 
that speaks to me of a strengthening dollar.  

This whole redefining of what a strong-dollar policy is and then 
saying we still support it is patent nonsense.  Yet the American 
public goes happily along its way knowing that their leaders 
support a strong-dollar policy.  It is truly mind-boggling to me 
how our government treats us like simpletons and we dutifully 
endeavor to fall short even of the lowly qualifications ascribed 
to us by our politicians.  I could go on and on with respect to my 
political ramblings and all of the issues that drive me into 
"rant" mode, but we don't have the time for it.

Suffice to say, the dollar is weak and it's going to get a lot 
weaker before it shows any appreciable signs of strength.  
Contrary to the desires of the Fed, you can't print your way to 
economic prosperity.  There is a lot that needs to change before 
we're going to see true, sustained economic growth, not the least 
of which are untold mountains of debt, unfunded obligations in 
both the government and corporate sector, a still very large 
amount of unused manufacturing capacity and rising unemployment.  

So what does any of this have to do with the market?  Until a week 
ago, nothing.  Investors were going along their merry way, buying 
the slightest dip and driving the markets and most stocks to new 
highs for the year.  But the G7 statements injected a dose of 
reality into a frothy and over-valued market.  The DOW fell back 
to just above 9300, the S&P 500 fell back under 1000 and the 
NASDAQ Composite dropped below 1800.  All of these represented 
large declines off of their values of just one week ago.  For the 
week, the DOW lost 3.4%, the S&P 500 lost 3.9% and the NASDAQ Comp 
shed 5.9%.  So, is this the beginning of the Big Decline?  Believe 
it or not, my answer is no.  At the same time, I do not think 
we've seen the extent of the near-term downside.

Wasn't that helpful?  GRIN  I've written at great length of my 
perception that we're in a long-term secular bear market.  Nothing 
short of true economic growth and the major indices charging to 
new all-time highs can shake my belief in that reality.  But at 
the same time, there will be very tradable mini bull markets as 
investors correct the bearish excesses from time to time.  We can 
think of these as brief pauses along the road to the eventual 
bottom in the market where we'll actually find something not seen 
in a very long time -- attractive valuations.

More and more, our current market is reminding me of both the 1929 
crash and the implosion witnessed in the Japanese Nikkei.  Not so 
much in terms of price structure or anything so measurable.  But 
in terms of the underlying psychology, which drives market 
sentiment and short-term buy/sell decisions.  Since October 2002, 
the markets have been correcting upwards in a very bullish 
fashion, with sentiment readings moving to record highs and 
valuations following suit.  This is the first serious bullish 
correction that we've seen in this secular bear market, and I 
don't expect one week of sharp selling to have brought that cycle 
to an end.

Let's look at specifics.  At the bull market peak in 2000, the 
valuation on the S&P 500 propelled the valuation of that index to 
a P/E ratio of 29.41.  Today, the P/E ratio (according to S&P's 
own website) is 29.46.  That means that since the end of March 
2000, we have made NO PROGRESS along the path of correcting the 
excesses of the preceding bull market.  Let's look at the 
sentiment figures, which show the latest numbers from Investor's 
Intelligence.  The latest figures show 57.4% of newsletter 
writer's hold a bullish stance, while a mere 18.8% being bearish.  
That is extreme and last week's slide in the market did little to 
reverse the strong bullish bias.

I write every week about my thoughts on the VIX (the CBOE market 
volatility index), but I'm having a hard time interpreting it this 
week in light of the changes made there.  Up until last Monday, 
the VIX was based on the Black Scholes calculation on the S&P-100 
(OEX).  It has now been changed to a different calculation method 
(supposedly more accurate than the old Black Scholes model) and is 
now related to the S&P 500 (SPX).  The market began a pretty large 
slide last Monday, and the VIX rose last week from 19.07 to 22.23 
(a 16.5% rise) to end at its highest level since the first week of 
August.  

Normally, I would view that rise from below 20 as the beginning of 
a major correction in the market.  But I'm not as convinced due to 
the shakeup in the calculation method.  Is it a coincidence that 
the changes in the VIX took place when it seems every market 
commentator had been fixated on it and at the exact same time that 
the markets began to correct?  I'll let you be the judge.  Suffice 
to say, I'm regarding the VIX readings with a certain degree of 
skepticism until I see how the VIX and the VXO (the new volatility 
measure for the OEX) move.

I don't know about other charting programs, but the VIX is now a 
composite index, showing OEX volatility information going back to 
the beginning of time, even though the underlying instrument on 
which it is calculated changed one week ago.  At the same time, 
the VXO (which is the extension of the OEX volatility data) only 
shows one week of data.  Why not leave the VIX alone and linked to 
the OEX, while introducing the VXO and basing it on the SPX?  I 
have a hard time coming up with any answer other than to introduce 
confusion.  For what it is worth, the VXO ended the week at 23.88 
after tagging an intraday high of 24.89 on Friday.  Trough to 
peak, that makes the move of the OEX volatility measure equal to 
30.5%!  Was the switch made in this manner and at this time in 
order to camouflage the magnitude of the shift in market sentiment 
last week?  Inquiring minds would like to know!

Coming back on track with my market view, I do not expect a 
straight plunge lower from here.  I can see the SPX falling back 
into the range in which it traded for most of the summer, but in 
reality, I would be surprised to see a drop through the 960 level 
before we start getting the October earnings announcements.  
Investors are still relying on the prognostication for a second 
half economic recovery and will be loathe to relinquish their 
lofty dreams of making back what they had lost throughout the 
first leg of this bear market.

That said, if the bullish percent charts are to be believed, this 
is the time to start looking for new bearish position trades.  Not 
at current levels, but on the next failed rebound.  I really don't 
have the time this weekend to go into it in great detail, but will 
go through a detailed analysis in next week's Trader's Corner 
article.  Suffice to say that the Bullish Percent charts of the 
SPX, OEX and COMPX have tipped over with very convincing Sell 
signals, at least on the Sharp Chart view that I've harped about 
for several months.  This appears to be happening at the same time 
that the VIX (as best as I can read it) has launched higher out of 
the depths of the "complacency zone" and the overall markets have 
tipped over from very strong resistance levels.

Unfortunately, we saw this same scenario play out in early August 
and we all know the results from that.  Bullish percent readings 
reversed and went higher, the VIX went lower and the major indices 
surged to fresh 52-week highs.  While I think this time is a bit 
different, I don't really think we're going to see a major slide 
in the market just yet.  I think last week's slide was a wake-up 
call that all is not as rosy as it had been portrayed in the 
financial media.  But at the same time, the bullish sentiment has 
not been dealt a lethal blow.  Over the next few weeks, I'll be 
endeavoring to build a balanced list of plays so that we can 
benefit from either a continued upward push or a serious selloff 
after we start to get the Q3 earnings results.  So let's see 
what's up with the plays.

Portfolio:

None

Watch List:

AGN - With the slide in the rest of the market, it was no great 
shock to see AGN distance itself from our bullish entry trigger at 
$82.  Friday's price action dropped the stock right to the long-
term ascending trendline, where we saw a minor bounce, but nothing 
to get excited about.  This is definitely a play that we want to 
be in the watch-and-wait mode on.  If AGN can rally again and take 
out the $82 resistance level, then by all means we'll play it to 
the long side.  On the other hand, if price breaks below $76, 
we'll know that the bulls have lost the battle, as we'll be faced 
with a new PnF Sell signal.

AMGN - Wow!  Now that was not pleasant for the Biotechnology 
bulls!  AMGN is the bellwether stock for the group, and 
Wednesday's plunge below $66 is not a good sign.  The stock did 
manage to firm a bit at the end of the week, holding just above 
$64, but signs are not positive.  The prior week's trade at $70 is 
looking an awful lot like a bull trap and a quick look at the PnF 
chart shows precisely why the $64 level was defended so staunchly 
last week.  A trade at $64 will put AMGN on a PnF Sell with an 
initial vertical count of $57.  I'm not quite ready to pull the 
plug on this play, but I am also not interested in actually 
initiating new positions until we see a bit more price action 
unfold.  Let's err on the side of caution here and put the play on 
hold for a week.

WMT - The past few weeks have been looking rather bearish for WMT 
(ever since I chickened out and put the play on hold) and it looks 
like the first leg of the downward move is close to being complete 
with support being found near $56.50.  Last week finally got 
something constructive done on the daily chart of the Retail index 
(RLX.X), as it finally broke below the bottom of the ascending 
channel that has been building since early April.  A rebound from 
here should give us the lower high we want to see for WMT, 
confirming the lower high already in place on the RLX.  Let's 
reactivate WMT with an entry target of $58-59.  A rebound to that 
level should be accompanied by the RLX rebounding into the $355-
360 area and rolling over from the bottom of the fractured 
channel.  We'll use an initial stop at $61, just above the early 
September highs.

QQQ - Hey, now that is really encouraging!  The QQQ broke down 
hard last week, and by Friday's close was resting below the bottom 
of the rising channel (currently $32.70), but still above the 50-
dma ($32.45).  It isn't a decisive breakdown just yet, but I think 
we are getting close.  If October earnings fail to deliver on the 
lofty expectations, we could be looking at some serious pain for 
the bulls and I wouldn't rule out a drop below $30 to actually 
test the 200-dma (currently $28.44).  Another encouraging sign is 
the fact that the NASDAQ-100 bullish percent is still in bear 
correction status, while the NASDAQ Composite bullish percent gave 
a very clear Sell signal on the Sharp Chart view (although it is 
clearly still in a very strong bull confirmed status on the PnF 
chart).  But we definitely don't want to chase this market lower 
without stronger bearish indications.  QQQ does look weak enough 
though that I'm willing to reinstate the play with an aggressive 
entry target of $34.  A failed rally near that level looks 
attractive for a position trade.  We'll use a tight initial stop 
at $35 (just over the recent highs) and look for a drop to at 
least $30 in the weeks ahead.

SMH - Leading the Technology market higher throughout the past 
several months, the Semiconductors look like they may be poised to 
deliver that outperformance to the downside in the months ahead.  
The past 3 days saw the SMH drop sharply back into the rising 
channel from which it broke out in late August.  Just like what we 
saw in early August, the SMH came to rest right on its rising 50-
dma.  But this time, that moving average may not be enough to stem 
the decline, as the bottom of the channel is significantly lower 
this time down at $33.  Like we've done with several of our other 
plays this week, the SMH is coming off the bench and is ready for 
action.  Look for the next rebound to provide the best entry.  
We'll target an entry in the $36-37 area and use an initial stop 
at $39, just over the early September high.  Our initial target on 
the downside will be $30, although the possibility exists for a 
continuation down to the 200-dma (currently $27.89).  Note that 
the weekly Stochastics are finally tipping over out of overbought, 
but the PnF chart is still bullish.  This is still a very 
aggressive play and it is critical that we get a good entry point 
on a rebound, rather than trying to chase it lower.

FRX - So close, yet so far away.  FRX drifted down early last week 
and then vaulted sharply higher from just above $47.  In very 
volatile fashion, the stock surged over $52 before the excitement 
faded and it is drifting back down, now resting just above the 
200-dma.  Driving that volatile price action was news that the FDA 
had decided to back the company's Alzheimer's drug.  That 
certainly bodes well for our play, but it remains to be seen if we 
can get a favorable entry.  Chasing the stock higher is not the 
way I'd choose to play it, especially in an overall weak market.  
Let's raise our entry target just a bit to $47-48 and look for a 
pullback and rebound from that area to give us what we want.


Radar Screen:

HD - I've lost interest in HD as a position trade.  The stock 
seems to have found an equilibrium point between $30-35, with 
insufficient buying or selling interest to break it out of the 
range.  I'm removing it from the Radar Screen this weekend to make 
room for better candidates.

FNM - Isn't it interesting how FNM really wasn't affected by the 
decline in the broad markets last week?  Chalk it up to the impact 
of falling interest rates.  With bond yields falling again, it 
appears the risk of an interest-related derivative fiasco have 
been mitigated.  I still favor the downside in FNM, but now does 
not appear to be the time to take a position.  The principal 
descending trendline that I'm following currently rests just below 
$74, even though I could make an argument for trendline resistance 
at $70.  I'm content to let it lie for now, as weekly Stochastics 
are still in a strong bullish ascent.  FNM will find its way to 
our Watch List soon enough and quite possibly over the next few 
weeks.

QCOM - Proving the wisdom of not chasing the stock higher with a 
new bullish position, QCOM finally succumbed to the selling last 
week and is fast approaching the $40 support level.  In reality, 
we could be looking at a nice bullish entry point in the $38-39 
area, but I want to see how the current decline plays out first.  
We might get lucky enough to see a better entry down near the 200-
dma if the selling gets a bit carried away.  QCOM's fundamentals 
look pretty solid to me and now we'll just have to see if price 
action supports that view in the weeks to come.

BVF - Fuggedaboudit!  That tantalizing bullish setup I saw last 
week vanished in a flash as BVF broke down in a big way.  So big 
in fact that the stock found its way onto the regular OIN Put list 
this weekend.  The stock clearly is not a bullish candidate 
following its break of the 200-dma.

DJX - It's baaaack!  You had to know as soon as we saw some signs 
of actual weakness, I'd be foaming at the mouth to reinstate our 
bearish DJX play.  But I'm restraining myself this week, as we 
really haven't seen a crack in the bullish percent readings for 
the DOW yet.  To make for a viable play, we'll need to be able to 
get an entry on a failed rebound near $95 and then look for a 
subsequent decline to at least the $90 level.  Barring an 
explosive rebound next week, look for the DJX put play to make its 
reappearance on the Watch List.

NEM - Speaking of plays I've been dying to bring back, NEM has 
been at the forefront of my mind.  I just couldn't justify a 
bullish play here until we saw some kind of significant pullback.  
The selling in the Gold sector over the past 2 days has been a 
good start, but has a long ways to go before I'll be ready to take 
the plunge.  Gold stocks have been outperforming actual gold for 
several months now, so it is reasonable to assume that they'll see 
more weakness in the near term.  But the long-term picture is very 
bullish, and a weakening dollar only reinforces that view.  We 
don't even want to consider a long-term bullish stance until this 
decline extends a bit further.  At a minimum, I'd like to see a 
38% retracement of the rally off the March lows, which comes in 
around $35.50.  Even better would be a 50% retracement down near 
the $33 level.  Either way, I think we have plenty of time, with 
weekly stochastics still pegged in overbought and the daily 
oscillator just starting to release from overbought.  But if we 
can get the entry right, this is the one bullish play that I feel 
the most strongly about over the next 1-2 years.

Closing Thoughts:

I don't mind telling you that last week was very reassuring to me, 
because of the more rational price action.  But I still have mixed 
emotions about committing completely to the bearish camp.  
Sentiment is still strongly bullish -- that could be a contrarian 
indicator or a signal that this correction in an overall bear 
market has further to run to the upside.  As I'm sure you all 
know, my long-term view is to the downside, due to the excesses 
that haven't even begun to be wrung out of stock valuations.  But 
I've grown tired of being bearish and being wrong.  So as I 
endeavor to both provide my views of the market and provide 
winning trading suggestions, I'll endeavor to build a balanced 
list of plays, allowing us all to benefit in either a rising or 
falling market.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
AGN    09/14/03   $82          JAN-2004 $ 85  ZFH-AQ
                            CC JAN-2004 $ 80  ZFH-AP
                               JAN-2005 $ 90  YOK-AR
                            CC JAN-2005 $ 80  YOK-AP
AMGN   09/14/03   HOLD         JAN-2004 $ 70  ZAM-AN
                            CC JAN-2004 $ 65  ZAM-AM
                               JAN-2005 $ 70  WAM-AN
                            CC JAN-2005 $ 60  WAM-AL
FRX    09/21/03   $47-48       JAN-2004 $ 50  ZML-AJ
                            CC JAN-2004 $ 45  ZML-AI
                               JAN-2005 $ 50  WRT-AJ
                            CC JAN-2005 $ 40  WRT-AH


PUTS:
WMT    08/03/03  $58-59        JAN-2005 $ 55  ZWT-MK
                               JAN-2006 $ 55  WWT-MK
QQQ    08/10/03  $34           JAN-2005 $ 32  ZWQ-MF
                               JAN-2006 $ 32  WD -MF
SMH    08/24/03  $36-37        JAN-2005 $ 35  ZTO-MG
                               JAN-2006 $ 35  YRH-MG


New Portfolio Plays

None


New Watchlist Plays

None


Drops

None


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TRADERS CORNER
**************

We All Need A Little Action – And This Week We Got It!
By Mike Parnos, Investing With Attitude

Smoking A Little Grass-o
It was about time the NYSE cut its "GRASSO."  It had been growing 
out of control – with the help of some personal and political 
fertilizer.  I'm sure (well, maybe not that sure) he's a nice guy, 
but I still think he looks like an alien (albeit a rich one).  
This guy was making tens of millions of dollars – for what?

For that kind of money, even I'd be willing to lift my lazy butt 
up off the couch, put on a tie, and shake hands with Larry, Moe 
and Curly every morning in the exchange opening ceremony.  I'm a 
gracious kind of guy – or at least a good actor.  Hell, I'd even 
do it for half!

With that kind of money, I could buy my own Domino's franchise, a 
Krispy Kreme franchise, plus have my choice of servants to press 
the buttons on my remote – and anything else that needed pressing.
______________________________________________________________

Putting Our Portfolio Money To Work – Again!
Well, it's been an eventful week – to say the least.  We closed 
two positions – one for a nice profit and the other for a not-so-
nice loss.  We're still ahead of the game, though.  The result is 
that we have freed up over $30,000 that we can use elsewhere.  
With three weeks left until expiration, let's see if we can 
squeeze out a little more profit from the October option cycle.

NEW CPTI POSITIONS.
October Position #3 – FDC (First Data Corp.) "Joined" Condor – 
Trading at $39.80.
We selected FDC, a financial stock, because is may be less 
vulnerable volatile movements of the tech stocks.  We're going to 
sell 10 contracts of the October FDC $40 calls and sell 10 
contracts of the October FDC $40 puts for a total credit of $2.40 
($2,400).  Then, for protection, we'll buy 10 contracts of the 
October FDC $45 calls and 10 contracts of the October FDC $35 puts 
for a total debit of $.30 ($300).  Our total net credit is $2.10 
($2,100).

Our profit range is $37.90 to $42.10.   The closer FDC finishes to 
$40, the more profit we will make.  The parameters of our profit 
range are also our bailout points.

October Position #4 – INTC (Intel Corp.) "Joined" Condor – Trading 
at $27.27.
We're going to sell 10 contracts of the October INTC $27.50 calls 
and sell 10 contracts of the October INTC $27.50 puts for a total 
credit of $2.10 ($2,100).  Then, for protection, we'll buy 10 
contracts of the October INTC $32.50 calls and 10 contracts of the 
October INTC $22.50 puts for a total debit of $.20 ($200).  Our 
total net credit is $1.90 ($1,900).

Our profit range is $25.60 to $29.40.   The closer INTC finishes 
to $27.50, the more profit we will make.  The parameters of our 
profit range are also our bailout points.

An Important Reminder.
These option prices are based on Friday's closing prices.  The 
prices on Monday may reflect an addition two days of time erosion.  
The trades are still valid if you can come within $.10-$.15 of the 
net premium.  And BEWARE of significant Monday morning gaps!  With 
these "Joined" Condors, a gap may change the whole dynamic of the 
trade.  It using good judgment and money management techniques to 
pass up trades where our chances of success have been reduced.  
It's hard enough to make a buck in this market.  We don't need to 
look for trouble.  Believe me, it will find us.
____________________________________________________________

Not Getting The Credit You Deserve?
A number of CPTI students have been getting less premium on their 
trades than they could have for a variety of reasons.
a) The order for each option was entered individually instead of 
as a combined spread order.
b) Your broker's online software does not have spread order entry 
capability.
c) You are trying to leg into the position
d) Your telephone broker is not familiar enough with options.
e) You didn't explain your order to your broker correctly.
f) Maybe you've been too greedy, trying to get too much and 
missing the trade.

If you have to place your order verbally, here is what you need to 
tell your broker.  (This is only an example):  "I'd like to place 
a bull put spread order.  I'd like to sell 10 contracts to open of 
the IBM November $85 puts and buy 10 contracts to open of the IBM 
November $80 puts for a credit of $1.05, good for the day."

Remember, we're only going to enter orders as "spread" orders if 
the best bid and ask prices are offered on the same exchange.  
Indexes are more conducive to this because they normally trade on 
only one exchange.
______________________________________________________________

OCTOBER POSITIONS
October Position #1 – SPX Iron Condor – Trading @ 996.85
We were going to create an Iron Condor with a range of 995-1075 
and take in $2,300 in premium.  However, on the Monday following 
expiration Friday, the SPX gapped lower.  So, we adjusted our 
condor to take the gap into consideration.  We created the Iron 
Condor with a new range is 980-1065. 

We sold 10 contracts of the October 980 puts and also sold 10 
contracts of the October 1065 calls.  Then we bought our 
protection in the form of 10 contracts of the October 970 puts and 
10 contracts of the October 1075 calls.  

We took in a total of $2,300 in premium and that's our maximum 
potential profit.  Our maximum profit range is 980 to 1065.  Our 
safety range is 977.70 to 1077.30.  

We were able to shave off a little from the bid ask spreads by 
submitting our orders as spread order (see above).  The market 
took a pretty good hit last week, but, even at 996.85, we still 
have some cushion in our Iron Condor position.

October Position #2 – QQQ – Put Calendar Spread – Trading @ $32.58
We decided to risk a buck.  Since many folks think the market is 
due to correct.  So we created a cheap play that will let us take 
advantage of a nice down move.

We bought 10 contracts of January 04 QQQ $32 puts and sold 10 
contracts of October 03 QQQ $32 puts for a total debit of $1.00 
($1,000). If/when the QQQs make their move down, the January $32 
put will increase in value more rapidly than the October $32 put.  
We'll look for a $500-$750 profit on this position and take the 
money and run.  The risk is small.  The percentage profit 
potential is very appealing.  This week the market moved down 
nicely.  Another few points down for the QQQs and we'll be in 
healthy profit territory.

QQQ ITM Strangle – Ongoing Long Term -- $32.58.
We bought 10 contracts of the 2005 QQQ $39 puts @ $7.00 = $7,000 
and also bought 10 contracts of the 2005 QQQ $29 calls @ $7.30 = 
$7,300 for a total debit of $14,300.  Then we sold 10 contracts of 
the QQQ Oct. 33 puts @ $.85 = $850 and also sold 10 contracts of 
the QQQ Oct. 34 calls @ $1.05 = $1,050 for a total credit of 
$1,900.

HPQ (Hewlett Packard) Bear Put Spread – HPQ at $19.40.
HPQ is weak and may return to the $15 range.  So, we bought 10 
contracts of the HPQ Feb. 2004 $20 puts @ $2.25 and we sold 10 
contracts of the HPQ Feb. 2004 $15 puts @ $.40.  Total debit of 
$1.85. Potential max profit is $3.15.  We'd gladly accept a profit 
of $800-900 and close the position early if the opportunity 
presents itself.  This is a long-term position.

OEX – Bearish Calendar Spread – OEX @ $499.61
We bought 8 contracts of OEX November 470 puts @ $10.60 and sold 8 
contracts of OEX September 470 puts @ $2.20 for a total debit of 
$8.40.  The Sept. 470 puts obviously expired worthless.  We were 
going to sell the October 490 puts and take in another $2.10.  
However, with the Monday market gap-down, we were able to take in 
$3.10 instead.  Our new cost basis is $5.30.

OCTOBER CLOSED POSITIONS
#1 – APPX Short Term Straddle:  $1,400 Profit
#2 – BBH "Joined" Iron Condor:  $300 Loss
For trade details, refer to Sept. 21 and Sept. 25 columns
__________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have 
questions about our educational plays or our strategies?  The 
OptionInvestor archives offer a wealth of information – from my 
columns to past and present informational and educational columns 
by my OI colleagues. To find past CPTI (Mike Parnos) articles, 
look under "Education" on the OI home page and click on "Traders 
Corner."  They're waiting for you 24/7.
___________________________________________________________

Happy Trading! 
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In 
trading, as in life, it’s not the cards we’re dealt. It’s how we 
play them. Your questions and comments are always welcome.

Mike Parnos
CPTI Master Strategist and HCP


**************
TRADERS CORNER
**************

Where is the Dow Going?
By Steve Gould

It has been about a month since I wrote my last "Where is the Dow 
Going?" analysis and over the last month I have learned two 
things.  One, it is a lot easier to write a market analysis once a 
month, because given a month's time, the market usually does 
something.  Two, I have recently been writing more about the S&P 
500 than the Dow, but it is too late to change the name of the 
column.  Besides, the wave pattern on the Dow will eventually 
stabilize and become clearer.

So let's take a look at the market and see what exciting things 
have transpired over the last month.

Chart: S&P 500 Weekly 9/26/2003


 


This is a weekly chart of the S&P 500.  I use the S&P 500 because 
the Elliott Wave pattern is much clearer than either the Dow or 
the NASDAQ.  In fact, this pattern is almost textbook grade.  

Since its high in January 2000 until the last quarter of 2002, the 
S&P 500 has completed waves 1-3.  It is currently in the midst of 
the wave 4 correction.  The question now becomes, is this the top 
of the 4 wave?  If so, how far down will the market go before 
changing direction?

The A-B-C correction pattern of this 4 wave appears to be an 
expanded flat.  The characteristics of an expanded flat are

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

Based on this chart, the A wave is a 3 wave, the B wave is a 3 
wave and the C wave is a 5 wave.

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

The B wave is 90% of the A wave.

3. The C wave is somewhere between 1.38 to 1.62 times the height 
of the A wave.  

The C wave is 1.40 x Wave A.

So far the A-B-C correction pattern seems to have fulfilled all 
the criteria necessary for an expanded flat.  Additionally, the 4 
wave has retraced a bit less than 38.2% of wave 3 and the 
oscillator appears to be peaking out at just over a 138% 
retracement.  This pattern has all the makings of a completed 4 
wave.  

Let's examine the daily chart to scrutinize the five wave basic 
pattern of the C wave more closely to see if it has truly 
completed.

Chart: S&P 500 Daily 9/26/2003


 

If I were to write another primer article on Elliott Waves and I 
needed a classic example of a bullish five wave basic pattern, I 
could very easily use this chart of the daily S&P 500 from March 
to the present.  It just doesn't get any better than this.  
Everything just divides and subdivides so nicely, you would think 
that there was a vast left/right wing conspiracy dictating 
marching orders to the market.

After examining the daily chart, can we ascertain if this is 
indeed the top of the market?  

Yes it is and here are the two reasons why. 

1. The five wave basic pattern is complete.  

We know this because this pattern is the classic Type II set up.  
A Type II setup occurs at the end of the 5 wave when the following 
criteria are met:

A. A 5 wave is confirmed

The 5 wave is confirmed because it subdivides into another five 
wave basic pattern.

B. There is oscillator divergence

The second peak is lower than the first.

C. The stock closes below the lower displaced moving average and 
then another bar closes below the low of the first bar.

The bar following the arrow closed lower.

Each of these criteria have been met.  

2. Since the five wave basic pattern of the C wave is complete, 
the C wave is complete.  Since the C wave is complete, the A-B-C 
correction is complete and the 5 wave is about to start.

Another possibility would exist that the S&P 500 has not yet 
completed the five wave basic pattern of the last 5 wave, but that 
is not a likely event.  I will not be a 100% confident (I am 99% 
right now) until the S&P 500 breaks 992 and the top of the 1 wave 
is pierced.  At that point, the first rule of Elliott Waves would 
be violated.  (The four wave can not violate the territory of the 
1 wave.)  At 992 the S&P 500 is at the point of no return of going 
short term higher.

Chart: S&P 500 Hourly 9/26/2003


 


The S&P 500 hourly chart shows a definite impulsive wave down.  It 
appears that the S&P 500 is nearing the end of the 3 wave and 
should be starting the wave 4 retracement shortly.  The S&P 500 
will most likely retrace to the 1009-1017 level before continuing 
its 5 wave downward thrust.  It is hard to determine the exact 
level it will reach, but it should be somewhere below 995.  At 
that point the S&P 500 will enter into a very short corrective 
(bullish) phase, probably sometime late in the week, and then 
begin a more definite downward move.

Over the past several months, the pattern of the markets was 
ambiguous at best.  The market hit juncture points and could go 
either way depending on if the pattern was complete or not.  
However, this pattern is rather clear and I have a high confidence 
level that the S&P 500 is on its way to the 650 level.  (See the 
turquoise/pink bar on the weekly chart.)  Nevertheless, I do have 
one reservation.  There is a radio commentator who is predicting a 
Dow 10,000 by the end of the year.  He has been right quite a bit 
lately and I do respect his opinion.  He is also predicting an 
ugly correction and so far it has started to sprout warts 
everywhere.  Can we both be right?  I think so.  

In order for the S&P 500 to hit 650, it will have to drop 500 
points over the next month or so.  Has this ever happened? Almost.  
Look at the weekly chart.  The S&P 500 has dropped 300-400 points 
over 1-2 months several times over the last 2 years.  This is a 
definite possibility.  With a 400 point drop, the S&P 500 will hit 
the 740 mark which would take it below the October 2002 low.  This 
would satisfy a completed Elliott Wave pattern and the markets 
could very easily turn to surpass the current highs.  We shall 
see.

Bottom line, I am very short term very bearish and I am expecting 
a substantial drop in the market.  After that, well, I will 
discuss that when the time comes.


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The Option Investor Newsletter                   Sunday 09-28-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Stock Stages Explained -- Part IV
Naked Puts: Q&A With The Editor
Spreads/Straddles/Combos: Stocks Slump As Earnings Season Approaches

Updated In The Site Tonight:
Market Posture: A Week for the Bears


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*************
COVERED CALLS
*************

Trading Basics: Stock Stages Explained -- Part IV
By Mark Wnetrzak

With the recent market retreat, it's a good time to continue our
review of the terms that are commonly used when describing the
technical character of an issue.

One of the most well-known techniques for chart analysis comes
from the book "How to Profit in Bull and Bear Markets", by Stan
Weinstein.  He describes in detail the condition and outlook for
most stocks in terms of stages.  This week, we will continue this
segment with a brief description of stages III and IV, including
some hints for timing your exit transactions.  First, we'll look
at a stage III, which is usually described as a "consolidation"
phase.

Stage III is the area where the stock begins to encounter weakness
and fails to make new highs.  It is defined by sideways trend in
the issue and a flattening of the long-term moving average.  This
is the place to tighten stop losses and take profits if the rally
fails to continue.  Of course, you should allow for a possible 
resumption of stage II as well.


Stage III Chart - Proctor and Gamble (NYSE:PG)
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-09-28/oicc_092803_01.gif

Proctor and Gamble (NYSE:PG) is not a "perfect" stage III chart,
but it's close.  The sharp decline back in July, 2002 probably
shook out a lot of long-term shareholders as the issue violated
its 30-week MA.  However, the stock has essentially undergone a
lateral correction and the long-term moving average has been
moving sideways for a lengthy period.  This "trading range" can
last a long time and the uptrend can even resume.  Remember,
technical analysis is not an exact science and this is a good
example because stage III "tops" can exist for several years
before a primary direction is redefined.

Stage IV is when the bullish primary trend breaks down completely,
with the stock falling through a long-term moving average and then
failing to rebound above it.  The moving average will turn downward
as the stock continues to decline and make new lows.  When a stock
enters stage IV, it’s your last chance to sell.  For those who use
bearish strategies, make sure the issue has room to fall further
before shorting the stock or buying puts.  Also, by defining the
support area below the current price you can place your sell-limits
and closing orders accordingly.


Stage IV Chart - Gatx Corporation (NYSE:GMT)
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-09-28/oicc_092103_02.gif

Gatx Corporation (NYSE:GMT) is an excellent example of how the
trend can change from stage III (lateral activity) to stage IV
(bearish decline) in a relatively stable stock.  The stock 
began its down-trend in early 2001 but "key" transition occurs
in conjunction with the terrorist-driven market sell-off in
September.  The move below a multi-year support level near $30
is simply too much for the stock to overcome and subsequent 
"recovery" rallies eventually fail to inspire any sustained
buying pressure in the issue.  The downtrend lasts a little
over two years.  Only in the last few months has the issue
shown signs of breaking its downtrend and in time, after
building a Stage I base, the cycle may begin all over again.

Trade Wisely!

P.S.  Readers: Feel free to send us your candidates for review!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

CHU      7.43    8.10  OCT  7.50  0.50    0.57*   7.1%
ARIA     5.24    6.10  OCT  5.00  0.60    0.36*   6.7%
VXGN     6.50   11.16  OCT  5.00  1.80    0.30*   5.5%
THOR    16.83   16.16  OCT 15.00  2.70    0.87*   5.4%
HEPH    26.29   24.68  OCT 22.50  4.90    1.11*   4.5%
ALKS    14.23   12.90  OCT 12.50  2.20    0.47*   4.2%
IDBE    18.95   15.45  OCT 15.00  4.40    0.45*   3.4%
MXO     12.90   12.20  OCT 12.50  1.05    0.35    3.2%
HEPH    30.20   24.68  OCT 25.00  6.10    0.58    2.6%
DSCM     7.99    7.22  OCT  7.50  0.85    0.08    1.0%
SCMR     5.20    4.51  OCT  5.00  0.65   -0.04    0.0%
INCY     5.15    4.54  OCT  5.00  0.50   -0.11    0.0%
BEAV     5.12    4.21  OCT  5.00  0.45   -0.46    0.0%
ISIS     8.05    6.41  OCT  7.50  0.80   -0.84    0.0%

*   Stock price is above the sold striking price.

Comments:

Ah, finally a correction.  The worrisome action was bound to
happen sooner or later.  The question is: now that the rally
lasted longer than anyone expected, will the pull-back be
more extreme than expected?  The next few weeks should be
interesting, to say the least, as the major averages test
technical support areas.  Hollis-Eden Pharma (NASDAQ:HEPH)
came under some selling-pressure this week and dropped to a
key support area Friday after announcing a follow-on share
offering priced at $25.  ID Biomedical (NASDAQ:IDBE) also
dropped rather sharply this week (to its 30-dma) and is at
a key moment.  Some other stocks to consider for an early
exit may include: DSCM, SCMR, INCY, BEAV and ISIS.

Positions Previously Closed: None


NEW CANDIDATES
*********

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

HLIT    5.48  OCT  5.00  LOQ JA  0.80  954    4.68  21   9.9%
QSFT   12.44  OCT 12.50  QUD JV  0.50  661   11.94  21   6.1%
OXGN   11.17  OCT 10.00  QYO JB  1.55  796    9.62  21   5.7%
XING    8.43  OCT  7.50  QAE JU  1.20  344    7.23  21   5.4%
CREE   19.21  OCT 17.50  CVO JW  2.25  7571  16.96  21   4.6%
NABI    8.22  OCT  7.50  NIQ JU  0.95  30     7.27  21   4.6%
SEAC   13.18  OCT 12.50  UEG JV  1.05  207   12.13  21   4.4%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
HLIT - Harmonic  $5.48  *** Cheap Speculation! ***

Harmonic (NASDAQ:HLIT) signs, manufactures and sells a variety of
broadband solutions that allow communications service providers
around the world to deliver video, voice and data to their
subscribers.  The company's fiber-optic and digital video systems
enable network operators to provide a range of interactive and
advanced digital services that include digital video, high-speed
Internet access, telephony, HDTV, video and audio streaming and
video-on-demand.  The Broadband Access Networks Division applies
its strengths in optics and electronics, including expertise with
lasers, modulators and radio frequency technology, to develop
products that provide enhanced network reliability and allow
broadband service providers to deliver advanced services.  The
Convergent Systems Division develops standards-based solutions
that enable operators to increase the capacity of their broadband
networks with advanced compression and stream processing systems.
This week, shares of Harmonic set a 52-week high after SoundView
said the company is returning to its position as a leading vendor
of high-end digital products for cable and satellite industries.
Reasonable short-term speculation that offers favorable reward at
the risk of owning Harmonic near technical support.

OCT-5.00 LOQ JA LB=0.80 OI=954 CB=4.68 DE=21 TY=9.9%


*****
QSFT - Quest Software  $12.44  *** Stage I Base ***

Quest Software (NASDAQ:QSFT) is an independent software vendor
for the primary database management systems and packaged and
custom applications used by large and medium-sized enterprises.
The company generates revenues by licensing its products, mainly
on a perpetual basis, and by providing support, maintenance and 
implementation services for these products.  Quest's products
improve the quality of service of its customers' key software
applications.  Many of its products also initiate reduction in 
associated capital and operating expenses by minimizing hardware,
software and/or personnel costs.  The company markets over 50
products grouped into three main categories: database products,
application performance management products and Microsoft
infrastructure products.  Quest continues to forge a Stage I
base and this position offers investors a great method to target
shoot an entry point closer to technical support.

OCT-12.50 QUD JV LB=0.50 OI=661 CB=11.94 DE=21 TY=6.1%


*****
OXGN - OXiGENE  $11.17  *** New Drug Speculation ***

OXiGENE (NASDAQ:OXGN) is a biopharmaceutical company engaged
principally in research into, and the development of, products
for use in the treatment of cancer.  The company's efforts are
focused on developing products for application as direct cancer
treatment agents, particularly vascular targeting agents (VTAs).
These agents attack a tumor's network of existing and emerging
blood vessels, which are its main life support system.  Oxigene
is also investigating the use of certain products for other
applications in the field of ophthalmology, in particular, 
age-related macular degeneration and diabetic retinopathy.  
The company is in various stages of clinical and pre-clinical
development for multiple therapeutic product candidates that
were derived from its principal vascular targeting platform. 
Oxigene's main technology is based on Combretastatin, a family
of proprietary small molecule anti-tumor VTAs.  Oxigene jumped
on favorable news earlier this year and has since traded in a
lateral range with support near $10.  Traders who believe the
trend will continue can profit from that outcome with this
position.

OCT-10.00 QYO JB LB=1.55 OI=796 CB=9.62 DE=21 TY=5.7%


*****
XING - Qiao Xing  $8.43  *** Chinese Telecom ***

Qiao Xing Universal Telephone (NASDAQ:XING) is engaged in the
design, manufacture and sale of telecommunication terminals and
equipment in the People's Republic of China, including in-house
corded and cordless telephone sets under the Qiao Xing trademark.
Its QX Communication subsidiary also designs, develops and 
manufactures global standard for mobile (GSM) mobile telephones
for CEC Telecom Co., Ltd.  Qiao Xing has a nationwide sales
network that includes 3,500 retail outlets in China.  The
company has introduced smart card telephones and expects to
develop and introduce a number of special function corded
telephones to the market.  Qiao Xing has also developed and
introduced caller ID display and coin operated telephones.
Xing is another stock that is stuck in a lateral trading range
and this short-term position allows for a reasonable reward at
the risk of owning XING shares near recent technical support.

OCT-7.50 QAE JU LB=1.20 OI=344 CB=7.23 DE=21 TY=5.4%


*****
CREE - Cree  $19.21  *** Near Historical Support  ***

Cree (NASDAQ:CREE) is engaged in the development and manufacture
of compound semiconductor materials and electronic devices made
from silicon carbide (SiC), and a developer and manufacturer of 
optoelectronic and electronic devices made from gallium nitride
(GaN) and related materials.  The company also produces radio
frequency (RF) power transistor components and modules for
wireless infrastructure applications using silicon-based bipolar
and laterally diffused metal oxide semiconductor (LDMOS) process
technologies.  Cree operates its business in two segments, the
Cree segment, which consists of its SiC-based products and
research contracts; and the Cree Microwave segment, which
consists of RF transistors and RF transistor modules based on
a silicon platform.  Cree has been hampered recently by lawsuit
issues and a SEC investigation but has recently rallied on 
favorable news.  The current outlook is recovering and the
recent bullish activity supported by heavy volume bodes well
for the future.  We simply favor the long-term support area
near $16 and investors can speculate on the near-term performance
of the issue with this position.

OCT-17.50 CVO JW LB=2.25 OI=7571 CB=16.96 DE=21 TY=4.6%


*****
NABI - Nabi Biopharma  $8.22  *** More Drug Speculation ***

Nabi Biopharmaceuticals (NASDAQ:NABI) discovers, develops, makes
and markets products that power the immune system to help people
with serious, unmet medical needs.  Their product portfolio and 
research capabilities are focused on developing and commercializing
novel vaccines and antibody-based biopharmaceutical products that
prevent and treat infectious, autoimmune and addictive diseases,
including hepatitis B, hepatitis C and Staphylococcus aureus 
infections, immune thrombocytopenia purpura (ITP) and nicotine
addiction.  The company also has a clinical trials program
involving its lead investigational products, StaphVAX, Altastaph,
Civacir and NicVAX.  In addition, Nabi Biopharmaceuticals collects
specialty and non-specific antibodies for use in its products, as
well as to supply pharmaceutical and diagnostic customers for the
subsequent manufacture of their products.  The recent bullish
break-out on heavy volume above resistance near $7.50 (which now
becomes support) suggests further upside potential.  Traders can
use this position to speculate on the near-term performance of 
the issue.

OCT-7.50 NIQ JU LB=0.95 OI=30 CB=7.27 DE=21 TY=4.6%


*****
SEAC - SeaChange  $13.18  *** New Trading Range?  ***

SeaChange International (NASDAQ:SEAC) is a developer, manufacturer
and marketer video storage servers that automate the management
and distribution of long-form video streams, such as movies or
other feature presentations, and short-form video streams, such
as advertisements.  The company sells its products and services to
cable system operators, telecommunications companies and broadcast
television companies.  The company's broadband network segment
includes its VOD (video-on-demand) System, which digitally
manages, stores and distributes digital video, allowing cable
system operators and telecommunications companies to offer VOD
and other interactive television services, including interactive
electronic advertising and retrieval of Internet content, through
the television.  Earlier this month SeaChange broke out on heavy
volume as the stock continues to stair-step higher.  We favor the
technical support near the cost basis in this play and traders who
are interested in a long-term portfolio position should consider
a covered-call on SEAC.

OCT-12.50 UEG JV LB=1.05 OI=207 CB=12.13 DE=21 TY=4.4%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

PLUG    5.18  OCT  5.00  PQL JA  0.55  429    4.63  21  11.6%
VRST   12.53  OCT 12.50  UVQ JV  0.50  595   12.03  21   5.7%
MVIS    8.29  OCT  7.50  QMV JU  1.05  314    7.24  21   5.2%
VANS   10.76  OCT 10.00  VQG JB  1.10  128    9.66  21   5.1%
TRDO   23.04  OCT 22.50  UNC JX  1.25  481   21.79  21   4.7%
SLNK   18.65  OCT 15.00  SXU JC  4.10  0     14.55  21   4.5%
NPSP   27.15  OCT 25.00  QKK JE  2.90  1332  24.25  21   4.5%




*****************
NAKED PUT SECTION
*****************

Options 101: Q&A With The Editor
By Ray Cummins

One of our readers offered some great questions on evaluating
volatility in stocks; a subject which is important for both
option "buying" and "selling" strategies.


Attn: Contact Support
Subject: Implied Volatility 

Hello Ray, 

How are you doing?  Hope you had a nice time in Florida.

I have a question on Implied Volatility. I am looking at NTES,
SINA and SOHU for straddle/strangle plays using December options.
My theory is these stocks move almost 20%, easily, in any given
calendar month and since they have had a parabolic move so far,
they would be good "Waterfall Decline" candidates.  At the same
time they are heavily shorted and so I wouldn't be surprised if
they just keep going up till December.

So I looked at their Implied Volatility and historic volatility.
Their HVs are at their 52 week lows, however their IV is still
around 70%. On other stocks, I would think 70% is high.  But,
should I be looking at IV for these stocks based on just their
past IV to see if they are cheap or not rather than looking at
a number like 70 and thinking it is high compared to IV of other
stocks in the internet space?  I am confused to see the HV at 52
week lows while the options are still trading at a lofty level.

Any thoughts would help me in a big way in understanding this
puzzle.  Thanks again.

Cheers,

PA

PS: I closed my IVGN [NOV] straddles at 59; picked at 54.55; for
a quick, small profit of 17%.


Hello PA

Great job with the IVGN straddle -- a good play for sure!

As far as evaluating the implied volatility in bullish Internet
stocks: You are experiencing another dilemma for the volatility
trader.  How do you rank volatility in a very active (magnitude)
issue that has moved mostly in one direction?

The problem with using longer-term historical volatility in the
calculations is that it is based on a statistical measure - which
reflects standard deviation of the stock from the mean over the
trading pattern of past stock prices, averaged over some period
such as 20, 50 or 100 trading days.  This is not as effective with
issues such as SINA, NTES, and SOHU as they simply don't "fit the
mold" of an average stock's movement pattern, thus they do not
conform well to that type of analysis.  As you mentioned (and as
Larry McMillan suggests), a better way to evaluate option prices
in this case might be to calculate the current implied volatility,
then compare it with a past measure of implied volatility.  If the
current is way above the past, then the option is "overpriced", if
it is way below, then it's "underpriced".  Using historical values
to calculate "fair value" is somewhat misleading because implied
and actual volatility can remain at much different levels for long
periods of time.  As Larry says, you might also consider using the
average implied volatility over some past period of time or using
an "adverse" volatility estimate, based on historical volatility,
in order to give you a conservative price estimate.  For example,
if you are going to buy an option, use a low estimate -- perhaps
the minimum of the 20-, 50-, and 100-day historical volatility.
Then, if the option still seems inexpensive, you'll know you are
at least getting it at a fairly good price, based on actual stock
volatility movements.  For option selling, you'd want to inflate
the volatility estimate -- perhaps using the maximum of those 3
historical volatility periods.  In that way, the current price
would have to be very high in order for the option to appear
overpriced.

In those situations where you focus on historic volatility¸ Larry
suggests studying 20-day and 50-day, as well as 1-year periods,
because that gives you a better idea of what level of volatility
you can generally expect to experience over the life of the option
you are buying or selling.  For instance, if you are going to be
holding the option for a few weeks or a few months, then you can
expect volatility to be in a specific range related to that time
frame.  However, that method does not always apply and in the case
of high-flying stocks (such as NTES, SOHU and SINA), it may not
accurately reflect the future potential of the underlying issues.

Volatility is indeed the most important variable in valuing an
option.  All other factors are known; stock price, strike price,
dividends, interest rates, and time remaining.  If you want to be
an expert on the subject (which is not something I can teach you
in an E-mail), read the bibles of option trading: Larry McMillan's
Options As A Strategic Investment, and Sheldon Natenberg's Option
Volatility & Pricing.  Both are available in the OIN bookstore.

Good Luck!

                        
SUMMARY OF PREVIOUS CANDIDATES 
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

EMIS     6.19    6.85  OCT  5.00  0.35    0.35*   6.5%  18.6%
ADLR    15.95   18.17  OCT 12.50  0.50    0.50*   3.6%  11.8%
USG     17.51   17.20  OCT 12.50  0.35    0.35*   3.1%   9.9%
SEAC    14.34   13.18  OCT 12.50  0.35    0.35*   3.1%   9.0%
STAT    14.58   13.28  OCT 12.50  0.40    0.40*   2.9%   8.4%
NPSP    32.82   27.15  OCT 25.00  0.50    0.50*   2.2%   7.7%
NKTR    13.83   12.73  OCT 10.00  0.25    0.25*   2.2%   7.2%
ONXX    23.92   20.00  OCT 20.00  0.40    0.40    2.2%   7.2%
THOR    18.60   16.16  OCT 15.00  0.25    0.25*   1.8%   6.6%
CEPH    49.62   45.76  OCT 40.00  0.65    0.65*   1.8%   6.5%
IDXC    26.02   22.79  OCT 22.50  0.35    0.35*   1.7%   5.3%
INSP    19.92   20.99  OCT 17.50  0.35    0.35*   1.8%   5.2%
GOLD    23.93   22.46  OCT 20.00  0.35    0.35*   1.5%   5.1%
ASKJ    21.29   17.15  OCT 17.50  0.45    0.10    0.5%   1.7%

*  Stock price is above the sold striking price.

Comments:

Into every life a little rain must fall and this week, it really
poured!  Friday's closing prices pushed share values to one-month
lows and the recent technical patterns suggest further downside
potential.  With that outlook in mind, traders should exit any
positions with less than outstanding technical indications and
these issues are in that category: Ask Jeeves (NASDAQ:ASKJ), IDX
Systems (NASDAQ:IDXC), Onyx Pharmaceuticals (NASDAQ:ONXX), Nps
Pharmaceuticals (NASDAQ:NPSP) and Thoratec (NASDAQ:THOR).  Stocks
on the early-exit "watch" list include Seachange (NASDAQ:SEAC)
and i-Stat (NASDAQ:STAT).

Previously Closed Positions: None


WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The Simple Monthly Yield is based on the cost of the underlying
issue (in the event of assignment), including the premium from
the sold option, thus it reflects the maximum potential loss in
the position.


NEW CANDIDATES
*********

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

GERN   12.98  OCT 10.00  GQD VB 0.25 1879  9.75  21   3.7%  12.7%
LRCX   22.81  OCT 20.00  LMQ VD 0.40 64   19.60  21   3.0%   8.6%
PDII   25.06  OCT 22.50  PKU VX 0.40 31   22.10  21   2.6%   7.4%
RIMM   37.29  OCT 32.50  RUL VZ 0.50 1102 32.00  21   2.3%   6.8%
AMHC   41.98  OCT 35.00  QMH VG 0.40 123  34.60  21   1.7%   5.7%
ERES   33.63  OCT 27.50  UDB VY 0.30 23   27.20  21   1.6%   5.7%
MERQ   45.76  OCT 40.00  RQB VH 0.50 4207 39.50  21   1.8%   5.6%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).

*****
GERN - Geron  $12.98  *** Drug Speculation Only! ***

Geron (NASDAQ:GERN) is a biopharmaceutical company focused on
developing and commercializing therapeutic and diagnostic
products for various applications in oncology and regenerative
medicine, as well as research tools for drug discovery.  The
firm's product development programs are based on three core
technologies: telomerase, human embryonic stem cells and
nuclear transfer.  Telomerase is an enzyme that, when placed
in normal cells, is capable of restoring telomere length, thus
increasing the lifespan of cells without altering their normal
function or causing them to become cancerous; human embryonic
stem cells enable the development of transplantation therapies
by providing standard starting material for the manufacture of
cells and tissues, and nuclear transfer is used for creating
cloned animals.  Shares of biotech company Geron rallied last
week after its CEO announced positive early findings from a
prostate cancer vaccine study.  Dr. Thomas Okarma said Monday
at the UBS Global Life Sciences Conference that Geron's Phase
I-II trial of a prostate cancer vaccine targeting telomerase,
a protein highly expressed and specific for cancer cells, has
met a key goal.  Trades who believe the results will translate
into high share values for the issue in the near-term should
consider this position.

OCT-10.00 GQD VB LB=0.25 OI=1879 CB=9.75 DE=21 TY=3.7% MY=12.7%


*****
LRCX - Lam Research  $22.81  *** Chip-Equipment Specialist! ***

Lam Research Corporation (NASDAQ:LRCX) designs, manufactures,
markets and services semiconductor processing equipment used in
the fabrication of integrated circuits.  The company's products
are currently used in the front-end of the wafer processing
manufacturing cycle: etch, CMP, and post-CMP clean.  Lam's unique
family of etch systems incorporates plasma technologies designed
to meet both current and future needs.  The company offers both
200-milimeter and 300-milimeter Teres CMP integrated polishing
and cleaning systems with Linear Planarization Technology (LPT),
which uses a high-speed belt instead of the rotating table used
in conventional polishers.  The company also provides the Synergy
Integra, which incorporates advanced cleaning technology with a
platform that integrates polisher and cleaner.  LRCX is one of
our old favorites in the chip-equipment segment and the company
was recently upgraded by Credit Suisse First Boston based on an
expected continuation of positive order trends in the second half
of 2003.  The current consolidation period may find support near
the mid-summer trading range and investors who think that bullish
activity will resume in the coming weeks can profit from that
outcome with this position.

OCT-20.00 LMQ VD LB=0.40 OI=64 CB=19.60 DE=21 TY=3.0% MY=8.6%


*****
PDII - PDI Incorporated  $25.06  *** A Necessary Consolidation? ***

PDI (NASDAQ:PDII) is an innovative healthcare sales and marketing
provider to biopharmaceutical and medical devices companies and
and the diagnostics industry.  Its three business units offer
service and product-based capabilities for companies seeking to
maximize profitable brand sales growth.  The three units include
PDI Pharmaceutical Products, PDI Sales and Marketing Services,
and PDI Medical Devices and Diagnostics.  Shares of PDII have
been "on the move" since early July when the company announced
that full-year earnings would likely top analysts' predictions,
due to new business contracts awarded to its sales unit and
expectations of a solid performance from its hypertension drug
Lotensin.  The bullish momentum has carried the stock higher in
recent months and traders who believe the trend will continue,
after a necessary consolidation, should consider this position.

OCT-22.50 PKU VX LB=0.40 OI=31 CB=22.10 DE=21 TY=2.6% MY=7.4%


*****
RIMM - Research In Motion  $37.29  *** Multi-Year High! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, the firm provides solutions for seamless access to
time-sensitive information and communications, including e-mail,
telephone, messaging and Internet- and intranet-based applications.
The company's technology also enables a broad array of third-party
developers and manufacturers around the world to enhance their own
products and services with wireless connectivity.  RIM's portfolio
of products includes a family of wireless handhelds, the BlackBerry
wireless e-mail solution, embedded radio modems and a suite of
software development tools.  RIMM shares soared Friday, despite the
broad sell-off, after a Bear Stearns upgrade.  Analyst Andrew Neff
upgraded RIMM to "peer perform" based on stronger growth prospects,
driven by new products, retail channel expansion and international
growth.  Traders who wouldn't mind owning the issue near a basis
of $32 should consider this position.

OCT-32.50 RUL VZ LB=0.50 OI=1102 CB=32.00 DE=21 TY=2.3% MY=6.8%


*****
AMHC - American Healthways  $41.98  *** Uptrend Intact! ***

American Healthways (NASDAQ:AMHC) is the nation's leading and
largest provider of specialized, comprehensive care enhancement
services to hospitals, physicians and health plans.  In addition,
American Healthways is the only company in its industry whose
programs are designed to meaningfully address the needs of 100%
of its customer populations.  The clinical excellence of the
firm's programs have been reviewed and approved by Johns Hopkins,
and their quality has been recognized by the National Committee on
Quality Assurance, the Joint Commission on Accreditation of Health
Care Organizations, and the American Accreditation Health Care
Commission, making American Healthways the first and only care
enhancement provider in the nation to be accredited or certified
by all three organizations.  American Healthways contracts to
provide disease and care management programs to health plans with
members in all 50 states, the District of Columbia and Puerto Rico.
The firm also operates diabetes management programs in hospitals
nationwide.  AMHC is one of the few stocks that has continued to
move higher during the recent market slump and a cost basis near
$35 seems reasonable for this unique health services company.

OCT-35.00 QMH VG LB=0.40 OI=123 CB=34.60 DE=21 TY=1.7% MY=5.7%


*****
ERES - eResearch Technology  $33.63  *** Entry Point? ***

eResearch Technology (NASDAQ:ERES) is a provider of technology
and services to the pharmaceutical, biotechnology and medical
device industries on a global basis.  The firm is a leader in
providing centralized core-diagnostic electrocardiographic (ECG)
technology and services to evaluate cardiac safety in clinical
development.  The firm is also a leader in providing technology
and services for streamlining the clinical trials process by
enabling its customers to automate the collection, analysis,
and distribution of clinical data in all phases of clinical
development.  Developing new drugs and health related products
is one of the most complex industries in the world and ERES is
a leader in this growing market segment.  The firm has recently
announced some new agreements for cardiac safety monitoring and
information distribution services and the fundamental outlook
for the company is favorable.  Traders who wouldn't mind owning
a unique stock in the Health Services sector should consider
this position.

OCT-27.50 UDB VY LB=0.30 OI=23 CB=27.20 DE=21 TY=1.6% MY=5.7%


*****
MERQ - Mercury Interactive  $45.76  *** Entry Point? ***

Mercury Interactive (NASDAQ:MERQ) is a global leader in business
technology optimization, and is committed to helping customers
optimize the business value of information technology.  Founded
in 1989, Mercury Interactive conducts business in more than 35
countries and is one of the fastest growing enterprise software
companies today.  Mercury Interactive offers a range of software
and services to govern the priorities, people, and practices of
IT; deliver and manage applications; and integrate IT strategy
and execution.  More than 30,000 customers rely on the company's
offerings to improve quality and performance of applications and
manage IT costs, risks and compliance.  Shares of MERQ have been
among the most consistent performers in the Technical and System
Software group and the recent decline may offer a suitable entry
point for investors who want a long-term positioning the issue.

OCT-40.00 RQB VH LB=0.50 OI=4207 CB=39.50 DE=21 TY=1.8% MY=5.6%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

CIPH   11.85  OCT 10.00  UBI VB 0.30 0     9.70  21   4.5%  13.6%
SLNK   18.65  OCT 15.00  SXU VC 0.35 4    14.65  21   3.5%  12.2%
CREE   19.21  OCT 17.50  CVO VW 0.50 1672 17.00  21   4.3%  11.2%
LEXR   17.59  OCT 15.00  EQG VC 0.30 872  14.70  21   3.0%   9.2%
VXGN   11.16  OCT  7.50  UWG VU 0.15 851   7.35  21   3.0%   9.1%
NFLX   33.49  OCT 27.50  QNQ VY 0.40 2023 27.10  21   2.1%   7.4%
JCOM   37.34  OCT 30.00  JQF VF 0.40 468  29.60  21   2.0%   7.2%
NCR    31.56  OCT 30.00  NCR VF 0.55 244  29.45  21   2.7%   6.9%
BRCM   26.57  OCT 22.50  RCQ VX 0.30 2497 22.20  21   2.0%   6.3%
URBN   25.85  OCT 25.00  URQ VE 0.40 326  24.60  21   2.4%   5.9%
TRDO   23.04  OCT 20.00  UNC VD 0.20 40   19.80  21   1.5%   4.5%
MGAM   34.53  OCT 30.00  QMG VF 0.30 80   29.70  21   1.5%   4.5%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

Stocks Slump As Earnings Season Approaches
By Ray Cummins

The major equity averages fell again Friday as investors sold for
profits ahead of the quarterly earnings reporting season.

Technology shares led the retreat with the NASDAQ Composite Index
down 25 points to 1,792.  Blue-chip stocks fared a little better
on a percentage basis, with the Dow Jones industrials losing only
30 points to end at 9,313.  The broad Standard & Poor's 500 Index
slid 6 points to 996.  Trading was active with 1.4 billion shares
crossed on the New York Stock Exchange while 1.8 billion shares
changed hands on the NASDAQ.  Losers outpaced winners 2 to 1 on
the Big Board and 3 to 1 on the technology exchange.  In the bond
market, treasury prices rose in the wake of falling equity values.
The 10-year note finished up 16/32 at 101 26/32, yielding 4.02%.

*****************
PORTFOLIO SUMMARY
*****************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position or to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT CREDIT SPREADS
******************

Symbol  Pick    Last  Month  LP  SP  Credit  CB     G/L   Status

AMLN    29.04   27.15  OCT   22  25   0.30  24.70  $0.30   Open
MERQ    49.41   45.76  OCT   40  42   0.30  42.20  $0.30   Open
BBH    137.69  129.40  OCT  120 125   0.45 124.55  $0.45   Open
CELG    45.48   42.50  OCT   35  40   0.50  39.50  $0.50   Open
MYL     39.00   37.57  OCT   32  35   0.20  34.80  $0.20   Open
SINA    37.41   33.68  OCT   25  30   0.45  29.55  $0.45   Open
COGN    33.16   30.93  OCT   27  30   0.40  29.60  $0.40   Open
CTSH    40.41   36.19  OCT   30  35   0.55  34.45  $0.55   Open
IMDC    76.91   72.79  OCT   60  65   0.55  64.45  $0.55   Open
NEM     40.66   38.91  OCT   35  37   0.30  37.20  $0.30   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

Virtually any "bullish" positions are suspect given the current
market outlook, thus traders are encouraged to close losing plays
before they become very costly.  Every issue in this category is
a candidate for early exit.


CALL CREDIT SPREADS
*******************

Symbol  Pick    Last   Month  LC  SC  Credit  CB     G/L   Status

CAH     56.36   57.65   OCT   65  60   0.65  60.65  $0.65   Open
PFE     30.51   30.56   OCT   35  32   0.25  32.75  $0.25   Open
XL      76.05   76.07   OCT   85  80   0.60  80.60  $0.60   Open
APC     42.70   41.51   OCT   48  45   0.35  45.35  $0.35   Open
CI      47.15   44.30   OCT   55  50   0.50  50.50  $0.50   Open
FRX     48.93   50.70   OCT   60  55   0.50  55.50  $0.50   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss

Forest Laboratories (NYSE:FRX) is one to "watch" as it has seen
renewed buying pressure in recent sessions.
 

CALL DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

HEPH    26.29  24.68  OCT   20  22   2.25   22.25  0.25  Closed
APPX    38.74  30.81  OCT   30  33   2.95   32.95 (2.14) Closed
NVLS    38.55  33.62  OCT   32  35   2.10   34.60 (0.98) Closed
HTCH    33.02  32.78  OCT   25  30   4.50   29.50  0.50   Open?
AVII     5.54   5.21  DEC    5   7   0.90    5.90 (0.69)  Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss

There was little alternative but to close the bullish spreads in
technology stocks as the recent run-up has made them candidates
for large declines.  Avi Biopharma (NASDAQ:AVII) is a speculative
play based on potential news-driven activity later in 2003, thus
it will remain open until a major change in (technical) character
occurs.


PUT DEBIT SPREADS
*****************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

LMT     48.70  45.43  OCT   55  50   4.60   50.40  0.40   Open

Lockheed Martin (NYSE:LMT) did not offer the target debit in the
bearish position, however the available spread price was viable
for conservative traders with a bearish outlook on the issue.


SYNTHETIC (BULLISH)
*******************

Stock   Pick   Last   Expir.  Long  Short  Initial   Max.   Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

ADRX    20.79  17.81   DEC     25    17    (0.20)   0.15   Closed
CVTX    27.55  21.89   OCT     35    20    (0.10)   0.00   Closed
GLGC     6.00   4.90   NOV      7     5    (0.10)   0.00   Closed
XING     9.13   8.43   DEC     12     7     0.10    0.30    Open?

Qiao Xing Universal Telephone (NASDAQ:XING) offered a small profit
before the market-wide retreat, but all of the previous (bullish)
synthetic positions became candidates for early exit during the
past week.

     
SYNTHETIC (BEARISH)
*******************

No Open Positions


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short   Current   Max.    Play
Symbol  Price  Price   Option    Option   Debit   Value   Status

PRU     36.41  37.01   DEC-37C   OCT-37C   0.30    0.60    Open
MSFT    27.31  28.19   JAN-27C   OCT-30C   2.20    2.40    Open
ING     19.07  18.69   JAN-20C   OCT-20C   0.55    0.75   Closed
MDCO    26.17  24.01   JAN-30C   OCT-30C   0.50    1.20   Closed

Prudential (NYSE:PRU) and Microsoft (NASDAQ:MSFT) have weathered
the recent storm but both issues are on the "watch" list for the
coming week.


DEBIT STRADDLES
***************

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status
  
SNE     30.74  35.35   OCT    30    30     3.75    8.00   Closed
CLS     17.55  16.55   OCT    17    17     2.35    3.10    Open
NVDA    18.17  16.86   OCT    17    17     2.90    3.50    Open
AFCI    22.66  20.07   OCT    22    22     3.10    3.00    Open
TRI     30.50  29.52   NOV    30    30     4.90    5.00    Open
EASI    59.70  60.19   NOV    60    60     8.50    9.00    Open
YHOO    37.24  35.08   OCT    37    37     3.75    3.90    Open

Celestica (NYSE:CLS), Nvidia (NASDAQ:NVDA), Engineered Support
Systems (NASDAQ:EASI), and Yahoo! (NASDAQ:YHOO) have achieved
small profits.  The position in Sony (NYSE:SNE) has been closed
to "lock-in" favorable gains.


CREDIT STRANGLES
****************

No Open Positions


Questions & comments on spreads/combos to Contact Support
*************
NEW POSITIONS
*************

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance, and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
EBAY - eBay Inc.  $54.22  *** Trading Range? ***

eBay (NASDAQ:EBAY) is a Web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

EBAY - eBay Inc.  $54.22

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-47.50  QXB-VR  OI=19841  ASK=$0.35
SELL PUT  OCT-50.00  QXB-VJ  OI=41810  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$49.70


*****
GENZ - Genzyme  $46.00  *** Uptrend Intact! ***

Genzyme (NASDAQ:GENZ) is a global biotechnology firm that develops
and markets therapeutic products and services for serious diseases.
The company's broad product portfolio is focused on rare genetic
disorders, renal disease and osteoarthritis and includes an array
of diagnostic products and services.  Genzyme researches a range
of novel approaches to cancer, heart disease and other areas of
unmet medical need.  The firm serves patients in over 80 countries
worldwide.

GENZ - Genzyme  $46.00

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-40.00  GZQ-VH  OI=1156  ASK=$0.40
SELL PUT  OCT-42.50  GZQ-VR  OI=2807  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$42.20


*****
RIMM - Research In Motion  $37.29  *** Rally Mode! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, the firm provides solutions for seamless access to
time-sensitive information and communications, including e-mail,
telephone, messaging and Internet- and intranet-based applications.
The company's technology also enables a broad array of third-party
developers and manufacturers around the world to enhance their own
products and services with wireless connectivity.  RIM's portfolio
of products includes a family of wireless handhelds, the BlackBerry
wireless e-mail solution, embedded radio modems and a suite of
software development tools.

RIMM - Research In Motion  $37.29

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-30.00  RUL-VF  OI=1778  ASK=$0.30
SELL PUT  OCT-32.50  RUL-VZ  OI=1102  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$32.25


*****
BVF - Biovail  $36.75  *** Back In a Trading Range? ***

Biovail Corporation (NYSE:BVF) is a pharmaceutical firm engaged
in the development, manufacture and marketing of medications
utilizing advanced drug delivery technologies for the treatment
of chronic medical conditions.  The company's primary focus is on
three major therapeutic areas: cardiovascular (including Type II
diabetes), central nervous system and pain management.  Other
areas of interest include antiviral medicine and select niche
therapeutic categories with identified potential.  The firm's
Canadian subsidiary performs sales and marketing activities in
Canada for company products, as well as for products licensed
from third parties.  Biovail also has a full-service independent
Contract Research Division that provides clinical research and
laboratory testing services for its product development projects
and for third-party international and domestic pharmaceutical
companies, including several developmental partners.

BVF - Biovail  $36.75

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-45.00  BVF-JI  OI=5557  ASK=$0.15
SELL PUT  OCT-40.00  BVF-JH  OI=5506  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$40.55


*****
CERN - Cerner  $31.42  *** Sell-Off In Progress! ***

Cerner Corporation (NASDAQ:CERN) designs, develops, markets,
installs, hosts and supports software information technology and
content solutions for healthcare organizations and consumers.
The company's solutions give end users secure access to clinical,
administrative and financial data in real-time.  Consumers retrieve
appropriate care information and educational resources via the
Internet.  The company implements these solutions as stand-alone,
combined or enterprise-wide systems.  Cerner solutions can be
managed by the firm's clients or via an application outsourcing
or hosting model.  Cerner provides hosted solutions from its data
center in Lee's Summit, Missouri.

CERN - Cerner  $31.42

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-40.00  CQN-JH  OI=565  ASK=$0.50
SELL CALL  OCT-35.00  CQN-JG  OI=348  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$35.55


*****
GPRO - Gen-Probe  $51.70  *** Profit-Taking Underway! ***

Gen-Probe (NASDAQ:GPRO) is a global leader in the development,
manufacture and marketing of rapid, accurate and cost-effective
nucleic acid testing products used for the clinical diagnosis
of human diseases and for screening donated human blood.  Using
its patented NAT technology, Gen-Probe has received FDA approvals
or clearances for more than 50 products that detect a variety
of infectious microorganisms, including those causing sexually
transmitted diseases, tuberculosis, strep throat, pneumonia and
fungal infections.  The company also develops and manufactures
the only FDA-approved blood screening assay for the simultaneous
detection of HIV-1 and HCV, which is marketed by Chiron.  The
company and Bayer Corporation have formed a collaboration to
develop, manufacture and market nucleic acid diagnostic tests
for certain viral organisms, and under the agreement Bayer has
the right to distribute these tests.  Gen-Probe has 20 years of
nucleic acid detection research and development experience, and
its products are used daily in clinical laboratories and blood
collection centers throughout the world.  The stock will split
2-for-1 on 10/01/03.
 
GPRO - Gen-Probe  $51.70

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-65.00  PSU-JM  OI=871  ASK=$0.50
SELL CALL  OCT-60.00  PSU-JL  OI=375  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$60.55


*****
IMCL - ImClone  $37.73  *** Consolidation or Correction? ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers.  The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow.  In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors.  IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.

IMCL - ImClone  $37.73

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-50.00  QCI-JJ  OI=7511  ASK=$0.35
SELL CALL  OCT-45.00  QCI-JI  OI=7338  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.40-$0.60
POTENTIAL PROFIT(max)=8% B/E=$45.40


*************
DEBIT SPREADS
*************

These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
CCMP - Cabot Microelectronics  $55.83  *** Rolling Over? ***

Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high
performance polishing slurries used in the manufacture of advanced
integrated circuit (IC) devices, within a process called chemical
mechanical planarization (CMP).  CMP is a polishing process used
by IC device manufacturers to planarize or flatten many of the
multiple layers of material that are built upon silicon wafers
and necessary in the production of advanced ICs.  Planarization is
a polishing process that levels, smoothes, and removes the excess
material from the surfaces of these layers.  CMP slurries are
liquid formulations that facilitate and enhance this polishing
process and generally contain engineered abrasives and proprietary
chemicals.  CMP enables IC device manufacturers to produce smaller,
faster and more complex devices with fewer defects.

CCMP - Cabot Microelectronics  $55.83

PLAY (less conservative - bearish/debit spread):

BUY  PUT  OCT-65.00  UKR-VM  OI=394   ASK=$9.40
SELL PUT  OCT-60.00  UKR-VL  OI=1365  BID=$5.00
INITIAL NET-DEBIT TARGET=$4.30-$4.40
POTENTIAL PROFIT(max)=14% B/E=$60.40


*******************
SYNTHETIC POSITIONS
*******************

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

*****
NTE - Nam Tai Electronics  $24.51  *** A Reader's Request! ***

Nam Tai Electronics (NYSE:NTE) is a electronics manufacturing and
design services provider to original equipment manufacturers of
telecommunication and consumer electronic products.  Through its
electronics manufacturing services operations, the company makes
electronic components and subassemblies, including liquid crystal
display panels, transformers, LCD modules, and radio frequency
modules.  The firm also manufactures finished products, including
cordless phones, palm-sized personal computers, personal digital
assistants, electronic dictionaries, calculators and digital camera
accessories for use with cellular phones.  In addition, the company
assists its OEM customers in the design and development of their
products and furnishes full turnkey manufacturing services.  Its
services include hardware and software design, component purchasing,
assembly into finished products or electronic subassemblies and
post-assembly testing.

NTE - Nam Tai Electronics  $24.51

PLAY (very speculative - bearish/synthetic position):

BUY  PUT   OCT-20.00  NTE-VD  OI=26   ASK=$0.45
SELL CALL  OCT-30.00  NTE-JF  OI=984  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.10-$0.25
INITIAL TARGET PROFIT=$0.45-$0.60

Note:  Using options, the position is similar to being short the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $550 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($30.00).


***********************
STRADDLES AND STRANGLES
***********************

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

*****
ZMH - Zimmer Holdings  $55.52  *** Probability Play! ***

Zimmer Holdings (NYSE:ZMH) is engaged in the design, development,
manufacture and marketing of orthopaedic reconstructive implants
and trauma products.  Orthopaedic reconstructive implants restore
joint function lost due to disease or trauma in joints such as
knees, hips, shoulders and elbows.  Trauma products are devices
used primarily to reattach or stabilize damaged bone or tissue
to support the body's natural healing process.  The company also
manufactures and markets orthopaedic surgical products, which
include surgical supplies and instruments designed to aid in
orthopaedic surgical procedures.  Zimmer has operations in over
20 countries and markets products in more than 70 countries.  The
firm's primary customers include orthopaedic surgeons, hospitals
and healthcare purchasing organizations or buying groups.  These
customers range from multinational enterprises to independent
surgeons.

ZMH - Zimmer Holdings  $55.52

PLAY (conservative - neutral/debit straddle):

BUY CALL  DEC-55.00  ZMH-LK  OI=1816  ASK=$3.00
BUY PUT   DEC-55.00  ZMH-XK  OI=61    ASK=$2.40
INITIAL NET-DEBIT TARGET=$5.25-$5.30
INITIAL TARGET PROFIT=$1.90-$2.35


*****
MANH - Manhattan Associates  $27.68  *** Pure Premium Selling! ***

Manhattan Associates (NASDAQ:MANH) is a provider of technology
solutions to improve the effectiveness of and the efficiencies
within and across the supply chain.  The firm's solutions include
software, services and hardware that enhances distribution and
transportation efficiencies through the real-time integration of
supply chain constituents, including manufacturers, distributors,
retailers, suppliers, transportation providers and consumers.  Its
software provides solutions for the four principal elements of
supply chain execution: warehouse management, transportation
management, trading partner management and performance management.

MANH - Manhattan Associates  $27.68

PLAY (aggressive - neutral/credit strangle):

SELL CALL  OCT-30.00  MQR-JF  OI=2132  BID=$0.75
SELL PUT   OCT-25.00  MQR-VE  OI=803   BID=$0.75
INITIAL NET-CREDIT TARGET=$1.50-$1.65
POTENTIAL PROFIT(max)=21%
UPSIDE B/E=$31.50 DOWNSIDE B/E=$23.50


*****


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**************
MARKET POSTURE
**************

A Week for the Bears


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_092803.asp


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

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