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Daily Newsletter, Sunday, 10/12/2003

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The Option Investor Newsletter                   Sunday 10-12-2003
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: Gee, GE!
Futures Market: Dollar Woes
Index Trader Wrap: The Teflon Market
Editor's Plays: Betting on the Goal
Market Sentiment: Earnings Upon Us
Ask the Analyst: Asian markets
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 10-10        WE 10-03         WE 9-26         WE 9-19 
DOW     9674.68 +102.37 9572.31 +259.23 9313.08 -331.74 +173.27 
Nasdaq  1915.31 + 34.74 1880.57 + 88.50 1792.07 -113.63 + 50.67 
S&P-100  518.05 +  2.88  515.17 + 15.56  499.61 - 21.01 +  8.32 
S&P-500 1038.06 +  8.21 1029.85 + 33.00  996.85 - 39.45 + 17.67 
W5000  10085.32 + 95.02 9990.30 +343.82 9646.48 -407.59 +176.76 
RUT      519.06 +  6.78  512.28 + 27.00  485.28 - 34.92 + 11.14 
TRAN    2823.55 + 38.70 2784.85 +121.02 2663.83 -130.88 + 59.11 
VIX       18.45 -  1.05   19.50 -  2.73   22.23 +  3.16 -  1.18 
VXN       27.62 -  1.58   29.20 -  1.68   30.88 +  1.14 -  2.94 
TRIN       1.24            0.60            1.42            1.35 
Put/Call   0.93            0.75            0.98            0.68 
******************************************************************


 
Gee, GE!
by Jim Brown

You know the bulls are in control when the biggest manufacturing
company in America warns that they will miss earnings and the
market ignores it. You know the bulls are in control when 
Intel Chairman Andy Grove warns that the U.S. is in danger of
losing its technology lead due to outsourcing 500,000 high 
tech jobs over the last two years and the market ignores it. 

It was not a banner day for investor sentiment but the bulls
held the line once again. The market traded in a very tight
range with a solid underlying bid all day and came very close
to finishing in the green despite the bad news. 

The economic reports were not exciting with the PPI rising 
+0.3% when the consensus was flat. The majority of the 
increase was due to gains in food and energy and after 
subtracting those items the core rate was unchanged. The
finished goods component rose +1.2% with the strongest jump
in fresh vegetables and meat. With Canadian beef now outlawed
in the U.S. until the mad cow scare passes the price of 
red meat has rocketed. In the broader scope of things the 
inflation rate has remained very low at a +2.0% rate for the
year. There was nothing in this report for the Fed to worry 
about.

The International Trade deficit slowed during August as 
imports fell faster than exports. The headline number came 
in at -$39.2 billion compared to consensus estimates of 
-$41.5 billion. The drop in both imports and exports 
surprised analysts who worried that global demand may be 
slipping without a U.S. bounce to hold them up. France and
Germany both contracted in July with Germany dropping -2.9%
and France -0.9%. Mexico remains weak and Brazil is mired 
in a recession. The only pockets of strength were the Asian
economies. 

Those terribly unexciting economic reports failed to distract
traders from the GE and INTC warnings. However after seeing
the minor market impact it appears traders were more interested
in leaving early for the long holiday weekend. GE spoiled the
bullish party by warning that they were not going to hit their
previous 4Q estimates of 46-49 cents and would be looking at
45-47 cents instead. GE announced earnings for Q3 inline with
consensus estimates at 40 cents but revenue only rose +3%
from the same period last year. It was not a great quarter
but GE put on a strong face and went shopping to improve
future results. GE said higher costs and a challenging
environment caused several of their units to lose ground. 
They lowered the outlook for the plastics division due to 
weak demand. The shopping trip picked up a bargain in London
with the $9.5 billion acquisition of Amersham PLC, a British
medical diagnostic company. This fits in well with their 
current product line and Jeffery Immelt said we know how 
to do medical systems right. The strategy of announcing a 
key acquisition along with the disappointing earnings had 
the desired effect. The stock only lost -81 cents for the 
day. 

Andy Grove, the Intel Chairman, warned that America was 
losing its lead as the technology super power. Grove warned
that outsourcing jobs to India was growing at such a rapid
rate that 500,000 high tech jobs had left the U.S. in just
the last two years. Grove warned that India could take the
technology lead from the U.S. by 2010. He pointed out that
labor costs in India are only 1/6th the cost of the same
worker in America. With jobs leaving at such a rapid rate
the high paid American worker will find it tougher to find
another job that will provide him the same high standard 
of living. Grove warned that this was dangerous to the
future of America. He suggested that the U.S. technology
sector could go the way of the steel sector which enjoyed
a 90% global market share until the technology became
available overseas where cheaper labor eventually knocked
the U.S. back to only a 10% share. The sector has never
recovered from the blow. Grove warned than the same move
currently underway in information technology would be a
serious problem if allowed to continue. He also pointed
to the recent drop in the chip market from 90% American
made to massive amounts being produced in Asian markets
at a fraction of the cost. He said that 1 in 10 American
information technology jobs would be eliminated next year
by outsourcing overseas and millions more by the end of
the decade. (Gartner Group survey) He emphasized his point
by noting that the U.S. economy is slowly recovering but
the tech job market is not. This dire warning fell on deaf
ears and after a brief bout of selling the dip was bought. 

Other than the GE results, which were not really bad, the
earnings parade has been stellar. However we have only seen
the lead horses so far. Next week the pace will pick up
substantially and as long as the news remains the same 
traders should be pleased. JNPR was the first major tech
to report and they helped increase recovery hopes when they
said their book-to-bill was greater than 1.0 for the qtr. 
Next week will see a lot of various companies report and
the techs will have a tough test ahead of them. Word on 
the street has several banks ready to announce less than
stellar earnings as well. The bond implosion has caused
massive earnings losses at some major institutions or so
the rumor goes. The size of the losses are said to be
enormous. Rumor or fact remains to be seen but the BKX
is not making any progress as earnings dates get closer. 

Janus is still bleeding cash according to the people that
track these things. $4.4 billion was withdrawn in September
from Janus funds after they admitted finding several hedge
fund trading schemes. Several funds have pledged to make
investors whole for any damages by the fraudulent trading
practices and the authorities are expanding their probes
to new fund families almost daily. 

Get used to the cheap gas because it may not last. I paid
$1.45 for unleaded on Friday in Denver but with oil trading
over $32 a barrel on Friday those prices are not going to
last long. There are multiple reasons for these hikes and
you have heard them before. The bottom line is the coming
drag on the recovery when energy prices begin rising again.

There is no drag on the markets with the risk to the bears
instead of the bulls. Every dip is continuing to be bought
and the minor profit taking expected for Friday was so 
minor it was almost nonexistent. The NASD warned on Friday
that the tech dips were being bought on credit with margin
money and that margin credit was reaching dangerous levels.
According to the NASD there was $26 billion in margin debt
on Nasdaq stocks in July which is the most current month
reported. To put this in perspective there was only $21
billion in Nasdaq margin debt in March 2000 at the top of
the market. Stocks bought on margin are considered held 
by weak hands as a sudden drop in the market can cause a
wave of forced liquidation that further accelerates the 
drop. With Yahoo's market cap equal to General Motors there
is concern that bubble mania has returned. Volume in low 
priced stocks has surged to more than the NYSE or Nasdaq.
Volume in bulletin board stocks surged to 41 billion last 
month compared to 117 billion for all of 2000. This 
represents extreme speculation and an increase in market 
risk. 

Volume on Friday barely broke 3 billion shares across all
markets. It was 25% below Thursday's levels and there was
speculation that the Thursday volume was option expiration
related as traders rolled out positions before the holiday
weekend. Monday is Columbus Day and while the bond market
is closed the equity markets will be open. If you thought
Friday's volume was low wait until Monday. It is also an
expiration week but they have been remarkably uneventful
recently. At least uneventful from an expiration viewpoint.
Earnings will be heating up substantially as well as new
economic reports. Monday and Tuesday we get a pass on 
economics with no material reports. Wednesday we get the
Fed Beige Book and NY Empire State Index. Thursday has CPI,
Jobless Claims, Business Inventories, Industrial Production,
Capacity Utilization and the Philly Fed Survey. Friday has
Housing Starts, Building Permits and Michigan Sentiment. 

This sets up Thursday as a key day for the week. There are
over 400 companies that announce earnings from Monday thru
Thursday. Many of them are key blue chips and key tech 
stocks. We have key economic reports on Thursday and options
expire on Friday. This could be a volatile day. With Monday
a quasi holiday there will be a lot of money changing hands
in only three days of trading. One train of thought has the
Dow hitting 10,000 by Thursday on hopes of better than 
expected earnings from the big guys. That same trader talk
has the Dow recoiling from a touch of 10,000 with some
serious profit taking and portfolio reshuffling before the
mutual fund year end two weeks later. 

That is only one scenario being discussed but almost everyone
is having trouble coming up with a catalyst to push the Dow
any higher than 10K near term. I am not going to rehash the
gains for the year or the earnings expectations. They are
both at extreme levels. Bullish sentiment as measured by
Investors Intelligence is hovering at 60% and bearish 
sentiment is rising at 22.5%.  The Dow Bullish Percent chart
below shows the BP at 83.33. This is an extreme reading but
as you can see it has been over 80 for five consecutive 
months. The only conclusion we can draw here is that there 
is no weakness in sight. 
  
Dow Bullish Percent


 
Nasdaq Bullish Percent


 
   
Since the bulls are refusing to slow the stampede we should 
decide what the upside potential is from here. The Dow has 
reached a level where it is facing about six months of 
congestion in the 9800-10000 range from 2002. On a more 
detailed view you can see strong resistance at 9800, 9900 
and again at 10,000. Each of these levels will require 
stronger and stronger commitment by the bulls. 



 

The S&P is where the real battle will be fought. There is 
strong resistance at 1050 and again at 1068, which is the
38% retracement level from the all time high to the bear
market lows. These are the two levels that will serve as
resistance between now and Thursday. Once over 1068 the
next major hurdle is the 50% retracement at 1161 and the
five month high of 1170 from 2002. This could/should be
extremely tough resistance whenever we get there. 

S&P Weekly Chart


 

The Nasdaq has been unstoppable and it is also approaching 
an area of tough resistance between 1950 and 2050. This level
was the top for several months in 2001/2002. 

Nasdaq Weekly Chart


 


What does this mean to us? At the risk of alienating some
readers I have to stress caution once again. I can easily
buy the theory that the Dow will make a run toward 10000,
Nasdaq 2000, SPX 1068 but once there I have a hard time
believing that we will have enough momentum left to break
out of that resistance. We cannot go a day without several
noted analysts claiming +5% to +7% GDP growth for the 3Q/4Q.
Dallas Fed President McTeer said on Friday that growth was
likely to be 5% for both quarters with zero inflation. You
heard it straight from the top. Unfortunately we have been
hearing it daily for weeks. To not believe it is already
priced into the market would be in error. 

This brings us back to the facts. The bulls have a wall of
worry to climb and they have been doing an excellent job.
The only question is whether they can make it through this
earnings week without being tripped up. If they do make it
through this week then they are staring at the Mutual fund
year end two weeks later. Nobody knows if funds will try to
lock in profits or risk it all with a dice roll on the 4Q.
That leaves us with a huge wall of worry right in front of
strong resistance. These same obstacles existed last week
and the bulls tacked on +400 points. Let's sprinkle a few
earnings misses over the next four days and see if they can
add +300 more. When we are sitting at 9700 and only 300 points
from Dow 10K the goal is clearly in sight. Friday was a day
of rest and low volume on Monday should restrain any action.
That makes Tuesday launch day if they are going to have a
chance to hit that goal. The critical earnings on Tuesday
are INTC, MOT, MER, NVLS, TER, JNJ and BAC. Positive results
from these early reporters could go a long way towards
keeping the rally alive. Should the Dow actually hit 10,000
this week the bulls could consider it the finish line and 
take a well deserved rest. I suggest we do the same. 
   
Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Dollar Woes
Jonathan Levinson

The clearest trend continued to be weakness in the US Dollar 
Index, which despite Thursday night's bounce attempt closed on 
Friday near multiyear lows.  Equities, treasuries, gold and the 
CRB all advanced.

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 made an optimistic bounce on Thursday night, 
reaching as high as the 92.40 level before sellers returned, 
drilling it back to its lows at 91.20.  Gold, silver and the CRB 
all jumped in US Dollars, as did euro and CDN dollar futures.  
The US Dollar Index completed its seventh consecutive week of 
declines, setting a new bear market low below the previous low of 
91.88 posted in June of this year.  The CRB gained 1.43 to close 
at 246.30, led by strength in heating oil, natural gas, crude oil 
and soybean futures.

Daily chart of December gold


 

December gold had a positive week overall and a positive day on 
Friday, closing just below its high of the day at 374.30 on a 
gain of 4.20.  Following last week's precipitous, unexplained 22 
point selloff in one hour, gold made decent gains, retracing 
better than half the drop.  The daily chart oscillators remain in 
a downphase, but 365 support has only been tested once, with 370 
support the bulk of this week's drops.

For the week, December gold printed a bullish harami, but I'm not 
inclined to get overly excited about it.  Following what 
continues to look like an aberrant selloff last Friday, a bounce 
was to be expected.  Hopefully the dust settled this week, and we 
can look to next week for some clarity as to gold's direction.  
The oscillators continue to indicate an ongoing downphase, but if 
the price  decline is weak, then the next upphase could pack some 
punch.


Daily chart of the ten year note yield


 

Ten year treasuries advanced on Friday, retracing part of their 
losses for the week.  The ten year note yield (TNX) dropped 5.4 
bps to close at 4.248% following an impressive rally this week.  
It was noted in Thursday night's Futures Wrap that Bollinger band 
resistance overhead could impede the TNX' advance, and this is 
what occurred Friday.  The daily chart oscillators are in gear to 
the upside, however, and it will take more than Friday's mild 
pullback to reverse it.  The outlook continues to be bearish for 
bonds/bullish for yields on this basis.  The bull wedge breakout 
in progress targets levels for the TNX as high as the current 
rally high of 4.6%.


Daily NQ candles


 

Volume on the Nasdaq for Friday was a tad below anemic, with an 
absence of trades contributing to an excruciatingly slow, 
rangebound session.  As noted in Thursday's Futures Wrap, the 
selloff from the Thursday high set a higher low, a not-bearish 
development. Friday's trading set a higher low again, and the 
bullish advance continued.  While Thursday's hysteria peak was 
obviously overdone, Friday's trading confirmed that the daily 
oscillator upphase is for real, and bears will have to 
contemplate the possibility of a retest of those highs.  1420 
remains trendline, round-number and 52-week high resistance.  
Support begins 1394, followed by 1376.

30 minute 20 day chart of the NQ


 

The NQ managed a positive session on Friday, while the ES and YM 
traded both sides of unchanged and closed right on the line.  The 
range was sufficiently narrow to discourage even the most fervent 
traders and market-watchers.  While numerous commodities, such as 
soybeans, live-cattle, crude oil and natural gas were making 
strong directional moves, equity futures were not.  Although some 
would ascribe Friday's listless range to a lack of volume in 
equities, the more accurate assessment points to the opposition 
of cycles in the different timeframes we watch.  As noted in last 
weekend's Index Wrap, the weekly chart oscillators are beginning 
downphases, set off against the daily chart upphases.  Intraday, 
most of Friday saw the short and longer cycles continually 
opposed, with a short cycle upphase trigger an uptick in the 
longer intraday cycles, just before beginning their downphases as 
those following the longer cycles were beginning to buy what they 
took to be a cycle bottom.  The net result is a difficult, 
sideways market reminiscent of that between 1022 and 1029 ES.


Friday left off with the 30 minute chart oscillators twitching 
along in a weak upphase, with price advancing along the lower 
expanding wedge support line.  This is not a bullish chart 
formation, and the weakness of the upphase is not bullish 
either.  However, the lack of volume and direction from Friday 
leaves the NQ open to a directional move on Monday.  Patient 
traders can look to be short below the 1394 support line (make it 
1390 to be safe) and long above it in sympathy with the daily 
oscillator up-trend.  Cash is a position, and until the current 
chop works itself out, it looks like compelling one at that.


Daily ES candles


 

Despite the short covering panic after the close, the ES wasn't 
able to close much above flat for the day.  It didn't close 
negative, however, and did not take out Thursday's low either.  
Other than frustration and slim profits or losses from intraday 
scalps, neither bulls nor bears took much away from Friday's 
session.   As noted on the NQ, the daily chart oscillator remains 
in an upphase, and bullish traders continue to be rewarded.

While my discussion of the NQ sounds quite bullish, I remain very 
concerned about the persistent weakness in the US Dollar, as well 
as the rallies in oil and natural gas.  The ES remains in an 
uptrend, but it continues to hug the lower trendline on a broken 
bear wedge.  With the weekly oscillators toppy, the ongoing daily 
chart upphase is the bulls' best friend.  When it tops out, we 
could have the makings of a significant top in price.


20 day 30 minute chart of the ES


 

The 30 minute ES chart resembles that of the NQ, except that the 
rising wedge support line is not rising as steeply on the ES.  
The bearish divergence on the Macd continues, and the oscillator 
upphase is more of a hiccup at this point.  Given the lack of 
enthusiasm to Friday's session, a burst in either direction would 
not surprise me.  Frankly, the most surprising thing on the 
charts is their utter imperviousness to what appears to be an 
increasingly worrisome set of intermarket relationships.  Good 
news, bad news and no news all continue to be bought by equity 
bulls.

150-tick ES


 

Support is at 1039.25, followed by 1034.50 and 1029, with 
resistance above at 1041.50 and 1044.


Daily YM candles


 

Same story on the YM.


20 day 30 minute chart of the YM


 

This week saw advances in equities and gold, declines in the 
dollar and treasuries.  The strongest legs of the Spring rally 
saw the dollar decline, with strength in all other assets.  This 
time, treasuries are selling, with commodities and equities 
rising.  Note that GE got smoked for 2.42% on Friday following 
its earnings report.

If the weakness in treasuries is attributable to foreign 
liquidation of US assets on the weakness in the dollar, then it 
makes sense that the bluest of the blue chips would get sold in 
that same exodus.  However, equities were strong all week, 
setting new 52 week highs on Thursday.  For trading purposes it's 
easier and safer to trade what each individual chart gives us.  
In cases of uncertainty, however, I base my bias on fundamental 
factors.  While we can debate the relative strength or weakness 
of the latest economic releases, the severe selloff in the US 
Dollar Index over the past 7 weeks is not encouraging.  If this 
selloff were solely the result of the Fed pumping up the money 
supply again, then treasuries would not be selling off.  For 
these reasons, I remain entirely bearish on equities at these 
levels.  For trading purposes, however, it pays to go long and 
short when the indicators we follow tell us to, and this is what 
we do in the Futures and Market Monitor.  Active stops remain
essential on every trade- safety first.   See you at the bell!


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

The Teflon Market
Jonathan Levinson

Friday was a light volume, narrow range session for equities, 
with the indices closing flat following Thursday's break to new 
52 week highs. The Nasdaq closed higher by 3, the Dow lower by 5 
and the S&P lower by .67.

Last week saw significant declines in the US Dollar Index and in 
treasuries, but to bears' surprise and dismay, this weakness did 
not find its way to equities.  What had begun as the suggestion 
of a daily chart oscillator upphase one week ago strengthened 
this week.  In the attempt to get a clearer view on the different 
market phases in different timeframes, I've reviewed the monthly 
and weekly INDU and COMPX charts, and then for trading purposes 
focused in on the daily and 30 minute OEX and QQQ charts.  In 
analyzing these different timeframes, I treat the Dow and OEX as 
rough equivalents, as with the COMPX and QQQ.  This is an 
imperfect methodology, but it gets us easily close enough to 
develop an informed picture of the short, medium and long term 
prospects of the primary equity index trading vehicles, the OEX 
and QQQ.


Monthly COMPX candles


 

The ten year monthly Nasdaq chart is a sight to behold, as is the 
rally from the March 2003 lows.  On this long timeframe, we see 
an ongoing oscillator upphase, indicating a long term bias toward 
higher highs for this year, but bumping up against Bollinger band 
resistance.

Before zooming in on the weekly candles, it's worth noting some 
factors about long term charts.  On the above chart, one month 
equals one candle, and minor moves are insignificant.  Moving 
averages, and their derivative oscillators, including Bollinger 
bands, are subject to significant lag due to the nature of their 
computation.  A 21 month moving average is computing what 
occurred last year in arriving at this month's value.  For this 
reason, the monthly charts and oscillators are useful only for 
broad context.  Few, if any, are the traders who key off a 
monthly chart- imagine trying to select a stop loss! 

Weekly COMPX candles


 

The weekly candle chart of the COMPX shows the rise off the March 
lows resolving itself in a bear wedge projecting potentially back 
to those lows at 1260.  The weekly oscillators are very toppy, 
with the 10 week stochastic twitching up within its downphase, 
still on a bearish divergence against the higher highs being 
printed since the summer.  The laggier MACD has not rolled over, 
but is clearly in nosebleed territory.  While a price uptrend 
must be respected, the weekly COMPX has significant resistance 
overhead and appears to be much closer to a top than to a bottom.


Monthly INDU candles


 

The 10-year INDU is declining from the 2000 highs in an expanding 
wedge, with this month's price just below trendline resistance at 
9800, coincident with Fibonacci resistance at that level.  The 
oscillators are in an upphase off the March 2003 lows.

The weekly INDU below is also rising in a bearish ascending wedge 
whose downside projection is the 7400 March low.  The oscillator 
configuration on this timeframe is similar to that on the COMPX, 
except that this week's bounce wasn't as strong.  The MACD is in 
a bearish kiss, and the 10-week stochastic hasn't twitched up as 
vigorously as that on the COMPX.

Weekly INDU candles


 

On to the short term charts:

Daily OEX candles


 

The daily OEX is a difficult chart to read because it's gone 
virtually nowhere since June.  The slight upslope it depicts from 
the summer has resulted in minor gains, and this has not been an 
easy range to trade.  If I were holding untold fortunes of OEX 
securities and needed to sell them, the range since June would be 
an excellent range to allow me to liquidate at relatively stable 
prices.  Bulls will see a consolidation range where I see 
distribution, but this is what makes a market.  In the meantime, 
the move off the bottom of the range last week has produced an 
upphase on the daily chart oscillators, and it's this up phase 
that has fueled the up tick seen on the longer term weekly chart 
oscillators above.

Up-trending support on the daily chart is currently at 518, 
resistance just north of 525.


On the 30-minute chart below, the OEX is in a weak, uncertain 
stochastic upphase that failed to even register on the MACD.  The 
MACD is sporting a bearish divergence, with lower highs against 
higher price during the same period.  The bulloney bullhorn broke 
south, as bullhorns are wont to do, and is tracing a weakening 
pattern that resembles a secondary bullhorn.  It could also be a 
hunchback head and shoulders formation, but in either case, it 
doesn't look bullish.  Support here is at or just below 518, 
resistance at the rally high.
 
20 day 30 minute chart of the OEX


 


Putting it all together on the OEX, we have the month chart 
oscillators in up phases, the weekly topped out and trying to 
turn down, and the daily in an upphase.  The 30-minute chart 
looks weak, both in price and on the oscillators.  Given this 
mixed picture, both bulls and bears have plenty upon which to 
base their respective arguments.  If the short term weakness can 
overcome the rising daily upphase, then a more significant 
decline can begin.  However, so long as the daily remains on buy 
signals, bears will have to watch over their shoulders.  These are 
currently conditions for continued rangebound chop, until one 
of the cycles shows some dominance over the others.  Until it 
does, it remains a market for nimble traders only, gaming off the 
short intraday oscillators, the 30 minute and the daily. 

Daily QQQ candles


 

The setup is identical for QQQ.  Support is at 34.80, resistance 
at the rally highs.  Note that on the 30 minute chart, the 
oscillator bounce is higher than on the OEX.  This could be 
attributable to the beating received by GE for Friday's earnings 
report, but either way, the two indices are diverging.  The NDX / 
QQQ tend to lead their peers, and if so, the OEX should pick up 
on Monday.  Nevertheless, QQQ is rising in a weakening pattern on 
the 30 minute chart, with the same bearish divergence on the 
MACD.

20 day 30 minute chart of the QQQ


 

For next week, I expect the Qubes and OEX to continue to advance 
uncertainly so long as the daily oscillator upphase plays out.  
The indices gained this week, but witness the sharp, violent 
selloff from Thursday's highs.  While the price advances are 
obviously bullish, the uncertainty below the surface is 
attributable to the weekly chart oscillator downphases.  The 
markets are extended here, but can continue to grow more extended 
before they correct.  The prescription is to take profits on the 
long side quickly, and to trail your stops on shorts enter on 
bounces.


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

Betting on the Goal

With the Dow only 300 points away from Dow 10,000 and Dow
10,000 likely to be a lightning rod for October mutual fund
selling I am thinking about a laddered put play with 10K
as the goal. 

The Dow is at 9675. There is strong resistance at 9800, 9900
and 10,000. We are already overextended and we have seen
no evidence of any year end fund selling yet. I could be
completely wrong but this looks like a pretty good setup. 

I am going to use the November DJX 96 puts. 
We are going to buy five contracts at three different levels.

Buy 5 DJX-96 puts DJV-WR at Dow 9800. (est $1.50)
Buy 5 DJX-96 puts DJV-WR at Dow 9900. (est $1.20)
Buy 5 DJX-96 puts DJV-WR at Dow 9975. (est $1.00)

We are cheating on that last entry just in case some others
do the same and we don't quite reach 10,000. With everybody
planning on selling there I would like to beat the rush. 

The stop loss will be Dow 10100. Close all positions. 

The profit targets will be: 

1/2 position at Dow 9500. Lower stop to 9600
1/2 position at Dow 9300.

If the Dow fails to reach 9800 by Friday's close or drops
below 9600 before hitting 9800 then cancel the play. (If 
it drops before moving up then the potential for filling
the upper strikes diminishes.)

Once filled on any position and the Dow moves under 9600
then change the stop loss to 9700.

I am trying to avoid a repeat of the last Put play where 
it missed our target by a few cents and then exploded back
out the top. We had almost a triple but no stop loss to 
close it. 

My best guess for the start of a potential market event 
will be Tuesday Oct-21st. Exercised options settle on 
Monday and funds will be free to liquidate any positions
once any options on those positions expire.   

Funds wanting to squeeze the last nickel out of their
portfolio could have sold calls on their stocks hoping
for one last bounce before expiration. If the calls are
in the money then the holders will exercise them and
the funds will not have to sell the stock. It will be
called away from them. However, this puts the stock in
the hands of somebody else who might not want to hold 
it. The possibilities are numerous. 

DJX Chart


 


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

Play Recaps

MMM Bull Put Spread (recommended 10/05)

We did not come close to the trigger points yet but still
three weeks to go in October. Patiently waiting. 

http://members.OptionInvestor.com/editorplays/edply_100503_1.asp


LUV Calls (recommended 9/14)

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


Powerball 

Go NYSE! The winners this week are GLW and EMC with huge gains
and strong help from CMVT and FLEX. The portfolio is up +77%
and three months to go.     

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

Earnings Upon Us
- J. Brown

The first week and a half of October has come and gone and the
traditional seasonal weakness is no where to be seen.  The 
preceding weeks of positive prognostications for Q3 earnings have 
lifted the markets and now it's finally show-and-tell time.  Will 
profits be as good as everyone expects?  Will corporate guidance 
support the lofty expectations for Q4 results?  The answers will 
dictate market direction even if we do see some profit taking on 
the initial announcements.

The bulls are firmly in control but the burden now comes down to 
proof that all this enthusiasm was warranted.  General Electric, 
the second biggest company by market cap, failed to uphold its 
part of the bargain and only met market estimates when it 
reported earnings on Friday.  Normally the company has a history 
of beating the numbers by a penny.  However, more damning than 
just reporting in-line was their future guidance.  GE, once 
thought of as a proxy for the market due to their widespread and 
diverse number of businesses, actually suggested that Q4 and full 
year results may come in at the low end of current guidance.  
That's definitely not want the markets want to hear yet somehow 
major indices remained docile closing near unchanged on Friday.

The bulls are also faced with another hazard to strong future 
gains.  The rapid rise of crude oil from $26.50 to $32 a barrel 
in just three weeks could quickly become a brake on this 
expanding economy.  When this price surge eventually filters to 
the gas pumps it will act as an unofficial tax on consumers who 
will have less discretionary money to keep the feverish GDP 
growth alive.  To a lesser extend we should see it begin to weigh 
on the airlines, who despite the rise in oil, have been 
exceptionally strong.  The XAL has been hitting a string of new 
52-week highs and only slipped lower on Friday due to some 
analyst downgrades.

Influencing the global market place is the ongoing deterioration 
in the U.S. dollar.  The greenback dropped to yet another fresh 
three-year low against the yen on Friday at 108.55 and hit 
another low against the euro.  The rumor mill is suggesting that 
the Japanese government is not likely to intervene against the 
dollar by selling yen until after President Bush's trip to Japan 
next week.  Of course this would be ironic since one of the 
purposes of his trip is to lobby against currency manipulation.  
This has speculators pointing to a potential drop next week to 
106 yen vs. the dollar and $1.20 against the euro.  

Additional warning signals continue to flare up despite the 
market's strength.  It's not all that often that the NASD 
actually issues a warning and on Friday that's what happened.  
Concerns for a return to the bubble mentality gathered some 
strength when the NASD reported that margin debt had ballooned to 
$26 billion.  This surpasses the $21 billion record at the 
bubble's top in March of 2000.  A sharp retracement could force a 
stronger wave of selling as investors face margin calls.  This in 
turn could ignite another round of margin selling as the cycle 
spins out of control.  Another bubblesque caution signal is news 
that volume in bulletin board stocks, one of the most speculative 
markets, has surged to 41 billion shares.  A strong rise in 
speculative trading for penny stocks is a classic sign that the 
market is generally near a top.  

Yet another contrarian indicator is the bullish sentiment as 
measured by the Investors Intelligence survey.  Currently, 60% of 
those surveyed are bullish while only 22.5% are bearish.  The 
good news is the bearish sentiment is slowly rising.  

I fully realize that the ongoing comments about the low 
volatility indices, the extremely high bullish percent data, the 
ballooning margin debt, the incredibly high penny stock volume 
all sound like a wounded bear doing his best chicken little 
impersonation.  I am not predicting a market crash and I am more 
than happy to play the trend, which is currently up.  However, we 
need to be aware and make note of each and every warning flag 
that the market gives us.  One of the most basic fundamentals of 
trading is recognizing that stocks and markets move in cycles, 
both short-term and long-term.  Right now the short-term cycle is 
very overbought and we need to see some profit taking to bring us 
back to a more healthy entry point for another leg higher.  

The wild card in the mix right now is earnings season.  We've 
been hearing so much for so long about how good the Q3 numbers 
should be that we're likely to see the markets trade sideways as 
they wait for the results.  This week alone we're going to hear 
from hundreds of companies with 113 of them as S&P 500 
components.  Throw on top of the mix a rash of economic reports 
and options expiration and it could be a rather dangerous week.

Trade carefully.



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

Market Averages

DJIA ($INDU)

52-week High:  9768
52-week Low :  7197
Current     :  9674

Moving Averages:
(Simple)

 10-dma: 9541
 50-dma: 9415
200-dma: 8739



S&P 500 ($SPX)

52-week High: 1048
52-week Low :  768
Current     : 1038

Moving Averages:
(Simple)

 10-dma: 1025
 50-dma: 1008
200-dma:  937



Nasdaq-100 ($NDX)

52-week High: 1418
52-week Low :  795
Current     : 1404

Moving Averages:
(Simple)

 10-dma: 1364
 50-dma: 1325
200-dma: 1160



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

The new VIX continues to hover near multi-year lows and the VXN took
a 4.2 percent dive on Friday.  Investors continue to show no fear,
which from a contrarian stand point, is not a good place to be making
big bullish bets.

CBOE Market Volatility Index (VIX) = 18.82 -0.36
Nasdaq Volatility Index (VXN)      = 28.84 -0.32

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.93        464,009       431,180
Equity Only    0.70        392,661       274,963
OEX            1.28         20,331        26,028
QQQ            2.96         17,525        51,951


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.2    + 0     Bull Confirmed
NASDAQ-100    77.0    + 0     Bear Confirmed
Dow Indust.   83.3    + 0     Bull Correction
S&P 500       79.8    + 0     Bull Confirmed
S&P 100       79.0    + 0     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  0.99
10-Day Arms Index  1.01
21-Day Arms Index  1.13
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    1450      1417
Decliners    1357      1661

New Highs     322       251
New Lows        6         6

Up Volume    670M      835M
Down Vol.    659M      559M

Total Vol.  1350M     1452M
M = millions


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

Commitments Of Traders Report: 10/07/03

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

After two weeks of little movement we're beginning to see 
commercial traders edge toward a more bearish position.  Looking
at the small traders we see a reduction in short positions and
they remain overall net bullish.


Commercials   Long      Short      Net     % Of OI
09/09/03      418,958   486,209   (67,251)   (7.4%)
09/23/03      395,123   397,858   ( 2,735)   (0.0%)
09/30/03      395,713   397,577   ( 1,864)   (0.0%)
10/07/03      390,232   402,964   (12,732)   (1.6%)

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
09/09/03      176,401    81,444    94,957    36.8%
09/23/03      139,482    87,981    51,501    22.6%
09/30/03      144,681    96,801    47,880    19.8%
10/07/03      138,644    88,018    50,626    22.3%

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're definitely seeing a small trend in the commercials' 
positions in the e-minis.  Long positions have jumped strongly,
outpacing new short positions, and the overall net short 
attitude is dwindling.  Retail traders remain heavily net
long.


Commercials   Long      Short      Net     % Of OI 
09/09/03      370,909   237,610    133,299    21.9% 
09/23/03      109,417   204,026   ( 94,609)  (30.2%)
09/30/03      163,828   218,991   ( 55,163)  (14.4%)
10/07/03      212,273   225,377   ( 13,104)  ( 3.0%)

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
09/09/03       59,692   130,270   (70,578)  (37.1%)
09/23/03      175,750    62,558   113,192    47.5%
09/30/03      131,698    65,259    66,439    33.8%
10/07/03      134,990    63,560    71,430    36.0%

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


NASDAQ-100

We're still not seeing much movement in commercials willing
to commit one way or the other in the NDX.  They're currently
net short but the margin is fading.  Small traders haven't
changed much either and remain net long.


Commercials   Long      Short      Net     % of OI 
09/09/03       44,677     62,369   (17,692) (16.5%)
09/23/03       32,648     42,565   ( 9,917) (13.2%)
09/30/03       33,571     42,993   ( 9,422) (12.3%)
10/07/03       33,253     40,861   ( 7,608) (10.3%)

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

Small Traders  Long     Short      Net     % of OI
09/09/03       28,788    13,370    15,418    36.6%
09/23/03       17,862     9,880     7,982    28.8%
09/30/03       19,803     9,917     9,886    33.3%
10/07/03       18,182     9,688     8,494    30.5%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

It's the same story here in the DJ futures.  There is little
change between the commercials or the small traders over all
positions.


Commercials   Long      Short      Net     % of OI
09/09/03       25,807    10,756   15,051      41.2%
09/23/03       15,911     9,123    6,788      27.1%
09/30/03       16,561     8,932    7,629      31.5%
10/07/03       16,277     9,528    6,749      26.2%

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
09/09/03        7,429    13,796   (6,367)   (30.0%)
09/23/03        7,505     7,779   (  274)   ( 1.8%)
09/30/03        7,578     8,125   (  547)   ( 3.5%)
10/07/03        7,392     7,910   (  518)   ( 3.4%)

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

Asian markets

Although nothing is certain and secure.  I was wondering if you 
had any good long term and safe Asian stocks or maybe even 
better, Asian mutual funds that would be good investment.  Are 
there any US mutual funds that invest exclusively in Asia?

Safe and secure?  Is there such a thing?  Not really.  But if 
you're an investor or a trader looking to put a tiger in your 
tank, then look no further than an actively managed Asian stock 
mutual fund, an Exchange Traded Fund (ETF), an American 
Depository Receipt (ADR), or iShare that gives an investor or 
trader exposure to the Pacific Rim and Asia.

There may be a security that suits your investment/trading 
profile and tolerance for risk.  A mutual fund comes complete 
with a manager that you're going to pay to actively manage your 
money and regardless of market conditions, the mutual fund 
manager is going to invest your capital in those stocks and 
perhaps bonds they best see fit.

When I was brokering for a living, I would recommend the Liberty 
Newport Tiger Fund fund (CNTAX), which at the time was called the 
Colonial Newport Tiger Fund.  It offers various class shares with 
differing expense structures.  One reason I chose this fund for 
some exposure to Asia, what that I could help my client re-
allocate assets within the Liberty family of funds (Colonial at 
the time) when each quarter we would re-balance the portfolio, in 
order to stay on course for his/her longer-term objective for 
wealth accumulation.  I also treated the mutual fund as a stock 
and would track its point and figure chart to make sure demand 
for the stocks within the fund was still strong.  Dorsey/Wright 
and Associates used to have an Asia Bullish %, which I would also 
use to help understand RISK at overbought and oversold levels, 
when it came time for quarterly portfolio adjustments.  Just as 
an investor/trader will chart the S&P 500 Index (SPX.X) to see if 
demand for its 500 stocks is strong and measure market risk 
levels, the same should be done for a mutual fund manager's 
selections and markets he/she is operating in.

Remember, when you give a fund manager $1,000.00 of your money, 
he/she should have it fully invested in the asset class 
(stocks,bonds, etc.) that you want it invested in.  If the fund 
manager is not running a hybrid balanced fund and is sitting on 
more the 3% cash, then you might look to take your money 
somewhere else where it is more fully invested.

One thing I did for clients was to screen mutual funds not simply 
on a fund's track record, but I wanted to see some management 
tenure where the fund manager had been around the block a time or 
two, and had experience navigating through good and bad market 
cycles.  If a fund manger left the fund, I considered the fund's 
track record then obsolete and would keep a very close eye on 
performance relative to the fund's competition and a similar 
market average as a benchmark for performance.

I haven't kept up on the mutual fund area like I used to when it 
was my job to do so, but Morningstar.com has a nice search engine 
and fund screener where you and I can quickly type in some 
criteria and see what funds meet that criteria.  

Let me add a personal observation as it relates to Morningstar's 
"star" system.  Don't put a great deal of weight to it.  Today's 
5-star is next year's 1-star.

I had to play around with the search criteria to even get a list 
of Asia/Pacific rim funds to pass my screen.  I demanded at 
MINIMUM 5-year management tenure.  Here's a partial screen 
capture of Morningstar's search/scan engine.  You can perform 
scans on your own at this 
http://screen.morningstar.com/FundSelector.html

Morningstar Fund Screener 


 

I've placed some general comments and some things a mutual fund 
investor might things about or check against when making a mutual 
fund selection.  I had to set my criteria down to a 3-star rating 
to even get a list of Asian funds.  

In the late 1990's "new fund affect" was a popular mutual fund 
trading scenario, where some investors would purposely invest 
money with a newly created fund.  The thought was that when the 
fund manager started out, he/she was buying their favorite stocks 
that met a stringent screen.  As the fund manager invested new 
money in their favorites, it often found the fund outperforming 
other similar funds, simply because the demand the fund manager 
was creating for his/her favorite stocks was having their price 
rise.  As new mutual fund investors began to see such impressive 
results from the newly created fund, inflows at the fund would 
swell.  As funds became larger and the fund manager was 
scrambling to get the new monies invested, he/she would have to 
stray away from the stringent criteria that brought success in 
the first place, and performance would then drop off, and those 
that played the "new fund affect" would bail out.  

I can't remember the number of mutual funds that disappeared in 
the last 3 years, but many that did, hadn't been around for very 
long to begin with.

I calculated year-to-date performance for the S&P 500 Index, its 
1-year performance, and 3-year performance.  These might be a 
general benchmark a mutual fund investor might look to screen 
against.

Here are the results of the above mutual fund screen.

Morningstar screen results


 

The search criteria I entered generated 6 hits.  There mutual 
fund tickers from top to bottom are USPAX, ICARX, NWAPX, LNABX, 
LNACX, TGRCX.

It looks like Liberty may have bought Colonial's funds sometime 
ago.  I see that the Liberty Newport Tiger Fund A (CNTAX) is 
managed by Christopher Legallet and he began managing the fund in 
October 1998 (so it won't meet the 5-year criteria until next 
month).  He is also the lead manager for the above listed Liberty 
Newport Asia Pacific list of funds.

So... now you know of a quick way to begin performing some mutual 
fund scans and can order some prospectus' to make a more educated 
investment decision regarding mutual funds.  For an investor just 
starting out, mutual funds are a great way to get started!

One note on mutual funds.  In the late 1990's some mutual fund 
managers received what I consider to be negative press as their 
annual returns lagged a major market average.  This made so much 
sense to me, especially the better fund managers, as many of the 
better fund managers were managing RISK!  Suddenly, when the 
major market averages unraveled and RISK was realized in the form 
of losses, the good fund managers began OUTPERFORMING the major 
market averages.  The reason they outperformed on the way down 
was that they were managing RISK to begin with.  This is 
something an investor should think about, when investing in 
indexes with the thought that an index will always outperform a 
mutual fund, and why I think it important to find a mutual fund, 
where the fund manager has seen both the good and bad times, and 
measure his/her performance against some like-benchmark.

But we're not done yet.

For those that may want to take a more active approach to 
investing/trading in Asia, perhaps have greater sensitivity 
toward tax issues, there's also a group of ETF's and iShares that 
an investor and even traders would be interested in.

These two securities contain a fixed basket of individual stock 
similar to a mutual fund, but unlike a mutual fund, where you can 
only buy/sell based on the 04:00 PM closing net asset values, 
HOLDRs and iShares, which allow for some spreading of risk among 
a group of individual stocks, with some intra-day flexibility.  
Remember that a mutual fund manager will take a more active 
approach to managing your money and the stocks in the portfolio 
can change from time to time.  For the most part, ETFs and 
iShares hold a group of stocks, where the group is fixed and are 
usually bellwether's for the region/market the security hopes to 
mimic.

In a June 15, 2003 Ask the Analyst column, we touched on HOLDRs 
and iShares.  If you visit iShares.com and look under 
"International" and then in the pull down menu "Asia" you'll find 
the MSCI Australia Index Fund (EWA), MSCI Hong Kong Index Fund 
(EWH), MSCI Japan Index Fund (EWJ), MSCI Malaysia Index Fund 
(EWM), MSCI Pacific ex-Japan Index Fund (EPP), MSCI Singapore 
Index Fund (EWS), MSCI South Korea Index Fund (EWY), MSCI Taiwan 
Index Fund (EWT) and the S&P/TOPIX 150 Index Fund (ITF).

I would think the MSCI Hong Kong Index Fund (EWH) $10.05 +0.29% 
might be a fund that represents China-like markets.  Here's a 
http://www.ishares.com/fund_info/detail.jhtml;jsessionid=E4FNUF3H3HT0GCQ
BB2BRBGQKAZSNQD50?symbol=EWH to a description of the EWH, 
which shows Hutchison Whampoa Ltd. currently the largest weighted 
stock in this iShare.  Real Estate is the most heavily weighted 
sectors at 25.37%.

Here's a http://www.ishares.com/home.jhtml?&_requestid=6534&_requestid=6534 to 
the iShares.com page where you can browse the various 
iShares offered for trade.

I think I also discussed a real cool feature at the NASDAQ site, 
where the NASDAQ developed a Heatmap of 100 ETF's.  During the 
day, a trader can view this heatmap to see what's on the move!

Here's a http://screening.nasdaq.com/heatmaps/Heatmap_ETF.asp to the NASDAQ's ETF Heatmap.

NASDAQ's Dynamic ETF Heatmap -


 

I don't have all the ETF symbols memorized, and NASDAQ has a neat 
feature where we can place a cursor over one of the squares and 
get an idea of what we're looking at.  I place my mouse cursor 
over the South Korea (EWY) box and it gives the trader a quick 
snapshot of these iShares.

Do you see the Hong Kong iShares (EWH)? They were up 0.3% on 
Friday (4th row down, 2nd box from the right).  

The B2B Internet HOLDRs (BBH) $2.74 -2.14% were Friday's loser.

This should give U.S. investors and traders a good start to 
potentially discovering various ways to invest/trade foreign 
markets.

If I were just starting out investing, and considering foreign 
markets, I'd suggest a good mutual fund, with a fund manager that 
has shown a proven track record.

The all-time high for the Hong Kong iShares was set on August 7, 
1997 at $18.00 a share, while the all-time lows was set on August 
31, 1998.

Here's a weekly interval chart of the Hong Kong ishares (EWH), 
where I'm using nested retracement brackets, where I would view 
near-term support at the $9.52-$9.61 area.  The point and figure 
chart of the EWH is close to giving its first buy signal ($10.50) 
since giving a sell signal in April of 2000 at $11.50.  
Amazingly, the EWH's April 2003 lows came at $6.55 per share.  
When the EWH gave that sell signal in April of 2000, the point 
and figure chart bearish vertical count was to.... $7.00.  Ooooo!  
Missed it by $0.45 cents.

MSCI Hong Kong iShares (EWH) - Weekly Intervals


 

Just to put the EWH in perspective of two ranges, I placed two 
different retracement bracket on the weekly bar chart, and added 
in some observations from the point and figure chart.  The red 
retracement may come in handy if the EWJ can clear its May highs, 
where the trade at $10.50 would be the first sign of meaningful 
strength developing on the point and figure chart.

I was reading an article just today, that Shanghai's (just up the 
coast from Hong Kong) gross domestic product grew at 11.8% in the 
first nine months of the year, its fastest rate of growth since
1997.  Its GDP totaled 441 billion yuan, or $53 billion, through
the first three quarters.

Investors here in the U.S. could compare those statistics with 
recent economists' forecast being raised to 2.7% GDP growth for 
2003, and 3.9% for 2004.

As further comparison, from relatively comparable spring season 
lows, the EWH is up 53%, while the S&P 500 Index (SPX.X) has 
gained 31.55%.

Jeff Bailey


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

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

Symbol  Company               Date           Comment      EPS Est

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

HLYW   Hollywood Enter       Mon, Oct 13  -----N/A-----     0.32
MI     Marshall & Ilsley     Mon, Oct 13  Before the Bell   0.60
PKG    Packaging Corp of Ame Mon, Oct 13  After the Bell    0.11
SPOT   PanAmSat              Mon, Oct 13  Before the Bell   0.12
TSCO   Tractor Supply Co     Mon, Oct 13  -----N/A-----     0.29


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

ADTN   ADTRAN, Inc.          Tue, Oct 14  Before the Bell   0.42
ASO    AmSouth Bancorp       Tue, Oct 14  Before the Bell   0.44
BAC    Bank of America Corp  Tue, Oct 14  Before the Bell   1.70
BBT    BB&T Corporation      Tue, Oct 14  Before the Bell   0.68
BRE    BRE PROPERTIES INC    Tue, Oct 14  After the Bell    0.59
CSL    Carlisle Companies    Tue, Oct 14  After the Bell    0.72
CGNX   Cognex                Tue, Oct 14  After the Bell    0.10
DAL    DELTA AIR LINES INC   Tue, Oct 14  Before the Bell  -1.47
DJ     Dow Jones & Company   Tue, Oct 14  Before the Bell   0.11
ETN    Eaton                 Tue, Oct 14  Before the Bell   1.32
FITB   Fifth Third Bancorp   Tue, Oct 14  Before the Bell   0.77
FDC    First Data            Tue, Oct 14  -----N/A-----     0.51
FRX    Forest Laboratories   Tue, Oct 14  Before the Bell   0.49
GCI    Gannett               Tue, Oct 14  Before the Bell   1.03
GMH    Hughes Electronics    Tue, Oct 14  -----N/A-----    -0.03
IDPH   IDEC Pharmaceuticals  Tue, Oct 14  After the Bell    0.26
INTC   Intel Corporation     Tue, Oct 14  After the Bell    0.23
JEF    Jefferies Group       Tue, Oct 14  Before the Bell   0.32
JNJ    Johnson & Johnson     Tue, Oct 14  Before the Bell   0.68
LLTC   Linear Technology     Tue, Oct 14  After the Bell    0.21
MER    Merrill Lynch         Tue, Oct 14  Before the Bell   0.85
MOT    Motorola Inc.         Tue, Oct 14  After the Bell    0.03
NVLS   Novellus Systems, Inc Tue, Oct 14  After the Bell    0.00
PPP    Pogo Producing        Tue, Oct 14  -----N/A-----     0.95
PII    Polaris Industries IncTue, Oct 14  Before the Bell   1.72
PP     Prentiss Properties   Tue, Oct 14  After the Bell    0.76
PHG    Royal Philips Elect   Tue, Oct 14  Before the Bell    N/A
SONC   Sonic Corp.           Tue, Oct 14  After the Bell    0.43
SOV    Sovereign Bancorp     Tue, Oct 14  After the Bell    0.37
STT    State Street Corp     Tue, Oct 14  Before the Bell   0.57
TER    Teradyne Inc.         Tue, Oct 14  After the Bell   -0.14
SSP    The E.W. Scripps Co   Tue, Oct 14  Before the Bell   0.62
TSS    TSYS                  Tue, Oct 14  -----N/A-----     0.18
WABC   Westamerica Bancorpo  Tue, Oct 14  During the Market 0.72


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

ADS    Alliance Data Systems Wed, Oct 15  -----N/A-----     0.21
AGI    Alliance Gaming Corp. Wed, Oct 15  During the Market 0.18
ASD    American Standard     Wed, Oct 15  Before the Bell   1.64
APH    Amphenol              Wed, Oct 15  Before the Bell   0.61
AAPL   Apple Computer, Inc.  Wed, Oct 15  After the Bell    0.07
ASML   ASML Holdings NV      Wed, Oct 15  -----N/A-----    -0.07
BLK    BlackRock, Inc.       Wed, Oct 15  After the Bell    0.60
BOKF   BOK Financial         Wed, Oct 15  -----N/A-----     0.64
BCR    C.R. Bard, Inc.       Wed, Oct 15  After the Bell    0.95
CDN    Cadence Design Sys    Wed, Oct 15  After the Bell    0.12
CEC    CEC Entertainment     Wed, Oct 15  -----N/A-----     0.63
CNT    CENTERPOINT PPTYS TR  Wed, Oct 15  After the Bell    1.09
CEN    Ceridian              Wed, Oct 15  Before the Bell   0.20
CERN   Cerner Corporation    Wed, Oct 15  -----N/A-----     0.32
CYN    City National Corp    Wed, Oct 15  After the Bell    0.94
CCE    Coca-Cola Enterprises Wed, Oct 15  Before the Bell   0.45
CNB    Colonial BancGroup    Wed, Oct 15  -----N/A-----     0.29
CMA    Comerica Incorporated Wed, Oct 15  Before the Bell   0.90
CBH    Commerce Bancorp, Inc Wed, Oct 15  Before the Bell   0.64
DRL    Doral Financial       Wed, Oct 15  After the Bell    1.02
ET     E*TRADE Group, Inc.   Wed, Oct 15  -----N/A-----     0.16
ETH    Ethan Allen Interiors Wed, Oct 15  Before the Bell   0.51
FBAN   F.N.B. Corporation    Wed, Oct 15  After the Bell    0.52
FBF    FleetBoston Finl Corp Wed, Oct 15  Before the Bell   0.61
GD     General Dynamics      Wed, Oct 15  Before the Bell   1.24
GM     General Motors Corp.  Wed, Oct 15  Before the Bell   0.64
GNTX   Gentex                Wed, Oct 15  Before the Bell   0.32
GENZ   Genzyme Corporation   Wed, Oct 15  Before the Bell   0.34
GGG    Graco                 Wed, Oct 15  After the Bell    0.49
GUC    Gucci Group NV        Wed, Oct 15  -----N/A-----     0.37
HDI    Harley-Davidson       Wed, Oct 15  Before the Bell   0.56
HIB    Hibernia Corp.        Wed, Oct 15  Before the Bell   0.44
HMT    Host Marriott         Wed, Oct 15  Before the Bell   0.02
HCBK   Hudson City Bancorp   Wed, Oct 15  -----N/A-----     0.28
HBAN   Huntington Bancshares Wed, Oct 15  Before the Bell   0.37
IBM    Intl Bus Machines     Wed, Oct 15  After the Bell    1.02
IFIN   Invest Finl Serv Corp Wed, Oct 15  Before the Bell   0.34
KMI    Kinder Morgan         Wed, Oct 15  After the Bell    0.76
KFT    Kraft Foods           Wed, Oct 15  After the Bell    0.46
LRCX   Lam Research          Wed, Oct 15  After the Bell    0.03
LEG    Leggett & Platt       Wed, Oct 15  After the Bell    0.28
MOGN   MGI Pharma            Wed, Oct 15  Before the Bell  -0.47
MTG    MGIC Investment Corp. Wed, Oct 15  Before the Bell   1.15
MLNM   Millennium Pharm      Wed, Oct 15  After the Bell   -0.29
MIL    Millipore Corp.       Wed, Oct 15  After the Bell    0.49
MOLX   Molex Inc.            Wed, Oct 15  After the Bell    0.16
MON    Monsanto Company      Wed, Oct 15  Before the Bell   0.23
NCC    National City         Wed, Oct 15  After the Bell    0.58
NFLX   NetFlix.com           Wed, Oct 15  After the Bell    0.10
NTRS   Northern Trust        Wed, Oct 15  -----N/A-----     0.49
PH     Parker Hannifin Corp. Wed, Oct 15  Before the Bell   0.40
PPDI   Pharm Product Develop Wed, Oct 15  After the Bell    0.41
PLT    Plantronics, Inc.     Wed, Oct 15  After the Bell    0.26
PCP    Precision Castparts   Wed, Oct 15  Before the Bell   0.60
PFGI   Provident Financial   Wed, Oct 15  Before the Bell   0.58
QLGC   QLogic                Wed, Oct 15  After the Bell    0.35
RDN    Radian Group          Wed, Oct 15  After the Bell    1.14
RDC    Rowan Companies, Inc. Wed, Oct 15  -----N/A-----     0.16
SNDK   SanDisk Corp.         Wed, Oct 15  After the Bell    0.42
SEBL   Siebel Systems        Wed, Oct 15  After the Bell    0.03
SOTR   SouthTrust            Wed, Oct 15  Before the Bell   0.52
STJ    St. Jude Medical, Inc Wed, Oct 15  -----N/A-----     0.44
SNV    Synovus Financial CorpWed, Oct 15  After the Bell    0.33
SYNT   Syntel, Inc.          Wed, Oct 15  Before the Bell   0.20
TCB    TCF Financial Corp    Wed, Oct 15  Before the Bell   0.51
TFX    Teleflex, Incorp      Wed, Oct 15  After the Bell    0.46
TLAB   Tellabs               Wed, Oct 15  Before the Bell  -0.06
ALL    The Allstate Corp     Wed, Oct 15  After the Bell    0.88
UB     UnionBanCal           Wed, Oct 15  After the Bell    0.94
UIS    Unisys                Wed, Oct 15  Before the Bell   0.17
WB     Wachovia Corporation  Wed, Oct 15  Before the Bell   0.81
WBS    Webster Financial CorpWed, Oct 15  Before the Bell   0.87
WERN   Werner Enterprises    Wed, Oct 15  After the Bell    0.26


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

AMD    Advanced Micro DevicesThu, Oct 16  After the Bell   -0.37
ALFA   Alfa Corporation      Thu, Oct 16  Before the Bell   0.24
MO     Altria Group, Inc.    Thu, Oct 16  Before the Bell   1.21
ABK    Ambac Financial Group Thu, Oct 16  Before the Bell   1.35
ATR    AptarGroup            Thu, Oct 16  After the Bell    0.55
ASBC   Associated Banc-Corp  Thu, Oct 16  -----N/A-----     0.75
AF     Astoria Financial CorpThu, Oct 16  After the Bell    0.59
ATML   Atmel Corporation     Thu, Oct 16  After the Bell   -0.08
ALV    Autoliv               Thu, Oct 16  Before the Bell   0.52
AVID   Avid Technology, Inc. Thu, Oct 16  After the Bell    0.30
AVCT   Avocent Corporation   Thu, Oct 16  Before the Bell   0.28
BXS    BancorpSouth, Inc.    Thu, Oct 16  After the Bell    0.40
BNK    Banknorth Group Inc.  Thu, Oct 16  Before the Bell   0.55
BAX    BAXTER INTL INC       Thu, Oct 16  -----N/A-----     0.47
BGG    Briggs & Stratton CorpThu, Oct 16  Before the Bell  -0.19
BRCM   Broadcom              Thu, Oct 16  After the Bell    0.13
CAT    Caterpillar Inc.      Thu, Oct 16  Before the Bell   0.74
CF     Charter One Financial Thu, Oct 16  After the Bell    0.69
CHZ    Chittenden            Thu, Oct 16  Before the Bell   0.50
CBCF   Citizens Banking      Thu, Oct 16  -----N/A-----     0.47
CNET   CNET Networks         Thu, Oct 16  After the Bell   -0.06
CFBX   Community First Bank  Thu, Oct 16  Before the Bell   0.49
ED     Consolidated Edison   Thu, Oct 16  -----N/A-----     1.22
CAL    Continental Airlines  Thu, Oct 16  Before the Bell   0.38
CTB    Cooper Tire & Rubber  Thu, Oct 16  Before the Bell   0.25
COT    Cott Corporation      Thu, Oct 16  Before the Bell   0.33
CREE   Cree Inc.             Thu, Oct 16  -----N/A-----     0.12
CCK    CROWN HOLDINGS INC    Thu, Oct 16  Before the Bell   0.23
CY     Cypress Semiconductor Thu, Oct 16  Before the Bell   0.06
CYT    Cytec Industries Inc. Thu, Oct 16  After the Bell    0.49
DHR    Danaher               Thu, Oct 16  Before the Bell   0.84
DPH    Delphi                Thu, Oct 16  Before the Bell   0.01
DLX    Deluxe Corporation    Thu, Oct 16  Before the Bell   0.96
DO     DiamOffshore Drilling Thu, Oct 16  Before the Bell  -0.07
DCLK   DoubleClick           Thu, Oct 16  After the Bell    0.03
DOV    Dover Corporation     Thu, Oct 16  After the Bell    0.35
EWBC   East West Bancorp     Thu, Oct 16  Before the Bell   0.60
EBAY   eBay                  Thu, Oct 16  After the Bell    0.18
EMC    EMC Corporation       Thu, Oct 16  Before the Bell   0.04
EFX    Equifax Inc.          Thu, Oct 16  Before the Bell   0.39
FCS    Fairchild Semicon IntlThu, Oct 16  After the Bell    0.01
FNM    Fannie Mae            Thu, Oct 16  Before the Bell   1.75
FMER   FirstMerit            Thu, Oct 16  Before the Bell   0.43
F      Ford Motor Company    Thu, Oct 16  -----N/A-----    -0.13
FO     Fortune Brands        Thu, Oct 16  Before the Bell   0.92
FCX    Frprt-MMR Cper & Gld  Thu, Oct 16  -----N/A-----     0.40
GPC    Genuine Parts         Thu, Oct 16  Before the Bell   0.52
GP     Georgia-Pacific       Thu, Oct 16  Before the Bell   0.58
GPT    GreenPoint Financial  Thu, Oct 16  Before the Bell   1.02
DA     Groupe Danone         Thu, Oct 16  -----N/A-----      N/A
GDT    Guidant               Thu, Oct 16  -----N/A-----     0.56
HSY    Hershey Foods Corp    Thu, Oct 16  Before the Bell   1.13
HON    Honeywell             Thu, Oct 16  Before the Bell   0.40
IEX    Idex                  Thu, Oct 16  Before the Bell   0.49
ITW    Illinois Tool Works   Thu, Oct 16  Before the Bell   0.83
IDTI   Integrated Device TechThu, Oct 16  -----N/A-----    -0.03
IVC    Invacare              Thu, Oct 16  Before the Bell   0.62
IPAS   iPass Inc.            Thu, Oct 16  After the Bell    0.06
ESI    ITT Educational Serv  Thu, Oct 16  Before the Bell   0.32
JKHY   Jack Henry & Ass      Thu, Oct 16  Before the Bell   0.15
KEY    KeyCorp               Thu, Oct 16  Before the Bell   0.52
LEXR   Lexar Media           Thu, Oct 16  After the Bell    0.09
MAN    Manpower              Thu, Oct 16  Before the Bell   0.45
MAT    Mattel                Thu, Oct 16  -----N/A-----     0.60
MYG    Maytag                Thu, Oct 16  Before the Bell   0.57
KRB    MBNA                  Thu, Oct 16  -----N/A-----     0.47
MEG    Media General         Thu, Oct 16  Before the Bell   0.47
MCHP   Microchip Technology  Thu, Oct 16  After the Bell    0.17
MHK    Mohawk Industries, IncThu, Oct 16  After the Bell    1.34
NCF    Natl Comm Finl Corp   Thu, Oct 16  Before the Bell   0.41
NAP    National Processing   Thu, Oct 16  Before the Bell   0.25
NXY    Nexen                 Thu, Oct 16  -----N/A-----     0.67
NXTL   Nextel Communications Thu, Oct 16  Before the Bell   0.32
NOK    Nokia                 Thu, Oct 16  Before the Bell   0.19
NFB    North Fork Bancorp    Thu, Oct 16  Before the Bell   0.63
NWAC   NW Airlines Corp      Thu, Oct 16  Before the Bell  -0.62
ODP    Office Depot Inc.     Thu, Oct 16  Before the Bell   0.28
BTU    Peabody Energy Corp.  Thu, Oct 16  Before the Bell   0.37
PNR    Pentair, Inc.         Thu, Oct 16  Before the Bell   0.75
PBCT   People's Bank         Thu, Oct 16  -----N/A-----     0.23
PMCS   PMC-Sierra, Inc.      Thu, Oct 16  After the Bell   -0.01
PNC    PNC Finl Services Grp Thu, Oct 16  Before the Bell   0.96
PLCM   Polycom Incorporated  Thu, Oct 16  After the Bell    0.09
PUK    Prudential PLC        Thu, Oct 16  Before the Bell    N/A
RMBS   Rambus Inc.           Thu, Oct 16  After the Bell    0.04
RF     Regions Financial     Thu, Oct 16  -----N/A-----     0.73
RHI    Robert Half Intl      Thu, Oct 16  After the Bell    0.02
SWY    Safeway, Inc.         Thu, Oct 16  -----N/A-----     0.47
KS     Samsung Electronics   Thu, Oct 16  After the Bell     N/A
SAP    SAP AG                Thu, Oct 16  Before the Bell   0.20
S      Sears, Roebuck and Co.Thu, Oct 16  Before the Bell   0.81
SEIC   SEI Investments       Thu, Oct 16  Before the Bell   0.34
SIVB   Silicon Valley Bancsh Thu, Oct 16  After the Bell    0.47
SKYF   Sky Financial Group   Thu, Oct 16  Before the Bell   0.45
SLM    SLM Corporation       Thu, Oct 16  Before the Bell   0.47
SYK    Stryker               Thu, Oct 16  After the Bell    0.52
STU    Student Loan          Thu, Oct 16  Before the Bell    N/A
SUNW   Sun Microsystems      Thu, Oct 16  After the Bell   -0.08
TXT    Textron Inc.          Thu, Oct 16  Before the Bell   0.48
KO     The Coca-Cola Company Thu, Oct 16  -----N/A-----     0.52
NYT    The New York Times Co Thu, Oct 16  Before the Bell   0.32
TBL    The Timberland CompanyThu, Oct 16  Before the Bell   1.42
TRB    Tribune               Thu, Oct 16  Before the Bell   0.50
UCBH   UCBH Holdings, Inc.   Thu, Oct 16  -----N/A-----     0.34
UMBF   UMB Financial         Thu, Oct 16  After the Bell    0.62
UPC    Union Planters Corp   Thu, Oct 16  Before the Bell   0.67
UTX    United Technologies   Thu, Oct 16  Before the Bell   1.24
UNH    UnitedHealth Group    Thu, Oct 16  Before the Bell   0.74
VLY    Valley National Banc  Thu, Oct 16  Before the Bell   0.40
WHI    W Holding Company     Thu, Oct 16  -----N/A-----     0.39
GWW    W.W. Grainger         Thu, Oct 16  Before the Bell   0.63
WTNY   Whitney Holding Corp  Thu, Oct 16  Before the Bell   0.59
XLNX   Xilinx, Inc.          Thu, Oct 16  After the Bell    0.15
ZION   Zions Bancorp         Thu, Oct 16  After the Bell    1.04


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

AKZOY  Akzo Nobel N.V.       Fri, Oct 17  -----N/A-----      N/A
ADP    Automatic Data ProcessFri, Oct 17  Before the Bell   0.29
CBSS   Compass Bancshares    Fri, Oct 17  -----N/A-----     0.67
EQT    Equitable Resources   Fri, Oct 17  Before the Bell   0.45
HU     Hudson United Bancorp Fri, Oct 17  After the Bell    0.66
KRI    Knight Ridder         Fri, Oct 17  Before the Bell   0.81
LEA    Lear Corp.            Fri, Oct 17  Before the Bell   1.02
RG     Rogers Communications Fri, Oct 17  Before the Bell    N/A
RCN    Rogers Wireless Comm  Fri, Oct 17  -----N/A-----      N/A
SII    Smith International   Fri, Oct 17  Before the Bell   0.35
SON    Sonoco Products       Fri, Oct 17  Before the Bell   0.32
SUP    Superior Industries   Fri, Oct 17  Before the Bell   0.40
UST    UST Inc.              Fri, Oct 17  Before the Bell   0.74
WL     Wilmington Trust      Fri, Oct 17  Before the Bell   0.51


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

Symbol  Company Name              Ratio    Payable     Executable

TXUI    Texas United Bancshares   3:2      Oct  15th   Oct  16th
CELL    Brightpoint Inc           3:2      Oct  15th   Oct  16th
MPR     Met-Pro Corporation       4:3      Oct  15th   Oct  16th
THFF    First Financial Corp      2:1      Oct  15th   Oct  16th
PCBK    Pacific Continental Corp  4:3      Oct  15th   Oct  16th
ATU     Atuant Corp               2:1      Oct  21st   Oct  22nd

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

Earnings season is upon us and the announcements will be coming
fast and furious for the next few weeks.  Many of the truly big
names will be announcing this week.  We also have a very full
economic calendar starting on Wednesday.  


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

----------------
Monday, 10/13/03
----------------
None


-----------------
Tuesday, 10/14/03
-----------------
None


-------------------
Wednesday, 10/15/03
-------------------
Retail Sales (BB)       Sep  Forecast:   -0.2%  Previous:     0.6%
Retail Sales ex-auto(BB)Sep  Forecast:    0.4%  Previous:     0.7%
NY Empire State Indx(BB)Oct  Forecast:    15.0  Previous:     18.4
Fed's Beige Book (DM)


------------------
Thursday, 10/16/03
------------------
Initial Claims  (BB)  10/11  Forecast:     N/A  Previous:     382K
CPI (BB)                Sep  Forecast:    0.3%  Previous:     0.3%
Core CPI (BB)           Sep  Forecast:    0.1%  Previous:     0.1%
Business Inventories(BB)Aug  Forecast:    0.0%  Previous:    -0.1%
Industrial Prodction(DM)Sep  Forecast:    0.4%  Previous:     0.1%
Capacity Utilization(DM)Sep  Forecast:   74.8%  Previous:    74.6%
Philadelphia Fed (DM)   Oct  Forecast:    16.4  Previous:     14.6
Natural Gas Inventories
Wall Street Wireless Industry Conference

----------------
Friday, 10/17/03
----------------
Housing Starts (BB)     Sep  Forecast:  1.834M  Previous:   1.820M
Building Permits (BB)   Sep  Forecast:  1.828M  Previous:   1.886M
Mich Sentiment-Prel.(DM)Oct  Forecast:    88.5  Previous:     87.7
Treasury Budget (DM)    Sep  Forecast:     N/A  Previous:   $42.5B



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 10-12-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Lots To Watch This Week
Put Play of the Day: CCMP
Dropped Calls: RYL
Dropped Puts: None


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


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

Lots To Watch This Week

Magna Intl Corp - MGA - close: 77.70 change: +2.04

WHAT TO WATCH: Shares of MGA are back on the rebound.  After 
reaching all-time highs above $83 in August the stock sold off as 
investors took profits from the big March-August run.  Shares 
found support at their 100-dma and the $72 region.  We've since 
seen it battle with resistance at its simple 50-dma and Friday's 
move was a clean breakout above it.  Expect some resistance at 
$80 but bulls can target the recent highs.

Chart=


---

Perkin Elmer Inc - PKI - close: 17.19 change: +0.27

WHAT TO WATCH: PKI has been a big winner for investors this year 
with a massive gain off its February lows near $7.25.  Now the 
stock is breaking out from a multi-week consolidation pattern to 
hit new yearly highs.  We like the overall trend despite 
potential resistance on its weekly chart between $18.50 and 
$19.00 but earnings should be coming up in just five trading 
days.  PKI could be worth watching.  Estimates are for 14 cents a 
share.

Chart=


---

Zebra Technologies - ZBRA - close: 57.92 change: +0.98

WHAT TO WATCH: We came close to adding ZBRA to the OI call list 
this weekend.  Shares have been consolidating sideways in a range 
between $49 and $56 for months.  The Thursday-Friday surge broke 
through the top of this range and produced a nice pattern on its 
point-and-figure chart.  This is a new all-time high for ZBRA and 
while we might expect some resistance at $60, patient investors 
may want to time an entry on a dip to $56.

Chart=


---

ImClone Systems - IMCL - close: 42.00 change: +2.90

WHAT TO WATCH: Wow! Friday produced a big volume surge and a nice 
gain for the share price.  IMCL broke above its simple 50-dma 
while its MACD looks ready to produce a bullish buy signal.  
There is some speculation that the FDA will be reporting back to 
IMCL on its Erbitux treatment later this week.  Expectations are 
positive but woe to any shareholder should the FDA come back 
negative.

Chart=


---

Invitrogen Corp - IVGN - close: 61.43 change: +2.34

WHAT TO WATCH: Here's another biotech stock that has produced big 
results from its April lows.  Shares have more than doubled since 
mid April and Friday's move added another 4 percent.  The recent 
trend of higher lows looks encouraging and the close back above 
$60 also looks tempting.  Optimistic bulls might want to target 
late 2001 resistance near $70 but watch out for earnings on 
October 23.

Chart=


---

Wellpoint Health Network - WLP - close: 80.63 change: +1.00

WHAT TO WATCH: WLP was one of the best performing stocks during 
the bear market.  Now shares have been suffering a multi-month 
consolidation phase from its June highs.  It looks like WLP may 
have produced a double-bottom at the $74 level.  Interested bulls 
might want to use a trigger above $81.50.  Earnings are expected 
in late October.

Chart=




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

NTAP $25.15 +1.12 - This networking stock jumped ahead on Friday 
despite JNPR's good, but not great earnings report.  The stock is 
looking a little overbought from its recent low near $20.

XRX $11.11 +0.31 - Stock traders may want to take a look at XRX.  
Shares have broken out of its trend of lower highs.  While XRX 
does have resistance at $11.50 a breakout above this level 
wouldn't surprise us.

MBT $82.30 -3.19 - This high-flyer finally ran into some profit 
taking on Friday.  Shares remain very overbought and could 
consolidate back to the $75 level.

KSS $52.65 -0.35 - This retailer has been under performing its 
peers and just broke down out of a bear flag consolidation 
pattern late this week.  A retest of the June lows could be in 
order.

UNTD $30.40 -0.74 - More aggressive bears are probably already on 
the trail of UNTD.  The stock broke its rising channel a couple 
of weeks ago but it's still falling.  A breakdown at $30 could 
lead to a retest of support and its simple 200-dma near $25.


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

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

Cabot Microelect. - CCMP - close: 58.54 change: -0.26 stop: 61.50

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
^^^^^

The Ryland Group - RYL - close: 81.70 change: -0.20 stop: 79.25

Despite the very real possibility that we'll later have seller's 
remorse, it feels like it's time to close our RYL play.  It has 
performed better than we had expected, up more than $8.50 from our 
picked price and still looks like it could head higher.  But like 
the old adage says, "nobody ever went broke taking a profit".  RYL 
is either putting in a top near $82 or getting ready to explode 
higher again.  While we're exiting the play this weekend, our 
recommendation would be to sell into any further strength early on 
Monday.  Traders with the intestinal fortitude to hang on for more 
upside should maintain stops at $79.25 and look for an exit in the 
$85 area.

Picked on September 4th at  $72.18
Change since picked:         +8.59
Earnings Date             10/21/03 (confirmed)
Average Daily Volume =       842 K



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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The Option Investor Newsletter                   Sunday 10-12-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: BBY, BSC, CBE, CAT, EXC, FD, UTX
New Calls: COO
Current Put Plays: MRK
New Puts: CCMP


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

Best Buy Company - BBY - close: 52.65 change: -0.59 stop: 50.25

Company Description:
Best Buy a specialty retailer of name-brand consumer electronics, 
home office equipment, entertainment software and appliances.  The 
company provides a broad selection of models within each product 
line in order to provide the customer with a meaningful 
assortment, offering more than 5800 products, not counting 
entertainment software titles.  Growing its store count by 15% in 
fiscal year 2000, brought the grand total to more than 4000 in 41 
states by year end.

Why we like it:
Just as we were beginning to fret that BBY might just roll over 
and die, the stock rocketed sharply higher on Thursday following 
the company's reaffirmation of its guidance.  The entire Retail 
sector was strongly positive and that helped the bulls push to 
just 25-cents from our initial $54 target.  Friday's lackluster 
session really didn't have anything to offer except for a bit of 
consolidation ahead of the weekend.  Next week, we'll be looking 
for a breakout over $54 to confirm that our aggressive target of 
$57 is achievable.  The best entries right now will come from a 
pullback and rebound from the $51.50-52.00 area, although momentum 
entries on a breakout over $54 should work too.  Note that our 
stop is now set at $50.25 (just below the bottom of the 10/03 
gap).  Since BBY doesn't report earnings again until the middle of 
December, we have plenty of time to let the action play out.

Suggested Options:
Shorter Term: The October 50 Call will offer short-term traders 
the best return on an immediate move, as it is just slightly in 
the money.  Note that October contracts expire next week.  That 
makes the more conservative short-term choice the November 50 
Call.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the November 55 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 December 55 Call.  

! Alert: October Options Expire on Friday the 17th!

BUY CALL OCT-50 BBY-JJ OI=16075 at $3.00 SL=1.50
BUY CALL NOV-50 BBY-KJ OI= 1488 at $4.30 SL=2.75
BUY CALL NOV-55 BBY-KK OI= 4140 at $1.60 SL=0.75
BUY CALL DEC-55 BBY-LK OI= 5282 at $2.55 SL=1.25

Annotated Chart of BBY:


 

Picked on October 5th at     $51.00
Change since picked:          +1.65
Earnings Date              12/17/03 (unconfirmed)
Average Daily Volume =     3.89 mln


---

Bear Stearns Cos - BSC - close: 76.64 chg: -0.05 stop: 73.50

Company Description:
Founded in 1923, Bear, Stearns & Co. Inc. is a leading worldwide 
investment banking and securities trading and brokerage firm, and 
the major subsidiary of The Bear Stearns Companies Inc. With 
approximately $34.4 billion in total capital, Bear Stearns serves 
governments, corporations, institutions and individuals 
worldwide. The company's business includes corporate finance and 
mergers and acquisitions, institutional equities and fixed income 
sales, trading and research, private client services, 
derivatives, foreign exchange and futures sales and trading, 
asset management and custody services. Through Bear, Stearns 
Securities Corp., it offers prime broker and broker dealer 
services, including securities lending. Headquartered in New York 
City, the company has approximately 10,500 employees worldwide.
(source: company press release)

Why We Like It:
Our recently added call play in BSC is still sleeping.  We have 
been triggered when it traded above the $77.50 level but shares 
have spent most of last week consolidating sideways above the $76 
mark.  That's not necessarily a bad thing but we were expecting 
BSC to follow the strength in the XBD broker/dealer index.  
Speaking of which, the XBD has continued to notch new one-year 
highs as of Thursday's session and only slipping back two points 
during Friday's session.  

We are slightly cautious on BSC and bullish traders can take 
their time picking an entry point.  We pointed out on Tuesday 
that our stance on BSC was somewhat risky as the stock is 
battling its bearish resistance on its point-and-figure chart.  
Currently, this level is proving to be a successful obstacle to 
the bulls.  We would not be surprised to see BSC dip back to the 
$75 mark if the markets and the XBD pull back for some overdue 
profit taking.  Should a dip to $75 occur, then bulls can look 
for a bounce to gauge any new entries.  

Potentially affecting our success in BSC are the myriad earnings 
announcements this week, specifically from the banking sector.  
Rumor has it that several big banks lost a ton of money on the 
bond market implosion this quarter and that could negatively 
affect the brokerage group (more of a guilt by association 
affect).  We already know that BSC and most of the big brokers 
have already announced very strong earnings for the latest 
quarter but traders can have short memories sometimes.

We want to reiterate that traders can be patient here.  
Technicals are somewhat mixed on BSC and some are suggesting some 
future weakness.  A dip near $75 would be a preferable entry 
point.

Suggested Options:
We would not suggest the October options because there is not 
much time left.  November and January's appear to be the best 
bet.  Our preference would be the 75's. 

! Alert: October Options Expire on Friday the 17th!

BUY CALL NOV 75 BSC-KO OI= 369 at $3.50 SL=1.75
BUY CALL NOV 80 BSC-KP OI= 839 at $1.15 SL=0.65
BUY CALL JAN 75 BSC-AO OI=5169 at $5.00 SL=3.00
BUY CALL JAN 80 BSC-AP OI=3357 at $2.50 SL=1.25

Annotated Chart:


 

Picked on October 9 at $77.50
Change since picked:   - 0.86
Earnings Date        09/18/03 (confirmed)
Average Daily Volume:    1.2 million 
Chart =


---

Cooper Industries - CBE - cls: 50.45 chg: -0.12 stop: 48.00

Company Description:
Cooper Industries, Ltd., with 2002 revenues of $4 billion, is a 
global manufacturer of electrical products and tools and 
hardware. Incorporated in Bermuda, with administrative 
headquarters in Houston, Texas, Cooper has more than 28,000 
employees serving more than 100 locations around the world, and 
sells products to customers in more than 50 countries.
(source: company press release)

Why We Like It:
We initially added CBE to the call list as more of a technical 
play.  The stock has broken strongly upward from a bull flag 
consolidation pattern on decent volume.  The stock has now spent 
the last few sessions consolidating its recent gains from the $48 
level and establishing new short-term support at $50.00.  Traders 
can choose their entry point.  A bounce from the $50 mark looks 
good while momentum traders can wait for a move above $51.50 or 
$52.00.  The stock is currently in the process of filling the gap 
from the market's reaction to the 9/11 attacks two years ago and 
our initial upside target at $55 still looks viable.  

Should the broader markets pull back in profit taking this coming 
week we would expect to see CBE break the $50 mark and drop 
towards the simple 50-dma near $48.70.  We've placed our stop at 
$48.00 to keep our risk light.

Suggested Options:
Short-term traders have October and November options to choose 
from while longer-term traders can look at January and April 
strikes.  Our preference is for the November 50s and 55's.

! Alert: October Options Expire on Friday the 17th!

BUY CALL NOV 50 CBE-KJ OI= 195 at $2.20 SL=1.15
BUY CALL NOV 55 CBE-KK OI= 532 at $0.45 SL= --
BUY CALL JAN 55 CBE-AK OI=  67 at $0.90 SL=0.45

Annotated Chart:


 

Picked on October 5 at $51.00
Change since picked:   - 0.55
Earnings Date        10/23/03 (confirmed)
Average Daily Volume:    539 thousand
Chart =


---

Caterpillar Inc - CAT - close: 75.75 chg: -0.33 stop: 71.90     

Company Description:
For more than 75 years, Caterpillar Inc. has been building the 
world's infrastructure and, in partnership with its worldwide 
dealer network, is driving positive and sustainable change in 
every continent. With 2002 sales and revenues of $20.15 billion, 
Caterpillar is a technology leader and the world's leading 
manufacturer of construction and mining equipment, clean diesel 
and natural gas engines and industrial gas turbines.
(source: company press release)

Why We Like It:
The stock market has been pretty enthusiastic over cyclical 
stocks.  The improving economy, reflecting in the strong ISM data 
two weeks ago, and its expanding manufacturing sector means more 
business for companies like CAT.  Shares of the stock certainly 
reflect the generous mood and CAT has been on a non-stop run 
after breakout of its recent consolidation from late-August 
through September.  Contributing to CAT's strength is expectation 
that the company could also win a very big contract from the U.S. 
government for power generators in Iraq.  The deal is rumored to 
be worth 25-to-30 cents a share for CAT's 2004 earnings.  

Technically, everything is firing on all cylinders.  CAT's MACD, 
momentum and RSI indicators are all bullish although RSI is just 
beginning to reach overbought levels.  Short-term stochastics are 
already pegged at overbought and Friday's dip in the share price 
has stochastics curving lower.  CAT also has a very bullish P&F 
chart indicating strong demand.  

We are not suggesting new bullish plays in CAT because the 
company is due to announce earnings on Thursday the 16th.  
OptionInvestor.com will probably close the play on Tuesday or 
Wednesday ahead of earnings.  We've all heard the term "buy the 
rumor, sell the news" and we don't want to get caught in the 
downdraft should it occur.  Short-term traders can already begin 
to take profits and the rest of us should be planning our exits.

Suggested Options:
CAT is expected to announce earnings on Thursday, October 16th and 
we are not suggesting any new bullish plays at this time.

! Alert: October Options Expire on Friday the 17th!

Annotated Chart:


 

Picked on October 2 at $72.70
Change since picked:   + 3.05
Earnings Date        10/16/03 (confirmed)
Average Daily Volume:    2.9 million 
Chart =
 

---

Exelon Corporation - EXC - close: 62.45 change: -0.05 stop: 62.75

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:
It was a rather quiet week for shares of EXC, as the stock hovered 
near its recent highs.  The bulls actually pushed a few pennies 
above the 10/02 high on Thursday afternoon, but they couldn't hold 
onto the gains into the close and the stock fell back into the 
$63.50-65.00 consolidation zone.  Despite the lack of bullish 
conviction last week, it was encouraging to see the EXC hold above 
the 10-dma ($64.19), and the prior high ($63.10), while gradually 
drifting back towards the center of the ascending channel.  We're 
looking for the stock to make a directional move in the week ahead 
and based on the bullish technical picture, we're still giving the 
nod to the upside.  Use dips back to the $63.50-64.00 area as 
viable entry points in anticipation of a breakout to new multi-
year highs.  Momentum traders can consider new positions on a move 
above $65.10, but need to see the move come on solid volume and 
preferable accompanied by renewed strength in the Utility Sector 
index (UTY.X), which has been drifting sideways to lower over the 
past week.  Maintain stops at $62.75.

Suggested Options:
Shorter Term: The November 65 Call will offer short-term traders 
the best return on an immediate move, as it is currently in the 
money.

Longer Term: Traders looking to capitalize on an extended rally 
will want to look to the January 65 Call.  This option should 
provide sufficient time for the stock to move higher without time 
decay becoming a dominant factor over the short run.  

! Alert: October Options Expire on Friday the 17th!

BUY CALL NOV-60 EXC-KL OI= 119 at $5.00 SL=3.00
BUY CALL NOV-65 EXC-KM OI= 235 at $1.25 SL=0.50
BUY CALL JAN-65 EXC-AM OI= 769 at $2.15 SL=1.00

Annotated Chart of EXC:


 

Picked on September 28th at  $62.64
Change since picked:          +1.81
Earnings Date              10/23/03 (confirmed)
Average Daily Volume =     1.23 mln


---

Federated Dep Store - FD - cls: 45.58 chng: -0.02 stop: 42.75*new*

Company Description:
Federated Department Stores, Inc. is a retail organization 
operating department stores that sell a range of merchandise, 
including men's, women's and children's apparel and accessories, 
cosmetics, home furnishings and other consumer goods.  As of 
February 2003, the company, through its subsidiaries, operated 394 
department stores and 61 furniture galleries and other specialty 
stores under the names Bloomingdale's, The Bon Marche, Burdines, 
Goldsmith's, Lazarus, Macy's and Rich's.  In addition to its 
stores in 34 states, Puerto Rico and Guam, the company conducts 
direct-to-customer mail catalog and e-commerce business under the 
Bloomingdale's By Mail and macys.com names.

Why we like it:
Coming on the heels of Thursday's strongly bullish breakout, 
Friday's tight-range consolidation session was a clear victory for 
the FD bulls.  the stock traded in a narrow 38-cent range on light 
volume as positions were squared ahead of the weekend.  This 
looked like a healthy consolidation session ahead of further 
upside and we want to take advantage of any weakness in FD to 
establish new positions.  A dip and rebound from the $44.00-44.50 
area would now be a gift of an entry point, as that level of 
former resistance should now provide firm support.  Momentum types 
can consider entering on a breakout over the $46 level, but only 
if accompanied by the Retail index (RLX.X) pushing through the 
$380 resistance.  Fortunately, FD doesn't report earnings until 
mid-November, so we don't have the time pressure of having to be 
out of the play ahead of the earnings announcement.  Our target of 
$50 still looks reasonable, although we've decided to raise our 
stop to $42.75, which is below all of the major moving averages 
except for the 200-dma.

Suggested Options:
Shorter Term: The October 45 Call will offer short-term traders 
the best return on an immediate move, as it is just slightly in 
the money.  Note that October contracts expire next week.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the November 47 Call or even 
the January 50.  These options are 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.  

! Alert: October Options Expire on Friday the 17th!

BUY CALL OCT-45 FD -JI OI=218 at $1.25 SL=0.60
BUY CALL NOV-45 FD -KI OI=244 at $2.40 SL=1.25
BUY CALL NOV-47 FD -KW OI= 61 at $1.15 SL=0.50
BUY CALL JAN-50 FD -AJ OI=769 at $1.25 SL=0.60

Annotated Chart of FD:


 

Picked on October 9th at     $45.60
Change since picked:          -0.02
Earnings Date              11/12/03 (unconfirmed)
Average Daily Volume =     1.89 mln


---

United Technologies - UTX - cls: 82.13 chg: -0.47 stop: 78.50     

Company Description:
United Technologies Corp., based in Hartford, Connecticut, is a 
diversified company that provides a broad range of high 
technology products and support services to the building systems 
and aerospace industries.  Its four main business segments are 
Otis, Carrier, Pratt and Whitney, and Flight Systems.
(source: company press release)

Why We Like It:
United Technology is another cyclical manufacturer that has 
enjoyed some share price appreciation in recent weeks.  We added 
it back to the call list on a breakout above resistance at the 
$80.50 level.  Since then we've seen it trade as high as 84.17 on 
Thursday before slipping backwards in mild profit taking.  If the 
markets continue to slip, then we would expect UTX to retest 
support in the $80-81 region.  However, if the broader indices 
can hold steady or even continue their climb then UTX might see a 
last gasp pre-earnings run up early in the week.  

The company is expected to announce earnings on October 16th.  
For this reason we are not suggesting new bullish plays in UTX at 
this time.  There are too many unknown variables that can 
sabotage a call play.  The company could miss earnings.  It could 
beat the estimates but have poor revenue numbers.  It could turn 
in very strong headline numbers but then fudge the conference 
call.  Who knows but we do know that OptionInvestor will be 
closing the play on Tuesday or Wednesday before the announcement.  

Unfortunately, our expectations aren't very high at the moment.  
The DJIA is looking a little top heavy and in need of additional 
consolidation.  The little dip on Friday isn't going to be enough 
and normally, as a Dow component, UTX is likely to follow where 
the index leads.

Suggested Options:
We are not suggesting new bullish plays with UTX expected to 
report earnings on Thursday, Oct. 16th.

! Alert: October Options Expire on Friday the 17th!

Annotated Chart:


 

Picked on October 2 at $80.45
Change since picked:   + 1.70
Earnings Date        10/16/03 (confirmed)
Average Daily Volume:    1.9 million 
Chart =



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

Cooper Cos - COO - close: 41.40 chg: +0.55 stop: 39.00

Company Description:
The Cooper Companies, Inc. manufactures and markets specialty 
healthcare products through its CooperVision and CooperSurgical 
units.  CooperVision markets a broad range of contact lenses for 
the vision care market. Headquartered in Lake Forest, Calif., it 
manufactures in Huntington Beach, Calif., Rochester, N.Y., 
Norfolk, Va., Adelaide, Australia, Farnborough and Hamble, 
England, Madrid, Spain and Toronto. CooperSurgical supplies 
diagnostic products, surgical instruments and accessories to the 
gynecology market. With headquarters in Trumbull, Conn., it also 
manufactures in Bedminister N.J., Cranford, N.J., Fort Atkinson, 
Wis., Malmo, Sweden, Montreal and Berlin. (source: company press 
release)

Why We Like It:
Probably better known for its specialty contact lens that let you 
change the color of your eyes, COO actually operates two 
different divisions.  Together they have been performing well.  
The company last reported earnings on September 3rd and beat 
estimates by 4 cents with results of 58 cents a share.  Revenues 
were up almost 20% and the company guided higher for the fourth 
quarter.  Someone must have found out beforehand because the 
stock was up sharply right before the earnings announcement.  The 
stock had heavy short interest near 18% of its float and bears 
were running to cover.  Shares shot up from $37 to almost $45 in 
just three days.  

Since that time the stock has slowly consolidated back towards 
the $40 level, actually the $39.50 mark, where the stock had 
gapped up on its earnings report.  We've seen it bounce twice at 
$39.50 and COO has essentially "filled the gap".  Now that the 
consolidation is over its technical oscillators (momentum, RSI, 
MACD) are all starting to turn positive again.  Friday's gain was 
actually a breakout of its trend of declining highs.  The stock 
still has relatively high short interest near 15% of its float.  
Combine all of the above with a relatively cheap valuation with a 
trailing P/E of 20 and a forward P/E of 16 and suddenly COO looks 
attractive to investors who may be looking for a place to put 
their money if tech looks too pricey.

We're going to start the play with a stop loss at $39.00 although 
one could easily slide it up to 39.50 (the recent double bottom).  
Our initial target is $45 but its P&F chart is forecasting a 
price target closer to $55 (given enough time).

Suggested Options:
Short-term traders should probably look over the November options 
while longer-term traders can evaluate the February strikes.

BUY CALL NOV 40 COO-JH OI= 111 at $1.75 SL=0.90
BUY CALL NOV 45 COO-JI OI= 158 at $0.25 SL= --
BUY CALL FEB 45 COO-BI OI= 360 at $1.70 SL=1.00

Annotated chart:


 

Picked on October 12 at $41.40
Change since picked:    + 0.00
Earnings Date         09/03/03 (confirmed)
Average Daily Volume:      391 thousand
Chart =



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

Merck & Co - MRK - close: 49.48 chg: +0.49 stop: 51.50     

Company Description:
Merck & Co., Inc. is a global research-driven pharmaceutical 
products and services company. Merck discovers, develops, 
manufactures and markets a broad range of innovative products to 
improve human and animal health, directly and through its joint 
ventures. (source: company press release)

Why We Like It:
Why are drug stocks under performing?  Sector rotation.  Money 
has been chasing the tech and cyclical stocks and ignoring 
boring, dependable players like big cap drugs.  Granted several 
of the drug giants have been battling patent expiration issues on 
some of the bigger cash cows the last few years.  Investors have 
also been concerned about growing competition for MRK's 
cholesterol drugs from rival AstraZeneca who just launched their 
new treatment Crestor.  Technically, MRK has been in a multi-year 
decline and the recent drop from its June-July highs appears to 
be part of the pattern.  

Thursday's drop through $50.00 and surpassing the August lows on 
strong volume was a key breakdown in multi-month support.  MRK 
did see a bounce on Friday but we would expect it to rollover 
under the $50 mark.  There are always risks when playing 
drug/biotech stocks.  The omnipresent headline risk of some new 
breakthrough can give bears nightmares.  Plus, as these stocks 
get cheaper we're in danger of another analyst deciding to 
upgrade them on a valuation basis.  If it's any consolation MRK 
does have a bearish point-and-figure chart indicating a price 
objective near $39-$40.  


Suggested Options:
Short-term traders can choose November strikes.  Longer-term 
traders can look to the January's.  

! Alert: October Options Expire on Friday the 17th!

BUY PUT NOV 50.00 MRK-WJ OI= 7285 at $1.90 SL=0.95
BUY PUT NOV 47.50 MRK-WW OI= 6938 at $0.85 SL=0.50
BUY PUT NOV 45.00 MRK-WI OI= 2022 at $0.35 SL= --

Annotated Chart:


 

Picked on October 6 at $49.90
Change since picked:   - 0.42
Earnings Date        10/22/03 (confirmed)
Average Daily Volume:    6.2 million 
Chart =



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

Cabot Microelect. - CCMP - close: 58.54 change: -0.26 stop: 61.50

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 week just ended was pretty positive for the Semiconductor 
stocks, with the SOX closing at its best level in a month and 
looking like it wants to make a run at its 52-week highs near 
$473.  Despite this clear sector strength, CCMP is a standout 
weakling, unable to really participate to the upside and all too 
eager to fall.  The latest feeble rally attempt in the stock came 
to an abrupt halt on Friday morning, as the initial surge above 
$61 was harshly knocked back, with the stock then ending near its 
low of the day.  The PnF chart is still bearish (although the 
bearish price target of $55 has already been achieved.  This is a 
pure relative weakness play, where we're looking for anticipation 
of earnings on 10/23 to exacerbate that weakness.  Initial 
support will likely be found near $55, just as it was a couple 
weeks ago.  But this time, we're expecting to see that support 
fail and price drop into the $51-52 area to test the 200-dma 
($51.05).

It is interesting that Thursday's failed rebound was turned back 
right at the descending trendline from the August high, as well 
as the 30-dma ($61.16).  Those continually dropping measures of 
resistance should provide a very firm ceiling for CCMP, allowing 
us to place our stop just above at $61.50.  There's the potential 
for some mild support to be found just below $58, reinforced by 
the 10-dma ($57.77), but a break below $57.50 can be used for 
aggressive momentum entries now that daily Stochastics have 
clearly turned bearish and MACD is starting to roll over.  But 
the preferable entry will come on a failed rebound below $60, as 
it provides a more favorable risk/reward ratio.  Note that this 
will have to be a rather quick play, as CCMP is due to report its 
earnings on the morning of 10/23.

Suggested Options:
Aggressive short-term traders will want to focus on the November 
55 Put, as it will provide the best return for a short-term play.  
More conservative traders will want to look to the November 60 
strike, with is slightly in the money.  We've also listed the 
October 60 strike, but take note that these contracts expire on 
Friday, making them a very aggressive choice.

BUY PUT OCT-60 UKR-VL OI=1353 at $2.45 SL=1.25
BUY PUT NOV-60 UKR-WL OI= 197 at $4.80 SL=3.00
BUY PUT NOV-55 UKR-WK OI= 251 at $2.65 SL=1.25

Annotated Chart of CCMP:


 

Picked on October 12th at   $58.54
Change since picked:         +0.00
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =       745 K



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The Option Investor Newsletter                   Sunday 10-12-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: New Lows Ahead
Traders Corner: Will It Hit The Fan This Week? Get Ready To Duck!
Traders Corner: Where is the Dow Going?


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*****
LEAPS
*****

New Lows Ahead
By Mark Phillips
mphillips@OptionInvestor.com

While it wouldn't take a genius to know that is my prognosis for 
the stock market over the long term, that isn't the point I'm 
trying to convey.  All areas of the equity markets appear headed 
higher in the weeks ahead and any bearish moves are likely to be 
driven by company-specific admissions in the October earnings 
cycle.

What I'm referring to with that title is the VIX, which is very 
close to trading at new multi-year lows.  Putting aside the issue 
of the non-linearity created by the change in the way this measure 
of market sentiment is calculated, the VIX plummeted to 18.45 by 
the end of last week and aside from a brief dip to 18.23 in August 
of 2000, this is the lowest level for the VIX since July of 1999.  
As a point of reference, the VXO (the old VIX) ended the week at 
19.24 -- still quite low but not its lowest point for this cycle.  
What does that mean about the near future in terms of the equity 
markets?  I wish I knew, but I do not perceive it as a validation 
that we're soon headed to new highs for any of the major averages.

At the same time, it doesn't predict an imminent plunge this week, 
or even this month.  As I've mentioned recently, there are 3 
primary factors that influence the action in the market -- 
Fundamentals, Technicals and Sentiment.  Much of the technical 
picture is bullish, but quite extended to the upside, as investors 
have been buying in anticipation of improving fundamentals.  In 
short, sentiment has been driving the markets higher, which has 
served to keep the technicals pointing up, all the while the 
fundamental picture for the market and the US economy are mixed, 
at best.

Sky-high stock valuations, an abysmally weak currency that flies 
in the face of the stated "strong dollar" policy of the current 
administration, negligible signs of job growth and a still large 
overhang of excess capacity are just some of the major bearish 
factors currently facing the bulls.  At the same time, the Fed has 
been trying to keep its finger in the dyke, printing money and 
keeping interest rates low in an attempt to stimulate economic 
growth with which to pay off the ever-growing mountains of 
government debt.  By looking at the action in the stock market, it 
would seem that the Fed is succeeding in this endeavor, but I view 
it as the final desperation move in an attempt to keep the house 
of cards from falling over.  Eventually sanity will reign again 
and it could be a painful experience for those that have blindly 
bought into the story that the 2-year bear market is dead and 
buried.

That doesn't mean that we should blindly short into an 
irrationally extended market.  There are too many stories of 
investors that were ruined trying to do just that during 1999 and 
early 2000 before the top was finally in.  But at the same time, 
we should all remain cognizant of the inherent risks that exist 
for long positions.  Another measure of the fact that things are 
starting to get a bit frothy is the degree to which margin debt is 
once again beginning to grow.  During the quarter ended on June 
30th, margin debt at E-Trade rose by 31% over the prior quarter.  
Am I the only one that feels like it is late 1999 all over again?

The big thing that feels very different is the action of the 
corporate insiders, who are selling at an incredible rate compared 
to their aggregate buying activity.  Normally, when there are $20 
worth of insider sales for every dollar of insider buys, it is 
considered bearish.  Just as a single data point, in August, there 
was $644 of insider stock sales for every dollar on the buy side 
for Semiconductor stocks.  That's off the charts, in my opinion!

So while the smart money (corporate insiders) are dumping stocks 
at the greatest rate since just before the 1987 crash, the dumb 
money (individual investors) are expanding their margin debt to 
buy these very same stocks.  Sure the bullish rise may continue 
from here and I certainly won't try to bet against it with my 
account until the charts tell me it is advisable, but this does 
not appear to be the environment in which I want to be trying to 
play the long side for anything longer than a week or two at a 
time.  Clearly, trades of that short of a duration do not fit the 
bill of what we're trying to do here in the LEAPS column.

Even if I had been smart enough to play the long side out of the 
long summer consolidation, I have to say that the volatility seen 
at the end of September would likely have been too great to allow 
me to remain in those long-term position trades.  This is the 
inherent risk of trying to catch a bullish ride on a market that 
is already overextended and becoming more so.

That brings us back to the bullish percent readings, which are 
really telling us nothing other than the bulls are still carrying 
the bulk of the risk, but still remain very much in charge.  Let's 
review where things are.

NASDAQ-100 - Bear Confirmed at 77%
NASDAQ Composite - Bull Confirmed at 73.6%
Dow Industrials - Bull Correction at 83%
S&P 500 - Bull Confirmed at 79.80%
S&P 100 - Bull Correction at 79%

The NASDAQ-100 is the only major index not in a bullish stance, 
and that index closed at new 52-week highs last Friday.  
Typically, a BP reading over 70% is considered overbought, yet 
since May, only the NDX and COMPX have spent any time below that 
threshold!  In June the COMPX BP finally climbed above 70% and the 
NDX BP only had a brief foray below that level during the August 
dip.

Bullish Percent readings, the VIX, weekly and monthly oscillators 
and numerous factors in the underlying economy all point to 
significant price weakness ahead.  But they've been doing that for 
several months and price has just continued its inexorable rise.  
To me, that says position trades intended to last for a period of 
months or longer are ill-advised unless we can find the ideal 
entry setup and play with tight stops.  I've been in the process 
over the past few weeks of trying to build a Watch List that will 
allow us to achieve those favorable entry points, while at the 
same time giving us the ability to play in either bullish or 
bearish market conditions.  About all I've managed to accomplish 
is churn numerous plays on and off of the Watch List, with some of 
the current candidates moving in and out of HOLD status.  But at 
least we haven't been suckered into bad Portfolio plays, and in 
the current market, I consider that to be a huge success.

Portfolio:

WMT - It's hard to say whether entering the WMT play was a wise or 
foolish move.  The Retail index (RLX.X) really had an impressive 
week, and that bodes badly for our play.  But WMT really didn't 
participate in the sector strength and that looks good for our 
bearish position.  Both daily and weekly Stochastics are pointing 
down and it now remains to be seen if the weakness seen through 
the month of September was a bear trap or a precursor of the 
future.  Traders still looking for an entry point should be able 
to do well with entries near current levels to as high as $59.75, 
just below that long-term descending trendline.  Maintain stops at 
$61.

Watch List:

AGN - Still in its holding pattern, AGN can't trade the $82 level 
to generate that PnF Buy signal, yet there isn't enough weakness 
to drive it below the bottom of the multi-month rising wedge 
pattern.  We need to wait for AGN to trade the $82 level to give 
that PnF Buy signal before taking any action.  So until that 
happens we wait.

QQQ - I really hate to do it, but there's really no other 
responsible choice but to change our QQQ play back to Hold status.  
The NASDAQ went straight up throughout the past week and Friday's 
close was a new 52-week high for the QQQ.  Remember, we don't want 
to try to pick a top in this market, but want to take a good entry 
once it's clear things have changed in favor of the bears.  That 
clearly hasn't happened yet, with QQQ moving back above the 
midline of the ascending channel and really showing no signs of 
significant weakness.  We may not be able to find a solid entry, 
but at least we aren't in a losing position!  Turning to the PnF 
chart, there isn't any sign of weakness, as price remains in a 
column of X, above the bearish resistance line, with a bullish 
price target of $45.  With the VXN NASDAQ Volatility index 
approaching its all-time lows and the NASDAQ-100 Bullish Percent 
still in Bear Confirmed, there's no way I'd consider a bullish 
position trade in this symbol.  But clearly we're premature for 
considering a bearish trade as well.  I'm as sick of writing it as 
you are of reading it, but patience is the key.

SMH - Well, last week our patience was definitely rewarded with 
the SMH moving higher all week long and ending very near the highs 
from early September.  The dip out of overbought on the weekly 
Stochastics is already being reversed back up and price closed 
above the descending trendline that began in early 2001.  Shifting 
the scale to Logarithmic shifts that trendline up slightly to $40, 
which coincides with pretty solid resistance on the weekly chart.  
The PnF chart shows the SMH still on a Buy signal, in a column of 
X and with a bullish price target of $55!  So for now, trying to 
short a top in this symbol is still a very aggressive strategy.  I 
won't attempt to pick a top here, but will instead wait for some 
significant sign of weakness.  Right now, that looks like a break 
below $34 will be required.  That would give us a break below the 
late September low and the 50-dma as well as a fresh PnF Sell 
signal.  We probably won't want to enter on the initial break 
below $34, so I'm shifting SMH back into Hold status, pending that 
trade at $34.

FRX - Last week had me feeling pretty good about putting FRX on 
Hold.  Price action was weak, volume was anemic and I'm having a 
harder time justifying a bullish position here.  FRX is fast 
approaching its October 19th FDA deadline related to its Memantine 
treatment for severe Alzheimer's.  At this point, I think we're 
best served by remaining on the sidelines and wait for the 
reaction to the news once it comes out.

NEM - Based on the was gold and gold stocks stabilized last week, 
you'd think I'd be kicking myself over setting far too aggressive 
an entry target for the play.  Ah, contraire!  You see, the 
decline that will give us a solid entry appears to be just getting 
underway, with weekly Stochastics (10,5,3) on NEM just starting to 
tip out of overbought territory.  I don't expect enough weakness 
in NEM to let us play the downside profitably, but getting it on 
the Watch List early will have it catching our attention on a 
regular basis and that should prevent us from missing the next 
bullish run that is quite likely to unfold as the dollar continues 
to weaken.

Radar Screen:

FNM - There still hasn't been any sign of weakness from FNM, as it 
steadily works higher towards the long-term descending trendline, 
now at $73.25.  The prudence of not forcing a bearish play here is 
becoming more evident by the week and for now the plan remains the 
same.  Wait for either price weakness or at least a bearish cross 
on the weekly Stochastics, while price remains below that 
trendline.

QCOM - QCOM appears to have left the station without us, 
continuing to gradually move higher after that rebound from the 
$42 area a couple weeks ago.  The bullish camp still has the ball 
and I like the long-term upside for the stock.  But for now, the 
best course of action is to wait for a viable entry point to 
materialize, ideally with a drop to the $40-41 area.

DJX - While it still sounds like a broken record, it's still 
premature to consider a bearish position in the DJX, as price 
continues to march higher.  The $98-100 area is still a strong 
price magnet and I expect that zone to be tested before any 
discernable weakness materializes.  Earnings season will be in 
full swing next week and from the early reports last week there 
doesn't seem to be anything to challenge the strong bullish 
sentiment that prevails in the broad market.  The DOW Bullish 
Percent is still near its cycle highs at 83% and weekly 
Stochastics (10,5,3) is really not showing any overt signs of 
weakness, having been in or near overbought since late April.  
Trying to play the upside appears to have too little potential 
reward, while playing the downside is still too risky.  So for now 
we wait and watch for a viable trade entry setup.

Despite several hours of searching, I found not one more stock 
that I was willing to list, even on the Radar Screen.  Bullish 
candidates look far too extended to consider and those that I'd 
like to play to the downside are not yet showing enough weakness.  
We already have plenty of plays like that already listed, so I 
decided to leave the list alone and take a fresh look when I 
return in two weeks.

Closing Thoughts:

Here we are midway through the month of October, and I don't feel 
like we are any nearer to resolution of how high is high for the 
broad market averages.  The DOW still feels like it wants to test 
10,000, the NASDAQ Composite appears headed for 2100 and the S&P 
500 is still seeking the 1070 area.  Until those measures are 
reached, the bullish sentiment is likely to remain undaunted and 
playing the downside for more than a quick swing trade is likely 
to be met with failure.  I have no doubt that trending markets 
will return, but it is unlikely to occur over the next couple 
weeks unless there are some really ugly earnings disappointments.  
That means the bulls still have the ball and their grip is 
unlikely to loosen over the near-term.

I got a one-week reprieve on the imminent approach of parenthood, 
but that grace period is unlikely to be extended.  I'll be 
stepping away from the markets beginning on Wednesday and will 
remain out of the publication schedule next weekend.  So there 
will not be a LEAPS column next weekend.  Trade safely in the 
meantime, and I'll see you again on October 26th.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
WMT    10/03/03  '05 $ 55  ZWT-MK  $ 5.10  $ 4.70  - 7.84%  $61
                 '06 $ 55  WWT-MK  $ 7.20  $ 6.50  - 9.72%  $61


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
AGN    09/14/03   $82          JAN-2005 $ 85  ZFH-AQ
                            CC JAN-2005 $ 80  ZFH-AP
                               JAN-2006 $ 90  YOK-AR
                            CC JAN-2006 $ 80  YOK-AP
FRX    09/21/03   HOLD         JAN-2005 $ 50  ZML-AJ
                            CC JAN-2005 $ 45  ZML-AI
                               JAN-2006 $ 50  WRT-AJ
                            CC JAN-2006 $ 40  WRT-AH
NEM    10/05/03   $33-34       JAN-2005 $ 35  ZIE-AG
                            CC JAN-2005 $ 30  ZIE-AF
                               JAN-2006 $ 35  WIE-AG
                            CC JAN-2006 $ 30  WIE-AF
SBUX   10/12/03   $27.50-28.00 JAN-2005 $ 30  ZIE-AG
                            CC JAN-2005 $ 25  ZIE-AF
                               JAN-2006 $ 30  WIE-AG
                            CC JAN-2006 $ 25  WIE-AF



PUTS:
QQQ    08/10/03  HOLD          JAN-2005 $ 32  ZWQ-MF
                               JAN-2006 $ 32  WD -MF
SMH    08/24/03  HOLD          JAN-2005 $ 35  ZTO-MG
                               JAN-2006 $ 35  YRH-MG


New Portfolio Plays

None


New Watchlist Plays

SBUX - Starbucks Corporation $30.19  **Call Play**

Just in case anyone needs an explanation of what SBUX does, they 
make good coffee and sell it for a tidy profit.  The franchise has 
been growing so rapidly that one of these days we'll likely see a 
news release for the first Starbucks store opening within a 
Starbucks!  Seriously, it is a well-run, profitable business that 
just keeps growing at a slow and steady pace.  It isn't the 
business that captures my attention though, it is the price chart.  
SBUX has been in a broad ascending channel since July of last year 
and is showing no signs of slowing down anytime soon.  
Unfortunately, price is currently banging right against the top of 
that rising channel and needs to pull back to give us a decent 
entry.  I like a retracement into the $27.50-28.00 area for new 
entries, as there should be very strong support just below $27.50 
from the July/August consolidation.  To be fair, SBUX has already 
had quite a run in the past year, rising a full 33%.  So how much 
more upside can there really be?  Taking a look at the PnF chart, 
we see that SBUX is clearly on a Buy signal, above the bullish 
support line and has a bullish price target of $37.  A $9 move on 
a $28 stock looks like plenty of profit potential to me, and the 
LEAPS are reasonably priced.  The bottom of the rising channel is 
currently $25.50, with the 200-dma at $25.50, so we'll initially 
look to place our stop at $25.  Potentially $3 of risk and $9 or 
upside makes for a favorable risk/reward ratio.  Let me re-
emphasize that it is highly unlikely we'll be taking an entry in 
the near-term, as the stock looks extended and weekly Stochastics 
are pinned in overbought.  SBUX goes into the Watch List this 
weekend, but we're unlikely to take a position until after the 
company reports earnings on November 13.

BUY LEAP JAN-2005 $30 ZOS-AF
BUY LEAP JAN-2005 $25 ZOS-AE **Covered Call**
BUY LEAP JAN-2006 $30 WSP-AF
BUY LEAP JAN-2006 $25 WSP-AE **Covered Call**

Drops

None


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

Will It Hit The Fan This Week? Get Ready To Duck!
By Mike Parnos, Investing With Attitude

People were bidding over $1,600 on Ebay for tickets to watch the New 
York Yankees play the Boston Red Sox.  I doubt they were CPTI students.  
As a matter of fact, these are the very people who are buying the 
options that we're selling.  Fools and their money are soon parted.  Why 
shouldn't we benefit?  

What could you buy for $1,600?  160 large pizzas, 500 bags of Doritos, 
10 pair of Air-Jordans, a 1994 Ford pick-up, 2-weeks of prescription 
painkillers for Rush Limbaugh, public speaking lessons for Arnold 
Swartznagger, and two round trip tickets to Colorado, accommodations, 
and a personal tour of Kobe Bryant's cell.

Aren't you glad I'm here to put things into perspective?  (a rhetorical 
question).  If you have to look up "rhetorical," don't tell anyone.
_____________________________________________________________

While the rest of the world re-examines its priorities, let's check out 
some possible quickie (1 week) trades.  We've had some success with 
these "quickie" trades in the past.  The best part is that we're only 
exposed to market fluctuations for a week.

Quickie #1 – QLGC Siamese Condor - $50.59
Sell 10 contracts of QLGC October $50 puts @ $1.15
Sell 10 contracts of QLGC October $50 calls @ $1.70
Buy 10 contracts of QLGC October $40 puts @ $.10
Buy 10 contracts of QLGC October $60 calls @ $.10
We have a total net credit of $2.65 and a profit range of $47.35 to 
$52.65.  There seems to be support and resistance near our profit 
parameters.  As usual, our bailout points are our parameters.

Quickie #2 – SPX Iron Condor - 1038.60
Sell 10 contracts of SPX October 1015 puts @ $.45
Sell 10 contracts of SPX October 1065 calls @ $.75
Buy 10 contracts of SPX October 1005 puts @ $.05
Buy 10 contracts of ADRX October 1075 calls @ $.05
We have a total net credit of $1.40 ($1,400) and a very decent maximum 
profit range of 1015 to 1075.  There is no compelling reason for SPX to 
go anywhere in particular (but that doesn't mean it won't!).  Some 
support and resistance are there, but, as we know, the SPX can be 
unpredictable.

Quickie #3 – QQQ Lottery Play - $35.01
Buy 10 contracts of QQQ October $33 puts @ $.10
Buy 10 contracts of QQQ October $37 calls @ $.05
We have a net debit of $.25 ($250).  A two-point move could double your 
money – or more.  If you want to make more, you have to risk a little 
more.  You can buy the $34 puts and $36 calls for a total of $.35 
($350).  If the QQQs make a move, you'll participate more quickly and to 
a greater degree.

Quickie #4 – ADTN Bear Put Spread - $74.03
I advocate not picking a direction.  However, if you have a few extra 
shekels you'd care to risk, you might find this interesting.
Buy 10 contracts of the ADTN October $75 puts @ $2.80
Sell 10 contracts of the ADTN October $70 puts @ $.75
Total debit of $2.15.  ADTN has run up and it may be time for it to pull 
back and test support at about $70 before it continues its move up.  
ADTN moves in chunks.  If ADTN finishes below $70, you have a profit 
potential of $2.85 ($2,850) – the difference between the strike prices 
($5) less the debit ($2.15).  In a worst-case scenario, the most you 
could lose is $2.15 ($2,150).

If you prefer, you could position yourself similarly with a $70/$75 bear 
call spread.  In that case you would sell the $70 calls at about $4.75 
and buy the $75 calls for $1.95 – a net credit of about $2.80.   As ADTN 
moves down, the less it would cost you to buy it back.  Plus, you have 
the rapid time erosion of the last week of the cycle working in your 
favor.  This method may actually be preferable, but remember, we're 
picking a direction and that is dangerous.  Don't use your rent or pizza 
money.
_____________________________________________________________

A Reminder & Word Of Caution
The premiums quoted here are based on Friday's closing bid/ask prices.  
In a few instances, when the bid/ask spread is wide, we figure you may 
be able to shave off a nickel here and there.  Also, remember, on Monday 
the premiums may be different due to market movement and/or the 
additional two days of time erosion.  Be careful.  If a stock gaps up or 
down, it may change the entire dynamic of the trade.  Don't jump into 
the pool without making sure there's enough water.
___________________________________________________________

Do You Have Your Siamese Condor Checklist?
On Thursday, I wrote about the Siamese Condor checklist I created.  I've 
sent out over 100 so far.  If you're a serious CPTI student, you should 
have one.  It will simplify the selection (and elimination) process.  
Send me an email requesting it (mparnos@OptionInvestor.com) and I'll be 
glad to send it to you.  It's in a Microsoft Word file.  Print it out, 
make a lot of copies and have fun.
_____________________________________________________________

OCTOBER & ONGOING POSITIONS
October Position #1 – SPX Iron Condor – Trading @ 1038.06
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 1067.30.  We're at 1038.73 – about a 30-point cushion on our 
upside.

October Position #2 – QQQ – Put Calendar Spread – Trading @ $35.01
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.  

October Position #3 – FDC (First Data Corp.) "Siamese" Condor – 
Trading at $39.49.
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.

OEX – Bearish Calendar Spread – OEX @ $518.05
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.

QQQ ITM Strangle – Ongoing Long Term -- $35.01.
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 $21.05.
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 of $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.

__________________________________________________________

OCTOBER CLOSED POSITIONS
#1 – APPX Short Term Straddle:  $1,400 Profit
#2 – BBH "Siamese" Iron Condor:  $300 Loss
#3 – INTC "Siamese" Iron Condor:  $250 Loss
__________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have 
questions about our educational plays or our strategies?  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

'Tis the season for presidential politics.  And such a funny game 
it is.  At the start of this season, the field of presidential 
contenders sported about nine potential new presidents.  Over 
time, that number will slowly dwindle down to about 2-3. 
Eventually the clear winner will emerge and secure the nomination.

We are sort of in a similar situation with the wave count.  Last 
week I presented three viable, alternative scenarios as to where 
the market could go.  Eventually, one scenario will emerge as the 
clear winner and we will know where the market is heading.

Let's briefly recap the scenarios.  (For a more thorough 
discussion of these scenarios, please see last week's analysis.)

Scenario One: The S&P 500 has already started its downward descent 
toward 650.  The retracement of wave 2 was at 99.999999% of wave 
one, but hey, it did not violate the rule yet.  Should the S&P 500 
not trace any higher and actually decline, this was still a viable 
scenario.

Scenario Two:  The S&P 500 has not yet finished the C wave of the 
4 wave.  It should do so around the 1060-1090 level and then the 
S&P 500 will start the move down to 650.

Scenario Three:  The S&P 500 has completed the A wave of the 
larger A-B-C correction with a five wave basic pattern containing 
a failed fifth wave.  The B wave up is now in progress.

Over the last week, scenario one became unviable.  If we do the 
math, we calculate that we are down to two.  I am afraid that we 
will not know the verdict on those two for a while.  But in the 
meantime, let’s see what has happened over the last week.

Chart:  S&P 500 Weekly 10/10/2003


 

Here is where the S&P 500 stands from a weekly vantage point. 
Let's take a closer look at this in terms of scenario two, the one 
I think is most probable.

The key to this scenario is to figure out just how high the S&P 
500 will go.   To start the process, I am going to quote one of my 
chiropractic instructors.  He would always say, "when you hear 
hooves, think horses.  If it turns out to not be horses, then you 
can think zebras."  The point being that when a patient presents 
with a certain set of symptoms, go with the obvious diagnosis.  
Then if the treatment turns out to be ineffective, start thinking 
about more exotic diseases.

In this absolutely classic picture of an unfolding five wave basic 
pattern, the obvious choice is that the developing 4 wave is 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 zigzag, the B wave is 
a 3 wave expanded flat and the C wave is a 5 wave (with caveats).

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

The A wave started at 768.63 and ended at 954.28 for a total of 
185.65 points.

The B wave started at 954.28 and ended at 788.90 for a total of 
165.38 points.

The B wave is 89% of the A wave.

3. The C wave is somewhere between 1.38 to 1.62 times the height 
of the A wave.  (Usually it is closer to 1.62.)

The A wave started at 768.63 and ended at 954.28 for a total of 
185.65 points.

The C wave started at 788.90 and so far has extended to 1048.28 
for a total of 259.38 points.

The C wave is currently 1.40 x Wave A.

At 1.62 x wave A the C wave will be 1089.65

Raw numbers are hard to visualize so let's see what it looks like 
graphically.  (Note that the numbers do not match exactly because 
the resolution could not produce the exact readings of the range.  
For example, you see that the bottom of the B wave reads at 788.49 
instead of 788.90.)

Chart:  S&P 500 Weekly Expanded Flat 10/10/2003


 

Technically speaking, the C wave has already reached the target 
zone of 1045 satisfying this criterion of the expanded flat. The 
S&P 500 could start declining at any time.  However, a further 
rise to the 1090 level would not surprise me. We will just have to 
figure out how to label this C wave. 

The other area of resistance is going to be the Fibonacci 
retracement level of the 3 wave.  Typically, a wave 4 will retrace 
anywhere between 23.6 – 76.4% of wave 3.  However, the majority of 
retracements fall between 38.2 – 61.8%.  

Chart:  S&P 500 Weekly Retracement Levels 10/10/2003


 


Right now the S&P 500 is coming up on to its 38.2% retracement 
level at 1060.  Obviously the S&P 500 has already surpassed the 
23.6% retracement, but the five wave basic pattern was not fully 
formed.  The minimum criteria for retracements were satisfied but 
the wave form was not complete.  The next logical level is the 
38.2% and the S&P 500 is fast approaching it with a fully formed 
five wave basic pattern.  

If we combine the retracement level with the expanded flat levels 
we would get the following chart.

Chart:  S&P 500 Weekly Resistance Zone 10/10/2003


 


What this chart is saying is that the S&P 500 will most likely 
climb to new highs over the next few weeks.  Maybe even months.  
When the S&P 500 prints somewhere between the 1060 - 1090 level, 
it will then be up against a brick wall.  This resistance level is 
going to be tough for it to penetrate.  Oh sure, it may go through 
it to 1100, but that is really insignificant in the scheme of 
things.  Then at that juncture, the S&P 500 will reverse course 
and begin its journey down to the 650 level.  That could take many 
months or it could happen in a matter of weeks.    Another 
terrorist attack could send the markets plunging just like 
September 11.

You may be thinking, what happens if the S&P 500 does breakthrough 
the 1090 level?  Is the analysis completely dead in the water?  
Not yet.  Expanded flats come in several flavors.  The vanilla 
flavor is where wave C is 1.62 x wave A.  However, in rare cases, 
wave C can be 2.62 x wave A.  This puts the C wave around 1275.  
The 61.8% Fibonacci retracement is 1240.  So if the S&P 500 does 
burst through the 1090 level, look for the next resistance level 
at 1240 – 1275.  


Chart:  S&P 500 Daily 10/10/2003


 


With scenario two, the daily chart is now proving to be a bit 
problematic.  The dip below 1000 in late September and the new 
high are causing some labeling problems.  Elliott Wave rules 
cannot be violated.  The 5 wave just does not label very cleanly 
which means we need to think up some creative labels.  Perhaps the 
four wave needs to be adjusted, or the five wave is going to be 
very extended.  Hard to tell at the moment.  Any conjecture would 
be a PFA (pulled from air) guess.  So far, everything else is 
falling into place (oscillator, subdivisions, etc.) so I am going 
to reserve judgment for now and see how it plays out.  Note that a 
close look at the chart shows that Advanced Get also thinks that 
somewhere around 1100 will be the end of the 5 wave, based on a 
Fibonacci ratio to wave 3.  

If we go back to the case where the C wave is 2.62 x wave A, then 
the daily chart does not pose a problem at all. Consider that the 
5 (circle) wave is going to be very extended.  The rise from the 
bottom of the 4 (circle) wave to September high is wave 1, the 
drop below 1000 wave 2 and the new rise is the start of wave 3.  
Or not.  We will know soon enough.

Bottom line, I believe we will see some more highs in the market 
for the next few weeks to months.  I just do not know whether the 
highs are going to be 1090 or 1275.


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The Option Investor Newsletter                   Sunday 10-12-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Hedge Strategies With Covered-Calls
Naked Puts: Economics & Stock Prices -- They Go Hand-in-Hand
Spreads/Straddles/Combos: A Day Without Direction!

Updated In The Site Tonight:
Market Posture: Minor Signs of Profit Taking


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

Trading Basics: Hedge Strategies With Covered-Calls
By Mark Wnetrzak

One of our readers offered some excellent ideas for the use of
put options with volatile covered-call candidates.


Attn: markw@OptionInvestor.com
Subject: Hedges for Covered-Calls?

Many thanks for the opportunity to learn about covered calls
from your articles and comments in the OIN.  I have been using
your valuable education mainly to help select my own securities
for writing calls, but I also use some of your stock picks if
they fit with my own criteria.  I always use stop losses on the
long stock in case things go against me, and most of the time
things work out just fine.  However, sometimes unforeseen events
will cause the price of the security to gap below my stop.  Case
in point is HEPH, one of this month's list a couple of weeks ago.
Ah, biotechs and pharmaceuticals, they can be so unpredictable,
but because of that they also often have expensive option
premiums, very nice for writing calls.

That brings me to the point of this note.  Buying a put at the
next lower strike when the call is shorted could offer some
protection should the stock drop precipitously.  However, this
would reduce the profit for the total play, so I was wondering
if you might comment on this type of hedge.

As an aside, I have to leg into all of my covered call trades,
as my broker only allows a covered call trade as a combination
if a put protection is included.

Thanks again for your great OI articles.

Duggo


Hello Duggo,

Thank you for your kind words!  I believe whole-heartedly that
each individual must tailor any strategy they use to fit their
own personality and reward-verses-risk tolerance.  The key to
all trading or investment strategies really boils down to a
successful application of money-management techniques.

Yes, buying puts to protect a position is a viable strategy but
always at a price.  If an individual is writing covered-calls
and using puts to offset any catastrophic drop in the underlying
stock, the credit from the sold calls must be large enough to
offer a potential profit after the debit of buying the protective
puts.  This would probably entail selling at-the-money (ATM)
covered-calls (CCs) as opposed to ITM CCs to obtain the largest
time value to help pay for the put protection.  The overall
position would still be susceptible to a loss - the difference
between the cost-basis (CB) and the striking price of the puts,
not to mention an increase cost of commissions.  In many cases,
the loss could be rather large, but lets look at an example:

Netflix (NASDAQ:NFLX) at $44.05 with 46 days to Nov. expiration
and the Nov-40 call bid at $6.50 and the Nov-35 put ask at $1.20.
The cost basis of the covered-call is $37.55 (44.05 - 6.05) and
the return is 6.12% (2.45 / 40).  At 46 days, that is a potential
monthly return of 4% (6.12 / 46 * 365 / 12).  If you purchase
the Nov-35 put at $1.20, your return drops to 3.13% (1.25/40) or
2.06% on a monthly basis, and your cost basis rises to $38.75.
You do get protection for any move below $35 but the position is
susceptible to a loss of $3.75, not counting commissions.  Without
the protective put, the potential loss is $37.55, if the stock
moves to zero.  Of course, one would need to analyze all of the
potential combinations of covered-call strikes and put strikes
to find a position that offers a reasonable profit and probability
of success.

Again, it just depends on each individual's personal preference.
If you think a catastrophic move is probable, puts do offer some
protection, but what if the move is up?  That can be just as
frustrating (grin)!

Best Regards, 

Mark W.

Editors Note: Mark "W." is at markw@OptionInvestor.com.  There
is a "w" after Mark in the address and we have more than one
"Mark" on the OIN staff.  Thank you!


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

ALKS    15.28   15.16  OCT 15.00  1.00    0.72*  11.0%
HLIT     5.48    7.78  OCT  5.00  0.80    0.32*   9.9%
SCMR     5.20    5.15  OCT  5.00  0.65    0.45*   8.6%
STEC     7.73    9.08  OCT  7.50  0.50    0.27*   8.1%
PVN     12.60   12.49  OCT 12.50  0.55    0.44    7.9%
BEAV     5.12    5.11  OCT  5.00  0.45    0.33*   7.7%
CHU      7.43    9.07  OCT  7.50  0.50    0.57*   7.1%
QSFT    12.44   13.43  OCT 12.50  0.50    0.56*   6.8%
ARIA     5.24    6.50  OCT  5.00  0.60    0.36*   6.7%
CHKP    17.88   18.00  OCT 17.50  0.85    0.47*   6.0%
MXO     12.90   14.00  OCT 12.50  1.05    0.65*   6.0%
ECLG    22.37   20.58  OCT 20.00  2.90    0.53*   5.9%
OXGN    11.17   11.50  OCT 10.00  1.55    0.38*   5.7%
VXGN     6.50   12.03  OCT  5.00  1.80    0.30*   5.5%
XING     8.43    9.40  OCT  7.50  1.20    0.27*   5.4%
THOR    16.83   15.88  OCT 15.00  2.70    0.87*   5.4%
NTPA     7.97    8.55  OCT  7.50  0.65    0.18*   5.3%
CREE    19.21   20.77  OCT 17.50  2.25    0.54*   4.6%
NABI     8.22   10.90  OCT  7.50  0.95    0.23*   4.6%
SEAC    13.18   13.86  OCT 12.50  1.05    0.37*   4.4%
DSCM     7.99    8.15  OCT  7.50  0.85    0.36*   4.4%
ALKS    14.23   15.16  OCT 12.50  2.20    0.47*   4.2%
ISRG    17.75   16.79  OCT 17.50  0.70   -0.26    0.0%
ISIS     8.05    6.50  OCT  7.50  0.80   -0.75    0.0%

*   Stock price is above the sold striking price.

Comments:

Next week should be interesting as the October option series
expires and earnings season begins in earnest.  Can the bulls
take the major averages higher or will the temptation to "sell
the news" finally take hold?  As always, the next few days
should offer some clues.  ISIS Pharmaceuticals (NASDAQ:ISIS)
continues to act a bit worrisome and next week the position
will be shown closed.  Other stocks on our early exit watch
list include: Ecollege.com (NASDAQ:ECLG), Thoratec (NASDAQ:THOR)
and Intuitive Surgical (NASDAQ:ISRG).

Positions Previously Closed: Hollis-Eden Pharma (NASDAQ:HEPH),
Incyte (NASDAQ:INCY) and ID Biomedical (NASDAQ:IDBE); the last
two are now positive (sigh...).

 
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

BVSN    5.31  NOV  5.00  QVB KA  0.65  64     4.66  42   5.3%
ALGN   15.60  NOV 15.00  CUA KC  1.60  80    14.00  42   5.2%
PUMA    5.54  NOV  5.00  PUP KA  0.85  185    4.69  42   4.8%
IBIS   14.42  NOV 12.50  UIB KV  2.65  111   11.77  42   4.5%
BRCD    6.33  NOV  6.00  BQB KI  0.65  2450   5.68  42   4.1%
TLAB    7.83  NOV  7.50  TEQ KU  0.70  1239   7.13  42   3.8%
ALKS   15.16  NOV 12.50  QAL KV  3.20  5640  11.96  42   3.3%


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).

*****
BVSN - BroadVision  $5.31  *** Bottom Fishing ***

BroadVision (NASDAQ:BVSN) is a company that develops, markets
and supports enterprise portal applications that enable their
customers to unify their e-business infrastructure and conduct
both interactions and transactions with employees, partners
and customers through a personalized self-service model that
increases revenues, reduces costs and improves productivity.
The company also provides a full spectrum of global services
to help ensure success for businesses, including strategic
services, implementation services, migration services and
ongoing training and support.  BroadVision has been forming
a Stage I base for over a year and investors can use this
position to speculate on the company's future.  Earnings
are due on Oct. 22. 

NOV-5.00 QVB KA LB=0.65 OI=64 CB=4.66 DE=42 TY=5.3%


*****
ALGN - Align Technology  $15.60  *** Next Leg Up? ***

Align (NASDAQ:ALGN) is engaged in the design, manufacture and
marketing of Invisalign, a proprietary system for treating
malocclusion, or the misalignment of teeth.  Invisalign includes
ClinCheck, an Internet-based application that allows dental
professionals to simulate treatment, in three dimensions, by
modeling two-week stages of tooth movement, and Aligners, which
are thin, clear plastic, removable dental appliances that are
manufactured in a series to correspond to each two-week stage
of the ClinCheck simulation.  As of December 31, 2002, around
80,000 patients worldwide had entered treatment using Invisalign.
Align rallied on heavy volume Thursday to a new all-time high
which suggests further upside potential.  Investors can use 
this position to establish an entry point closer to technical
support.  Earnings are due Oct. 23.

NOV-15.00 CUA KC LB=1.60 OI=80 CB=14.00 DE=42 TY=5.2%


*****
PUMA - Pumatech  $5.54  *** Cheap Speculation ***

Pumatech (NASDAQ:PUMA) is a company that develops, markets and
supports synchronization, mobile-application development and 
mobile-application management/device management software that
enables consumers, mobile professionals and IT officers to
harness the full capabilities of handheld organizers/computers,
Web-enabled cellular phones, pagers and other wireless or
hardline personal communications platforms.  Its products,
which include Intellisync, Enterprise Intellisync, Enterprise
Intellisync, Second Edition and Satellite Forms software;
along with its technology licensing offering, the Intellisync
Software Development Kit (Intellisync SDK), are designed to
connect mobile devices to essential information anytime,
anywhere.  In September, Pumatech announced that the company
will license its software to a major seller of hand-held
computers in Asia.  Investors were obviously pleased as they
have almost doubled the stocks share value in the last several
weeks.  Our outlook is also bullish, due to the recent technical
strength and this position offers a reasonable cost basis in
the issue.  Target shooting a lower net-debit will increase
the potential yield.

NOV-5.00 PUP KA LB=0.85 OI=185 CB=4.69 DE=42 TY=4.8%


*****
IBIS - Ibis Technology  $14.42  *** Testing Resistance ***

Ibis Technology (NASDAQ:IBIS) develops, manufactures and markets
SIMOX-SOI implantation equipment and wafers for the worldwide 
semiconductor industry.  SIMOX, or Separation by IMplantation of
Oxygen, is a form of silicon-on-insulator (SOI) technology that
creates an insulating barrier below the top surface of a silicon
wafer.  SIMOX-SOI products are well suited for many commercial
applications, including servers and workstations, portable and
desktop computers, wireless communications and battery-powered
devices such as laptop computers, personal digital assistants 
(PDAs) and mobile telephones, integrated optical components and
harsh-environment electronics.  Sales of 300-millimeter wafers
accounted for approximately 44% of the company's total wafer
product sales in 2002.  Shares of Ibis Technology have rallied
strongly since May and are now testing an "old" resistance area.
Investors with a bullish outlook and who believe the rally will 
continue can use this position to establish a favorable cost
basis in the issue. 

NOV-12.50 UIB KV LB=2.65 OI=111 CB=11.77 DE=42 TY=4.5%


*****
BRCD - Brocade  $6.33  *** Bottom Fishing: Part II ***

Brocade Communications Systems (NASDAQ:BRCD) develops, markets,
sells and supports data storage networking products and services.
Brocade offers a line of intelligent storage networking products
and SAN management software that enables companies to implement
highly available, scalable, manageable and secure environments 
for data storage applications.  Their products and services are
marketed, sold and supported worldwide to end users through
distribution partners, including OEM partners, value-added
distributors, systems integrators and VARs.  Brocade is another
stock that has been forging a Stage I base for about a year and
this position offers a conservative method for investors to
speculate on the company's future.  

NOV-6.00 BQB KI LB=0.65 OI=2450 CB=5.68 DE=42 TY=4.1%


*****
TLAB - Tellabs  $7.83  *** Bottom Fishing: Part III ***

Tellabs (NASDAQ:TLAB) designs, makes and markets communications
equipment to telecommunications service providers worldwide.  
Their products include optical networking systems, broadband
access systems and voice-quality enhancement systems. Tellabs'
optical networking systems are designed to help service providers
reduce operating costs, generate greater revenues and efficiently
manage bandwidth.  The company's broadband access systems consist
of managed access and transport systems used to deliver wireless
and business services.  The company's voice-quality enhancement
systems consist primarily of the Tellabs 3000 family of broadband
and narrowband echo cancellers and its voice-quality enhancement
solutions, which enable wireless and landline providers to improve
voice quality in long distance, wireless and private networks.
Yet once again, we have a stock that has been in a Stage I base
for almost a year.  Investors interested in the communications
sector can use this position to speculate on the near-term
performance of the issue.  Target shooting a lower net-debit
will increase the potential yield and offer a more favorable
cost basis.  Earnings are due Oct. 15.

NOV-7.50 TEQ KU LB=0.70 OI=1239 CB=7.13 DE=42 TY=3.8%


*****
ALKS - Alkermes  $15.16  *** Entry Point? ***

Alkermes (NASDAQ:ALKS) is a pharmaceutical company developing 
products based on applying its sophisticated drug delivery 
technologies to enhance therapeutic outcomes.  The company's 
areas of focus include controlled, extended-release of injectable
drugs using its ProLease and Medisorb delivery systems, and the
development of inhaled pharmaceuticals based on its proprietary 
Advanced Inhalation Research pulmonary delivery system.  Alkermes
partners its proprietary technology systems and drug delivery 
expertise with many other pharmaceutical companies, and it also
develops novel, proprietary drug candidates for its own account.
The company has a pipeline of products in various stages of 
development including:  Risperdal Consta, Nutropin Depot, 
Vivitrex, inhaled epinephrine, r-hFSH (recombinant human
follicle stimulating hormone), Exenatide LAR, inhaled insulin
and inhaled human growth hormone.  Last week Alkermes rallied
above the June high on good volume making another new 52-week
high.  Investors who believe the bullish trend will continue
can use this position to profit from that outcome at the risk
of owning this Alkermes near its long-term (150-day) MA.

NOV-12.50 QAL KV LB=3.20 OI=5640 CB=11.96 DE=42 TY=3.3%


*****


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

LNUX    5.29  NOV  5.00  UKF KA  0.80  218    4.49  42   8.2%
NTAP   25.15  NOV 25.00  NUL KE  2.00  1130  23.15  42   5.8%
SANM   10.48  NOV 10.00  SQN KB  1.20  410    9.28  42   5.6%
IMCO    7.81  NOV  7.50  IQZ KU  0.85  363    6.96  42   5.6%
NKTR   14.03  NOV 12.50  QNX KV  2.25  544   11.78  42   4.4%
SSTI   10.89  NOV 10.00  SJV KB  1.45  3011   9.44  42   4.3%
INET    5.17  NOV  5.00  UAU KA  0.45  998    4.72  42   4.3%
ATYT   15.77  NOV 15.00  QFY KC  1.60  2162  14.17  42   4.2%
OXGN   11.50  NOV 10.00  QYO KB  2.05  159    9.45  42   4.2%
ITG    20.43  NOV 20.00  ITG KD  1.50  43    18.93  42   4.1%
CIPH   13.28  NOV 12.50  UBI KV  1.45  80    11.83  42   4.1%
RHAT   10.78  NOV 10.00  RCV KB  1.30  996    9.48  42   4.0%




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

Options 101: Economics & Stock Prices -- They Go Hand-in-Hand
By Ray Cummins

A lot has been said about the government's ability to correctly
manage interest rates and money supply, but how much do you really
know about the Federal Reserve and its activities.

Today's article is a bit "off-topic" but one of our readers asked
for a brief narrative on this subject and I think it is important
for traders to know how changes in monetary policies flow through
to other economic variables and ultimately to security prices.
With that idea in mind, I have decided to review some of the key
concepts of U.S. monetary policy as well as the primary entities
that control the variables in our unique financial system.  Before
we can discuss that topic, you must have a clear understanding of
economic principles, including some basic terms and definitions.

The first area we will examine is the economic environment, which
basically revolves around our GDP or Gross Domestic Product.  The
Gross Domestic Product is the total market value of all goods and
services produced within the U.S. in a given period.  The principal
components of the GDP are: consumption, which is generally consumer
-based; investments, which refers to business-related spending but
also includes new housing purchases; government spending; and net
exports (total exports minus total imports).  The sum of these four
groups makes up the GDP and statistics suggest that consumption is
responsible for nearly 70% of its total value.  With such a large
portion of the total output, it's obvious why the consumer is very
important in any analysis of economic growth and that's why there
are so many reports on recent trends in spending and consumer
confidence, employment and similar factors.

Another import sphere of economics is supply and demand.  Most of
you are familiar with this concept simply through past experience
with stock prices, however you may not realize the importance of
this dynamic relationship in the overall scheme of economics.  The
fundamental correlation between supply and demand is very simple:
as demand for a given product or service increases, so does its
price.  At the same time, the quantity of products or services
offered by businesses, who anticipate profits at the higher price,
increases as well.  A corollary to that idea infers that when an
economic factor other than price changes, demand also increases or
decreases.  This is a crucial relationship because it defines the
way the Federal Reserve adjusts the cost of money (interest rates)
with regard to the demand for money.  Recall the recent trends in
interest rates; the Fed has been continuously balancing the need
for lower borrowing costs (which fuels economic growth) with the
potential for deflation, where prices decline in absolute terms.
Since deflation is a condition contrary to the Federal Reserve's
established goal of price stability, and can lead to a reduction
in economic activity, it remains the primary concern.

The final topic for today's dialogue is the business cycle.  The
business cycle can be divided into three basic trends: Expansion,
Contraction (or Recession), and Recovery.  In the expansion phase,
prices for commodities and natural resources rise, which leads to
inflation.  The GDP increases, mostly due to new investments in
plants and equipment by profitable businesses and the demand for
loans is high.  Employment is also robust and wages increase, but
labor productivity falls.  The Fed eventually tightens the money
supply, causing interest rates to move higher while the price of
fixed-income investments decline.  In the market, "smart" money
transitions from growth to value stocks and defensive issues.  The
contraction stage starts with a decline in business and consumer
spending.  Government investment generally increases to offset the
consumption deficit in the private sector but productivity and the
GDP ultimately wanes.  The Federal Reserve's fiscal and monetary
policy shifts to "expansionary" and interest rates are reduced.
Inflation begins to subside and prices for commodities stabilize
or decline.  The effect on financial instruments is most obvious
in stocks, which fall to historic support areas as investors move
to fixed-income and convertible issues.  Eventually, the recovery
cycle begins but it is the most difficult period to assess as there
are mixed signals in many areas of the economy.  Analysts look for
rising corporate profits, increased consumer spending, declining
unemployment and expanding GDP.  The Fed must cooperate by keeping
inflation in check and interest rates low, despite the increased
demand for borrowing.  Investors who accurately predict the trend
switch to growth and cyclical stocks while paring positions in
long-term bonds.  If everything works in favor of the economy,
GDP growth resumes and the business cycle continues until a new
peak is reached.  Hopefully, we are somewhere in the early stages
of the recovery phase now.

Next time, we'll talk about the Federal Reserve and how the FOMC
uses basic economics to effect fiscal and monetary policy.

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    7.54  OCT  5.00  0.35    0.35*   6.5%  18.6%
RMBS    18.73   26.33  OCT 15.00  0.30    0.30*   4.4%  16.0%
CERN    35.47   35.00  OCT 30.00  0.55    0.55*   4.1%  12.9%
GERN    12.98   13.70  OCT 10.00  0.25    0.25*   3.7%  12.7%
ADLR    15.95   18.20  OCT 12.50  0.50    0.50*   3.6%  11.8%
USG     17.51   15.97  OCT 12.50  0.35    0.35*   3.1%   9.9%
SEAC    14.34   13.86  OCT 12.50  0.35    0.35*   3.1%   9.0%
LRCX    22.81   26.24  OCT 20.00  0.40    0.40*   3.0%   8.6%
STAT    14.58   12.96  OCT 12.50  0.40    0.40*   2.9%   8.4%
MSTR    50.03   49.79  OCT 45.00  0.55    0.55*   2.7%   7.7%
NFLX    40.15   44.65  OCT 32.50  0.30    0.30*   2.0%   7.5%
PDII    25.06   24.89  OCT 22.50  0.40    0.40*   2.6%   7.4%
NKTR    13.83   14.03  OCT 10.00  0.25    0.25*   2.2%   7.2%
ONXX    23.92   25.50  OCT 20.00  0.40    0.40*   2.2%   7.2%
ERES    36.70   39.75  OCT 32.50  0.35    0.35*   2.4%   7.0%
RIMM    37.29   42.86  OCT 32.50  0.50    0.50*   2.3%   6.8%
BRCM    28.79   31.37  OCT 25.00  0.25    0.25*   2.2%   6.8%
CEPH    49.62   47.10  OCT 40.00  0.65    0.65*   1.8%   6.5%
ERES    33.63   39.75  OCT 27.50  0.30    0.30*   1.6%   5.7%
AMHC    41.98   43.59  OCT 35.00  0.40    0.40*   1.7%   5.7%
MERQ    45.76   50.29  OCT 40.00  0.50    0.50*   1.8%   5.6%
IDXC    26.02   23.91  OCT 22.50  0.35    0.35*   1.7%   5.3%
INSP    19.92   24.44  OCT 17.50  0.35    0.35*   1.8%   5.2%
GOLD    23.93   22.52  OCT 20.00  0.35    0.35*   1.5%   5.1%
ATMI    27.52   24.65  OCT 25.00  0.30   -0.05    0.0%   0.0%

*  Stock price is above the sold striking price.

Comments:

Friday's languid session was very strange, considering the recent
volatile trading activity and the only conclusion one might draw
is that investors are hunkering down for the upcoming barrage of
profit reports.  Monday marks the true beginning of the earnings
season and expectations are high, based on current share values.
Anything less than a perfect scorecard will likely result in a
sell-off for individual companies, so traders should keep their
stops tight and continue to employ diligent portfolio management.
 
Atmi Inc. (NASDAQ:ATMI) became an early-exit candidate this week
after the firm said it would book a quarterly loss due to the cost
of closing plants, shifting production to contract manufacturers
and an inventory write-down.  i-Stat (NASDAQ:STAT) appears to be
stuck in a range and any further downside activity would be cause
for early exit.  Randgold (NASDAQ:GOLD), IDX Systems (NASDAQ:IDXC)
and USG Corp. (NYSE:USG) are on the "watch" list.

Previously Closed Positions: Ask Jeeves (NASDAQ:ASKJ), Thoratec
(NASDAQ:THOR) and Nps Pharmaceuticals (NASDAQ:NPSP), all of which
are currently profitable.


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

XMSR   19.10  NOV 17.50  QSY WW 0.85 759  16.65  42   3.7%   8.9%
FCEL   14.35  NOV 12.50  FQG WS 0.50 267  12.00  42   3.0%   8.2%
PXLW   12.10  NOV 10.00  PUO WB 0.30 610   9.70  42   2.2%   7.1%
MTZ    12.81  NOV 10.00  MTZ WB 0.25 0     9.75  42   1.9%   6.4%
NWAC   12.18  NOV 10.00  NAQ WB 0.25 242   9.75  42   1.9%   6.2%
CNX    21.88  NOV 20.00  CNX WD 0.55 150  19.45  42   2.0%   5.4%
CY     20.44  NOV 17.50   CY WW 0.40 265  17.10  42   1.7%   5.1%


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).

*****
XMSR - XM Satellite Radio  $19.10  *** Rally Mode! ***

XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio
service.  With nearly 930,000 subscribers, XM is on pace for 1.2
million subscribers later this year.  Broadcasting live daily from
studios in Washington, DC, New York City and Nashville, Tennessee
at the Country Music Hall of Fame, XM provides its loyal listeners
with 101 digital channels of choice: 70 music channels, more than
35 of them commercial-free, from hip hop to opera, classical to
country, bluegrass to blues; and 31 channels of premiere sports,
talk, comedy, kid's and entertainment programming.  Compact and
stylish XM satellite radio receivers for the home, the car, the
computer and even a "boom-box" for on the go are available from
retailers nationwide.  In addition, XM is available in more than
80 different 2004 car models.  XMSR is in "rally mode" and traders
who think the trend will continue in the coming weeks can profit
from that outcome with this position.

NOV-17.50 QSY WW LB=0.85 OI=759 CB=16.65 DE=42 TY=3.7% MY=8.9%


*****
FCEL - FuelCell Energy  $14.35  *** Alternate Energy! ***
 
FuelCell Energy (NASDAQ:FCEL), based in Danbury, Connecticut, is
a world-recognized leader for development and commercialization
of high efficiency fuel cells for electric power generation.  The
company's DFC technology eliminates external fuel processing to
extract hydrogen from a hydrocarbon fuel.  This results in a
product whose cost, combined with high efficiency, simplicity and
reliability, results in product advantages for stationary power
generation.  Shares of FCEL rallied last week after the company
said it was selling a direct fuel-cell plant to its Japanese
partner.  Similar announcements of new contracts have also "fueled"
the stock's rise in recent weeks and traders who believe the trend
to alternate energy sources will continue should consider this
position.

NOV-12.50 FQG WS LB=0.50 OI=267 CB=12.00 DE=42 TY=3.0% MY=8.2%


*****
PXLW - Pixelworks  $12.10  *** Digital Display Technology ***

Pixelworks (NASDAQ:PXLW), headquartered in Tualatin, Oregon, is a
leading provider of system-on-a-chip ICs for the advanced display
market.  Pixelworks' solutions process and optimize video, computer
graphics and Internet information for display on a wide variety of
devices, including flat-panel monitors, digital televisions and
multimedia projectors, used in business and consumer markets.  The
company's broad IC product line is used by leading manufacturers of
consumer electronics and computer display products to enhance image
quality and ease of use.  The demand for flat screen displays and
high-definition visual graphics is driving the stocks in this group
higher and PXLW has performed better than most in recent weeks.
Investors who agree with a bullish outlook for PXLW can use this
position to establish an entry point in the issue.  The company's
quarterly earnings are due this week.

NOV-10.00 PUO WB LB=0.30 OI=610 CB=9.70 DE=42 TY=2.2% MY=7.1%


*****
MTZ - MasTec  $12.81  *** Hot Sector! **

MasTec (NYSE:MTZ) is a leading communications, intelligent traffic
and energy infrastructure service provider in North America and
Brazil.  The company designs, builds, installs, maintains and
monitors internal and external networks for leading telecom,
broadband, energy and Fortune 1000 companies and for state
departments of transportation.  In August, Mastec posted earnings
that were above estimates and the CEO said the results represented
"solid evidence" that the company's restructuring activities in
the fourth quarter of 2002 were successful.  The company president
also said that a "visible trend has emerged that has set the stage
for increasing profitability and cash flow."  Investors appear to
agree with the bullish outlook as the stock recently hit a 2-year
high on increasing volume.  Traders can speculate on future upside
activity in the issue with this position.

NOV-10.00 MTZ WB LB=0.25 OI=0 CB=9.75 DE=42 TY=1.9% MY=6.4%


*****
NWAC - Northwest Airlines  $12.18  *** Bottom-Fishing: Airlines ***

Northwest Airlines (NASDAQ:NWAC) is the world's fourth largest
airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo
and Amsterdam, and approximately 1,500 daily departures.  With its
travel partners, Northwest serves nearly 750 cities in almost 120
countries on six continents.  In 2002, consumers from throughout
the world recognized Northwest's efforts to make travel easier.  A
2002 J.D. Power and Associates study ranked airports at Detroit and
Minneapolis/St. Paul, home to Northwest's two largest hubs, tied
for second place among large domestic airports in overall customer
satisfaction.  Readers of TTG Asia and TTG China named Northwest
"Best North American airline."  The airline sector has rebounded
in recent sessions after a number of analysts said the group will
recover in the coming year.  Investors can attempt to establish a
low-risk cost basis in NWAC with this position.  Quarterly earnings
are due this week.

NOV-10.00 NAQ WB LB=0.25 OI=242 CB=9.75 DE=42 TY=1.9% MY=6.2%


*****
CNX - CONSOL Energy  $21.88  *** Coal: A "New" Black Gold? ***

CONSOL Energy (NYSE:CNX) is the largest producer of high-Btu
bituminous coal in the United States, and the largest exporter
of U.S. coal.  CONSOL Energy has 20 bituminous coal mining
complexes in seven states and in Australia.  In addition, the
company is one of the largest U.S. producers of coalbed methane,
with daily gas production of over 130 million cubic feet.  The
company also produces electricity from coalbed methane at a
joint-venture generating facility in Virginia.  CONSOL Energy
has annual revenues of $2.2 billion.  The company received a
U.S. Environmental Protection Agency 2002 Climate Protection
Award and the Department of the Interior's Office of Surface
Mining 2003 and 2002 National Award for Excellence in Surface
Mining for the company's innovative reclamation practices in
southern Illinois.  CONSOL is a recently active stock in the
Metals and Minerals sector and investors who want to diversify
their portfolio should consider this position.

NOV-20.00 CNX WD LB=0.55 OI=150 CB=19.45 DE=42 TY=2.0% MY=5.4%


*****
CY - Cypress Semiconductor  $20.44  *** Earnings Speculation! ***

Cypress Semiconductor (NYSE:CY) is "connecting from last mile
to first mile" with high-performance solutions for personal,
network access, enterprise, metro switch, and various other
core communications-system applications.  Cypress "connects"
using wireless, wireline, digital, and optical transmission
standards, including USB, Fibre Channel, SONET/SDH, Gigabit
Ethernet, and DWDM.  Leveraging its process and system-level
expertise, Cypress makes industry-leading physical layer devices,
framers, and network search engines, along with a broad portfolio
of high-bandwidth memories, timing technology solutions, and
reconfigurable mixed-signal arrays.  Cypress is due to announce
quarterly earnings this week and traders who believe the report
will be favorable can speculate on that outcome with this play.

NOV-17.50 CY WW LB=0.40 OI=265 CB=17.10 DE=42 TY=1.7% MY=5.1%


*****


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

AMR    14.64  NOV 12.50  AMR WV 0.55 7301 11.95  42   3.3%   9.3%
ONXX   25.50  NOV 20.00  OIQ WD 0.75 907  19.25  42   2.8%   9.3%
CREE   20.77  NOV 17.50  CVO WW 0.70 1094 16.80  42   3.0%   8.8%
RMBS   26.33  NOV 20.00  BNQ WD 0.65 1404 19.35  42   2.4%   8.0%
NFLX   44.65  NOV 35.00  QNQ WG 0.85 257  34.15  42   1.8%   6.3%
ERES   39.75  NOV 32.50  UDB WZ 0.80 100  31.70  42   1.8%   6.1%
DPMI   27.00  NOV 25.00  DUD WE 0.80 0    24.20  42   2.4%   6.0%
DRIV   32.28  NOV 25.00  DQI WE 0.55 137  24.45  42   1.6%   5.7%
IDXC   23.91  NOV 20.00  XQW WD 0.45 11   19.55  42   1.7%   5.3%
CELL   40.00  NOV 30.00  ULN WF 0.60 414  29.40  42   1.5%   5.1%


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


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

A Day Without Direction!
By Ray Cummins

Stocks consolidated Friday amid light trading volume as investors
moved to the sidelines ahead of next week's parade of quarterly
earnings reports.

The Dow drifted 5 points lower to 9,674 while the NASDAQ Composite
added 3 points to close at 1,915.  The broader Standard & Poor's
500 Index ended unchanged at 1038.  All three stock averages moved
higher during the week.  Breadth was roughly neutral with losers
outpacing winners 6 to 5 on the technology exchange while the ratio
was reversed on the NYSE.  Volume was light at 1.1 billion shares
on the Big Board and 1.4 billion shares on the NASDAQ.  Bonds rose
with the benchmark 10-year Treasury note up 10/32 to yield 4.26%,
down from the one-month high of 4.35% on Thursday.

*****************
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   29.06  OCT   22  25   0.30  24.70  $0.30   Open
MERQ    49.41   50.29  OCT   40  42   0.30  42.20  $0.30   Open
BBH    137.69  133.16  OCT  120 125   0.45 124.55  $0.45   Open
CELG    45.48   44.83  OCT   35  40   0.50  39.50  $0.50   Open
MYL     27.74   28.01  OCT   22  23   0.13  22.97  $0.13   Open
SINA    37.41   41.52  OCT   25  30   0.45  29.55  $0.45   Open
COGN    33.16   34.14  OCT   27  30   0.40  29.60  $0.40   Open
CTSH    40.41   43.99  OCT   30  35   0.55  34.45  $0.55   Open
IMDC    76.91   71.50  OCT   60  65   0.55  64.45  $0.55   Open
NEM     40.66   39.25  OCT   35  37   0.30  37.20  $0.30   Open
EBAY    54.22   60.46  OCT   47  50   0.25  49.75  $0.25   Open
GENZ    46.00   49.78  OCT   40  42   0.35  42.15  $0.35   Open
RIMM    37.29   42.86  OCT   30  32   0.20  32.30  $0.20   Open
ADTN    72.64   74.03  OCT   60  65   0.35  64.65  $0.35   Open?
MRVL    40.61   42.63  OCT   35  37   0.20  37.30  $0.20   Open
SNDK    71.18   72.95  OCT   60  65   0.50  64.50  $0.50   Open
SMH     36.92   38.35  OCT   32  35   0.25  34.75  $0.25   Open

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

Adtran (NASDAQ:ADTN) did not offer the target credit, however it
may have been a viable position for conservative spread traders.
 

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

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

CAH     56.36   58.25   OCT   65  60   0.65  60.65  $0.65   Open
PFE     30.51   30.75   OCT   35  33   0.25  32.75  $0.25   Open
XL      76.05   78.18   OCT   85  80   0.60  80.60  $0.60   Open
APC     42.70   43.01   OCT   48  45   0.35  45.35  $0.35   Open
CI      47.15   46.65   OCT   55  50   0.50  50.50  $0.50   Open
FRX     48.93   47.85   OCT   60  55   0.50  55.50  $0.50   Open
BVF     36.75   27.06   OCT   45  40   0.50  40.50  $0.50   Open
GPRO    25.85   24.45   OCT   32  30   0.25  30.25  $0.25   Open
IMCL    37.73   42.00   OCT   50  45   0.40  45.40  $0.40   Open?
DNA     79.82   80.65   OCT   90  85   0.55  85.55  $0.55   Open
FFH    157.95  160.50   OCT  175 170   0.45 170.45  $0.45   Open
IMCL    39.64   42.00   OCT   50  45   0.40  45.40  $0.40   Open?

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

ImClone (NASDAQ:IMCL) is a candidate for early exit after the firm
announced Friday that the FDA has accepted for filing and possible
accelerated approval ImClone's application for the use of Erbitux
in combination with irinotecan for the treatment of patients with
EGFR-expressing irinotecan-refractory metastatic colorectal cancer.
XL Capital (NYSE:XL) is on the "watch" list and Cerner (NASDAQ:CERN),
which is profitable, has previously been closed to limit potential
losses.
  

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

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

HTCH    33.02  32.91   OCT   25  30   4.50   29.50  0.50   Open
AVII     5.54   5.50   DEC    5   7   0.90    5.90 (0.40)  Open
DELL    34.91  35.47   OCT   30  32   2.40   32.40  0.10  No Play

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

Dell (NASDAQ:DELL) didn't offer a viable entry in the bullish play.
America Pharma Partners (NASDAQ:APPX) and Novellus (NASDAQ:NVLS),
which is currently profitable, have previously been closed to
limit losses.  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  46.20  OCT   55  50   4.60   50.40  0.40   Open
CCMP    55.83  58.54  OCT   65  60   4.35   60.65  0.65   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.
Cabot Micro (NASDAQ:CCMP) will be an "early-exit" candidate on
any further upside activity.


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

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

XING     9.13   9.40   DEC     12      7     0.10    0.30   Open
JNPR    16.63  17.62   NOV     19     14    (0.20)   1.00   Open?
LRCX    24.38  26.24   DEC     30     20     0.15    0.50   Open

Juniper Networks (NASDAQ:JNPR), which cost slightly more to enter
than expected, and Lam Research (NASDAQ:LRCX) offered favorable
profits in less than one week.  Gene Logic (NASDAQ:GLGC), Andrx
(NASDAQ:ADRX) and CV Therapeutics (NASDAQ:CVTX), have previously
been closed to limit losses.

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

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

NTE     24.61  31.60   OCT    20P    30C    0.10     0.00   Open?

The "Reader's Request" position in Nam Tai Electronics (NYSE:NTE)
has been very volatile and traders should consider closing the
play to limit losses.


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

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

PRU     36.41  38.07   DEC-37C   OCT-37C   0.30    0.60    Open
MSFT    27.31  28.91   JAN-27C   OCT-30C   2.20    2.40    Open

Positions in both Ing Groep (NYSE:ING) and The Medicines Company
(NASDAQ:MDCO) offered profitable opportunities prior to be closed.
Prudential (NYSE:PRU) is a candidate for (bullish) adjustment on
any further upside activity.


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

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status
  
CLS     17.55  17.84   OCT    17    17     2.35    3.10    Open?
NVDA    18.17  16.73   OCT    17    17     2.90    3.50    Open?
AFCI    22.66  24.37   OCT    22    22     3.10    3.00    Open?
TRI     30.50  32.35   NOV    30    30     4.90    5.00    Open
EASI    59.70  63.5    NOV    60    60     8.50    9.00    Open
YHOO    37.24  43.16   OCT    37    37     3.75    5.75    Open?
ZMH     55.52  56.52   DEC    55    55     5.20    5.50    Open
COF     59.70  61.98   OCT    60    60     2.80    3.75    Open?
TTWO    39.18  39.20   OCT    40    40     2.45    2.45    Open

Yahoo! (NASDAQ:YHOO) was a big winner this week after the firm
rallied on favorable earnings.  Capital One (NYSE:COF) was also
volatile in conjunction with the finance group and the position
yielded a great short-term gain.  Celestica (NYSE:CLS), Nvidia
(NASDAQ:NVDA), Zimmer Holdings (NYSE:ZMH) and Engineered Support
Systems (NASDAQ:EASI) have achieved small profits.  Advanced
Fibre Communications (NASDAQ:FIBR) has been a very active issue,
but has yet to achieve a profit on a simultaneous order basis.
The very successful position in Sony (NYSE:SNE) has previously
been closed to "lock-in" gains.

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

Stock   Pick   Last   Exp.   Short Short  Initial  Current   Play
Symbol  Price  Price  Month  Call   Put   Credit    Debit   Status
      
MANH    27.68  27.69   Oct    30     25    1.40     0.50     Open?

Conservative traders can close the position in Manhattan Associates
(NASDAQ:MANH) for a favorable profit.

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.

*****
AET - Aetna  $62.76  *** Safe-Haven Sector? ***

Aetna (NYSE:AET) is a health benefit company with three primary
businesses: Health Care, Group Insurance and Large Case Pensions.
Health Care consists of health and dental plans offered on both a
risk basis, where Aetna assumes all or a majority of the risk for
health and dental care costs, and an employer-funded basis, where
the plan sponsor under an administrative service contract, and not
the company, assumes all or a majority of this risk.  Health plans
generally include health maintenance organization, point-of-service,
preferred provider organization and indemnity benefit products.  The
Group Insurance segment includes both group life insurance products
offered on a risk basis, as well as group disability and long-term
care insurance products offered on a risk, and an employer-funded
basis.  Large Case Pensions manages a large variety of retirement
products, including pension and annuity products, primarily for
defined benefit and defined contribution plans.

AET - Aetna  $62.76

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-50.00  AET-WJ  OI=375   ASK=$0.40
SELL PUT  NOV-55.00  AET-WK  OI=2567  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$54.45


*****
MXIM - Maxim Integrated Products  $44.82  *** Strong Sector! ***

Maxim Integrated Products (NASDAQ:MXIM) designs, develops, makes
and markets a broad range of linear and mixed-signal integrated
circuits, commonly referred to as analog circuits.  The company
also provides a range of high-frequency design processes and
capabilities that can be used in custom design.  Maxim's products
include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers,
delay lines, real-time clocks, microcontrollers, switches, battery
chargers, battery management circuits, radio frequency circuits,
fiber-optic transceivers, sensors and voltage references.  The
firm's unique products are sold to customers in various markets
including automotive, communications, consumer, industrial control,
instrumentation and data processing.

MXIM - Maxim Integrated Products  $44.82

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-35.00  XIQ-WG  OI=2076  ASK=$0.30
SELL PUT  NOV-40.00  XIQ-WH  OI=1902  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$39.35


*****
PHS - PacifiCare Health Systems  $54.50  *** Next Leg Up? ***

PacifiCare Health Systems (NYSE:PHS) offers managed care and other
health insurance products to various employer groups and Medicare
beneficiaries in eight western states and Guam.  The firm's major
commercial and senior plans include health maintenance organizations,
preferred provider organizations, and Medicare Supplement products.
The firm also offers a variety of specialty managed care products
and services that employees can purchase as a supplement to basic
commercial and senior medical plans or as stand-alone products.
These products include pharmacy benefit management, behavioral
health services, group life and health insurance and dental and
vision benefit plans.

PHS - PacifiCare Health Systems  $54.50

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-45.00  PHS-WI  OI=449  ASK=$0.85
SELL PUT  NOV-47.50  PHS-WS  OI=85   BID=$1.15
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$47.20


*****
PIXR - Pixar  $71.56  *** New Deal With Disney? ***

Pixar (NASDAQ:PIXR) is a digital animation studio with the creative,
technical and production capabilities to create a new generation of
animated feature films and related products.  The firm focuses on
creating, developing and producing computer-animated feature films
that appeal to audiences of all ages.  The company has created and
produced four full-length animated feature films, Toy Story, A Bug's
Life, Toy Story 2 and Monsters, Inc., that were marketed by The Walt
Disney Company.  The company's fifth animated feature film, Finding
Nemo, was the top-grossing movie of last summer, taking in over $330
million at the U.S. box office alone.  In 1997, the company agreed
to produce five original feature films for distribution by Disney.
Under their current deal, Disney and Pixar evenly split production
costs and profit from the films after Disney takes a distribution
fee off the top.  That agreement could change significantly with the
current contract negotiations.

PIXR - Pixar  $71.56

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-60.00  PQJ-WL  OI=11   ASK=$0.40
SELL PUT  NOV-65.00  PQJ-WM  OI=597  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$64.35


*****
AVCT - Avocent  $31.20  *** Trading Range? ***

Avocent Corporation (NASDAQ:AVCT), together with its wholly owned
subsidiaries, designs, manufactures and sells analog and digital
KVM (keyboard, video and mouse) switching systems, as well as serial
connectivity devices, extension and remote access products and also
display products for the computer industry.  The firm's switching
and connectivity solutions provide information technology managers
with access and control of multiple servers and network data centers
from any location.

AVCT - Avocent  $31.20

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-37.50  QVX-KU  OI=351  ASK=$0.40
SELL CALL  NOV-35.00  QVX-KG  OI=381  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$35.25


*****
CA - Computer Associates  $23.50  *** Accounting Issues? ***

Computer Associates International (NYSE:CA) is a business software
development company.  The company designs, markets and licenses
computer software products that allow businesses to run and manage
critical aspects of their information technology operations and
that allow data center managers and programmers to automate their
daily functions.  The firm is considered an independent software
vendor.  As an ISV, the company's software products are designed
to work with almost every commercially available computer hardware
platform and with all types of common software operating systems.

CA - Computer Associates  $23.50

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-30.00  CA-KF  OI=7357  ASK=$0.15
SELL CALL  NOV-27.50  CA-KY  OI=2040  BID=$0.40
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$27.75


*****
MTG - MGIC Investment  $53.79  *** Short-Term Trading Top? ***

MGIC Investment (NYSE:MTG) is a holding company that provides
private mortgage insurance coverage in the United States to the
home mortgage lending industry.  The company operates through its
wholly owned subsidiary, Mortgage Guaranty Insurance Corporation.
In addition to mortgage insurance on first liens, the company,
through other subsidiaries, provides lenders with underwriting
and other services and products related to home mortgage lending.
The company's earnings report is due on 10/15/03.

MTG - MGIC Investment  $53.79

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-65.00  MTG-KM  OI=0    ASK=$0.25
SELL CALL  NOV-60.00  MTG-KL  OI=308  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$60.50


*************
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.

*****
LLTC - Linear Technology  $40.77  *** In A Comfort Zone! ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military
and space systems.

LLTC - Linear Technology  $40.77

PLAY (conservative - bullish/debit spread):

BUY  CALL  NOV-35.00  LLQ-KG  OI=1327  ASK=$6.40
SELL CALL  NOV-37.50  LLQ-KU  OI=2193  BID=$4.20
INITIAL NET-DEBIT TARGET=$2.15-$2.20
POTENTIAL PROFIT(max)=14% B/E=$37.20


*******************
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.

*****
PHTN - Photon Dynamics  $32.40  *** A Reader's Request! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display (FPD) industry.  The company
also offers yield management solutions for the printed circuit
board assembly and advanced semiconductor packaging industries
and the cathode ray tube display and CRT glass and auto glass
industries.  The firm's test, repair and inspection systems are
used by manufacturers to collect data, analyze product quality
and identify and repair product defects at critical steps in the
manufacturing.

PHTN - Photon Dynamics  $32.40

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-40.00  PDU-AH  OI=26  ASK=$1.30
SELL PUT   JAN-25.00  PDU-ME  OI=30  BID=$1.15
INITIAL NET-CREDIT TARGET=$0.00-$0.15
INITIAL TARGET PROFIT=$0.60-$1.05

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $775 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($25.00).


***********************
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.

*****
PII - Polaris Industries  $79.35  *** Earnings Play! ***

Polaris Industries (NYSE:PII) is engaged, with its subsidiaries,
in the design, engineering, manufacturing and marketing of high
performance motorized products for recreation and utility use,
including all-terrain vehicles, snowmobiles, motorcycles, and
personal watercraft.  Its products, together with related parts,
garments and accessories are sold worldwide through a network of
dealers, distributors and its subsidiaries located in the United
States, Canada, France, Great Britain, Australia, Norway and
Sweden.

PII - Polaris Industries  $79.35

PLAY (very speculative - neutral/debit straddle):

BUY CALL  OCT-80.00  PII-JP  OI=80  ASK=$1.25
BUY PUT   OCT-80.00  PII-VP  OI=11  ASK=$2.05
INITIAL NET-DEBIT TARGET=$3.10-$3.20
INITIAL TARGET PROFIT=$1.10-$1.75


*****
WEBX - WebEx Communications  $22.54  *** Expiration Week! ***

WebEx (NASDAQ:WEBX) develops and markets services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video 
services are also available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and 
deploying new services, expanding its sales and marketing 
organizations and deploying its global WebEx Media Tone Network.
The company sells WebEx Meeting Center, WebEx Meeting Center Pro,
WebEx Training Center, WebEx Support Center, WebEx OnStage and
WebEx Enterprise Edition.  It also provides a service called 
WebEx Business Exchange to existing customers.

WEBX - WebEx Communications  $22.54

PLAY (very speculative - neutral/debit straddle):

BUY CALL  OCT-22.50  UWB-JX  OI=707  ASK=$0.85
BUY PUT   OCT-22.50  UWB-VX  OI=268  ASK=$0.95
INITIAL NET-DEBIT TARGET=$1.60-$1.75
INITIAL TARGET PROFIT=$0.50-$0.90


*****


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MARKET POSTURE
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Minor Signs of Profit Taking


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