Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/10/2002

HAVING TROUBLE PRINTING?
Printer friendly version
PremierInvestor.net Newsletter                 Tuesday 12-10-2002
                                                   section 1 of 2
Copyright ) 2002, All rights reserved.
Redistribution in any form is strictly prohibited.

The entire newsletter is best viewed in COURIER 10 for alignment
=================================================================

In section one:

Market Wrap:      Finally a Rebound
Market Sentiment: Is the Bounce for Real
Play-of-the-Day:  Tech Support

-----------------------------------------------------------------
U.S. Market Numbers
-----------------------------------------------------------------
MARKET WRAP  (view in courier font for table alignment)
-----------------------------------------------------------------
      12-10-2002           High     Low     Volume   Adv/Dcl
DJIA     8574.26 +100.90  8578.99  8469.55 1.55 bln 2167/1011
NASDAQ   1390.52 + 23.40  1397.84  1373.89 1.45 bln 2030/1347
S&P 100   460.45 +  6.45   460.92   453.99   Totals 4197/2358
S&P 500   904.41 + 12.41   904.95   892.00
RUS 2000  393.47 +  7.17   393.97   386.55
DJ TRANS 2353.38 + 30.70  2354.58  2318.55
VIX        31.67 -  2.80    34.11    31.44
VXN        51.75 -  1.23    54.28    49.48
Total Vol   3,171M
Total UpVol 2,486M
Total DnVol   640M
52wk Highs   105
52wk Lows    116
TRIN        0.60
PUT/CALL    0.89
-----------------------------------------------------------------

===========
Market Wrap
===========

Finally a Rebound

The markets shook off a weak open and an uneventful Fed meeting
and rallied at the close to put a green candle at the end of a
string of red ones. While red and green are holiday colors many
traders are wishing for a little less lopsided mix.

Dow Chart - Daily


Nasdaq Chart - Daily


The day began with bad news on the economic front. Retail Sales
fell -2.3% last week according to the weekly chain store sales
report. Analysts were quick to blame the ice storm in the north
east but readers of the market monitor know the news has been
bad pretty much all over with only a few pockets of strength.
The weekly sales index fell to its low of the year at 393. The
Bank of Tokyo-Mitsubishi who produces these numbers said they
were lowering their estimates for the month of December to only
+2.5% growth from previous expectations of +5% growth. They
claim that while the current pace of sales is enough to maintain
growth there is no pent up demand and low confidence. They feel
that while the season is only going to be slightly weaker than
last year the risks have intensified that spending is going to
fall even further below current expectations. They warned that
retail profits are likely to suffer as a result.

Adding to the negativity from the Retail Sales report was the
Richmond Fed manufacturing survey. The headline number fell to
-1.0, a seven point drop with shipments and employment negative
but orders improved to +4 after three months in negative
territory. Prices continued to increase despite the drops
in order backlog, capacity utilization and employment. The
internal expectation components continue to reflect expectations
for an increase in business in the next six months. The
Wholesale Trade report showed a drop back to an inventory-to-
sales ratio of 1.22, which ties a record low. The -0.1% drop
was far below expectations of a +0.3% gain. This was the first
back to back monthly sales decline since 3Q-2001.

The Fed meeting did not help the investor sentiment before the
announcement. Investors "knew" the box the FOMC members spent
five hours wrapping today was going to be empty but they continued
to hold out hope that there was a surprise of some type inside.
At 2:15 the Fed presented their holiday gift and it was indeed
empty. The official statement continued the party line. "The
limited number of incoming economic indicators since the November
meeting, taken together, are not inconsistent with the economy
working its way through its current soft spot." The Fed was
referring to the negative ISM numbers and the higher than
expected unemployment. The markets dipped right after the
announcement as if traders had expected another surprise cut.
If so they needed serious psychological counseling. Volume
buyers showed up to buy the dip around 3:15 and the Dow
managed to close +100 for the day.

Most of the buying was in the big caps and appeared to be
cautious despite the gain. Something unusual happened today.
The 52-wk new lows beat the 52-wk new highs for the first time
Nov-20th 118 to 101. Why is this surprising? The last eight
trading days the markets have been dropping but the new highs
beat new lows every day. A stealth movement that suggested
underlying strength. Those new highs peaked on Dec-2nd with
202 stocks hitting the mark. New lows bottomed the prior day
at 37. Since then the trends have been closing and today they
crossed. Is it a one day wonder and if so why on a day that
the markets rebounded? We have to remember that the market
started the day weak and the Dow gained +72 points in the
last hour. Did the trend change at 3:PM? I would be surprised
if it did. We need to continue to watch these numbers as the
week progresses. With big caps getting the most attention and
internals weak it appears there is no conviction in today's
move. A continued increase in new lows tomorrow could be a
warning signal of further underlying weakness.

Much of the move was credited to a positive choice of William
Donaldson to head the SEC and replace Harvey Pitt. I would
not give this reason much credence even though institutions
were pleased with the appointment. A more likely reason for
the bounce was simply oversold conditions and strong support.
The Dow dipped to around 8475 three times in the first hour
of trading but sellers were not able to push it any farther
below 8500 than that level. The 8500 level begins about 150
points of strong support for the Dow. The 50DMA at 8365, 100
DMA 8388 and the 38% Fib retracement level at 8344. It is
going to be very difficult to break through this before the
holidays. This underlying support and the failure to break
even the beginning layer at 8500 on bad economic news was a
sign to institutions that buying stocks could be a safe move.
They used the 3:PM dip to trigger their buy programs and the
rest is history.

If you read between the lines above you probably picked up on
the "before the holidays" comment. I am becoming more concerned
about numerous declining internals and the eventual impact on
the broader market. I have been reporting on declining retail
sales for a couple weeks and the numbers today were no surprise.
Retailer profits are going to be tough to find in this post
holiday season. Tech stocks drew some attention with the Nasdaq
rebounding +23 points but that is hardly a blip compared to the
recent losses. Chip stocks managed only a minor rally on the
Taiwan Semiconductor news and positive comments from several
other techs. There is simply no normal end of year budget flush
that usually provides a 4Q lift to techs. WR Hambrecht reiterated
a sell rating on JNPR with a $4 price target due to smaller than
expected orders from large customers. This syndrome bodes ill
for the entire tech sector. Companies are holding on to the
extra budget cash, if any, instead of spending it.

Home builders, a staple in the current economy, took heat from
an article in the Wall Street Journal about donating money to
non-profit groups to be then given to home buyers as down
payments. This donation scam helps to eliminate excess home
inventory by selling to people who would not normally be able
to afford it. According to the report 17,000 Americans per
month have been buying homes with down payments from "gifting
groups" funded by homebuilders. It is feared now that these
buyers are an increased credit risk because they do not have
any of their own money at risk and a downturn in the economy
could create a massive wave of foreclosures. If home builders
are suddenly cut off from those 17,000 buyers per month then
the inventory backlog will ripple down through the food chain.
Prices will drop, layoffs will occur, suppliers will suffer,
etc. Locally in Denver 38% of sales by KB Homes were funded
with down payment gifts. If this program was to cease you can
see the potential problems. Even worse, the builders have
admitted raising the price of the homes to compensate for
the gift program. Lenders are afraid that the houses are
now over priced compared to normal houses bought in the
area. This makes the loans even higher risk for foreclosure
in any downturn because the loans exceed the value.

Need more evidence of weak economic internals? Wendy's hit a
52-week low and other food retailers are not far behind due
to lagging sales and shrinking profit margins. Even Lance,
the vending machine snack company, warned tonight that they
were cutting 4Q earnings estimates by about -10% due to
lower than expected 4Q sales. Think about this. They do not
rely on corporate budgets, IT spending and they are not
impacted by the IRAQ war or terrorists. This is spending at
the lowest level. Pocket change from consumers mostly in
office buildings or convenience stores. We are not talking
about slowing sales of $1,000 workstations but slowing sales
of 75 cent cheese and crackers. At least there will be plenty
of excess inventory available to send to the troops in Iraq.

Traders are also starting to be more concerned about the
IRAQ problem as well as new problems coming to light today.
The new high tech IRAQ war nerve center in Qatar, which is
staffed by hundreds of U.S. Central Command officers went
live today with a full test of command and control planned.
U.S. troops have taken over one quarter of Kuwait and are
conducting live fire exercises with tanks and planes this
week. Warships intercepted a North Korean freighter today
loaded with Scud missiles for Yemen. On Wednesday President
Bush is expected to unveil a new plan for global policing of
weapons of mass destruction. He is expected to make the case
for preemptive action against any nation that possesses or
supplies them to another. With North Korea the number one
supplier of weapons to smaller nations they are expected to
be high on the hit list. Let's see, IRAQ, Afganistan, Yemen,
North Korea, the number of battle zones is increasing daily.
If the announcement is broad enough we could add another
dozen countries to our list of potential targets. The markets
are not likely to react positively to any administration
announcement that sounds like "disarm now or we will disarm
you" when he is talking about countries who have nuclear
weapons like India and Pakistan.

The Dow bounced +100 points above support on weak volume from
very oversold conditions. Period. We need to be careful not to
read too much into this event. I think next year will be bullish
due to new tax breaks and economic stimulus finally taking
effect. However, we have to get past the next six weeks, which
will include more earnings warnings, a likely war declaration,
end of year tax selling, portfolio rebalancing, S&P and Nasdaq
rebalancing and a good possibility of a terrorist attack over
the holidays. Sounds like a wall of worry to me but nothing
the market can't conquer given time. Just don't expect the
rest of December to be full of long green candles. Buy the
red ones, sell the green ones!

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


================
Market Sentiment
================

Is the Bounce for Real?
by Steven Price

The markets finally got a reprieve from the recent sell-off,
bouncing around the Dow 8500 mark after re-testing Monday's low
of 8475.  As we head into the end of the year, which is
traditionally a bullish time of the year, we are left to ponder
whether there is another leg down, or if we have truly built a
base off of which to rally.

With strong support in the 8350-8400 range, we could certainly
see another pullback, but if we don't get a bounce at the current
level, we should do so in that range.  However, the speed of the
drop is bound to slow after a drop of over 500 points in a week
and traders may want to start thinking about picking up some
calls for a bounce. The SPX is also hovering around the 900
level, which has been pivotal in the past.

The FOMC met today and for the first time in several months,
there was no speculation over there would be another rate cut.
Last month the fed dropped rates 50 basis points, surprising most
traders that were looking for a move of 25 basis points.  It did
not do much to help the markets at that time, with a subsequent
drop, rally and then almost complete erasure of that rally in the
last week.  However, most rate cuts take 6-9 months to work there
way through the economy and the immediate reaction is more of a
psychological one. In any case, today's meeting was expected to
be a non-event and went according to that plan.  Following the
announcement that there would be no action, the markets pulled
back, tested support at 8500 and rallied for a 100-point gain in
the Dow.

President Bush nominated investment banker William Donaldson as
chairman of the Securities and Exchange Commission.  He was one
of the founders of Donaldson, Lufkin & Jenrette and has been a
friend of the Bush family for years. He served in the Ford
administration as general counsel to Vice President Nelson
Rockefeller and was Undersecretary of State to Henry Kissinger.
Donaldson was also chairman of the NYSE from 1990 to 1995, as
well as chairman of Aetna until March 2001.  The President also
said he would seek to double the SEC's budget for fiscal 2004, as
it continues pursuing several very public fraud cases.

We got some negative news regarding the retail shopping season as
we head closer to Christmas. According to Bank of Tokyo-
Mitsubishi and UBS Warburg, who compile weekly retail sales data,
sales last week were down 2.3% from the previous week. Not a good
sign heading into Christmas, since retailers rely on this time of
the year for a large percentage of their sales. BTM economist
Mike Niemira said, "Unfortunately, it's beginning to look a lot
like Christmas 2000, which was a dismal season." The Retail Index
finished up slightly on the day, following yesterday's big drop,
but is still down 23 points from its big rally following record
setting sales on the day after Thanksgiving.  That rally came
last Monday following Wal-Mart's announcement that it saw record
revenues for domestic sales on Friday, November 29.  However,
since that time, several retailers have said that even the big
finish to November was not enough to make up for a slow month.

There was some good news after the bell, as Xilinx said that
their December quarter revenues would be up 1-3% sequentially,
slightly above previous guidance by $5-$9 million.  They
cautioned, however, that North American and European revenues
would be flat, while Japan and Asia would be up.

The Dow's pullback to 8500, along with the SPX pullback to 900
and then, and subsequent rally may indicate that we have found a
short-term bottom from which today's rally can build.  However,
there is significant resistance above just under 8700 (around
8680) and at 8800.  Long players should look to tighten stops as
we approach those numbers and lock in gains toward the end of the
year. It is likely that institutions will be balancing their
portfolios with stock purchases in the next couple of weeks, but
after the first of the year, we will need to see continued
economic improvement to avoid more profit taking after the rally
that began in October. We have not yet broken the recent trend of
lower highs and lower lows in the Dow or Nasdaq and it would take
a trade of 8650 and 1415, respectively, to do so.  Even then we
need to be careful, as the recent prevailing trend still remains
down.

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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8574

Moving Averages:
(Simple)

 10-dma: 8716
 50-dma: 8365
200-dma: 9138

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  904

Moving Averages:
(Simple)

 10-dma:  917
 50-dma:  884
200-dma:  976

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1033

Moving Averages:
(Simple)

 10-dma: 1077
 50-dma:  992
200-dma: 1109

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

The Semiconductor Index (SOX.X): The SOX bounced after the sell-
off of the last week, making up 15.39 points, but falling short
of resistance at 329.  The intraday high was 325 and index
finished near its high of the day. The intraday chart shows a run
up over 320 and then a rangebound afternoon between 320 and 325.
If the index consolidates at that level, then breaks out above
330, another leg up to 360 looks possible.  However, if it fails
to crack 330, then this may simply be a shorting opportunity.
Keep an eye on that 330 mark for short-term long plays, but look
to tighten stops or take profits if the run makes its way back to
the August highs of 363-366.  Shorts on a failed rally at 329
will have support between 300-310 to contend with and can look
to tighten stops in that area.

52-week High: 657
52-week Low : 214
Current     : 323

Moving Averages:
(Simple)

 10-dma: 347
 50-dma: 298
200-dma: 401

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

Market Volatility

The VIX gave up almost 3 points today, as the rally off Dow 8500
gained steam.  On a low volume day in the broader markets, it is
hard to attach a lot of significance to the move, but it is clear
that there were far more sellers than buyers of options today. I
see that as a bullish short-term signal, as long as the U.S.
declaration tomorrow about pre-emptive strikes and the discovery
of a North Korean ship full of SCUD missiles headed for the
Persian Gulf does not derail the markets.


CBOE Market Volatility Index (VIX) = 31.67 -2.80
Nasdaq-100 Volatility Index  (VXN) = 51.75 -1.23

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.89        473,620       419,592
Equity Only    0.71        382,748       270,550
OEX            0.96         17,132        16,462
QQQ            1.34         25,649        34,316

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

Bullish Percent Data

           Current   Change   Status
NYSE          49      - 1     Bull Confirmed
NASDAQ-100    70      - 5     Bull Correction
Dow Indust.   63      - 7     Bear Alert
S&P 500       64      - 3     Bull Confirmed
S&P 100       65      - 3     Bear Alert

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

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

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

5-Day Arms Index   1.47
10-Day Arms Index  1.44
21-Day Arms Index  1.20
55-Day Arms Index  1.18


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

        Advancers     Decliners
NYSE       1962          1973
NASDAQ      854          1251

        New Highs      New Lows
NYSE         39              29
NASDAQ       48              31

        Volume (in millions)
NYSE       1527
NASDAQ     1438

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

Commitments Of Traders Report: 12/03/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

Commercials reduced long positions by about 3,000 contracts,
while reducing shorts by only 800. Small traders increased
long positions by 6,000 contracts and shorts by 600.

Commercials   Long      Short      Net     % Of OI
11/12/02      437,683   476,540   (38,857)   (4.3%)
11/19/02      446,668   480,270   (33,602)   (3.6%)
11/26/02      447,024   488,250   (41,226)   (4.4%)
12/03/02      444,345   487,411   (43,066)   (4.6%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 16,472) - 10/01/02

Small Traders Long      Short      Net     % of OI
11/12/02      141,389    70,624    70,765     33.4%
11/19/02      143,070    77,332    65,738     29.8%
11/26/02      155,975    81,962    74,013     31.1%
12/03/02      162,192    82,584    79,608     32.5%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02

NASDAQ-100

Commercials left positions mostly unchanged with a small
percentage increase to the long side and a small decrease to the
short position. Small traders reduced long positions by 4,000
contracts, while reducing shorts by 2,500.


Commercials   Long      Short      Net     % of OI
11/12/02       45,647     55,892   (10,245) (10.1%)
11/19/02       42,074     52,302   (10,228) (10.7%)
11/26/02       43,231     52,425   ( 9,194) ( 9.6%)
12/03/02       43,709     51,977   ( 8,268) ( 8.6%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
11/12/02       12,698     8,801     3,897    18.1%
11/19/02       16,292    10,540     5,752    21.4%
11/26/02       17,574    12,329     5,245    17.5%
12/03/02       13,749     9,869     3,880    16.4%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:   8,460  -  3/13/02

DOW JONES INDUSTRIAL

Commercials maintained the status quo, while small traders showed
small reductions to long and short positions.

Commercials   Long      Short      Net     % of OI
11/12/02       22,283    14,953    7,330      19.6%
11/19/02       23,535    15,741    7,794      19.8%
11/26/02       20,499    15,015    5,484      15.4%
12/03/02       20,176    15,427    4,749      13.3%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
11/12/02        5,736     8,513    (2,777)   (19.5%)
11/19/02        4,428     8,203    (3,775)   (29.9%)
11/26/02        6,544    10,350    (3,806)   (22.5%)
12/03/02        5,885     9,781    (3,896)   (24.9%)

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

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


===============
PLAY-of-the-Day  ((new BULLISH tech play))
===============

Mercury Interactive - MERQ - cls: 29.80 chg: +0.99 stop: *text*

Company Description:
Mercury Interactive, the leading provider of software and
services that optimize automated business processes, delivers a
complete, integrated family of enterprise testing, production
tuning and performance management solutions that enable customers
to optimize business processes and maximize business results.
(source: company press release)

Why We Like It:
Software bulls haven't had much to cheer about over the past
week.  Pressured by a weakening NASDAQ, the GSO.X moved steadily
lower after it spiked above 120 on December 2nd.  The subsequent
breakdown below the 200-dma sent the software index plummeting
towards the 50-dma at 100.  Now that the GSO has started to
rebound above this level of support, it looks like the short-term
downtrend may have come to an end.  Sector behemoth MSFT is also
above support at its converging 50-day and 200-day moving
averages.  This should help to put a floor under the software
group.  We're picking MERQ as a bullish sector play because of
the way shares have pulled back to support at the 200-dma.  The
stock leveled out at this moving average after a rapid decline
from the relative high of $35.68.  The company's CEO commented
this weekend that he expected the company's annual sales to grow
to $1 billion over the next 3-5 years.  By contrast, reported
revenue for the first nine months of 2002 has ticked in at $282
million.  While that bullish forecast hasn't led to any explosive
upside movement, it seemed to effectively halt the two-week
decline.  Shares outperformed both the NASDAQ and GSO.X on
Tuesday after successfully testing the 200-dma ($28.97).  The
daily stochastics, which are just beginning to reverse from
oversold levels, offer technical encouragement for the bulls.
With no significant levels of overhead resistance, we think MERQ
could quickly reach the $35.00 area.  Our action point to enter
this play will be at $30.27, one cent above Friday's high.  If
we're triggered our stop will be placed at $28.48, slightly under
today's low.  This will set up a risk/reward ratio of better than
1:2.  Traders willing to give MERQ a little more breathing room
could use a stop just below $28.00.

Annotated chart - MERQ:



Picked on December xxth at $xx.xx <- see text
Results since picked:       +0.00
Earnings Date            10/17/02 (confirmed)







=================================================================
To stop receiving this PremierInvestor.net Newsletter,
send email to Contact Support
=================================================================
DISCLAIMER
=================================================================

This newsletter is a publication dedicated to the education
of stock traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock but an information resource to aid the investor
in making an informed decision regarding trading in stocks. It
is possible at this or some subsequent date, the editors and
staff of PremierInvestor.net may own, buy or sell securities
presented. All investors should consult a qualified professional
before trading in any security. The information provided has
been obtained from sources deemed reliable but is not
guaranteed as to accuracy or completeness. PremierInvestor.net
staff makes every effort to provide timely information to its
subscribers but cannot guarantee specific delivery times due to
factors beyond our control.

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

*****************************************************************
ADVERTISING INFORMATION

For more information on advertising in PremierInvestor.net
Newsletter, or any Premier Investor Network newsletter please
contact Contact Support.

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


Copyright ) 2002  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter                  Tuesday 12-10-2002
                                                    section 2 of 2
Copyright ) 2002, All rights reserved.
Redistribution in any form is strictly prohibited.

The entire newsletter is best viewed in COURIER 10 for alignment
=================================================================

In section two:

Net Bulls
  New Bullish Plays:     MERQ
  Bearish Play Updates:  TECD

Stock Bottom / Active Trader
  Bearish Play Updates:  AIG, DLX, HRB
  Closed Bullish Plays:  TSCO

Trading Ideas
  Value Plays With Bullish Signals
  Breakout to Upside (Stocks $5 to $20)
  Breakout to Upside (Stocks over $20)
  Breakout to Downside (Stocks over $20)
  Recently Overbought With Bearish Signals (Stocks over $20)


==================================================================
Net Bulls (NB) Tech Stock section
==================================================================

============
NB New Plays
============

  -----------------
  New Bullish Plays
  -----------------

Mercury Interactive - MERQ - cls: 29.80 chg: +0.99 stop: *text*

Company Description:
Mercury Interactive, the leading provider of software and
services that optimize automated business processes, delivers a
complete, integrated family of enterprise testing, production
tuning and performance management solutions that enable customers
to optimize business processes and maximize business results.
(source: company press release)

Why We Like It:
Software bulls haven't had much to cheer about over the past
week.  Pressured by a weakening NASDAQ, the GSO.X moved steadily
lower after it spiked above 120 on December 2nd.  The subsequent
breakdown below the 200-dma sent the software index plummeting
towards the 50-dma at 100.  Now that the GSO has started to
rebound above this level of support, it looks like the short-term
downtrend may have come to an end.  Sector behemoth MSFT is also
above support at its converging 50-day and 200-day moving
averages.  This should help to put a floor under the software
group.  We're picking MERQ as a bullish sector play because of
the way shares have pulled back to support at the 200-dma.  The
stock leveled out at this moving average after a rapid decline
from the relative high of $35.68.  The company's CEO commented
this weekend that he expected the company's annual sales to grow
to $1 billion over the next 3-5 years.  By contrast, reported
revenue for the first nine months of 2002 has ticked in at $282
million.  While that bullish forecast hasn't led to any explosive
upside movement, it seemed to effectively halt the two-week
decline.  Shares outperformed both the NASDAQ and GSO.X on
Tuesday after successfully testing the 200-dma ($28.97).  The
daily stochastics, which are just beginning to reverse from
oversold levels, offer technical encouragement for the bulls.
With no significant levels of overhead resistance, we think MERQ
could quickly reach the $35.00 area.  Our action point to enter
this play will be at $30.27, one cent above Friday's high.  If
we're triggered our stop will be placed at $28.48, slightly under
today's low.  This will set up a risk/reward ratio of better than
1:2.  Traders willing to give MERQ a little more breathing room
could use a stop just below $28.00.

Annotated chart - MERQ:



Picked on December xxth at $xx.xx <- see text
Results since picked:       +0.00
Earnings Date            10/17/02 (confirmed)





===============
NB Play Updates
===============

  --------------------
  Bearish Play Updates
  --------------------

Tech Data Corp. - TECD - cls: 28.19 chg: +1.06 stop: 30.71

Nothing goes down in a straight line, with the possible exception
of Harvey Pitt's career.  TECD got a strong bounce today after
five consecutive losing sessions.  The break above Monday's
Inside Day formation really got the stock moving this morning,
and shares quickly moved above short-term resistance at $28.50.
But unlike the NASDAQ, TECD actually trended lower during the
final two hours of trading.  Shares finished well off the best
levels of the day and closed below $28.50.  All things
considered, the bears can be pleased that TECD was not able to
hold at its intraday highs.  A 3.9% gain could be expected after
several down days.  Of more concern is the daily stochastics
oscillator (5,3,3), which is beginning to reverse from oversold
levels.  This suggests that the bears will probably have a hard
time keeping a lid on TECD if the NASDAQ continues to rally.  On
the other hand, we're encouraged that shares rolled over this
afternoon from the multi-week trend of lower highs.  Our stop
remains safely above this trend at $30.71.  With the 10-minute
chart showing possible support near $27.75 and $27.25, short
entries at current levels are best left to aggressive traders.

Picked on December 5th at $29.49
Results since picked:      +1.30
Earnings Date           11/25/02 (confirmed)





==================================================================
Stock Bottom / Active Trader (AT) section
==================================================================

===============
AT Play Updates
===============

  --------------------
  Bearish Play Updates
  --------------------

American Intl. Group - AIG - cls: 60.75 chg: +1.18 stop: 65.51

AIG finally managed to post a gain today after moving lower for
six straight sessions.  Shares benefited from a 1.8% rebound in
the IUX.X insurance index, which closed slightly above its 50-
dma.  Speaking at a conference in New York this afternoon, AIG
Chairman Hank Greenberg said he believes that property insurance
rates should continue to increase in 2003.  This appeared to
spark a powerful rally during the final hour of trading.  Shares
finished with a gain of nearly 2% but were unable to break
through short-term resistance at $61.00.  Additional resistance
lies overhead at the 50-dma ($62.36) and $63.00.  Pulling back to
a daily chart, today's rebound looks pretty weak - AIG wasn't
even able to trade above the previous session's high.  Shares
traded an Inside Day on average volume.  On Wednesday we'll be
looking for shares to move out this consolidation pattern and
break under the relative low of $59.42.  For the time being we're
keeping our stop set at $65.51, slightly above the 200-dma at
$65.28.

Picked on December 6th at $60.80
Results since picked:      +0.05
Earnings Date           10/24/02 (confirmed)




---

Deluxe Corp. - DLX - close: 42.23 change: -0.22 stop: 44.09

A nice reversal for this short play...Albeit one that wasn't
totally unexpected.  We'd been looking any rebound in DLX to
peter out below the 200-dma ($43.97) and short-term resistance at
$44.00.  That's exactly what happened during the past two
sessions, as shares rolled over from a short-term high of $43.95.
A 100-point rally on the Dow Jones wasn't enough to keep DLX from
drifting lower throughout the day.  Although it's a little early
to say whether or not this reversal is the beginning of another
downward leg, bears can be pleased that the volume that
accompanied the rebound was relatively light.  Volume seems to be
picking back up now that shares are heading lower.  We're also
encouraged by the daily stochastics (5,3,3), which are beginning
to head lower near the mid-level.  Overall it looks like DLX is
poised to continue its downward journey now that the stock has
bounced off the top of its descending channel.  New entries can
be targeted on a move below $41.00.

Picked on December 4th at $41.28
Results since picked:      -0.95
Earnings Date           10/17/02 (confirmed)




---

H&R Block - HRB - close: 38.40 change: +1.06 stop: *text*

HRB was buoyed by the broader market on Tuesday.  Shares remained
above $37.00 for the entire session and traded particularly
strong in the afternoon.  Despite posting a 2.8% gain, the stock
was unable to move above short-term resistance at $39.00.  That's
a positive sign for the bears, who have the benefit of additional
overhead resistance at $40.00.  A downside violation of today's
Inside Day could send HRB below support.  With this in mind,
we're keeping our entry trigger at $36.98.  Our stop, if the play
is activated, will be located at $40.01.

Picked on December xxth at $xx.xx <- see text
Results since picked:       +0.00
Earnings Date            11/26/02 (confirmed)





===============
AT Closed Plays
===============

  --------------------
  Closed Bullish Plays
  --------------------

Tractor Supply Co. - TSCO - cls: 43.85 chg: -0.04 stop: *text*

It's time to send TSCO packing.  We gave the stock ample time to
breakout to new highs and reach our action trigger at $40.51, but
the recent downtrend has frustrated our bullish objectives.  It's
not that the stock looks particularly weak - TSCO has been
holding above short-term support at $42.00.  Unfortunately the
bulls just haven't been able to muster enough strength to push
TSCO to all-time highs.  A strong performance today might've
convinced us to keep our trigger in place, but the stock
underperformed the Dow and only managed a small gain.  The
falling oscillators indicate suggest that shares will remain
under $45.00 in the short-run.  However, we'll keep TSCO on our
radar for a pullback to $40.00.  A bounce from this support level
might be worth playing.

Picked on November xxth at $xx.xx <-- see text
Results since picked:       +0.00
Earnings Date            10/14/02 (confirmed)





=================
  Trading Ideas
=================

This section contains stocks that meet criteria which may make
them of interest to long and short side traders.  These are not
recommendations, nor have they been reviewed by PremierInvestor
editors for investment potential.  However, each of them has
technical and fundamental characteristics that make them worthy
of further review by traders and investors looking for fresh ideas.
New stocks will appear daily following the market close.


Value Plays With Bullish Signals
---------------------------------
Ticker  Company Name               Close     Change

LNY     Landrys Restaurants        22.25     +0.75
SEM     Select Medical             15.40     +0.87
ICPT    Intercept Inc              17.45     +0.70
RUS     Russ Berrie & Co           35.83     +1.66
NWN     Northwest Natural Gas      26.71     +0.56

---------------------------------------
Breakout to Upside (Stocks $5 to $20)
---------------------------------------
Ticker  Company Name               Close     Change

SYNT    Syntel Inc                 19.99     +1.18
MXO     Maxtor Corp                 5.73     +1.12
EUNI    EUniverse Inc               5.22     +1.10

---------------------------------------
Breakout to Upside (Stocks over $20)
---------------------------------------
Ticker  Company Name               Close     Change

EASI    Engineered Support Sys.     36.82     +2.45
BIO     Bio-rad Laboratories        41.79     +1.24
UFPI    Universal Forest Products   22.01     +1.27
DISH    Echostar Comm.              21.09     +2.04
IVGN    Invitrogen Corp             28.91     +1.95
MRX     Medicis Pharma.             48.27     +2.27
ATU     Actuant Corp                45.05     +1.04

-------------------------------------------
Breakout to Downside (Stocks over $20)
-------------------------------------------
Ticker  Company Name               Close     Change

FDP     Del Monte Produce          20.59     -1.12
T       AT&T Corp                  26.64     -1.25
FRX     Forest Labs                93.11     -2.89
ROOM    Hotel Reservations Ntwk    62.11     -2.14
MHP     McGraw-Hill                58.75     -1.41
DE      Deere & Co                 46.10     -1.53
FDS     Factset Research Sys.      28.48     -2.05

-----------------------------------------
Recently Overbought With Bearish Signals (Stocks over $20)
-------------------------------------------
Ticker  Company Name               Close     Change

MGAM    Multimedia Games           27.11     -0.64
WMK     Weis Markets               31.70     -0.46




=================================================================
To stop receiving this PremierInvestor.net Newsletter,
send email to Contact Support
=================================================================
DISCLAIMER
=================================================================

This newsletter is a publication dedicated to the education
of stock traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock but an information resource to aid the investor
in making an informed decision regarding trading in stocks. It
is possible at this or some subsequent date, the editors and
staff of PremierInvestor.net may own, buy or sell securities
presented. All investors should consult a qualified professional
before trading in any security. The information provided has
been obtained from sources deemed reliable but is not
guaranteed as to accuracy or completeness. PremierInvestor.net
staff makes every effort to provide timely information to its
subscribers but cannot guarantee specific delivery times due to
factors beyond our control.

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

*****************************************************************
ADVERTISING INFORMATION

For more information on advertising in PremierInvestor.net
Newsletter, or any Premier Investor Network newsletter please
contact Contact Support.

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


Copyright ) 2002  PremierInvestor.net. and
The Premier Investor Network.
Do not duplicate or redistribute in any form.

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives