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Bob Coppo
Week on Wall Street

The Week on Wall Street

Friday's Action:   Stocks finished mixed Friday as traders digested a mixed batch of economic data. One report showed the economy growing at an unexpectedly slow pace, while others provided encouraging numbers on home sales and consumer sentiment. Major world markets posted mostly lower results on Friday. London's FTSE closed down 0.20%; Frankfurt's DAX closed up 0.16%, and Paris' CAC 40 finished lower by 0.36%. Japan's Nikkei closed up 0.31%, Hong Kong's Hang Seng closed up 0.18%, and Sydney's All Ordinaries finished lower by 0.05%. In economic news, GDP (final) for the 1st qtr was revised to 3.9% from 4.4%, with the Chain Deflator up 2.9% from 2.6%. Consumer Sentiment (final) for June was revised to 95.6 from 95.2, while Existing Home Sales in May rose 2.6% to 6.8 mil units. Volume came in at 1.82 billion shares traded on the NYSE and 2.67 billion shares traded on the Nasdaq. Market breadth was mixed, with NYSE advancing issues over declining issues by 1.22, and down volume over up volume by 112; Nasdaq advancing issues over declining issues by 1.41, and up volume over down volume by 1.91. Leading sectors were Networkers, +1.59%. Disk Drives, +1.43% and Oil Services +1.14%. Laggards were Pharmaceuticals, -1.79%, Integrated Oils, -0.81% and Banks, -0.79%. Nasdaq 100 futures closed 12 pts higher to settle at 1505.50, while the S&P's settled down 6.10 pts at 1135.20.

Weekly Recap:   Investors continued to mark time ahead to next week's FOMC meeting, the restoration of sovereignty to Iraq, and the June employment report. There was some buying interest, however, based on a number of favorable earnings reports and renewed interest in the influential semiconductor sector, which drove the SOX up 5.7%. The Nasdaq and the Russell 2000, which are heavily weighted with technology stocks, rallied 1.9 to 3.0% respectively. The Russell indexes experienced a late surge of buying on Friday based on a re-balancing that was finalized after Friday's close.

Besides the SOX, the Broker/Dealer Index gained approximately 3.0% and regional banks got a boost from take over speculation that followed Monday's announcement from Wachovia that it would be acquiring SouthTrust for $14.3 bln. The energy, steel, diversified metals, aluminum, home building, biotech, gold, building materials, and transportation groups were some of the other standouts.

Laggards included retailers, consumer staples and drugs. Wal-Mart fell 4.7% on a judge's ruling that a sex discrimination suit against the company could move forward as a class action. AT&T dropped 9.3% after lowering its FY04 revenue outlook due to ongoing pricing pressure, recent changes in FCC policies, and new product initiatives. Their losses paled in comparison to Career Education Corp, which sank 20% on announcement that it received a formal order of investigation from the SEC. That news cast a pall on the entire post-secondary education group with peer companies like Corinthian Colleges and Apollo Group dropping 8.1% and 7.9%, respectively.

For the week, the Dow lost -0.4%, the S&P 500 finished -0.1% lower and the Nasdaq rose +1.9%. The small cap Russell 2000 gained +3.0%. Next week, we get the FOMC announcement on interest rates and the handover in Iraq on Wednesday. Wednesday is also the end of the second quarter when fund managers will attempt to spruce up their portfolios. Friday has the June jobs report and the start of the long 4th of July weekend.

The Effects of the Current Account Deficit:   Last week, the US trade balance came in at a new record all-time deficit. The chart below shows that the decline in the US Dollar over the past 2 1/2 years has yet to reverse the plunge of the US quarterly current account deficit. The question raging between the bulls and the bears is whether or not the US financial markets will be able to continue to attract enough new investment each quarter to offset the imbalance in trade. If not, then the US financial markets and the US economy could face some very serious challenges.

Well, if the 2-yr note auction held last Wednesday is any reflection of foreign appetite for US treasuries, the bulls have little to worry about, at least for the time being. While the yield was somewhat lower than expected and the bid/cover was adequate at 2:17:1, the real significance of the auction was in the fact that a record 61% of the competitive bid awards went to what the bond traders call "indirect bidders", or foreign buyers. This was well above the 42% taken by "indirects" at the May auction and far above the one-year moving average of 39%. Foreign demand for US treasuries remains high and is apparently on the rise.

Using Options to Generate Cash Flow:   Is it possible to achieve a steady cash flow stream trading options? The answer, we believe, is a resounding yes. Most people who trade options lose money, sometimes lots of money. The reason is that most of the time they are guessing which way the market or a stock will go. And because options are "wasting assets", if they guess wrong, they can end up losing their entire stake. But there are two proven strategies that consistently generate cash using options month after month after month.

The first strategy is our Peak Open Interest Indicator (POI). The POI has predicted where the S&P 100 Index (OEX) will close on options expiration day with a high degree of accuracy. The OEX tends to be attracted to price levels where the largest amount of open interest exists. The indicator is simply a chart showing the amount of call and put options open at each strike price in any given expiration month. Typically, a stock or index will be attracted to the strike price that has the most combined open options contracts for the front month, or the month closest to expiring. What makes this indicator particularly useful for the OEX is its low implied options volatility index. Below is a table of the previous 14 months of data displaying this phenomenon. Notice that the OEX has never closed more than 1.58% away from the POI on expiration day.

Expire	"Target"	"Actual"	Pt Diff	% Diff
18-Apr-03	450.00	453.72	+3.72	+0.83%
16-May-03	480.00	475.72	-4.28	-0.89%
20-Jun-03	500.00	502.40	+2.40	+0.48%
18-Jul-03	500.00	501.50	+1.50	+0.30%
15-Aug-03	500.00	498.30	-1.70	-0.34%
19-Sep-03	520.00	520.62	+0.62	0.12%
17-Oct-03	520.00	518.12	-1.88	-0.36%
21-Nov-03	520.00	511.78	-8.22	-1.58%
19-Dec-03	540.00	540.26	+0.26	+0.05%
16-Jan-04	560.00	564.72	+4.72	+0.84%
20-Feb-04	570.00	564.88	-5.12	-0.90%
19-Mar-04	550.00	543.68	-6.32	-1.15%
16-Apr-04	560.00	554.94	-5.06	-0.90%
21-May-04	550.00	554.80	+4.80	+0.87%

We use the POI to set up OEX credit spreads during the last week before expiration. By knowing where the OEX has a high probability of closing at expiration, we can put on either a bullish put spread or a bearish call spread so that our options expire worthless. Typically, we will receive a $1.00 credit for a $5.00 spread, or a 20% return on capital. We've never had a losing trade and this set-up occurs every month.

The second strategy is called the Premium Collapse Indicator (PCI). The PCI finds set-ups where the option premium has a high probability of declining rapidly. When a set-up is triggered, we establish a credit spread to take advantage of the rapid premium decay. In back-testing, this strategy had 12 winning trades with no losers. Trading the OEX, we typically receive a $1.00 credit for a $5.00 spread, or a 20% return on capital. The PCI trades are never executed during the last week before expiration, so they do not conflict with our Peak Open Interest trades.

The POI and PCI strategies give us at least one, and most times, two opportunities each month the earn on average a 20% return per trade. If you would like to receive timely updates on these strategies, just send an email to info@stockmarkettimer.com and ask to be put on our distribution list. There is no cost or obligation.

The COT Report:   The latest Commitments of Traders report from the CFTC shows that Commercial Hedgers bought some 7,700 S&P 500 futures contracts last week to bring their net short position to -7,620 contracts. Large Traders remained net short -27,431 contracts, with the entire offsetting net long position of +35,051 contracts held by Small Traders, the so-called "weak hands". For the Nasdaq 100 futures, Commercials sold some 21,200 contracts to bring their net long position to +2,984 contracts. Small Traders were net short -639 contracts in the Nasdaq. Commercial action in Dow futures saw the smart money buy some 1,400 contracts to bring their net long position to +7,056 contracts.

Commercial Hedgers were better buyers in the S&P's last week, while Small Traders were better sellers. That's a bullish sign for the short term. For the intermediate term, their opposing net positions should still be considered bearish.

Sentiment Surveys:   The latest Investors Intelligence survey showed that the percentage of bullish newsletter writers came in at 54.6%, while the percentage of bears was 18.6%. The bullish ratio (bulls/bulls +bears) was 74.6%.

The latest AAII survey showed an increase to 56% bulls, and an decrease to 23% bears. The bullish ratio came in at 71%, while the 4-week moving average remains high at 66%. One thing to note about the AAII survey is that, while membership in this organization is quite large as investor groups go, the number of members that actually participate in the survey is very small. Thus, large fluctuations in survey results from week to week are not uncommon.

The latest Market Vane survey came in at 66%, indicating that the majority of commodity trading advisors (CTA's) remain bullish on the future direction of the S&P's.

The Short Term Outlook; 1-5 Days:   Friday's price action was mixed, so we don't have a clear directional bias for Monday. Friday's action was skewed by the re-balancing of the Russell indexes. The Russell 1000, 2000 and 3000 re-balancing went into effect at the end of Friday's trading session. Names added include TFSM, NILE, ORBZ, MCHX. Deletions included TSCM, EELN, and ROXI. Since the names added and deleted were four letter symbols, it's not too surprising that the Nasdaq faired better than the Dow and the SPX. One way to view what's happening beneath the surface is to look at smoothed charts of the market internals. The charts below of the advance-decline line and new highs-new lows are 10-day moving averages of the underlying data. Smoothing the data helps to see more clearly the prevailing trend(s). Notice that, while the trends shown on the smoothed charts are up, the strength of the trends is anything but robust. Which raises the question, is the up-trend running out of steam? We should know much more by mid-next week.

SMT's Pivot Point Forecast; 1-2 Weeks:   Our Pivot Point RS indicator is currently on a BUY signal. Our next Pivot Point is forecast to occur on or near July 2nd.

The 60-mn NDX chart below shows that the StochRSI indicator is in the BUY zone. For Monday, resistance for the S&P's comes in at 1105.50 and then 1123. Support lies at 1084 and then 1078. For the Naz, resistance comes in at 1420 and then 1442. Support lies at 1390 and then 1383.

The Intermediate Term Outlook; 2-6 Weeks:   Over the past couple of years, Japan's Nikkei 225 Index has tended to either lead or validate the US equity markets at important turning points. The Nikkei put in a bottom on May 17th and has been in rally mode ever since. Last week, the index closed above it's 50-day moving average for the first time since the end of April. Japan's Tankan index of service industries released on Thursday rose 2.2%, well above the consensus estimate of 1.6%. Japan's economy appears to finally be in turn-around mode, and that's positive sign for global equity markets, including the US.

Our Market Trend Indicator (MTI) is currently positive and trended higher again on Friday.

Good Trading!

Charts and data appearing in today's column are courtesy of:
StockCharts.com
Economagic.com

Have you traded any of our recommended plays along the way? We'd love to hear from you and how you did. Please send your stories to comments@talkingpoints.com.

Jeff Neal
Tech Watch

Challenges and Changes for Next Generation Internet

By Jeff Neal
Optionetics.com

Many technology leaders in the Internet space recently came together at a high-tech summit in San Francisco to reveal their vision of the future. Their thoughts ranged from the large obstacles that face the Internet to the major transformation that is expected to take place. They also commented on the possibility of another Internet explosion.

One of the first things that was being discussed is that how the Internet will be more and more part of the average American’s home life leading to another Internet boom. By reaching the average household, Internet experts assert that this will open up a whole new array of applications such as gaming, video, health care and education.

The big explosion is anticipated to take place in voice and video over Internet protocol networks versus the traditional switch line networks. The beauty to the consumer is that they will now have tremendous flexibility with the ability to choose from more than 9,000 plus channels of television programming.

Another reason cited for future Internet growth is the number of kids that are now using it. Many 10-year olds and up increasingly use the Internet to watch movies, play games, listen to music and talk to their friends. The mindset is being developed at a very early age that the Internet will be available everywhere they go for the rest of their lives. Industry experts conclude that this type of thinking should keep the Internet growing for many years to come

In addition to increased applications, the way we search on the Internet is expected to go through a major transformation by adding localization coupled with social networking. The problem of getting to much information from a search should soon be addressed with new visualization tools. This type of software will arrange information in graphical form making it much easier for the user to sort it all out. Also, the whole concept of the localizing the Internet has extensive ramifications in the field of education.

The amount of business actually being conducted over the Internet keeps increasing at a torrid pace. One of the reasons business has taken off is due to the fact that over the last five years there has been about a 10 times reduction in price in a lot of components that go into building the Internet as well as services on the Internet. These components include such things as software, servers and networking equipment.

The economics of doing business over the Internet simply makes sense. Consider that if one wants to launch an Internet site or business it will cost about a tenth of what it would of cost five years ago. In addition you will have ten times more customers you can address as well as ten times more advertising revenue.

However, even with this bright growth future being projected for the Internet it still has its share of challenges. The main issues are better encryption techniques that need to be developed along with the continuing problem of spam. It is absolutely essential that information over the Internet be protected better. Once people are 100 percent assured that their information is fully protected then usage should increase dramatically.

Of course the other drawback for the Internet user is the overwhelming spam that is currently out there. This seems to be a bigger challenge than solving the encryption problem since this is how many of the viruses evolves. Also, the amount of bogus and unethical business being conducted through spam techniques has proliferated. In addition, it makes the usage of e-mail unbearable for many users.

The future of the Internet does offer a lot of promise and as the infrastructure technology continues to evolve we definitely might see another huge growth spurt. However, it is paramount that the privacy and spam concerns be addressed effectively if we are indeed going to experience this new expansion cycle.

Happy Trading.

Each week, Mr. Swing analyzes his database of more than 9,200 securities to scan for swing trading opportunities. But be warned: Do not expect a fast way to make money. Mr. Swing is going to show you how you can accumulate small gains weekly, ultimately making money through a disciplined, low-risk trading approach. While he realizes that this short-term swingtrading approach is not for everyone, he hopes that the information given at MrSWING.com will be useful to you in the near future...

Larry Swing MrSwing.com

These are your Swing Trading Opportunities for this week: Talking Points member - Over the nearly two years that we have carried the Mr. Swing's Place column, Larry's picks have consistently put in great performances. Don't miss out on the full swing-trading content available at Mr. Swing.com. Take advantage of some of the great programs available by clicking here. Long Swings: bullish   SWINGS ^ click here F,Ford Motor FHCC,First Health Group CVX,ChevronTexaco Corp CCE,Coca-Cola Enterprises FLE,Fleetwood Enterpr MAV20 >=500000 AND CLOSE>12 AND FORCE3<= 0 AND FORCE13>=0 AND ADX10>30 AND HIGH < HIGH1 and HIGH1 < HIGH2 AND CLOSE > SMAC10 and CLOSE > SMAC20 Short Swings: bearish what is short selling? SWINGS ^ click here ATVI,Activision Inc FLEX,Flextronics Intl FMT,Fremont Genl UVN,Univision CommunicA UNH,UnitedHealth Group MAV20 >=500000 AND CLOSE>12 AND FORCE3>=0 AND FORCE13<=0 AND ADX10>30 AND LOW >LOW1 and LOW1 > LOW2 AND CLOSE < SMAC10 and CLOSE < SMAC20 WINDOW ^ click here HLTH,WebMD Corp LZB,La-Z Boy RTN,Raytheon Co OMM,OMI Corp PLB,Amer ItalianPastaA MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 > MDI10 AND HIGH < SMAC5   WINDOW ^ click here TSM,Taiwan Semiconductor Mfg ADS AUO,AU Optronics ADS NTY,NBTY Inc SSTI,Silicon Storage Tech NDN,99(Cents) Only Stores MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 < MDI10 AND LOW > SMAC5 1-2-3-4 ^ click here AVP,Avon Products LZB,La-Z Boy MTLM,Metal Management CCE,Coca-Cola Enterprises FDS,FactSet Research Systems MAV20 >=500000 AND CLOSE>12 AND ( ADX10+ ADX20)/2 > 30 AND ( PDI10+ PDI20)>( MDI10+ MDI20) AND LOW< LOW1 and LOW1< LOW2 AND HIGH< HIGH1 and HIGH1< HIGH2   1-2-3-4 ^ click here SYMC,Symantec Corp FMT,Fremont Genl UNH,UnitedHealth Group ADBE,Adobe Systems NDN,99(Cents) Only Stores MAV20 >=500000 AND CLOSE>12 AND ( ADX10+ ADX20)/2 > 30 AND ( PDI10+ PDI20)<( MDI10+ MDI20) AND LOW> LOW1 and LOW1> LOW2 AND HIGH> HIGH1 and HIGH1> HIGH2 CROSS ^ click here FHCC,First Health Group RTN,Raytheon Co XEL,Xcel Energy HOT,Starwood Hotels&ResWorldwide NCF,Natl Commerce Finl MAV20 >= 500000 AND CLOSE >12 AND SMAC5 > SMAC15 AND CLOSE < SMAC5 AND CLOSE > SMAC15 AND HIGH<HIGH1 AND CLOSE > OPEN   CROSS ^ click here SYMC,Symantec Corp AEOS,Amer Eagle Outfitters HCA,HCA Inc LOW,Lowes Cos SINA,Sina Corp MAV20 >=500000 AND CLOSE>12 AND SMAC5< SMAC15 AND CLOSE> SMAC5 AND CLOSE < SMAC15 and LOW > LOW1 and CLOSE < OPEN REVIVAL ^ click here LUV,Southwest Airlines A,Agilent Technologies AAI,AirTran Hldgs CVD,Covance Inc CPB,Campbell Soup MAV20 >=500000 AND CLOSE>12 AND (CLOSE1 - LOW1) <= 0.1 * ( HIGH1- LOW1) AND ( CLOSE - LOW) >= 0.95* ( HIGH- LOW) AND CLOSE > SMAC15 AND CLOSE > SMAC50   REVIVAL ^ click here ABT,Abbott Laboratories GIS,Genl Mills MAV20 >=500000 AND CLOSE>12 AND( CLOSE1 - LOW1) >= 0.9 * ( HIGH1- LOW1) AND ( CLOSE - LOW) <= 0.1 * ( HIGH- LOW) AND CLOSE< SMAC15 AND CLOSE < SMAC50 REVERSE ^ click here FHCC,First Health Group MTLM,Metal Management CIT,CIT Group MAV20 >=500000 AND CLOSE>12 AND HIGH2 > HIGH1 AND HIGH1 > HIGH AND LOW2 > LOW1 AND LOW1 > LOW AND CLOSE2 <= OPEN2 AND CLOSE1 <= OPEN1 AND CLOSE >= OPEN AND VOLUME>1.5* MAV20   REVERSE ^ click here BJ,BJs Wholesale Club KEM,KEMET Corp ABV,COMP DE BEBIDAS DAS AMERICAS MAV20 >=500000 AND CLOSE>12 AND HIGH2 < HIGH1 AND HIGH1 < HIGH AND LOW2 < LOW1 AND LOW1 < LOW AND CLOSE2 >= OPEN2 AND CLOSE1 >= OPEN1 AND CLOSE <= OPEN AND VOLUME>1.5* MAV20 TRIANGLE ^ click here GPS,Gap Inc GM,Genl Motors SEPR,Sepracor Inc PLCM,Polycom Inc LXK,Lexmark IntlA MAV20 >=500000 AND CLOSE>12 AND CLOSE> SMAC20 AND HIGH2 > HIGH1 AND HIGH2 > HIGH AND LOW2 < LOW1 AND LOW2 < LOW AND HIGH1 > HIGH AND LOW1 < LOW   TRIANGLE ^ click here AFL,AFLAC Inc NWS,News Corp Ltd ADS AFL,AFLAC Inc MAV20 >=500000 AND CLOSE>12 AND CLOSE < SMAC20 AND HIGH2 > HIGH1 AND HIGH2 > HIGH AND LOW2 < LOW1 AND LOW2 < LOW AND HIGH1 > HIGH AND LOW1 < LOW BREAKOUTS ^ click here LUV,Southwest Airlines NKE,NIKE, IncB SY,Sybase Inc AAI,AirTran Hldgs CVD,Covance Inc MAV20 >=200000 AND CLOSE>7 AND HIGH>=MAX40 and HIGH1 <> MAX40_1 AND VOLUME>1.5 * MAV20 AND CLOSE > OPEN AND VOLUME1 < MAV20 and ( ( CLOSE - LOW ) ) >=0.75*( HIGH - LOW )   BREAKDOWNS ^ click here PFE,Pfizer, Inc ELX,Emulex Corp REY,Reynolds & ReynoldsA EVC,Entravision CommunicA MAV20 >=200000 AND CLOSE>7 AND LOW<=MIN40 AND LOW1<> MIN40_1 and VOLUME>2*MAV20 AND CLOSE < OPEN AND VOLUME1 < MAV20 and ( ( CLOSE - LOW ) ) <=0.25*( HIGH - LOW) REVERSALS ^ click here AINV,Apollo Investment CYPB,Cypress Bioscience HAYZ,Hayes Lemmerz Intl ARB,Arbitron Inc XIDE,Exide Technologies MAV20 >=200000 AND CLOSE>12 AND LOW <= MIN40_1 AND VOLUME>2* MAV20 AND CLOSE > OPEN   REVERSALS ^ click here ANDW,Andrew Corp KMG,Kerr-McGee WWCA,Western WirelessA ARG,Airgas Inc CACS,Carrier Access MAV20 >=200000 AND CLOSE>12 AND HIGH >= MAX40_1 AND VOLUME>2* MAV20 AND CLOSE < OPEN REVIVAL (Track1) + REVERSE (Track2) + TRIANGLE (Track3) are different scans developed by MrSwing. Try for yourself to find the LIST that fits you the BEST... Tracks, Breakouts & Reversals are explained in our new section called: SWINGLAB... REVIVAL (Track1) + REVERSE (Track2) + TRIANGLE (Track3) are different scans developed by MrSwing. Try for yourself to find the LIST that fits you the BEST... Tracks, Breakouts & Reversals are e explained in our new section called: SWINGLAB... AIG (Long) - Chart of the Week Larry Swing Analysis:   AIG trades at very reasonable multiples; the forward P/E ratio is 13.9, and the forward P/EG ratio is .925.  Considering the company’s great business stability, these multiples are low.   It is the technical picture, however, not the fundamentals, that truly make AIG an attractive buy candidate:   Following an extraordinarily strong uptrend, the stock consolidated for several months between 68 and 78.  Recently, the stock retreated within this consolidation range to 68.73, then rallied to 75, and finally fell back to 71.10.  The most recent fall back to near support has resulted in a stochastic buy signal, and an unusual and short-term divergence with the NASDAQ.  This in and of itself is a great buy signal.  However, on Friday, the stock also traded with extremely high volume as prices rallied slightly.  This suggests that buying pressure is building, and that the divergence is likely to be soon repaired.       Key Levels:   Buy:  Market   Stop Loss:  70.97, below the most recent low.   Target:  76.97, below the highs.