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Bob Coppo
Week on Wall Street

The Week on Wall Street

Friday's Action:   Stocks retreated Friday as investors digested a weaker-than-expected report on the nation's employment picture in June. Traders were also reluctant to take positions ahead of the Independence Day holiday weekend. Major world markets reported lower results on Friday. London's FTSE closed down 0.39%; Frankfurt's DAX closed down 0.90%, and Paris' CAC 40 finished lower by 0.83%. Japan's Nikkei closed down 1.47%, Hong Kong's Hang Seng closed down 0.57%, and Sydney's All Ordinaries finished lower by 0.07%. In economic news, Non-farm Payrolls in June rose by 112,000 jobs, far fewer than the 250,000 that Street analysts expected. The Unemployment Rate remained steady at 5.6% while Hourly Earnings were up 0.1%. Finally, Factory Orders in May dipped 0.3%, less than expected. Volume came in at 1.08 billion shares traded on the NYSE and 1.21 billion shares traded on the Nasdaq. Market breadth was mixed, with NYSE advancing issues over declining issues by 1.83, and down volume over up volume by 1.59; Nasdaq declining issues over advancing issues by 1.07, and down volume over up volume by 2.51. Leading sectors were Gold Bugs, +2.62%, Homebuilders, +0.56% and Oil Services, +0.37%. Laggards were Semiconductors, -2.08%, Disk Drives, -1.33% and Comp Tech, -1.16%. Nasdaq 100 futures closed 6 pts lower to settle at 1488, while the S&P's settled down 0.40 pts at 1125.80.

Weekly Recap:   Last week was one of confusion on the part of investors and the results showed, with all three major averages losing ground. The week began with concerns about the Fed "being behind the curve" and needing to raise rates rapidly, to concerns that the economy was not growing as fast as thought and talk that the Fed may not raise rates this year as much as previously expected. In the end, the Fed did the expected 1/4 pt hike and the market sold off after the fact.

In fairness, some earnings warnings hurt the market late in the week. A number of small semiconductor firms warned on Thursday, driving that sector sharply lower. Being a leading sector, the SOX pulled the overall market down for the day. Earlier in the week, both Wal-Mart and Target lowered their guidance for June same-store sales. A slowdown in June consumer spending was also seen in a soft auto sales report on Thursday. And finally, June non-farm payrolls were less than half the expected gain. It was not a weak number and is consistent with 4% real GDP growth, but it nevertheless raised questions about the strength of economic growth.

For the week, the Dow lost -0.9%, the S&P 500 finished -0.8% lower and the Nasdaq fell -0.9%. The small cap Russell 2000 finished even. Next week should be relatively quite, with many traders likely to extend the three-day weekend. The economic calendar is very light, with ISM Services on Tuesday, Jobless Claims on Thursday and Wholesale Inventories on Friday.

The Revolving Credit Crunch:   The big event last week was the Fed announcing an increase in the fed funds target of 0.25% to 1.25%. It was widely expected, but the Fed also showed no panic towards raising rates rapidly, and noted that "with underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured."

Measured or not, interest rates are going to rise, and that will effect consumer borrowing. The only financial indicator that has been in a steady, unbroken rise over the last 20+ years has been consumer debt, specifically "revolving" debt like credit cards and auto loans. Federal Reserve data shows that in January 1980, total revolving consumer credit was $56 billion. That figure underwent a 14-fold increase by April 2004, to $751 billion. Thats a compound annual increase rate of 11.4%, far outpacing real GDP growth. And even as many lending rates declined sharply during the past three years as the Fed cut interest rates to below the CPI rate of inflation, the average credit card interest rate barely budged. The average assessed rate in 2000 was 14.8%, while in Q1 of 2004 it rate stood at 12.4%.

So what happens to debt bubbles when interest rates start rising? With the Fed raising the discount rate, banks and credit card companies have an excuse to start increasing consumer loan rates, and many have already done so. Obviously, many over-extended consumers are going to feel the crunch. Expect the bankruptcy rate to increase and consumer spending to decrease. And since the US is a consumer-driven economy, those changes canÕt be good news.

Using Options to Generate Income:   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 Peak Open Interest Indicator (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.

A review of some previous months' options activity illustrates how the indicator functions. February's expiration saw the OEX close at 564.88, only -0.90% from peak open interest at the 570 strike level. In March, the 550 strike held the most open interest. The OEX was once again attracted to that strike level, this time closing at 543.88, or just -1.15% away. In fact, over the past 15 months, only twice (November 2003, and March 2004) did the OEX close more than one percent away from its peak strike price on expiration day. Below is a table of the previous 15 months of data displaying this phenomenon.

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	530.00	534.34	+3.34	+0.63%
18-Jun-04	550.00	554.80	+4.80	+0.87%

For example, the April peak open interest settled at the 560 strike during the last week before expiration. We recommended opening a Bullish Put Spread on Tuesday, April 13th, selling the Apr 550 Put and buying the Apr 545 Put, for a $1.30 credit. Since the OEX closed at 554.94 on Friday, both of our options expired worthless and we captured the full credit, less commissions. We were only "in the market" for four days and realized a 26% return on the trade.

The POI strategy has been consistently profitable. In fact, over the past fifteen months, it has never had a loser in simulated options trading. Below are the results of our last five trades in real time. The average percent profit for the five trades (not including commissions) has been 26.0%. And we were only "exposed" to the market less than five days each month.

Expire	"Spread"	"Credit"	% Profit	Days Traded
20-Feb-04	Bullish Put	$190	38%	5
19-Mar-04	Bullish Put	$135	27%	4
16-Apr-04	Bullish Put	$130	26%	4
21-May-04	Bullish Put	$140	28%	4
18-Jun-04	Bearish Call	$55	11%	4

The POI system has a number of advantages over buying call or put options. Most options traders end up losing money due to the inherent difficulty of consistently being on the right side of the trade and the fact that options are "wasting assets". The POI strategy overcomes most of these disadvantages by:

• Accurately defining the range where the OEX will close at expiration.
• Reducing "market exposure" to one week or less.
• Consistently returning 15% to 25% on investment per month.
• Limiting downside risk by the use of "market if touched" stop orders.

The Premium Collapse Indicator (PCI) is similar to the POI in that it trades OEX and QQQ credit spreads. 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 OEX trades with no losers and 14 winning QQQ trades with just one loser. 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 sold some 500 S&P 500 futures contracts last week to bring their net short position to -8,078 contracts. Large Traders remained net short -27,365 contracts, with the entire offsetting net long position of +35,443 contracts held by Small Traders, the so-called "weak hands". For the Nasdaq 100 futures, Commercials bought some 900 contracts to bring their net long position to +3,884 contracts. Small Traders were net short -4,467 contracts in the Nasdaq. Commercial action in Dow futures saw the smart money sell some 300 contracts to bring their net long position to +6,766 contracts.

Commercial Hedgers were better sellers in the S&P's last week, while Small Traders were better buyers, although the amount of contracts traded was insignificant. 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 56.1%, while the percentage of bears was just 17.4%. The bullish ratio (bulls/bulls +bears) was 76.3%.

The latest AAII survey showed an increase to 57% bulls, and an decrease to just 16% bears. The bullish ratio came in at 78%, while the 4-week moving average remains high at 72%. 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 Tuesday. Friday's trading was light ahead of the 3-day weekend, with both the S&P's and the Naz forming narrow range days. Narrow range days, called "wimp" days are often transition points in the market trend. Both the NYSE TRIN-5 and Up Volume indicators triggered buy signals again on Friday, but the tech-heavy Nasdaq is still showing weakness. On the negative side, the Dow Transports fell 25 pts and turned the TRAN:INDU Ratio lower. The Transports had been leading the Dow higher, so it's reversal can be seen as bearish. On the positive side, the 10-yr T-Note yield dropped to 4.46%, its lowest level in two months. That had a positive effect on rate-sensitive stocks like the financials and homebuilders, but the suggestion of economic weakness pushed the techs lower. The NDX has support at the 1450-52 level, which is also its 50-day moving average.

SMT's Pivot Point Forecast; 1-2 Weeks:   Our Pivot Point RS indicator is on a sell 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 NEUTRAL zone. For Tuesday, resistance for the S&P's comes in at 1129 and then 1133. Support lies at 1122 and then 1118. For the Naz, resistance comes in at 1496 and then 1504. Support lies at 1480 and then 1471.

The Intermediate Term Outlook; 2-6 Weeks:   Wal-Mart Stores (WMT) is the world's largest company based on sales. WMT is a bellwether stock for the S&P 500 Index and is unique in that it often leads the benchmark index by two to four weeks. The chart below shows that WMT clearly diverged from the SPX when it started selling off after hitting a high back on June 8th. If the so-called summer rally is to take hold, we'll need to see WMT start working its way higher real soon.

Our Market Trend Indicator (MTI) generated a SELL signal last Thursday. For those who follow this indicator, we have switched to the negative beta index funds.

Good Trading!

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

Symbol	Current Price	52-week high/low	Short-term Target	1-week change
GLW	$12.71	$7.15 / $13.89	$14.50	-1.4%
VZ	$35.77	$31.10 / $40.25	$40.00	+1%
EXFO	$4.86	$2.55 / $7.20	$6.00	+9.1%
SBC	$23.80	$21.16 / $27.73	$24.90	+1.3%
BLS	$25.16	$23.15 / $31.00	$27.50	+3.5%
AVNX	$3.83	$2.55 / $7.57	$4.25	-7.3%
JNPR	$23.89	$12.10 / $31.25	$26.50	-1%
LU	$3.80	$1.59 / $5.00	$4.15	-6.8%
JDSU	$3.82	$2.60 / $5.88	$4.10	-7%

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

Hi-Tech Memory Cards Shaping the Digital Camera Sector

The new memory cards embedded in the latest digital cameras have allowed customers to shoot both videos and photos with the same device. The improvement in new memory card technology has provided many digital cameras to now offer much better image quality while at the same time add much faster processing times. The technology will have significant ramifications in the digital camera space, as some of the possibilities are quite exciting going forward.

One of the better features afforded by memory cards is its portability. Photographers can now go on a shoot over rugged terrain without having to carry a relative larger and clumsier piece of equipment like a camcorder. This is because they can now pack a much smaller digital camera that can capture both still photos and video which is just what many avid photographers have been clamoring for.

The latest improvements in the memory card technology have finally addressed the key issues with digital cameras. In the past the video clips inside of digital cameras only provide silent video and had a time limitation less than 30 seconds. The resolution was also very poor only filling less than 25 percent of television screen with a very jerky image when being replayed.

What has happened with the new memory card capabilities is that now the latest digital camera models can now offer videos that are unlimited in length. Even though it still doesn’t compare to a camcorder shoot most customers have really embraced the portability and improved video features. In fact, digital cameras are one of the best selling hi-tech products across the globe. The market is particularly strong in late spring for things like graduations. The summer season also is strong with many people taking vacations and of course the winter holidays always show very robust sales numbers.

The current digital camera limitations as compared to camcorder revolve around the storage, sound, and zooming capabilities. Images stored on the digital devices use memory cards instead of film. To maximize the amount of video a customer can get on a card the customer needs at least a 1-gigabyte memory card ranging from $200 to $300 in cost. These cards are reusable and their images can be transferred to hard drives. Conversely, the camcorder utilizes MiniDV tape. The price is much less with a 60-minutes cassette tap costing less than $5.

Sound and zooming features are also key differentiators. Digital cameras record in mono using tiny embedded microphones with lower quality than camcorders since they shoot in stereo. Most digital camera devices do not have the capability to zoom in and out while shooting video however camcorders can do so.

These limitations still have not dampened consumer enthusiasm for digital cameras. According to IDC research digital camera sales should show a 40 percent improvement in 2004 compared to 2003 with an estimated 70 million expected to be sold. The competition in this arena has started to become quite fierce led primarily by Sony and Cannon, which are the current leaders in market share. Their strength in the camcorder market allows these companies to apply their video expertise to the digital camera market segment. This knowledge should bode well for these two companies since video will be one of the key differentiators with these cameras in the future.

Look for memory cards to continue to improve along with better features being continually offered as the digital camera market continues to evolve. In addition, as this technology gets even better and more prevalent look for video cellphones to really start to take off and become the next big market winner.

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 JPM,J.P. Morgan Chase & Co MU,Micron Technology EBAY,eBay Inc AMZN,Amazon.comInc DIS,Disney (Walt) Co 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 CBRL,CBRL Group FE,FirstEnergy Corp PFGC,Performance Food Group NVS,Novartis AG ADS MKC,McCormick & Co 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 YHOO,Yahoo Inc TLAB,Tellabs, Inc JNPR,Juniper Networks EBAY,eBay Inc ALTR,Altera Corp MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 > MDI10 AND HIGH < SMAC5   WINDOW ^ click here ELY,Callaway Golf TRID,Trident Microsystems PFGC,Performance Food Group UDR,United Dominion Rlty Tr ALD,Allied Capital MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 < MDI10 AND LOW > SMAC5 1-2-3-4 ^ click here YHOO,Yahoo Inc TYC,Tyco Intl ALTR,Altera Corp AMZN,Amazon.comInc SOTR,SouthTrust Corp 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 BRL,Barr Pharmaceuticals FMT,Fremont Genl PFGC,Performance Food Group 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 JNPR,Juniper Networks EBAY,eBay Inc IWM,iShares Russell 2000 Index Tr SOTR,SouthTrust Corp NBR,Nabors Indus MAV20 >= 500000 AND CLOSE >12 AND SMAC5 > SMAC15 AND CLOSE < SMAC5 AND CLOSE > SMAC15 AND HIGH<HIGH1 AND CLOSE > OPEN   CROSS ^ click here KO,Coca-Cola Co AXP,Amer Express BRL,Barr Pharmaceuticals DHI,D.R.Horton COP,ConocoPhillips MAV20 >=500000 AND CLOSE>12 AND SMAC5< SMAC15 AND CLOSE> SMAC5 AND CLOSE < SMAC15 and LOW > LOW1 and CLOSE < OPEN REVIVAL ^ click here ABX,Barrick Gold PAAS,Pan Amer Silver BBX,BankAtlantic Bancorp 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 0 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 0 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 0 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 HNT,Health Net 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 0 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 SFI,iStar FinancialA 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 ESPD,eSpeed IncA PPP,Pogo Producing BORL,Borland Software 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 NYB,New York Community Bancorp CRL,Charles River Labs Intl MAV20 >=200000 AND CLOSE>12 AND LOW <= MIN40_1 AND VOLUME>2* MAV20 AND CLOSE > OPEN   REVERSALS ^ click here PENN,Penn National Gaming 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... NEXM (Long) - Chart of the Week Larry Swing Analysis:   NEXM has broken out of a trading range, and now has very bullish technical studies: Positive Money Flow A MACD breakout after a long period of the MACD slowly trending towards zero. A volume surge during the stock’s breakout A completed double bottom pattern, with a higher low a