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WEEKLY OUTLOOK, July 21
By Jody Osborne, Optionetics.com
7/21/2003 7:00:00 AM

http://www.optionetics.com/articles/article_full.asp?idNo=8735

The Dow ($INDU) made it three weeks in a row by adding 0.75 percent; but both the S&P 500 ($SPX) and the Nasdaq ($COMPQ) saw lower prices. We are right in the heart of second quarter earnings season, which has created day-to-day volatility. In fact, the major market indices gained ground both Monday and Friday this past week, but it wasn’t enough to erase the bearish moves in the middle. The Naz saw the largest losses among the big three indices, giving up 1.47 percent on the week. However, the small cap Russell 2000 Index ($RUT) saw even stronger declines, falling 1.90 percent. This is a possible sign that the overall market is in store for some profit taking. Another negative sign was the SPX’s inability to close above 1,000. For two straight weeks, the SPX has moved above 1,000 intraweek only to end the week back below. Technically this is not a good sign and technicians view it as bearish in nature.

Although the past week had some economic news, the bulk of the attention was on earnings. This next week won’t be much different, with the following companies set to announce:

Monday: 3M Company (MMM), Altera Corp (ALTR), Cendant Corp (CD), Centex Corp (CTX), Check Point Software (CHKP), Corning (GLW), Hasbro (HAS), JDA Software (JDAS), Lexmark (LXK), Lincare Holdings (LNCR), Merck & Co (MRK), Novellus Systems (NVLS), Sanmina (SANM), Southwest Airlines (LUV), Texas Instruments (TXN), webMethods (WEBM)

Tuesday: Abgenix (ABGX), Activision (ATVI), Amazon.com (AMZN), America West (AMA), Ameritrade (AMTD), Amgen (AMGN), Ariba (ARBA), Ask Jeeves (ASKJ), BJ Services (BJS), Boston Scientific Corp (BSX), Broadcom (BRCM), Checkpoint Systems (CKP), Chordiant Software (CHRD), CNET Networks (CNET), Colgate-Palmolive (CL), DoubleClick (DCLK), Earthlink (ELNK), Fiserv (FISV), Handspring (HAND), Keynote Systems (KEYN), Lattice Semi (LSCC), Linear Tech (LLTC), Meridian Gold (MDG), Metro-Goldwyn-Mayer (MGM), Millennium Pharmaceuticals (MLNM), RadioShack (RSH), Retek Inc (RETK), Schlumberger (SLB), Sepracor (SEPR), Siebel Systems (SEBL), Storage Tech (STK), Sun Microsystems (SUNW), Tellabs (TLAB), United Parcel Service (UPS), Vitesse Semi (VTSS), WellPoint Health Networks (WLP)

Wednesday: AdvancedPCS (ADVP), Affymetrix (AFFX), AFLAC Inc (AFL), Anheuser-Busch (BUD), AOL Time Warner (AOL), AT&T Wireless (AWE), BellSouth Corp (BLS), Blockbuster (BBI), Broadvision (BVSN), Business Objects (BOBJ), Chiron (CHIR), Cirrus Logic (CRUS), Citrix Systems (CTXS), Copper Mountain Networks (CMTN), Cytyc Corp (CYTC), Eastman Kodak (EK), Electronic Arts (ERTS), Electronic Data Systems (EDS), F5 Networks (FFIV), Foundry Networks (FDRY), GlaxoSmithKline (GSK), GlobalSantaFe Corp (GSF), Kimberly Clark (KB), Lam Research (LRCX), Lucent Tech (LU), Macromedia (MACR), McLeodUSA (MCLD), Micromuse Inc (MUSE), Molex (MOLX), New Century Financial (NCEN), Overture Services (OVER), Qualcomm (QCOM), RealNetworks (RNWK), Schering-Plough (SGP), Symantec (SYMC), Boeing (BA), Veritas (VRTS), Wyeth (WYE)

Thursday: Adolph Coors (RKY), Advanced Fibre (AFCI), Advent Software (ADVS), Alltel Corp (AT), American International (AIG), AmeriSourceBergen (ABC), Archer Daniels Midland (AMD), AT&T (T), Baker Hughes (BHI), Barnes & Noble.com (BNBN), Bausch & Lomb (BOL), Becton, Dickinson and Co (BDX), Biogen (BGEN), Biosite Inc (BSE), Black and Decker (BDK), Bristol-Myers Squibb (BMY), Burlington Resources (BR), Conexant Systems (CNXT), Cooper Industries (CBE), Critical Path (CPTH), DaimlerChrysler (DCX), E-Loan (EELN), eBay (EBAY), Eli Lilly (LLY), Flextronics (FLEX), Gateway (GTW), Goodrich Co (GR), Interactive Data Corp (IDC), International Paper (IP), JDS Uniphase Corp (JDSU), KLA-Tencor (KLAC), Level 3 (LVLT), Lockheed Martin (LMT), McKesson Corp (MCK), MedImmune (MEDI), Newport Corp (NEWP), Nortel Networks (NT), Office Depot (ODP), Raytheon (RTN), Reebok (RBK), Safeway (SWY), Sapient (SAPE), SBC Comm (SBC), Siemens AG (SI), Silicon Graphics (SGI), Sony (SNE), Starbucks (SBUX), Dow Chemical (DOW), Verisign (VRSN), Wellman (WLM)

Friday: Cummins (CUM), Gene Logic (GLGC), Nucor (NUE), T. Rowe Price (TROW), Weyerhaeuser (WY)

Obviously, there will be plenty of earnings data to digest, with sector leaders having a larger impact on major market indices. Traders sent stocks higher during the last three to four months in anticipation of stronger earnings and economic conditions the second half of the year. If corporate America is not optimistic about the future, it could lead to lower prices. The same holds true for economic releases, though this week will be light on this front. Below are the reports set for release this week:

Monday: The Conference Board Leading Indicators

Tuesday: Chain Store Sales Snapshot

Wednesday: ABC News/Money Magazine Consumer Comfort Index, MBA Mortgage Applications Survey

Thursday: Monthly Mass Layoffs, Jobless Claims

Friday: Durable Goods, Existing Home Sales, New Homes Sales

The CBOE Market Volatility Index ($VIX) has been able to maintain above the key 20 level for months now. This is a bullish sign because it shows a degree of fear present from traders. If the VIX were to move below 20, it could signal a market top and a significant correction. However, we have been looking for this breach for weeks now and it still has not occurred. Nonetheless, the VIX closed just below 22, leaving it within striking distance of 20.

Now that July options expiration is behind us, it’s time to make adjustments (if necessary) on certain strategies. For example, if you own calendar spreads, it is time to sell the new front month option to bring in more premiums. Option expiration weekend is also a good time to take a good look at your trading account to identify what trends and/or mistakes have been made.


Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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