European Bank Mergers Spur Buying

Also on the bullish side of the ledger this morning, Lehman Brothers has
increased its recommended exposure to US stocks from 39% to 50%, and Merrill
Lynch has added Hewlett-Packard (HPQ) to its Focus 1 list. On the bearish side,
Wal-Mart (WMT) said its sales last week were at the low end of the range, and
Healthsouth (HRC) once again lowers guidance for 2003, saying it expects to earn
$.55 – .57/share, down from the consensus of $.61.

Currently, DJI futures are up 45.0, S&P futures are higher by 5.20, and the
Nasdaq 100 futures are up 6.50. In Europe, the Ftse 100 is up 36.40 points or
.94%, the DAX is up by 47.93 points or 1.56%, and the CAC40 is up 56.84 points
or 1.85%. Asia had another bad day, the Nikkei dropping 65.13 points or .76%,
and the Hang Seng fell 71.97 points or 74%. Interest rate futures are slightly
higher, the dollar is mixed, gold is slightly higher, but crude futures are up
sharply, with the January contract gaining $.60 to $29.04.

Friday’s action almost put all of the major indices right on their 50-day moving
averages. The DJI closed the week at 8433.85, and its 50-day MA comes in at
8408.6. The S&P 500 closed the week at 889.50, and its 50-day MA comes in at
888.89, the Nasdaq Composite closed the week at 1362.4 and its 50-day MA comes
in at 1345.8, and the NDX closed at 1005.9, its 50-day MA comes in at 1002.62.
This should make things might interesting this week (throw December expiration
in there as well), and of greater interest (to me) is that the November lows
are now in sight. If the bulls are going to keep this thing going, those lows
will have to be held AT ALL COSTS — or the “higher lows since October” argument
is shot.

I expect the early bullishness this morning to fade quickly, and for the
above-mentioned levels to be tested today. How they weather these tests will set
the tone for the rest of the week (or is it weak?).

Volatility

Friday the VIX jumped 1.3 to 32.11 as it seesaws through the 200-day
moving average. The VXN slipped .13 to 50.92, and the QQV lost 40 to 42.59.

Update: (12/13/02)

GILD — We liquidated our January 40 calls at $.70, a $.90 loss. The
position is closed.

New Recommendations

DIA – Sell half of the December 80/84/86/90 call condor at $3.00 to
close.

PG — Buy another 25% of the April 75/85 put spreads (buying the April 85 puts,
selling the April 75 puts) at $2.00.

Working Orders (Old Recommendations)

KSS — Sell half of our January 50/60 put spreads at $5.00 (to close).

QQQ — Subscribers short the January 23/26 call spread at $1.50 (25%), leave an
order in the market to purchase the spread at $1.50 to close the trade.

Buy-writes

None.

Proxy buy-writes

DYN — Long the January 15 calls at $3.20 — left over from proxy buy-write
(50%). Left for dead.

Complex Strategies

GILD — Long the January 40 calls at an average price of $1.60 (50%).
Sold at $.70 12/13/02.

HD — Long the January 25 calls at $2.00 (25%).

Call Spread Positions

CIEN — Long the January 5/7.5 call spread at $.05 (25%). Sold
at $1.05 12/12/02.

DIA — Long the December 80/84/86/90 call condor at $1.20 (25%).

QQQ — Short the January 23/26 call spread at $1.50 (25%).

Put Positions

None.

Put Spread Positions

BAC — Long the January 60/70 put spread at $2.90 (25%).

KSS — Long the January 50/60 put spread at $2.475 (50%).

PG — Long the April 75/85 put spread at $2.50 (25%).