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Daily Newsletter, Tuesday, 09/23/2003

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The Option Investor Newsletter                 Tuesday 09-23-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Back to the Future
Futures Markets: Correction
Index Trader Wrap: Dollar firming sees leisurely advance
Market Sentiment: More of the same


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      09-23-2003           High     Low     Volume Advance/Decline
DJIA     9576.04 + 40.60  9583.48  9511.41 1.60 bln   2002/1189
NASDAQ   1901.72 + 27.10  1901.73  1875.15 1.86 bln   2069/1201
S&P 100   516.12 +  2.81   516.61   512.19   Totals   4071/2390
S&P 500  1029.03 +  6.21  1030.12  1021.54
W5000    9993.48 + 65.70 10000.16  9923.72
RUS 2000  519.36 +  5.71   519.49   513.65
DJ TRANS 2800.38 + 21.20  2804.13  2779.70
VIX        19.47 -  0.18    19.97    19.31
VXN        26.98 -  0.96    28.04    26.90
Total Volume 3,735M
Total UpVol  2,702M
Total DnVol    956M
52wk Highs  606
52wk Lows    15
TRIN       0.90
NAZTRIN    0.43
PUT/CALL   0.85
************************************************************

Back to the Future

The markets closed almost exactly where we closed last Tuesday.
After an entire week of thrills and chills we are right back
where we were last week. Literally the Dow missed it by 7 points,
S&P by .29 of a point. The Nasdaq was the star performer with a
+15 point gain. The gains were less than the losses yesterday
so despite the green close we are still down for the week.
Relief bounce or dip buy is still undetermined. The Nikkei was
closed today and as the source of our Monday weakness all eyes
will be on the Japanese index tonight.

Dow Chart




Nasdaq Chart




The only economic report today was the Weekly Chain Store Sales
which fell -1.8%. Analysts attributed the loss of sales to the
hurricane, the monthly paycheck cycle and falling numbers of
tax rebate checks. Last week they were claiming the underlying
strength in retail sales was due to the hurricane and buying
of building materials. They also said it was natural for a
slump after a period of small growth. While I agree with all
of these things isn't it amazing how the excuses come pouring
out whenever there is an estimate miss? Wal-Mart held up the
sector today with comments that sales were tracking at the
high end of estimates.

The real economic report today was an earnings warning from
Verizon. The company said its 2003 earnings would fall short
of prior estimates due to weak demand for services and rising
labor contract costs. Verizon is the largest phone company and
the weak demand could be signs the recovery is not gaining
speed. They are seeing increased demand for wireless services
as many customers switch to cell phone only and cancel existing
land lines. It expects to add 4.5 million subscribers in 2003.
Can you hear me now? Good for Verizon if you can and that
commercial has new users flocking to the cell phone business.
Unfortunately they have to constantly update their cell
infrastructure while their expensive land lines are going
dormant. It is a good news, bad news joke that will eventually
benefit shareholders once the trend stabilizes. Still the
other phone companies were weak today on fears that what is
happening to the big guy will probably impact the smaller
fish as well.

Paychex reported a +6% rise in earnings due to a +24% spike in
payroll services. While several high profile analysts were
quick to say this was an indicator of a jump in hiring I beg
to differ. I find it hard to believe that there was a 24% jump
in employment this quarter. The economic numbers just do not
show it. I believe their increase was due to a continued drop
in jobs as small businesses cut out the clerical accounting
help in favor of using a cheaper payroll service instead. It
is just another in a long line of cost cutting measures to
keep the doors open. I am sure a lot of it was due to their
beefed up marketing campaign as well but that still supports
the corporate cost cutting scenario.

Dell may be about ready to take a page out of the Gateway play
book. A Reuters report said Dell may be laying the groundwork
to enter the flat screen TV market place, digital music players
and handheld computers. Dell would love to get into the high
dollar flat screen TV market like Gateway and then take on
the big boys at their own game. Dell is the master at turning
the manufacturing process into a pure commodity driven model
with just in time shipping of components assuring the lowest
price on a daily basis. They maintain a constant stream of
price quotations from suppliers and because of Dell's volume
the suppliers will cut their own profits to the bone to get
the deal. Once Dell gets into the flat panel TV business the
prices should start dropping quickly. The price war could be
drastic.  Dell was up on the news and nearing a 52-week high
at $35. Would the last one out at Gateway please turn off the
lights.

The Nikkei was closed today and the US markets had to find
their own way with no guidance from Japan. Regardless of the
minor market gains today the dollar/yen fight is not over and
it will come back to bite us. The Yen hit a three-year high to
the dollar on Tuesday and comments from Japan would indicate
it could go higher. The problem is the imbalance of trade and
the US debt. If we buy a Japanese car the car company gives
the US dollars to the Bank of Japan in exchange for Yen to
pay their employees and suppliers. Normally a bank would then
sell the dollars on the open market and buy back yen to replace
the ones given to the car company. This cheapens the dollar
and raises the value of the Yen and balances the currencies.
However, to avoid this the BOJ has been buying US bonds with
the dollars which effectively takes them out of the market
and provides the US with a willing lender to support our
deficit. This keeps interest rates down and the US functioning
normally. It does not hurt Japan whose Yen is pegged to the
dollar to keep those dollars from reentering the market.

The current problem comes from a strong rumor that the Asian
countries are becoming increasingly wary of the US debt as the
deficit rises. The Democrats announced today that the Iraq
action could cost $400 billion or more and drive the deficit
to even higher levels. Several analysts have said they expect
a $1 trillion deficit in 2004. With a trade war heating up and
potentially high tariffs being discussed for Asian goods the
worry is that Japan could stop buying US bonds. Since 46% of
our bonds are purchased by overseas countries with Japan being
a major portion of that number, any drop in purchases could
drive up interest rates. Considering Japan is one of the
largest US bond holders at over $500 billion according to
some estimates they could make the dollar/yen problem even
worse if they sold bonds and then sold the dollars in the
marketplace. China would love to jump on the wagon as they
have been buying something like $120 billion a year of US
debt. Together they have a big club over the US economy. If
they wanted to resort to financial terrorism or react to any
new tariffs they could dump bonds/dollars and our interest
rates would rocket to new highs and stop our recovery in its
tracks. While they are not likely to do that because they A)
have no other place to invest the money and b) depend on our
dollars to finance their retail trade. They could exercise
the threat of it to gain concessions from us. In order to do
this they might tighten the purse strings just enough to get
our attention. That is what traders are worried about. The
US debt market is already heavy with the massive debt
offerings (corporate and government) and any reduction of
buying from Asia could be enough to offset the delicate
balance. Stay tuned.

The market recovery today was branded as new money coming
into the market to buy the dip. It was also speculated that
it was end of quarter window dressing by funds. Whatever the
reason the Dow retraced almost exactly 50% of its Monday loss
which would have been 9576. It closed at 9571. The Nasdaq was
much stronger and came within five points of retracing 100%
of the drop. Internets, chips and biotechs all rose with
Internet stocks surpassing the Friday levels. Other sectors
that were strong included hotels, gaming and airline stocks.
AMZN rose to nearly $51 on no real news and dragged YHOO
along with it. Adding to the upbeat markets was a rise in
the hotel and gaming stocks with FS, HOT, MAR, HLT hitting
new 52-week highs. The only really negative sector was
defense after there were some negative comments about the
procurement process having run its course. LMT and GD were
two of the biggest losers.

The bottom line for me was an apparently successful day for
the markets. They shook off the panic drop from yesterday and
moved back on the attack again. After an initial bounce at
the open the indexes sold off and tested yesterday's lows
but the test was brief. We did not rocket off the bottom
but the trend was positive and gained speed on short covering
when the Dow broke the 9550 level to the upside. The bounce
was short lived as heavy sell volume appeared just before
the close but the bulls still managed a respectable showing.

Wednesday has no material economic reports with Mortgage
Applications the only number to be released. That should
show an increase with the drop in rates. The key will be the
Nikkei tonight. Tonight is the first time it has traded since
the -400 point drop on Sunday night. If it rebounds off the
bottom then we could expect our markets to open up in relief
that the potential bond bomb has been diffused. If funds are
really marking up their portfolios for the end of the quarter
statements then we are likely to go back to the recent highs
tomorrow. With a heavy slate of economics on Thursday they
will probably want to get in early and hope for short covering
to push them higher before any bad news. The last two days of
the week may not see any buying as the major earnings warnings
come to a close. That would be the prime time to confess before
the real earnings begin in October.

For a potentially bad period in the markets this week started
off bad but recovered well. The volume was light but the
internals were strong with up volume three times down volume.
For tomorrow Dow 9600 will be resistance as well as Nasdaq
1905. The S&P has resistance at 1032 and again at 1040. The
rebound is confounding the bears and the bulls alike. Even
the most adamant bulls feel like we should see a multiday
bout of profit taking to insure a better base for later but
the market is refusing to drop. Dip buying is alive and well
and shorts are paying dearly for their conviction. AMZN rose
nearly +3 on volume of 20 million shares. It is in the top
ten stocks with the most short interest and those shorts
are getting squeezed. I have been telling people this week
not to get married to any short positions just because this
week is marked with big red Xs on the calendar. What you
believe about market direction is not important if the market
is going against you. Capital preservation is important. The
Dow and the Nasdaq are continuing to build monster bearish
wedges but showing no signs of breaking down. Based on the
charts above we could easily test 9700/1925 on the next uptick.
The charts are painting a very tantalizing scenario for shorts
and luring them back into the market on every downtick only
to be surprised over and over again.

With this being the 3rd year of a presidential term and the
administration doing everything possible to juice the economy
I firmly believe we are going to see a continued bullish tone
to the market. I just expected a normal October dip from mutual
fund portfolio rebalancing first. But then, it is not October
yet and I can still rationalize the end of quarter markup
scenario as the reason for the bounce. I just keep wondering
what reason I am going rationalize next week.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


***************
FUTURES MARKETS
***************

Correction
Jonathan Levinson

The markets corrected part of yesterday’s moves, with gold
declining, treasuries and equities advancing, as the US Dollar
Index continued to struggle below resistance.

Daily Pivots (generated with a pivot algorithm and unverified):



Note regarding pivot matrix:  The support, pivot and resistance
levels above are derived from the high, low and closing price
levels by a simple mathematical formula.  They are not intended
to be predictive of market turning points or to serve as targets,
but rather represent the range retracement levels as generated by
the pivot algorithm.  Do not think of them them as market "calls"
or predictions.  Like any technically-derived indicator or price
level, the pivot matrix values should be regarded as decision
points at which to evaluate current market conditions.  Visit us
in the Futures Monitor for our realtime views of the various
markets covered here.


15 minute chart of the US Dollar Index




The US Dollar Index spent the day struggling with the 94
resistance level after an initial selloff on Europe’s open last
night.  The low of the move around 4AM coincided with a high in
December gold at 389.90, and the bounce from the 93.50 level
brought gold down.  The CRB spent the day in positive territory,
closing above 240.32 +.32, led by cocoa futures, up 6.65%, live
cattle and cotton futures.

Daily chart of December gold




December gold spent the day in negative territory, giving up its
overnight gains despite a positive move in the gold miners and
closing lower by 2.30 at 386.  The move did not alter the picture
from yesterday, with the daily chart oscillators trying to turn
up on to buy signals and the price respecting the upper
resistance on the bear wedge we’ve been tracking.  Support is now
just above 380, with today’s low of 384.40.  The HUI added .09 at
208.03, XAU +.78 at 97.41.

Daily chart of the ten year note yield




Treasuries opened in negative territory but, perhaps assisted by
a generous 8.75B in overnight repurchase agreements from the Fed
(intervention money), bonds reversed, finishing the day at their
highs.  The TNX dropped .27 bps to close at 4.214%, but it wasn’t
enough to do more than ease some of the short term overbought
pressure on the yield after yesterday’s gap up.  The wedge
breakout is still in play, preliminarily confirmed by the daily
chart oscillators.  It continues to appear that we are watching
the beginning of a reversal in the recent treasury rally.


Daily NQ candles




The NQ had a good day, reversing the better part of yesterday’s
decline and confirming trendline support.  For the day, NQ added
23.50 or 1.72% to close at 1389.  The daily chart oscillators
remain in downphases, but until the rising trendline fails, the
risk of a new upphase breaking out is significant.  I’ve
highlighted the bearish stochastic divergence from last week more
as an exercise than anything else, as it appears to have played
out with yesterday’s drop.

30 minute 20 day chart of the NQ




The NQ continued its climb off yesterday afternoon’s lows as
expected, doing its best to fulfill the 30 minute chart
oscillator upphase but appearing to fail early in the afternoon.
The oscillator printed a sell signal which was subsequently
partially “undrawn”, as oscillators are sometimes wont to do, and
the uptrend resumed until it ran into resistance at the close.

The cycle picture appears unchanged from yesterday.  The week’s
highs have not been approached, let alone tested, and the 30
minute chart upphase should run into trouble when it reaches the
boundaries set by the nascent daily chart downphase.  This might
have occurred before the close, or it might occur tomorrow.  But
so long as Monday’s opening highs remain intact, I’ll believe
that we’re watching a broad top forming for the NQ and its peers,
as the daily chart oscillator continues to roll over.  Resistance
is currently 1392 within what appears to be a small bear wedge,
with support at 1380.  A break below this level projects to 1360,
which could be sufficient to kick off the broader downphase on
the longer term cycles.

Daily ES candles




The picture is the same on the ES, with the shorter cycles
nearing the point at which they'll join the daily chart
oscillator in overbought territory, from which point short
entries will have the greatest chance of succeeding.  The ES
retraced less of Monday's drop than the NQ, once again lagging
the more speculative and overpriced NQ.  This has been the case
throughout the rally, which has looked like a bearish indicator
to my eyes, but others may differ.  Volume roughly matched
yesterday's volume, which looks like a sign of distribution on
this bounce.

For the time being, the 30 minute chart upphase is intact, with
support below at 1016, 1020 and 1025.

20 day 30 minute chart of the ES




Note from the 2 day 150-tick ES chart how the short cycle
downphases bottomed with higher price lows throughout today's
trading.  This is the result of the ongoing upphase on the 30
minute chart oscillators above.  Bulls can buy short cycle
bottoms so long as the 30 minute chart upphase is intact, and
bears will begin to sell short cycle tops once that longer cycle
downphase commences.  Given the downphase commencing on the
longer daily chart oscillator (and on the weekly, not shown),
bears should begin to have the advantage.

Bear wedge resistance on the 30 minute chart comes at 1030,
support at 1025.

150-tick chart of the ES





Daily YM candles




Nothing to add on the YM.

20 day 30 minute chart of the YM




Tomorrow will hopefully show whether today's corrections were
indeed counter to the trend of higher gold, lower treasuries and
lower equities, or whether the picture is about to shift again.
Keep an eye on your stops, and join us in the Futures Monitor as
we report on and trade the action in realtime.


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********************
INDEX TRADER SUMMARY
********************

Dollar firming sees leisurely advance

The major indices recouped the bulk of yesterday's losses as the
U.S. Dollar Index (dx00y) 94.12 +0.28% firmed against major
foreign currencies after this weekend's G7 meeting.

After one of the biggest declines in a year on Monday, the dollar
was little changed against major currencies.  The greenback was
flat at 112.22 yen after sinking to 110.04 overnight, while the
euro dropped 0.2% to $1.1445, with some overseas analysts
optimistic that a weaker dollar might have the European Central
Bank (ECB) lowering interest rates.

Stocks recovered from a mid-morning dip into negative territory
as President Bush addressed the United Nations in a preliminary
attempt to gain financial support for its rebuilding efforts in
Iraq.

As President Bush was laying the groundwork for eventual UN
financial support for rebuilding Iraq, a broad downgrade in
defense-related stocks by Smith Barney after a poll showing a
drop in public support for increased defense spending has the
sector in the final innings of government spending, which the
firm feels could peak as early as 2005.  The broad downgrade had
the PHLX Defense Index ($DFX.X) 172.77 -1.6% leading today's
sector loser list, and bucking a broader bullish session for the
bulk of sectors we follow.

The North American Telecom Index (XTC.X) 526.75 -1.03% was the
only other sector to find a loss of 1% or more after baby bell
Verizon (NYSE:VZ) $33.13 -4.55% lowered its full-year 2003
earnings forecast due to pressures on its domestic telecom
business stemming from regulatory constraints and the economy,
weak demand for business voice and consumer landline phone
services.

The CBOE Internet Index (INX.X) 164.18 +2.45% nudged out the Disk
Drive Index (DDX.X) 136.81 +2.4% for today's sector winner with
online retailer Amazon.com (NASDAQ:AMZN) $50.44 +6.26% surging
above the $50.00 level for the first time since June of 2000.
The Internet HOLDRs (AMEX:HHH) $44.93 +3.05% closed at a 52-week
high on volume of 852,000 shares, after trading upwards of
979,000 shares in yesterday's session.  I take note of these
volume patterns as it relates to NASDAQ market site statistics
showing average daily volume from August 15 to September 15
running at 211,390 shares, where short interest has been growing
with a notably high 12.57 days to cover.  The bullish vertical
count on the HHH from its point and figure chart was developed in
November and has not yet negated its bullish vertical count of
$50.50.

Online auctioneer eBay (NASDAQ:EBAY) $55.36 +2.31% rebounded from
both a 21-day SMA and 50-day SMA at $54 and may be a stock that
attracts Internet bulls with a bullish vertical count of $123.00,
which would only be negated with a trade at $50.00.  The stock
has been consolidating between $50 and $58 since mid-July and may
now have started to digest its impressive move from October's
triple-top buy signal at $31.00 (post split) where the stock's
PnF chart didn't see a 3-box reversal until the stock recently
achieved a 52-week high of $58.93 on July 24.  eBay is still off
its all-time high of $63.75 (post split).

The Airline Index (XAL.X) 63.62 +2.15% was also among today's
sector gainers, helped in part by component JetBlue Airways
(NASDAQ:JBLU) $60.44 +4.27% jumping to a new 52-week high on
heavy volume of 9.5 million shares.  I thought the volume
suspicious considering average daily volume at just over 862,000
shares and noted this evening that the stock was added to the S&P
MidCap 400 Index today, replacing Hispanic Broadcasting, which
was acquired by Univision (NSYE:UVN) $35.20 +0.77%.  It should
also be noted that JetBlue (JBLUE) was sued by the Transportation
Security Administration for sharing confidential customer
information with a government contractor that is testing federal
passenger profiling software.

Pivot Analysis Matrix -




A wall of green support correlations presents itself tomorrow at
the WEEKLY S1 levels, with the OEX, NDX, QQQ and BIX.X the
indices in our matrix that managed to hold a close above their
WEEKLY Pivots, so I've marked the QQQ WEEKLY Pivot and DAILY
Pivot as an area that we might look for early support to hold on
a mixed open.

In today's market monitor, I profiled a bullish DAY TRADER trade
in the QQQ at $34.12, target $34.49, which was a bit aggressive,
but I want to note here how $34.29 (the WEEKLY Pivot) was a
constant level of resistance up until today's bond market close.
The only reason I profiled a bullish DAY TRADER trade in the QQQ
was the Dollar Index (dx00y) 94.18 +0.35% was showing a firming
dollar trade, and seemed to find a somewhat relieved market.

I can't say that I feel the dollar's decline or turmoil is over
with just today's trade and will note that the QQQ has now filled
its gap lower from Monday morning to Friday's close with today's
trade and there's still work to be done for bulls to get a
continuing rebound building higher, with support looking firm at
the WEEKLY S1s.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - 5-minute intervals




QQQ $34.29 got a lot of attention today, and while our day
trader's 5-minute interval retracement technique also marked the
$34.29 level as an intra-day resistance level, I'm thinking it
was the WEEKLY Pivot that created the bulk of today's resistance.
All the QQQ did today was fill its Monday gap lower, where a
short-term trader may have looked for an area void of near-term
supply get filled back to the upside.  With the NDX/QQQ the only
major indices to have closed above their WEEKLY pivots in today's
trade, today's intra-day observations of $24.29 resistance is
where traders (INDU/SPX/OEX) might look for some early index
support.

Enough intra-day observations, lets step back and look at the
daily interval chart, which has the QQQ back above our cloned
downward trend and WEEKLY pivot.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Interval




I sense the QQQ is going to have to be the "leading" index for
bullishness to pull the INDU/SPX/OEX above their WEEKLY Pivots,
and it may well be the Internet as a sector that drives the QQQ
to correlative resistance at $35.15-$35.17.  Support begins to
look firm at $33.73 as today's gains come as oscillators advise
caution, but may provide a swing-trade bull more confident
bullish entry back near $34.00, with WEEKLY S1 support at $33.73.
Just as a little dollar stability may have pressed some shorts to
cover today, a little dollar weakness could see a QQQ pullback to
the $34.00 level yet again.

Today's trade saw a net gain of 1 stock to a new point and figure
buy signal and has the narrower NASDAQ-100 Bullish % ($BPNDX)
edging up 1% to 81% and still "bear correction" status.  A
reading of 82% would have this index back in "bull confirmed"
status.  Millennium Pharmaceuticals (NASDAQ:MLNM) $16.50 +2.67%
is a stock in the NDX that I see giving a new point and figure
buy signal and boy its is a doozy!  Today's trade at $16.50 is a
"bearish signal reversed" and a popular pattern to look for a
short squeeze.  The pattern is described as needing a MINIMUM of
7 columns of alternating X's (demand) and O's (supply) where a
pattern of lower highs and lower lows is reversed to the upside,
where the eventual buy signal can trigger buying as distribution
that had been taking place now finds the stock void of sellers.

S&P 100 Index (OEX.X) Chart - Daily Interval




The OEX looks to find support at its WEEKLY S1 of 512 and MACD
still holding above its Signal.  The shorter-term 21-day SMA
still provides shorter-term momentum and bulls will be targeting
525 with support at 512.  Some bears may have taken yesterday's
dollar weakness as an opportunity to cover some positions, while
further bullishness above the WEEKLY pivot should lend itself to
further covering by bears.

Today's trade saw the narrower S&P 100 Bullish % ($BPOEX) see a
net loss of 1 stock to a point and figure sell signal with the
bullish % slipping to 86%.  Still "bull confirmed" status at 86%,
and would take a reversing lower reading of 82% to achieve "bull
correction" status.

S&P 500 Index (SPX.X) Chart - Daily Interval




Both the OEX and SPX percentage gains mirrored those found in the
S&P Banks Index (BIX.X) 308.18 +0.46%, KBW Bank Index (BKX.X)
897.93 +0.69%, Broker/Dealer Index (XBD.X) 623.52 +0.59% and S&P
Insurance Index (IUX.X) 274.23 +0.49%.  A slight decline in the
10-year YIELD ($TNX.X), which slipped lower by 2.7 basis points
to 4.214% didn't hurt.  Bulls would like more of the same (with
some dollar strength) to get a move going above the WEEKLY Pivot
tomorrow.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a
net loss of 2 stocks to point and figure sell signals as the
bullish % slipped 0.4% to 82.2%.  Still "bull confirmed" status
and would take a reversing lower reading of 76% to reverse into
"bull correction" status.

Dow Industrials (INDU) Chart - Daily Intervals




Four of the 5 most heavily price weighted Dow components found
gains today, with and offset weakness in the bells like T -2.27%
and SBC -3.76%, which traded lower with non-component Verizon
(V).

Dow very similar to SPX as it relates to WEEKLY Pivot as near-
term resistance, but a rising 21-day SMA, WEEKLY S1 and base of
our regression channel provide some formidable near-term support
at the 9,490 level.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU) and status remains "bull
confirmed" at 83.33%.

Jeff Bailey


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****************
MARKET SENTIMENT
****************

More of the same
- J. Brown

Investor sentiment continues to be strongly bullish as the
markets shrugged off another day of dollar fears.  Leading the
headlines was President Bush's address to the United Nations
asking for unity to rebuild Iraq.  The markets failed to react
one way or the other to his speech.

The biggest clue to investor's mindset could be the internals.
The advance decline numbers were positive once again with 18
winners for every 10 losers on the NYSE and 19 advancers per 11
losers on the NASDAQ.  Up volume was more than double down volume
on the Big Board and almost four times down volume on the NASDAQ.

As one trader commented today, we have a lack of willing sellers.
Until investors decide to unload shares and lock in some profits
the general trend should be a drift higher.  The resiliency in
the tech sectors has probably driven hair-pulling bears to
baldness.  We're still hearing comments about a return to a
bubble mentality as the Internets like AMZN and YHOO etch new
highs.

Tomorrow is pretty quiet on the economic front and we'll be left
to the current prevailing winds, which still point higher.



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

Market Averages

DJIA ($INDU)

52-week High:  9686
52-week Low :  7197
Current     :  9576

Moving Averages:
(Simple)

 10-dma: 9532
 50-dma: 9329
200-dma: 8676



S&P 500 ($SPX)

52-week High: 1040
52-week Low :  768
Current     : 1029

Moving Averages:
(Simple)

 10-dma: 1024
 50-dma: 1000
200-dma:  929



Nasdaq-100 ($NDX)

52-week High: 1406
52-week Low :  795
Current     : 1388

Moving Averages:
(Simple)

 10-dma: 1388
 50-dma: 1302
200-dma: 1139



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

Little change in the volatility or fear indices as investors
continue to show "no fear".

CBOE Market Volatility Index (VIX) = 19.49 -0.16
Nasdaq Volatility Index (VXN)      = 26.98 -0.96

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.86        556,650       476,000
Equity Only    0.74        478,215       352,383
OEX            1.29         10,498        13,529
QQQ            2.74         27,007        74,023


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.1    + 0     Bull Confirmed
NASDAQ-100    81.0    + 1     Bear Correction
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       82.2    + 0     Bull Confirmed
S&P 100       86.0    - 1     Bull Confirmed


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  1.08
10-Day Arms Index  1.14
21-Day Arms Index  1.05
55-Day Arms Index  1.02


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

            -NYSE-   -NASDAQ-
Advancers    1809      1959
Decliners    1016      1153

New Highs     141       257
New Lows       10         2

Up Volume   1057M     1443M
Down Vol.    525M      373M

Total Vol.  1591M     1852M
M = millions


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

! The COT Website has NOT updated their data since 09/09/03.

Commitments Of Traders Report: 09/09/03

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

No change in sentiment for the commercial traders here.  Meanwhile
small traders forked out a little more cash to increase both
their long and short positions.


Commercials   Long      Short      Net     % Of OI
08/19/03      404,665   455,381   (50,716)   (5.9%)
08/26/03      410,378   472,987   (62,609)   (7.1%)
09/02/03      417,973   482,392   (64,419)   (7.2%)
09/09/03      418,958   486,209   (67,251)   (7.4%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   18,486  -  6/17/03

Small Traders Long      Short      Net     % of OI
08/19/03      162,034    87,064    74,970    30.1%
08/26/03      170,424    76,967    93,457    37.8%
09/02/03      169,030    75,748    93,282    38.1%
09/09/03      176,401    81,444    94,957    36.8%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Commercial traders in the e-minis continue to pump up their
long positions.  The last numbers show the most bullish
posture in quote sometime.  Meanwhile the small trader has
rotated a little bit of money from short back to long.


Commercials   Long      Short      Net     % Of OI
08/19/03      296,971   235,779     61,192    11.5%
08/26/03      338,766   234,841    103,925    18.1%
09/02/03      347,724   224,011    123,713    21.6%
09/09/03      370,909   237,610    133,299    21.9%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
08/19/03       90,428   125,980   (35,552)  (16.4%)
08/26/03       52,131   120,853   (68,722)  (39.3%)
09/02/03       56,709   134,094   (77,385)  (40.6%)
09/09/03       59,692   130,270   (70,578)  (37.1%)

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Commercial traders are increasing their bets on the NDX
but they're still beating more heavily on a move lower.
Small Traders are also active with larger net positions
but they're still beating on the bulls.


Commercials   Long      Short      Net     % of OI
08/19/03       32,107     53,665   (21,558) (25.1%)
08/26/03       33,991     55,849   (21,858) (24.3%)
09/02/03       37,002     55,379   (18,377) (19.9%)
09/09/03       44,677     62,369   (17,692) (16.5%)

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
08/19/03       25,607    10,134    15,473    43.3%
08/26/03       26,108     8,864    17,244    49.3%
09/02/03       23,168    10,561    12,607    37.4%
09/09/03       28,788    13,370    15,418    36.6%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

No change in investor sentiment for the professional traders
here.  There is little change for the small trader but they
have bumped up their long positions a tad.


Commercials   Long      Short      Net     % of OI
08/19/03       21,088    18,984    2,104       5.3%
08/26/03       24,586    10,386   14,200      40.6%
09/02/03       25,462    10,447   15,015      41.8%
09/09/03       25,807    10,756   15,051      41.2%

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
08/19/03       15,717     9,143    6,574     26.4%
08/26/03       14,115     5,592    8,523     43.2%
09/02/03        6,629    13,402   (6,773)   (33.8%)
09/09/03        7,429    13,796   (6,367)   (30.0%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   8,523  -  8/26/03

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


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The Option Investor Newsletter                  Tuesday 09-23-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: UTX
Dropped Puts: None
Call Play Updates: AMGN, AMZN, AXP, APOL, AU, ERTS, LEA, LUV, MERQ, SLB
New Calls Plays: IBM
Put Play Updates: KKD, GILD
New Put Plays: CCMP


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

United Technologies - UTX - cls: 79.26 chg: +0.83 stop: 77.20

Times up!  We're going to call it quits on UTX.  The stock has
been consolidating sideways between $77 and $80.50 for a month.
That's not necessarily bad and if you have the patience feel free
to keep the play open.  The fundamental picture should be
positive for UTX but traders may do better waiting for a breakout
above $80.50 before putting their money to work here.  The
company does have some defense spending exposure so we're
surprised the stock was up after the Smith Barney comments today.
It will be our luck that we'll close UTX today and see it rally
strongly by the end of the week.

Picked on August 29 at $80.05
Change since picked:    -0.79
Earnings Date        07/17/03 (confirmed)
Average Daily Volume:     2.1 million
Chart =



PUTS:
*****

None


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********************
PLAY UPDATES - CALLS
********************

Amgen, Inc. - AMGN - close: 68.58 change: +0.12 stop: 67.50

Is this just a continuation of the pattern for which AMGN has been
known over the past year, where the stock trolls along near
support and then vaults higher?  Since peeling lower on the heels
of the Wachovia downgrade last week, the stock has been trading in
a fairly narrow range, hugging the $68.50 level, which is very
near the 50-dma ($68.30).  We can also see AMGN holding just above
both the long-term ascending trendline and the 20-dma ($67.77).
The Biotechnology index (BTK.X) is holding up fairly well, just
below resistance at the $500 level and if the BTK can break out,
then AMGN will likely power through the $70 level once again.
Aggressive traders should be able to establish favorable positions
on additional rebounds from the vicinity of $68, keeping a tight
leash on those positions with a stop at $67.50.  Traders looking
for some confirmation before playing will want to see a move above
$70.15, which is above last Thursday's intraday high.

Picked on September 16th at  $69.81
Change since picked:          -1.23
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     7.94 mln
Chart =


---

Amazon.com - AMZN - close: 50.44 change: +2.97 stop: 46.50*new*

Now that's actually a more powerful move than we were expecting,
but AMZN clearly proved that it has plenty of willing buyers on
Tuesday.  After just a bit of consolidation from Thursday's
strongly bullish move, AMZN shares exploded upwards this morning,
logging a 6.25% gain on huge volume of 20 million shares.  That
pushed the stock right to the top of its ascending channel and the
bulls are showing no signs of letting up.  In fact, with AMZN
closing at its best level since June of 2000, this Internet leader
may just be getting warmed up for the Holiday shopping season
ahead.  We want to give AMZN room to run higher, while at the same
time minimizing our risk in the play, so we're raising our stop to
$46.50, just under the 20-dma ($46.69).  A pullback into the
$47.50-48.50 area can be used for new entries, while aggressive
momentum traders can enter on further strength above $51.  Look
for next resistance near $54-55, at which point we would strongly
advise harvesting some gains.

Picked on September 18th at  $47.89
Change since picked:          +2.55
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     8.44 mln
Chart =


---

American Express - AXP - close: 47.01 chg: +0.39 stop: 44.49

The market wide rally was mostly lost on shares of AXP as the
stock continues to consolidate its recent gains above the $46
level.  Of course the rise in the banking indices was not very
strong and AXP out performed them both.  The sideways
consolidation above $46 is healthy and it provides an entry point
for new bullish positions before the next leg higher.  We think
that next leg could start soon.  AXP's management put out press
release on Monday stating that while Visa/MC will appeal the
court ruling last week, AXP believes the legal arguments are over
and AXP will pursue new banking relationships with the credit
card issuers previously unavailable to them.

Picked on September 18 at $47.08
Change since picked:      - 0.07
Earnings Date           10/27/03 (unconfirmed)
Average Daily Volume:        3.9 million
Chart =


---

Apollo Group - APOL - close: 67.34 chg: -1.06 stop: 64.00

Shares of APOL are consolidating recent gains but in a very
orderly fashion and bullish traders can use the slight pull back
as an opportunity to pick their entry point.  The daily
candlesticks look somewhat like a bullish flag formation and any
bounce off the $66 or $67 level looks good to us.  On the other
hand momentum traders might want to wait for a move above the
$69-70 levels.  News has been quiet on APOL but education stocks
are still getting positive press.  No change to our stop loss.

Picked on September 16 at $68.45
Change since picked:      - 1.11
Earnings Date           10/07/03 (confirmed)
Average Daily Volume:        1.9 million
Chart =



---

Anglogold Ltd. - AU - close: 41.39 change: +0.73 stop: 39.00*new*

Many have tried to call the top in the rise of gold and the gold
shares, but it hasn't arrived just yet.  Never underestimate the
power of a secular bull market (in gold stocks), especially when
it is being fueled by central banks around the world bound and
determined to devalue their own currencies.  The Gold and Silver
index (XAU.X) celebrated again on Tuesday, launching to a new
closing high above $97, and that seemed to lift shares of AU back
through the $41 level.  In contrast to Monday's price action
though, this time the stock held its gains and closed right at the
intraday high in a convincing bullish outside day formation.  AU
looks to be headed higher and traders that took advantage of that
latest dip in the $38-39 area are sitting on a nicely profitable
play.  Look to add new positions on a breakout to new highs or on
a pullback and rebound from above the 10-dma ($39.63).  Remember,
our upside target is $44, the site of the PnF vertical count.
We're raising our stop to $39.00 tonight, which will be below the
20-dma (currently $38.97) by tomorrow morning.

Picked on September 2nd at  $39.51
Change since picked:         +1.88
Earnings Date             10/30/03 (unconfirmed)
Average Daily Volume =       862 K
Chart =


---

Electronic Arts - ERTS - close: 96.10 chg: +1.90 stop: 93.00*new*

Up, up and away!  The gravity-defying performance by ERTS
continues.  The last three sessions have shown ERTS resist any
profit taking and trade sideways between $93-95.  Today's bullish
action in the markets was like a green light for the ERTS train
and it charged ahead with another 2 percent gain.  We're both
astounded and encouraged but readers must know that we're in
dangerous territory.  The stock is extremely overbought and new
positions are not to be considered lightly.  As a matter of fact,
we would not suggest them unless you're an experienced day trader
who can jump in and out pretty quickly.  Meanwhile the rest of us
who might be holding on to some gains need to plan on our exit
strategy.  Current levels are still a good place to take some
money off the table.  However, if you're hanging on for the ride
to $100, consider this.  The $100 level is a major psychological
number and there could be plenty of traders who have lined up
their own exits at $99.90, 99.75, 99.50 to try and beat the crowd
who might be planning to sell at $100.  That's why we're
suggesting that traders think about exiting in the $98.50-99.00
range.  Or let it ride and just keep cinching up your stop loss.
We're going to adjust our stop to $93.00, while the true channel
traders should probably bump theirs to $90, under the 30-dma
(which seems too low to us and a place to consider making new
entries).  In the last couple of days the ERTS press engine has
been busy.  ERTS announced plans to develop a "Battle for Middle-
Earth" game with the Lord of the Rings.  They launched the first
expansion pack for their popular Sims game.  They released the
Tiger Woods PGA TOUR 2004 game as well as the Sims Double Deluxe
and the NHL 2004 game.  Sounds like plenty of options for
Christmas.

Picked on August 28 at $89.06
Change since picked:    +7.04
Earnings Date        07/23/03 (confirmed)
Average Daily Volume:     3.3 million
Chart =


---

Lear Corp - LEA - close: 54.71 change: +0.75 stop: 53.25*new*

We're growing just a little bit concerned with the LEA call play.
The stock dipped back below the $55 level on Monday but managed
to bounce from the $54 mark Tuesday.  The bounce is encouraging
today but shares remain below $55 despite the market's rally.  We
probably shouldn't be too concerned.  Volume has been slowly
receding on the consolidation sideways and the rising simple 50-
dma allows us to inch up our stop loss to $53.25, which really
reduces our risk.  There has been no new headlines to report.
Traders might want to consider new positions over the $55 mark
(or over $56 if that makes you feel better).

Picked on September 16 at $54.05
Change since picked:      + 0.66
Earnings Date           10/17/03 (confirmed)
Average Daily Volume:        694 thousand
Chart =


---

Southwest Airlines - LUV - close: 18.20 change: +0.03 stop: 17.75

A quick look at the daily chart of the Airline index (XAL.X) and
it certainly appears as though some bears may have gotten trapped
by yesterday's decline and today's sharp rebound.  By the closing
bell, the XAL had recouped all of Monday's losses and it looks
poised for another breakout attempt above the $64-65 area.  Our
LUV play has behaved pretty much to script over the past week,
consolidating its recent breakout by coming back to confirm new
support near the $18 level and it also looks ready to continue its
ascent.  The past two days have seen pretty convincing rebounds
from the site of the 20-dma ($17.92) and another rebound from
above this level looks like a decent entry point into the play.
More conservative traders might want to wait for that rebound to
extend above the $18.50 level, which marks the top of yesterday's
gap down, before playing.  Remember, our initial target is for a
move up to $20 resistance, and we will likely need to see the XAL
break out in order to see LUV achieve our initial target.
Maintain stops at $17.75.

Picked on September 11th at  $18.36
Change since picked:          -0.16
Earnings Date              10/20/03 (unconfirmed)
Average Daily Volume =     2.56 mln
Chart =


---

Mercury Interactive - MERQ - cls: 50.14 chng: +0.94 stop: 47.65

While it isn't conclusive yet, it certainly looks like some bears
may have gotten trapped by yesterday's selloff and subsequent
rebound today.  Nothing about MERQ's chart setup has changed, as
the pattern of higher lows and higher highs remains intact.  In
fact, the pullback and rebound from the $49 area looks quite
healthy, as it confirms new support at the site of the recent
breakout.  Adding conviction to the rebound was the fact that
volume on Tuesday's rebound came in slightly stronger than the
selling volume of the prior two days.  Successive dips that find
support in the $48.50-49.00 still look attractive for opening new
positions, although momentum traders will likely want to wait for
a rally through the $52.25 level before initiating new positions.
Maintain stops at $47.65 for now, which is just below both the 20-
dma ($47.83) and the intraday low from last Monday.

Picked on September 14th at  $48.16
Change since picked:          +1.98
Earnings Date              10/15/03 (unconfirmed)
Average Daily Volume =     3.06 mln
Chart =


---

Schlumberger Ltd. - SLB - close: 50.70 change: -0.37 stop: 47.50

Just as we expected when we initiated coverage of SLB over the
weekend, the stock appears to be coming back to test support at
its broken resistance level ($49.75-50.00).  That level of
resistance has been in place for several months now and it would
be unreasonable to think the bulls would just blast right through
without at least a single pullback to test that old resistance as
new support.  Another way of looking at it is that the $50.00
level (actually $49.98) is the 50% retracement of the rebound from
the bottom of the bullish wedge on 9/18 and the top at $52.10 on
Monday.  Either way you look at it, a rebound from the vicinity of
$50 looks like a high odds entry point ahead of a resumption of
the rally that should take SLB up to our $56 target.  It should
now be safe to inch our stop up to $48, which is still below the
bottom of that bullish wedge.

Picked on September 21st at  $50.99
Change since picked:          -0.29
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     3.12 mln
Chart =



**************
NEW CALL PLAYS
**************

Intl Business Machines -IBM- cls: 91.34 chg: -0.05 stop: 87.90

Company Description:
Big Blue is being heralded as the world's largest technology
company. Considering their massive hardware and software business
across the globe it's not surprising. However, IBM's services and
consulting business is growing by leaps and bounds and is a major
source of revenues.

Why We Like It:
Why do we like it?  That's easy.  Just about everyone on Wall
Street has raised their outlook or offered positive comments on
IBM's business from its software to consulting to its chip
divisions.  If there is any rebound in IT spending then IBM
should get a part of it.  Plus, the stock has broken into its gap
between $90 and $97.  The pull back to the $91 area is an entry
point for IBM's next leg up to "fill the gap".

The $90 level should be strong support since it was such tough
resistance to break.  Very conservative traders could put their
stop loss just under $90, but we're going to give Big Blue a
little more room with a stop at $87.90.  Any bounce above $90
looks like an entry point to us.  The company has three weeks
before they're expected to report their Q3 earnings and we might
get an old fashioned earnings run.

Suggested Options:
We're going to suggest the October and November 90 and 95 strikes
as our favorites but longer-term traders could look to the
January's.

BUY CALL OCT 90  IBM-JR OI=53608 at $3.40 SL=1.75
BUY CALL OCT 95  IBM-JS OI=37252 at $1.20 SL=0.60
BUY CALL OCT 100 IBM-JT OI=24671 at $0.35 SL -- riskier!
BUY CALL NOV 90  IBM-KR OI=  199 at $4.50 SL=2.25
BUY CALL NOV 95  IBM-KS OI= 1526 at $2.10 SL=1.05
BUY CALL NOV 100 IBM-KT OI=  460 at $0.85 SL= -- risky

Annotated chart:





Picked on September 23 at $91.34
Change since picked:      + 0.00
Earnings Date           10/15/03 (unconfirmed)
Average Daily Volume:        6.7 million
Chart =



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PLAY UPDATES - PUTS
*******************

Krispy Kreme - KKD - cls: 39.47 chg: -0.17 stop: 42.71 *new*

We're running out of stale doughnut jokes but fortunately the
stock keeps crumbling lower despite the market's attempt to stay
positive.  Shares finally broke the $40 level on Monday but the
candlestick almost looked like a potential "hammer" and suggested
a possible reversal.  The stock surged higher early this morning
back above the $40 level but couldn't hold it, which is good news
for the bears.  The thought of capitalizing on such a "sweet"
deal could be attracting even more bears now that the stock has
spent two days under support (at $40).  There was some news about
the company buying 73% of the "rights" to sell Krispy Kreme
doughnuts in Michigan from one of their franchisees but we doubt
that had much affect on investor sentiment for the stock.
Traders who had been waiting for a close under $40 now have a
chance to open new positions.  We're still targeting the $37-36
area near its simple 200-dma.  Meanwhile we're also moving our
stop down to $42.71.

Picked on September 8 at $41.69
Change since picked:     - 0.93
Earnings Date          08/21/03 (confirmed)
Average Daily Volume:       1.0 million
Chart =


---

Gilead Sciences - GILD - close: 58.04 chg: +0.33 stop: 63.01*new*

Monday was another tough day for GILD shareholders.  The markets
were weak due to concerns over the dollar and the prevailing
attitude was selling to lock in profits.  GILD may have fallen
strongly from its highs near $70 two weeks ago but there are
still PLENTY of profits still in the stock.  The stock rose from
$31.50 in February and smart investors will not want to let it
all evaporate without taking some off the table for themselves.
The decline on Monday started with a gap open to $59.40.  This
was below our trigger of $59.75 so our new entry price becomes
$59.40.  Volume was strong and the stock closed below its simple
100-dma.  Today's market bounce also had shares of GILD bouncing
from another fresh relative low but the bounce faded for GILD
late in the afternoon as shares rolled over near $59.00.  This is
encouraging for the bears and we're going to lower our stop loss
to $63.01.  That might seem a little wide and more conservative
traders could probably use a stop near $62 or even $61 as the $60
level should be new resistance.

Picked on September 16 at $59.40
Change since picked:       -1.36
Earnings Date           07/31/03 (confirmed)
Average Daily Volume:       3.31 million
Chart =



*************
NEW PUT PLAYS
*************

Cabot Microelect. - CCMP - close: 59.05 change: -1.19 stop: 63.25

Company Description:
Cabot Microelectronics is a supplier of high performance polishing
slurries used in the manufacture of advanced integrated circuit
(IC) devices, within a process called chemical mechanical
planarization (CMP).  CMP is a polishing process used by IC device
manufacturers to flatten many of the multiple layers of material
that are built upon silicon wafers and necessary in the production
of advanced ICs.  CMP enables IC device manufacturers to produce
smaller, faster and more complex IC devices with fewer defects.

Why we like it:
After leading the Technology market higher for several months, the
Semiconductor index (SOX.X) seems to be losing its luster.  Last
week, the SOX failed to make a new high, struggling mightily with
the $460 resistance level before finally giving in a beginning to
drift lower.  In light of the potential for weakness, the index
has actually held up fairly well so far this week.  On the other
hand, shares of CCMP are clearly exhibiting some relative
weakness, getting sold to the tune of a 1.97% slide on Tuesday,
following Monday's 2.67% loss.  This comes after Friday's bearish
session that left CCMP resting below the 50-dma ($62.39) for the
first time since late May.  Adding to the bearish picture right
now is the way volume is increasing to the downside this week,
coming in well above the ADV today.

When CCMP broke the $60 level yesterday, it completed a descending
triple-bottom Sell signal on the PnF chart, and price is currently
resting on the bullish support line ($58) for the first time since
May.  The vertical count currently projects down to $55 although
it certainly seems reasonable that a test of the 200-dma ($50.61)
could be in the cards.  Clearly the stock is at a critical
juncture right now, and we would expect at least one failed rally
attempt before the bears successfully break the bullish support
line.  That makes the ideal entry on a failed rebound below
resistance and the logical places to look for an entry would be on
a rollover at the bottom of yesterday's gap (just below $61) or a
rebound failure near the top of that gap ($61.90), reinforced by
the rolling lower 10-dma ($62.49) and 50-dma ($62.39).  After
entry, look for an initial drop to $55, using a protective stop at
$63.00.

Suggested Options:
Aggressive short-term traders will want to focus on the October 55
Put, as it will provide the best return for a short-term play.
More conservative traders will want to look to the October 60
strike, with is currently at the money.  If looking for a longer-
term play, then we would favor the November 55 Put.  But take note
that these were just listed on Monday and open interest is still
very low.

BUY PUT OCT-60 UKR-VL OI=1015 at $3.60 SL=1.75
BUY PUT OCT-55 UKR-VK OI=2565 at $1.65 SL=0.75
BUY PUT OCT-55 UKR-WK OI=  30 at $3.10 SL=1.50

Annotated Chart of CCMP:




Picked on August 27th at    $64.45
Change since picked:         +0.00
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =       881 K
Chart =



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The Option Investor Newsletter                  Tuesday 09-23-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - IBM

**********************
PLAY OF THE DAY - CALL
**********************

Intl Business Machines -IBM- cls: 91.34 chg: -0.05 stop: 87.90

Company Description:
Big Blue is being heralded as the world's largest technology
company. Considering their massive hardware and software business
across the globe it's not surprising. However, IBM's services and
consulting business is growing by leaps and bounds and is a major
source of revenues.

Why We Like It:
Why do we like it?  That's easy.  Just about everyone on Wall
Street has raised their outlook or offered positive comments on
IBM's business from its software to consulting to its chip
divisions.  If there is any rebound in IT spending then IBM
should get a part of it.  Plus, the stock has broken into its gap
between $90 and $97.  The pull back to the $91 area is an entry
point for IBM's next leg up to "fill the gap".

The $90 level should be strong support since it was such tough
resistance to break.  Very conservative traders could put their
stop loss just under $90, but we're going to give Big Blue a
little more room with a stop at $87.90.  Any bounce above $90
looks like an entry point to us.  The company has three weeks
before they're expected to report their Q3 earnings and we might
get an old fashioned earnings run.

Suggested Options:
We're going to suggest the October and November 90 and 95 strikes
as our favorites but longer-term traders could look to the
January's.

BUY CALL OCT 90  IBM-JR OI=53608 at $3.40 SL=1.75
BUY CALL OCT 95  IBM-JS OI=37252 at $1.20 SL=0.60
BUY CALL OCT 100 IBM-JT OI=24671 at $0.35 SL -- riskier!
BUY CALL NOV 90  IBM-KR OI=  199 at $4.50 SL=2.25
BUY CALL NOV 95  IBM-KS OI= 1526 at $2.10 SL=1.05
BUY CALL NOV 100 IBM-KT OI=  460 at $0.85 SL= -- risky

Annotated chart:





Picked on September 23 at $91.34
Change since picked:      + 0.00
Earnings Date           10/15/03 (unconfirmed)
Average Daily Volume:        6.7 million
Chart =



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