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Daily Newsletter, Wednesday, 09/24/2003

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The Option Investor Newsletter                Wednesday 09-24-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Selloff
Futures Wrap: Dollar and Equities fall, Treasuries and Gold rise
Index Trader Wrap: See Note
Traders Corner: Seeking Clarity - Part II

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     09-24-2003            High     Low     Volume Advance/Decline
DJIA     9425.23 -150.81  9592.67  9423.54 1.86 bln    890/1951
NASDAQ   1843.70 - 58.02  1904.13  1843.43 2.17 bln    933/2176
S&P 100   505.46 - 10.66   516.67   505.23   Totals   1823/4127
S&P 500  1009.38 - 19.65  1029.83  1008.93
RUS 2000  507.86 - 11.50   519.85   507.86
DJ TRANS 2745.93 - 54.45  2802.74  2745.63
VIX        21.22 +  1.75    21.26    19.44
VXN        29.36 +  2.38    29.36    27.21
Total Volume 4,367M
Total UpVol    752M
Total DnVol  3,567M
52wk Highs     586
52wk Lows       15
TRIN          0.84
PUT/CALL      0.88
*******************************************************************

Selloff
Jonathan Levinson

Traders decided to do some selling today, and sell they did, with the
major stock averages printing bearish engulfing days as bonds and
precious metals advanced.  The volatility indices all rose, with the
“new” VIX (based on the S&P 500) breaking 20 for the first time since
its inception days ago.

Volume exceeded that of the past several days, with the Nasdaq
trading 2.17B shares and the NYSE 1.73B.  The TRIN.NQ closed at
2.04, the highest level I’ve seen in what seems like a very long
time, months on closing basis, and the TRIN 2.32.  The 58 point
drop on the COMPX to 1843.69 was verging on a sellathon, the INDU
–150 to 9425.

For all that, the technical damage on the daily chart was not
major, but the bearish engulfing to close at the day lows bodes
ill for tomorrow’s open.  As can be seen on the 1 year daily
chart of the COMPX below, any further selling from here could
touch off a bear wedge breakdown, projecting potentially to the
March lows.

1 year daily COMPX




On both the Nasdaq and the Dow, the daily chart oscillators are
lined up to the downside, and appear to be completing what could
prove to be a major top for the markets.


6 month daily INDU




On the Dow, the bear wedge projects again to the March lows on a
maximum fulfilment, in this case at 7400.


20 day 30 minute COMPX




Notwithstanding the immensely bearish finish, bulls were sent
home with a measure of hope in the form of a bullish descending
wedge.  The Nasdaq blew right through it on either a formation
failure or a throwunder, while the Dow managed to hold within it.
If the bottomy 30 minute chart oscillators combine with this
pattern tomorrow morning, we could see a bounce potentially to
the day highs.  I don’t think we will, but this is the message on
the 30 minute charts.


20 day 30 minute INDU




Today is an opportune day to briefly review sentiment and some of
the fundamentals beneath the economy and the markets:


Chart of Yale Crash Confidence Index




The Yale School of Management has been compiling the above data
for the past 14 years, which measures the percentage of both
individual and institutional investors who believe that there is
no immediate risk of a stock market crash.  The higher the
reading, the higher the confidence in the health of the stock
market.  Note how confidence has risen since September 11, 2001.

On further reflection, one might conclude that the above chart
depicts the growth of confidence in the Fed since September 11,
2001, as a precipitous market plunge was dramatically reversed by
short term liquidity operations during the weeks and months that
followed the tragic day.  Note also that confidence has been
rising with the markets during 2003.  Despite the fact that
markets which are overpriced tend to crash more readily than
those which are underpriced, this sentiment gauge reveals
confidence rising alongside price.

Viewed another way, here’s a four year chart of the VIX, commonly
referred to by option traders as the “fear” index.  Once again,
we see evidence of a bear market in fear:


4 year weekly chart of the VIX




Is this confidence in the Fed and the health of the markets
justified?  Let’s look “under the hood” at some of the broader
trends during this period.  First, we have the money supply
(MZM), depicting the inflationary effects of the Fed’s work since
1990.


Chart of MZM




During the same period, the Fed Funds rate, which, though not
captured in this more recent time series, is at a 45 year low.


Federal funds rate




The Fed has been aggressively lowering interest rates and
increasing the supply of dollars.  The proliferation of this new
“hot” money has resulted in an impressive rise in consumer
credit.  I believe that current levels represent alltime highs.


Consumer credit




It appears, further, that US consumers have used this money to
import goods and services from abroad, encouraging foreign
economies but not their own.


Balance of Payments




The Fed’s efforts appeared to be having a stimulative effect on
employment until 2001, at which point unemployment began to rise
steeply.  The pullback in unemployment that pundits have been
cheering during the past months is better contextualized by the
time series below.





Lastly, evidence that the current levels of services enjoyed by
the citizenry are becoming increasingly unsustainable, with the
level of overall government deficit in a breakout.


Government deficit




The net picture is one in which the Federal Reserve has been
aggressively increasing the supply of dollars and lowering the
carrying cost of those dollars, ostensibly to stimulate the US
economy.  What has resulted is a bubble in consumer credit,
accompanied by bubbles in stocks (Nasdaq 5000), real estate
prices (ongoing), consumer credit (ongoing) and imports
(ongoing).  The rise in unemployment and the record government
deficit levels, as well as the record personal bankruptcy levels
(not shown) are a compelling rebuttal of the Fed’s thinking to
date.  Unfortunately, the Fed’s response appears to have been an
acceleration of the process- witness Governor Bernanke’s no-
holds-barred “printing press” comments.

In view of the foregoing, while stock market crashes are indeed
low-probability events, I see little reason for an increase of
confidence in the unlikelihood of one’s occurring.  On the other
hand, while the Fed appears to be unable to cure the problems it
claims to address, the aggressive increase in liquidity could
well reinforce the price of the markets even as their underlying
value drops.


In economic news today, the Mortgage Bankers Association (MBA)
announced this morning that seasonally-adjusted demand for
mortgage refinancings, the MBA refi index, dropped 0.4%% for the
past week, despite the decline in mortgage rates from 5.91% to
5.85 for a thirty fixed.  Demand for loans with which to buy
homes, the Purchase index, fell 7% to 402.1 from the previous
week’s 432.4. The Application index fell 3.7% for the week to
699.6.

Early in the session, it was reported that OPEC had agreed to
restrict output by 900,000 barrels per day to 24.5M barrels per
day.  Marketwatch reported that the move “comes as a complete
surprise to the oil markets,” as the cartel was expected to keep
levels unchanged. John Person, head financial analyst at Infinity
Brokerage Services, was reported to have called it a "shocking
and yet disturbing decision."

Being unfamiliar with John Person and “Infinity Brokerage
Services”, I can only guess why he or his firm would find it
shocking or disturbing, given that oil prices have fallen during
recent months.  Note further that Bernanke, Snow and others have
been preaching a further devaluation of the dollar, and the
charts I’ve attached above bear this out.  With a greater supply
of dollars and recent lower prices for oil, it is absolutely
beyond me how any person or bucket shop in intellectual good
faith could possibly find it “shocking” or “disturbing” or “a
complete surprise” that oil producers are unwilling or unable to
sell as much oil at those lower prices in less valuable dollars.
Go figure.

In other news, the Energy Department reported that crude
inventories rose by 1.5M barrels in the week ended Sept. 19.
Gasoline inventories rose by 1.5 million barrels as well, and
distillate supplies fell by 100,000 barrels.  The American
Petroleum Institute confirmed an 800,000 barrel rise in crude
inventories to total 282.9 million barrels.

It was an otherwise quiet day news-wise, with DELL announcing a
$500M army contract and FLEX getting smoked for 5.18% on news of
a $934M jury award against it.  We have the following economic
data due tomorrow:


               Report                   Briefing  Market    Prior
                                        Expects   Expects
Sep 25 8:30 AM Durable Orders Aug -       1.5%    0.5%      1.0%
Sep 25 8:30 AM Initial Claims 09/20 -     410K    400K      399K
Sep 25 10:00 AM Existing Home Sales Aug - 5.95M   6.05M     6.12M
Sep 25 10:00 AM Help-Wanted Index Aug -   39      39        38
Sep 25 10:00 AM New Home Sales Aug -      1120K   1120K     1165K


Given today’s strong selloff, traders are left in a precarious
position.  Bears need to keep stops close above, while bulls are
either getting stopped out or are close.  The 30 minute
formations and oscillators portend a possible bounce within the
confines of the early stages of a long-awaited daily cycle
downphase.  The bounce should not carry very high, if it comes at
all.  While the oscillators do not tend to trend or get pinned in
oversold territory, the close at the day lows on higher volume
sets up conditions more conducive for such to occur.  The tide
could well be turning against the bulls, and if so, there should
be plenty of downside left.  Plan your trades and wait for your
entries.


************
FUTURES WRAP
************

Dollar and Equities fall, Treasuries and Gold rise
Jonathan Levinson

It was a fun day for equity bears and commodity bulls, with gold
and oil advancing as equities declined.

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 peeked its head above 94, got clocked by a
salvo of sellers, and spent the remainder of the day getting sold
off, finding support twice in the 93.70 area.  The move benefited
the CRB and gold, with heating and crude oil getting a big lift
from an OPEC production cut discussed more fully in the Market
Wrap.  Cocoa futures were also among the big winners for another
day in a row.  The CRB added 2.37 to close at 242.64.

Daily chart of December gold




December gold had a good day after some earlier weakness in the
morning, printing a higher low at 385.10 and an intraday high of
389.90, matching yesterday’s spike high on a closing basis today.
The move has turned the daily chart oscillators up on preliminary
buy signals, but the upper bear wedge resistance at 390 remains
unbroken.  In afterhours trading I’m seeing a high of 390.50,
price as of this writing 390.  The precious metals indices traded
mixed during the day, with both printing both sides of unchanged
but closing positive, HUI +2.38 at 210.41, a new multiyear
closing high, and XAU +.08 at 97.49.

Daily chart of the ten year note yield




The sharp selling in equities, combined with an impressive 9B
overnight repo from the Fed helped treasuries advance today, with
the ten year note yield dropping 7.6 bps to 4.138%.  A 25B 2 year
note auction was well-received, generating a bid-to-cover ratio
of 2.20.  The decline in the yield accomplished a return to the
broken descending bull wedge trendline, spiking below it but
unable to hold the move on a closing basis.  The oscillators on
the yield continue to appear bottomy, and I remain dubious (but
open-minded) regarding a renewed bull move in bonds above 4% on
the TNX.

Daily NQ candles




The moves in treasuries, gold and the dollar were interesting,
but the real action today was in treasuries, with bulls getting a
taste of that long-awaited date with gravity for which bears have
been waiting.   The NQ dropped 51.50 points or 3.71%, the ES
18.50 or 1.8%, and the YM 136 points or 1.43%.

The day started slowly, with light selling and dip buying.  After
the second round of dip buyers got crushed, a cascade began,
followed by a more orderly decline to the closing lows of the
day.  The selloff engulfed yesterday’s correction and took out
the lower rising trendline, giving the daily chart oscillators
some encouragement to the downside and causing the first
suggestion of worry on the part of bulls.  Volume on the Nasdaq
broke 2B with authority, and the volatility indices jumped
higher.

30 minute 20 day chart of the NQ




Within the context of this rollover on the daily oscillators, the
30 minute chart, which portrays more viscerally the destruction
inflicted on the NQ today, shows a potential bottoming on the
shorter cycle oscillators.  The 300 minute stochastic is at a low
not seen since the beginning of the month, for which launched a
nearly 90 point rally on the NQ.  Whether this is in the cards or
not, we do not know.  It seems a laughable scenario today, yet 20
days ago, the daily cycle oscillators were also on preliminary
sell signals, and the 300 minute stochastics were similarly
oversold.

It is this possibility that will reassure the bulls tonight.
1330 NQ is significant support, the 300 minute oscillator is in
bottom territory, and our markets always go up, at least this
year.  Bears, such as myself, are content to wait and see. The NQ
closed at its low of the day on a large rise in volume.


Daily ES candles




We have the same picture on the ES.  1008 almost held the decline
but failed, with the ES going out at the low of the day.  As seen
on the 30 minute chart below, we have the same cycle outlook as
described more fully for the NQ, with strong support at 1000 ES.


20 day 30 minute chart of the ES




The 300 minute stoch is oversold and trying to turn, with
Fibonacci support lined up at the round numbered 1000.
Resistance at former support of 1008, 1012, 1015, and 1020 will
keep the bulls honest if we get an upphase from the 300 minute
stochastic tomorrow.

150-tick ES





Daily YM candles




We have the same setup on the YM, with support at 9390, followed
by 9330.

20 day 30 minute chart of the YM




Tomorrow will prove an important test for bears and bulls alike.
So far, dollar weakness has been coinciding with equity weakness,
which is a repeat of 2002, a terrible year for equities.  This
year saw dollar weakness equaling treasury and equity strength,
but this week tells a different story.

With support close underneath current levels and the bottomy
oscillators, a bounce is possible.  However, the longer cycle
oscillators are in gear from overbought, and if the 30 minute
chart oscillators begin trending under their weight, it could
spell the beginning of the end for this bear market rally.  Use
stops and patience, and we’ll see you at the bell.


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Seeking Clarity - Part II
by Mark Phillips
mphillips@OptionInvestor.com

Those of you that tune in each week to listen to my thoughts,
rants, complaints and reflections know that I've felt rather
frustrated of late in my efforts to understand where the market is
headed.  Based on the feedback I've been getting from many of you,
it's clear that I'm not the only one experiencing this feeling.  I
went into a fair amount of detail in last week's article "Still
Seeking Clarity", describing the conflicting factors that I see
creating the bifurcated market we've been mired in for these past
several months.

Last week, we spent some time looking at divergences on longer
term (weekly and monthly) charts, showing where there is still a
clear setup that can deliver a solid bearish move in the broad
markets, likely later this year.  Credit for last week's epiphany
went to Brian, as he managed to clear my mental block and get me
to look at things in a fresh light.  My intention had been to
address another very insightful email from long-time reader
"Gumby", but I simply ran out of time and space.  Now I understand
that in light of the market weakness so far this week, the
discussion may seem like a moot point, but to that I would
vehemently disagree.  Whether applicable to placing a trade
tomorrow, next week, next month or next year, I believe the
insights provided by both Brian and Gumby should be studied,
remembered and filed away for future reference.  Because I'm
willing to bet that we will be repeatedly faced with similar (not
identical, but similar) market conditions throughout our
collective careers.  The more lessons we can learn early on, the
more we can profit from those lessons later in this career.

So without further ado, let's get to Gumby's email.  It is rather
long, but I think he covers so many solid points that I would do
both he and you a disservice by trying to break it up.  So take a
look at what he had to say and then we'll delve into it piece-by-
piece.

Just read your article, and noticed something in it that I wanted
to bring to your attention.  Just FYI, we're all feeling the
strain, and questioning many things that we "know" these days, and
realize something doesn't smell right.  Maybe my vision is a bit
skewed, but I think I'm seeing a case of bearish divergence on the
$bpspx.  I've been watching the VIX on a daily chart as well, and
we've established that it is sending us an unprecedented message
of low complacency & volatility, due to the 4-5 point range trend
(slightly downsloping, one aberration) for FIVE months.  Ok, we
know the job of oscillators is to oscillate, and have learned to
trust short-term indicators less than the same oscillators on
longer-term charts, even given the same settings.  WHY? We are
accustomed to volatility kicking back in, and everything begins
working properly again.  This time, they have not, for reasons we
do not know at this time, but will surely smack ourselves on the
head later when we are allowed to understand.

In the meantime, look at the two BPSPX peaks since June '03, and
compare to SPX price chart - notice any divergence?  I'd never
seen this before, since I was late in learning BP stuff.  To tie
the VIX back in, the low, tight VIX made me think of using the ADX
(14,10) to look for trends (or lack thereof), and sure enough it's
been below 20 since late June, albeit in breathtaking descent
since mid-June.  Hmm, wonder if ADX has been below 20 for an
extended period before, and if BPSPX divergence occurred then.
Voila - do a 3-year BPSPX chart, take a look at Dec '01-mid-march
'02 peaks, then compare that to a daily SPX chart in the same time
period.

The biggest difference b/t the two times is that in the 12/01-3/02
divergence, BPSPX was massively divergent compared to 2 equally-hi
points (resistance line) on price; this time we have equally-hi
points on BPSPX with price peaks diverging. Hmm, what could it
mean.... The VIX was in the 20-21 range at the march '02 peak,
kinda there now,....hmmm.  Well, I'll let you make your own
conclusions.

First off, I have been corresponding with Gumby for some time now,
and I've found that he's usually got some pretty good insights.
So when he starts off by confirming my perception that this is a
strange (or smelly) market, that tells me that it is more than
just me being pig-headed about things.  When you're out of sync
with the market, it is really useful to hear someone whose opinion
you value state that you aren't crazy!  Thanks for keeping me out
of the nuthouse, Gumby!  GRIN

Alright, let's delve into the meat of what is contained in the
email above.  Isn't it interesting that the core of that first
paragraph centers on the topic of Divergence, just like we
discussed last week?  But things are a bit different here, as
we're looking for divergence between the price action and the
Bullish percent.  Let's take a look.

Bullish Percent Chart of the SPX




I know this chart is a bit hard to read, and you have my
apologies, but I just couldn't figure out how to display it more
clearly.  Note that Gumby's email came in on September 10th, and
the blue line shows that at that time, we did indeed have bearish
divergence in play, because as you know, the price highs in the
SPX had exceeded those of the June peak.  Higher price highs and
lower oscillator highs gives us bearish divergence.  Unfortunately
in the time it took me to get this article written, the SPX
Bullish Percent has moved above 83%, taking out the high from mid-
June and removing the divergent condition, with both price and BP
hitting new highs.  Sigh...

Next up, we look at the issue of the VIX and the fact that the ADX
has been below 20 for a very long time.  With the exception of the
early August blip higher, ADX on the VIX has been below 20 (not to
be confused by a VIX reading below 20) since early June.  For
those of you familiar with the ADX, when it gives a reading below
20, it is an expression of a trendless condition or of a weak
trend.  That sure sounds like what we've been experiencing, don't
you think?  Take a look at the chart below and I think you'll
agree.

Daily Chart of the VIX




See how the ADX has essentially been giving us a trendless
indication for the VIX these past several months?  You can see the
lackluster manner in which it has been drifting lower, as it has
been reticent to even challenge the boundaries of that falling
channel.  Gumby hit the nail on the head when he went looking for
a similar period of time in the historical charts.  Here's the
chart for the VIX (with ADX included) for the period of time that
caught my attention (10/01-5/02).

VIX Chart For 10/01-5/02




Finally, as suggested, let's look at the bullish percent chart for
the 12/01-3/02 period and see what shows up.  Recall that the
price highs on the SPX were roughly equal in December of 2001 and
March of 2002, with the March highs being ever-so-slightly lower.
Take a look at the BP chart and what do you see?

3-Year Bullish Percent Chart of the SPX




As you can see, we have significantly higher highs on the BP
chart, while at the same time, price on the SPX was notching
essentially equal highs.  Hmmm...I'd have to agree, that's clear
bearish divergence.

Now let's put the finishing touches on the big picture, by
referring back to our discussion from last week where we looked at
divergence between price and the Stochastics oscillator on both
the weekly and monthly timeframes.  Would you like to hazard a
guess as to whether there was any Stochastics divergence present
then?  I'll give you a hint.  Look at the price and oscillator
highs on the weekly chart (not shown) and you can see essentially
the same levels for the price highs, while the Stochastics highs
were significantly lower for the March peak -- once again, we have
bearish divergence.

So the concepts that we've been looking at the past two weeks
(oscillator divergence, BP divergence and a low and trendless VIX)
all existed in the weeks leading up to the spring/summer 2002
selloff.  What does that all have to do with the current
conditions?  Sadly, not a whole lot.  First off, since Gumby's
original email, the bearish divergence on the BP chart has been
negated.  While nothing about the VIX chart has really changed, I
really am questioning whether we can trust it anymore after the
CBOE played their little math game.  You see, when I bring up a
chart of the VIX now, I know that up until 9/19/03, it was
calculated based on the OEX and beginning on 9/23/03 it began to
be calculated on the SPX.  I know they're similar, but they are
NOT the same.  Sadly, the data being fed to Qcharts users does not
accurately represent a volatility index of either the SPX or the
OEX at this point in time.  I sincerely hope that oversight is
corrected in the near future.

We do still have the situation of bearish Stochastics divergence
that we talked about last week and with today's price decline, it
is getting closer to that point where it will be complete and
confirmed.  I know the question you're probably asking is "Why did
I go through all of this discussion if it doesn't shed any light
on the current market?"  To which I would respond, "Doesn't it?"
The key point is that we can't know what will or won't tell us
something valuable about the market until we try it out.  I guess
the moral of the story is to be willing to experiment and
experiment wildly.  Is the concept of looking for BP/Price
divergence valid?  You bet!  It just happens to have been erased
over the past two weeks.  Does the use of the ADX on the VIX tell
us something about volatility trends?  Absolutely!  But due to
external factors, it is hard to draw any reliable conclusions
right now.

But I think the clear message (and one I'm personally taking to
heart) is to never give up on dabbling with new indicators and
combinations of those indicators that you may not have tried
before.  Brian and Gumby have done us all a great service by
reminding us to always experiment like the mad scientists that I
know we all are at our core.  There's no telling what nuggets of
wisdom will fall into our laps!

Have a great week!

Mark


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The Option Investor Newsletter                Wednesday 09-24-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: AMGN, MERQ
Dropped Puts: None
Play of the Day: Put - CCMP
Spreads, Combinations & Premium-Selling Plays: Stocks Plunge As
     Profit-Taking Resumes!
Watch List: Stocks Under Pressure

Updated on the site tonight:
Market Posture: Mostly Bearish



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*************
DROPPED CALLS
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Amgen, Inc. - AMGN - close: 65.85 change: -2.73 stop: 67.50

A Lehman Brothers downgrade for Genentech (DNA) from "over
weight" to "equal weight" sent DNA falling more than five percent
and that put pressure on the rest of the biotechs.  The BTK
biotech index slipped more than four percent and AMGN followed
suit with a four percent drop of its own.  The downgrade was
based on valuation concerns, which has been a dark cloud
gathering above the entire markets lately.  Volume was pretty
strong on AMGN's drop and we'll be curious to see if it breaks
the $65 mark.  Needless to say, we were stopped out at $67.50.

Picked on September 16th at  $69.81
Change since picked:          -3.96
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     7.94 mln
Chart =


---

Mercury Interactive - MERQ - cls: 47.04 chng: -3.10 stop: 47.65

Tech stocks took some of the hardest lumps today because they
have produced the biggest gains.  The software index was no
exception and the GSO dropped almost 3.5 percent.  Outpacing the
market's losses is MERQ, which fell more than six percent fueled
by negative comments from Bank of America (BAC).  Their analyst
said MERQ could be headed into financial pressures that would
limit upside for 2004.  The stock broke its short-term rising
channel from early August and its MACD rolled over into a nice
bearish sell signal.  MERQ could have some support at $45, which
would coincide with a 50% retracement of the August-September
rally.  However, we were stopped out at $47.65 today.

Picked on September 14th at  $48.16
Change since picked:          +1.12
Earnings Date              10/15/03 (unconfirmed)
Average Daily Volume =     3.06 mln
Chart =



************
DROPPED PUTS
************

None


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*********************
PLAY OF THE DAY - PUT
*********************

Cabot Microelect. - CCMP - close: 57.14 change: -1.91 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.

- Most Recent Update (Tuesday, Sept 23, 2003)-
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.


- Play of the Day Comments -
So far so good.  The profit taking in the markets today have CCMP
investors on the run.  Shares saw some follow through on the
breakdown below $60 yesterday and the stock closed near its lows
for the session.  We could easily see CCMP complete its 50%
retracement of the May-August run, which would be $55.  However,
if the stock bounces, then traders can look for another failed
rally under $60 for new entries.


- 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=1364 at $4.60 SL=2.30
BUY PUT OCT-55 UKR-VK OI=2680 at $2.00 SL=1.00
BUY PUT NOV-55 UKR-WK OI= 185 at $3.70 SL=1.75

Annotated Chart of CCMP




Picked on September 23rd  $59.05
Change since picked:       -1.91
Earnings Date           10/23/03 (unconfirmed)
Average Daily Volume =     770 K
Chart =



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*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

Stocks Plunge As Profit-Taking Resumes!
By Ray Cummins

An unexpected move by OPEC to slash oil production sent crude
prices higher Wednesday, giving traders another reason to take
profits from the recent rally.

The Dow Jones Industrial Average dropped 150 points to 9,425
with some of the biggest losses coming in DuPont (NYSE:DD),
Hewlett-Packard (NYSE:HPQ) and Eastman Kodak (NYSE:EK).  Intel
(NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) piloted the NASDAQ
retreat as semiconductor and computer-related shares fell to
their lowest levels in over a week.  The composite technology
index sank 58 points to 1,843.  The broad S&P 500 stock index
slid 19 points to finish at 1,009, with only gold and energy
stocks enjoying buying pressure.  Decliners led advancers by
more than 2 to 1 on both the NYSE and the technology exchange.
Trading volume was moderate at 1.56 billion shares on the Big
Board and 2.1 billion shares on the NASDAQ.  In the U.S. bond
market, treasury prices rose in the midst of declining equity
values.  The 10-year note was up 19/32 in price to yield 4.13%.

***************

SUMMARY OF CURRENT POSITIONS - AS OF 9/23/03

***************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.


Naked Puts
**********

Stock   Strike Strike Cost  Current   Gain    Max    Simple
Symbol  Month  Price  Basis  Price   (Loss)  Yield   Yield

APPX     OCT    30    29.55  39.30   $0.45   5.20%   1.52%
CELL     OCT    25    24.40  37.28   $0.60   8.23%   2.46%
CEPH     OCT    40    39.15  46.31   $0.85   6.73%   2.17%
CVTX     OCT    20    19.70  26.56   $0.30   4.92%   1.52%
DIGE     OCT    35    34.60  46.54   $0.40   4.06%   1.16%
HEPH     OCT    22    21.85  32.20   $0.65   9.81%   2.97%
LLTC     OCT    35    34.30  38.14   $0.70   5.35%   2.04%
NFLX     OCT    27    27.15  39.13   $0.35   4.44%   1.29%
RIMM     OCT    27    26.90  36.16   $0.60   6.95%   2.23%
VRNT     OCT    22    22.00  25.50   $0.50   6.22%   2.27%


Naked Calls
***********

Stock  Strike Strike Cost  Current   Gain    Max     Simple
Symbol Month  Price  Basis  Price   (Loss)  Yield    Yield

APC      OCT    45   45.34  44.11   $0.45   3.14%    0.99%
TRMS     OCT    40   40.40  28.99   $0.40   5.74%    0.99%
BRCM     OCT    30   30.50  26.68   $0.50   6.47%    1.64%

Anadarko Petroleum (NYSE:APC) remains on the "watch" list as
it tests resistance near the sold (call) strike at $45.


Put-Credit Spreads
******************

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L   Status

ANF     30.49  29.35   OCT  25  27   0.30  27.20  $0.30   Open
CFC     75.19  76.92   OCT  65  70   0.50  69.50  $0.50   Open
MO      44.65  44.50   OCT  40  42   0.30  42.20  $0.30   Open
OHP     38.60  38.60   OCT  32  35   0.25  34.75  $0.25   Open


Call-Credit Spreads
*******************

Symbol  Pick   Last   Month L/C S/C Credit  C/B    G/L   Status

FRX     49.56  48.73   OCT  60  55   0.60  55.60  $0.60   Open
KO      43.01  43.42   OCT  47  45   0.30  45.30  $0.30   Open
MEDI    37.03  35.30   OCT  42  40   0.25  40.25  $0.25   Open


Synthetic Positions
*******************

No Open Positions


Debit Straddles
***************

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

ABC     60.00  54.83   NOV    60    60    7.25    8.00     Open

Amerisourcebergen (NYSE:ABC) has achieved profitability in a short
time but if the trend of the issue reverses direction, traders may
need to "leg-out" of the play to preserve capital.


Questions & comments on spreads/combos to Contact Support
*************

NEW POSITIONS

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

**************

BULLISH PLAYS - NAKED PUTS

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

**************
AMHC - American Healthways  $42.54  *** Up On A Down Day! ***

American Healthways (NASDAQ:AMHC) is the nation's leading and
largest provider of specialized, comprehensive care enhancement
services to hospitals, physicians and health plans.  In addition,
American Healthways is the only company in its industry whose
programs are designed to meaningfully address the needs of 100%
of its customer populations.  The clinical excellence of the
firm's programs have been reviewed and approved by Johns Hopkins,
and their quality has been recognized by the National Committee on
Quality Assurance, the Joint Commission on Accreditation of Health
Care Organizations, and the American Accreditation Health Care
Commission, making American Healthways the first and only care
enhancement provider in the nation to be accredited or certified
by all three organizations.  American Healthways contracts to
provide disease and care management programs to health plans with
members in all 50 states, the District of Columbia and Puerto Rico.
The company also operates diabetes management programs in hospitals
nationwide.

AMHC - American Healthways  $42.54

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 35    QMH VG     100   0.50  34.50   6.1%   1.4% *
SELL PUT  OCT 40    QMH VH      20   1.65  38.35  12.4%   4.3%


**************
APPX - American Pharma Partners  $38.55  *** Uptrend Intact! ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
drug company that develops, manufactures and markets injectable
pharmaceutical products, focusing on the oncology, anti-infective
and critical care markets.  The company is one of the largest
producers of injectables, with more than 130 generic products in
more than 350 dosages and formulations.  APPX has acquired the
exclusive North American rights to manufacture and market ABI-007,
a proprietary nanoparticle injectable oncology product that has
completed Phase III clinical trials for metastatic breast cancer
and for which the FDA has granted "Fast Track" designation.  The
NDA submission has commenced and it is anticipated that the entire
submission will be completed in 2003.  The company believes that
it has established the only commercial scale protein-engineered
nanoparticle manufacturing capability in the United States.

APPX - American Pharma Partners  $38.55

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 30    AQO VF     827   0.25  29.75   3.8%   0.8% TS
SELL PUT  OCT 33.3  AXD VV   1,790   0.65  32.73   7.3%   2.0% *
SELL PUT  OCT 35    AQO VG   2,033   1.10  33.90  10.3%   3.2%


**************
ELAB - Eon Labs  $40.75  *** Bullish Industry Outlook! ***

Eon Labs (NASDAQ:ELAB) is a generic pharmaceutical company engaged
in developing, licensing, manufacturing, selling and distributing
a range of prescription pharmaceutical products primarily in the
United States.  The company focuses on drugs in a variety of solid
oral dosage forms, utilizing both immediate and sustained release
delivery, in tablet, multiple layer tablet, film-coated tablet and
capsule forms.  The company does not depend on any single drug or
therapeutic category for a majority of its sales.

ELAB - Eon Labs  $40.75

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 35    ESQ VG     141   0.30  34.70   3.4%   0.9% TS
SELL PUT  OCT 40    ESQ VH      32   1.65  38.35  11.7%   4.3%


**************
FLML - Flamel Technologies  $39.57  *** Entry Point? ***

Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company
engaged mainly in the development of two polymer-based delivery
technologies for medical applications.  The company's Micro-pump
technology is a multi-particulate technology for oral ingestion
of small molecule drugs with applications in controlled release,
tastemasking and bioavailability enhancement.  The company has
three major products based on its Micropump technology: Asacard,
a controlled-release formulation of aspirin for the treatment of
cardiovascular disease; Metformin XL, a controlled-release form
of Metformin that is in development for use for the treatment of
Type II diabetes, and Genvir, a controlled-release acyclovir for
the treatment of genital herpes.  In addition, FLML has developed
new herbicide delivery systems and has patented a biomaterial,
ColCys.

FLML - Flamel Technologies  $39.57

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 30    FLU VF     477   0.40  29.60   5.9%   1.4% *
SELL PUT  OCT 35    FLU VG     510   1.45  33.55  13.9%   4.3%


**************
MATK - Martek Biosciences  $56.26  *** New "All-Time" High! ***

Martek Biosciences (NASDAQ:MATK) develops and sells products
made from microalgae.  Microalgae are microplants.  The firm
is engaged in the commercial development of microalgae into a
portfolio of high value products and new product candidates
consisting of Nutritional Products, Advanced Detection Systems
and Other Products, primarily Algal Genomics.  Their nutritional
products include nutritional oils for infant formula, dietary
supplementation and other products. Advanced Detection Systems
products include fluorescent dyes from various algae for use
in scientific applications for detection of certain biological
processes.

MATK - Martek Biosciences  $56.26

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 50    KQT VJ     48    0.50  49.50   3.6%   1.0% TS
SELL PUT  OCT 55    KQT VK     22    1.80  53.20   9.5%   3.4%


**************
NFLX - Netflix  $38.00  *** Beating Up On BlockBuster! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.

NFLX - Netflix  $38.00

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 30    QNQ VF   1,007   0.25  29.75   3.9%   0.8% TS
SELL PUT  OCT 32.5  QNQ VZ     459   0.60  31.90   7.1%   1.9% *
SELL PUT  OCT 35    QNQ VG   1,206   1.25  33.75  11.3%   3.7%


**************
RIMM - Research In Motion  $34.98  *** Entry Point? ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, the firm provides solutions for seamless access to
time-sensitive information and communications, including e-mail,
telephone, messaging and Internet- and intranet-based applications.
The company's technology also enables a broad array of third-party
developers and manufacturers around the world to enhance their own
products and services with wireless connectivity.  RIM's portfolio
of products includes a family of wireless handhelds, the BlackBerry
wireless e-mail solution, embedded radio modems and a suite of
software development tools.

RIMM - Research In Motion  $34.98
PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 27.5  RUL VY     830   0.30  27.20   5.0%   1.1% *
SELL PUT  OCT 30    RUL VF     968   0.65  29.35   8.2%   2.2%


**************
UNTD - United Online  $40.23  *** Internet Sector Strength! ***

United Online (NASDAQ:UNTD) is an Internet service provider
offering consumers free and value-priced Internet access and
e-mail.  Its Internet access services are offered through its
NetZero and Juno subsidiaries under their brands, and are
available in more than 5,000 cities across the United States
and Canada.  In addition, the company offers marketers numerous
online advertising products, as well as online market research
and measurement services.  As of June 30, 2002, the company had
approximately 1.7 million subscribers to its pay Internet access
services and approximately 4.8 million active users, including
pay users.  Active users include all pay users and those free
users that have logged onto its services during the preceding
31-day period.

UNTD - United Online  $40.23

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 35    QAB VG   1,664   0.65  34.35   6.9%   1.9% *
SELL PUT  OCT 40    QAB VH     295   2.20  37.80  14.8%   5.8%


**************
VIP - Vimpel Communications  $62.21  *** Another New High! ***

Vimpel Communications (NYSE:VIP) is an established provider of
telecommunications services in Russia, operating under the Bee
Line family of brand names.  VimpelCom's license portfolio covers
approximately 92% of Russia's population (134 million people),
including the City of Moscow and the Moscow Region.  VimpelCom
introduced two digital cellular communications standards to Russia
and built a dual band GSM-900/1800 cellular network.  The company
also led the development and emergence of the mass consumer market
for wireless communications in Russia by introducing a prepaid
product solution.  VimpelCom offers various technologies, such as
wireless application protocol and BeeOnline, a multi-access web
portal that provides a multitude of wireless information and
entertainment services, including location-based features.

VIP - Vimpel Communications  $62.21

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  OCT 55    VIP VK     719   0.50  54.50   3.3%   0.9% TS
SELL PUT  OCT 60    VIP VL      20   1.50  58.50   7.5%   2.6%


**************

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

***************
AMZN - Amazon.com  $49.61  *** Internet Retail Leader! ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.

AMZN - Amazon.com  $49.61

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-42.50  ZQN-VV  OI=10860  ASK=$0.30
SELL PUT  OCT-45.50  ZQN-VI  OI=11207  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=16% B/E=$44.65


**************
AZO - Autozone  $94.51  *** Technical Break-Out! ***

AutoZone (NYSE:AZO) is a specialty retailer of automotive parts
and accessories primarily to do-it-yourself customers.  During
the fiscal year ended August 31, 2002, the company operated 3,068
auto parts stores in the United States and 39 in Mexico.  It also
sells parts and accessories online at autozone.com.  Each auto
parts store carries an extensive product line for cars, vans and
light trucks, including new and remanufactured automotive parts,
maintenance items and various accessories.  AutoZone also has a
commercial sales program in the United States, AZ Commercial,
which provides commercial credit and prompt delivery of parts and
other products to local, regional and national repair garages,
dealers and service stations.  In addition, the company sells
automotive diagnostic and repair software through ALLDATA and
through alldatadiy.com.

AZO - Autozone  $94.51

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-85.00  AZO-VQ  OI=2404  ASK=$0.35
SELL PUT  OCT-90.00  AZO-VR  OI=636   BID=$0.95
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$89.40


**************
NE - Noble Corporation  $33.98  *** Bottom-Fishing In Oil! ***

Noble Corporation (NYSE:NE) is a provider of diversified services
to the oil and gas industry.  The firm performs contract drilling
services with a fleet of 49 offshore drilling units located in
key markets worldwide.  Its fleet of floating deepwater units
includes nine semi-submersibles and three dynamically positioned
drillships, seven of which are designed to operate in water depths
greater than 5,000 feet.  Its premium fleet of 34 independent leg,
cantilever jack-up rigs includes 21 units that operate in depths
of 300 feet and greater, four of which operate in depths of 360
feet and greater, and 11 units that operate in depths up to 250
feet.  Its fleet also includes three submersible drilling units.
Over 60% of the fleet is deployed in global markets, principally
the North Sea, Brazil, West Africa, the Middle East, India and
Mexico.  The firm also provides labor contract drilling services,
site and project management services, and engineering services.

NE - Noble Corporation  $33.98

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-30.00  NE-VF  OI=61   ASK=$0.15
SELL PUT  OCT-32.50  NE-VZ  OI=229  BID=$0.40
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$32.25


**************

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

***************
IMCL - ImClone  $39.67  *** Sell-Off In Progress! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers. The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow. In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors. IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.

IMCL - ImClone  $39.67

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  OCT 50    QCI JJ    7,600  0.45  50.45   6.5%   0.9% *
SELL CALL  OCT 45    QCI JI    5,228  1.15  46.15  12.0%   2.5%


**************
PCLN - Priceline.com  $29.67  *** Valuation Concerns! ***

Priceline.com (NASDAQ:PCLN) offers products for sale in two major
categories: a travel service that offers leisure airline tickets,
hotel rooms, rental cars, packaged vacations and cruises; and a
personal finance service that offers home mortgages, refinancing
and home equity loans through an independent licensee.  PCLN also
owns travel Web sites Lowestfare.com and Rentalcars.com.  The firm
is part-owner of Internet travel service Travelweb.  Priceline.com
licenses its business model to independent licensees, including
pricelinemortgage and certain international licensees.

PCLN - Priceline.com  $29.67

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  OCT 35    PUZ JG    1,184  0.50  35.50   8.6%   1.4% *
SELL CALL  OCT 30    PUZ JF    1,200  2.00  32.00  18.0%   6.3%


**************
ZRAN - Zoran  $20.78  *** Major Trend Reversal! ***

Zoran Corporation (NASDAQ:ZRAN) develops and markets integrated
circuits, integrated circuit cores and embedded software used by
original equipment manufacturers (OEMs) of digital video and
audio products for commercial and consumer markets.  The firm's
multimedia product line consists of four major product families:
DVD, comprised of video and audio decompression products based on
MPEG, Dolby Digital and DTS; filmless digital cameras, comprised
of video compression/decompression products; PC Video, comprised
of video compression/decompression products for JPEG technology
and universal serial bus multimedia controllers, and Digital Audio,
comprised of audio decompression products.

ZRAN - Zoran  $20.78

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  OCT 25    ZUO JE   2,795   0.35  25.35   9.5%   1.4% *
SELL CALL  OCT 22.5  ZUO JX     195   0.85  23.35  13.9%   3.6%


**************

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

**************
LXK - Lexmark  $65.14  *** Trading Range? ***

Lexmark International (NYSE:LXK) is a leading developer, maker
and supplier of printing solutions, including laser and inkjet
printers, multifunction printing products, associated supplies
and services, for offices and homes in more than 150 countries.
Lexmark delivers high-powered solutions, services and supplies
that meet or exceed the needs of customers ranging from the small
office to the large corporate enterprise.  Years of industry
leadership, coupled with a close relationship with its customers,
allows Lexmark to develop high-quality, easy-to-use business
products and services.

LXK - Lexmark  $65.14

PLAY (less conservative - bearish/credit spread):

BUY  CALL  OCT-75.00  LXK-JO  OI=4500  ASK=$0.25
SELL CALL  OCT-70.00  LXK-JN  OI=3174  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$70.60


**************
NOC - Northrop Grumman  $86.00  *** Negative Industry Outlook! ***

Northrop Grumman (NYSE:NOC) is a global defense firm that provides
unique technologically advanced products, services and solutions
in defense and commercial electronics, defense systems integration,
information technology and nuclear and non-nuclear shipbuilding
and systems.  Northrop Grumman has operations in 44 states and 25
countries, serving U.S. and international military, government and
commercial customers.  Northrop Grumman is aligned into six main
business sectors: Electronic Systems, Information Technology,
Integrated Systems, Ship Systems, Newport News and Component
Technologies.

NOC - Northrop Grumman  $86.00

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-95.00  NOC-JS  OI=1294  ASK=$0.15
SELL CALL  OCT-90.00  NOC-JR  OI=551   BID=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$90.50


**************
WTW - Weight Watchers  $43.15  *** Slimming And Trimming! ***

For over 40 years, Weight Watchers (NYSE:WTW) has helped millions
of people around the world to lose weight!  Weight Watchers has
always believed that dieting is just one part of long-term weight
management.  A healthy body results from a healthy lifestyle,
which means mental, emotional and physical health.  The company
does not tell you what you can or can't eat.  Instead, they offer
information, knowledge, tools and motivation to help you make
decisions that are right for you about nutrition and exercise.
WeightWatchers.com, their weight loss website, provides meetings
members and self-helpers with effective weight-loss tools and
information 24 hours a day, seven days a week and enables dieters
to follow the Weight Watchers POINTS Weight-Loss System via the
Internet.

WTW - Weight Watchers  $43.15

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-50.00  WTW-JJ  OI=293  ASK=$0.10
SELL CALL  OCT-45.00  WTW-JI  OI=855  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$45.45


**************

SEE DISCLAIMER - SECTION 1

**************


**********
Watch List
**********

Stocks Under Pressure

SBC Communications - SBC - close: 21.91 change: -0.61

WHAT TO WATCH: The recent profit taking has hit shares of SBC
pretty strongly.  The stock has rolled over from a failed rally
near the $24 level (also its simple 200-dma).  The stock was
already suffering from bearish resistance on its point-and-figure
chart near $26-27.  Today's drop put it below support near $22
and volume has been strong on the last two sessions.  The next
stop could be $20.00.  Traders will also see a similar pattern in
shares of BellSouth (BLS).

Chart=


---

Wal-Mart - WMT - close: 56.62 change: -1.00

WHAT TO WATCH: The titan of retailing, WMT, is suffering a little
profit taking of its own.  Shares have pulled back from the $60
level to short-term support near $56.50.  The stock seems to be
calling to traders willing to short it to the $54 level and its
simple 200-dma near $53.50.  We'd rather not short it and just
watch for the bounce.  The company has been constantly raising or
reaffirming its sales numbers so it should be a good quarter.

Chart=


---

Medtronic - MDT - close: 47.32 change: -1.02

WHAT TO WATCH: Medical device maker MDT joined the herd moving
lower today but MDT's drop put it below the simple 200-dma and
support near $48.00.  It's P&F chart is not quite showing a sell
signal yet but with the stock closing at its lows for the session
we would look for some follow through tomorrow.  Strongest
support for the stock is near $42.50.

Chart=


---

Eli Lilly Co - LLY - close: 59.25 change: -0.58

WHAT TO WATCH: LLY reaffirmed its Q3 and 2003 earnings guidance a
couple of days ago but that didn't stop its share price from
breaking support at the $60 level.  The P&F chart is showing a
sell signal and we wouldn't be surprised to see it fade to the
$55 area.  The DRG drug index has rolled over with its MACD about
to print a fresh bearish signal.  If the DRG retraces to the 300
mark then LLY could easily follow suit.

Chart=


---

Kohls Corp - KSS - close: 53.20 change: -2.18

WHAT TO WATCH: Shares of KSS really seem to be leading the Retail
sector lower.  The stock has been under constant selling pressure
after topping out near $65 on August 29th.  The recent breakdown
under $55 and its simple 200-dma look pretty bad and volume is
picking up steam with today's 3.9% loss.  Looks like a retest of
$50 could be just around the corner.

Chart=


---

Illinois Tool Works - ITW - close: 69.05 change: -1.51

WHAT TO WATCH: The market weakness today also drove shares of ITW
to break through the bottom of its rising channel and technical
support at $70 and the simple 50-dma.  Volume was strong and
traders could use today's move as an entry to capitalize on any
weakness towards the $65 level and its 200-dma.

Chart=



**************
MARKET POSTURE
**************

Mostly Bearish

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http://www.OptionInvestor.com/marketposture/mp_092403.asp


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