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Daily Newsletter, Wednesday, 10/01/2003

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The Option Investor Newsletter                Wednesday 10-01-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Welcome to the Fourth Quarter!
Futures Wrap: Treasuries rise, Equities Rally, Metals Drift
Index Trader Wrap: Let's make sure they work
Traders Corner: The Perfect Contrarian Indicator


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      10-01-2003           High     Low     Volume   Adv/Dcl
DJIA     9469.20 +194.14  9472.76  9276.80 1.79 bln 2360/ 490
NASDAQ   1832.25 + 45.31  1832.25  1796.09 1.81 bln 2188/ 924
S&P 100   510.33 + 11.77   510.33   498.56   Totals 4548/1414
S&P 500  1018.22 + 22.25  1018.22   995.97
W5000    9859.56 +209.88  9859.56  9649.68
RUS 2000  500.32 + 12.64   500.35   487.68
DJ TRANS 2736.34 + 62.48  2736.51  2672.64
VIX        21.07 -  1.65    22.82    20.99
VXN        31.33 -  1.50    32.70    31.11
52wk Highs  285
52wk Lows    20
PUT/CALL   0.79
TRIN       0.79
*******************************************************************

Welcome to the Fourth Quarter!
by James Brown

It was a big day for the bulls as investors looked ahead to the
up coming Q3 earnings report and the fourth quarter of 2003.
Yesterday's negative data from the PMI report and the Consumer
Confidence numbers suddenly had traders on the defensive.  The
mood on Wall Street was guarded as everyone expected potentially
devastating news that the economic recovery had fumbled in this
morning's ISM report.  Thankfully, the ISM numbers, while less
than expected were still positive and the markets rallied!

Economists had previously been looking for a headline number of
54.9 percent in the September ISM, up from August's 54.7. Yet
Monday's surprisingly negative economic reports had investors
bracing for bad news.  When today's ISM report unveiled a slight
drop to 53.7 Wall Street breathed a sigh of relief.  Readings
over 50 indicate that the majority of manufacturers surveyed said
business was improving or at least holding steady.  Today's
report marks the third consecutive month of expansion.  Probably
the most impressive component of the report was the new orders
number, which came in at 60.4 - its highest level in 16 months.

Attributing to the positive mood was good news from the research
firm Challenger, Gray and Christmas.  They tally planned
corporate layoffs each month and September marked yet another
decline.  Challenger said that the last four months of the year
tend to be the heaviest for corporate layoffs and they were
surprised by the drop to 76.5K in September, down 4 percent from
August and the lowest level since June.  Currently, corporate
America has announced more than 872K layoffs this year, which is
improvement from last year but analysts still expect 2003 to
break the 1 million mark.

The positive economic reports sent shorts scrambling and many
feel that a significant part of the move today was definitely
short covering.  Today's market advance was both powerful and
extremely broad-based with all of the benchmark indices up more
than 2 percent.  The DJIA added 194 points or 2.09% to close at
9469.  The NASDAQ Composite added 2.53% to close back above the
1800 level.  The S&P 500 jumped 22 points or 2.23% to break back
above the 1000 mark.  The Russell 2000 closed back above the 500
mark with a 2.59% gain and the Wilshire 5000 index added almost
210 points to close at 9859.  Foreign exchanges got into the act
as well.  The Japanese NIKKEI jumped 142 points to 10,361.  The
Hang Seng added 88 points to 11,229. The British FTSE rallied
1.9% to 4169 and the German DAX added 2.24% to 3329.

I know I'm repeating myself here but the rally here at home
really was very broad.  Every major sector index closed in the
green with many adding more than two percent by the close.
Homebuilding stocks were on fire today as the recent drop in
rates has given them a second wind and today's construction
report showed private residential construction hit an all-time
high in August.  The DJUSHB homebuilders index jumped 6.15% to
mark its own all-time high.  The retail sector was also very
strong with luxury goods and specialty stores surging.  The RLX
retail index added more than 3 percent to close back above its
simple 50-dma.  Disk drives, software, networking, financials,
brokers, oil and defense were also very strong.  Market internals
were very bullish with advancing stocks trampling decliners 23 to
5 on the NYSE and 22 to 9 on the NASDAQ.  Up volume was more than
five times down volume on the NYSE and up volume outpaced down
volume by 2-to-1 on the NASDAQ.

Chart of the DJIA:




Chart of the NASDAQ:




Chart of the S&P 500:




The strong ISM data pushed Dow components United Technologies
(UTX) and Caterpillar (CAT), both major manufacturers, to gains
of more than 3.3 and 3.6 percent, respectively.  The construction
data this morning, while less than expected, helped build Dow
component Home Depot's (HD) 3.29% gain.  Outpacing them all were
shares of Intel (INTC), which added more than four percent.
Analysts also welcomed positive news from 3M last night who
closed its first day of a two-day investor meeting by reaffirming
its growth forecast for 12 to 14 percent in 2004.  Investors were
encouraged by even more good news from the likes of Clear Channel
Communications (CCU) and Eli Lilly & Co (LLY).  CCU told
investors that its EBITDA numbers would be in the mid-to-high
single digits for the third quarter of 2003.  This news comes on
the heels of an earnings warning from Viacom who told investors
last month that earnings would miss due to slow local advertising
for their radio network.  Meanwhile, shares of LLY rose by more
than six percent after announcing that it had received its second
approval letter from the FDA for its Cymbalta treatment for
depression.  The FDA told LLY that no further clinical studies
were needed but the government agency was still working with the
company to clean up some quality control issues.

One of the big stories of the day was the September auto sales
numbers.  General Motors (GM), the largest of the big three, said
September U.S. sales were good.  Car sales jumped 10 percent
while truck sales surged 15 percent.  However, the company did
state that it would now offer 0% financing for its 2004 vehicles
and its current promotions on 2003 vehicles would last through
Jan. 2nd, 2004.  This is going to put pressure on Ford and
Chrysler to follow suit with their own incentives on the new 2004
models as all of them struggle to keep inventory flowing.  Ford
(F) said overall sales in the U.S. rose by 5 percent in
September, lead by gains with their new F150 truck model.
Meanwhile, Chrysler Group, part of DaimlerChrysler (DCX), was
left in the dust as U.S. September sales fell by 15 percent.
Minivans dropped 9 percent, trucks dumped 13 percent, SUV's shed
18 percent and car sales slid 22 percent.  Is it just me or have
the 2003 close out ads on TV suddenly become a blur.  We all know
that it happens every year.  Dealers start blowing out the
remaining 2003 models to "make room" for the 2004's but it seems
like we're being bombarded with ads from almost every dealer.
We've had two years of 0% financing with ever increasing
incentives and skeptics may be wondering if there are any
consumers left to take advantage of them.

Tomorrow is a new day but given the markets' close near its highs
for the session many believe the rally will continue into
Thursday.  We do have a couple of economic reports to watch for
as the August factory orders are released and the weekly
unemployment claims are reported.  Economists are looking for a
small bump in jobless claims towards the 395,000 level, up from
last week's 381,000 but as long as the number remains below
400,000 then bullish investors probably won't notice.  The big
report that Wall Street is looking for is Friday's jobs report
and unemployment rate, which comes out before the opening bell.
This might stall any advance Thursday afternoon as traders hedge
their bets or step back to wait for the result.

Keep in mind that next week we'll hear from some early Q3
earnings reports with Yahoo (YHOO) reporting on October 8th.
Then the floodgates will open on Tuesday, October 14th.


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

Treasuries rise, Equities Rally, Metals Drift
Jonathan Levinson

The first of what has tended to be a bearish month saw huge gains
in equity futures, with ES and NQ adding more than 2%, YM falling
just shy.  Treasuries advanced slightly while precious metals
traded sideways despite weakness in the US Dollar Index.

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 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 bulk of yesterday’s buying in the dollar wound up underwater
today as the US Dollar Index sunk below the 92.50 level.
Predictably, commodities valued in US Dollars rose, though only
slightly, with the CRB adding .62 to close at 244.28.  Coffee,
lean hogs and soybean futures led the advance.  Surprisingly,
precious metals were negative though most of the session.
Whether this is merely technical selling in the metals, or
whether the various central banks admitting to intervention in
the huge forex markets are covering their tracks by using some of
their spare change to sell the miniscule metals markets, we can
only guess.  Whatever the case, gold and silver failed to advance
today alongside weakness in the US Dollar Index.


Daily chart of December gold




December gold traded both sides of unchanged today, printing a
high of 387.10 and a low of 383.60.  The move changed nothing on
the daily cycle chart or within the chart patterns we’ve been
following, and it was in most respects a “nothing” day.  Given
the dollar weakness as discussed above, I find it significant,
but price-wise, today merely ran the clock.  December gold was
lower by .10 at 386 as of this writing, with HUI up 1.42 at
196.76, XAU +.50 at 91.62.


Daily chart of the ten year note yield




The stochastic on the daily chart of the ten year note yield
(TNX) continues to trend in oversold territory as the TNX dropped
again today, losing 0.5 basis points to close at 3.932%.  As the
6 month chart illustrates, the TNX is now into a confluence zone
going back to May, and should find support at current levels.
Risk is increasing on the long side of ten year notes as the TNX
continues to look bottomy here, but as long as it lasts, the
trend on TNX remains down.

Daily NQ candles





The real action was in equities today, with the NQ adding 2.14%
on a 28 point move closing 4.5 points shy of its high of 1338.50.
The move continues the disagreement over current levels, with
this week giving us a bullish engulfing, followed by a bearish,
and today’s nearly engulfing bull.  This trading range needs to
break 1340 to the upside or 1300 below, but affords ample
opportunity for intraday trades while it lasts.  Today’s gains
did not abort the ongoing daily cycle downphase in progress.
Volume on the Nasdaq exceeded 1.8B shares, which is heavier than
we’ve seen this week and bodes well for bulls targeting a break
of 1340.

30 minute 20 day chart of the NQ




The bullish divergence did a great job of what proved to be a
strong meltup, with the pattern of higher lows on the 30 minute
chart oscillators presaging the big move.  Those same oscillators
may be bearishly diverging- if the NQ tops here, it will be from
a lower stochastic high despite the higher price high.  I’m
really reaching here, as the signal isn’t printed yet, and it
doesn’t pay to anticipate signals.

The shape of the rise today was a bear wedge, despite the
unsustainable upside break near the end of the session.  There
were a number of short covering surges, with the absence of dips
that reeked of shorts panicking.

Daily ES candles




The ES daily chart is scaled differently from that of the NQ, but
today’s 20 point gain off the lows was impressive any way you
slice it.  The move did not abort the ongoing downphase on this
timeframe, but another day like today will do it.  So long as the
oscillators continue to point down, any upside is corrective,
despite the difficulty I have in calling so strong a day
“corrective”.  NYSE volume of 1.7B shares was, like that on the
Nasdaq, stronger than we’ve seen all week.


20 day 30 minute chart of the ES




The 30 minute chart on the ES shows no potential bearish
divergence on the toppy stochastic.  If the ES doesn’t reverse
its throwover above the bear wedge printed off yesterday’s lows,
we will have a trending move underway.  The 300 minute stochastic
has not tended to become pinned in overbought or oversold, and
the toppiness here suggests that we can expect lower prices
tomorrow.  I say “suggests”, because downside wasn’t the winning
bet all afternoon, with virtually no hint of weakness.  Bears
need to see this afternoon’s gains unprinted quickly, but for
now, resistance up to 1020 continues to look good.

Daily YM candles




The YM most closely resembles the ES.  Note that today’s better
than 170 point gain retraced approximately 38% of the decline
from the September high, while not affecting the ongoing
oscillator downphase on the daily chart.  Again, it’s clearly
corrective, but like the ES, this was the strongest day we’ve
seen in months, and continued strength could change what remains
a bearish picture.

20 day 30 minute chart of the YM




Same story on the 30 minute chart of the YM, which tells the same
story as that on the ES.

Anecdotally, funds receive pension inflows at the beginning of
the month, which can account for the show of strength today.  Or,
intervention, of which we’ve been reading much in the headlines
this week.  Dip buying, program trading, short covering.
Whatever.  The buyers showed up at higher lows today, following
the 30 minute oscillators quite closely.  These same oscillators
are in a zone at which downside is more likely than significant
upside.  Nothing prevents a huge surge of trend-setting buy
orders tomorrow, but the indicators we’re following don’t favor
it.  Above 1020, it should look like the lower-odds scenario is
playing out, but below it, shorts will be looking for failed
bounces on which to enter with tight stops overhead, and longs
will be looking to protect profits.  See you at the bell!


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

Let's make sure they work

I'd call today's rebound for stocks a "jaw dropper" as the Dow
Industrials (INDU) 9,469.13 +2.09% jumped 194 points in today's
session, and on the first day of trading in the new quarter,
bulls quickly tested the new quarter's program trading-collars,
which restrict index-arbitrage trading on a Dow Industrials
advance or decline of 180-points.

Today's rally was a roof raiser, especially for the homebuilders
as the Dow Jones Home Construction Index (DJUSHB) 497.14 +6%
surged higher by 28 points to a new 52-week high.  The advance to
record highs came after a rather modest 0.2% gain in construction
spending in August, but some stability from the Mortgage Bankers
Association reporting its weekly Mortgage Applications Index rose
1.1% in the latest week.  The surge in the DJUSHB is both
impressive and perplexing considering the weekly data showed the
purchases index portion of the overall index (includes all
mortgage applications for the purchase of a single family home)
fell for a second-consecutive week.

Mortgage Bankers Association - Weekly Statistics




We've looked at this set of data before, but today's strong
performance for the homebuilders comes despite the subset
Purchases Index slipping for a second-straight week after rebound
from its August 27 report.  It would be my analysis that the
homebuilders are experiencing major short covering on today's
technical breakout, or as is many times the case, accurately
predicting growing demand on a decline in mortgage rates.  I've
been keeping track of the MBA's weekly reports as to the national
average 30-year fixed mortgage in the column (30-yr Fixed) and
have highlighted the trough level found in mind-June, the recent
peak high at the August 6 report, and last week's average 30-year
fixed rate average of 5.67%, which was reported today.  It would
be my thought that should we see anything close to 5.0% on this
decline in mortgage rates, or Treasury YIELDS, we should look for
SELLING in Treasuries at or just above those levels.  I also take
a reading each Friday of the 5-day Average 10-year YIELD, which I
think depicts a week's average 10-year YIELD.

If I were to point to one economic positive taking place, it
would be the stability of the subset Refinance Index.  I've noted
the 45.5% jump from the September 10 MBA report, and in past
commentary we followed up after the 15.4% decline, with the
thought that the 15.4% decline was not overly concerning after
such a large jump the week prior.  Traders can review their 01:00
PM EDT intra-day update from September 17.
http://members.OptionInvestor.com/intraday/091703_3.asp

The stability from the refinance index, while nowhere near the
levels found in mind-June can be viewed as a positive, especially
in the wake of a still weak job market, where some homeowners may
be taking the opportunity to pull some liquidity from their
homes, which may eventually find some of that money firming
consumer spending.

The S&P Banks Index (BIX.X) 311.74 +2.37% also make a strong move
higher in today's session and broke above the correlative 308-309
resistance levels in its WEEKLY/MONTHLY pivot levels, and here
too may be a strong response from the banks on stability in the
Refinance Index statistics.

An individual name that traders might want to monitor for
strength near-term is shares of Washington Mutual (NYSE:WM)
$39.26 -0.27% for strength above $40.00.

Dow Jones Home Construction Index (DJUSHB) - Daily Interval




The MARKET didn't seem too concerned about a housing bubble at
this point.  In yesterday's 03:15 PM EDT intra-day update I made
brief comment of the homebuilder looking to break out from
congestion and today, if there is a housing bubble in the future,
it was filled with one heck of a lot of helium today and looks
well positioned to rise to an altitude of 527.

I've listed the various DJUSHB components in the above chart.

As we review today's action in the pivot matrix, I think
tomorrow's test for further upside will have to come from the
NDX/QQQ and this would relate back to observations and thought
made in early August.  The INDU/SPX/OEX did their job today for
bullish gains and showed strength above the correlative
WEEKLY/MONTHLY pivots.  Tomorrow, it would be rather important,
that the NDX/QQQ follow this technical move.

Pivot Analysis Matrix -




I've "dashed green" the WEEKLY and MONTHLY pivots for the
SPX/SPY/OEX as tentative support tomorrow as they were traded
through to the upside today, but should now be viewed as near-
term support tomorrow, should some giveback of today's rather
impressive gains be found.  An original upside target for the SPX
on a break above 1,010 was viewed at 1,025 and we see multiple
correlations in the matrix scattered around the 1,025 level, with
perhaps greater emphasis of this level coming from the Dow
Industrials (INDU) at its DAILY R1 and WEEKLY R1.

In PINK, I've emphasized how the S&P Banks Index (BIX.X) may be
leading in the pivot matrix, and with the BIX.X closing just
above its September relative highs of 311.44 at today's close,
has the BIX.X looking like it wants to mimic the Dow Jones Home
Construction Index (DJUSHB), if not at least test its 52-week
high of 317.94, which was set on July 14th.  That very 317.94 52-
week high would be very close to the BIX.X monthly R2.

Sometime a market can have a very short memory.  I, and hopefully
you, have not forgotten some of the issues that may be in play as
it pertains to the weaker dollar.  As I type, the U.S. Dollar
Index (dx00y) 92.29 -0.6% continues to weaken in today's trade.
In this morning's 09:00 Update, it was noted that business in
Japan made comment in the tankan sentiment survey, that there was
concern among Japanese-based businesses of the yen's rise versus
the dollar, which might have some businesses being less
optimistic about the future, than those views expressed during
the survey.  December yen futures (jy03z) showed the yen gaining
against the dollar today at 0.906 +0.72%.  Meanwhile the December
euro futures contract (eu03z) 1.1686 +0.55% are nearing a
contract high of 1.1804, set on May 29.

As an alert to any currency-related action, I'm going to also set
a 10-year YIELD alert at the 3.903% YIELD level from the DAILY
S1, which I would use as an alert to equity weakness.  Here's
why.

One comment I read today at Briefing.com, was there mentioning
that when they asked some of their contacts on the floor, which
are in touch with several buy side mutual funds, and for the most
part, the general tone was that the main strategy for fund
managers is to protect their year-to-date gains, where many are
not looking to further commit funds in October, but now take on
more of a short-term focus, in an attempt to at times pad gains
with shorter-term trading.

And those comments, is perhaps where I think it somewhat
important that the NDX/QQQ follow the INDU/SPX/OEX moves above
their WEEKLY/MONTHLY Pivot resistance levels tomorrow.

The only trade I see a BEARISH trader looking for tomorrow, is
for the NDX/QQQ to struggle at the pivots, and find a reversal
lower in the INDU/SPX/OEX back BELOW their WEEKLY/MONTHLY pivots,
which would be a sign of a failed rally attempt in today's
session.  Should this type of action unfold with a further
weakening dollar as it approaches the summer lows.

There is building concern amongst traders and some institutions
regarding what is going on with the dollar and its potential
impacts on global markets.

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




Striking similarities found in early August (oscillators, moving
averages, SPX/OEX/INDU trying to lead a rally, QQQ still pullback
range) and while the SPX did hesitate intra-day right between its
MONTLY pivot (1,008.86) and WEEKLY pivot (1,009.74) its was
notable that when the SPX moved into that range, it began finding
support at the monthly pivot, and when the break higher of 1,010
came, further gains in the afternoon built to the close.  With
some formidable looking resistance now nearing the 1,023 level,
the SPX is counting on the QQQ for strength as the SPX tries to
lead.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) edge up
0.2%, so a net gain of 1 stock to a PnF buy signal was seen.
Still "bull confirmed" at 77.00%.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval




I would expect bulls to POUND a move higher at $33.25 in the Q
after today's break higher in the SPX/OEX/INDU above their
WEEKLY/MONTHLY pivots and try to get a short-covering rally to
take hold in the Q's.  It is this expectation that becomes the
test in tomorrow's trade.  In Monday's Index Wrap, I touched on
the similarity a QQQ trader might look for in the QQQ, and so
far, history looks to repeat itself.

But be ALERT to DIVERGENCE from the past.  It took some guts, or
selling to keep the QQQ's below the $33.22 and for August history
to have a shot at repeating, I think the QQQ's need to see the
break above $33.23.  As a note, I changed my QQQ intervals to 1-
minute intervals and the QQQ traded $32.23 for two-minutes at the
highs of the session, which came at 03:42 PM EDT.  This was AFTER
trading curbs were in place at 03:26 PM EDT.  Somebody, not
institutional computers, were selling the Q's at this level
($33.22) so I still deem it resistance.

With the banks looking to heat up, there may be some bulls that
did take partial positions in a bullish trade on today's break,
where a partial position made sense considering some of the
currency issues currently at hand.  Let's use the OEX chart and
one of our old upward trends as a good upside test of resistance,
should the banks really catch fire and break to new 52-week
highs.

On a further rally follow through tomorrow, to WEEKLY R1's,
here's a way I think a bull could try and let things run a bit,
but still snug up a trailing stop if the current move underway is
simply a short-term mutual fund trade as discussed in the
Briefing.com discussion.

Today's trade saw a net loss of 1 stock to a point and figure
sell signal in the NASDAQ-100 Bullish % ($BPNDX).  This was
enough to have this bullish % reversing BACK LOWER to "BEAR
CONFIRMED" status at 74%.

KEEP THIS IN MIND AS IT RELATES TO THE WEEKLY/MONTHLY PIVOT
RESISTANCE!

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




The test for further gains in the OEX in my mind is to see the
NDX/QQQ participate further.  However, the BIX.X gains today were
impressive and ANYTHING, I mean ANYTHING can happen when a group
of stocks breaks to new highs (see today's DJUSHB).  An OEX bull
that may have taken a partial new bullish entry in the OEX on the
break above 507 and WEEKLY Pivot of 506.53 sees 513.70 as
resistance, but should the financials really catch fire, then OEX
520 not out of the question.  A trader holding 1 OEX call may not
have the flexibility to take a profit at/near the 513 level on
strength as a trader holding 2 calls, where 1 call option might
be sold to book a profit, and hold the other for potential
further gain.  One way I'd look to trade a 1 call position, would
be to raise a profit stop under the WEEKLY 38.2% retracement,
should the OEX advance to test the WEEKLY R1.

Today's trade saw no net change in the narrower S&P 100 Bullish %
($BPOEX).  Still "bull correction" status at 78%.

Dow Industrials (INDU) Chart - Daily Interval




In last night's Index Wrap I thought a trader might look to sell
strength on a INDU rally back to 9,500.  I can't say the bearish
side of me after today's trade is excited to sell short or buy
put at 9,500, but some of Briefing.com's comments do lay some
groundwork where if it is true that buy side mutual find managers
are only looking to pad some yearly gains, the a trade near 9,535
and QUICK reversal back below 9,500 may be first alert to this
type of trade philosophy actually being in play.  Further
weakness back below the MONTHLY Pivot, in my mind, would be
larger confirmation that the buy side is becoming more
conservative.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Still "bull correction" at 80%.

I think we must ALWAYS be skeptical of what a floor trader says.
I'm sure Briefing.com has some trusted sources, but I'm always a
little skeptical that a floor trader telling me one thing, is to
serve his/her purpose for being on the other side of the trade.

Jeff Bailey


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**************
Traders Corner
**************

The Perfect Contrarian Indicator
by Mark Phillips
mphillips@OptionInvestor.com

Me!  While I say that in a rather tongue-in-cheek manner, I don't
think I could have called the top in the market more accurately
if I had tried.  In recent weeks, I've detailed my frustrations
in being unable to accurately read the market, having picked one
too many tops in the recent bullish cycle.  A few weeks ago, I
finally threw in the towel and decided I'd play the bullish side
of the coin until the market proved to me through its actions
that a top was in.  I now firmly believe that top is in and
hindsight being what it is, I think it was put in just under 2
weeks ago when the S&P 500 ran into a brick wall at 1040 and
promptly reversed from there.

Rather than detail all of the indications that I misread in the
recent past, I want to take our time here today to explain
(largely in graphical format) the various pieces of the puzzle
that have convinced me that the bears have come out to play for
more than just a few days or even a week.  Care to tag along for
the journey with me?

While I understand that there is much more to "The Market" than
any one index, I want to keep our discussion focused today, so
I'm going to lean heavily on the S&P 500 (SPX.X), as I think it
most clearly demonstrates the various factors that have come
together in the bears' favor.  What I won't talk about is my
fundamental view.  While it is certainly germane to where the
stock market is headed and is in sync with where I think it is
currently pointed, today's discussion is purely of a technical
nature.  The fundamental problems facing this market have been
discussed ad nauseum by myself and others, and long-time readers
don't need to have them restated here.

Let's start simply with the weekly chart of the SPX.  We last
looked at it a couple weeks ago, when I pointed out the
possibility of bearish divergence forming.  Is anyone curious how
that has played out over the intervening time?

Weekly Chart of the S&P 500




As you can see, the bearish divergence is still very much in
effect, with one important difference.  The fast line (blue) has
now crossed below the slow line (red) giving us a classic
Stochastics Sell signal.  The one caveat here is the fact that
this is a weekly chart and the weekly candle won't finish
painting until Friday's closing bell.  If today's sharp rally is
an indication of what is in store for the remainder of the week
(which I doubt), then we could see this crossover reverse,
telling us that the all-clear for shorting this market is still
not quite here.

Remember, my focus here is not on what is going to happen this
week or next, but on trying to divine a longer-term trend that we
can play, preferably one that might last for 2-3 months or more.
That's why they call them position trades.  So if we're looking
at the longer-term, it certainly can't hurt to look at even a
broader view than the weekly chart -- the monthly chart, which
gives us a very clear view going all the way back before the
euphoric ramp in the late 1990s got underway.

Monthly Chart of the S&P 500




Here we can see bearish divergence as well, albeit of a slightly
different sort.  Here we have lower price highs and higher
Stochastics highs to deal with.  We looked at this picture a
couple weeks ago, and the bearish divergence was far less
developed than it is tonight, with the Stochastics now well into
overbought territory and just beginning to tip over.  The same
caution about waiting for the weekly candle to finish painting
applies here.  With the current candle on the monthly chart only
being one day old, we clearly have a while to wait before we'll
know if we truly have confirmed bearish divergence on this longer
view.  But if we see the fast line cross under the red line and
drop out of overbought territory before price can exceed 1177
(the high from January 2002), then it could be a rough holiday
season for the bulls.

I've decided to put aside my ire over the manner and timing in
which the "new and improved" VIX has been introduced and just
accept it at face value.  Afterall, it seems unlikely that the
intellectual flaws in the way the data is being provided will be
corrected.  I'm not a conspiracy nut, but this whole process
really smells bad to me.  At any rate, let's take a look at the
current VIX chart, imperfect as it is.

Daily Chart of the VIX




The VIX has been channeling gradually lower for 5 months now,
with only two signs of a breakout to the upside.  The first one
in early August was accompanied by the ADX moving slightly above
20, indicating a strengthening trend.  But that breakout was
quickly reversed.  Over the past few days, we've seen the VIX
breaking out over the top of the channel, along with the ADX
creeping back over the 20 level.  With today's strong rally and a
more than 7% slide in the VIX, it looks like the nascent breakout
above the channel along with the ADX over 20 is just another
head-fake to get the bears overly anxious.

Of course, I'll leave you with this tantalizing tidbit of
information -- If we look at the VXO (which is really the correct
value for the old VIX based on the OEX), we can see it closed
today at 22.01.  I find it interesting to see that value is ABOVE
the top of the descending channel in the VIX chart above.  Let's
just say this is one of many annoying inconsistencies in the "new
and improved" VIX.  The correct information is still there, but
we have to dig a little bit deeper.  To me the key point to be
derived from looking at the VIX is that it MIGHT be getting ready
to break out of its slump, but it remains unclear so far.

The last piece of the puzzle I want to review is the SharpChart
of the S&P 500 Bullish Percent chart.  As we've discussed
recently, the standard process I use (thanks to Brian's astute
observations last year) of interpreting this indicator in this
format gave three false Sell signals during the summer.  Each
time (mid-June, mid-July and early-August), the BP line crossed
below the 10-dma and the CCI oscillator fell below the -100 line.
Despite the pattern of lower highs in BP that accompanied these
signals and the CCI each time moving to a lower low, the market
(and BP) reversed sharply higher into the middle of September
before finally tipping over with some real conviction.  Take a
look below and I think you'll see the situation seems to be
significantly different this time.

1-Year Bullish Percent Chart of the SPX




Look at the separation in the Bullish Percent line and the 10-dma
this time.  It looks a lot more like what we saw last January,
don't you think?  In addition, we've seen the CCI oscillator
finally decline below -200, another confirmation we haven't seen
since January.  It isn't a guarantee of course, and it is likely
we'll see one more failure to move to new highs before the BP
chart tips over for good, but I view this pattern as very
constructive if we're looking for a market decline in the months
ahead.

So let's briefly recap what we've looked at here today.  Both the
weekly and monthly charts of the SPX are showing us as being very
close to having confirmed bearish Stochastics divergence, and I
might add that these instances of divergence show up on other
oscillators as well.  Stochastics just happens to be my personal
favorite.  Our favorite Sentiment indicator (VIX) is hinting that
the gentle downward trend may be getting ready to reverse.
Nothing confirmed yet, but we could be close.  And finally, the
BP SharpChart is giving us the most convincing Sell signal of the
past 9 months.  I don't know about you, but my fundamental views,
along with the lackluster case for economic growth has me
personally leaning to the short side the most heavily I have
since before the latest war with Iraq.

One final note of clarification:  Today's strong rebound is in
perfect keeping with what I would expect to see following this
first sharp downward move.  Bullish sentiment is still quite
strong in this market, so chasing your favorite stock or index
lower is not what I would call a high-odds strategy.  Short into
the rallies near resistance, not on breakdowns below support.  As
a benchmark, I would view a failed rally in the SPX in the 1030
area to be a viable entry strategy for a position trade as we
head into the October earnings cycle.

Have a great week!

Mark


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The Option Investor Newsletter                Wednesday 10-01-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Play of the Day: Call - AMZN
Spreads, Combinations & Premium-Selling Plays: Stocks Soar On
     Bullish Manufacturing Data!
Watch List: A Few More Bullish Candidates

Updated on the site tonight:
Market Posture: Bulls Stampede Into October


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

Amazon.com - AMZN - close: 49.12 change: +0.69 stop: 46.50

-Company Description-
Amazon.com is a website where customers can find virtually
anything they want to buy online.  The company lists millions of
unique items in categories such as books, music, DVDs, consumer
electronics, toys, software, computer and video games, lawn a
patio items, kitchen products and wireless products.  Through its
Amazon Marketplace, Auctions and zShops services, any business or
individual can sell virtually anything to AMZN's approximately 30
million cumulative customers.

- Most Recent Update (Tuesday, Sept 30, 2003)-
The last few days have proved quite volatile for the Internet
stocks with our AMZN play looking weak on Friday, strong
yesterday and weak again today.  The good news is that it remains
in the upper half of its channel and above what should now be
strong support near $47.  The bad news is that the stock ended
the day at its low of the day and slightly below Friday's close.
We're looking for a serious test of support over the next couple
days and the outcome of that test will determine whether the play
is still viable.  First support comes in at the center of the
channel (currently $47.90), then the 20-dma ($47.44) and then
prior resistance near $47.25.  A solid rebound from this zone of
support can be used for new (although aggressive) entries.
Traders looking to enter on strength will want to see AMZN get
back above the $50 level before considering new positions.
Maintain stops at $46.50 for now, as that remains just below the
30-dma.

- Play of the Day Comments -
It was tough to find a bullish play that hadn't run too far ahead
of itself given the 200 point rally in the DJIA and the 2.5% jump
in the NASDAQ.  The bounce today in shares of AMZN was off
previous resistance that had now become support.  It looks like a
good place to evaluate new long positions.  Traders who might be
concerned about AMZN's very short-term trend of lower highs can
wait for a move above the $50 mark for confirmation.


- Suggested Options -
Shorter Term: The October 47 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the November 50 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the November 47 Call.

BUY CALL OCT-47 ZQN-JW OI=11616 at $2.90 SL=1.50
BUY CALL OCT-50 ZQN-JJ OI=17674 at $1.60 SL=0.75
BUY CALL NOV-47 ZQN-KW OI=  230 at $4.50 SL=2.50
BUY CALL NOV-50 ZQN-KJ OI=10662 at $3.20 SL=1.65
BUY CALL JAN-47 ZQN-AW OI= 2657 at $6.10 SL=4.25
BUY CALL JAN-50 ZQN-AJ OI= 9714 at $4.80 SL=2.40

Annotated Chart of AMZN:




Picked on September 18th at  $47.89
Change since picked:          +1.23
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     8.79 mln
Chart =



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

Stocks Soar On Bullish Manufacturing Data!
By Ray Cummins

The major equity averages rallied Wednesday amid signs the U.S.
economy may truly be recovering.

The Dow Jones Industrial Average closed up 194 points at 9,469 on
strength in Alcoa (NYSE:AA), Caterpillar (NYSE:CAT), Home Depot
(NYSE:HD), Walt Disney (NYSE:DIS), 3M (NYSE:MMM), J.P. Morgan
(NYSE:JPM), and United Technologies (NYSE:UTX).  The NASDAQ was
also a big mover, up 45 points to end at 1,832 as virtually all
technology sectors saw renewed buying pressure.  The broader S&P
500 index added 22 points to 1,018, with retailers, brokers, and
banks among the best performers.  Advancers outpaced decliners by
a 5 to 1 margin on the New York Stock Exchange where 1.5 billion
shares changed hands.  Breadth was less bullish on the NASDAQ as
winners moved past losers by more than 2 to 1 on volume of over
1.8 billion shares.  Treasuries held their own, despite the upside
activity in stocks.  The benchmark 10-year note finished the day
up 2/32 at 102 18/32 to yield 3.93%.  The yield remains at its
lowest closing level since mid-July.

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

SUMMARY OF CURRENT POSITIONS - AS OF 9/30/03

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

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  31.36   $0.45   5.20%   1.52%
CELL     OCT    25    24.40  32.78   $0.60   8.23%   2.46%
CEPH     OCT    40    39.15  45.89   $0.85   6.73%   2.17%
CVTX     OCT    20    19.70  22.02   $0.30   4.92%   1.52%
DIGE     OCT    35    34.60  40.86   $0.40   4.06%   1.16%
HEPH     OCT    22    21.85  24.24   $0.65   9.81%   2.97% *
LLTC     OCT    35    34.30  35.93   $0.70   5.35%   2.04%
NFLX     OCT    27    27.15  33.56   $0.35   4.44%   1.29%
RIMM     OCT    27    26.90  38.20   $0.60   6.95%   2.23%
VRNT     OCT    22    22.00  21.41  ($0.59)  0.00%   2.27% *
AMHC     OCT    35    34.50  41.91   $0.50   6.10%   1.45%
APPX     OCT    33    32.73  31.36  ($1.37)  0.00%   1.99% *
ELAB     OCT    35    34.50  38.34   $0.50   5.51%   1.45%
FLML     OCT    30    29.60  33.71   $0.40   5.85%   1.35%
MATK     OCT    50    49.30  52.63   $0.70   5.03%   1.42%
NFLX     OCT    32    31.90  33.56   $0.60   7.09%   1.88%
RIMM     OCT    27    27.20  38.20   $0.30   5.00%   1.10%
RIMM     OCT    30    29.35  38.20   $0.65   8.18%   2.21%
UNTD     OCT    35    34.35  34.79   $0.44   4.65%   1.89% *
VIP      OCT    55    54.40  60.86   $0.60   3.99%   1.10%

Conservative traders should have closed a number of these
positions during the recent sharp sell-off.  Among the most
obvious candidates for exit are American Pharma Partners
(NASDAQ:APPX), Verint Systems (NASDAQ:VRNT), United Online
(NASDAQ:UNTD), and Hollis Eden Pharmaceuticals (NASDAQ:HEPH).


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

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

APC      OCT    45   45.34  41.76   $0.45   3.14%    0.99%
TRMS     OCT    40   40.40  25.07   $0.40   5.74%    0.99%
BRCM     OCT    30   30.50  26.66   $0.50   6.47%    1.64%
IMCL     OCT    50   50.45  38.93   $0.45   6.53%    0.89%
PCLN     OCT    35   35.50  29.04   $0.50   8.64%    1.41%
ZRAN     OCT    25   25.35  19.57   $0.35   9.44%    1.38%


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

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

ANF     30.49  27.71   OCT  25  27   0.30  27.20  $0.30   Open?
CFC     75.19  78.28   OCT  65  70   0.50  69.50  $0.50   Open
MO      44.65  43.80   OCT  40  42   0.30  42.20  $0.30   Open
OHP     38.60  41.31   OCT  32  35   0.25  34.75  $0.25   Open
AMZN    49.61  48.43   OCT  42  45   0.35  44.65  $0.35   Open
AZO     94.51  89.53   OCT  85  90   0.65  89.35  $0.18   Open?
NE      33.98  33.99   OCT  30  32   0.25  32.25  $0.25   Open

Autozone (NYSE:AZO) and Abercrombie & Fitch (NYSE:ANF) are at
"key" moments and any further downside activity would put them
on the early-exit list.


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

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

FRX     49.56  51.45   OCT  60  55   0.60  55.60  $0.60   Open
KO      43.01  42.96   OCT  47  45   0.30  45.30  $0.30   Open
MEDI    37.03  33.03   OCT  42  40   0.25  40.25  $0.25   Open
LXK     65.14  63.01   OCT  75  70   0.55  70.55  $0.55   Open
NOC     86.00  86.22   OCT  95  90   0.50  90.50  $0.50   Open
WTW     43.15  41.60   OCT  50  45   0.40  45.40  $0.40   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  54.05   NOV    60    60    7.25    8.00     Open

Amerisourcebergen (NYSE:ABC) has achieved profitability in a short
time and today the value of the bearish portion (NOV-$60 Put) of
the position paid for the entire cost of the straddle.  Traders
should consider "legging-out" of the straddle to lock-in gains or
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  $43.08  *** Near All-Time Highs! ***

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  $43.08

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     115   0.25  34.75   4.5%   0.7% *
SELL PUT  OCT 40    QMH VH      61   1.30  38.70  14.2%   3.4%


**************
ERES - eResearch Technology  $34.72  *** Uptrend Intact! ***

eResearch Technology (NASDAQ:ERES) is a provider of technology and
services that enable the pharmaceutical, biotechnology and medical
device industries to collect, interpret and distribute cardiac
safety and clinical data more efficiently.  The company offers a
range of products and services, including Diagnostics Technology
and Services and Clinical Research Technology.  Their Diagnostics
Technology and Services include centralized diagnostic services
and clinical research operations, including clinical trial and
data management services.  Their Clinical Research Technology and
Services include the developing, marketing and support of clinical
research technology and services.

ERES - eResearch Technology  $34.72

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    UDB VF     209   0.30  29.70   5.4%   1.0% *
SELL PUT  OCT 32.5  UDB VZ     850   0.90  31.60  12.1%   2.8%


**************
HELE - Helen of Troy  $25.11  *** Retailers Rally! ***

Helen of Troy (NASDAQ:HELE) designs, develops, imports and sells
hair care appliances, hair brushes, combs, hair accessories, hair
and skin care liquids and powders and other personal care products.
The company purchases its products from unaffiliated manufacturers
in the People's Republic of China, Thailand, Taiwan and South Korea.
The company is comprised of three operating segments.  The North
American segment sells hair care and other personal care products
in the United States and Canada.  The International segment sells
the same products outside the United States and Canada.  The firm's
third segment, Tactica, markets personal care and other consumer
products to retailers, and uses direct response marketing to sell
such products directly to consumers.

HELE - Helen of Troy  $25.11

PLAY (sell naked put):

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

SELL PUT  OCT 22.5  EHQ VX     265   0.50  22.00  10.6%   2.3% *
SELL PUT  OCT 25    EHQ VE      80   1.20  23.80  18.2%   5.0%


**************
JCOM - j2 Global Communications  $38.47  *** Entry Point? ***

j2 Global Communications (NASDAQ:JCOM) provides outsourced value
added messaging and communications services to individuals and
businesses throughout the world.  The company offers faxing and
voicemail solutions, Web initiated conference calling, document
management solutions and unified messaging services.  j2 Global
markets its services principally under the brand names eFax and
jConnect.  The company delivers its services through its global
telephony/Internet protocol network, which spans more than 600
cities in 18 countries across five continents, including four
capital cities in Latin America where j2 Global is in the process
of launching its unique service.

JCOM - j2 Global Communications  $38.47

PLAY (sell naked put):

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

SELL PUT  OCT 32.5  JQF VZ   1,309   0.35  32.15   6.1%   1.1% *
SELL PUT  OCT 35    JQF VG   1,415   0.85  34.15  11.2%   2.5%


**************
MSTR - MicroStrategy  $46.00  *** Consolidation Complete? ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on this
data to users via Web, wireless, and voice.

MSTR - MicroStrategy  $46.00

PLAY (sell naked put):

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

SELL PUT  OCT 40    EOU VH     307   0.60  39.40   7.8%   1.5% *
SELL PUT  OCT 45    EOU VI     290   2.00  43.00  17.4%   4.7%


**************
NFLX - Netflix  $34.51  *** Solid Earnings! ***

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  $34.51

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  QNQ VY    2,138  0.55  26.95  12.5%   2.0% *
SELL PUT  OCT 30    QNQ VF    1,754  1.05  28.95  17.2%   3.6%
SELL PUT  OCT 32.5  QNQ VZ      638  1.80  30.70  22.4%   5.9%


**************
RIMM - Research In Motion  $38.06  *** Rally Mode! ***

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  $38.06

PLAY (sell naked put):

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

SELL PUT  OCT 32.5  RUL VZ    1,383  0.25  32.25   4.3%   0.8% *
SELL PUT  OCT 35    RUL VG    2,153  0.70  34.30   9.2%   2.0%


**************
USG - USG Corp.  $17.71  *** Asbestos Speculation! ***

USG Corporation (NYSE:USG) produces a range of products for use
in new residential, new non-residential and repair and remodel
construction, as well as products used in certain industrial
processes.  Its operations are organized into three operating
segments: North American Gypsum, which manufactures Sheetrock
brand gypsum wallboard and related products in the United States,
Canada and Mexico; Worldwide Ceilings, which manufactures ceiling
tile in the United States and ceiling grid in the United States,
Canada, Europe and the Asia-Pacific region, and Building Products
Distribution, which distributes gypsum wallboard, drywall metal,
ceiling products, joint compound and other building products
throughout the United States.

USG - USG Corp.  $17.71

PLAY (sell naked put):

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

SELL PUT  OCT 15    USG VC    4,561  0.25  14.75   9.1%   1.7% *
SELL PUT  OCT 17.5  USG VW    1,464  0.90  16.60  19.6%   5.4%


**************
YHOO - Yahoo!  $36.40  *** Next Leg Up? ***

Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.

YHOO - Yahoo!  $36.40

PLAY (sell naked put):

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

SELL PUT  OCT 32.5  YHQ VZ   13,006  0.35  32.15   5.4%   1.1% *
SELL PUT  OCT 35    YHQ VG   14,097  0.95  34.05  11.4%   2.8%


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

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.

***************
HOV - Hovnanian Enterprises  $69.15  *** Hot Sector! ***

Hovnanian Enterprises (NYSE:HOV) constructs and sells single-family
detached homes and attached condominium apartments and townhouses
in more than 196 new home communities in New Jersey, Pennsylvania,
New York, Virginia, Maryland, North Carolina, Texas and California.
The firm offers a wide variety of homes that are designed to appeal
to first-time buyers; first- and second-time, move-up buyers; luxury
buyers; active adult buyers, and empty nesters.  In addition, the
company provides financial services, including mortgage banking and
title services to the homebuilding operations' customers.  The firm
does not retain or service the mortgages that it originates, but
rather sells the mortgages and servicing rights to investors.

HOV - Hovnanian Enterprises  $69.15

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-60.00  HOV-VL  OI=1132  ASK=$0.25
SELL PUT  OCT-65.00  HOV-VM  OI=414   BID=$0.80
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$64.45


**************
KBH - KB Home  $64.20  *** A Big Day! ***

KB Home (NYSE:KBH) is a diversified homebuilder with operations
in Arizona, California, Colorado, Florida, Nevada, New Mexico and
Texas.  KB Home builds homes that cater primarily to first-time
and "move-up" homebuyers, generally in medium-sized developments
close to major metropolitan areas.  The company, through its main
subsidiary Kaufman & Broad S.A., also has operations in France.
KBSA constructs single-family homes and high-density residential
properties such as condominium complexes and commercial projects.
During the fiscal year ended November 30, 2002, the firm delivered
25,452 units and operated an average of 330 active communities.
The company also provides mortgage banking services through its
subsidiary, KB Home Mortgage Company.

KBH - KB Home  $64.20

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-55.00  KBH-VK  OI=2498  ASK=$0.20
SELL PUT  OCT-60.00  KBH-VL  OI=840   BID=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$59.55


**************
RJR - R.J. Reynolds  $40.32  *** New Trading Range? ***

R.J. Reynolds Tobacco (NYSE:RJR) is a cigarette manufacturer with
wholly owned subsidiaries, including its operating subsidiaries,
R. J. Reynolds Tobacco company (RJR Tobacco) and Santa Fe Natural
Tobacco Company.  The company's largest selling cigarette brands
are Camel, Winston, Salem and Doral.  Those brands and its other
brands, including Vantage, More and Now, are manufactured in a
variety of styles and marketed in the United States to meet a wide
range of adult smoker preferences.  During 1999, RJR and Nabisco
Group Holdings completed a series of transactions to reorganize
their businesses and capital structures.  In May 1999, RJR and RJR
Tobacco sold the international tobacco business to Japan Tobacco.

RJR - R.J. Reynolds  $40.32

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-35.00  RJR-VG  OI=1456  ASK=$0.10
SELL PUT  OCT-37.50  RJR-VU  OI=1023  BID=$0.30
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$37.25


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

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.

***************
CVTX - CV Therapeutics  $22.01   *** Back In A Rut! ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused
on the discovery, development and commercialization of new small
molecule drugs for the treatment of cardiovascular diseases.  The
company's New Drug Application (NDA) for Ranexa (ranolazine) for
the treatment of chronic angina has been filed at the U.S. FDA.
Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being
developed for the potential reduction of rapid heart rate during
atrial arrhythmias.  CVT-3146, an A2A-adenosine receptor agonist,
is being developed for the potential use as a pharmacologic agent
in cardiac perfusion imaging studies.  Adentri, an A1-adenosine
receptor antagonist, is being developed by the company's partner,
Biogen, for the potential treatment of acute and chronic congestive
heart failure.  CVTX also has several research and preclinical
development programs designed to bring additional drug candidates
into human clinical testing.

CVTX - CV Therapeutics  $22.01

PLAY (sell naked call):

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

SELL CALL  OCT 27.5  UXC JY   1,644   0.20  27.70   7.3%   0.7% *
SELL CALL  OCT 25    UXC JE   1,898   0.55  25.55  14.6%   2.2%


**************
IMCL - ImClone  $37.88  *** No Rally Here! ***

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  $37.88

PLAY (sell naked call):

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

SELL CALL  OCT 45    QCI JI    8,303  0.50  45.50   9.9%   1.1% *
SELL CALL  OCT 40    QCI JH    2,756  1.55  41.55  18.0%   3.7%


**************
SINA - SINA Corporation  $35.26  *** China-dot-com Slump! ***

SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an
online media company and value-added information service provider
for China and the global Chinese communities.  With a branded
network of localized Websites targeting China and overseas Chinese,
the company provides an array of services to its users including
region-focused online portals, search, directory, interest-based
and community-building channels, free and premium e-mail, wireless
short messaging, online games, virtual Internet service provider,
classified listings, e-commerce, e-learning, and enterprise
e-solutions.  In turn, SINA generates revenue through advertising,
fee-based services, e-commerce and enterprise services.

SINA - SINA Corporation  $35.26

PLAY (sell naked call):

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

SELL CALL  OCT 45    NOQ JI    9,979  0.40  45.40   9.1%   0.9% *
SELL CALL  OCT 40    NOQ JH    5,471  1.15  41.15  18.5%   2.8%


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

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.

**************
DNA - Genetech  $79.72  *** Premium-Selling Only! ***

Genentech (NYSE:DNA) is a biotechnology firm using human genetic
information to discover, develop, manufacture and commercialize
biotherapeutics for significant unmet medical needs.  The company
manufactures and commercializes 10 biotechnology products directly
in the United States.  These include Herceptin, Rituxan, TNKase,
Activase, Cathflo Activase, Nutropin Depot, Nutropin AQ, Nutropin
human growth hormone, Protropin and Pulmozyme.  The company also
licenses several additional products to other companies and its
product development efforts, including those of its collaborative
partners, cover a wide range of medical conditions, including
cancer, respiratory disorders, cardiovascular diseases, endocrine
disorders and inflammatory and immune problems.

DNA - Genetech  $79.72

PLAY (less conservative - bearish/credit spread):

BUY  CALL  OCT-90.00  DNA-JR  OI=4373   ASK=$0.25
SELL CALL  OCT-85.00  DNA-JQ  OI=12947  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$85.50


**************
SNPS - Synopsys  $30.71  *** Post-Split Slump? ***

Synopsys (NASDAQ:SNPS) is the world leader in electronic design
automation (EDA) software for integrated circuit design.  The
company delivers technology-leading IC design and verification
platforms to the electronics market, enabling the development of
complex systems-on-chips.  Synopsys also provides intellectual
property and design services to simplify the design process and
accelerate time-to-market for its customers.  The company is
headquartered in Mountain View, California and has offices in
more than 60 locations throughout North America, Europe, Japan
and Asia.

SNPS - Synopsys  $30.71

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-35.00  YPQ-JG  OI=4084  ASK=$0.15
SELL CALL  OCT-32.50  YPQ-JZ  OI=1674  BID=$0.40
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$32.75


**************
XLNX - Xilinx  $27.99  *** Consolidation In Progress? ***

Xilinx (NASDAQ:XLNX) designs, develops and markets complete
programmable logic solutions, including advanced integrated
circuits, software design tools, predefined system functions
delivered as intellectual property cores, design services,
customer training, field engineering and technical support.
The programmable logic devices include field programmable gate
arrays and complex programmable logic devices.  These devices
are standard products that its customers program to perform
desired logic functions.  Its products are designed to provide
high integration and quick time-to-market for electronic
equipment manufacturers primarily in the telecommunications,
networking, computing, industrial and consumer markets.

XLNX - Xilinx  $27.99

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-32.50  XLQ-JZ  OI=4488  ASK=$0.15
SELL CALL  OCT-30.00  XLQ-JF  OI=3893  BID=$0.40
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$30.25


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

SEE DISCLAIMER - SECTION 1

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


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

A Few More Bullish Candidates

United Technologies - UTX - close: 79.88 change: +2.60

WHAT TO WATCH: A Dow component and a major manufacturer, shares
of UTX enjoyed a strong bounce on the positive ISM data this
morning.  Bullish traders might want to watch for a move above
the $80.50 mark as an entry to open new long positions.  Our
first target would be $85.00.

Chart=


---

Amgen Inc - AMGN - close: 66.28 change: +1.76

WHAT TO WATCH: The rebound in the markets today brought some
buying interest into the Biotech index's largest component, AMGN.
The stock appears to be in a descending channel and the recent
bounce is off the bottom of that channel.  Aggressive bulls could
use the move today as an entry point with a target near $69-70,
just watch out for the wavering 50-dma overhead.

Chart=


---

Caterpillar Inc - CAT - close: 71.34 change: +2.50

WHAT TO WATCH: CAT is another manufacturer that jumped higher on
the positive factory data in the ISM report today.  Its MACD has
slowly drifted back toward the zero line and looks ready to
produce a new bullish buy signal.  However, CAT has not yet
broken its six-week trend of lower highs.  A move above $72 might
be a good entry point for bulls to evaluate new long positions.

Chart=


---

Countrywide Financial - CFC - close: 80.82 change: +2.54

WHAT TO WATCH: Shares of CFC surged to a new all-time high on
very strong volume today.  The strong pace of residential
construction and the drop in mortgage rates means more home loans
for this lender.  The stock just received another upgrade
yesterday with Piper Jaffray raising their price target to $110.
Traders might want to keep CFC on their watch list for a dip back
to the $78 level.  Earnings are in two weeks.

Chart=




----------------------------------
RADAR SCREEN: more stocks to watch
----------------------------------


HAR $101.99 +3.64 - Shares of HAR closed at a new high after
announcing a 2-for-1 stock split to be approved at its November
shareholder meeting.

PNRA $39.00 -2.01 - PNRA broke through support at the $40 level
on very big volume and looks ready to test its 200-dma near $36.

CTX $82.56 +4.68 - Homebuilders are hot and CTX has broken out
above its recent consolidation and looks ready to target its old
highs near $87.50.

PHM $70.88 +2.87 - PHM is another homebuilder breaking out to the
upside.  Volume was strong today and we could see PHM hit $75
soon.


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

Bulls Stampede Into October

To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/mp_100103.asp


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