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Daily Newsletter, Tuesday, 10/14/2003

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The Option Investor Newsletter                Tuesday 10-14-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: 187 and Counting
Futures Markets: Reach for the Top
Index Trader Wrap: See Note
Market Sentiment: What's New?


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      10-14-2003           High     Low     Volume Advance/Decline
DJIA     9812.98 + 48.60  9812.98  9732.31 1.57 bln   1831/1358
NASDAQ   1943.19 +  9.70  1043.33  1922.82 1.75 bln   1958/1162
S&P 100   523.30 +  2.33   523.31   518.70   Totals   3789/2520
S&P 500  1049.48 +  4.13  1049.49  1040.84
W5000   10211.14 + 43.40 10211.14 10126.80
RUS 2000  531.84 +  4.27   531.88   525.78
DJ TRANS 2881.66 +  6.90  2890.38  2857.44
VIX        17.37 -  0.18    17.79    17.20
VXO (VIX-O)19.39 +  0.06    19.95    19.05
VXN        26.49 -  0.28    27.33    26.31
Total Volume 3,569M
Total UpVol  2,301M
Total DnVol  1,187M
52wk Highs  967
52wk Lows    18
TRIN       1.12
NAZTRIN    0.51
PUT/CALL   0.70
************************************************************

187 and Counting

The Dow managed to climb another +48 points in front of the
Intel earnings announcement and is now only 187 points away
from Dow 10,000 once again. The Nasdaq, not to be outdone,
added +9 to 1943 and only 57 points away from NAZ-2000. But,
putting them all to shame was the Russell-2000 which tacked
on +4.27 and closed near 532.00 and a three year high. This
is a very bullish move and suggests that fund managers are
not afraid of the next two weeks and are putting money into
the market.

Dow Chart


Nasdaq Chart


S&P 500



The good news just kept rolling in and started with the
California Manufacturing Survey. The headline number rocketed
to 63.3 for the 3Q from 47.5 in the 2Q. If California is
growing in the manufacturing area can the rest of the country
be far behind? After two quarters of declines, a number under
50, this was a very strong rebound. The high tech component
rose to 71.3 from 43.4 and employment showed strong gain to
51.5 from 39.6. New orders had a huge jump to 72.3 from 47.1.
Great news for Arnold that he is taking control just as the
momentum turned.

Elsewhere the Kansas City Fed Manufacturing Survey jumped
to 31 for September from only 20 in August. Unlike the CA
survey any positive number is an increase in conditions and
a negative number a contraction. Only prices received still
lingered at -1 and negative. The headline number was a multi
year high and well above any recent readings. Production,
shipments and new orders all jumped significantly and even
job growth grew slightly. Unfortunately the Kansas District
Surveys tend to be on the bullish side so this report was
well received but not overly so.

In the Richmond District the news was not as good. The same
manufacturing survey for that district turned negative with
a headline number of only -7 and down from the flat line
last month. The only improving components were the backlog
of orders which improved to a still negative -14 and the
six month outlook which improved to 33 from 31. The employee
component dropped -11 points to -22 and the lowest level
since Dec-2001. The overall report clearly showed a
declining manufacturing sector in the Richmond district.

The Weekly Chain Store Sales fell -0.5% for last week and
the Bank of Tokyo was quick to revise the outlook for Oct
down to +3.5% from the +4.5% to +5.0% just last week. The
outlook for a consumer led recovery in the 4Q is slowly
fading and all hopes are for businesses to pickup and take
control. Unemployment is still high and shrinking claims
checks are hurting the consumer base.

Over all it was a very positive day. JNJ announced strong
earnings and beat the street with pharmaceuticals up +13%
and medical devices up +20%. Merrill Lynch beat the street
by +18 cents but mostly on cost cutting from about -20,000
jobs over the last two years, -400 last quarter. Bank of
America posted earnings of $1.92 as mortgage fees tripled.
BAC took a charge of $100 million to cover mutual fund
probe expenses. BAC said the consumer sector was stronger
than they had expected and a major drop in loans due to
the higher mortgage rates had not occurred. While these
numbers were outstanding Merrill warned that the good
times might not last. They said investor sentiment was
very strong and that was one reason they were expecting a
substantial correction in the 4Q. First Data reported
earnings that were inline with estimates but took a hit
on broker comments that the internals were weaker than
expected. FDC specializes in payment systems with its
Western Union unit growing +14%.

The big news of the day was Intel after the close. They
beat estimates by +2 cents and revenue by +.08 billion.
They guided to $8.1-$8.7 billion for the current quarter
compared to prior estimates of $8.32 billion. The median
of their current estimates would be $8.4 billion so this
is a slight increase. The key number was the estimate that
gross margins would be around 60%. It was 58.2% in the 3Q.
Intel's earnings grew +15% over last quarter and Andy Bryant
said that was the highest 3Q growth rate in over 25 years.
The company reported record shipments of processors, chipsets
and motherboards. They said the most demand was from Russia,
India and China. They said the mature economies like the
U.S. were growing much slower. Intel said it was growing
market share in most sectors due to the absence of strong
competition. Profits for the 3Q was more than double the
same quarter in 2002 and highlights the weak comparisons
across the tech sector. Flash memory revenue fell nearly
-25% due to a weak market and strong competition in that
product line. With profits of $1.7 billion for the quarter
and estimates of something over $2 billion in the 4Q it
would appear Intel is firing on all cylinders. On the
conference call Andy Bryant was pounding the soapbox on
their performance. The initial news had some analysts
pegging $45 as a fair value for their stock based on the
current earnings ramp. For the economic outlook Intel
said PC unit growth was only modest and their earnings
came from a higher value processor mix rather than a flood
of new PCs. Intel said it was an "orderly market" and there
was no rush to buy and no real inventory buildup.

Other chip companies reporting after the bell were NVLS,
LLTC and PWAV. NVLS reported earnings of +0.04 cents when
estimates were flat. NVLS said they expected bookings to
increase +5% to +10%. LLTC reported earnings that beat the
street by a penny and said demand was improving in all
markets. PWAV missed estimates by a penny but affirmed
guidance for the 4Q. PHG announced before the open and
beat earnings estimates but cautioned that the consumer
outlook for the 4Q could be weak.

The net of all the chip/tech earnings was that business was
improving but at an orderly, (read slow), rate into the
4Q. Most quarterly guidance was for a seasonal +5% to +8%
growth rate. Definitely not a blowout. Intel is winning the
profit battle because they have no real competition and
they are keeping the prices high for their high performance
chips and those are the chips most vendors are buying. The
cheap chips do not appear to be moving well. I read that
as businesses are adding sparingly and the consumer market
is still weak. Also, the majority of the gains were not in
the U.S. but in Europe and Asia. That means our economy is
still in the slow growth mode.

Two Fed heads spoke today and Bernanke was quoted as saying
that growth in 2004 should be in the 4% range. That is well
below the generally accepted +5% to +6% rates making the
rounds. He qualified the statement saying it could be higher
IF inventory rebuilding or a strong pickup in the economies
of our trading partners occurred. He repeated the lack of
job growth problem and said the timing of a recovery in jobs
was still unclear. The main tone of his speech and that of
Ferguson was that deflation was less of a problem than before.
They said inflation was still tame but the shifting of focus
away from the deflation worry immediately magnified the
inflation concerns. They both went out of their way to stress
that the Fed would remain neutral for some time. Many Fed
watchers feel the 1Q may be the trip wire for a rate hike
despite their continued denial. If the Q4 shows any major
gains in the economy most feel they will be hard pressed to
prevent hiking rates by March. This put pressure on bonds
and helped keep the markets in check until late afternoon.

Contrasting the +4% official Fed growth targets, Goldman
Sachs raised their growth rates to +6.5% for 2004 and up
from +5%. This is an incredible jump and indicates the
bullish sentiment already in the market. This contrasts
with a comment by John Chambers in Geneva where he said
"the IT recovery is muted and customers remain in a show
me state." The recovery is going to be impacted by rising
oil which traded over $32 today and the rising interest
rates. How much they will impact the recovery is unknown.

Tomorrow we get earnings from GM and IBM, both Dow components
and IBM could be a challenge for the tech sector. Several
analysts went on record today as expecting IBM to downplay
the recovery and possibly warn that IT spending was still
very light. IBM is the leading indicator for how larger
companies are investing in capex. If that large expenditure
component has not triggered then analysts will start pushing
recovery estimates into 2004 and writing off the 4Q. That
may be hard to do in the face of the Intel earnings but
there was no real table pounding on business demand by
Intel.

Russell 2000



S&P Small Cap Index




The markets responded well today and the Dow close over
9800 was a key event. There is no material resistance
between us and Dow 10,000 other than the IBM earnings. The
market is very bullish and sentiment is strong across all
sectors. Earnings are coming in strong and investors are
racing to place bets. The strongest indication of sentiment
by the funds is in the Russell-2000. This index of small
cap stocks would be the most volatile and most in danger
of any October drop. Instead of trading cautiously it set
a new three year high at 530 and showing no signs of any
weakness. The S&P Small Cap Index closed at 255 and is
very close to an all time high. This is very bullish
considering the calendar. If funds are buying heavily in
the small caps before the fund year end in two weeks then
there is the possibility that we are not going to see any
massive fund selling after option expiration.

With IBM tomorrow plus more than 100 other companies and
another 225 reporting on Thursday we will be buried with
reports. The flood of earnings across all sectors this week
will give investors a clear picture of the 4Q without having
to wait for the next three weeks of earnings to unfold.
With options expiration on Friday and nearly half of the
S&P earnings over this week it sets up a dangerous period
for next week. Once the expectations component expires with
the passage of earnings there is nothing left to pull buyers
off the sidelines.

On Sunday I suggested we could see an attempt on Dow 10,000
by Thursday and it looks like that could easily come to
pass. The Dow has gained nearly 500 points in the last ten
sessions and the Nasdaq is following suit. The S&P has the
closest near term resistance at 1050 but with futures rising
in after hours it appears that resistance will be broken at
the open. The bullish percent on all the major indexes is
approaching recent extreme highs once again. The difference
is that the oscillators for those indexes are actually rising
and could do so for several more days. My outlook from last
week is still the same. Should we actually touch Dow 10000
and Nasdaq 2000 I am betting we will see some immediate profit
taking. I would plan on it and either bail from long positions
as we near that level or at lease snug up your stops and
consider some index puts. Should we break that level the
Dow has further resistance at 10100, 10300, and 10500.
Without some really blowout guidance over the next couple
days it may be really difficult for the Dow to move much
above the 10,000 level. We are very extended, especially
over the last ten days and once earnings are over we could
see some consolidation before pressing higher. The October
roller coaster is coming to the top of that long first hill.
We can't see the other side yet so we don't know if it is
another hill or a cliff. Enjoy the ride and keep those
seatbelts fastened.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Reach for the Top
Jonathan Levinson

Another narrow range day saw equities break to new 52 week highs
toward the cash close, as treasuries and the US Dollar Index sold
off and gold moved sideways.

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 US Dollar Index rose overnight, peaking with Europe’s open.
Later in the morning, the pullback became another selloff, bring
the USD Index down over 1% to to just above 91.60 before the
bounce came.  Despite the dollar weakness, commodities, bonds and
gold were all lower for much of the session.  The press ascribed
the treasury weakness in the early going to Fed Governor Poole’s
comments this morning mentioning inflation risk.  The very fact
that the word “inflation” and “risk” occurred in the same
sentence was miles away from all the talk of disinflation, which
could have contributed to the initial selling in those asset
classes.

Daily chart of December gold




December gold put in a higher low and lower high than yesterday.
The slight gains posted reversed slight weakness in the morning.
It was an insignificant day for gold, with the narrow range
flattening the oscillators and effectively running the clock.
364-390 is the current range, with a potential bear wedge target
as low as 345, but with significant support at 364 and 358
beforehand.  For the day, gold finished lower by .10 at 375.60.


Daily chart of the ten year note yield




Bond sellers gapped up the TNX today, closing the ten year note
at its session low with the ten year note yield up 9.5 bps to
4.35%.  The move challenges Bollinger band resistance on the TNX
chart once again in an otherwise textbook bull wedge breakout
targeting 4.6%.  The daily chart oscillator upphase is in full
swing, with no sign of weakness- so far, so good for bond bears.



Daily NQ candles




The NQ extended its run on the daily candles, pushing to a new
high at 1425.  Once again, a weak, narrow range resolved itself
with a short covering frenzy toward the close.  Volume on the
Nasdaq was back to normal at 1.77B shares, compared with another
light day on the NYSE at 1.25B shares.  The bear wedge continues
to extend, but with the apex narrowed to less than a 10 point NQ
range, we can expect a breakout or breakdown at any time.  1415
to 1425 are the current levels to watch.

30 minute 20 day chart of the NQ




The 30 minute chart of the NQ is becoming impressive, with its
building pattern of higher oscillator lows and aborted cycle
downphases within an ongoing rising flag.  Despite the relatively
small gains posted by all the equity indices, it was the utter
absence of downside followthrough that most encouraged the bulls
and frightened the shorts.

Oscillators which abandon their usual range and become pinned in
one direction or another are said to be trending.  This occurs
when a cycle in a longer timeframe dominates the price action in
a shorter timeframe.  With the pattern of higher stochastic lows
and continually aborted downphases, it appears that the daily
upphase is forcing the NQ to higher prices against the cycle
paths on the 30 minute charts.  This is bullish action, but with
the daily chart oscillators running countertrend to those on the
weekly (not shown) and on the 30 minute, all the while
approaching oversold territory, the bulls may nevertheless be
running out of racetrack.


Daily ES candles




We have the same picture on the ES, with the daily bear wedge
narrowed to a range spanning 6 points from 1044 to 1050.  As on
the NQ, the daily chart oscillators are still in their upphases,
but are approaching overbought territory.  The bear wedge
projects to a possible 988 target, but the trending 300 minute
stochastic below is in gear with the 10 day stoch (above) to the
upside.  This combination hints at a possible breakout above 1050
resistance, followed by a failure and bear wedge breakdown.
This would not be the first we’ve seen this year, but it’s just a
guess based on the oscillator and price configurations.


20 day 30 minute chart of the ES




The upward skew on the 30 minute chart oscillators, combined with
the higher low above the lower flag trendline looks bullish from
here.  However, the range and volume have been narrow this week,
and resistance below 1050 is very strong.  Bulls have a good
setup here, but if they fail to capitalize on it, the bears could
return with a vengeance.  1044, followed by 1039 support are the
key levels to watch, followed by 1032 and 1028 below.


Daily YM candles




We have the same setup on YM.  Again, the 30 minute and daily
chart oscillators are in gear to the upside just below key
resistance.  Light volume for the past 3 sessions and the
steepness of the uptrend could prove to be a thorn in bulls’
sides.

20 day 30 minute chart of the YM




The selloff in treasuries and the dollar were just a continuation
of the ongoing trend, as was the uncertain waffling of gold in
the mid-370’s.  The short covering ramp in equities is also
becoming common and growing tired, but a trend must be respected
until it ends.  As of this writing, the bullish followthrough on
the INTC and NVLS reports is weak, but the night is young.  For
tomorrow, we are approaching a test of the upper lines on the
daily bear wedges, as well as the latter stages of the daily
chart upphase.  As this cycle appears to be the prime mover
against the weekly and intraday cycle downphases, its progress is
key.  Once it ends, the bulls will be badly in need of artillery.
See you at the bell!


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_101403_1.asp


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

What's New?
- J. Brown

Investor sentiment is getting pretty easy to read these days.
The deluge of earnings news has been good with most companies
beating estimates and offering positive comments going forward.
At least that's how investors are interpreting all the data and
post announcement conference calls.  Bullish investors tend to
look at life through rose-colored glasses.  Reality tends to be a
bit less enthusiastic.  Whatever your bias, this morning the tone
was set with strong results from Dow component Johnson-and-
Johnson (JNJ), Wall Street titan Merrill Lynch (MER) and the
third biggest U.S. bank, Bank of America (BAC).  All three beat
their estimates.

I will note that it was interesting to see the market's reaction.
The tone may have been positive but the markets traded sideways
most of the session before the usual afternoon fade higher.
Commentators and industry experts would like to see more volume on
these gains (as would we all).  Still, we're not complaining.
It's been a long time since the INDU closed above 9800.  Both the
DJIA and the NASDAQ composite are within striking distance of
significant milestones with 10,000 and 2000 looming just ahead.

Contributing to the overall enthusiasm has been two recent
revisions to the Q3 GDP estimates.  In the last two days we've
heard from Goldman Sachs and Lehman Brothers.  GS raised their
outlook from 5% to 6.5% Q3 GDP growth while LEH raised theirs to
6% GDP growth.  This is a very robust pace.  If the job situation
can continue to improve then there may be nothing to stop this
market.  However, I will add that there are new rumblings from
the street that the extreme bullishness now is likely to lead to
a sizeable pull back in the fourth quarter.  More grumblings from
the wounded bears?  It's possible.

I'm not sure I subscribe to a massive Q4 pull back but I will
certainly agree that we're very overbought short-term and could
use a good multi-day consolidation.  Any such stall in the
markets advance may have to wait with the parade of earnings
churning at full speed.  Big Blue (IBM) is the big cap name to
watch tomorrow and MSFT headlines the announcements for Thursday.

I know I'm beginning to sound like a broken record here... it's
okay to play the trend but at these levels you'd better watch
your stops.



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

Market Averages

DJIA ($INDU)

52-week High:  9812
52-week Low :  7197
Current     :  9812

Moving Averages:
(Simple)

 10-dma: 9634
 50-dma: 9439
200-dma: 8752



S&P 500 ($SPX)

52-week High: 1049
52-week Low :  768
Current     : 1049

Moving Averages:
(Simple)

 10-dma: 1034
 50-dma: 1011
200-dma:  938



Nasdaq-100 ($NDX)

52-week High: 1422
52-week Low :  795
Current     : 1420

Moving Averages:
(Simple)

 10-dma: 1384
 50-dma: 1331
200-dma: 1165



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

Wow! That new VIX is falling fast and near the 17 level is definitely
a warning sign for the bulls.  Even the old VIX, based on the OEX, is
still hovering around 19.  Meanwhile the VXN is near all time lows
as the NASDAQ surges toward the 2000 mark.

CBOE Market Volatility Index (VIX) = 17.37 -0.18
Nasdaq Volatility Index (VXN)      = 26.49 -0.28

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.70        866,472       605,892
Equity Only    0.56        700,315       391,386
OEX            0.83         37,908        31,590
QQQ            0.93         63,494        59,151


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.7    + 0     Bull Confirmed
NASDAQ-100    79.0    + 2     Bear Correction
Dow Indust.   83.3    + 0     Bull Correction
S&P 500       80.8    + 1     Bull Confirmed
S&P 100       79.0    + 0     Bull Correction


Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  Readings above 70 are considered overbought, and readings
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

 5-Day Arms Index  1.02
10-Day Arms Index  0.90
21-Day Arms Index  1.13
55-Day Arms Index  1.06


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1648      1941
Decliners    1160      1139

New Highs     425       411
New Lows        7         7

Up Volume    835M     1276M
Down Vol.    676M      447M

Total Vol.  1535M     1752M
M = millions


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

Commitments Of Traders Report: 10/07/03

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

After two weeks of little movement we're beginning to see
commercial traders edge toward a more bearish position.  Looking
at the small traders we see a reduction in short positions and
they remain overall net bullish.


Commercials   Long      Short      Net     % Of OI
09/09/03      418,958   486,209   (67,251)   (7.4%)
09/23/03      395,123   397,858   ( 2,735)   (0.0%)
09/30/03      395,713   397,577   ( 1,864)   (0.0%)
10/07/03      390,232   402,964   (12,732)   (1.6%)

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

Small Traders Long      Short      Net     % of OI
09/09/03      176,401    81,444    94,957    36.8%
09/23/03      139,482    87,981    51,501    22.6%
09/30/03      144,681    96,801    47,880    19.8%
10/07/03      138,644    88,018    50,626    22.3%

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


E-MINI S&P 500

We're definitely seeing a small trend in the commercials'
positions in the e-minis.  Long positions have jumped strongly,
outpacing new short positions, and the overall net short
attitude is dwindling.  Retail traders remain heavily net
long.


Commercials   Long      Short      Net     % Of OI
09/09/03      370,909   237,610    133,299    21.9%
09/23/03      109,417   204,026   ( 94,609)  (30.2%)
09/30/03      163,828   218,991   ( 55,163)  (14.4%)
10/07/03      212,273   225,377   ( 13,104)  ( 3.0%)

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

Small Traders Long      Short      Net     % of OI
09/09/03       59,692   130,270   (70,578)  (37.1%)
09/23/03      175,750    62,558   113,192    47.5%
09/30/03      131,698    65,259    66,439    33.8%
10/07/03      134,990    63,560    71,430    36.0%

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


NASDAQ-100

We're still not seeing much movement in commercials willing
to commit one way or the other in the NDX.  They're currently
net short but the margin is fading.  Small traders haven't
changed much either and remain net long.


Commercials   Long      Short      Net     % of OI
09/09/03       44,677     62,369   (17,692) (16.5%)
09/23/03       32,648     42,565   ( 9,917) (13.2%)
09/30/03       33,571     42,993   ( 9,422) (12.3%)
10/07/03       33,253     40,861   ( 7,608) (10.3%)

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

Small Traders  Long     Short      Net     % of OI
09/09/03       28,788    13,370    15,418    36.6%
09/23/03       17,862     9,880     7,982    28.8%
09/30/03       19,803     9,917     9,886    33.3%
10/07/03       18,182     9,688     8,494    30.5%

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

DOW JONES INDUSTRIAL

It's the same story here in the DJ futures.  There is little
change between the commercials or the small traders over all
positions.


Commercials   Long      Short      Net     % of OI
09/09/03       25,807    10,756   15,051      41.2%
09/23/03       15,911     9,123    6,788      27.1%
09/30/03       16,561     8,932    7,629      31.5%
10/07/03       16,277     9,528    6,749      26.2%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
09/09/03        7,429    13,796   (6,367)   (30.0%)
09/23/03        7,505     7,779   (  274)   ( 1.8%)
09/30/03        7,578     8,125   (  547)   ( 3.5%)
10/07/03        7,392     7,910   (  518)   ( 3.4%)

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

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


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The Option Investor Newsletter                  Tuesday 10-14-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: CAT, UTX
Dropped Puts: None
Call Play Updates: BBY, BSC, CBE, COO, EXC, FD
New Calls Plays: AZO
Put Play Updates: CCMP, MRK
New Put Plays: COCO


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

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


CALLS:
*****

Caterpillar Inc - CAT - close: 76.87 chg: -0.03 stop: 73.00

Maybe we should rename CAT for the Energizer bunny.  The breakout
just keeps going and going.  The falling dollar certainly helps
the company's products become more competitive overseas and
investors are eager to hear the company's Q3 results.  It is the
soon to be announced earnings that has us closing the play.  This
pre-earnings ramp up could easily turn into a sell-the-news when
CAT announces on Thursday morning.  We don't want to take any
chances and would rather take the money and run.  The afternoon
bounce off the $76 level looks good for anyone planning to exit
tomorrow.

Picked on October 2 at $72.70
Change since picked:   + 4.17
Earnings Date        10/16/03 (confirmed)
Average Daily Volume:    2.9 million
Chart =


---

United Technologies - UTX - cls: 84.26 chg: +1.05 stop: 80.90

UTX is one Dow component that is taking advantage of the index
making hew highs to make some new highs itself. It's possible
that the Wall Street Journal's "Heard on the Street" column,
which highlighted UTX and its new attempt to improve its image
may have helped the stock today.  Shares have rallied two days in
a row to almost reach our initial target of $85.00.
Unfortunately, we're going to have to drop it here because the
company announces earnings on Thursday morning and we would
rather not experience any sort of sell the news effect.
Estimates are for $1.24 a share.

Picked on October 2 at $80.45
Change since picked:   + 3.81
Earnings Date        10/16/03 (confirmed)
Average Daily Volume:    1.9 million
Chart =



PUTS:
*****

None


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

Best Buy Company - BBY - cls: 54.90 chng: +0.30 stop: 51.75*new*

With the Retail index (RLX.X) notching a fresh 52-week high on
Tuesday, it was no great surprise to see our BBY play inch a bit
higher as well, building on yesterday's breakout over the $54
resistance level.  Our final target on the upside is $57, near
the stock's all-time highs and it is looking like that is a very
achievable target with all the major indices chalking up new 52-
week highs as well.  The best bet for new entries at this point
is on a dip and rebound from the $53.00-53.50 area, which should
now be solid support.  Aggressive traders willing to assume
greater risk can enter on further strength above $55, but need to
be willing to accept risk down to our stop, now at $51.75 ahead
of the subsequent push to our final profit target.  If entering
on strength, make sure that the RLX is continuing to charge
higher as well.

Picked on October 5th at     $51.00
Change since picked:          +3.90
Earnings Date              12/17/03 (unconfirmed)
Average Daily Volume =     3.87 mln
Chart =


---

Bear Stearns Cos - BSC - close: 77.96 chg: +0.11 stop: 75.25

The brokers did it again.  The XBD was down early in the session
as investors took some profits after Merrill Lynch (MER)
announced outstanding earnings before the bell this morning.  Yet
by the closing bell the XBD had turned things around to make
another new 52-week high.  Shares of BSC joined the recent
strength with a two-day rally of its own and cresting the $78
mark for the first time in months.  MER's announcement followed
the recent strength of Wall Street giants with huge improvements
over last year and a strong showing that trounced estimates.
Analysts had been looking for 86 cents from MER.  The company
turned in $1.03.  We like the relative strength displayed in
shares of BSC today.  Now that the stock is above its $77.50
level of resistance it has a clear shot at hitting the $80 level.

Picked on October 9 at $77.50
Change since picked:   + 0.46
Earnings Date        09/18/03 (confirmed)
Average Daily Volume:    1.2 million
Chart =


---

Cooper Industries - CBE - cls: 51.05 chg: +0.20 stop: 48.00

Normally, when the markets are consistently, albeit slowly,
making new highs we would expect a stock in CBE's position to
join them.  Yet for the last week or more the stock has continued
to consolidate the recent bull flag breakout above the $50 mark.
This sideways congestion has certainly provided ample
opportunities for traders to gauge new entries above the $50
level but now we need to see a move through 51.25-51.75 and
beyond.  New entries are probably best evaluated on just such a
move, preferably with some volume to back it up.  Earnings are
just a little more than one week away therein lies part of the
danger since we do not plan to hold over the announcement.  If
this time line is too brief for you to comfortably play it, then
pass.

Picked on October 5 at $51.00
Change since picked:   + 0.05
Earnings Date        10/23/03 (confirmed)
Average Daily Volume:    539 thousand
Chart =


---

Cooper Cos - COO - close: 42.06 chg: +0.32 stop: 39.00

Our new call play is taking it nice and slow thus far.  Shares
gapped up a bit on Monday but closed off its highs for the
session.  Today saw a little more improvement and a close above
the $42 level.  We can't complain there, especially with such a
lackadaisical Tuesday for most of the session.  The MACD is just
now printing a bullish crossover.  The close over $42 could be
significant for the bulls since shares found some support there
four weeks ago.  All the lights look green here but if we get a
dip, look for a bounce near $41.00.

Picked on October 12 at $41.40
Change since picked:    + 0.66
Earnings Date         09/03/03 (confirmed)
Average Daily Volume:      391 thousand
Chart =


---

Exelon Corporation - EXC - close: 64.96 change: +0.29 stop: 63.25

Inching closer to another breakout, EXC has been steadily
marching higher over the past week after finding firm support at
the 10-dma (then at $63.48) last Tuesday.  Since then, the stock
has been riding the 10-dma (now $64.43) higher and for all
practical purposes, actually managed a breakout to a new closing
high on Tuesday, just a few pennies below the $65 level that
we've been using to gauge a bonified breakout.  Traders that have
been target shooting entries on the intraday dips look well-
positioned for that breakout, which could very well arrive
tomorrow.  Another factor that needs to be monitored is the
action in the Utility Sector index (UTY.X), as a breakout should
have EXC breaking out in line with the relative strength it has
been showing of late.  Should EXC break above $65.20 (just above
the recent intraday highs along with the UTY index breaking above
the $295 level, that would be a high-odds momentum entry into the
play.  Recall that next resistance comes in around $66, with our
$68 profit target waiting overhead.  Until EXC manages a solid
close over $65, we'll maintain our stop at $63.25, just below
last Tuesday's intraday low.

Picked on September 28th at  $62.64
Change since picked:          +2.32
Earnings Date              10/23/03 (confirmed)
Average Daily Volume =     1.22 mln
Chart =


---

Federated Dep Store - FD - cls: 46.95 chng: +0.55 stop: 44.25*new*

Retail stocks are still rocking, and that much is clear from a
quick inspection of the Retail index (RLX.X), which hit a fresh
52-week high yesterday before following that action with another
new high today.  Not one to be left behind, FD delivered a
breakout over $46 on Monday and followed that up with more
strength today, ending at a new high just below $47.  This move
is looking a bit extended here and a pullback to consolidate
would not be out of the question.  With the 10-dma ($44.58)
inching up to last week's breakout level, $44.50 should now be
firm support on any significant pullback.  Look for a dip and
rebound from above that level to offer new entry points.  With
the stock up nearly 15% in the past couple weeks and price up
against the upper Bollinger band, new momentum entries at this
juncture do not offer a palatable risk/reward ratio.
Conservative traders should look to harvest some gains near the
$48 level, which was the site of significant resistance in late
2000 and early 2001.  Note that we've ratcheted our stop up to
$44.25 tonight, just below $44.50 support and the 10-dma.

Picked on October 9th at     $45.60
Change since picked:          +1.35
Earnings Date              11/12/03 (unconfirmed)
Average Daily Volume =     1.89 mln
Chart =



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

AutoZone, Inc. - AZO - close: 94.42 change: +1.40 stop: 91.95

Company Description:
AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its more
than 2900 stores in 42 states and Mexico carries an extensive
product line for cars, vans and light trucks, including new and
re-manufactured automotive hard parts, maintenance items and
accessories.  Approximately half of its domestic stores also have
a commercial sales program, which provides commercial credit and
prompt delivery of parts and other products to local repair
garages, dealers and service stations.

Why we like it:
Stocks breaking out to new highs have become so routine as to be
expected lately, and we've had our eye on AZO for a while now.
There was quite a bit of volatility following its breakout over
the $93 level last month, as the stock surged just above $96 and
then was promptly knocked back to find support at $90.
Subsequently, we've seen AZO spend the past couple weeks
consolidating above $92, which has been providing strong intraday
support.  Another interesting point is the way the 10-dma
($93.09) has been consistently offering intraday support.
Tuesday's session saw buying volume picking up again and AZO
surged as high as $94.96 before settling back a bit at the close.
This looks like the setup for a nice little breakout and if
accompanied by increasing volume, we could see the century mark
hit in short order.

The play is quite simple.  We're looking to use the $95 level as
an entry trigger, with our stop placed at $91.95.  That is just
below the 20-dma ($91.98), intraday support over the past two
weeks and the ascending trendline from the July lows.  There are
no earnings reports to contend with, as AZO doesn't report again
until the end of December.  This should be a fairly quick play,
as we're looking to harvest gains on a trade at $100.  Keep an
eye on shares of competitor AAP, which have already broken out to
new highs.  As long as that stock remains strong, then AZO ought
to do the same.

Suggested Options:
Shorter Term: The November 95 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the November 100 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 December 100 Call.

BUY CALL NOV- 95 AZO-KS OI= 458 at $3.20 SL=1.50
BUY CALL NOV-100 AZO-KT OI= 345 at $1.30 SL=0.60
BUY CALL DEC- 95 AZO-LS OI= 631 at $4.50 SL=2.75
BUY CALL DEC-100 AZO-LT OI= 475 at $2.50 SL=1.25

Annotated Chart of AZO:




Picked on October 14th at    $94.42
Change since picked:          +0.00
Earnings Date              12/22/03 (unconfirmed)
Average Daily Volume =        989 K
Chart =



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

Cabot Microelect. - CCMP - close: 60.05 change: +0.55 stop: 61.50

With all eyes on INTC's earnings report tonight after the close,
CCMP finally managed to shrug off its lethargy and get with the
bullish program.  That's not what we wanted to see, as this
relatively weak Chip stock looked like a viable breakdown
candidate just last week.  But the bulls stepped in to support
the stock just above $58 yesterday and by today's close, it had
regained the $60 level.  Descending trendline resistance and the
30-dma ($60.76) should provide a firm barrier, but if the bulls
are energized by the INTC news tomorrow, price could slice right
through.  We're maintaining our stop at $61.50, although more
conservative traders may want to use a tighter stop just over the
30-dma.  We aren't advocating new entries at this point unless
CCMP reverses course and breaks under $58, preferably on
increasing volume.  Another metric to keep an eye on is the
Semiconductor index (SOX.X), which ended right at the $474
resistance level.  A breakout above there on Wednesday is very
likely to give CCMP the lift necessary to hit our stop.

Picked on October 12th at   $58.54
Change since picked:         +1.51
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =       723 K
Chart =


---

Merck & Co - MRK - close: 49.70 chg: -0.01 stop: 51.50

It's a tough gig to be bearish when the markets are etching new
yearly highs on a daily basis.  Fortunately, MRK appears to be
ignoring the market strength and some of the drug-related
headlines.  Investors had to absorb two major earnings
announcements for the drug sector today.  Dow component JNJ
announced Q3 profits that rose 20 percent to $2.1 billion, which
beat estimates by a penny.  More importantly, they guided higher
for their full year numbers by 2 cents.  Meanwhile, Forest Labs
(FRX) also reported strong profit numbers with a 29% jump for
their Q3 results but shares only added 53 cents after they guided
lower for their full year performance.  Shares of MRK continue to
languish below the $50 mark and as long as they stay there we
should be okay.

Picked on October 6 at $49.90
Change since picked:   - 0.20
Earnings Date        10/22/03 (confirmed)
Average Daily Volume:    6.2 million
Chart =



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

Corinthian Colleges - COCO - cls: 55.24 chg: -1.36 stop: 57.51

Company Description:
Corinthian Colleges, Inc. is one of the largest for-profit post-
secondary education companies in North America, and serves the
large and growing segment of the population seeking to acquire
career-oriented education to become more qualified and marketable
in today's increasingly demanding workplace. Corinthian's
colleges offer master's, bachelor's and associate's degrees and
diploma programs in a variety of fields, with a concentration on
careers in health care, business, criminal justice and
technology.  (source: company press release)

Why We Like It:
Currently the markets are swirling with earnings news and
headlines and investors are under a deluge of information.  We
found it somewhat comforting to actually find a good old-
fashioned technical breakdown to play.  The educational-schools
sector has been a huge winner for investors this year but many of
these stocks are long-term overbought and in need of a good
consolidation, which normally starts with a sharp round of profit
taking.  The first crack in the armor for COCO was the breakdown
on Monday below its rising simple 50-dma.  This technical level
of support has held up for months.  Tuesday's drop confirms the
breakdown with today's volume of 968K coming in much higher than
normal.

Before we continue, let us state right off the bat that this is a
little more high risk than we'd like.  Here's why:  first the
markets are extremely strong and every dip is being bought.
Shorts are getting killed and each afternoon seems to drift
upward.  Skeptical traders will quickly say this can't last
forever but it can certainly last longer than you or I have
money.  Secondly, we would normally use a trigger under the $55
level to leg us into the play.  This time we are not going to use
a trigger but that doesn't mean that you can't.  Our third reason
involves COCO's point-and-figure chart.  The recent drop did
produce a fresh double-bottom breakdown sell signal but the stock
is very close to rising bullish support (about $54) on its P&F
chart.   More aggressive bulls like to buy the first test of
support on the P&F chart and that can make it painful for us.

In our defense, the stock has almost doubled from its March lows
near $35.00 and a simple 38.2 percent retracement would bring it
back towards the $50.00 mark.  We're going to make $50 our first
target.  Keep in mind it won't happen all at once and there
should be some support at the $52.50 level.  If the $50 level
breaks then the 50% retracement is very close to the $47.50 level
of support.  The last time shares of COCO produced such a big run
(from September '01 through June '02) the retracement was close
to the 50% pull back.  Our beginning stop loss will be $57.51.

Suggested Options:
October options expire this Friday so our preference will be the
November puts.  Longer-term traders can look to the February
strikes.  We'd probably lean towards the $55 and $50 puts.

BUY PUT NOV 50 UCS-WJ OI=1242 at $0.95 SL= --
BUY PUT NOV 55 UCS-WK OI= 503 at $2.85 SL=1.45
BUY PUT FEB 55 UCS-NK OI= 128 at $4.80 SL=2.50
BUY PUT FEB 50 UCS-NJ OI=  98 at $2.70 SL=1.50

Annotated chart:




Picked on October 14 at $55.24
Change since picked:    - 0.00
Earnings Date         10/27/03 (confirmed)
Average Daily Volume:      686 thousand
Chart =



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**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 10-14-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - COCO
Traders Corner: Time To Lock & Load – Let's Roll


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

Corinthian Colleges - COCO - cls: 55.24 chg: -1.36 stop: 57.51

Company Description:
Corinthian Colleges, Inc. is one of the largest for-profit post-
secondary education companies in North America, and serves the
large and growing segment of the population seeking to acquire
career-oriented education to become more qualified and marketable
in today's increasingly demanding workplace. Corinthian's
colleges offer master's, bachelor's and associate's degrees and
diploma programs in a variety of fields, with a concentration on
careers in health care, business, criminal justice and
technology.  (source: company press release)

Why We Like It:
Currently the markets are swirling with earnings news and
headlines and investors are under a deluge of information.  We
found it somewhat comforting to actually find a good old-
fashioned technical breakdown to play.  The educational-schools
sector has been a huge winner for investors this year but many of
these stocks are long-term overbought and in need of a good
consolidation, which normally starts with a sharp round of profit
taking.  The first crack in the armor for COCO was the breakdown
on Monday below its rising simple 50-dma.  This technical level
of support has held up for months.  Tuesday's drop confirms the
breakdown with today's volume of 968K coming in much higher than
normal.

Before we continue, let us state right off the bat that this is a
little more high risk than we'd like.  Here's why:  first the
markets are extremely strong and every dip is being bought.
Shorts are getting killed and each afternoon seems to drift
upward.  Skeptical traders will quickly say this can't last
forever but it can certainly last longer than you or I have
money.  Secondly, we would normally use a trigger under the $55
level to leg us into the play.  This time we are not going to use
a trigger but that doesn't mean that you can't.  Our third reason
involves COCO's point-and-figure chart.  The recent drop did
produce a fresh double-bottom breakdown sell signal but the stock
is very close to rising bullish support (about $54) on its P&F
chart.   More aggressive bulls like to buy the first test of
support on the P&F chart and that can make it painful for us.

In our defense, the stock has almost doubled from its March lows
near $35.00 and a simple 38.2 percent retracement would bring it
back towards the $50.00 mark.  We're going to make $50 our first
target.  Keep in mind it won't happen all at once and there
should be some support at the $52.50 level.  If the $50 level
breaks then the 50% retracement is very close to the $47.50 level
of support.  The last time shares of COCO produced such a big run
(from September '01 through June '02) the retracement was close
to the 50% pull back.  Our beginning stop loss will be $57.51.

Suggested Options:
October options expire this Friday so our preference will be the
November puts.  Longer-term traders can look to the February
strikes.  We'd probably lean towards the $55 and $50 puts.

BUY PUT NOV 50 UCS-WJ OI=1242 at $0.95 SL= --
BUY PUT NOV 55 UCS-WK OI= 503 at $2.85 SL=1.45
BUY PUT FEB 55 UCS-NK OI= 128 at $4.80 SL=2.50
BUY PUT FEB 50 UCS-NJ OI=  98 at $2.70 SL=1.50

Annotated chart:




Picked on October 14 at $55.24
Change since picked:    - 0.00
Earnings Date         10/27/03 (confirmed)
Average Daily Volume:      686 thousand
Chart =



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**************
TRADERS CORNER
**************

Time To Lock & Load – Let's Roll
By Mike Parnos, Investing With Attitude

When we initiated our QQQ in-the-money strangle position two
months ago, we knew we'd have to roll it out every month to
 generate our monthly income.  The time has come . . .

Here's a review of our position:
QQQ ITM Strangle -- $35.33.
We bought 10 contracts of the 2005 QQQ $39 puts @ $7.00 = $7,000
and also bought 10 contracts of the 2005 QQQ $29 calls @ $7.30 =
$7,300 for a total debit of $14,300.  Then we sold 10 contracts of
the QQQ Oct. 33 puts @ $.85 = $850 and also sold 10 contracts of
the QQQ Oct. 34 calls @ $1.05 = $1,050 for a total credit of
$1,900.

Time To Roll
Moving into the November cycle, we going to buy back 10 short
contracts of QQQ October $33 puts for $.05
Sell 10 contracts of November QQQ $34 puts for $.65
Credit of $.60
Buy back 10 short contracts of QQQ October $34 calls for $1.45
Sell 10 contracts of November QQQ $34 calls for $2.00
Credit of $.55
Total net credit of $1.15 ($1,200)

You should be able to get pretty close to these credit numbers.
Also, remember that November is a five-week option cycle.

Other Stuff
There was more activity in our CPTI portfolio.
We closed out our FDC position for a small loss.  Details will be
in my Thursday column.

Quickie Trade
The ADTN trade worked out very well with an $1,800 profit.
Details will be in my Thursday column.

Couch Potato Trading Institute Disclaimer

All results reported in this section are hypothetical. While the
numbers represented here may have been achieved or beaten by our
readers we make no representation that any individual investor
achived these exact results. The tracking for the plays listed in
this section uses closing prices for the day the newsletter is
published and it is not meant to imply that any reader actually
received those prices or participated in these recommendations.
The portfolio represented here is hypothetical and for investment
education purposes only. It is only an illustration of what type
of gains a knowlegable investor might receive utilizing these
strategies.


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