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Daily Newsletter, Tuesday, 10/21/2003

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The Option Investor Newsletter                Tuesday 10-21-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Eight Days and Counting
Futures Markets: Gold rallies, Treasuries hold, Equities slide
Index Trader Wrap: See Note
Market Sentiment: Where'd the Rally Go?


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      10-21-2003           High     Low     Volume Advance/Decline
DJIA     9747.64 - 30.30  9784.31  9736.68 1.84 bln   1736/1373
NASDAQ   1940.90 + 15.80  1952.48  1922.78 1.71 bln   1818/1345
S&P 100   521.76 +  0.33   523.23   520.17   Totals   3554/2718
S&P 500  1046.03 +  1.35  1048.57  1042.50 
W5000   10164.76 + 24.50 10185.54 10125.44
RUS 2000  525.53 +  4.09   526.42   521.44 
DJ TRANS 2864.86 +  8.01  2872.36  2854.72   
VIX        16.55 -  0.49    17.23    16.19
VXO (VIX-O)17.82 -  0.34    18.77    17.43
VXN        24.35 -  0.43    25.07    23.86 
Total Volume 3,798M
Total UpVol  2,327M
Total DnVol  1,411M
52wk Highs  526
52wk Lows    19
TRIN       1.03
NAZTRIN    0.68
PUT/CALL   0.70
************************************************************

Eight Days and Counting

The Dow closed down for the day on weakness in SBC and T and
the Nasdaq closed up on strength in semiconductors. If you 
average the broader markets you get one more day very close
to the highs for the year with only eight trading days left
in October. This is more amazing than AMZN beating earnings.

Dow Chart


 
Nasdaq Chart


 

What a day. For day traders it was several hours of sheer
boredom interspersed randomly with several minutes of total
confusion. The end result was a one-point gain on the S&P.
I could have gone to the movies and saved the brain damage.
The Dow opened down after AT&T and SBC shared their results
with the world and told us that nobody is phoning home. Heck,
according to them many more homes don't have a phone to call.
SBC said it lost -323,000 land lines in the last quarter and
it may have to review its dividend policy. SBC missed estimates
by two cents. Not all the news was bad. They added +365,000
DSL lines and +745,000 wireless lines at its Cingular unit. 
Those new customers required more expensive infrastructure 
so costs rose during the quarter. 

AT&T announced a charge of $125 million after disclosing 
that two employees concealed charges during 2001 and 2002. 
AT&T did slow the rate of its decline suggesting that the 
worst was over. AT&T reported earnings of 53 cents, more 
than double the same quarter last year. Revenue fell -8.1%
for the quarter. AT&T claims lower expenses from several
years of restructuring were the reason for the better 
earnings. Unfortunately AT&T saw revenue drop in its 
business segment by -6.2%. They said they saw no signs of 
a recovery in capital spending by businesses. T fell -1.07
in regular trading. Both T and SBC are Dow components and 
kept the index in the red for the day with the aid of CAT,
BA, GM and Citigroup.

GM was hurt by earnings from Daimler Chrysler that posted
a loss of nearly $1.8 billion for the quarter. The U.S. unit
posted a profit on the strength of prior cost cutting and
restructuring efforts. The massive loss weighed on the sector
after DCX said competition was still very intense and they
would do what was necessary to sell cars. The Mercedes unit
sales were flat. Last week Harley Davidson was also lowering
future production growth. Is this a sign of the current
economic times or those to come?

AMTD and SCH reported earnings and while the earnings were
not exciting the statistics were. SCH said trading volumes
were up slightly but that new account numbers were still
disappointing. New accounts fell -23% at Schwab. AMTD said 
trading volume in October was down about -10% from September
levels. Schwab CFO said they are not expecting investors to
continue to ramp up. Both companies were downbeat about the
lack of new investor enthusiasm. Etrade also reported last 
week that new account openings were falling. If all three 
of the top brokers say investor participation is waning 
then it could be a sign there is still some doubt the market
rebound is going to stick. Others think that the lack of new
investors is related to unemployment, falling wages and lack
of investing income.    

JCOM dropped -10.39 after raising its guidance to $1.03 for
the year. Analysts had already built in aggressive growth 
and were expecting $1.00 to $1.19 per share. The -20% drop
knocked the stock back to $33 and a level where brokers are
falling all over themselves to recommend it with a $50 price
target. JCOM sports a compound annualized growth rate over
50% and better than 40% free cash flow. Never heard of them?
Heard of eFax? That is one of their products. I have watched
them soar from $8 to $48 over the last 10 months and kept
saying I would buy them on a pullback. Looks like it is time.
The 100DMA is just over $30 and I would love to see it there.

The 800lb gorilla left for the week is MSFT on Thursday 
after the close. There was a big press splash today on the
release of the new Office product. MSFT is launching a $150
million ad campaign hoping that consumers will part with up
to $499 for the full version. MSFT has 400 million users of
its Office products and generated $9.2 billion in revenue
over the last year. The last Office suite had the slowest
acceptance rate of any release. This suggests that consumers
may not rush out and buy a new copy when their Office-2000/XP
still works just because the new one is available. MSFT saw 
a huge ramp into the 2000 product due to Y2K but while the 
computers may have increased in speed on a factor of ten over
the last four years the ways you write a letter, work with 
a spreadsheet or receive email have remained the same. I 
doubt MSFT will starve if consumers do not rush out to 
stand in line to buy the new software. MSFT announces later
in the earnings cycle this quarter and there is a sneaking
suspicion that they might not be as bullish as everyone 
hopes. The lack of a PC upgrade cycle and the slow IT 
recovery could be hurting them. Also, the vastly increased
speed of servers means fewer are needed now than in the past
and that means fewer expensive licenses. Intel said the higher
volume of laptops was driving their profits but laptops 
typically come preloaded with a MSFT bundle at a discount 
to list. Plus, laptops do not feed the onsite network and 
require fewer network fees. Also, in order to use the new 
features of the Office product, corporations must purchase 
a new server product that retails for $5,619 per server. With
the SUNW Office clone at $79.95 per copy along with the free
OpenOffice product this will not be a slam-dunk sale for MSFT. 

Last night the Semiconductor Book-to-Bill number for September
was announced at 0.95 and now 13 consecutive month at less
than breakeven. Orders climbed +3.9% in September and was 
the second consecutive rise after four down months. This 
is encouraging but hardly something to shout about. On
a year over year basis orders are still down -8.5% and
shipments are down -23%. The 0.95 number was only a slight
improvement over the 0.92 in August. This could be the start
of a trend but it is not a blast off. Once the BTB passes
breakeven, more orders than shipments, then we will have
something to be excited about. There was some good news in
a VLSI survey showed that global chip fabrication plants were
reaching 90% capacity and may need to upgrade equipment soon.
A large amount of chip capacity was taken offline or converted
to other uses when the tech bubble collapsed. 

The only economic report today was the weekly Retail Sales 
and they came in flat. The Bank of Tokyo was quick to lower
the forecast for October once again. The yo-yo outlook has
gone from +4.5%-5.0% to only 3.0% at present. 

The Nasdaq rose on the strength of TXN earnings but overall
the broader market strength was flat. 92% of companies who
reported earnings last week were meeting or beating estimates.
That number has dropped to about 66% this week as the quality
of companies reporting diminishes and the number of smaller
companies reporting increases. The blue chips are slowly
dwindling with MSFT the remaining figurehead of note on
Thursday. This quality fade is still not critical as 66% is
a very respectable level.  

The Dow has now traded for nine days in the 9700 range with 
a brief sprint to 9848 and a brief dip to 9650. Throughout 
all this the price magnet remains 9750 and that is exactly
where it closed today. The lack of gains on strong earnings
news is seen by many as positive. They feel that is shows a
lack of unbridled bullish enthusiasm and more of a cautious
optimism. The main point seen as positive is the lack of a 
drop. Given some high profile misses and the October time
frame it is seen as remarkable by some. 

The Nasdaq price magnet is 1940. It has traded within 30
points of that level since October 9th and ended there again
today. The TXN news offset the weak book-to-bill numbers 
and the SOX is only a couple points away from a new high. 
The Nasdaq will face another challenge tomorrow. AMZN 
announced earnings tonight and beat estimates by a penny.
This was the first non holiday quarter that AMZN has posted
a profit and it squeaked out a $52 million gain on revenue
of $1.13 billion. It dropped in after hours to $58 after 
trading as high as $61 during the day. AMZN only guided
analysts to $5.75-$6.25 billion for 2004 and analysts had
already expected $6.1 billion. While that is not much of a
difference it was seen as conservative guidance and not
exciting enough to justify the recent +200% gain in the
stock. However, remember EBAY? The outlook was not exciting
and it took a tumble but has nearly recovered the loss
through Tuesday. Something I have been reporting but over
looked by the public is the foreign exchange gains. This
quarter more than 50% of AMZN profits were due to the weak
dollar and gains in currency exchange. Without the gains 
AMZN earnings would have only been +0.05 cents. Is this
relative to investors? AMZN traded down -$2 in after hours
and Nasdaq futures are down only slightly (-3.00) at 8:PM.

Several readers have asked if it was time to back up the
truck and buy puts based on the VIX at 16.55. Historically
anything under 17.50 is a trigger point for a huge put
buying opportunity. However, the VIX you see quoted in print
these days is NOT the VIX that you have watched for the last
decade. On Sept-22nd the CBOE changed the way the VIX is
calculated to be based on SPX options and not OEX options.
They also changed the calculation method to include more
strikes and added some complicated math. The bottom line
is the current VIX at 16.55 cannot be compared to the old
VIX. The new calculation has taken some of the volatility
out of the indicator in anticipation of offering options
on it in the near future. 

Now the good news. The old VIX, now called the VXO for VIX
Old hit 17.43 today. Hit, not closed under 17.50. The close
was 17.82 and in my book that is close enough for government
work. Do you back up the truck? No, because the VXO is only
one indicator of market sentiment. It is showing that there
is no fear in the market and almost nobody expects the market
to drop. When these conditions exist it can take several days
for a market event or it can take weeks. There is not a trip
wire that gets pulled and suddenly the bottom falls out. We
may see a market reaction as there are normally some sell
programs that are triggered on a close under 17.50 but then
again this is not a normal market and we did not close under
17.50. That number is not magic. It could be 17.82 or 16.82
that draws sellers but 17.50 does tend to act like a target.
The key to remember is it may not be immediate. There have
been times when it stayed at relatively low levels for days.
The last time we saw it this low (17.43) was July-20, 1998. 
It traded in the 16.43-17.80 range for about eight days 
before blasting off to a high of 60.63 in October. 

Sure, sure but this is different! Is it? Jul-20th was the
3rd week of an earnings month and the market was at new highs.
OK, it was not October but the other two conditions should
make you think twice. Never ignore the VXO. Never say it 
can't happen.

VIX/DOW Charts


 
 
The overnight futures are tame at 8:30 with just a small drop.
There are several hundred companies still to report this week
with MSFT the spotlight on Thursday. The only economic report
tomorrow is Weekly Mortgage Applications and not a market
mover. We will be left to fixate on earnings and see how the
crowd reacts to the AMZN news. Volume was low again today and
there is still no conviction on either side. Something big is
about to happen and there are no clues in sight. Or is there?
You decide. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Gold rallies, Treasuries hold, Equities slide
Jonathan Levinson

It was a glorious day for goldbugs, while bonds held yesterday's 
gains and equities managed to frustrate bulls and bears alike.

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.

10 minute chart of the US Dollar Index




The US Dollar Index took a strong dive lower this morning, 
bouncing from 92 toward 92.40 resistance.  We saw gold, silver 
and bonds trade strongly all day, with equities not rallying but 
holding in positive territory for the most part.  The CRB was up 
1.33 on strength in natural gas, gold and wheat futures. 

Daily chart of December gold


 

December gold rewarded goldbugs today with a gap and run about 
the range of the past weeks, regaining the 380 level with an 
intraday high of 382.30 and low of 374.20.  The move has turned 
the oscillators back up at the tentative beginnings of a new 
upphase from a considerably higher price low.  If this move holds 
tomorrow, goldbugs will have much about which to cheer, with the 
possibility of a retest of the 400 level.

The XAU and HUI were very strong today, with the HUI breaking 210 
to the upside, closing at 212.64 for a 10.99 gain.

6 year monthly chart of HUI


 

The longterm oscillators are toppy and this is becoming a scary 
but rewarding bull to ride.  Key support on this leg of the move 
is in the 187 area, and the trend remains up. 

Daily chart of the ten year note yield


 

The TNX dropped 1.4 bps today to close at 4.366%, but real news 
was that it didn't advance or retrace any of yesterday's drop.  
This is added confirmation for which bond bulls were hoping last 
night, confirmed another notch in the stochastic rollover 
currently underway.  Round number support at 4.3% is the next 
target, but the real test will be at 3.9%.  With the daily chart 
oscillators just beginning their rollovers from a lower high in 
the TNX, a revisit to June levels is entirely possible.

Daily NQ candles


 

Today was a confusing, choppy day for equity traders, with the NQ 
advancing slightly and the ES and YM declining slightly.  NQ 
traded both sides of the 1420 level, retracing the remainder of 
Friday's decline but giving back some of its gains toward the 
close.  The sell signals established following last Wednesday's 
highs remain on the oscillators, but note how the Macd refuses to 
give the confirming cross for which conservative traders are 
waiting.  Nevertheless, it continues to appear that the upphase 
in this timeframe is over, and that we're watching deadcat-
bounce / return to the scene of the crime top-building currently 
underway.  A move above 1440 would invalidate this 
interpretation.  NQ gained 7.5 points or .53% to close at 1419.

30 minute 20 day chart of the NQ


 

The Nasdaq volatility index or VXN dropped .66 to close at 24.12, 
in extreme-complacent territory.  The rollover this afternoon was 
exceedingly slow and uncertain, but it set a lower high and 
failed to regain the broken rising support line violated on last 
Friday's decline.  The move today, if it holds, sets up a 
possible head and shoulders top with the neckline as indicated 
just above 1390.  It gives us a preliminary downside target of 
1340 if it plays out.  This pattern is clearer on the ES and YM 
30 minute charts.

Daily ES candles


 

The ES dropped .17% today, falling between the green NQ and the 
YM which dropped .43%.  The move coincided with a drop of .34 to 
17.82 on the old VIX, the VXO.  We are witnessing a bear market 
in volatility, and on its own, such should have bulls snugging up 
their stops.

The move today left the daily chart oscillators on sell signals, 
with the Macd on a bearish kiss.  Any further downside will give 
us our confirmation of the new downphase on the ES.  Support at 
1039-1040 was note tested today, with an intraday low of 1040.75.  
The bear wedge on the daily chart remains in play, with a 
potential downside target of 987.75.


20 day 30 minute chart of the ES


 

The 30 minute ES chart displays the same endless rollover on the 
oscillators, with ES bulls saved by the closing bell as price 
began to probe the day lows at session's end.  I've outlined 
descending resistance from last Wednesday's high, and it appears 
that today completed the top of the right shoulder of a sprawling 
h&s pattern.  Because of the choppy price action above 1022, it's 
difficult to establish a certain neckline, but I favor 1034, with 
possible alternates at 1022 or 1029.  To compute the downside 
price objective, measure the distance in points from the top of 
the head (Wednesday's high) to the neckline, and subtract it from 
the neckline.  From 1034, this gives us a possible target of 1013 
ES.


Daily YM candles


 

Same picture on the YM.

20 day 30 minute chart of the YM


 

We have gold rallying, bonds advancing, and equities innocently 
whistling a tune near their 52 week highs, lulling bulls to sleep 
and generating multiyear low readings on the volatility indices.  
One of the first technical clichés I learned was "When the VIX 
(VXO) is low, it's time to go, when it's high it's time to buy."  
At every market top, people say that the VIX is broken, 
volatility doesn't matter, etc.  Perhaps it doesn't, but for the 
past several years, the inverse relationship between the VXO and 
SPX has held.  Gold and treasuries rallying, volatility low, and 
equities near their highs...  if it weren't for the March rally 
pattern of weak dollar, high equities/treasuries/commodities/ 
foreign currencies, equities would look like an unequivocal sell
here.  My bias remains to the downside, and so long as 1050 ES
holds, so it will remain.  While the possibility exists that we
are indeed at the outset of a new leg of the bull market, I'm 
willing to address it will a stop loss on my shorts.

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_102103_1.asp


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

Where'd the Rally Go?
- J. Brown

Gosh!  It seemed like only yesterday evening we were all excited 
for a continuation of the afternoon rally and investors had Dow 
10,000 in their eyes.  Oh wait!  It was just yesterday.  The 
strong Texas Instrument earnings had the technology bulls 
grinning but the rally was disconnected by some disappointing 
telecom numbers.  

Dow component AT&T (T) lost 5 percent after their earnings report 
unveiled an 8.1 percent drop in revenues.  Another Dow component 
SBC Communications (SBC) slid almost 2 percent after missing 
estimates by 2 cents with net income of 37 cents a share.  
Together the two of them keep the Dow in the red.  Yet believe it 
or not the markets generally had a good day.  At one point nearly 
every sector was green except for two or three stragglers, which 
were only fractionally lower.

As expected the session was driven by earnings news before, 
during and after the close.  A couple of major announcers after 
the closing bell today were AMGN and AMZN.  AMGN's numbers were 
pretty good and should give the BTK, which was up 3 percent 
today, more fuel to run higher tomorrow.  AMZN also turned in 
good numbers depending on which ones you want to believe.  
Estimates had been for 10 cents but the whisper number was 
evidently 12 cents.  The company turned in 11 cents but this was 
before items.  Take out all the charges and AMZN only earned net 
income at 4 cents a share.  Shares were down in after hours but 
it will be interesting to see if the profit taking lasts longer 
than tomorrow.  AMZN guided higher for the holiday quarter 
estimating sales near $1.91 billion versus 1.78 billion a year 
ago.  

Regarding investor sentiment there was a lot of talk made about 
the volatility indices or fear index.  The NASDAQ's VXN dropped 
to a new all-time low at 24.35 but this index really isn't old 
enough for traders to trust it yet.  The new VIX, based off the 
S&P 500, fell to a new low at 16.55.  Yet again this index is 
only a few weeks old and investors are unsure how to read it.  
The old VIX, now the VXO, dropped to 17.82.  This is an extreme 
level of fearlessness and practically yelling that we're near a 
market top.  The last time the old VIX was at this level was mid 
July in 1999.  Within two or three days the markets rolled over 
and dropped for three weeks straight.  The S&P 500 lost about 100 
points in the down turn after the VIX's signal.  

I'm not saying the markets are going to roll over tomorrow but 
this rally's days may be numbered in the single digits.  Don't 
worry.  As Jim mentioned in his weekend wrap a good-sized 
consolidation would only set us up for a buying opportunity into 
the traditional holiday ramp up.


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

Market Averages

DJIA ($INDU)

52-week High:  9850
52-week Low :  7197
Current     :  9747

Moving Averages:
(Simple)

 10-dma: 9740
 50-dma: 9504
200-dma: 8786



S&P 500 ($SPX)

52-week High: 1053
52-week Low :  768
Current     : 1046

Moving Averages:
(Simple)

 10-dma: 1042
 50-dma: 1017
200-dma:  941



Nasdaq-100 ($NDX)

52-week High: 1439
52-week Low :  795
Current     : 1422

Moving Averages:
(Simple)

 10-dma: 1408
 50-dma: 1350
200-dma: 1174



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

The NASDAQ's VXN dropped to a new all-time low at 24.35 but this 
index really isn't old enough for traders to trust it yet.  The 
new VIX, based off the S&P 500, fell to a new low at 16.55.  Yet 
again this index is only a few weeks old and investors are unsure 
how to read it.  The old VIX, now the VXO, dropped to 17.82.  
This is an extreme level of fearlessness and practically yelling 
that we're near a market top. 

CBOE Market Volatility Index (VIX) = 16.55 -0.49
Nasdaq Volatility Index (VXN)      = 24.35 -0.43


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.70        773,759       540,023
Equity Only    0.59        648,197       380,941
OEX            1.00         12,693        12,673
QQQ            2.10         33,143        69,700


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.8    + 0     Bull Confirmed
NASDAQ-100    78.0    + 0     Bear Correction
Dow Indust.   83.3    + 0     Bull Correction
S&P 500       81.0    + 0     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-dma: 1.12
10-dma: 1.07
21-dma: 1.16
55-dma: 1.07


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    1544      1784
Decliners    1258      1283

New Highs     170      1021
New Lows        7        25

Up Volume    967M     1214M
Down Vol.    829M      496M

Total Vol.  1810M     1727M
M = millions


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

Commitments Of Traders Report: 10/14/03

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

Unfortunately we're still not seeing much change in sentiment
for the Commercials in the big S&P futures.  They remain slightly
net short.  Small traders aren't making many moves either and
they remain net long.


Commercials   Long      Short      Net     % Of OI
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%)
10/14/03      391,972   410,299   (18,327)   (2.3%)

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
09/23/03      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%
10/14/03      133,940    86,418    47,522    21.6%

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

It's the same story here.  Commercials increased their positions
in both longs and shorts but remains slightly net short.  Small
traders trimmed some short positions and opened 30K more long
contracts just in time for the late week weakness.


Commercials   Long      Short      Net     % Of OI 
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%)
10/14/03      221,897   233,066   ( 11,169)  ( 2.5%)

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
09/23/03      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%
10/14/03      161,208    59,213   101,995    46.3%

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


NASDAQ-100

Sorry...no big changes for the Commercial traders here either.
They remain net short while the Small Trader remains net long.


Commercials   Long      Short      Net     % of OI 
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%)
10/14/03       34,639     41,880   ( 7,241) ( 9.5%)

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

Small Traders  Long     Short      Net     % of OI
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%
10/14/03       16,822     9,046     7,776    30.1%

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

DOW JONES INDUSTRIAL

No one seems willing to make any big bets.  Commercials have
been stuck in the same range for weeks now and remain net long
the DJ futures.  Small traders took some money out of their long
and dumped some of it into shorts but not much.


Commercials   Long      Short      Net     % of OI
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%
10/14/03       16,595     9,433    7,162      27.5%

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
09/23/03        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%)
10/14/03        6,427     8,495   (2,068)   (13.9%)

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 10-21-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: CBO
Dropped Puts: COCO, MRK
Call Play Updates: AZO, BBY, COO, FD
New Calls Plays: ABC, QLGC
Put Play Updates: ATK, DNA, MATK
New Put Plays: None


****************
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:
*****

Cooper Industries - CBE - cls: 51.13 chg: -0.21 stop: 49.99     

Time has almost run out on our bullish CBE play.  The recent pull
back in the last three sessions has essentially brought us back
to break even.  Earnings are expected on Thursday morning before 
the opening bell with consensus estimates sitting near 74 cents
a share.  There are too many variables to safely bet on an 
earnings reaction so we're closing the play tonight.  

Picked on October 5 at $51.00
Change since picked:   + 0.13
Earnings Date        10/23/03 (confirmed)
Average Daily Volume:    539 thousand
Chart =



PUTS:
*****

Corinthian Colleges - COCO - cls: 55.73 chg: +1.67 stop: 56.61     

Sometimes one has to wonder if someone on Wall Street doesn't get 
to see the corporate earnings numbers or grades if you will 
before the rest of us.  Stocks in the school-education sector 
were mostly higher today ahead of CECO's post-market earnings 
report.  The Career Education company beat estimates by 5 cents.  
Net income was 26 cents a share and revenues rose 60% over last 
year.  To make matters worse for the bears, CECO guided higher 
for the fourth quarter as well.  We have not yet been stopped out 
on this bearish play for COCO but the stock is quickly 
approaching the $56 level, which makes us uncomfortable.  Our 
unease combined with the strong report from CECO tells us it's 
time to exit.  We can always keep an eye on it for another trade 
down the road.

Picked on October 14 at $55.24
Change since picked:    + 0.49
Earnings Date         10/29/03 (confirmed)
Average Daily Volume:      686 thousand
Chart =


---

Merck & Co - MRK - close: 48.91 chg: +0.55 stop: 50.51     

MRK is another play where our time has expired.  For the last 
several days we've been warning that MRK is set to announce before 
the bell on Wednesday and that we would close the play on Monday or 
Tuesday's close.  Looks like we should have picked Monday's close. 
The stock bounced another 1.13 percent but remains in its descending 
channel and under its simple 10-dma.  Estimates for tomorrow's
pre-opening announcement are for 85 cents a share. Any major 
upside surprise could certainly spook the shorts!

Picked on October 6 at $49.90
Change since picked:   - 0.99
Earnings Date        10/22/03 (confirmed)
Average Daily Volume:    6.2 million 
Chart =



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

AutoZone, Inc. - AZO - close: 94.69 change: +0.81 stop: 91.95

After nearly a month of failed attempts, the bulls finally 
managed to push AZO back over the $95 mark.  Unfortunately it was 
a fleeting move, coming near the end of the day, but it was 
enough to trigger our play to live status.  Despite the stock's 
inability to hold above $95, we certainly shouldn't complain 
about a new all-time closing high!  A dip and rebound from the 
$93-94 level can be used for aggressive entries now that our 
trigger has been satisfied.  But more conservative traders will 
want to wait for a push over today's intraday high ($95.01) 
before playing.  While we're in the heart of earnings season, we 
won't have to worry about an earnings date prematurely ending our 
AZO play, with the company set to report near the end of 
December.

Picked on October 14th at    $94.42
Change since picked:          +0.27
Earnings Date              12/22/03 (unconfirmed)
Average Daily Volume =        930 K
Chart =


---

Best Buy Company - BBY - cls: 54.08 chng: +0.30 stop: 51.75

After falling back from its highs of a week ago, shares of BBY 
got another injection of the bullish juice on Tuesday, as the 
company announced that it would be paying its first-ever cash 
dividend.  That was enough to hand the bulls a 2.4% gain by the 
closing bell, with the stock ending very near its intraday high.  
Over the past week, the Retail index (RLX.X) has been finding 
resistance near $380 and it will likely take a fresh catalyst to 
break through that barrier.  If the bulls can pull that one off, 
then BBY looks poised to explode higher, perhaps challenging its 
all-time highs in the $57-58 area.  Recall that our ultimate 
upside target on the play is $57 and based on today's strong 
round of buying (volume 20% above the ADV), that target appears 
to be in reach.  As expected, the recent dip into the $52.50-
53.00 area was a solid entry point and subsequent dips into that 
area should continue to meet with eager buyers.  Traders looking 
to enter on strength can consider new positions above $55.11 
(last Wednesday's intraday high), with the understanding that it 
would be a very quick play, with exits planned on a trade at or 
above $57.  For now, maintain stops at $51.75.

Picked on October 5th at     $51.00
Change since picked:          +3.08
Earnings Date              12/17/03 (unconfirmed)
Average Daily Volume =     3.89 mln
Chart =


---

Cooper Cos - COO - close: 41.49 chg: -0.63 stop: 39.99     

Okay, maybe now we can start complaining.  Shares of COO have 
produced a 50% retracement of the recent rally from Oct 8th 
through the 16th.  It would be great to see a bounce from here 
near $41.50.  If not we're left with hope that the $41.00 level 
holds.  News has been quiet for COO this week and the general 
bullish afternoon drift has been rather quiet too.  We're a 
little concerned by the selling today but it is just profit 
taking.  We'd look for some new upward momentum before initiating 
any new positions.  

Picked on October 12 at $41.40
Change since picked:    + 0.09
Earnings Date         09/03/03 (confirmed)
Average Daily Volume:      391 thousand
Chart =


---

Federated Dep Store - FD - cls: 46.20 chng: -0.13 stop: 44.25

After pushing shares of FD up to just below $48 last Friday at 
the open, the bulls lost their nerve and saw a steep slide in the 
stock into the close.  After ending that session just below 
$46.41, the stock has been drifting sideways, awaiting the next 
catalyst to move the price.  The past two days have seen the 
stock finding support just above $46 and a strong rebound from 
this level could be used for aggressive entries on a move back 
over $46.50.  Should $46 support give way, next support comes in 
at $45.50 and then near $44.50.  While a rebound from the $45.50 
level can be used to enter the play, we'd be quite hesitant to 
buy a dip to $44.50, as that would represent a complete 
retracement of the breakout above that level on October 9th.  
We're still looking for a breakout over $48 to open the door for 
a rally to the $50 level.  Maintain stops at $44.25.

Picked on October 9th at     $45.60
Change since picked:          +0.60
Earnings Date              11/12/03 (unconfirmed)
Average Daily Volume =     1.90 mln
Chart =



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

AmerisourceBergen - ABC - close: 58.44 change: +1.44 stop: 55.75

Company Description:
AmerisourceBergen is a pharmaceutical services company dedicated 
solely to the pharmaceutical supply chain.  The company markets 
its products and services to hospital systems (hospitals and 
acute care facilities), alternate care customers (mail order 
facilities, physicians' offices, long-term care institutions and 
clinics), independent community pharmacies, and regional 
drugstore and food merchandising chains.  ABC also provides 
outsourced pharmacies to long-term care and workers' compensation 
programs.  ABC perates in two segments: Pharmaceutical 
Distribution and PharMerica.  The Pharmaceutical Distribution 
division is primarily the company's wholesale and specialty drug 
distribution business, and PharMerica is the company's 
institutional pharmacy business.

Why we like it:
After being stymied at resistance near $73 in early July, shares 
of ABC took a direct route lower, not finding significant buying 
interest until falling near the $55 level in early September.  
The PnF Sell signal had offered up a bearish price target of $54 
and the stock tagged it quite nicely before trading just a bit 
lower and then beginning a consolidation phase that appears to 
have reached completion.  Over the past few weeks, the stock has 
been struggling with resistance near $57.50, but broke out above 
that level on Tuesday.  That breakout was enough to generate a 
fresh PnF Buy signal and now we have a tentative bullish price 
target of $67.  Today's bullish move took the stock through the 
50-dma ($57.29) for the first time since late July and the only 
remaining moving average obstacle is the 200-dma at $58.58.

We're setting an entry trigger at $59.01, which is above both the 
200-dma and the 9/15/03 intraday high.  Once that level is 
reached, momentum entries can be taken on strength above that 
level, while bargain hunters can look for a brief pullback to the 
vicinity of the 50-dma for their entry setup.  There is some mild 
resistance near $62, the site of the August failed rally, but 
we're targeting a move up to the $65 area, just below the 
tentative PnF target.  With all of the shorter-term moving 
averages arrayed below and turning up, there should be ample 
support on subsequent pullbacks.  Look for strong support near 
$56, which is just below the consolidation support of the past 
couple weeks.  This area is reinforced by the 20-dma ($55.86) and 
the 30-dma ($56.23).  Set stops initially at $55.75.

Suggested Options:
Shorter Term: The November 55 Call will offer short-term traders 
the best return on an immediate move, as it is currently in the 
money.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the November 60 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 60 Call, although 
we must advise caution due to the very low open interest.  

BUY CALL NOV-55 ABC-KK OI= 372 at $4.50 SL=2.75
BUY CALL NOV-60 ABC-KL OI=3607 at $1.20 SL=0.60
BUY CALL DEC-55 ABC-LK OI=   0 at $5.00 SL=3.00
BUY CALL DEC-60 ABC-LL OI=   5 at $2.10 SL=1.00

Annotated Chart of ABC:


 

Picked on October 21st at    $58.44
Change since picked:          +0.00
Earnings Date              11/05/03 (confirmed)
Average Daily Volume =     1.67 mln
Chart =


---

QLogic Corp. - QLGC - close: 54.21 change: +0.93 stop: 50.00

Company Description:
Somebody has to make the equipment that lets your computer talk 
to all its peripheral equipment, and QLGC does it well.  A 
leading designer and supplier of semiconductor and board-level 
input/output (I/O) management products, QLGC has been providing 
SCSI-based connectivity solutions to this market sector for over 
12 years.  QLGC's I/O products provide a high performance 
interface between computer systems and their attached data 
storage peripherals, such as hard disk and tape drives, removable 
disk drives and RAID (redundant array of independent disks) 
subsystems.  The company is also the market share leader in Fibre 
Channel host bus adapters, a market segment that is receiving 
tremendous attention from investors.

Why we like it:
QLGC has been battling with the $52-53 resistance area for much 
of the past 5 months, but things are starting to look more 
bullish.  On Tuesday, the stock finally closed above the $54 
level for the first time since January of last year.  Of course, 
it didn't hurt that the Semiconductor index (SOX.X) finally 
cleared its own $475 resistance to close at $482, its best 
closing level since last May.  The company released earnings last 
week and made a lot of people happy by beating earnings estimates 
by 2 cents on better than expected revenues.  Merrill Lynch 
responded with an upgrade to Buy and American Technology Research 
said the stock should be bought aggressively.  There was a bit of 
volatility before the bulls reasserted their dominance, but 
today's positive mention by Barron's seemed to break the logjam.  
There's still some resistance to clear in the $58-59 area, but 
then we can set our sights on major resistance in the $61-62 
area.  If the PnF chart is to be believed, there is a lot more 
upside to come, as it just recently generated a new Buy signal 
and the tentative vertical count is $72!

There should now be strong support near $52, as former resistance 
becomes new support.  A brief dip near that level can be used for 
new entries, while momentum traders will look at the a rally 
above $55.10 (just over last Friday's intraday high) as viable 
momentum entry.  The 10-dma ($51.88) should reinforce that $52 
support level, with much stronger historical support coming in 
near $51.  We're looking for an initial move to $58-59 and will 
use the $62 level as our ultimate upside target for the play.  
Set stops initially at $50, which is just below the converged 20-
dma ($50.17) and 30-dma ($50.16).

Suggested Options:
Shorter Term: The November 55 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 December 60 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 55 Call.  

BUY CALL NOV-50 QLC-KJ OI=1490 at $5.20 SL=3.25
BUY CALL NOV-55 QLC-KK OI=6240 at $2.15 SL=1.00
BUY CALL DEC-55 QLC-LK OI=  93 at $3.00 SL=1.50
BUY CALL DEC-60 QLC-LL OI= 118 at $1.30 SL=0.60

Annotated Chart of QLGC:


 

Picked on October 21st at    $54.21
Change since picked:          +0.00
Earnings Date               1/14/04 (unconfirmed)
Average Daily Volume =        989 K
Chart =



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

Alliant Tech Systems - ATK - cls: 48.59 change: -0.26 stop: 50.51

Continuing its pattern of relative weakness, shares of ATK have 
made steady downward progress the first two days of the week.  
Monday's drop under $48.98 triggered the play and we got some 
nice bearish confirmation, with the stock breaking the 20-dma 
($49.06) and 30-dma ($48.91).  That weakness continued today with 
the stock losing another 0.5%.  While all signs appear pointed 
down, we need to be aware of the potential for support near 
$48.50, as a rebound from there would preserve the appearance of 
a potential reverse H&S pattern over the past 2 months.  So 
traders looking for some bearish confirmation may want to wait 
for a break below the $48.50 before playing.  Aggressive traders 
may want to use a failed rebound below the 50-dma ($49.72) as an 
entry point.  Keep stops at $50.51.

Picked on October 19th at $49.12
Change since picked:       -0.53
Earnings Date           10/30/03 (confirmed)
Average Daily Volume:      387 K
Chart =


---

Genentech Inc - DNA - close: 79.13 change: +1.42 stop: 82.30

We knew that when we wrote this play it would be somewhat daring 
and DNA is proving to be hard to read.  On Monday the stock broke 
down through support and traded through our trigger at $77.50 
opening the play.  Actually the stock traded under $77.00 
producing a quadruple-bottom sell signal on its Point-and-Figure 
chart.  This is usually a successful bearish signal to trade off 
of yet now we're wondering if it might become a bear trap.  The 
stock rebounded today, which isn't that big of a deal because it 
remains under the $80 level.  However, AMGN's earnings after the 
bell we're pretty good and they beat estimates by 3 cents.  This 
compares to a loss of $2.10 last Q3 for AMGN.  The BTK biotech 
index was already up 3 percent today and AMGN's news is just more 
fuel for the bounce.  We'll be encouraged if DNA remains under 
the $80 mark or its simple 50-dma near $81.  Aggressive bears 
could look for any failed rally as a new entry point.  The rest 
of us might be better of waiting for a roll over back under $78.

Picked on October 20 at $77.50
Change since picked:    + 1.63
Earnings Date         10/08/03 (confirmed)
Average Daily Volume:      2.5 million 
Chart =


---

Martek Biosciences - MATK - cls: 46.74 chg: +2.06 stop: 50.51*new*

Wow! Talk about moving fast.  As we noted in OptionInvestor's 
MarketMonitor yesterday shares of MATK had already exceeded our 
short-term profit target of $44.00.  Volume was very strong at 
1.6 million shares, more than three times the norm.  We were 
suggesting that short-term traders already consider taking 
profits.  Looks like we weren't the only ones and MATK produced 
an oversold bounce today while rolling over under its simple 100-
dma.  If MATK falls back below the $46 mark then traders might 
want to consider new positions as we aim for the $40 level.  
However, keep in mind that investors might defend Monday's low 
near $43.20, which coincides with the August intraday low.  We're 
lowering our stop to $50.51, which is somewhat wider than it 
needs to be and more conservative traders might be able to use a 
stop above $49.00.

Picked on October 16 at $49.48
Change since picked:    - 2.74
Earnings Date         09/09/03 (confirmed)
Average Daily Volume:      466 thousand
Chart =



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

None


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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 10-21-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three: 

Play of the Day: CALL - QLGC


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

QLogic Corp. - QLGC - close: 54.21 change: +0.93 stop: 50.00

Company Description:
Somebody has to make the equipment that lets your computer talk 
to all its peripheral equipment, and QLGC does it well.  A 
leading designer and supplier of semiconductor and board-level 
input/output (I/O) management products, QLGC has been providing 
SCSI-based connectivity solutions to this market sector for over 
12 years.  QLGC's I/O products provide a high performance 
interface between computer systems and their attached data 
storage peripherals, such as hard disk and tape drives, removable 
disk drives and RAID (redundant array of independent disks) 
subsystems.  The company is also the market share leader in Fibre 
Channel host bus adapters, a market segment that is receiving 
tremendous attention from investors.

Why we like it:
QLGC has been battling with the $52-53 resistance area for much 
of the past 5 months, but things are starting to look more 
bullish.  On Tuesday, the stock finally closed above the $54 
level for the first time since January of last year.  Of course, 
it didn't hurt that the Semiconductor index (SOX.X) finally 
cleared its own $475 resistance to close at $482, its best 
closing level since last May.  The company released earnings last 
week and made a lot of people happy by beating earnings estimates 
by 2 cents on better than expected revenues.  Merrill Lynch 
responded with an upgrade to Buy and American Technology Research 
said the stock should be bought aggressively.  There was a bit of 
volatility before the bulls reasserted their dominance, but 
today's positive mention by Barron's seemed to break the logjam.  
There's still some resistance to clear in the $58-59 area, but 
then we can set our sights on major resistance in the $61-62 
area.  If the PnF chart is to be believed, there is a lot more 
upside to come, as it just recently generated a new Buy signal 
and the tentative vertical count is $72!

There should now be strong support near $52, as former resistance 
becomes new support.  A brief dip near that level can be used for 
new entries, while momentum traders will look at the a rally 
above $55.10 (just over last Friday's intraday high) as viable 
momentum entry.  The 10-dma ($51.88) should reinforce that $52 
support level, with much stronger historical support coming in 
near $51.  We're looking for an initial move to $58-59 and will 
use the $62 level as our ultimate upside target for the play.  
Set stops initially at $50, which is just below the converged 20-
dma ($50.17) and 30-dma ($50.16).

Suggested Options:
Shorter Term: The November 55 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 December 60 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 55 Call.  

BUY CALL NOV-50 QLC-KJ OI=1490 at $5.20 SL=3.25
BUY CALL NOV-55 QLC-KK OI=6240 at $2.15 SL=1.00
BUY CALL DEC-55 QLC-LK OI=  93 at $3.00 SL=1.50
BUY CALL DEC-60 QLC-LL OI= 118 at $1.30 SL=0.60

Annotated Chart of QLGC:


 

Picked on October 21st at    $54.21
Change since picked:          +0.00
Earnings Date               1/14/04 (unconfirmed)
Average Daily Volume =        989 K
Chart =



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

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