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Daily Newsletter, Tuesday, 10/28/2003

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The Option Investor Newsletter                Tuesday 10-28-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Did You Blink?
Futures Markets: Liftoff
Index Trader Wrap: Market's applaud Fed's no decision
Market Sentiment: Strong Volume for the Bulls


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      10-28-2003           High     Low     Volume Advance/Decline
DJIA     9748.31 +140.20  9749.94  9609.72 2.07 bln   2182/1026
NASDAQ   1932.26 + 49.40  1932.26  1892.43 2.08 bln   2236/ 964
S&P 100   518.64 +  7.87   518.64   510.77   Totals   4416/1990
S&P 500  1046.79 + 15.66  1046.79  1031.13
W5000   10181.20 +154.00 10181.26 10027.22
RUS 2000  525.85 + 10.50   525.86   515.35
DJ TRANS 2883.27 + 41.90  2885.06  2841.48
VIX        16.82 -  1.23    17.89    16.77
VXO (VIX-O)17.84 -  1.26    19.17    17.71
VXN        25.00 -  1.12    26.22    24.78
Total Volume 4,480M
Total UpVol  3,304M
Total DnVol  1,116M
52wk Highs  670
52wk Lows    30
TRIN       0.76
NAZTRIN    1.03
PUT/CALL   0.75
************************************************************

Did You Blink?

If you blinked you missed it. Last Tuesday the VXO closed at
17.82 after hitting 17.50 intraday. The Dow dropped -250 points
to trade under 9500 three days later. If you blinked you missed
it and the Dow closed today within four points of last Tuesday's
close at 9749. Unfortunately the VXO closed at 17.84 again
today. Does that mean we are headed down?

Dow Chart



Nasdaq Chart



S&P Chart





Before we tackle the VXO question again we need to wade through
the economic reports. Chain store sales fell again and by a
larger margin than the prior two weeks. Sales posted a -0.9%
drop and prompted the Bank of Tokyo to lower estimates for
October yet again to +2.5% to +3.0%. They had been as high
as +5% just three weeks ago. The lack of tax checks, tax
holidays and mortgage refinancing is impacting sales. Despite
reportedly strong Halloween sales the retailers are still
seeing overall weakness. October sales are on track to be
less than half the September levels.

The advance Durable Goods report came in less than expected
at +0.8% when estimates were for +1.0%. This was the third
monthly gain in four months but it was also another month in
a down trend from the June highs. The jump in June was +2.5%
followed by +1.6%, -0.1% and September's +0.8%. The gains
were mostly in the private sector with defense orders falling
-26.7%. Inventories fell again for 31 of the last 32 months
and back orders rose for the seventh time in eight months.
There are positive internals and the falling inventory number
will eventually spark a demand rally. They have been saying
that for much of the last 32 months but eventually it has
to come true. The rising back orders indicate that production
is not keeping up with the pace of new orders and that is
a very positive sign.

Also positive was the +4.1 jump in Consumer Confidence to
81.1 after a -4.7 dip last month. The present situation
component rose to 66.8 from 59.7 a much bigger gain than
the + 2 point jump in the expectations component to 90.7.
Those planning to buy an auto jumped to 6.7 from 5.4 last
month. Analysts attribute that to the new model year and
another round of heavy advertising of new incentives. The
recovery in the headline number instead of a continued
downtrend was met with a long sigh of relief and a short
term spike in the markets. The spike did not last and we
retreated to neutral territory to wait for the FOMC
announcement at 2:15.

That FOMC announcement came as expected and only slightly
changed from the prior months statement. They did say that
spending is firming and the labor market appears to be
stabilizing. The bad news was that business pricing power
and increases in core consumer prices remains muted. They
continued the statement about the risks of sustainable
growth remain roughly equal but the unwelcome fall of
inflation was the greatest concern for the near future.
No change there. The comment the bond market was keying
on was the no policy change for a "considerable period."
This is Greenspeak for we are not going to raise rates
for several more months. The bond market soared on the
news and the analyst chatter is predicting no increase
until the end of the first quarter. According to the
Fed Funds Futures they are not expecting a 25-point rate
increase until May-2004. After today's Fed announcement
the fourth quarter is open for clear sailing in the bond
and equity markets according to the analysts. The next
meeting is Dec-9th but the Fed rarely changes policy in
December to prevent a holiday spending backlash. In reality
the Fed may try to keep rates at this level through next
summer to continue to pump the markets and ease the deficit
in front of the election. Nothing like a wave of stock
profits to fill the income tax coffers.

The major stock news today was Sony's announcement they
were going to lay off 20,000 workers or 13% of their work
force. This had been rumored with statements over the
last couple weeks about a 50% excess in capacity in their
factories.

The fire in California is depressing insurance companies
despite claims that they have plenty of reserves to deal
with the expected $1 billion in claims. Allstate is the
largest insurer at risk with 14% of the homeowners
insurance in California. It will be months before the
total of the damage is known.

Helping boost the markets today was new estimates that the
chip sector would grow by +14% in 2003 and +15-20% in 2004.
The SOX rocketed +29 points to 490.40 and a new 52-week
high. This pushed the Nasdaq to a +49 point gain. TSM
delivered the good news that plants were running at almost
full production to keep up with demand. TSM also said they
were going to raise capex spending to between 25% and 30%
of next years revenue. That could be as much as $2.2 billion
up from $1.2 billion in 2003. TSM net income soared +380%
over last years levels. They saw wafer shipments increase
+12% in the 3Q. This is what the market needed. Good news
to back up the Intel profits three weeks ago. The news from
the smaller chip makers has been spotty with guidance
changes both up and down. TSM is the world's largest chip
foundry and that is the one you want to hear brag.

The markets received even more bullish news from Charles
Biderman at TrimTabs.com. He said that fund inflows were
running at a record rate for October and could reach $30
billion. This is just barely behind the record for any
month which stands at $35 billion from Feb-2000. He said
the merger activity was strong and new offerings were
light which increases both sentiment and cash. The thought
of investors pouring billions into the market in hopes of
an October dip was too much for the bears to handle.

The indexes opened up on the semiconductor news and rallied
into the FOMC announcement. For 30 min after the Fed news
the buyers and sellers fought for control across a very
narrow range but once the Dow crossed above 9675 it was
all over for the bears. With the bulls pressing the averages
higher the shorts began to cover and it was a race to the
close. The Dow closed at 9745 and only 100 points from the
Oct-15th high. The Nasdaq closed at 1931 and only 35 points
from its October high of 1966. This is a major event for
the market but it came at a price.

The VXO (old VIX) closed at 17.84 and in danger territory.
The S&P closed at 1046 and only 4 points from very strong
resistance. While neither of these events are earth shaking
they are important. The markets break resistance all
the time and we all know how many levels of significant
resistance the S&P has had to break since October of last
year at 768. While it has broken through countless resistance
levels, some several times, the VXO has only traded in the
17s once before today. This is an indicator of extreme
bullish sentiment. Is that always bad?

Normally it is bad. However, these are not normal conditions
and bullish sentiment can get even higher. In July of 1998,
the last time we had levels this high the VXO traded at 18
or below for two weeks while the market made new highs. The
break finally came when the VXO traded intraday at 16.73.
Prior to the advent of Internet trading in Dec-96 the VXO
spent months at a time below 18. The lack of volatility came
from a Dow that had stocks like Bethlehem Steel and Sears
and all trades have to be screened by a broker over the
phone. There were less than 20 million brokerage accounts
and everyone was an investor not a trader. An investor made
a dozen trades a year maybe and a trader 4-5 a week. This
brings us back to the future. We are not in the pre Internet
days and we have Nasdaq stocks in the Dow and Internet stocks
in the Nasdaq. Volatility is a fact of life that we have to
live with.

That sets up a serious unknown for tomorrow and for the rest
of the week. The futures sold off after the close but after
a +140 point day you would expect that. Looking at the
internals for today and they were extreme. Extremely bullish!
The volume was high with over 2 billion shares traded on
the NYSE and the Nasdaq. Advancers beat decliners by better
than 2:1. Advancing volume across all exchanges was better
than 3.3 billion with declining volume only 1.1 billion.
This 3:1 ratio was strong, not as strong as traders would
really like to see for a confirmation day but this was not
a normal day. There was a FOMC meeting right in the middle.
Traders took half the day off waiting for the announcement
and still traded over 4 billion shares. This was very bullish
in my opinion.

We now have a directional problem. It appears on the surface
and on the internals that we could test resistance at S&P
1050 and Dow 9850 as early as tomorrow. This would drive
the VXO even lower. A break of that resistance could ignite
a new 4Q rally. All thoughts of an October dip and end of
fund year portfolio rebalancing would be forgotten. Actually
I think part of the rally today was investors who had been
expecting a bigger pull back than 9500 now chasing the
indexes. If funds really have $30 billion or more inflows
in October then they are awash with cash. Many had been
hoarding cash to either buy the dip or cover withdrawals
and neither has occurred.

This leaves us with a potentially explosive scenario. We could
see funds/investors throw cash at the market the rest of the
week and continue to chase it higher. I could easily see new
highs in place before Friday. I could also see a VXO induced
sell off but I have far less confidence in it today than I
did last Tuesday when I would have taken all bets. What I
would be worried about is Monday. Next week is the economic
reports from hell week with both ISM reports and the Nonfarm
Payrolls leading the list. It is also the first week in the
new year for mutual funds. There is a train of thought that
they did not sell stocks in October because they wanted to
go out at the top with a full portfolio to show massive
gains on fund statements and be fully invested. Many of
those stocks are very extended and could easily be targets
for dumping once the statement date has passed. This is just
speculation but one scenario that needs to be considered.

If buyers continue to chase prices then the VXO could continue
to plummet. The lower it goes the higher the risk. While there
may not be an event on Wednesday it will only be a matter of
time before we see another bout of profit taking. Hopefully
it will be from much higher levels. I personally think the
economic numbers, while weak, are slowly improving and while
much of it is already priced in there is still room to grow.
Every extended bull market continues to rally over the groans
of the analysts claiming stocks to be over valued. Instead of
climbing the wall of worry about economics and earnings the
wall becomes disbelief that the market is running away from
them. They begin to capitulate and chase prices driving the
markets into one final feeding frenzy. That frenzy normally
culminates in an extremely low VXO and a new high in the
market. In this case that target for me is still Dow 10,000.
I would be very surprised if we made it over on the first
attempt but I would not be surprised to see that attempt
this week. Just keep looking over your shoulder if we move
higher because Friday's goblins may be after more than candy.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Liftoff
Jonathan Levinson

What began as a routine session melted up into a running of
equity bears as the treasury market closed.  Equities, treasuries
and the dollar gained, while gold and commodities pulled back.

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 fought for its early morning gains, managing
to hold above former resistance at 91.60 and bouncing from its
FOMC-announcement selloff back to the intraday range at 91.90.
Gold, silver, the HUI and XAU as well as the CRB were all weaker.


Daily chart of December gold



December gold got sold throughout the session, trading as low as
383 and setting a lower high at 387.30.  The failure below
yesterday's close was sufficient to print a bearish kiss on the
10 day stochastics, but it will take another day or two of solid
selling to reverse the current upphase on these daily
oscillators.    Resistance remains at 390, support first at 383,
followed by 377.


Daily chart of the ten year note yield



Treasuries let us know which way the broader trend is going
today, with a large bearish engulfing candle printed on the ten
year note yield (TNX) as buyers rushed into bonds following the
FOMC announcement.  The TNX dropped 7.6 bps to close at 4.189%,
approaching trendline support in the 4.1% area.  The daily on
this oscillator downphase remains lower, and should carry the TNX
to a test of that 4.1% level.  The near term outlook remains
bullish for bonds.


Daily NQ candles



The news that the Fed would do nothing now or for the next while
was met with a widespread yawn from the markets, and then 20
minutes an accelerating set of bids commenced what became a
parabolic move.  You can take your pick of likely candidates, be
it the Fed's primary dealers, the Working Group on Capital
Markets, the end-of-month tape-painters from the mutual funds,
panicked shorts, or Paul Kangas' "bargain hunters".  Other than
in an interesting ethical context, the answer is unimportant, as
the market was clearly vulnerable to the upside, and that
vulnerability was exploited maximally heading into the close.

The NQ engulfed most of last week's losses, causing the first
twitches in the daily cycle oscillators.  1387-90 resistance were
decisively conquered for the time being, and the main line of
bears defense, namely the daily oscillator downphase, was
weakened by the parabolic move.  If this move continues quickly
to the 1440 area, we should see at least a bullish kiss on this
downphase, and a break of 1440 will abort it from a higher
oscillator low.  I would expect a wave of short covering and
momentum jamming to kick in above 1440, and from there bulls will
be contemplating the rare air of the wild blue yonder.

The daily NQ is displaying a bearish divergence on the Macd, but
a potentially higher low on the stochastic.  Cyclically, the
outlook is uncertain, while the weekly oscillators (see the
weekend Market Wrap) are way overbought and ripe for a downphase.
All of this is to say that position and long term traders
continue to have good downside prospects from current levels,
while highly leveraged short term futures traders are looking at
a stealth parabolic bullish move that could either build or fail
from here.  To put a finer point on it, we'll zoom in on the 30
minute candles.


30 minute 20 day chart of the NQ



The "stealth" parabolic move caused the 300 minute stochastic to
trend in overbought, which is something that this oscillator
rarely does... very rarely, in fact.  That makes this current
move an exceptional move, and leads me to expect it to retrace,
or revert to the mean.  That's dandy, but price is the only
indicator that affects our accounts, and that's what we trade.
Nonetheless, the move launched countertrend to the downphasing
daily cycle oscillators and intraday oscillators, all of which
were overbought and on the verge rolling at the time the move
took off.  Interesting.

The move above 1410 is a bearish expanding wedge failure, and
sets up the NQ for a test of 1427-30 resistance before the more
significant 1440 rally top.  A trending move is by its nature a
violation of the prevailing cyclical patterns, and so I'll rely
on price confluence and Fibonacci retracements for possible price
targets.  A downside failure will test 1412, 1408, 1400, and then
1387 support below.  Until the daily oscillators turn back up,
I'll be expecting this move to fail.  If it does not, a lot of
bears will be covering as quickly as possible.


Daily ES candles



We have the same picture on the ES, with the daily chart showing
another engulfing move that took a chunk out of the ongoing daily
cycle downphase.  The intraday high printed at 1046, just below
the start of heavier resistance at 1048.  I don't expect it to be
easy sledding for bulls below the rally high of 1055, but again,
a short covering wave could provide energy for a decisive
breakout if that level is breached.


20 day 30 minute chart of the ES



The 30 minute chart shows the oscillator uptrend resulting in the
multiple bear pattern failures.  We have an upside bear wedge and
expanding wedge breakout above major price confluence at 1040.
This area will act as strong downside support here, and with the
oscillators on the verge of trending, prediction of the possible
failure point is mere guesswork.  Above 1050, 1055 should
coincide with a buy signal on the 10 day stochastic.


Daily YM candles



Same picture on the YM, with current resistance 9730-50 now in play.


20 day 30 minute chart of the YM




Tomorrow is either going to result in a blowoff top or a blowoff
assault through the rally highs, but either way it seems
reasonable to expect a continuation of the buying frenzy that
carried equities into the close.  The alternative would be an
immediate failure, as we see from time-to-time on these pattern
throwovers.  If so, it will catch me flatfooted, and I'd be
surprised if the ES falls below 1040 without a fight.  That said,
the buying was sufficiently ferocious to have that parabolic,
unsustainable feel to it- but then, if enough of us think it, we
could become fodder for the next short covering rally.

On a less bullish  note, the VXO dropped 1.24 to close at 17.84.
It's difficult to imagine a rally launching from such low
volatility levels, and my current guess is that after an opening
spike higher, we'll see a correction to test 1040 support.  The
outcome of that test will determine whether the ES breaks the
rally high or not.

The trend in treasuries reasserted itself today, and gold appears
to be failing at 390 as we expected it might.  The real action
looks likely to be in equities tomorrow, and with compelling
arguments on both the bullish and bearish sides, it promises to
be an exciting day.   See you in the Futures Monitor.


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

Market's applaud Fed's no decision

Investors approved today's Federal Open Market Committee's (FOMC)
decision to do nothing and leave its fed funds rate unchanged,
despite some signs that the economy is well on its way to a
recovery, with little sign of inflation.

While in no certain terms would even the most bullish of bulls
say the U.S., or even the global economy is completely out of the
woods and showing growth exuberant growth, but today's market
reaction to the Fed's inaction was greeted with bullish gains.

The dollar showed gains with the 6-currency weighted U.S. Dollar
Index (dx00y) 91.69 +0.38% rising 0.35 points.

Treasuries found price gains and reversed earlier losses with the
benchmark 10-year YIELD ($TNX.X) falling 7.6 basis points by its
close to 4.189%, after trading a session high of 4.317% just
prior to the Fed's decision to leave rates where they are for the
foreseeable future.

Despite the losses in gold, where the December Gold futures
contract (dc03z) $383.50 -1.2% fell $4.70 and remains below the
$400 level after Friday's intra-day spike above $390, the non-
weighted AMEX Gold Bugs Index ($HUI.X) 216.30 -1.26% recouped
some if its session's losses with the Fed's ultimate decision to
leave rates at historically low level, with a bounce from its
session lows of 212.74 which were found at 02:00 PM EST.

Today's sector winner found the Semiconductor Index (SOX.X)
491.11 +6.28% surging to a new 52-week high and gaining 29-points
on the session, I'd still have to think today's decision to keep
rates unchanged found a bullish response in the sector.  At 02:15
PM EST, the SPX was trading higher by 20 points at 481, but added
an additional 10 points into today's close to have the SOX not
only close, but trade new 52-week highs.

Taiwan Semiconductor (NYSE:TSM) $11.56 +10.72% got the bullish
ball rolling for today's sector gains.  While the world's largest
chip foundry reported quarterly EPS of $0.11, which beat
consensus estimates of $0.10 per share, the company's raising of
its prior industry growth guidance from 9-10% to 13-15% for
calendar 2003 and for calendar 2004 sales growth to improve by
15% to 20% sent the sector into a state of euphoria.

Volume levels showed great interest with the NYSE Composite
($NYA.X) 5,945.93 +1.29% turning just over 1.63 billion shares,
its highest volume total since September 3, when the big board
pumped out more than 1.65 billion shares.  Advancers outnumbered
decliners by 2229:1033, which showed a bullish build from the
02:00 PM EST breadth of 1813:1354.  New highs versus new lows
ended at 307:9, also building strength from their 02:00 PM
breadth of 202:8.

The NASDAQ Composite ($COMPX) 1,932.26 +2.62% gained 49 points in
a bold move back above its trending higher 21-day SMA of 1,898 on
volume of 2.04 billion shares.  While today's NASDAQ volume was
nowhere close to its September 3 volume of 2.3 billion shares, it
was the highest volume since September 24, when the NASDAQ
churned just over 2.11 billion when it fell from 1,900 to close
down 58 points at 1,843.70 and just below its then 21-day SMA of
1,853.50.

NASDAQ Composite (COMPX) - Daily Interval




The above chart is very similar to the one shown in Sunday's
Market Wrap, but I've added a retracement bracket from the
October 2002 lows to the January 9, 2002 relative high of
2,098.87.  I also marked the September 24 bar, which was noted as
the most recent heavy volume day compared to today's trade
(almost looks like those sellers got back in on Friday).  If I
asked myself what side of the market I'd want to be on, I'd want
to be on the uphill side of the PINK trend, where bulls "know"
where a recent level of support was found on a successful second-
test of trend, but bears are now guessing if 1,950 will hold
resistance, or if round number 2,000 is the next upside risk
level.

Suddenly, Stochastics are ramping higher again, and MACD begins
to curl upward.  I've eyeballed 2,000 as not only being
psychologically round, but also where an old trend that was
broken, served bullish resistance at the recent highs, but now
extends to 2,000.  This 2,000 mark may also be a price level
where MACD could cross above signal for another bullish
crossover.

RISK AVERSE bulls can use the COMPX as a broad market guide in
the indices, with a downside alert set at 1,910.  Meanwhile, the
COMPX remains technically bullish above PINK trend, which was
tested as support on Friday.

Today's trade showed some of the major indices seeing trade at
their WEEKLY R1s, where the INDU, SPX, NDX and QQQ managed to
close above these levels and once again has MONTHLY R2's in play
where Friday marks the end of the month.  Today's trade certainly
hints that bulls are looking for treats into Halloween eve.

Pivot Analysis Matrix -




Can bulls extend today's rally, or was it just a "relief" follow
through and short-covering driven by bears that may have made
some bets that the Fed might raise rates?  If OEX 513.00 (DAILY
S1 and WEEKLY Pivot) can hold support early tomorrow, and I think
it will, then bulls should have the upper hand with a DAILY R2's
and MONTHLY R2s in play for the INDU, DIA, SPX, SPY, NDX.

Please note the QQQ MONTHLY R2 ($35.71) is more correlative with
its DAILY R1 ($35.72), compared to the NDX's DAILY R2/MONTHLY R2,
as the QQQ continued higher in its final 15-minutes of trade from
04:00 $35.28 to $35.38.  In after-hours trade, the QQQ's last
tick has been $35.29.

I make note of QQQ's last hours of trade, only to check some late
session market monitor thinking per a trader's question regarding
the QQQ.

Market Monitor - Thinking about levels, and bullish bias




S&P futures (sp03z) settled 1,044.70, and while I mistakenly
typed 1,051.80, when our fitted retracement is actually at
1,051.20, this 1,051.20 was upside risk to a bear in the
overnight session, and depending on a bulls tolerance for risk,
may have been worth hanging onto a bullish trade in the QQQ, to
see what happens tomorrow.

I'm not sure, but I do think the trader that posed the question
at 03:56:14 to me, was a short-term trader that may have played
the QQQ long earlier this morning on the QQQ gap higher open at
$34.43, when the morning "pullback" to $34.37 found support right
at the WEEKLY Pivot of $34.38.

Linda Piazza was also discussing thoughts of "should I hold, or
close out?" based on recent session observations.  I find her
15:56:07 comment worthy of note.  While the bullish side of Linda
is a bit jittery at the declining VXO or VIX, I wonder how calm
that October 15 put buyer of December $33 puts is feeling if
still holding those puts after seeing the QQQ rally from Friday's
low of $33.49.  That's a heck of a move isn't it?

You can be the judge, but doesn't the QQQ bar chart look like
bears were a little jittery in today's session, if not the close?
In today's market monitor, I also benchmarked the various levels
of trade in the major indices, immediately after the FOMC
decision.  The QQQ was trading $34.72, the NDX.X 1,396.

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




I've placed a "dashed red" trend on the QQQ, and that would be
the current bearish trend, that bears are looking to hold, but at
this point, much shorter in duration that the green trend and
base of our regression channel.  The Q's, just like the NYSE and
NASDAQ saw good volume today.  I've colored the $34.75-$34.84
zone as near-term support.

One thing I want to make quick note of today is that the AMEX
Composite (XAX.X) 1,066.95 +4.48% was actually today's biggest
percentage gainer of the major or broader indices.  I'm not sure
why, but I think it may have to do with some of the gains seen
from the various ETF's that are listed on the AMEX.

For instance... the GS Semiconductor iShares (AMEX:IGW) $61.81
+5.71%, Semiconductor HOLDRs (AMEX:SMH) $41.12 +5.46%, GS
Networking iShares (AMEX:IGN) $26.64 +3.41%, QQQ $35.36 +3.36%,
MSCI Taiwan iShares (AMEX:EWT) $11.87 +2.41% had some pretty good
percentage gains and may have attracted some institutional action
today.  Tough to say if it is pure bullish buying, or some near-
term bearish hedges coming off.

Today's trade saw no net change in the NASDAQ-100 Bullish %
($BPNDX).  Still "bear correction" at 75.00%.

S&P 100 Index Chart - Daily Interval




The OEX was trading 514.15 when the FOMC announced its decision
on interest rates.  While I was simply bullish a day early
(Thursday) and improperly established a stop 2-cents too tight on
Friday, I'd still have some faith in my prior bullish analysis
and be more tempted to control a bullish trade with a trailing
stop under 512, and give the OEX a chance to work higher.

I still think short-covering a good part of today's strength,
based on observations of individual stocks, even "overvalued"
ones like eBay (NASDAQ:EBAY) $57.53 +2.97%, which at today's
close had reclaimed its 10/16/03 close of $57.50, when the stock
gapped lower from there after reporting earnings.

While EBAY isn't notably above its 10/16/03 close, the ability
for the stock to even see that level based on thoughts of
"overvalued" gives some thought that the MARKET might have been
pleased with the FOMC's decision today.  I will continue to
monitor some of our "pulse" stocks, but maybe the Fed leaving
rates where they are, still gives some further upside to things.

I continue to hold a long position in EBAY stock, and protective
put.  So far the stock side of the trade is looking better than
the put side of the trade.

Today's trade saw a net gain of 1 stock to a point and figure buy
signal in the S&P 100 Bullish % ($BPOEX).  Still "bull
correction" status, but edging back up 1% to 78%.

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




Intra-day, it seemed like traders were looking at each other,
like a bunch of kids with eyes wide open waiting to see who was
going to either sell or buy after the FOMC decision.  Not unlike
some of Friday's observations where some program trades were
seen, but the SPX just sat there for awhile, the eventual move
today was higher, and when the SPX reached a session high and
stuck its head above 1,039.71, the move was on with the SPX
closing at its session high and just above WEEKLY R1.

The SPX seems to resemble the QQQ more than it does the OEX, and
this has an SPX bull wanting to see the OEX track higher, showing
some strength from the bottom, while at the same time, would love
to see some short covering action in the QQQ or tech to new highs
to get the SPX above that "double top" in the bar chart, where
I've marked EXACT highs of 1,053.79.  I have NO CLUE as to why
that was a sell level, but we aware of it.

A BULL that thought his/her portfolio was going down the drain
late last week.  Here's your chance to get things under control.
If you were overly concerned on Friday with your holdings, you
may have been "too long," and simply placing a profit stop under
some holdings at SPX 1,038 may be a good way to let the market
make a decision for you.

Today's trade saw a net gain of 1 stock to a point and figure buy
signal in the broader S&P 500 Bullish % ($BPSPX).  Still "bull
confirmed" at 78.60%.

Dow Industrials Chart (INDU) - 60-minute intervals




In the other charts we've looked at tonight, we see some "zones
of support" that may be near-term levels of support early
tomorrow, should a morning pullback take place.  I thought I zoom
in on the Dow's chart and make some observations and compare some
stochastics.  We "know" from intra-day observation where the
major indices were just after the FOMC announcement, and what
took place from there.  In the Dow's 60-minute chart, I try and
prepare traders for morning weakness, where I compare back to
similar MACD.  On 10/01/03 the INDU had rallied up to close just
above our CURRENT WEEKLY S1 of 9,458.90.  Then on 10/02/03
opening higher in the first hour (60-minutes of trade) but dilly-
dallied around that WEEKLY level for awhile before kicking higher
on October 3.

With the INDU right at its WEEKLY R1, don't be shocked, if INDU
were to edge back to 9,678-9,689 and this would be SIMILAR to a
past 60-minute observation.  The DIVERGENCE is what we're really
interested and a move much above the WEEKLY R1 (10-points or
more) most likely sees a quick dart to 9,800.  I would be more
alert to weakness on the INDU trade back below the 50-hour SMA of
9,654.

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

Jeff Bailey


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

Strong Volume for the Bulls
- J. Brown

It was a nice day for bullish traders with a strong pop at the
open and a trend that crept higher all day before rushing even
stronger into the close.  What caused the rally?  Take your pick.
Another positive durable goods order report continued to show the
manufacturing sector in this country is improving.  The consumer
confidence numbers this morning were positive removing any fears
that investors could have about the consumer starting to pull
back.  This was in spite of lower weekly retail sales numbers,
which did very little to hold back the 2.73% rise in the RLX
retail index.

Speaking of investors, TrimTabs.com, the industry expert on
mutual fund inflows and outflows, noted that Americans have been
pouring money into funds this October and the total could hit $30
billion.  That would be a very bullish month indeed.  Wall Street
also got good news from the chip sector with Taiwan
Semiconductor, the largest chip foundry on the planet, reporting
strong demand and raising their capex spending plans.  Now when
was the last time you heard a tech company raising their capex
numbers?  Exactly, it's been a while.

Of course we did have the FOMC meeting this afternoon, didn't we?
Normally the markets tend to trade sideways ahead of the fed but
today's trend was definitely upward.  As expected the FOMC chose
to leave rates unchanged at 41-year lows of 1 percent.  More
importantly the Fed had positive things to say about the job
market stabilizing and the stream of economic reports pointing to
the recovery.

Up volume whooped up on down volume 3-to-1 on the NYSE and almost
as badly on the NASDAQ.  The advance/decline numbers were very
bullish at 19/9 on the NYSE and 22/8 on the NASDAQ.  Total volume
was very strong with more than 2 billion shares trading on both
exchanges.  You're probably heard it before, but volume is a tool
for the bulls.  Investors and analysts want to see the markets
climb higher on strong volume because it indicates conviction.



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

Market Averages

DJIA ($INDU)

52-week High:  9850
52-week Low :  7197
Current     :  9748

Moving Averages:
(Simple)

 10-dma: 9699
 50-dma: 9541
200-dma: 8812



S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma: 1039
 50-dma: 1023
200-dma:  945



Nasdaq-100 ($NDX)

52-week High: 1439
52-week Low :  795
Current     : 1420

Moving Averages:
(Simple)

 10-dma: 1400
 50-dma: 1363
200-dma: 1182



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


Uh-oh.  The VXO (old vix) has rolled back over and closed under
the 18 level.  Yet I doubt this is a turning point just yet.
Look for the VXO as well as the VIX and VXN to move lower the
next couple of days as the market averages follow through on
this recent bounce.

CBOE Market Volatility Index (VIX) = 16.82 -1.23
CBOE Mkt Volatility old VIX  (VXO) = 17.84 -1.26
Nasdaq Volatility Index (VXN)      = 25.00 -1.12


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.75        713,166       532,300
Equity Only    0.66        563,950       374,757
OEX            1.08         21,766        23,399
QQQ            3.24         32,054       103,958


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

Bullish Percent Data

           Current   Change   Status
NYSE          72.9    + 0     Bull Confirmed
NASDAQ-100    75.0    + 0     Bear Correction
Dow Indust.   83.3    + 0     Bull Correction
S&P 500       78.6    + 0     Bull Confirmed
S&P 100       78.0    + 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: 1.13
10-dma: 1.13
21-dma: 1.06
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    1920      2200
Decliners     903       881

New Highs     257       282
New Lows       17         7

Up Volume   1519M     1477M
Down Vol.    480M      571M

Total Vol.  2025M     2069M
M = millions


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

Commitments Of Traders Report: 10/21/03

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
09/30/03      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%)
10/21/03      394,176   411,246   (17,070)   (2.1%)

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
09/30/03      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%
10/21/03      136,643    88,290    48,343    21.5%


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
09/30/03      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%)
10/21/03      226,985   236,906    ( 9,921)  ( 2.2%)

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
09/30/03      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%
10/21/03      168,236    56,564   111,672    49.7%


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
09/30/03       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%)
10/21/03       36,314     43,305   ( 6,991) ( 8.8%)

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
09/30/03       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%
10/21/03       16,917     9,750     7,167    26.9%

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
09/30/03       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%
10/21/03       16,876     9,037    7,839      30.3%

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
09/30/03        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%)
10/21/03        5,392     8,842   (3,450)   (23.1%)

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 10-28-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: AZO, BBY
Dropped Puts: DNA, MATK, WFT
Call Play Updates: ABC, COO, FD, ICOS, LOW, QLGC, SYK
New Calls Plays: VRTS
Put Play Updates: AVID
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:
*****

AutoZone, Inc. - AZO - close: 100.34 change: +2.37 stop: 93.00

Despite the inaction of the Fed on Tuesday, it turned out to be a
banner day for the bulls.  Since last week's breakout over $95,
AZO has been tearing up the charts.  After moving up to tap $98 on
Monday, the bulls continued to press their advantage today,
succeeding in a breakout over that level by the close.  While the
stock looks very strong, closing at its daily high on strong
volume, we're going to stick with our initial plan and close the
play out here.  Remember that we were initially targeting a rally
to $100, and we got exactly that today.  Better to harvest the
gain than to get caught being greedy.  Traders willing to take the
risk and hold out for more gains should use a tight stop just
below today's low.

Picked on October 14th at    $94.42
Change since picked:          +5.92
Earnings Date              12/22/03 (unconfirmed)
Average Daily Volume =        920 K
Chart =


---

Best Buy Company - BBY - close: 57.34 change: +2.15 stop: 52.50

Tuesday was the day of reaching targets, as our BBY play finally
made good on its promises to break out.  The stock has been stuck
in a consolidation zone for much of the past 3 weeks, but started
to poke above the top of that zone with yesterday's close over
$55.  The bulls really pressed their advantage at the open this
morning, driving BBY sharply higher in a clear vote on the strong
economic reports.  The stock reached above $57 (our final profit
target) early in the day and held those gains into the close.
With the stock up more than 12% from our picked price, and BBY
just below its all-time highs, we're going to stick with our
discipline and exit the play for a nice gain tonight.  Aggressive
traders might be able to milk a bit more out of the play, but even
they should use a tight stop of $54.15 (just under today's low)
and look to aggressively take profits if BBY trades $59 (the top
of the channel) early on Wednesday.

Picked on October 5th at     $51.00
Change since picked:          +6.34
Earnings Date              12/17/03 (unconfirmed)
Average Daily Volume =     3.96 mln
Chart =



PUTS:
*****

Genentech Inc - DNA - close: 81.80 change: +1.98 stop: 82.30

Looks like our aggressive put play on DNA is not going to pan out
after all.  The bullishness in the broader markets and another
FDA approval for a joint project on a psoriasis drug has shares
of DNA charging up and through their simple 50-dma.  We haven't
been stopped out yet but odds are good we'll see DNA break the
82.30 mark tomorrow.  We're going to close this play and look
elsewhere for shorts.

Picked on October 20 at $77.50
Change since picked:    + 4.30
Earnings Date         10/08/03 (confirmed)
Average Daily Volume:      2.5 million
Chart =


---

Martek Biosciences - MATK - cls: 47.86 chg: +2.00 stop: 48.01

Whoa!  The ramp up on the markets has gotten MATK bulls all
excited or the large number of shorts in this stock suddenly
scared again.  The 4.36% gain today could be more short covering
but we see it as a bullish breakout of the neutral wedge MATK has
been forming the last few sessions.  Momentum is changing and
we're exiting for a small move.

Picked on October 16 at $49.48
Change since picked:    - 1.62
Earnings Date         09/09/03 (confirmed)
Average Daily Volume:      466 thousand
Chart =


---

Weatherford Intl - WFT - close: 33.49 change: -0.22 stop: 36.01

Now here is one put play that's going our way.  Unfortunately,
WFT is expected to announce earnings before the bell on Thursday.
As a rule we don't like to hold over announcements even when we
think they might be disappointing like WFT's, especially since
they've already warned.  We're going to exit here but traders
have all day tomorrow to pick their retreat.

Picked on October 23 at $34.70
Change since picked:    - 1.21
Earnings Date         10/30/03 (confirmed)
Average Daily Volume:      1.3 million
Chart =



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

AmerisourceBergen - ABC - close: 57.48 change: +0.15 stop: 55.75

About as exciting as watching grass grow, ABC just sat like a bump
on a log on Tuesday, letting the broad market rally pass it by.
Last week's wild gyrations didn't result in any meaningful price
movement, as the stock is right back to drifting along the $57.50
price level.  Remember that we're using a $59 trigger for the
play, which so far has not been reached.  So we're willing to give
ABC just a bit more room to move ahead of earnings next Wednesday.
But if it can't make some upward progress ahead of the weekend,
odds are quite good we'll be dropping it.  We still need to see a
trade at $59 before considering new positions.  Wait for the
breakout!

Picked on October 21st at    $58.44
Change since picked:          -0.96
Earnings Date              11/05/03 (confirmed)
Average Daily Volume =     1.70 mln
Chart =


---

Cooper Cos - COO - close: 42.74 chg: +1.30 stop: 40.39*new*

Bulls are back in control of COO again and it's good to see the
bounce from its simple 50-dma.  Shares really began to take off
into the close on Tuesday so we may see a new relative high above
the mid-October peak soon.  News remains somewhat sparse for
Cooper but their medical unit did announce a $10 million
acquisition of Avalon Medical Corp, a distributor of a female
sterilization unit.  Once again we're targeting a move to the
$45.00 level.  We are going to raise our stop loss to 40.39.

Picked on October 12 at $41.40
Change since picked:    + 1.34
Earnings Date         09/03/03 (confirmed)
Average Daily Volume:      391 thousand
Chart =


---

Federated Dep Store - FD - cls: 47.74 chng: +1.24 stop: 45.50*new*

Retail stocks were in the spotlight on Tuesday, with the Retail
index (RLX.X) finally pushing through the $380-382 ceiling, to
close over $386 and set a new all-time closing high.  Our FD play
took advantage of that sector strength to tack on 2.67%, ending
just below that pesky $48 resistance level.  That puts the stock
at its best closing level since May of 2001 and has it in position
to make a serious run at $50.  Traders that took advantage of the
latest dip and rebound from $46 are well positioned to profit from
that move and we are recommending harvesting gains if the $50
level is traded.  Aggressive traders can look for a quick momentum
trade on a breakout over $48, looking to exit the position at that
$50 level.  With our profit target so close, it is time to tighten
up our stop too.  We're raising it to $45.50, just below the 20-
dma ($45.56).

Picked on October 9th at     $45.60
Change since picked:          +2.14
Earnings Date              11/12/03 (unconfirmed)
Average Daily Volume =     1.89 mln
Chart =


---

ICOS Corp - ICOS - close: 47.05 chg: +1.81 stop: 42.49*new*

The upward surge continues for shares of ICOS after Friday's big
breakout and triple-top buy signal on its P&F chart.  The move
was also a breakout through the neckline of a reverse head and
shoulders pattern, which suggests a $55 price target for ICOS.
Our first target is $50 but we do suspect ICOS could climb higher
given enough time.  We're going to raise our stop loss to 42.49
but more conservative traders can probably get away with a stop
near $43.50-44.00.  Don't forget, earnings are on Nov. 4th.

Picked on October 26 at $45.42
Change since picked:    + 1.63
Earnings Date         11/04/03 (confirmed)
Average Daily Volume:      1.5 million
Chart =


---

Lowe's Companies - LOW - close: 59.95 change: +1.25 stop: 57.00

With the Housing sector ($DJUSHB) and the Retail index (RLX.X)
both surging to new all-time highs on Tuesday, it should really
come as no surprise that LOW followed suit.  With its 2% gain, the
stock closed just shy of $60 and at a new all-time high.  Our $59
trigger was actually satisfied with a failed rally attempt on
Monday, but that failure was erased today with LOW charging to
close at its high of the day on volume 20% above the ADV.  There's
the potential for resistance to be found in the vicinity of
$60.50, at the top of the 8-month rising channel, but if the stock
can break out above that level, then we can set our sights higher,
looking for our $65 target to be reached.  Momentum traders got
their entry setup on both of the past two days and yesterday's dip
back to the $58.50 area gave the dip-buyers a chance to get
aboard.  Another pullback to the $58.50-59.00 can still be used
for new entries.  Maintain stops at $57 for now.

Picked on October 23rd at    $58.65
Change since picked:          +1.30
Earnings Date              11/17/04 (unconfirmed)
Average Daily Volume =     3.92 mln
Chart =


---

QLogic Corp. - QLGC - close: 56.39 change: +3.39 stop: 50.00

Last week's earnings warning from KLAC really took the wind out of
the sails of the Chip bulls.  That negative news knocked shares of
QLGC back to just above $51 before the buyers began to nibble
again, but by yesterday things were looking a bit more healthy,
with the stock ending just below $53.  QLGC shot higher right out
of the starting gate this morning, and after a quick bout of
consolidation near $54 through the late morning, launched sharply
higher into the close, helped along by the soothing words from
Greenspan and company.  By the time the dust settled, the bulls
had tallied up a 6.39% advance, resulting in the best close for
the stock since January of 2002.  If this runaway move continues,
momentum traders can consider new positions on a push through $57,
looking to harvest gains near the next major resistance at $60.
Prudence demands that we raise our stop tonight, but it is hard to
find a technical level above $51 that makes sense.  So, we're
raising our stop to $51 tonight, and recommending that more
conservative traders consider a tighter stop at $53, just under
today's intraday low.

Picked on October 21st at    $54.21
Change since picked:          +2.19
Earnings Date               1/14/04 (unconfirmed)
Average Daily Volume =     4.68 mln
Chart =


---

Stryker Corp. - SYK - close: 81.46 change: +0.55 stop: 78.00

Since we began coverage of SYK over the weekend, the stock has
just continued to consolidate in the bullish wedge pattern.
Monday's session did see an early failed breakout attempt at $82,
followed by a dip back to the $80.75 area at the close.  Investors
finally bought that dip late this afternoon, but it was a half-
hearted effort, resulting in a tepid fractional gain by the close.
Our preference is still for entries on intraday pullbacks above
the 10-dma ($80.38).  More aggressive traders can still enter on a
breakout, but should probably wait for a trade over $82.25, just
to make the move prove itself.  We're maintaining our stop at $78
until we get a confirmed breakout over resistance.  Once we
finally do see a breakout, the initial upside objective will be
for a run at $86.

Picked on October 26th at    $81.51
Change since picked:          -0.05
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =        702 K
Chart =



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

Veritas Software -VRTS - close: 27.24 change: +1.29 stop: 24.50

Company Description:
As an independent supplier of storage management software, VRTS
develops and sells products that protect against data loss and
file corruption, allowing rapid recovery after disk or computer
system failure.  The company's products provide continuous data
availability in clustered computer systems with shared resources.
This enables IT managers to work efficiently with large file
systems, making it possible to manage data distributed on large
computer network systems without harming productivity or
interrupting users.  VRTS provides products for most popular
operating systems, including UNIX and Windows NT, as well as a
full range of services to assist its customers in planning and
implementing their storage management solutions.

Why we like it:
Ever since launching higher this past spring, shares of VRTS have
been on a tear, continually working their way higher amidst the
improving technology market.  In early September, the stock found
formidable resistance near $37 and required nearly 2 months of
consolidation to digest the gains that brought it to that level.
From the looks of today's action, that consolidation is now over,
with the stock breaking out to a new 52-week high and closing very
near the high of the day.  While there may be some resistance
found in the $40-41 area, we've got our eye on a run to as high as
$45, the site of major resistance, both in early 2002 and the
summer of 2001.  While the stock is still quite richly valued (P/E
= 130), that isn't slowing down the bulls, who seem to be focused
on the fact that the company continues to post earnings above
expectations (21 cents vs. 18 cents for the most recent quarter),
and strong revenue growth.  In fact, the quarter just reported on
last Wednesday represented a record quarter of revenues for the
company.

Following today's breakout, we have two different approaches that
should work.  Momentum traders can look to jump right in on a move
over $37.50, which would represent upside continuation above
today's intraday high.  Those willing to risk missing the move can
look to enter on a pullback and rebound from what should now be
strong support in the $35.00-35.50 area.  Note that this support
area is further reinforced by the 10-dma ($35.06) and the 20-dma
($34.69).  Set stops initially at $34, which is just below the 50-
dma ($34.06).

Suggested Options:
Shorter Term: The November 35 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 December 40 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 35 Call.

BUY CALL NOV-35 VIV-KG OI=16602 at $3.10 SL=1.50
BUY CALL NOV-40 VIV-KH OI= 4950 at $0.60 SL=0.30
BUY CALL DEC-35 VIV-LG OI= 1178 at $3.80 SL=2.25
BUY CALL DEC-40 VIV-LH OI=10264 at $1.20 SL=0.50

Annotated Chart of VRTS:




Picked on October 28th at    $37.27
Change since picked:          +0.00
Earnings Date               1/21/04 (unconfirmed)
Average Daily Volume =     6.40 mln
Chart =



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

Avid Technology - AVID - cls: 50.50 chg: +0.42 stop: 52.51

Uh-oh, the market strength and bounce from its 50-dma(s) on the
DJIA and the NASDAQ Composite is translating into strength for
AVID too.  AVID has climbed back above the round-number
psychological $50 level and traded sideways above this level most
of the day.  We are a little cautious regarding new bearish
positions but aggressive bears could look for failed rallies
under the $52 level.

Picked on October 24 at $49.90
Change since picked:    + 0.60
Earnings Date         10/16/03 (confirmed)
Average Daily Volume:      628 thousand
Chart =



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

None


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The Option Investor Newsletter                  Tuesday 10-28-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - VRTS


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

Veritas Software -VRTS - close: 27.24 change: +1.29 stop: 24.50

Company Description:
As an independent supplier of storage management software, VRTS
develops and sells products that protect against data loss and
file corruption, allowing rapid recovery after disk or computer
system failure.  The company's products provide continuous data
availability in clustered computer systems with shared resources.
This enables IT managers to work efficiently with large file
systems, making it possible to manage data distributed on large
computer network systems without harming productivity or
interrupting users.  VRTS provides products for most popular
operating systems, including UNIX and Windows NT, as well as a
full range of services to assist its customers in planning and
implementing their storage management solutions.

Why we like it:
Ever since launching higher this past spring, shares of VRTS have
been on a tear, continually working their way higher amidst the
improving technology market.  In early September, the stock found
formidable resistance near $37 and required nearly 2 months of
consolidation to digest the gains that brought it to that level.
From the looks of today's action, that consolidation is now over,
with the stock breaking out to a new 52-week high and closing very
near the high of the day.  While there may be some resistance
found in the $40-41 area, we've got our eye on a run to as high as
$45, the site of major resistance, both in early 2002 and the
summer of 2001.  While the stock is still quite richly valued (P/E
= 130), that isn't slowing down the bulls, who seem to be focused
on the fact that the company continues to post earnings above
expectations (21 cents vs. 18 cents for the most recent quarter),
and strong revenue growth.  In fact, the quarter just reported on
last Wednesday represented a record quarter of revenues for the
company.

Following today's breakout, we have two different approaches that
should work.  Momentum traders can look to jump right in on a move
over $37.50, which would represent upside continuation above
today's intraday high.  Those willing to risk missing the move can
look to enter on a pullback and rebound from what should now be
strong support in the $35.00-35.50 area.  Note that this support
area is further reinforced by the 10-dma ($35.06) and the 20-dma
($34.69).  Set stops initially at $34, which is just below the 50-
dma ($34.06).

Suggested Options:
Shorter Term: The November 35 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 December 40 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 35 Call.

BUY CALL NOV-35 VIV-KG OI=16602 at $3.10 SL=1.50
BUY CALL NOV-40 VIV-KH OI= 4950 at $0.60 SL=0.30
BUY CALL DEC-35 VIV-LG OI= 1178 at $3.80 SL=2.25
BUY CALL DEC-40 VIV-LH OI=10264 at $1.20 SL=0.50

Annotated Chart of VRTS:




Picked on October 28th at    $37.27
Change since picked:          +0.00
Earnings Date               1/21/04 (unconfirmed)
Average Daily Volume =     6.40 mln
Chart =



************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


**********
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

DISCLAIMER

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