Option Investor
Newsletter

Daily Newsletter, Thursday, 10/30/2003

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter               Thursday 10-30-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Boom or Blip?
Futures Markets: GeeDP
Index Trader Wrap: Just as expected
Market Sentiment: Q3 GDP Roars


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      10-30-2003           High     Low     Volume Advance/Decline
DJIA     9786.61 + 12.10  9838.76  9754.01 2.07 bln   1608/1620
NASDAQ   1932.69 -  3.90  1957.53  1929.77 2.01 bln   1494/1685
S&P 100   517.53 -  1.13   520.99   516.37   Totals   3102/3305
S&P 500  1046.94 -  1.17  1052.82  1017.47
W5000   10195.52 - 11.80 10258.46 10171.38
RUS 2000  530.37 -  1.44   536.41   530.03
DJ TRANS 2925.28 + 23.70  2940.07  2897.97
VIX        16.33 -  0.01    16.76    16.01
VXO VIX-O  17.50 +  0.35    18.06    17.01
VXN        24.74 +  0.02    25.09    24.49
Total Volume 4,361M
Total UpVol  2,325M
Total DnVol  1,977M
52wk Highs 1042
52wk Lows    26
TRIN       1.00
NAZTRIN    0.70
PUT/CALL   0.81
************************************************************

Boom or Blip?

Bet you did not expect the news to be that good. Nobody did
and almost everybody did not know how to react. The GDP jump
by +7.2% shocked everyone into inaction. The disbelief in the
numbers had the talking heads battling the "boom or blip"
question all day. The answer? Almost everyone had decided by
the close that it was a real number but that could not prevent
a pull back that left the Nasdaq in negative territory.

Dow Chart



Nasdaq Chart



S&P Chart - Double Top?




Jobless Claims came in at yet another five week low at 386K
after last weeks numbers were revised up right on schedule to
391K. Whoever is in charge of producing the numbers needs to
just add 5K every week before the number is announced to
avoid the weekly embarrassment of having to revise them every
week. I love the press releases. "Jobless Claims fell by -5000
this week to another five week low". You would think we were
cutting layoffs each week and it was a pattern of falling
claims. The revised numbers for the prior four weeks are now
oldest to latest, 405K, 388K, 390K, 391K and this weeks 386K
which will probably be revised up to 390K or more. Far from
a declining pattern as the news would suggest. The news is
not bad with four weeks under 400K but just far from improving.

The Chicago Fed National Activity Index posted its first
positive month since July 2002. The headline number of +0.20
was not a blowout but just another confirmation of improving
conditions. The recent low of -1.12 in April has been slowly
improving and despite a downward revision of -0.12 to last
month the trend is intact. The CFNAI is based on 85 indicators
and 57 rose for the period covered in this report. Gains in
manufacturing gave the index its largest boost.

The Employment Cost Index rose slightly by +1.0% last month
and benefit costs were the major expense. This was no surprise
and the report was largely ignored with the blowout GDP
stealing all the headlines. The Help Wanted Index was flat
again at 37 and has shown little movement since a slight
bounce in June to 38. Some analysts suggested this could be
negative since the 4Q normally sees an uptick in advertising
for both permanent and temporary hiring. A flat index would
suggest that we transitioned from summer help to fall help
without any increase in advertising. This would suggest the
current unemployment levels were so high that companies do
not need to spend the money to recruit. The current index
levels are 66% off the cycle highs. Only 41% of the papers
surveyed reported any increase in employment ads.

The Labor Turnover Survey dropped -7.8% for August and
showed no improvement over the -5.7% drop in July. These
numbers are so old they do not get much play but the trend
is definitely down. June was the last positive month with
a +3.5% gain but that temporary bounce was quickly erased.
According to the JOLT Survey the job-opening rate has
fallen from year ago levels and is continuing to decline.
This does not paint a convincing picture for the Nonfarm
Payroll number next week except that this is an August
number and conditions could have changed substantially.

The big number for the day, actually the decade was the GDP
jump to +7.2%. This was well over the estimate of +6% which
was already considered too high by many analysts. The sticker
shock initially powered a spike from short covering but that
spike was short lived. There were so many qualifications that
traders did not know which way to jump. This gain was the
biggest jump in quarterly GDP in 19 years. To say it was
out of the ordinary would be an under statement. Personal
consumption, investments in equipment, software spending
and exports led the gains. Auto sales added +1.17% but
shrinking inventories actually knocked -0.67% off the final
number. The $35 billion drop is projecting an even bigger
bounce in the 4Q or 1Q as these inventories are replenished.
Exports added +.84% to the number and was mostly unexpected.
The weaker dollar and stronger global demand helped pump
the export number. In Q2 the GDP was powered mostly by
defense spending. In Q3 defense spending was almost flat.
Federal spending was also flat. Disposable income jumped
+7.2% from tax cuts and rebates and helped power the jump
in consumption. There are a lot of detractors to the GDP
bounce but the internals show a continued increase in home
and auto sales despite the high unemployment. Increases in
business spending surprised most analysts and many question
if the bounce will continue.

Regardless of your take on the GDP the market was completely
confused. The opening bounce took the Dow back to a high of
9827 but the selling begin almost immediately. The Dow
drifted back to 9754, -73 points off its high and nearly
-20 points into the red before 10:30. The Nasdaq bounced
to 1956, only -10 points from its 52-week high before a
quick drop back to support at 1930. The quick drop was due
to disbelief by some and profit taking by others. With only
one day left in the fiscal year for many mutual funds this
was a perfect opportunity to unload stocks. However, they
did not sell the bounce and despite the opening dip and the
closing dip the action for the day was positive. The Nasdaq
was the weakest and closed slightly negative and right on
1930 support. The Dow clung to yesterday's resistance at
9780 and refused to give up ground at the close.

For Friday we have another flurry of economic reports and
another chance for a news driven market event. The lack of
a sell off today could have been related to some month end
window dressing that offset any year end rebalancing. This
leaves Friday up for grabs. Futures are positive in the
overnight session and the post closing analyst musings are
suggesting a positive spin to the GDP once the sticker
shock dissipates.

My analysis of the event is probably a little different from
some others. While there are many qualifiers in the GDP
number those qualifiers only impact a very select few traders.
The general public only sees the headline number and thinks
"wow, the economy really is recovering". They begin to feel
better about overall conditions and the sentiment numbers
over the next month will show another boost. Still my
thoughts go more to the underlying market action today. We
did NOT sell off. This to me was the biggest event. The
current market rally had been predicated on a +6% GDP for
the last two months. Everybody with a podium had been using
the GDP as a rally point with every speech. If ever there
was a number baked into the cake this was it. Everyone who
was ready to pull the exit trigger on a +6% or lower number
was shocked into inaction by the blowout. Suddenly the
concept of market top was called into question. Whoa, if
the economy is better than everyone expected then maybe
there is more to go. Maybe I should not sell yet.

Obviously this is an oversimplification but you get the point.
There was selling on the news but there was also buying. The
opposing forces were evenly matched and volume was strong.
The advancers/decliners were even at 3102/3305 and the markets
finished flat. Flat, not +200 on the good news or -100 on
the expected news. Confusion reigns and that is a good thing.
The VXO (old VIX) hit 17.01 on the bounce today. This is an
unbelievable number and only 2 ticks away from breaking the
17 barrier. Any move up on Friday will likely do the trick.
That leaves us heading into a weak heavy with economic reports
and the market near its highs with the VXO at a five year low.
The high odds bettors are backing up the truck to load up on
puts. This type of alignment happens very rarely and almost
always ends badly. The wild card in that scenario is the GDP.

The traders almanac says the first three days of November
are normally bullish as funds reinvest the cash they got
from selling in October. Since we had almost no selling I
would be skeptical of a positive first three days if it
were not for the parade of increasingly positive economic
reports. Assuming we do not see a sudden reversal of fortune
on Friday we will go into the weekend at market highs with
good economics and good earnings and even greater
expectations for the 4Q. Greenspan could not have scripted
it better.

Before we get too far ahead of ourselves let's remember that
the estimates for growth in the 4Q and the 1Q were only in
the +4% range last week. That range could change but with
earnings expectations turning down due to a stronger 4Q-2002
comparison there could be some dampening of expectations in
the market. The Fed has begun to drain the excess liquidity
out of the money supply and interest rates are climbing
again. Unemployment is still high and the Fed is still
worried about deflation. We are not out of the woods yet
but offsetting these negatives is the influx of cash into
mutual funds. TrimTabs said we could see record inflows for
October of $30 billion. With the +7.2% GDP headline all we
need now is a Dow 10,000 headline and even the hard core
should become converts. CDs and worthless money market
accounts would be tapped to try the stock market again. It
makes no difference how badly they were burned in the past
they see the lure of easy money and want to be winners too.
If you are walking through a casino and pass a table where
all the gamblers are cheering and screaming with every roll
of the dice it is very hard to keep on walking. When you
see them raking profits off the table with every roll the
urge to throw some money on the table and get your share is
very strong.  Of course what I just described is a market
top that is doomed to eventually correct but it could be
weeks or months before that correction.

A quick look at the charts above should prompt caution
from any technical analyst. The S&P came to a dead stop
at 1050 once again and could easily be forming a double
top at that level. Same goes for the Dow and Nasdaq. For
any bullish scenario to develop these indexes must break
out to news highs over the next couple days of the bulls
will become worried and we could see weakness appear again.

That brings us back to tomorrow. We could easily move 100
points in either direction or remain flat as October slips
into history. I personally think the odds favor some profit
taking on Friday. The Dow traded over 9820 three separate
times on Thursday and failed to hold the high ground each
time. The Nasdaq went out near the low for the day and
could be seeing some profit taking by funds. With it being
the last day of the month for all and the last day of the
year for many, anything is possible. The only resistance
above us is the 52-week highs at 9850 and should that break
we are only a broad jump away from Dow 10,000. That is still
my target for the next real profit taking event. The only
real unknown is how far in front of that target will the
bulls become nervous and begin exiting the game.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

GeeDP
Jonathan Levinson

Despite the headline of “Best GDP result in 19 years”, it took
just one hour for traders to fade the news, selling off the
equity indices from just below their rally highs.  Gold and
treasuries got dumped as well, with only the dollar rallying.
The move felt more like a liquidity drain than anything else,
going beyond the Fed’s $2B open market operation drain.

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 broke upside resistance, clearing 92 and
running to 92.30 starting 45 minutes prior to the release of the
GDP data. Gold which had initially traded very strong, found
sellers on the dollar strength, with the HUI and XAU pulling back
and the CRB dropping 2.03 to close at 247.73.


Daily chart of December gold



December gold printed an ugly candle on the daily chart, dropping
only 3 points but finishing near the bottom of a 10 point range
that touched a high of 392.90.  My amazement in the Fed’s
interventions, its reckless inflation of money supply, and
general historical and philosophic leanings all contribute to a
strong bullish bias toward gold, silver and commodities in
general.  However, the similarities between the recent action in
gold and the broader equity markets, for which I have a bearish
bias, make me technically doubtful as to the capacity for gold to
plough through the 390-410 resistance area.  I suspect that if
there’s a correction in equities, as I expect, then the drain in
liquidity should impact gold and the HUI, just as it did in the
2002 selloffs.  Ultimately, I expect gold, the HUI and the CRB to
emerge as the true winners in a sea of dubious paper, but in the
meantime, I believe that there’s risk in metals just as in
equities.  I hope that my analysis is incorrect, but in the
meantime I expect some type of pullback, and a retest of 365
would answer a lot of questions for me.


Daily chart of the ten year note yield



Treasuries got sold again today, with the ten year note yield
(TNX) gapping up and testing the upper trendline at 4.4% before
pulling back to close higher by 6.4 bps at 4.339%.  I find this
action in treasuries to be interesting in light of the Fed’s
comments this week.  It appears that the treasury market does not
believe that the Fed will be buying treasuries any time soon,
despite that’s being the implication of its comments.  The
oscillator trend remains lower on the TNX, but with the price
coiling into the apex of this 4 month pennant, we can expect a
directional break in our future.


Daily NQ candles


An extraordinary tape painting job in the last 15 minutes
following the cash close got the indices back into positive
territory, with NQ finishing higher by 1.50 points, ES +2.25 and
NQ +37.  Well off the highs, but at least the GDP bullishness was
spared the indignity of a negative close on the equity futures.
You’ll note that the charts, which use the closing prices at the
time of the cash close, reflect red candle prints.  The buying
came in the 15 minutes that followed, and I’ve manually entered
those closing prices in the pivot matrix above.

The NQ printed a shooting star doji, blowing off its early
gains in a move that failed to set a new rally high.  The daily
oscillators stalled on their bullish kisses, and on this
timeframe, the next move could go either way.  However, the daily
candle formation is very bearish, and the failure at 1445 served
only to reinforce that resistance level.  While a break above it
could set off a short covering rally, it became a little less
likely today.


30 minute 20 day chart of the NQ


The spike high this morning set up a sharp bearish oscillator
divergence that portended the ensuing drop nicely.  Despite the
end of day buying, the failed rising trendline was not touched,
and it appears that the bears have successfully intercepted the
ball.  Support at 1410 looks like the next likely stop, with more
significant support at 1387.  The oscillators are in an uncertain
downphase.  However, with the volatility indices closing in
extreme territory again, with QQV at 22.99 and VXN 24.75, I see
risks that go beyond the oscillator configuration and chart
patterns.  Low volatility such as this has not tended to coincide
with high equity prices for long.


Daily ES candles


The ES was less bearish than the NQ on a daily basis, with more
uncertainty reflected in the doji close compared with the
shooting star on the NQ.  The oscillator configuration is equally
trendless on the ES, however, and it appears that the difference
is insignificant.  As with the NQ, the ES bulls tried to break
the rally highs and failed quickly, with three subsequent lower
highs printed during the remainder of the day.


20 day 30 minute chart of the ES


The 30 minute ES broke below the rising trendline that had
supported the lows since Friday of last week, following an upside
break above rising resistance.  These bear wedge fakeouts have
been very common this year, and happily, they no longer inspire
the same panic amongst shorts that they did during the spring.

The downside support break implies a downside bear wedge target
of 1016, and with the VXO rising all of .35 to 17.50, I see that
]as a very reasonable preliminary target.  However, on a trading
basis, it’s best to follow our timing indicators, as the market
has had a way of surprising everyone lately.  Support at 1041 was
not tested, and 1038, 1032, 1029 and 1024 are all important
levels below.  The downphase on the 300 minute stoch has been
choppy thus far, and 1038 appears to be setting up as the next
possible battlezone, always assuming that 1041 gets taken out on
this downphase.


150-tick ES


The daily chart of the 150 tick ES shows the opening gap higher,
followed by the precipitous selloff and the ensuing chop.  A
short cycle upphase was kicked off by the end of session ramp.


Daily YM candles


Same story on the YM.

20 day 30 minute chart of the YM


For tomorrow, the picture is uncertain due to the waffling in the
daily chart oscillators.  I can think of many reasons why
equities should be getting dropped like a bad habit and am
struggling to remain objective.  The 30 minute downphase is
underway and portends a lower high to the short cycle upphase,
but it has been choppy so far.  With the daily and 30 minute
oscillators uncertain currently, I’m wary of the current range.
It will take a range break to settle the uncertainty, and for
that we look to 1055 ES to the upside and 1041 to the down.  With
the volatility indices at multiyear lows, and bonds and gold
selling against a rising dollar, I’m favoring a downside break,
but tomorrow will have to tell the tale.  See you at the bell!


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

No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?

OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!

Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.

http://www.OneStopOption.com

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


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

Just as expected

This morning's release of Q3 GDP data showed the U.S. economy
growing at a 7.2% annual rate, which was well above economists'
forecast for 6.0% growth.  While the rate of growth may have been
a surprise to economists, with the major indices finishing
relatively unchanged, the MARKET didn't seem a bit surprised.

As economic growth ramped up in Q3, today's release of weekly
jobless claims showed new filings for state unemployment
insurance stayed below the 400,000 level for a fourth-straight
week at 386,000, but still depicted a slow recovery after a long
slump.

An early pop higher found immediate selling as the major indices
came close to their 52-week highs found two-weeks ago, with only
the smaller-cap Russell-2000 Index (RUT.X) 530.37 -0.27% getting
a quick glimpse of a new 52-week with a trade above its October
15 and 17 matching highs of 534.25 with a morning high of 536.21.

An earnings disappointment out of Dow component, and world's
largest investor-owned oil company, Exxon/Mobil (NYSE:XOM) $36.30
-3.99% did little to bolster bullish gains for the Dow
Industrials (INDU) 9,786.61 +0.12%, or the broader S&P 500 Index
(SPX.X) 1,046.94 -0.11% and narrower S&P 100 Index (OEX.X) 517.53
-0.21%, all of which XOM is a component.  Exxon/Mobil reported
net income of $3.65 billion, or 55 cents a share, up from $2.64
billion, or 39 cents, a year ago, but fell well shy of analysts'
estimates of $0.62 per share.  XOM officials said the earnings
shortfall came from its chemical business and weaker than
forecasted refining and marketing in the U.S. and
internationally.

The CBOE Oil Index (OIX.X) 277.35 -1.49% fell to a three-week low
to close back below a trending higher 50-day SMA.

While the major indices had trouble holding their early morning
gains to finish unchanged, the AMEX Gold Bugs Index ($HUI.X)
215.64 -3.04% witnessed today's most notable reversal of morning
profits.

After edging to a new all-time high at 223.92 in the first 30-
minutes of trade, some sector bulls bugged out sending the HUI.X
lower by 6.77-point to the close.  December Gold futures (gc03z)
$384.40 -0.67%, which saw an anticipatory bullish trade to
$392.00 just prior to today's GDP release, ended down $2.60.  The
only "technical" even I saw in play today was when Jonathan
Levinson noted the equity weighted Gold and Silver Index (XAU.X)
97.60 -1.85% traded above the 100.00 level, that tick above
100.00 seemed to be a trigger for selling at a psychologically
round number.

The stronger than forecasted GDP data saw the U.S. Dollar Index
(dx00y) 92.26 +0.43% gaining ground, with current trade above its
shorter-term 21-day SMA for this fist time since falling below
this simple moving average on September 4, 2003 at 97.53.

Treasuries finished their session lower and YIELDs higher, with
the shorter-dated 5-year Treasury YIELD ($FVX.X) jumping 10.2
basis points to 3.283%, while the benchmark 10-year YIELD
($TNX.X) saw its YIELD rise 6.4 basis points by the close to
finish with a 4.339% YIELD. The longest-dated 30-year Treasury
YIELD ($TYX.X) rose a more modest 3.9 basis points to 5.198%.
Today's bond action really saw some flattening of the YIELD curve
as if the bond market was saying today's report of Q3 GDP at 7.2%
wasn't expected to continue in future quarters.

Let's take a quick look at tonight's Pivot Matrix.  Please keep
in mind that after tomorrow's close, we will have new WEEKLY and
MONTHLY pivot levels.  Today's most notable trade was the OEX
morning high of 520.99, and exact match with the WEEKLY R1, as if
there was a determined sell program, or some type of formidable
seller at that level.  This becomes a "key level" in tomorrow's
trade, from which a trader would measure bullish strength on a
break above.  While not marked in the Matrix, we once again find
correlation in the OEX for support at 513 at DAILY S2 and WEEKLY
Pivot.  As such, this is a near-term level of support to monitor
closely tomorrow.

Pivot Matrix




The S&P Banks Index (BIX.X) 329.57 +0.42% was the only index in
our WEEKLY matrix to see a trade at WEEKLY R2.  Of the 22
components in the BIX.X, 20 showed gains, 2 showed declines.

Meanwhile, the OEX.X followed the other indices with a test of
its WEEKLY R1 in today's trade.  I'm marking BIX.X correlative
support at DAILY S1 and WEEKLY S1, which may be very correlative
to OEX DAILY S2 and WEEKLY Pivot.

While there isn't a single bank in the NASDAQ-100 Tracking Stock
(AMEX:QQQ) $35.39 +0.19%, which got a late 15-minute push into
its close from an upside earnings report from component American
Power Conversion (NASDAQ:APCC) $17.90 +1.58%, which found the
stock jumping to $19.35 in extended hours of trade, I've
highlighted the DAILY S1 in the QQQ at $35.07, which is right
where I had place a stop in today's bullish profile for a QQQ
trade.

Another correlative level of support that I think is important to
hold tomorrow can be found in the Dow Industrials (INDU) 9,786.61
+0.12% at the 9,745 level.  I like to subtract 10-points as a
little fudge room, so I'm setting a downside alert at the 9,745
level in tomorrow's session.

My current mindset, which may not make sense to everyone, is the
mindset of a bull trying to inflict as much pain on a bear as
possible, in order to trigger short-covering.

Why this mindset?  For one, I know that bullish risk is high in
the bullish % indicators, but just as I know the indices are
either at or near 52-week highs, overhead supply of stock at 52-
week highs is limited.  But with this mindset, what is a BEAR
probably thinking?  He/She may accurately be thinking, "hey, all
the good news is baked into the cake right now and stocks are
headed lower."

From the perception of risk, and taking a bears beliefs to heart,
what index might be the more logical one for the bear to be
shorting?  I think the answer is the OEX.  It's full of large cap
stock, perceived as being stodgy, and slower moving.  Even on a
move to new highs, the move will more likely than not, be slower
moving in percentage terms, and less painful to a bear should the
cake not be fully baked.

My bullish profile in the QQQ is not because I think there is any
"great value" to be had, but more likely, some jittery bears.  As
we neared tonight's close I asked myself, if after seeing today's
trade, would I rather be long or short the QQQ?  I thought long.

Let's take a quick look at the OEX, as even a QQQ long begins to
understand, they need to see strength from the OEX, where today's
high at WEEKLY R1 does grab my attention.  The 5 largest cap
weighted found GE +0.17%, MSFT -2.31%, WMT -0.08%, C +0.59% and
XOM -3.99%.  According to my Qcharts sort, GE has overtaken MSFT
for the top weighted market cap again.

One stock to keep an eye on near-term is Microsoft (MSFT) $26.21
-2.31%, which has been sold lower since it reported quarterly
earnings on October 23 and closed that evening at $28.81.  That's
a 9.9% haircut for what was the largest market cap stock.  While
a bounce from the 200-day SMA might make technical sense, a
continued decline below this moving average and its August lows
of $25.43, could well drag the major indices lower, not to
mention have negative impact on a technology-bull's psychology.

S&P 100 Index Chart (OEX.X) - Daily Intervals




OEX support above 513, but resistance of 521 was firm today.
MSFT has been one of the weaker stocks in the OEX, and if MSFT
continues weaker, is going to most likely have lingering negative
impact on OEX.  Conversely, a technical bounce from MSFT at its
longer-term 200-day SMA should keep OEX above 513.

Today's trade saw a net gain of 1 stock to a reversing upward
point and figure buy signal.  This has the S&P 100 Bullish %
($BPOEX) edging up 1% to 80%.  Still "bull correction" status and
would take a higher reading of 84% to achieve "bull confirmed"
status.

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




Oscillators look almost exactly the same today as they did
earlier this month as it relates to MACD trying to cross above
its Signal, while the Stochastics oscillator is now "overbought."
In an upward trending security, I give more weight to MACD and
remain bullish the SPX above 1,039, and look for some momentum
support from the rising 21-day SMA.

From my personal perspective, I just think it would be difficult
to close a bullish trade out here (have not bullish position) and
then have the conviction to get back on board on a move above the
52-week high.  This may not be appropriate thinking based on a
bulls tolerance for risk, or need to book a gain, but would
rather play it out, see if bears flinch with a short-cover rally
to new highs, and play support at 1,039.

Today's trade saw a net gain of 2 stock to new point and figure
buy signals as the S&P 500 Bullish % ($BPSPX) rose 0.4% to
80.00%.  Still "bull confirmed."

I really want to commend a trader that sent me an e-mail today,
where he saw today's trade as being SIMILAR to that found on
October 15 in the QQQ based on the 60-minute interval chart.

This is EXCELLENT and now provides us a near-term look, and swing
trader's view of the QQQ.  He was looking at the QQQ on a 60-
minute interval.

Today, I profiled a bullish trade for QQQ at $35.27, stop $35.07,
target $36.20.  Once again, I may be off by 2-cents in my stop
and bullish target based on tomorrow's DAILY S1 and DAILY R2. (as
I was in the SPY) as I look at this chart.  Another trader also
e-mailed me expression concern over the QQQ 60-minute chart's
MACD.  This too may be a very good observation, which we will
test tomorrow.

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




First the observation of today's trade on the 60-minute interval
chart looking very SIMILAR to that found on October 15, when the
QQQ spiked higher in the first hour of trade, to get pushed
immediately back to that hours low.

See the pink horizontal trend I place at $35.52?  That was the
"rally high" on October 15, which was tested early the following
day as resistance when the QQQ the FAILED that test and turned
lower.  Two ways a BULL could have protected was to have a really
TIGHT STOP under $35.27, or $35.07.  Done... that's it and a good
test for tomorrow for WEAKNESS.

For DIVERGENCE and STRENGTH, QQQ needs to get above $35.64.  Tell
you what, I'll set an alert at $35.60, just so I'm alert if the
QQQ comes close to $35.64.  And maybe I should adjust a bullish
stop a little lower than tomorrow's DAILY S1 of $35.07.  If I'm
going to get short covering rally in the QQQ to TARGET of $35.20,
DAILY R2 is $36.18, then it will more likely have to come on a
move above $35.64, than a move BELOW $35.07.

And what about MACD.  Doesn't look good on the 60-minute chart
does it?  MACD on this time interval didn't look very good at the
left of the chart either, but QQQ price action followed the 21-
day SMA higher from $34.50 before the more notable 60-minute
interval break of $35.07.  The one difference I see in the above
chart as it relates to early October (left chart) is our 50-hour
SMA is trying to turn higher, but not "ramping" up like it was in
early October.  So... I KNOW I need HIGHER PRICE ACTION in the
QQQ to get that 50-hour ramping higher.

Today's trade saw no change in the NASDAQ-100 Bullish % ($BPNDX).
Still "bear correction" status at 78.00%.

I've run out of time, and have been given strict deadline for
content delivery.  Will follow with an INDU chart in the morning.

Jeff Bailey


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

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


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

Q3 GDP Roars
- J. Brown

Q3 GDP roared at a 7.2% pace, more than double the Q2's 3.3% run.
This was the fast growth in 19 years but the markets reaction was
ho-hum.  Many already had big expectations and the report merely
confirmed what the Street was looking for.  Although it was
certainly above and beyond the estimates there is already talk of
it being revised lower when the data is finalized.

Investors were also happy to hear that jobless claims remained
below the pivotal 400,000 level with 386,000 filing last week.
The recent trend under the 400K level suggest that companies have
slowed their layoffs, which is the natural precursor to any
turnaround in new hirings.

We continue to remain cautious with the volatility indices so
low.  The VXO or old VIX hit a new multi-year low yesterday and
closed at 17.50 today.  This is a contrarian indicator of extreme
bullishness or lack of fear in the markets.  Traditionally, when
investors become this complacent it's usually time to expect a
short-term top in the market averages.

The markets will also have to contend with fiscal year end for
mutual funds, which takes place tomorrow.  While I would normally
expect most of the portfolio shuffling to be completed by now
October has been a very strong month for fund inflows.  It's
possible that money managers could do some last minute window
shopping.  However, normally, funds tend to put their money to
work in early November.


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

Market Averages

DJIA ($INDU)

52-week High:  9850
52-week Low :  7197
Current     :  9772

Moving Averages:
(Simple)

 10-dma: 9695
 50-dma: 9555
200-dma: 8822



S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma: 1039
 50-dma: 1024
200-dma:  946



Nasdaq-100 ($NDX)

52-week High: 1439
52-week Low :  795
Current     : 1417

Moving Averages:
(Simple)

 10-dma: 1399
 50-dma: 1368
200-dma: 1186




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

We did see a small jump in the volatility indices but yesterday
was a new relative low for all of them.  The VIX and VXO continue
to suggest caution for bullish investors.

CBOE Market Volatility Index (VIX) = 16.33 -0.10
CBOE Mkt Volatility old VIX  (VXO) = 17.50 +0.35
Nasdaq Volatility Index (VXN)      = 24.74 +0.02


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.81        725,972       585,376
Equity Only    0.70        627,894       439,451
OEX            0.66         26,132        17,264
QQQ            3.19         41,569       132,431


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.3    + 0     Bull Confirmed
NASDAQ-100    78.0    + 3     Bear Correction
Dow Indust.   83.3    + 0     Bull Correction
S&P 500       80.0    + 1     Bull Confirmed
S&P 100       80.0    + 2     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: 1.00
10-dma: 1.10
21-dma: 1.00
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    1456      1406
Decliners    1379      1652

New Highs     241       260
New Lows        8         9

Up Volume   1024M     1173M
Down Vol.    971M      902M

Total Vol.  2016M     2106M
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

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


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

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
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                 Thursday 10-30-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: ABC
Dropped Puts: None
Call Play Updates: COO, FD, ICOS, LOW, QLGC, SYK, VRTS
New Calls Plays: JCI
Put Play Updates: None
New Put Plays: COF


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

AmerisourceBergen - ABC - close: 56.73 change: -0.47 stop: 55.75

ABC has been a huge disappointment, not so much because it went
against us, but because it never did much of anything.  We
initially set an entry trigger at $59, which the stock never was
able to reach.  After one failed attempt, ABC has been drifting
along near the $57.50 price magnet and it is showing no sign of
breaking from the current rangebound action.  With earnings set
to be released next Wednesday, there really isn't enough time
left before we'd need to drop it, even if it were to trigger
first thing tomorrow.  We're dropping the play tonight to make
room for more promising plays.

Picked on October 21st at    $58.44
Change since picked:          -1.71
Earnings Date              11/05/03 (confirmed)
Average Daily Volume =     1.68 mln
Chart =



PUTS:
*****

None


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

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

Cooper Cos - COO - close: 43.40 chg: -0.16 stop: 40.99 *new*

Bulls are taking a breather today after three strong sessions in
shares of COO.  We were encouraged to see COO hold above the
$43.00 level in today's consolidation.  We're getting close to
our first target of $45.00 and short-term traders may want to
begin planning their exits.  We are going to inch up our stop
loss a tad to $40.99.

Picked on October 12 at $41.40
Change since picked:    + 2.00
Earnings Date         09/03/03 (confirmed)
Average Daily Volume:      391 thousand
Chart =


---

Federated Dep Store - FD - cls: 46.96 chng: -0.44 stop: 45.50

"I think I can, I think I can", you can almost hear FD chant as
it continues to try to surmount the $48 resistance level.  But
with a flat performance from the Retail index (RLX.X) over the
past two days, the stock never really had a chance.  Despite the
lack of upward progress since Tuesday, FD is still looking
positive as it continues to hold above its 20-dma (currently
$46.00).  Traders still looking for an entry will be best served
by either targeting a rebound from support near $46 or a breakout
over $48.  Remember that our target for the play is $50 and if
that level is traded, it would make for a good opportunity to
harvest some gains ahead of the company's earnings report on
11/12.

Picked on October 9th at     $45.60
Change since picked:          +1.36
Earnings Date              11/12/03 (unconfirmed)
Average Daily Volume =     1.91 mln
Chart =


---

ICOS Corp - ICOS - close: 45.96 chg: -1.12 stop: 42.49

The bounce from $39 and its 50-dma was getting a little tired and
shares of ICOS pulled back a bit after hitting a new relative
high this morning.  Traders can look for a dip and bounce from
$45 or $44 depending on how deep any pull back may occur in the
markets.  Either level would make a trade worthy entry point for
new bullish positions.  HOWEVER, traders should keep in mind that
earnings are expected on Nov. 4th and we don't plan to hold over
the announcement.  That doesn't give us much time and may make
this play undesirable for less active investors.

Picked on October 26 at $45.42
Change since picked:    + 0.54
Earnings Date         11/04/03 (confirmed)
Average Daily Volume:      1.5 million
Chart =


---

Lowe's Companies - LOW - close: 59.45 change: +0.15 stop: 57.00

LOW hasn't made much progress over the past couple days, but it
is impressive that it is holding above the $59 breakout level.
Thursday's performance was particularly impressive, even though
the stock only chalked up a 15 cent gain.  Both the $DJUSHB index
(-1.28%) and the RLX index (-0.14%) lost ground, and that puts
LOW in a position of relative strength.  Intraday rebounds from
the $58.50-59.00 are the best bet for continuation entries,
although momentum-types can consider entering on a break above
$60.  For now, we'll maintain stops at $57, just below the bottom
of the recent consolidation zone.

Picked on October 23rd at    $58.65
Change since picked:          +0.80
Earnings Date              11/17/04 (unconfirmed)
Average Daily Volume =     3.94 mln
Chart =


---

QLogic Corp. - QLGC - close: 56.19 change: -0.67 stop: 52.99*new*

We had a pretty good idea a bout of profit taking was on its way
and Thursday's very bullish open provided just the opportunity.
QLGC gapped sharply higher at the open (to $58.30) and
immediately proceeded to lose altitude with the rest of the
market.  By the end of the day, the stock had not only given back
all of its early gains, but all of its gains from yesterday as
well.  The close above $56 is encouraging, but we must be
prepared for a continued deterioration before the rally once
again gets under way.  We're raising our stop to $52.99 tonight,
which is just below Tuesday's intraday low.  More conservative
traders might want to harvest gains near current levels or work
with a tighter stop at $55.75, just under the intraday lows from
the past couple days.  We're still looking for a continuation of
this rally up over the $60 level, but first we may have to endure
some consolidation of the recent gains.  Look to initiate new
positions on a dip and rebound from above the $54.00-54.50 area.

Picked on October 21st at    $54.21
Change since picked:          +1.99
Earnings Date               1/14/04 (unconfirmed)
Average Daily Volume =     4.68 mln
Chart =


---

Stryker Corp. - SYK - close: 81.16 change: -0.13 stop: 79.00*new*

In the boredom category, we have SYK, which has managed to spend
the past several sessions trading in a roughly $1.30 range.
Support is being found at the 10-dma (currently $80.85), with
resistance being provided by the $82 level.  Something is bound
to give and soon.  Aggressive traders can use the intraday dips
to support to establish new positions ahead of the expected
breakout, while more conservative traders will want to wait for
the break above $82 before playing.  Remember, we're still
looking for a run to the $86 level once the breakout occurs.
Based on the consolidation over the past week, we're reducing our
risk in the play by raising our stop to $79, as that level should
not be touched if the upside truly has any potential.

Picked on October 26th at    $81.51
Change since picked:          -0.35
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =        704 K
Chart =


---

Veritas Software -VRTS - close: 36.34 change: -0.55 stop: 34.00

After a failed attempt at reaching higher levels yesterday
following Tuesday's breakout, VRTS was dealt a bit of a setback
on Thursday, losing 1.5% to end just above the $36 support level.
This looks like the setup for a new entry point.  Remember that
dips in this stock have all provided solid entry points for
months.  So until that pattern changes, we have to look at
pullbacks to support as viable entry points.  Note that $36 was
strong resistance before this week's breakout, and we should now
see it act as equally strong support.  A rebound from that level
looks like the best opportunity for new entries, although more
aggressive traders may be able to nab an entry closer to $35 on a
rebound from either the 10-dma ($35.48) or the 20-dma ($35.12).
Maintain stops just below $34.

Picked on October 28th at    $37.27
Change since picked:          -0.93
Earnings Date               1/21/04 (unconfirmed)
Average Daily Volume =     6.39 mln
Chart =



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

Johnson Controls - JCI - close: 107.70 chg: +1.07 stop: 102.99

Company Description:
Johnson Controls is a global market leader in automotive systems
and facility management and control. In the automotive market, it
is a major supplier of integrated seating and interior systems,
and batteries. For non- residential facilities, Johnson Controls
provides control systems and services including comfort, energy
and security management.  (source: company press release)

Why We Like It:
Building on the bullish wave in the markets and growing net
income, shares of JCI have propelled themselves from the $72.50
level in April to $107 in October.  The month of October has been
exceptionally strong after Bank of America raised their price
target on JCI to $125.  Fellow vehicle-interior maker Lear Corp
(LEA) also benefited from a strong start in October and positive
analyst coverage.  When the markets pulled back JCI investors saw
shares dip toward the $103 level but dip buyers moved albeit on
lower volume.  Earnings were on Oct. 22nd and the company's
fiscal Q4 profits rose 16% while they beat estimates by 3 cents
with $2.31 a share.

We will admit that the daily and weekly chart on JCI looks
extended and overdue for a deeper correction.  However, until
that time comes we're going to play the trend, which is up, and
see how far it can run.  Its point-and-figure chart is currently
showing a triple-top buy signal after faking out the shorts with
a bear trap.  We like entries at the current level but momentum
traders can look for a new high over $107.40.  If you prefer to
enter on a dip wait for a pull back to $105 or $106.  We're going
to initiate the play with a stop loss at $102.99.

We also note that JCI is a split candidate.  The company last
split its stock 2-for-1 on April 1, 1997 at the $80 level.  There
has been ample opportunity to split since and they did not.
However, shares are now trading at all-time highs and October was
the first time they broke the century mark.

Suggested Options:
Short-term traders can choose from the November and December
options while longer-term investors may want to look at January
04 and April 04 strikes. We like the 105s and 110s.

BUY CALL NOV 105 JCI-KA OI=563 at $3.20 SL=1.60
BUY CALL NOV 110 JCI-KB OI=254 at $0.80 SL= --
BUY CALL DEC 105 JCI-LA OI=  1 at $4.20 SL=2.20
BUY CALL DEC 110 JCI-LB OI= 10 at $1.70 SL=0.90
BUY CALL DEC 115 JCI-LC OI=  0 at $0.60 SL= --

Annotated chart:




Picked on October 30 at $107.70
Change since picked:     + 0.00
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      432 thousand
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

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


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

None


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

Capital One Fin. - COF - close: 59.68 change: -3.70 stop: 62.00

Company Description:
As one of the top 10 credit card issuers in the U.S., Capital
One's secret weapon is its vast databases.  The company uses this
data to match a potential Visa or MasterCard customer to any one
of its thousands of cards, varying in annual percentage rates,
credit limits, finance charges and fees.  Ranging from platinum
and gold cards for preferred customers to secured and unsecured
cards for customers with poor credit histories, the company has a
credit card for just about anyone.  The company also sells
wireless phone services, mortgage services, and consumer lending
products.

Why we like it:
Investors have been buying the promises of improving business
over the past year, and this earnings season their expectations
are being put to the test.  Shares of COF have had an impressive
run from the March lows near $25, topping out just below $65
ahead of earnings earlier this week.  This was a major level of
resistance, as it turned the bulls back in the middle of 2002.
Unfortunately, the press was better than reality, and when COF
reported earnings yesterday, investors were disappointed enough
to knock the stock back for a 5.8% loss today on volume that
nearly tripled the ADV.  COF beat earnings estimates by 11 cents,
so you're probably wondering what the problem was.  It was the
guidance that was a problem, as the company guided slightly lower
for 2004, and there's no room in current valuations for that kind
of pack-pedalling.  There's no question this is an aggressive
play, coming the day after a sharp reaction to earnings and with
the PnF chart still on a Buy signal.

This could be just a one-day negative reaction, with the stock
once again rebounding tomorrow, so we're going to use a trigger
of $59 for the play.  Remember that Buy signal on the PnF chart?
Well, it will become a Sell signal with a trade at $59.  We'll
look to enter the play on the initial breakdown, while more
conservative traders can wait for a break below the 50-dma
($58.63) before playing.  After the initial break of $59, a
failed rebound in the $60-61 area can also be used for entering
the play, although our preference is for trading the initial
break.  While there is some mild support near $56 (the site of
the bottom of the 9/09 gap as well as the late September reaction
low, but we're going to target a move down to $50, with an
outside chance of a move down to $48.  Set stops initially at
$62, just above today's intraday high and the converged 10-dma
($61.68) and 20-dma ($61.56).

Suggested Options:
Aggressive short-term traders will want to focus on the November
55 Put, as it will provide the best return for a short-term play.
Longer term traders will want to look to the December 55 Put, as
it should provide ample time for JCI to move in our favor without
time decay becoming a major factor.

BUY PUT NOV-60 COF-WL OI=5898 at $2.60 SL=1.25
BUY PUT NOV-55 COF-WK OI=4384 at $0.80 SL=0.40
BUY PUT DEC-55 COF-XK OI=3712 at $1.65 SL=1.25

Annotated Chart of COF:



Picked on October 30th at    $59.68
Change since picked:          +0.00
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     2.62 mln
Chart =



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

No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?

OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!

Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.

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
The Option Investor Newsletter                 Thursday 10-30-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - JCI
Traders Corner: Trading Anxiety & Stress – You Bring It On Yourself


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

Johnson Controls - JCI - close: 107.70 chg: +1.07 stop: 102.99

Company Description:
Johnson Controls is a global market leader in automotive systems
and facility management and control. In the automotive market, it
is a major supplier of integrated seating and interior systems,
and batteries. For non- residential facilities, Johnson Controls
provides control systems and services including comfort, energy
and security management.  (source: company press release)

Why We Like It:
Building on the bullish wave in the markets and growing net
income, shares of JCI have propelled themselves from the $72.50
level in April to $107 in October.  The month of October has been
exceptionally strong after Bank of America raised their price
target on JCI to $125.  Fellow vehicle-interior maker Lear Corp
(LEA) also benefited from a strong start in October and positive
analyst coverage.  When the markets pulled back JCI investors saw
shares dip toward the $103 level but dip buyers moved albeit on
lower volume.  Earnings were on Oct. 22nd and the company's
fiscal Q4 profits rose 16% while they beat estimates by 3 cents
with $2.31 a share.

We will admit that the daily and weekly chart on JCI looks
extended and overdue for a deeper correction.  However, until
that time comes we're going to play the trend, which is up, and
see how far it can run.  Its point-and-figure chart is currently
showing a triple-top buy signal after faking out the shorts with
a bear trap.  We like entries at the current level but momentum
traders can look for a new high over $107.40.  If you prefer to
enter on a dip wait for a pull back to $105 or $106.  We're going
to initiate the play with a stop loss at $102.99.

We also note that JCI is a split candidate.  The company last
split its stock 2-for-1 on April 1, 1997 at the $80 level.  There
has been ample opportunity to split since and they did not.
However, shares are now trading at all-time highs and October was
the first time they broke the century mark.

Suggested Options:
Short-term traders can choose from the November and December
options while longer-term investors may want to look at January
04 and April 04 strikes. We like the 105s and 110s.

BUY CALL NOV 105 JCI-KA OI=563 at $3.20 SL=1.60
BUY CALL NOV 110 JCI-KB OI=254 at $0.80 SL= --
BUY CALL DEC 105 JCI-LA OI=  1 at $4.20 SL=2.20
BUY CALL DEC 110 JCI-LB OI= 10 at $1.70 SL=0.90
BUY CALL DEC 115 JCI-LC OI=  0 at $0.60 SL= --

Annotated chart:




Picked on October 30 at $107.70
Change since picked:     + 0.00
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      432 thousand
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

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


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

Trading Anxiety & Stress – You Bring It On Yourself
By Mike Parnos, Investing With Attitude

Playing the percentages pays off.  Maybe not today.  Maybe not
tomorrow, but, in the long run, you'll be further ahead.  That's
what we, at the CPTI, count on.  And it seems to be working.

However, for most it takes patience, discipline and common sense –
traits that are hard for some to develop.   The learning process
takes time.  There's a withdrawal period as you change your
trading style from aggressive to conservative.  It's painful.  We
live in a world where we mentally throw a fit and stomp our feet.
Why?  Because we "want it now."

Trading can also play havoc with a marriage – particularly trading
directional strategies (which are a "no-no" at the Couch Potato
Trading Institute).   The constant anxiety and stress can alter
personalities and make one difficult to be around.  A trade gone
bad can put you in a foul mood for days at a time.

In Case You've Wondered
Why are trader's wives heavier than wives of non-traders?
Answer:  Non-traders wives come home, see what's in the fridge and
go to bed.  Trader's wives come home, see what's in bed and go
straight to the fridge.
______________________________________________________________

Dear Mike,
In your Sept. 14 column discussing the long term ITM QQQ strangle
you write: "2) QQQs are at $35? a) The $33 calls can be bought
back for $2.05 and rolled into the $33 Nov. calls for $2.30 (+
$.25 time premium). b) The $33 puts can be bought back for a
nickel and rolled out to the $35 ATM puts for $1.15. c) Total new
premium credit = $1.40.

If I understand correctly, this creates a short term short $33/$35
strangle? But originally you argue that we should establish a
straddle, taking in the most possible premium?

Or do we assume (gamble) that the market will move BACK to $33??
If it doesn't (it keeps rising for 2-3 more month), do we keep
expanding the range of our strangle?

I am new to CPTI and going through your columns methodically with
GREAT enthusiasm. I am determined to master your methods!! (I have
a couch already).

Hi Joseph,
Methodically is good!  Enthusiasm is even better!  You do it right
and you may never have to get off the couch again.  The answer to
this question is a bit complicated, so grab your cushions and
prepare to focus.

When we sell the near term puts and calls against the 2005 LEAPS,
we have two diagonal calendar spreads -- a bull call spread and a
bear put spread.  By selling the near term options close to where
the QQQs are trading (at the money) we will take in the most
premium.   When both short puts and calls are ATM, it's true we
take in more premium, but we're also sacrificing a little bit of
flexibility in our rollout choices.  Read on.

There is an argument for establishing a short strangle with
options near the money – as opposed to the at-the-money straddle.
We take in a little less, but our rollout life may ultimately be
easier.

We know that we're going to want to (or have to) roll out our
short positions prior to expiration.  Under certain circumstances,
a small strangle may be easier to roll out from.  If the market
has moved more than a few points from a short strike price, it
will require more to buy back the option.  For instance, let's say
we're short the $33 call.  The QQQs are trading at $36.50.   On
our rollout, it would require us to buy back the $33 call for at
least $3.55.  That leaves the question of which option we would
roll it out to.  The only way we can recoup the $3.55 we just
spent would be to roll out to the same strike price.  That means
we need the QQQs to come back down.  It's entirely likely that the
QQQs will bounce around within the LEAPS range for quite some time
(within a single cycle as well as future cycles).  Therefore, it
will probably come back to us -- hopefully around rollout time.

If the QQQs are at $36.50 at time of rollout, we might then find
ourselves rolling out to the $36 puts and the $33 calls.  We might
take in only $.75 that month, maybe less.   On the other hand, if
you are short the $34 calls (and $32 puts) instead of the $33
calls, it will take less to buy back the $34 calls (as part of the
rollout) and will simplify the roll back process because it's a
full point closer to the new rolled out $36 short puts.  You will
also get a little more time premium (maybe a dime) when you roll
out because you're a little closer to where the QQQs are trading.

It gets tricky rolling out as the market comes back down, but it
can be done if you maintain patience and discipline.  But that's
all part of the game.  If you aren't totally confused by now,
you're doing great and I'm one hell-of-a teacher.  If you are
totally confused, well, I'm still a hell-of-a writer, you just
need to go over it another time or two.

Now, aren't you glad you asked?
____________________________________________________________

NOVEMBER AND ONGOING POSITIONS
Position #1 – SPX Iron Condor – Trading @ 1046.94
We sold 10 contracts of November SPX 985 puts and bought 10
contracts of November SPX 975 puts for a credit of $1.10 ($1,100).
Then we sold 7 contracts of November SPX 1075 calls and bought 7
contracts of November SPX 1090 calls for a credit of $1.50
($1,050) and a total net credit of $2,150.
We've created a maximum profit range of 985 to 1075.  With 3+
weeks left, that's a reasonable range.

Position #2 – AFCI Iron Condor – Trading @ $24.48
We sold 10 contracts of the AFCI November $25 puts and bought 10
contracts of the AFCI November $20.00 puts for a credit of $1.05.
Then sold 10 contracts of the AFCI November $30 calls and bought
10 contracts of the AFCI November $35.00 calls for a credit of
$.60.   Our total net credit was $1.65.  Our safety range was
$23.35 to $31.65.  Position closed for $700 loss.  AFCI has
rebounded back into what would have been profitable territory, but
we're traders with a plan.  So, we bid AFCI a not so fond
farewell.  We'll meet again.

Position #3 – OEX Iron Condor (By Request) – 517.53
We sold 10 contracts of the OEX November 490 puts and bought 10
contracts of the OEX November 480 puts for a credit of about $.90.
Then, sold 10 contracts of the OEX November 545 calls and buy 10
contracts of the OEX November 555 calls for a credit of about
another $.90.  Our total net credit will be about $1.80.  Our
maximum profit range is 490 to 545.

Position #4 – BBH – Siamese Condor - $127.65
Sell 10 contracts of the BBH November $130 puts and 10 contracts
of the BBH November $130 calls for about $8.50.  Then, buy 10
contracts of BBH November $140 calls and 10 contracts of the BBH
November $120 puts for about $2.40.  The net credit should be
about $6.10.  Our profit range is $123.90 to $136.10 and those are
also our exit parameters.  The closer BBH finishes to $130, the
more we will make.

Position #5 – QQQ Put Calendar Spread – Trading @ $35.39
We decided to risk a buck.  Since many folks think the market is
due to correct.  We created a cheap play that will let us take
advantage of a nice down move.  Meanwhile, we will continue to
sell against the January put while we wait.

We bought 10 contracts of January 04 QQQ $32 puts and sold 10
contracts of October 03 QQQ $32 puts for a total debit of $1.00
($1,000).
The October $32 puts expired worthless and, when the QQQs dipped,
we rolled out to the November $32 and took in a $.30 credit.  We
now have a new cost basis of $.70.

OEX – Bearish Calendar Spread – OEX @ $517.53
We own 8 contracts of OEX November 470 puts @ $10.60 and sold 8
contracts of OEX September 470 puts @ $2.20 for a total debit of
$8.40.  The Sept. 470 puts obviously expired worthless.  We sold
the October 490 puts, took in another $3.10 and those also expired
worthless.  On Thursday we sold the November 485 puts for $2.60.
Our cost basis is now $2.70.

If we're going to make money on this position, we'll need some
cooperation from the market.  The OEX will have to trade down to
about 490 in the next few weeks.  Then, we may have to make an
adjustment.  This may get a bit tricky – another adventure and
learning experience.

QQQ ITM Strangle – Ongoing Long Term -- $35.39.
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.  Then we
sold 10 contracts of the QQQ Oct. 33 puts and 10 contracts of the
QQQ Oct. 34 calls for a total credit of $1,900.  We bought back
our $33 puts and $34 calls and rolled out to November $34 puts and
$34 calls, taking in another $1.15 ($1,150).  So far, so good.

HPQ (Hewlett Packard) Bear-Put Spread – HPQ at $22.08
This is a directional bet.  We anticipate HPQ may return to the
$15 range.  We own 10 contracts of the HPQ Feb. 2004 $20 puts @
$2.25 and we sold 10 contracts of the HPQ Feb. 2004 $15 puts @
$.40.  Total debit of $1.85.   Potential max profit of $3.15.
We'd gladly accept a profit of $800-900 and close the position
early if the opportunity presents itself.  This is a long-term
position.
__________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational plays or our strategies?  To find
past CPTI (Mike Parnos) articles, look under "Education" on the OI
home page and click on "Traders Corner."  They're waiting for you
24/7.
___________________________________________________________

Happy Trading!
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In
trading, as in life, it’s not the cards we’re dealt. It’s how we
play them. Your questions and comments are always welcome.

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

Couch Potato Trading Institute Disclaimer

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


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

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

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

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives