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Daily Newsletter, Tuesday, 11/04/2003

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The Option Investor Newsletter                Tuesday 11-04-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Good Day For A Walk
Futures Markets: Lack of Lustre
Index Trader Wrap: Watching the paint dry with a thin coat of red
Market Sentiment: Layoffs Cast Doubt


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-04-2003           High     Low     Volume Advance/Decline
DJIA     9838.83 - 19.60  9874.83  9819.86 1.75 bln   1693/1522
NASDAQ   1957.96 -  9.70  1971.38  1053.64 2.11 bln   1610/1582
S&P 100   521.38 -  2.63   524.01   520.43   Totals   3303/3104
S&P 500  1053.25 -  5.77  1059.02  1051.70
W5000   10271.46 - 45.70 10317.20 10257.98
RUS 2000  538.87 +  1.03   540.32   535.72
DJ TRANS 2941.56 +  0.80  2952.51  2930.74
VIX        16.55 +  0.00    16.78    16.45
VXO (VIX-O)17.42 +  0.33    17.74    17.11
VXN        25.69 +  0.31    25.96    25.46
Total Volume 4,129M
Total UpVol  1,729M
Total DnVol  2,319M
52wk Highs  954
52wk Lows    25
TRIN       1.83
NAZTRIN    1.18
PUT/CALL   0.61
************************************************************

Good Day For A Walk

If you took the day off and went hiking, played some golf or
maybe started some early Christmas shopping you were spared
a great deal of boring trading. The markets wandered aimlessly
for much of the day mostly in negative territory. The new
highs from Monday were left behind today as the indexes
digested the gains and pondered some negative economic news.
Considering the Dow had been up for the last six days it was
due for a rest.

Dow Chart



Nasdaq Chart



The economic news started out positive with Retail Sales up
+0.5% for last week. While it was positive it only retraced
about half of the -0.9% drop in the prior week. Sales of
Halloween merchandise was reported to be strong but sales of
Fall merchandise was hurt by unseasonably warm weather in
many areas. Retailers are not daunted and are widely expected
to post the best holiday season since 1999. My bet is that
competition is going to be fierce with the price slashing
to start in the next two weeks. Odds are they will not be
waiting for the Thanksgiving break to pass.

The October Senior Loan Officer survey showed that the same
number of banks that had reported decreases in commercial
real estate loan demand in August were still seeing a drop
in demand. Bankers also reported a decline in home mortgages
for the first time in two years. Despite a decline in the
standards required to get a loan the demand for mortgages
has fallen substantially over the last three months. No
real excitement here or anything we did not already know
but there was a small pickup in general business borrowing.

The worst news for the day was the Challenger Layoff Report
which showed a jump of +125% in the number of layoffs since
September. Announced layoffs rocketed to 171,874 from only
76,510 last month. This is more than twice as high as the
average for the second and third quarters. This was the
largest number since Oct-2002 at 176K and the next largest
of Jan-2002 at 212K. The soaring layoffs are not expected
to continue despite catching analysts off guard. With the
Nonfarm Payroll report on Friday you would expect this to
be a factor. However, today's report totals "announced
layoffs" and not actual layoffs. These are layoffs that
will occur over the next 3-6 months. This does not mean
the Friday payroll report will not be negative but it does
cast a shadow over the rest of the quarter. Layoffs soared
in October last year as well. November saw 157K announced
as well before December dropped to only -93k. Far from a
trend but it was enough for analysts to cling to and
enough to keep the markets from self destructing.

I was amazed that the market did not collapse. This was
very negative news and news that was not expected. The Dow
was already at the lows of the day when it was announced
and it dipped another -5 points and then began a rebound.
I stared at the screen in disbelief as the Dow gained ground.
The bullish sentiment is so extreme that the name bad news
bulls fit very well today. Although the markets did not
implode the bulls were not able to take them back to positive
territory. The flipside was the bears were not able to take
them down either. The markets simply traded in a very narrow
range after 10:30 and on low volume until time expired.

This should not be seen as a win by anybody but the bulls.
Tuesday was slated to be a consolidation day at best even
before the layoff report. With the Dow up +3% over just the
last six days and at new highs there was ample reason for
buyers to be passive and profit taking to be aggressive.
It simply did not happen. The A/D was flat at 3303:3104
with the edge in favor of the advancers. Declining volume
did beat out advancing on the strength of a few high profile
losers. RHAT, FHCC, MCDTA, HEPH, PTN, CYCL, PMACA and FIC
topped the list with SUNW the winner with over 86 million
shares traded followed closely by LU with 84 million shares
and a loss of 12 cents. Considering SUNW was up +25% over
the prior three days and LU up +41% over the last two weeks
a little profit taking should be expected.

I am chalking up Tuesday in the bullish column due to the
lack of any real profit taking on very negative economic
news. However, Wednesday might be a different story. The
market felt heavy all day even though there was no drop.
After the close today PCLN cut its outlook and warned that
demand for airline tickets began to fall in September and
that weakness had continued into October. PCLN cut profit
forecasts for the 4Q to between 2 cents and 8 cents. The
previous analyst view was 8-12 cents. PCLN said the drop
would have been worse were it not for some new offerings
of hotel rooms, rental cars and some retail products. The
bad news was seen as the drop in airline demand over the
last two months that seems to be confirming the drop in
consumer spending we saw last week. The drop in September
was initially ignored as 9/11 event risk but when it
continued into October that caused additional concern.
PCLN was down -$7 in after hours to 22.50. Southwest
Airlines also announced after the close it was shutting
down three reservation centers and 1900 workers would be
displaced.

Adding to our event risk for Wednesday is an appearance
before the Senate Banking Committee by Greenspan. He will
be grilled about interest rates and the economic recovery.
As if this is not enough he will speak on Thursday morning
to a group in Boca Raton on "New Developments in the
Economy". This speech will be watched very close for signs
of position hedging. Currently the Fed Funds futures are
not predicting any rate increases until a 25 point hike in
May-2004. One reason for no rate hike not quoted in print
is the huge borrowing requirements by the government. On
Wednesday there is expected to be another $60 billion in
various denominations of notes. With the deficit growing
daily and several hundred billion in notes to be sold over
the next few months there is the implied need to keep rates
down until as much of the deficit funding is over as possible.
While the "official" interest rate has no direct bearing on
the note auctions it does help depress the general bond
prices.

The mutual fund scandal continues to overhang the markets
but no real impact has been seen in equity prices. Officials
today said that easily one half of all funds are guilty of
allowing market timing and probably one third have allowed
some version of late trading. Spitzer went on record as
saying that "ALL" and he emphasized "ALL" fees collected by
funds while any of these practices were in force "WOULD" be
forfeited. Considering these inquiries are going back to
2000 in many cases this could be a huge amount of money. It
is far too soon to try and decipher the end result of the
investigations, amounts of money paid, what funds will be
forced to do to raise this cash and how it will impact the
market. The only thing we can be sure of is that it will
impact the market if only to keep a cloud over it for the
next couple months. Investors will pull money out of some
funds and send it to others and the constant churn could
keep stock prices from making any large gains.

Economically Wednesday should not be a challenge. If the
Layoff report today could not deter the bulls the reports
on Wednesday should not either. We have Mortgage Applications,
Factory Orders and the ISM Services index. We already know
mortgage applications are weak so any surprise should be
to the upside. ISM Services has been leading the ISM
Manufacturing and the estimate is to remain flat so that
should be an easy number. The Factory Orders were down -0.8%
last month and the estimates are for an increase of +0.6%.
Any number over zero should be accepted and ignored. The
Greenspan appearance will get more attention than the
reports but odds are good the head cheerleader will be in
top form. There is always the potential for a slip of the
lip but those odds are slim.

The general consensus of opinion still appears to be we
are still going higher before serious profit taking appears.
This is likely the thought process that will prevail but
there is a growing contingent that believe otherwise. There
were several major analyst firms making dire predictions on
stock TV today. "Hard drop by Nov-21st" and "down December"
were a couple of the high profile claims. Everybody is
welcome to their opinion and everyone has at least one.
The earnings estimates for the 4Q have been remarkably
quiet. The prognosticators appear to be still crunching
numbers and nobody wants to be the first to go public with
their results. Despite the increase in the semiconductor
sector the outlook for the 4Q is still cloudy. The outlook
for the 1Q is even more cloudy and that is when the worry
will start building about Fed rate hikes. Once we pass
1/1/2004 the focus will be rates. Once the January earnings
cycle has a couple weeks under its belt the investing
climate is likely to change drastically.

Why is that a worry for us now? Because markets are forward
looking by 3-6 months. That 3-6 month window from here is
Feb-Apr and that puts the interest rates firmly into focus.
The thought process remains that we should move higher this
week but the future discounting process may limit any gains.
Dow 10500-11000 were being mentioned as targets a lot over
the last couple weeks and those numbers are slowly being
lowered to 10000-10200. Where we will actually end up is
anybody's guess. With the Nonfarm Payrolls on Friday we
could continue to wander until that number is out. The
estimate is for a gain of 50,000 jobs.

While the US markets did not react negatively to the Layoff
report the Asian markets did. The Nikkei opened down -108
points and pushed our futures a little farther into negative
territory. Still a lot of darkness before the open and far
to soon to draw any conclusions. Technically the Dow is
holding above support at 9800 and it is still at the high
end of the recent 9600-9800 range. There has not been any
real weakness appear and we could easily give up a couple
hundred points with no harm done. The Nasdaq is also
holding at the highs over 1950 and has plenty of support
above 1900. It will take a significant change of sentiment
to cause any serious damage to either of these indexes. The
VXO is still flashing red in the low 17s but nobody appears
to be taking notice. We have not seen any obvious changes
in the markets despite the extreme levels. November and
December are the two best months in normal markets so there
is a lot of momentum in the form of historical sentiment
behind us. Whether it will be enough to power us much
higher is too soon to tell.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Lack of Lustre
Jonathan Levinson

The big moves yesterday faded uneventfully today, with the US
Dollar Index doing a slow bleed off its highs, ditto equities,
while gold and treasuries bounced modestly, retracing part of
yesterday's losses.

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 chart shows the difference between large and
small traders.  I'll leave it to you, faithful reader, to decide
which is which, but it leaves one with the same feeling as the
audience witnessing the fight between the Empire's battle droids
and the rebel forces in that big open field in "Star Wars:
Phantom Menace".  Enough said.  Support is between 92.70-92.80,
resistance at 93.90.


Daily chart of December gold


December gold traded both sides of 380 today, with the real
strength in silver which added 2.29% to trade 5.04 as of this
writing.  The CRB was up .72 as of the close, off its intraday
highs.

I've generated a year-to-date daily chart of gold to put some
context on our analysis at the expense of smaller, blurrier price
candles.  As can be seen, there's tough sledding to the upside
from here, with solid trendline resistance at 390 coincident with
confluence resistance dating back to the mid-1980's and mid-
1990's.  Add the downphasing oscillators, and my favorite bullish
sector is looking like a likely sell here.  On the positive side,
however, Fibonacci and trendline support held at 377, and this
will be the level to watch tomorrow.  Below 375, 365-6 is the
next significant support.


Daily chart of the ten year note yield


The ten year note yield dropped 6.3 bps to 4.305%, with 10 year
treasuries recovering part of yesterday's losses.  The move
caused a twitch higher in the now-waffling daily cycle
oscillators, which is what one would expect as price coils within
the apex of the narrowing pennant.  This flatlining will continue
until either the upper or lower trendline breaks, and the only
comfort for traders is that the move is growing near.


Daily NQ candles



The upper trendline held, with NQ touching a high of 1444 before
pulling back.  The range was relatively narrow, and the selling
lackluster but persistent.  As with the dollar, gold and ten year
treasury notes, the NQ retraced part of yesterday's big move.
Traders appear to be sufficiently sick of upside that every dip
was cheered, but the fact remains that today's selling was
nothing more than a very small retracement.  It might have also
been the last time we'll see these levels, given the persistent
prints below 18 on the VXO and equally low QQV and VXN readings,
but the charts give us no such indication at this time.  The
daily cycle oscillators are on buy signals, not strictly upphases
yet but clearly not downphasing.  If lower trendline support at
1400 can get broken, bears will have more on which to chew, with
a preliminary pattern target of 1300, but in the meantime, the
trend remains higher, somehow.


30 minute 20 day chart of the NQ


The rising trendline on NQ was finally broken around noontime,
with the 30 minute cycle oscillators picking off the top
perfectly.  The bearish divergences discussed in last night's
Futures Wrap portended the decline, but I note with some
discomfort that the 30 minute cycle downphase has so far been
good for all of 20 or so points.  This is a relatively small
drop, and is not as sharp as the upmoves preceding it have been.
If so, then another blast to test the highs is easily imagined,
as a weak downphase often precedes a strong upphase.  That said,
the trendline is now resistance, all the way up at 1445
currently.  Support at the low of the day at 1426 will be the
first downside test of the still ongoing downphase, despite brief
the mid-afternoon stoprunner.

Daily ES candles


ES pulled back as week bouncing off 1050 support and not
threatening any of the bullish uptrend so far.  The buy signals
on the daily cycle oscillators sustained more damage than those
on the NQ, but the same discussion applies.  It felt more bearish
than it was, and bears need to be careful to not become fuel for
the next in what seems like an endless string of short covering
panic rallies.  1043 is the support line on the rising bear
wedge, and a break below it projects to a possible 987 target.

20 day 30 minute chart of the ES


The bearish divergence is flatter on the ES 30 minute chart, but
nevertheless foreshadowed today's weakness.  My reservations on
the weakness of the downphase thus far on the NQ apply no less on
the ES, with less than 8 points of downside so far.  Given the
nascent upphase trying to start on the daily chart, 1050 may well
be a strong buy if the 30 minute cycle downphase ends tomorrow
morning without more of a dip.  We'll then watch for the strength
of the bounce, knowing that it's likely to be strong following so
weak a downphase. If, on the other hand, the bounce turns out to
be weak, with a lower price high below 1060, then the bears can
roll out the proverbial barrel.


Daily YM candles


YM actually finished 4 points in the green.  Other than that, the
cycle setup is the same as for the ES and NQ.


20 day 30 minute chart of the YM


If today's trading was corrective, as it appears to have been on
all of the asset classes we follow, then the reversal of today's
action could pack some thrust.  Bond bulls, goldbugs, dollar and
equity bears will need to be nimble and careful to get out of the
way if we see reversals tomorrow morning.  I am frankly astounded
at the weakness of the selling, given that I'm now sufficiently
frazzled by the low intraday put to call readings and volatility
indices to be unable to pull the trigger on bullish equity
trades.  I'm barely able to cover intraday short positions for
that matter.  But, this year has taught me that my own views are
of secondary importance, and above all, DON'T LOSE MONEY.  That
means letting protective or trailing stops trigger, and stepping
aside when confused or unsure.  My bias is for downside here, but
my bias for avoiding losses is stronger.  If equities are going
to go higher, then we'll try to trade what we see, or at least
watch from the sidelines.  "Greater fool" buying is fine, but one
never knows if/when it's his/her turn to wear the conical cap,
holding a fill right at the top.  I've never been good at it.

For tomorrow, the oscillators indicate that a bounce is growing
likely.  If support fails out of the gate and those oscillators
begin trending, the daily oscillators will flip back down, and it
could be time to finally dust off our helmets.  See you at the
bell!


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

Watching the paint dry with a thin coat of red

Today's trade was somewhat similar to watching a fresh coat of
paint dry, where by session's end, the lack of economic data and
few key earnings reports had profit taking leaving the bulk of
sectors and major indices finishing lower with a thin coat of
red.

Like oil and water, the AMEX Gold Bugs Index ($HUI.X) 212.99
+1.97% recouped just about 1/2 of yesterday's losses and took
today's top spot for equity sector winners, while the U.S. Dollar
Index (dx00y) 93.28 -0.40% gave back nearly half of yesterday's
gains.

Outplacement firm Challenger, Gray and Christmas said layoff
announcements more than doubled in October to 171,874, the
highest in a year, but the news was taken with a grain of salt as
October is typically the largest month for layoff notices, as
companies slash costs at the end of the fiscal year.

John Challenger, the CEO of the company that bears his
name said, "While perhaps shocking to some, the October spike
follows a trend of heavy year-end downsizing that has occurred
since we began tracking job cuts in 1993.  With factors like
technology, outsourcing and consolidation working against job
creation, any job market rebound we see in the near future will
be relatively small."

The Challenger layoff report showed the auto industry sent 28,363
workers down the road in October, followed by 21,169 announced
layoffs in the retail sector and 21,030 in the telecommunications
sector.

Shares of the Big 3 automakers found General Motors (NYSE:GM)
$42.90 trading unchanged, while Ford Motor (NYSE:F) $12.32 +0.81%
and Daimler Chrysler (NYSE:DCX) $37.84 +1.04% posted gains.

Both the Combined Telecom Index (IXTCX) 176.12 and North American
Telecom Index (XTC.X) 541.23 shed just more than 1% in today's
trade, while the S&P Retail Index (RLX.X) 386.45 fell 0.73%.

A separate poll conducted by Challenger, Gray and Christmas had
78% of corporate personnel managers saying there would not be a
significant rebound in hiring before the second quarter of 2004.
Eleven percent of those polled said a rebound in hiring wasn't
likely until Q3 or Q4 of next year, while 11% said they didn't
see a rebound in hiring for 2004.

Treasury bulls found the Challenger report to their likely with
bonds finding a bid in today's trade, with the shorter-dated 5-
year YIELD ($FVX.X) falling 6.6 basis points to 3.259%, while the
10-year YIELD ($TNX.X) fell 6.3 basis points to 4.305%.  The
longest dated 30-year YIELD ($TYX.X) edged down 4.5 basis points
to 5.138%.

Tomorrow's economic schedule has the Institute of Supply
Management Services Index for October being released at 10:00 AM
EST, where modest expansion to 63.4 from September's 63.3 reading
is forecasted by economists.  The ISM Services report doesn't get
as much attention as the recently released ISM Manufacturing
Index, which was released on Monday.

Also slated for release at 10:00 AM EST is September factory
orders, where economists' look for orders to have increased 0.6%
after a -0.8% decline in August.  Some economists have edged up
their numbers in recent days after seeing Q3 GDP data, which was
much stronger than previously forecasted, so I wouldn't expect
the September factor orders data to provide much surprise.

Pivot Matrix




The Dow Diamonds (AMEX:DIA) $98.58 +0.07% showed a gain despite
the Dow Industrials (INDU) 9,838.823 -0.19% posting a 19-point
loss only because a 04:15 PM EST closing trade late Monday at
$98.51 created today's discrepancy.

Often times we will see the trackers like the DIA,SPY,QQQ show
some fractional differences from their parent index with the
extra 15-minutes of trade past the 04:00 PM EST mark providing
the difference.

Some of the correlations that show up in the pivot matrix at
DAILY R2 and WEEKLY R1 will most likely be difficult levels to
break through on an intra-day basis tomorrow, as Cisco Systems
(NASDAQ:CSCO) $21.58 -0.59% is slated to report earnings after
tomorrow's close.

My gut feel is that the major indices trend higher into the CSCO
numbers, where a potential bullish type of "blow off" trade to
the still correlative MONTHLY R1 and WEEKLY R2s would only be
found on some very bullish forward looking comments out of CSCO.

While I'm not much of a "gut feel" trader as it relates to
risking large amounts of capital, I will trade my instinct and
past observations to an extent.

My first observation tonight is that S&P futures (sp03z) settled
1,052.30 and that's above our "bullish bias" level of 1,051.20.

With correlation showing up in the MONTHLY R1 and WEEKLY R2 in
the SPY, there's still an "old trade" and recent observation
eating at me.  Here's the S&P Depository Receipt (AMEX:SPY)
$105.76 -0.21%, where I'm trying to think through the October
24th trade, and observations made in the weekend Market Wrap on
October 26.  Here's the
http://members.OptionInvestor.com/MarketWrap/mw_102603_1.ASP
to that Market Wrap.

S&P Depository Receipts (SPY) Chart - Daily Intervals




The yellow spot marks the observation of multiple sell programs
on October 24, where those sell programs were gobbled up by the
MARKET.  Was that "smart money" targeting yesterday's highs as it
knew about the strong GDP data and October ISM Index data?

Since we find similarity to our prior scenario, its time to look
for DIVERGENCE to the past.

For bullish DIVERGENCE to the past, the one thing a trader looks
for early in the session is for support from 105.18 (note MONTHLY
38.2% retracement matching DAILY S2), firming there, and the
makings of a rebound back higher, where my "gut feel" is that a
trade back above 105.40 would be the pre-rally signal into
Cisco's (CSCO) earnings, when reported after the close, has the
SPY trading MONTHLY R1, where just by coincidence, the Dow
Diamonds (DIA) $98.58 trades MONTHLY R1 of $100.13, which is
equivalent to DOW 10,000!!!!

Anyway.... this would be a good test for tomorrow, but I don't
think the buying done from $102.24-$103.21 has sold yet, but
waiting for $107.36 as the bullish target.

Today's trade saw a net loss of 2 stocks to point and figure sell
signals as the S&P 500 Bullish % ($BPSPX) slipped back 0.4% to
80%.  Still "bull confirmed."

Dow Industrials (INDU) Chart - Daily Intervals




If a Dow 10,000 is to be traded this week, and I do think there
is potential for it to be traded, then I'm tying in the SPY
observations and tests with the INDU chart above.

I'm not EXPECTING disappointing economic data, tomorrow, but see
the trade setup for the markets to trend lower early in the
session, look for support at DAILY S2's, where a rebound builds
into CSCO earnings, where the "good news" then gets sold at
10,000.00 as if market participants just glad it took place.

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




Volume levels in the QQQ suggest there isn't much interest the
past three sessions, as if there is some event on the horizon
that is deemed more important.  I think it is CSCO.

Don't take my trade scenario for QQQ as complacent bullishness.
It isn't, but this is the kind of thing I think some may not be
looking for, and should it happen, THEN the complacent bull
scrambles to buy a gap higher near $36.61, just as they get
smacked with a load of stock from liquidating longs on the "good
news."

The BIG test for the QQQ is to show strength above $36.15, and
unless some big broker makes comment during tomorrow's trade
about how great CSCO's earnings or guidance is going to be, I
think the QQQ stays pegged under the $36.00 level, but look for
support above the weekly pivot, keeping in mind the QQQ tends to
overdo things on the up and downside.

Jeff Bailey


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

Layoffs Cast Doubt
- J. Brown

The big event today certainly wasn't the market's movement.  All
the major averages traded in very narrow ranges and the DJIA and
the S&P 500 both ended a six-day winning streak.  No, the big
news today was the Challenger Gray & Christmas corporate layoff
report.  Planned corporate layoffs soared 125 percent after three
months of encouraging declines.  Suddenly investors began to
doubt the expectation that Friday's employment report would be
slightly positive and a continuation of the last jobs report.

Despite the negative surprise the markets failed to move.  It was
a game of chicken with the bulls and bears struggling to see who
would blink first.  Considering that the markets were so
overbought it was not a surprise to see weak hands take some
money off the table.  Even so the selling was muted.  Most sector
indices did close in the red but only marginally so.

Continuing to weigh on the retail investor's confidence is the
growing mutual fund scandal.  Yesterday it claimed Putnam's CEO.
Today it claimed several employees from Prudential whom the SEC
is pressing fraud charges.  I guess it's possible that from a
contrarian point of view the retail investor might see these
headlines and think, "ah, finally the government is doing
something... my money should be safer now."  But I think that may
be a stretch of the imagination.

The volatility indices remain low and will continue to undermine
the confidence in any future gains until we see a significant
pull back.


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

Market Averages

DJIA ($INDU)

52-week High:  9896
52-week Low :  7197
Current     :  9838

Moving Averages:
(Simple)

 10-dma: 9720
 50-dma: 9584
200-dma: 8840

S&P 500 ($SPX)

52-week High: 1061
52-week Low :  768
Current     : 1053

Moving Averages:
(Simple)

 10-dma: 1042
 50-dma: 1028
200-dma:  948

Nasdaq-100 ($NDX)

52-week High: 1445
52-week Low :  795
Current     : 1429

Moving Averages:
(Simple)

 10-dma: 1405
 50-dma: 1375
200-dma: 1192


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

Volatility indices continue to warn investors that the markets
are vulnerable and near a potential top.

CBOE Market Volatility Index (VIX) = 16.55 +0.00
CBOE Mkt Volatility old VIX  (VXO) = 17.42 +0.33
Nasdaq Volatility Index (VXN)      = 25.69 +0.31


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.61        418,717       682,009
Equity Only    0.49        595,255       294,407
OEX            1.03         15,694        16,108
QQQ            3.29         12,426        40,856


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.6    + 0     Bull Confirmed
NASDAQ-100    76.0    - 1     Bear Correction
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       80.0    + 0     Bull Confirmed
S&P 100       79.0    + 0     Bull Correction


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

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

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

 5-dma: 1.11
10-dma: 1.12
21-dma: 1.08
55-dma: 1.09


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    1452      1526
Decliners    1385      1524

New Highs     443       483
New Lows       11        11

Up Volume    618M      960M
Down Vol.   1065M     1063M

Total Vol.  1703M     2062M
M = millions


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

Commitments Of Traders Report: 10/28/03

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

It's been a long week since last we looked at the COT data
and we're still not seeing any big moves by the Commercial
traders.  The same holds true for small traders but they did
reduce some of their short positions.


Commercials   Long      Short      Net     % Of OI
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%)
10/28/03      391,596   412,498   (20,902)   (2.6%)

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

Small Traders Long      Short      Net     % of OI
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%
10/28/03      137,791    76,791    61,000    28.4%

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

Hmm... we are seeing some movement in the e-minis.  Commercials
have upped their short positions by 24K contracts.  Small Traders
may have gotten the hint too.  Short interest is up but the real
change is the 45K drop in long contracts.


Commercials   Long      Short      Net     % Of OI
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%)
10/28/03      220,171   260,644    (40,473)  ( 8.4%)

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
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%
10/28/03      123,569    59,742    63,827    34.8%

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


NASDAQ-100

This time it's the Small Traders making a move in the NDX
futures.  Long contracts are up nearly a third to more than
21K.  Commercials are still comatose but the trend is growing
slowly more bearish with a small bump in short positions.


Commercials   Long      Short      Net     % of OI
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%)
10/28/03       36,168     46,272   (10,104) (12.3%)

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

Small Traders  Long     Short      Net     % of OI
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%
10/28/03       21,640     8,830    12,810    42.0%

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

There is very little change here for the Small Trader but
Commercial Traders have upped both their longs and their shorts.


Commercials   Long      Short      Net     % of OI
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%
10/28/03       20,504    11,366    9,138      28.7%

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
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%)
10/28/03        5,295     8,864   (3,569)   (25.2%)

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 11-04-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: ICOS
Dropped Puts: COF
Call Play Updates: APA, COO, FD, IMDC, JCI, LOW, QLGC, VRTS
New Calls Plays: ADTN, JBL
Put Play Updates: JBLU
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:
*****

ICOS Corp - ICOS - close: 44.40 chg: -1.45 stop: 42.49

The last few days we've been suggesting that traders exit ICOS at
Monday's or Tuesday's close.  It looks like Monday would have
been the better play.  Shares fell more than 3 percent and closed
under the $45 level prior to its earnings report after the bell
this evening.  ICOS' Q3 results were good.  Consensus estimates
had been for a loss of 79 cents a share.  ICOS turned in a better
than expected loss of 63 cents.  After hours showed ICOS trading
back above the $45 level on the news.  We're closing the play as
of today's closing price (per our previous comments).

Picked on October 26 at $45.42
Change since picked:    - 1.02
Earnings Date         11/04/03 (confirmed)
Average Daily Volume:      1.5 million
Chart =


PUTS:
*****

Capital One Fin. - COF - close: 61.70 change: +0.02 stop: 62.00

As mentioned over the weekend, we were having second thoughts on
our COF play, as the stock had rebounded from just above key
support, giving the appearance of a bear trap after Thursday's
apparent breakdown.  Sure enough, the rebound has continued this
week, with the stock tapping our $62 stop today.  This is
precisely why we used an entry trigger on the play.  That trigger
at $59 was never touched, which means the play never became more
than an academic exercise.  Based on the rebound of the past 3
days, we clearly want to drop the play as one that never gave us
the opportunity we were looking for.

Picked on October 30th at    $59.68
Change since picked:          +2.20
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     2.74 mln
Chart =



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

Apache Corp. - APA - close: 68.10 change: -1.47 stop: 66.25

It wasn't an impressive start to this bullish play, as Oil
Service stocks have been on the defensive this week.  APA has
fared worse than its peers though, with today's 2.1% loss looking
particularly ominous.  Not only did today's drop break the 50-dma
($69.07), but it has the stock dropping back into the lower half
of the rising channel.  Fortunately, we used an entry trigger on
the play at $70.50, which has yet to be satisfied.  We'll wait
for that level to be reached on a rebound before considering APA
a live play.  Note that our stop at $66.25 is now actually closer
than the entry trigger.  If the stop is hit before the play is
triggered, then we'll just let it go as a play that never set up
for us.  If the bulls do manage to get their act together over
the next couple days, the momentum move through $70.50 looks like
the optimum entry scenario.

Picked on November 2nd at    $69.72
Change since picked:          -1.62
Earnings Date               1/22/04 (unconfirmed)
Average Daily Volume =     1.36 mln
Chart =


---

Cooper Cos - COO - close: 43.62 chg: -0.45 stop: 41.49 *new*

Slowly COO continues to climb.  The stock was due for a little
bit of profit taking after its strong bounce from the 50-dma over
a week ago.  Yet the worst sellers could do was take COO down to
he $43.00 mark.  By the afternoon shares were well off their
lows.  We still refrain from suggesting new bullish positions
this close to resistance at $45.00 and short-term traders can be
planning their exits on the next pop higher.  We are bumping out
stop loss up to 41.49, just under the simple 50-dma.

Picked on October 12 at $41.40
Change since picked:    + 2.22
Earnings Date         09/03/03 (confirmed)
Average Daily Volume:      391 thousand
Chart =


---

Federated Dep Store - FD - cls: 47.31 chng: -0.56 stop: 45.50

Another attempt and another failure is the score for our FD play.
The stock has been battling with the $48 resistance level on a
daily basis for more than a week now and with yesterday's failed
rally above that level and today's red candle, it isn't looking
any closer to that elusive breakout.  To be fair, it was a day of
consolidation throughout the overall market, and today's
fractional loss is nothing to get worked up about.  But it has
been rather disappointing to see the Retail index (RLX.X) pushing
to new highs lately, but FD unable to join the party.  With a
bearish candle pattern and daily Stochastics giving a sell
signal, now would be a good time for conservative traders to
harvest what gains they've already accrued in the play.  Those
with a bit more tolerance for risk can still hold out for a
breakout over $48, with a plan to sell into strength near our $50
target.  With earnings just over a week away, we aren't
enthusiastic about new entries, either on a breakout or a
pullback.  Maintain stops at $45.50.

Picked on October 9th at     $45.60
Change since picked:          +1.71
Earnings Date              11/12/03 (unconfirmed)
Average Daily Volume =     1.88 mln
Chart =


---

Inamed Corp - IMDC - cls: 87.85 chg: +0.28 stop: 82.49*new*

Well what do you know?   Someone at Inamed must have been
listening.  On Sunday we suggested that IMDC was a prime
candidate for a stock split and very late Monday night (about
8:00 PM ET) the company announced a 3-for-2 split.  The split
date will be near December 15, 2003 for shareholders on record as
of December 1st.  The 3:2 split will be enacted as a 50% stock
dividend and fractional shares will be paid in cash.  IMDC has
been trading higher since Sunday but has run into short-term
resistance in the 88.00-88.10 range.  Fortunately, we continue to
see higher lows indicating buying pressure.  The best entry point
is still on a bounce, preferably from the $85 area but more
aggressive traders may be inclined to chase it.  We are raising
our stop loss to $82.49.

Picked on November 02 at $86.16
Change since picked:     + 1.69
Earnings Date          10/29/03 (confirmed)
Average Daily Volume:      514 thousand
Chart =


---

Johnson Controls - JCI - cls: 110.30 chg: +1.95 stop: 104.99*new*

It was a busy day for JCI.  The company announced an agreement
with Case Logic, the maker of those soft nylon accessory cases,
Black & Decker (BDK), and Master Lock all for accessories to
JCI's Railport (TM) Vehicle Personalization System.  We're not so
sure the deals announced above truly affected the stock price
today but shares did gain another 1.79% on strong volume of 625K
shares.  We're very encouraged by JCI's relative strength with
the market's weak today but the highs today are close to what
could be JCI's rising channel.  If the markets sink tomorrow we
would expect some profit taking in JCI.  Bullish traders may want
to hold back and see where the stock bounces.  The stock
continues to be a split candidate but we're just speculating on
an announcement now that it's over the century mark.  We are
raising our stop loss to $104.99.

Picked on October 30 at $107.07
Change since picked:     + 3.23
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      432 thousand
Chart =


---

Lowe's Companies - LOW - close: 59.64 change: -0.41 stop: 58.00

It was a day of consolidation in the broad market, so it was no
great surprise to see LOW take a bit of a breather after
yesterday's surge to fresh all-time highs.  Giving up less than
1% and printing a nice inside day certainly doesn't cause us any
great concern.  At this point, critical support is defined by the
$58.50-59.00 broken resistance area and a dip and rebound from
above there can be used for new entries.  Critical resistance
comes in at the upper Bollinger band ($60.23) and then at the top
of the rising channel (now at $61.85).  With price pulling back a
bit from that upper Bollinger band right now, momentum entries on
a break to new highs do not seem a high odds strategy.
Conservative traders should look to sell into strength near the
top of that channel if given the opportunity over the next week.
We're still going to maintain our aggressive bullish target of
$65, but must remind readers that it would require a strong
breakout from the 8-month rising channel to achieve that goal
ahead of earnings.  Better to take the small gain (just below the
top of the channel) than give it back due to excessive greed.
Maintain stops at $58.

Picked on October 23rd at    $58.65
Change since picked:          +0.99
Earnings Date              11/17/04 (unconfirmed)
Average Daily Volume =     3.88 mln
Chart =


---

QLogic Corp. - QLGC - close: 57.04 change: -0.57 stop: 55.50

Last week's rally up to the $58 level left QLGC bulls a bit
stunned as the stock promptly retraced back to the $56 level.
More strength in Technology shares, particularly the
Semiconductor sector (SOX.X) on Monday took QLGC right back to
that $58 level, where it was once again rejected today.  But this
pullback was a bit milder, with intraday support being found near
$57.  After the first foray over $56, QLGC came back and found
solid intraday support just below that level near $55.90, so it
was logical to raise our stop to just below that level ($55.50)
to lock in a slight gain in case the rally fails right here.  A
break below that level would almost certainly have the $53-54
level in play as next support and we don't want to give that much
back.  Aggressive traders can still look for entries on a
pullback and rebound from above $56, but we're not enthusiastic
about momentum entries here.  QLGC would have to clear $58.40 to
qualify for an entry, and then price would just be too close to
our $60-61 target.

Picked on October 21st at    $54.21
Change since picked:          +2.84
Earnings Date               1/14/04 (unconfirmed)
Average Daily Volume =     4.57 mln
Chart =


---

Veritas Software -VRTS - cls: 37.05 chng: -0.12 stop: 34.50*new*

While it certainly isn't setting any records, VRTS is still
looking like a decent breakout candidate.  Over the past week, it
has been trying to solidify its breakout above $36, trading in a
fairly tight range between $36.00-37.50.  Despite the lack of
additional upside progress so far this week, we certainly like
the way the 10-dma ($36.23) appears to be providing intraday
support, with the 20-dma ($35.49) as backup.  Intraday dips and
rebounds in the $35.50-36.00 area look good for new entries as
old resistance is verified as new support.  Once clear of near-
term resistance, the next upside target will be $40, where
conservative traders may look to harvest some partial gains.
We're raising our stop to $34.50 tonight, which is now under the
30-dma ($34.57) and will be under the 50-dma ($34.42) by
tomorrow.

Picked on October 28th at    $37.27
Change since picked:          -0.22
Earnings Date               1/21/04 (unconfirmed)
Average Daily Volume =     6.14 mln
Chart =



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

ADTRAN, Inc. - ADTN - close: 71.73 change: +0.93 stop: 66.40

Company Description:
ADTRAN, Inc. develops products and services that simplify access
to telecommunications networks. The company's high-speed, digital
transmission products improve the operation of, and reduce the
costs associated with, building and using communications
networks. Small and large telephone companies, long distance
carriers and other network service providers use the ADTN's
products to deliver high-speed data, voice, video and Internet
services to their customers. Businesses, schools and government
agencies use the company's products to connect facilities, remote
offices and mobile workers, enabling corporate information
services, Internet access, telecommuting and videoconferencing
within their organizations.

Why we like it:
To say shares of ADTN have been on fire this year would be a
colossal understatement.  Since the October 2002 lows, the stock
has risen from $15 to a high of $75!  And the stock is still
looking strong.  After a brief bout of selling in the wake of the
company's inline report, the stock once again found support at
the midline of the year-long rising channel and has been
rebounding nicely this week.  ADTN looks like it is definitely
headed for a retest of resistance at $75, and if the bulls can
manage a breakout, then the early 2000 highs near $80 look like a
viable target.  There's another catalyst for the play, although
it may be a bit far out to impact the near-term price action.
With its earnings report last month, the company announced a 2-
for-1 split, which will be effective on December 15th.

With strong dual support from the center of the channel ($66.55)
and the 50-dma ($66.42), risk is certainly easy to control with a
stop just below there at $66.40.  Our preference for entry would
be on a slightly pullback and rebound from the $69-70 area.
Momentum traders can certainly consider a breakout entry above
today's intraday high ($73.10), but that feels pretty risky, with
the upper Bollinger band at $74.35 and strong resistance at $75.
The better momentum entry would appear to be on a confirmed
breakout over $75.  Until then we'd suggest focusing on pullback
entries.

Suggested Options:
Shorter Term: The November 70 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the December 75 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 70 Call.

BUY CALL NOV-65 RQA-KN OI= 591 at $3.60 SL=1.75
BUY CALL NOV-70 RQA-KO OI=1226 at $1.15 SL=0.50
BUY CALL DEC-70 RQA-LN OI=  62 at $5.20 SL=3.25
BUY CALL DEC-75 RQA-LO OI= 143 at $2.80 SL=1.50

Annotated Chart of ADTN:



Picked on November 4th at    $71.73
Change since picked:          +0.00
Earnings Date               1/12/04 (unconfirmed)
Average Daily Volume =     1.02 mln
Chart =


! Editor's Note:

We just noticed after hours today that Reuters is reporting ADTN's
CEO has sold nearly 4 million shares of his stake in the company.
That effectively leaves him 4 million shares.  While we don't know
how many stock options he may be holding this is bound to look bad
to investors.  Shares of ADTN are down after hours near the $69.50
level.  Traders may want to wait and see how the stock reacts for
the first couple of hours of trading before making any decisions.

---

Jabil Circuit - JBL - close: 30.11 chg: +1.60 stop: 27.60

Company Description:
Jabil Circuit, Inc. is one of the world's largest electronic
manufacturing services providers. Jabil manufactures for
international electronics companies in the automotive, computing
and storage, consumer, instrumentation and medical, networking,
peripheral and telecommunications markets. Jabil offers circuit
design, board design from schematic, prototype assembly, volume
board assembly, system assembly, repair and warranty services
from facilities in the Americas, Europe and Asia.
(source: company press release)

Why We Like It:
We are hesitant to add any new bullish plays given the market's
current overbought condition and the low volatility indices but
JBL's relative strength today is too much to ignore.  Looking at
the chart readers will see the strong surge in August as traders
bid up the stock prior to earnings.  Then JBL got hammered in
mid-September after the company merely met analyst estimates.
Forbes published a negative article a few days later on September
25th suggesting this over priced stock with a P/E of 142 was
ready to plummet.  The author actually suggested shorting JBL and
covering at $20.  The next day (9/26) JBL dropped again to break
support at $26.00 and its simple 50-dma.  It proved to be a bear
trap.

The stock has spent the last month trading sideways between $26
and $29 and has since received an upgrade from "neutral" to "out
perform" and new analyst rating at "over weight".  Today's 5.6%
rally has us very curious.  The move is a bullish breakout on its
daily chart above recent trend of lower highs.  It is also a
bullish breakout on its weekly chart.  Plus, the rally produced a
fresh triple-top buy signal on its point-and-figure chart.  Let's
not forget JBL did it all on better than twice its average
volume.  Yet we can't find any news to contribute to the move.
Technicals are all bullish and we think JBL might extend the
rally towards the $34-35 region.  We're going to start the play
with a stop under today's low at 27.60.

We will freely admit that it can be dangerous playing expensive
stocks (remember JBL's P/E at 142) with the markets so close to a
potential reversal.  Should the market's truly sell off JBL could
take a hit.  On the other hand an alternative entry to today's
close over $30 would be a bounce from the $29 level.

Suggested Options:
There are plenty of options to choose from.  Short-term traders
can focus on November or December strikes.  Longer-term traders
can use the January or March strikes.  We like the 30's even
though they are at-the-money.

BUY CALL NOV 25 JBL-KE OI= 416 at $5.40 SL=3.00
BUY CALL NOV 30 JBL-KF OI=2135 at $1.35 SL=0.65
BUY CALL NOV 35 JBL-KG OI=  78 at $0.15 SL= -- Riskier!
BUY CALL DEC 25 JBL-LE OI=2198 at $5.80 SL=3.50
BUY CALL DEC 30 JBL-LF OI=4352 at $2.05 SL=1.00
BUY CALL DEC 35 JBL-LG OI= 324 at $0.40 SL= --

Annotated Chart:




Picked on November 04 at $30.11
Change since picked:     + 0.00
Earnings Date          09/18/03 (confirmed)
Average Daily Volume:      1.4 million
Chart =



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

JetBlue Airways - JBLU - cls: 55.50 chg: +1.24 stop: 59.50

Our put play in JBLU is off to a good start.  The stock dropped
more than $3.40 on Monday with strong volume of 2.9 million
shares.  The drop put JBLU below the $55 support level, which
happens to be a 38.2% retracement of the April-October run.
Coincidentally a report came out that billionaire George Soros
has cut his stake in JBLU by roughly 25% (Reuters).  Soros sold 1
million shares near $58.50 and donated almost 3 million shares to
the Open Society Institute.  He continues to own almost 12
million shares of the airline.  Meanwhile airlines as a group
were lower today despite improving October traffic numbers.
Today's $1.24 gain in JBLU looks like an oversold bounce and
traders can look for new entries on a drop back below the $55
mark or a failed rally under 57.50.  Yesterday we lowered our
stop to 59.50, which remains above the declining 10-dma.

Picked on November 02 at $57.67
Change since picked:     - 2.17
Earnings Date          10/23/03 (confirmed)
Average Daily Volume:      1.5 million
Chart =



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

None


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The Option Investor Newsletter                  Tuesday 11-04-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: Call - JBL
Traders Corner: Williams %R


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

Jabil Circuit - JBL - close: 30.11 chg: +1.60 stop: 27.60

Company Description:
Jabil Circuit, Inc. is one of the world's largest electronic
manufacturing services providers. Jabil manufactures for
international electronics companies in the automotive, computing
and storage, consumer, instrumentation and medical, networking,
peripheral and telecommunications markets. Jabil offers circuit
design, board design from schematic, prototype assembly, volume
board assembly, system assembly, repair and warranty services
from facilities in the Americas, Europe and Asia.
(source: company press release)

Why We Like It:
We are hesitant to add any new bullish plays given the market's
current overbought condition and the low volatility indices but
JBL's relative strength today is too much to ignore.  Looking at
the chart readers will see the strong surge in August as traders
bid up the stock prior to earnings.  Then JBL got hammered in
mid-September after the company merely met analyst estimates.
Forbes published a negative article a few days later on September
25th suggesting this over priced stock with a P/E of 142 was
ready to plummet.  The author actually suggested shorting JBL and
covering at $20.  The next day (9/26) JBL dropped again to break
support at $26.00 and its simple 50-dma.  It proved to be a bear
trap.

The stock has spent the last month trading sideways between $26
and $29 and has since received an upgrade from "neutral" to "out
perform" and new analyst rating at "over weight".  Today's 5.6%
rally has us very curious.  The move is a bullish breakout on its
daily chart above recent trend of lower highs.  It is also a
bullish breakout on its weekly chart.  Plus, the rally produced a
fresh triple-top buy signal on its point-and-figure chart.  Let's
not forget JBL did it all on better than twice its average
volume.  Yet we can't find any news to contribute to the move.
Technicals are all bullish and we think JBL might extend the
rally towards the $34-35 region.  We're going to start the play
with a stop under today's low at 27.60.

We will freely admit that it can be dangerous playing expensive
stocks (remember JBL's P/E at 142) with the markets so close to a
potential reversal.  Should the market's truly sell off JBL could
take a hit.  On the other hand an alternative entry to today's
close over $30 would be a bounce from the $29 level.

Suggested Options:
There are plenty of options to choose from.  Short-term traders
can focus on November or December strikes.  Longer-term traders
can use the January or March strikes.  We like the 30's even
though they are at-the-money.

BUY CALL NOV 25 JBL-KE OI= 416 at $5.40 SL=3.00
BUY CALL NOV 30 JBL-KF OI=2135 at $1.35 SL=0.65
BUY CALL NOV 35 JBL-KG OI=  78 at $0.15 SL= -- Riskier!
BUY CALL DEC 25 JBL-LE OI=2198 at $5.80 SL=3.50
BUY CALL DEC 30 JBL-LF OI=4352 at $2.05 SL=1.00
BUY CALL DEC 35 JBL-LG OI= 324 at $0.40 SL= --

Annotated Chart:




Picked on November 04 at $30.11
Change since picked:     + 0.00
Earnings Date          09/18/03 (confirmed)
Average Daily Volume:      1.4 million
Chart =



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

Williams %R
Jane B Fox

In his nearly 40 years of commodities trading, Larry
Williams has earned what some would say is a pretty unique
reputation. He is a well-known trader, author and money
manager. He is the all time winner of the Robbins World Cup
Championship in futures trading taking $10,000 to $1,100,00
in less than 12 months. He also taught his 16 year old
daughter his method and she won the competition the
following year. However, I believe his most honored
accomplishment is the development of an overbought/oversold
oscillator called the Williams %R (pronounced percent R).

The William's %R works much like the Stochastic Oscillator
and is especially popular for measuring overbought and
oversold levels. But before we go any further let's define
what is meant by the terms overbought and oversold.

Overbought: Overbought conditions occur when prices are
considered too high and "may" be susceptible to a decline.
This is not necessarily the same as being bearish. It
merely means that the stock or index has risen too far too
fast and might be due for a pullback.

Although you may not want to sell an overbought condition
until the price confirms a trend reversal, you can safely
say it is not the time to buy.

Oversold: Oversold conditions occur when prices are
considered too low and "may" be susceptible to a rally.
This is not necessarily the same as being bullish. It
merely means that the stock or index has fallen too far too
fast and might be due for a pullback.

Although you may not want to buy an oversold condition
until the price confirms a trend reversal, you can safely
say it is not the time to sell.

The technical interpretation of overbought or oversold is
that they represent a likely point for anticipating a trend
reversal.

The overbought/oversold scale of the William's %R indicator
ranges from 0 to -100 with readings from 0 to -20
considered overbought, and readings from -80 to -100
considered oversold.

William %R shows the relationship of the close relative to
the high-low range over a set period of time. The nearer
the close is to the top of the range, the nearer to zero
(higher) the indicator will be. The nearer the close is to
the bottom of the range, the nearer to -100 (lower) the
indicator will be. If the close equals the high of the
high-low range, then the indicator will show 0 (the highest
reading). If the close equals the low of the high-low
range, then the result will be -100 (the lowest reading).






Typically, Williams %R is calculated using 14 periods and
can be used on intraday, daily, weekly or monthly data. The
timeframe and number of periods will likely vary according
to desired sensitivity and the characteristics of the
individual security.

Once again, it is important to remember that overbought
does necessarily imply time to sell and oversold does not
necessarily imply time to buy. A security can be in a
downtrend, become oversold and remain oversold as the price
continues to trend lower. Once a security becomes
overbought or oversold, traders should wait for a signal
that a price reversal has occurred.

One method of using Williams %R is to identify the
underlying trend and then look for trading opportunities in
the direction of the trend. In an uptrend, traders may look
to oversold readings to establish long positions. In a
downtrend, traders may look to overbought readings to
establish short positions.

One method of defining a long-term trend is to use a weekly
Williams %R, where bullish is above the midpoint -50 mark
and bearish is below the midpoint -50 mark. Then you only
take short-term bullish trades when the weekly %R is above
-50 and only take short-term bearish trades when the weekly
%R is below -50.

Let's start with a weekly QQQ chart to get a feel for how
the %R moves above and below the -50 line. I am looking for
sustained moves and the least amount of false signals.
I have placed a heavy Green line at the -50 mark on a
William %R(14) and Williams %R(28), using two different %R
settings for comparison to see which one would be the most
useful.





In the timeframe represented by the Green boxes you can see
the %R(14) generated one false signal and the %R(28) did
not. In the timeframe represented by the Red boxes price
pretty well moved sideways and the %R(14) may have been a
little bit better roadmap but the move was a whipsaw move
and we are looking for long sustained moves. The timeframe
represented by Cyan boxes have both the 14 and 28 giving
sustained moves. But I think the best test is the timeframe
represented by the blue boxes. Here the %R(28) moved above
-50 in October of 2002 and has not given a sell signal
since.

As you can see from the timeframes I have colored, the
%R(28) would have had given you a much better long-term
roadmap. Probably into the trend later than the %R(14) but
would not have triggered at least three false signals. So
I will be using the weekly Williams %R(28) to define a
long-term trend. Isn't that like everything in life, you
have to give up a little reward for less risk. You can also
see this is not an exact science but it sure gives you a
clear roadmap as to trend.

Let's move to the daily QQQ chart now to see how well the
bullish and bearish crosses work. Once again I will use a
14 and 28 Williams %R setting to determine which will be
the most useful. I have placed green horizontal lines at
the -80 to indicate oversold and at the -20 to indicate
overbought.




One of the most obvious things that jump out at me is the
Williams%R(28) setting has not given a sell signal since
March. I would say when it does you should probably listen
to it. However, that does not do us any good if you are
looking to market time and buy oversold and sell
overbought. So for the short-term overbought and oversold
market timing I will use the daily Williams %R(14).

The 7 Green arrows show a %R oversold condition and a
bullish cross above the -80 line and each one of those
trades were profitable, some very profitable.

On the other hand the 7 Red arrows representing an
overbought condition and a bearish cross below the -20
line, the trades were only marginally profitable if at all
due to the many false signals the bearish %R(14) crosses
triggered.

This example supports the theory of only taking short-term
bullish trades in an long-term uptrend but we need to test
how well the theory works in a long-term downtrend.

For the bearish test I chose the timeframe represented by
the Cyan boxes in the weekly chart where the weekly
%R(28) was printing under the -50 mark. On April 5th 2002
the weekly %R(28) crossed under the -50 mark and did not
cross back above until October of 2002. Here is a chart of
the daily QQQ with a %R(14).





This timeframe gave two bearish crosses, no false bearish
crosses, and multiple false bullish crosses. Also the two
bearish trades would have been very profitable.

Recently, I heard Larry Williams reiterating the fact that
Williams %R should only be used in conjunction with a longer
trend. With that in mind and the two examples I have just
cited a good strategy would be to use the weekly %R(28) to
define the long term trend and the daily %R(14) for trading
overbought/oversold.  This would have kept you out of the
unprofitable bearish trades since March of this year and put
you only into the 7 profitable bullish trades. Actually it
would have only been 6 because the first one occurred on
March 12th and the weekly %R(28) had not yet crossed. It
would have also been very profitable in the bearish period
leading up to October.

Please keep in mind that whatever overbought/oversold
oscillator you chose to use, the most important step is to
identify the parameters that best fit the security or index
and the timeframe you are looking to trade.

Although I have profiled the Williams %R here I believe
there needs to be caveat mentioned. Technicians today
suffer from an overabundance of technical indicators.
Technical analysis packages today offer so many indicators
that a trader can be overwhelmed. As a consequence,
building a trading system based on an array of these
technical indicators requires painstaking investigation to
assure that each indicator is appropriate for the task in
question. A typical trading system, for instance, could
have long, intermediate and short-term indicators intended
to produce trading signals with different time horizons.
Many indicators have demonstrated unique rates of success
for individual markets for different time horizons. On one
hand, a simple moving average is a good indicator of the
direction of an intermediate to long-term trend, but it is
ill-suited to forewarn of a possible reversal. On the other
hand, an oscillator will alert a trader of a loss of
momentum setting the stage for a reversal, but it will
produce ineffective signals regarding the trend, perhaps
signaling reversals while the trend continues. The choice
of technical studies can confuse more than enlighten.

One problem arising from a surfeit of indicators is the
possibility of two different indicators duplicating
signals. An example of this situation is the application of
the stochastics indicator (%K) and Williams' %R. Both
indicators are overbought/oversold oscillators. In fact,
both of these oscillators observe the same thing. (The
stochastics oscillator has two components: %K and %D. Our
concern here is directed toward %K, because %D is simply a
smoothed version of the %K.) The difference between the
ratios determined in the %K and %R are inverse: %K compares
the close to the lowest low, while %R compares the close to
the highest high. The same high-low price range is used for
both indicators, and the only difference is that %K
compares the close to the low, while %R compares the close
to the high. If you use the same n for the look back period
in calculating the two indicators, you should produce the
same graphs. Obviously, it's overkill to use both these
indicators for one task. You don't need two different
technical studies telling you the same thing.

The point I am making is always make sure the indicators
you are currently using are not walking you into the same
house, one through the front door and the other through
the back door.

Remember trade you plan and plan your trade.

Jane


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