Option Investor

Daily Newsletter, Wednesday, 11/12/2003

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The Option Investor Newsletter                Wednesday 11-12-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Striking Distance
Futures Wrap: Dollar demolition
Index Trader Wrap: Bulls reclaim recent losses

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
     11-12-2003            High     Low     Volume Advance/Decline
DJIA     9848.83 +111.04  9859.34  9729.42 1.66 bln   2182/ 644
NASDAQ   1973.11 + 42.36  1973.11  1935.86 1.84 bln   2330/ 784
S&P 100   524.19 +  5.53   524.76   518.56   Totals   4512/1428
S&P 500  1058.53 + 11.96  1059.10  1046.57
RUS 2000  540.66 + 12.09   540.66   528.57
DJ TRANS 2953.20 + 25.96  2953.95  2923.80
VIX        16.75 -  0.79    17.85    16.55
VXO        16.99 -  1.01    18.56    16.79
VXN        25.55 -  1.00    26.81    25.32
Total Volume 3,854M
Total UpVol  3,263M
Total DnVol    543M
52wk Highs     586
52wk Lows       26
TRIN          0.60
PUT/CALL      0.80

Striking Distance
by James Brown

It appears that word of the rally's demise has been premature.
Buyers came back into the markets with a vengeance.  The S&P
completely erased the last three days of losses while the Dow and
the NASDAQ Composite came close to accomplishing the same feat.
Buying was strong in technology stocks as semiconductors,
hardware, Internets and software all posted strong gains.  Yet
even the fervor for tech issues couldn't out pace the rally in
gold.  December gold futures shot up nearly $7 to $395 an ounce.
The last time gold came close to the $400 mark was March 1996.

World indices were mostly positive but none of them put in the
same kind of performance that U.S. stocks produced.  The DJIA
gained 111 points (+1.14%) to close at 9848.  The S&P 500 added 12
points (+1.15%) to close at 1058 putting it within four points of
its 52-week high.  The tech-heavy NASDAQ added more than 2 percent
to close at 1973 and within striking distance of NASDAQ 2000.  It
was a very broad based rally with nearly every sector index
closing in the green, several up two percent or more, except for
the UTY utility index, which dropped fractionally.  Advancing
stocks outnumbered decliners almost 22 to 6 on the NYSE and 23 to
7 on the NASDAQ.  Up volume outpaced down volume 5-to-1 on the
NYSE and 8.5-to-1 on the NASDAQ.  That's not quite the bullish
internals that Jim was looking for in his wrap last night but
they're close.

Chart of the DJIA:

Chart of the NASDAQ:

Wednesday was filled with a multitude of headlines.  Most of them
positive and they fueled the rally through out the session.  The
move in gold was a big one.  Oddly, the rally in gold isn't
necessarily a "plus" for stocks in general as it is typically seen
as a defensive play against bearish markets and a weak dollar.
The $6.90 jump in December gold futures put it close to the $400
mark and pushed the shiny metal to levels not seen in seven years.
The dollar's strong drop against the euro powered the move in gold
and many are expecting it to break the $400 mark soon.  Goldbugs
have been "predicting" such an event would occur for months and a
close above the $400 level would be a huge psychological breakout.
The hunger for the commodity pushed the XAU gold & silver index up
5.57% to 101.86.  The XAU index hasn't traded this high since
October of 1997.

Bonds were also making headlines.  The bond market was closed for
Veteran's day yesterday and traders were interested to see how the
market reacted to Wednesday's $16 billion 5-year note auction
after Monday's 3-year auction turned out mediocre.  Fortunately,
there was strong demand for the new 5-year notes.  Some suspect it
was safe-haven buying as things heat up in Iraq again.  By the end
of the day bonds were higher across the board, which pushed yields
lower.  Tomorrow we'll see the government auction off another $17
billion in 10-year notes.  After today's auction demand is
expected to be strong.

There were dozens of individual stories driving stocks higher and
as expected most of them sprang from the tech sector.
Semiconductor stocks got another shot in the arm after Gartner Inc
said their forecast predicted global chip sales to rise 20 percent
next year.  The SOX semiconductor index rose 3.36% to its best
closing high in over a year as all 18 components closed with a
gain.  We may see the rally continue tomorrow.  After the bell
today Applied Materials (AMAT), the world's biggest chip equipment
maker, announced earnings that beat estimates by a penny.  Net
income may have dropped 90 percent from a year ago but the company
says it's turning a corner and orders for next quarter should rise
20%.  New orders rose strongly last quarter and the company's
book-to-bill ratio hit 1.05-to-1 for the first time in a year.
The stock was trading higher after hours.

Tech investors also heard good news from IBM's CEO Sam Palmisano.
In an analyst meeting today Sam said he was "very optimistic"
about the long-term growth for IT.  Shares of IBM rose 1.48% to
close back over the $90 level.  Another hardware stock making
headway was Lexmark Intl (LXK), the computer printer maker.  LXK
was upgraded from a "neutral" to a "buy".  The UBS analyst also
raised their price target for LXK from $80 to $88.  Shares surged
over 4 percent and broke resistance at $75.  Yet another bullish
development for technology investors was news that Cisco Systems
(CSCO) would buy Latitude Communications (LATD) for $80 million.
Companies tend to hold on to cash unless business conditions are
improving (not that $80 million is a lot of cash to CSCO).

One technology stock forgotten in all this enthusiasm is Microsoft
(MSFT).  Shares of MSFT, while closing 18 cents higher today, have
really under performed its peers in the GSO software index as well
as its fellow Dow components.  Some suspect the recent weakness
could be some of these troubled funds trying to raise cash for
redemptions and the easiest place to do that are highly liquid
stocks like MSFT.  The ongoing anti-trust suit that MSFT continues
to face with EU regulators is just a good excuse take money out.

Another Dow component making headlines was drug giant Merck & Co
(MRK).  Shares of MRK were hit with new selling this morning after
the company disclosed it would cease research for its MK-0869
compound, better known as "substance P", which was being developed
for depression.  MRK said Phase III trials had failed to prove the
treatment performed any better than the placebo.  Major Wall
Street analysts were split on their opinion of how this would
affect MRK going forward.  Surprisingly, shares of MRK were
positive by the closing bell.

Traders have a lot to look forward tomorrow and Friday.  Thursday
will bring economic reports on import/export prices, trade balance
and the weekly initial jobless claims, which are expected to come
in near the 365,000 mark.  We'll also hear from the largest
retailer on the planet Wal-Mart (WMT), who reports earnings before
the opening bell.  Estimates for WMT are 47 cents a share.  Thus
far WMT's weekly sales figures have been tracking inline.  WMT's
rival Target (TGT) will also be announcing earnings tomorrow
morning.  Estimates for TGT are 33 cents a share.  One of the
higher profile earnings announcements tomorrow will be Dell
(DELL).  DELL announces after the closing bell on Thursday and
estimates are for 26 cents a share with revenues close to $10.5
billion.  What DELL has to say about business going forward could
have a big impact on tech stocks for Friday.  Friday will bring
the Michigan Sentiment numbers and the PPI report.  One comment on
the AMAT earnings tonight...normally, with the chip group so
overbought one can expect a sell the news reaction but with the
NASDAQ so close to 2000 it may be just the excuse traders need to
finally tag that psychological level.


Dollar demolition
Jonathan Levinson

The long way of saying it is that, in dollars, equities,
treasuries, commodities, foreign currencies and precious
metals all rose strongly.  Or, conversely, the dollar got
sold precipitously.

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 Fed reported that it added 8B in overnight repos and another
roughly 1.5B in permanent open market operations via coupon
passs.  However, judging from the steepness of the selloff in
the US Dollar Index, there would have been more supply from other
sources.  The weaker dollar with strength in all other asset
classes is the same pattern we saw in  March and through much of
this year's rally, with a flood of "hot" dollars bidding up all
other asset classes.  The US Dollar Index was lower by over 10
bps today. Gold and the CRB made new multiyear highs.

Daily chart of December gold

Gold and silver took off today, with gold breaking its previous
high and peaking at 396.70.  There was not an immediate pullback,
and it looks very strong.  The clearest indication of the move
was the ratpack at CNBC mocking it yesterday, with this move
aborting the downphase in progress and extending a week-long
bullish run.  390-410 remains a significant resistance zone, but
the simultaneous new highs on the CRB and gold, confirmed by a
better than 5% move up in silver and a 7 year high in the HUI
(+15.79 to 224.70), has goldbugs well-positioned to hope for
continued strength to the upside.  Dec gold closed higher by 6.40
at 394.80, silver +.234 at 5.301, and XAU +5.38 at 101.86.

Daily chart of the ten year note yield

Ten year treasuries were also strong, with the TNX dropping 4.8
bps to close right on the upper pennant trendline at 4.412%.  The
treasury auctioned another $16 billion in 5-year notes today at
an average yield of 3.43%, generating a bid-to-cover ratio of
2.27.   On the ten year note yield, the oscillator trend is still
up, but another day like today could put a crimp in the ongoing
oscillator upphase.  The remainder of this week will be key, as a
move back into the pennant would invalidate the pennant breakout
and possibly signal new life in the bond bull.

Daily NQ candles

As expected last night, the NQ went up today.  But it did with
continued stealth from yesterday's slow rise off the bottom, only
accelerating in the afternoon once the likely outcome began to be
clear.  Repeated short cycle downphases that went sideways
eventually made it apparent that equities, like bonds, gold,
commodities and foreign currencies, were not coming down today,
and so they went up, reaching their highs at the cash close.

Despite this strength, the daily cycle downphase remains intact,
as I expect it to provided that the upper wedge trendline,
roughly at the year highs printed last week, do not get broken to
the upside.  As we shall see on the shorter term charts, the
anticipated 30 minute cycle upphase blew out most, if not all of
its energy today.  Downside support at 1425 and resistance at
1460 are the numbers to watch on the daily bear wedge.

30 minute 20 day chart of the NQ

It doesn't get any cleaner than the bull wedge breakout, although
yesterday's relentless weakness along the bottom of the 300
minute stochastic trough was confusing in the extreme.  As we can
see, a move to 1458-60 would fulfill the bull wedge, but the
oscillators are toppy already.  They could remain toppy for
another 500 NQ points to the upside, but lined up against the
ongoing daily cycle downphase and the weekly rolling over (not
shown), the odds simply do not favor it.  I don't expect the 52
week highs to be exceeded, and if so, not for more than a stop
run and not in any meaningful way.  The more likely scenario is
either straight down from here, or following a blowofff buying
spree at tomorrow's open as the terminal move of the upphase in
this intraday timeframe.

Daily ES candles

ES also went up today, traversing nearly the entire bear wedge
range and closing just beneath upper trendline resistance.  1064
and 1048 will be the range to watch, and as with the NQ, a
bearish oscillator divergence portends potential weakness to

20 day 30 minute chart of the ES

I've highlighted what appears to be a secondary bear wedge within
the broader bear wedge on the daily chart above.  Rising
trendline resistance along the bottom of the wedge is now between
1063 and 1065, which coincides with the 52 week high.  However,
as with the NQ, the oscillators are toppy here, and failure could
come any time from current levels.  On any pullback, 1042 support
will be key confirmation.  While it appears clear that the next
significant move should be to the downside from current or
slightly higher levels, a shallow pullback bouncing at or above
1042 would be bullish.

150-tick ES

The ES walked straight up the stairs on the 150-tick intraday
chart. There were very few opportunities to cover shorts entered
on the few false sell signals given by the short cycle

Daily YM candles

Same setup on YM.

20 day 30 minute chart of the YM

The methodology that makes the most sense to me is to follow the
different nested cycles using constant settings and timeframes,
and to correlate the results across different markets.  That
methodology told me to expect upside of varying strength today,
and it's telling me to expect downside tomorrow.  An opening pop
higher, possibly a gap and crap open, would not invalidate the
analysis, provided that the year highs don't get exceeded.

The one wildcard is that the move in dollar combined with
strength in every other asset class reeks of intervention to me.
As we saw when they dropped gold by 22 points from 12:01PM to
12:59PM a few weeks ago, artificial moves are unpredictable, not
as much in direction as they are in scope.  If they're jamming
dollars into the various tapes, then it could go farther than the
cycles suggest.  Such would go against the market's current
imbalance, however, with the oscillators overbought, and so I
don't expect it to happen.

See you at the bell!


Bulls reclaim recent losses

The major indices looked to stabilize in the early morning trade,
after Japan's Nikkei-225 ($NIKK) 10,226 managed to hold on to a
fractional 22-point gain, but some positive comments from IBM
(NYSE:IBM) $90.69 +1.48% and General Electric's (NYSE:GE) $28.70
+2.09% top brass that they were starting to see some resemblance
of a stronger economy in their business trends, helped boost
investor optimism and have the major indices reversing a three-
session slide.

Investors did show some bullish caution in the first hours of
trade after Mary Farrell, UBS's Wealth Management chief
investment strategist commented that the sizeable valuation gap
between the high and low price-to-earnings ratios within the S&P
500 (SPX.X) 1,058.53 +1.14% sectors was a cause for concern.  Ms.
Farrell told clients, "Recent encouraging economic reports
continue to lend support to our optimistic market outlook,
however we believe investor expectations should be tempered.  It
is clear to us that some of these upside 'surprises' have already
been priced into market valuations."

Ms. Farrell added that the current price-to-earnings gap within
the S&P 500 is "greater than 89% of all historical observations,"
and that, except for the boom-bust cycle of the last five years,
it's near all-time levels.

With those words of caution, UBS then raised its 2004 earnings
estimates for the S&P 500 to $63 a share from $60, an upward
revision of 5%, citing prospects for a faster-than-expected
acceleration of the U.S. economy.  While UBS's analysts were
crunching their numbers higher for earnings, Maury Harris, a UBS
economist boosted his 2004 GDP forecast to 4.2% from 3.9%.

For me, Jeff Bailey, it was one of those sessions where I felt
like I was being pulled at both ends.

The U.S. Dollar Index (dx00y) 92.29 -0.87% showed the dollar
notably weak in this morning's early trade, and that had, and has
me concerned as to how Japan's market participants, if not
European investors are going to respond to the dollar once again
showing weakness after some signs of stability.

While I was deep in thought about the perplexities of the dollar
relationship with equities, my trade station alerted me that I
was getting stopped out of a bearish trade in the NASDAQ-100
Tracking Stock (AMEX:QQQ) $35.81 +2.13% at $35.38 from yesterday
morning's bearish profile of $35.20.  Roughly 75 seconds later I
profiled a bullish trade in the QQQ at $35.37, stop $34.95, with
a target of $36.15, as my thoughts for a bearish test of WEEKLY
S2 looked to be evaporating.

To be truthful, I thought it would be wonderful for a bull if the
QQQ could achieve its WEEKLY Pivot of $35.65 by today's close.

Tonight's after-hours response to Applied Materials (NASDAQ:AMAT)
$25.44 +2.16% quarterly earnings report, where the company beat
analysts estimates by a penny found a positive reaction to
$26.19.  The bulk of the after-hour's boost came after the
company indicated that cap ex spending in fiscal 2004 is expected
to increase 25% compared to last year and in Q1 (January), orders
for new equipment are expected to continue growing at a rate of
20% sequentially, while revenues are expected to increase 5% to
7% over the recently completed quarter.  The guidance for AMAT's
Q1 then implied revenue of $1.28-$1.31 billion, which was above
Q1 consensus estimates for $1.24 billion.

While Applied Materials (NASDAQ:AMAT) represents a more modest
1.9% weighting in the NASDAQ-100 Index (NDX.X) 1,443.52 +2.4% and
its Tracking Stock (AMEX:QQQ) $35.81, the QQQ currently ticks by
at $36.00 in tonight's after-hours trade (after-hours high tick
was $36.10).

At the 04:00 PM mark, I did suggest that QQQ bulls raise their
stops to $35.45 (just under the WEEKLY Pivot) and leave the
bullish target at $36.15.

After reviewing tonight's Pivot Matrix, I'm now going to suggest
raising the profit stop higher to $35.59, which you will see is
just below tomorrow's DAILY Pivot and correlative WEEKLY Pivot.

All equity sectors I follow in my U.S. Market Watch finished with
gains, with the loan exception being the Utility Index (UTY.X)
288.63 -0.1%.

I don't know what the heck took place to have the AMEX Gold Bugs
Index ($HUI.X) 224.82 +7.61% surging by 15.9 points in today's
trade, other than the weakness in the U.S. dollar triggering an
extensive amount of buying in the sector.  One comment I heard on
CNBC was that there may have been some hedges coming off in the
commodity when gold broke above $290/oz.  The December Gold
futures contract (gc03z) $395.00 +1.75% closed at a contract
high, after trading as high as $397.00 intra-day.

Here is a quick look at the pivot matrix.  From what I saw on an
intra-day basis, the S&P Banks Index (BIX.X) 332.13 +0.66% was
first to trade back to its WEEKLY Pivot, and while its gains were
very fractional, it did seem to be just enough of a bullish
catalyst within the weekly levels to have the other indices
following the lead.  The Dow Industrials (INDU) 9,848.83 +1.14%
was the last equity index in our matrix to reach its WEEKLY pivot,
but today was the first day this week the INDU was able to reach
this level and a sign of weekly strength.

Pivot Matrix -

With eyes squinting as if I've lit a fuse on a firecracker, we
now await tomorrow's open, and I would once again be taking a
pulse on Japan's Nikkei-225 ($NIKK).  I see that my QQQ profit
target of $36.15 is now snugly place right between tomorrow's
DAILY R1 ($36.13) and WEEKLY R1 ($36.16).

I think most traders are ready for the MARKET to sell the AMAT
news at the open.  Right?

That's not illogical.  After all, it was just last Wednesday
evening when another technology bellwether Cisco Systems
(NASDAQ:CSCO) $22.97 +2.77% reported quarterly earnings, traded
higher in its after-hours session, and while the major indices
moved marginally higher the following session (Thursday, November
6) sellers were formidable.

Well, here we are.  CSCO is right back to where it closed on
November 6, and so are the major indices.  About the only
difference I can point out as a technician is that Stochastics
(which I put about 20% weighting toward) are closer to oversold
levels than they were last week, when they were turning lower
from overbought.

Some traders have been wondering "when" we might see some bearish
capitulation to mark the end of this bullish run.  And while its
is difficult to say if bears will ever capitulate, it would seem
only logical that when I am really determined to take a bullish
profit and sell bullish strength, the bearish capitulation will
certainly come and drive the indices to their weekly R2s.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

I had full intention of locking in profits on a bearish trade
back lower at the $34.62 level in the QQQ, then turning and going
long.  However, price action in the QQQ too strong today,
consigned the loss and tried to get back on the right side of
things.  While Stochastics and MACD oscillators are still
advising bullish caution, there certainly looks to be the setup
for a strong push higher.

Today's trade saw a net loss of 1 stock to a point and figure
sell signal in the NASDAQ-100 Bullish % ($BPNDX).  This has the
chart plotting a new "O" at 70% and has me skittish that the
internals are NOT confirming the QQQ price action.  Still "bear
confirmed" at 70%.

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

I didn't see quite the amount of strength from the Dow Transports
(TRAN) 2,953.20 +0.88% or the S&P Banks Index (BIX.X) 332.13
+0.66% to have me thinking the SPX has an "easy" shot at the
1,070 level this week.  Don't get me wrong.  Both showed some
strength today, but not enough to offset some of my concerns as
it relates to the weakness in the dollar and what impact that may
have on global markets, which may dampen bullishness for U.S.
equity markets.

Today's trade saw no net change in the broader S&P 500 Bullish %
($BPSPX).  Still "bull confirmed" at 80.6%.

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

OEX resistance still looks more formidable at the 525 level and
support at 516.  Tough risk/reward trade here, but some sign of
bullishness in the fact that OEX didn't test its WEEKLY R1 on
recent pullback, as if buyers were more eager.

Today's trade saw a net gain of 1 stock to a point and figure buy
signal in the narrower S&P 100 Bullish % ($BPOEX).  Still "bull
correction" status, but edging up to 81%.

Dow Industrials (INDU) Chart - Daily Intervals

INDU chart is only one of the indices that shows Stochastics with
%K above %D and a bullish crossover on this oscillator.  If INDU
can hold above 9,828 after tomorrow's economic data, psychology
should stay positive for thoughts of Dow 10,000.

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

Jeff Bailey

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The Option Investor Newsletter                Wednesday 11-12-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Play of the Day: Call - JCI
Spreads, Combinations & Premium-Selling Plays: A Technical Bounce
    Or The Next Leg Up?
Watch List: Bounce Ready Candidates

Updated on the site tonight:
Market Posture: Relief Rally

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Johnson Controls - JCI - cls: 108.01 chg: +2.30 stop: 104.99

-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)

- Most Recent Update (Tuesday, Nov. 11, 2003) -
We had suspected that a high-dollar stock like JCI would see
profit taking if the markets continued to slip and that is
exactly what happened.  Our plan was to look for a bounce in the
$106-107.50 range but selling pressure has pushed JCI under the
$106 mark.  Now shares are approaching our stop and round-number
support near $105.  It is interested that aside from the early
morning drop today JCI narrowed into a very tight trading range.
Volume on the last two sessions has been light but given the
holiday today that's not a surprise.  We would NOT suggest new
bullish positions in JCI until we saw a bounce and if it trades
under $105.00 we'll close the play at our stop.

- Play of the Day Comments -
We like the strength of the bounce and the decent volume in
Wednesday's rally.  As long as there are no major market
surprises we would expect to see some follow through tomorrow.

- 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.  Right now
our preference would be Decembers.

! Alert - November options expire next week!

BUY CALL NOV 105 JCI-KA OI=568 at $3.60 SL=1.85
BUY CALL NOV 110 JCI-KB OI=315 at $0.70 SL= --
BUY CALL DEC 105 JCI-LA OI= 15 at $4.70 SL=2.50
BUY CALL DEC 110 JCI-LB OI=117 at $1.85 SL=1.00
BUY CALL DEC 115 JCI-LC OI=158 at $0.55 SL= --

Annotated Chart:

Picked on October 30 at $107.07
Change since picked:     + 0.96
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      432 thousand
Chart =

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A Technical Bounce Or The Next Leg Up?
By Ray Cummins

Stocks soared Wednesday amid a somewhat expected "relief rally"
as investors looked for new entry points in bullish issues.

The Dow Jones Industrial Average jumped 111 points to 9,848 with
Altria (NYSE:MO), AT&T (NYSE:T), Boeing (NYSE:BA), Caterpillar
(NYSE:CAT), Eastman Kodak (NYSE:EK), General Motors (NYSE:GM),
Honeywell (NYSE:HON), and McDonald's (NYSE:MCD) participating in
the bullish activity.  The NASDAQ Composite was more ebullient,
climbing 42 points to 1,973 as hardware and networking issues
enjoyed strong buying pressure.  The Standard & Poor's 500-stock
index added 11 points to close at 1,058 with gold, aluminum, and
homebuilding shares among the surprise winners while healthcare
and oil services issues were generally lower.  Volume was average
with only 1.3 shares changing hands on the NYSE while 1.8 million
shares were swapped on the NASDAQ.  Breadth was positive in all
major markets, with winners outpacing losers better than 3 to 1
on the Big Board and the technology exchange.  Bonds started the
session in an upbeat mode, but withered near the end of the day.
The 10-year note closed up 8/32 at 98 23/32 to yield 4.40%.




The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.

Naked Puts

Stock   Strike Strike Cost  Current   Gain    Max    Simple
Symbol  Month  Price  Basis  Price   (Loss)  Yield   Yield

DRIV     NOV    25    24.50  25.23   $0.50   4.78%   2.04%
ERES     NOV    32    31.50  37.45   $1.00   6.89%   3.17%
NTAP     NOV    20    19.50  24.00   $0.50   5.70%   2.56%
BRCM     NOV    27    27.00  35.99   $0.50   4.69%   1.85%
CYD      NOV    18    17.20  26.70   $0.30   4.95%   1.74%
ERES     NOV    35    34.20  37.45   $0.80   6.19%   2.34%
LRCX     NOV    22    22.20  29.93   $0.30   3.86%   1.35%
NVLS     NOV    35    34.15  43.30   $0.85   5.35%   2.49%
RMBS     NOV    20    19.55  25.00   $0.45   6.20%   2.30%
TXN      NOV    22    22.10  29.66   $0.40   4.23%   1.81%
VECO     NOV    22    22.00  25.93   $0.50   5.04%   2.27%
APPX     NOV    22    22.05  26.10   $0.45   7.08%   2.04%
CKFR     NOV    22    22.20  26.85   $0.30   4.03%   1.35%
CYD      NOV    20    19.75  26.70   $0.25   4.37%   1.27%
ERES     NOV    35    34.55  37.45   $0.45   4.25%   1.30%
LEND     NOV    20    19.70  26.34   $0.30   5.40%   1.52%
NFLX     NOV    40    39.45  47.03   $0.55   4.89%   1.39%
NSCN     NOV    20    19.70  24.42   $0.30   4.96%   1.52%
ONXX     NOV    17    17.15  22.34   $0.35   6.57%   2.04%
ANPI     NOV    40    39.35  44.50   $0.65   6.30%   1.65%
CYD      NOV    22    22.25  26.70   $0.25   4.91%   1.12%
GPRO     NOV    22    22.10  28.30   $0.40   6.92%   1.81%
LEXR     NOV    20    19.70  21.05   $0.30   5.59%   1.52%
MSTR     NOV    45    44.55  53.05   $0.45   4.32%   1.01%
NTE      NOV    35    34.40  34.28  ($0.12)  0.00%   1.74%
NTLI     NOV    50    49.50  60.05   $0.50   4.38%   1.01%
ICOS     NOV    40    39.65  44.70   $0.35   5.12%   0.88%
IMCL     NOV    30    29.75  34.60   $0.25   5.35%   0.84%
GPRO     NOV    25    24.75  28.30   $0.25   5.75%   1.01%
MRVL     NOV    40    39.65  43.26   $0.35   4.74%   0.88%
MSTR     NOV    50    49.55  53.05   $0.45   4.79%   0.91%
NVLS     NOV    40    39.65  43.30   $0.35   4.55%   0.88%
PHTN     NOV    37    36.90  39.63   $0.60   7.92%   1.63%
PMCS     NOV    17    17.25  20.80   $0.25   8.84%   1.45%
NTAP     NOV    22    22.25  24.00   $0.25   5.86%   1.12%
QCOM     NOV    42    42.15  46.42   $0.35   4.20%   0.83%
VRNT     NOV    20    19.75  21.75   $0.25   6.53%   1.27%

There are a number of issues on the "watch" list due to the
recent profit-taking in stocks and traders are encouraged
to exit (or adjust) any suspect positions in the interest of
capital preservation.  There was no opportunity to initiate
the bullish positions in New Century Financial (NASDAQ:NCEN),
Photon Dynamics (NASDAQ:PHTN), or Netscreen Technologies
(NASDAQ:NSCN) due to "gap-up" in the underlying issues on the
day after the plays were offered.  The recent position in
Palm (NASDAQ:PALM), although profitable, has been removed
from the summary due to its complex split resulting in shares
of both PalmSource (NASDAQ:PSRC) and PalmOne (NASDAQ:PLMO).
Genzyme (NASDAQ:GENZ) has previously been closed to limit

Naked Calls

Stock  Strike Strike Cost  Current   Gain    Max     Simple
Symbol Month  Price  Basis  Price   (Loss)  Yield    Yield

FLML     NOV    40   40.80  23.23   $0.80   8.88%    1.96%
IMCL     NOV    45   45.65  34.60   $0.65   6.97%    1.42%
SOHU     NOV    45   45.55  31.50   $0.55   5.85%    1.21%
BGEN     NOV    40   40.50  38.54   $0.50   3.96%    1.23%
MGAM     NOV    45   45.30  44.85   $0.30   3.99%    0.66% *
NPSP     NOV    35   35.25  26.62   $0.25   4.53%    0.71%
NTES     NOV    60   60.70  40.76   $0.70   7.65%    1.15%
SEPR     NOV    30   30.60  25.77   $0.60   9.84%    1.96%
PCLN     NOV    25   25.30  19.65   $0.30   9.55%    1.19%
FLML     NOV    30   30.25  23.23   $0.25   8.57%    0.83%
SEPR     NOV    30   30.25  25.77   $0.25   6.38%    0.83%

Multimedia Games (NASDAQ:MGAM) is on the "early-exit" list
and unless there is a pause in the rally, only aggressive
traders should consider remaining in the position.  There
was no opportunity to initiate the bearish position in
Surmodics (NASDAQ:SRDX) due to the "gap-down" in the
underlying issue on the day after the play was offered.

Put-Credit Spreads

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L   Status

CUM     50.77  44.72   NOV  42  45   0.30  44.70  $0.02   Open?
CYMI    45.27  46.29   NOV  35  40   0.60  39.40  $0.60   Open
ERTS   103.58  99.28   NOV  90  95   0.55  94.45  $0.55   Open
SYK     78.92  80.60   NOV  70  75   0.45  74.55  $0.45   Open
APOL    63.95  62.41   NOV  55  60   0.60  59.40  $0.60   Open
BDK     45.96  46.24   NOV  40  45   0.75  44.25  $0.75   Open?
SEE     52.31  52.75   NOV  45  50   0.50  49.50  $0.50   Open
GDT     51.47  50.89   NOV  45  50   0.60  49.40  $0.60   Open
IFIN    35.10  35.20   NOV  30  32   0.25  32.25  $0.25   Open
MXIM    48.24  50.78   NOV  40  45   0.45  44.55  $0.45   Open
ELAB    43.74  42.85   NOV  35  40   0.40  39.60  $0.40   Open
HIT     63.61  60.78   NOV  55  60   0.55  59.45  $0.55   Open?
WFMI    59.00  59.99   NOV  50  55   0.45  54.55  $0.45   Open

Positions in Cummins (NYSE:CUM), Black & Decker (NYSE:BDK) and
Hitachi (NYSE:HIT) are on the "watch" list for potential early
exits.  The position in J2 Global Communications (NASDAQ:JCOM)
has previously been closed to limit potential losses.

Call-Credit Spreads

Symbol  Pick   Last   Month L/C S/C Credit  C/B    G/L   Status

MEDI    33.09  24.82   NOV  40  37   0.30  37.80  $0.30   Open
BUD     48.89  52.19   NOV  55  50   0.50  50.50 ($1.69) Closed
KMX     32.31  32.12   NOV  40  35   0.70  35.70  $0.70   Open
NBR     36.75  36.80   NOV  42  40   0.25  40.25  $0.25   Open
AMGN    60.30  58.98   NOV  70  65   0.45  65.45  $0.45   Open
FRE     57.03  54.95   NOV  65  60   0.60  60.60  $0.60   Open
FNM     72.75  69.40   NOV  80  75   0.65  75.65  $0.65   Open
BBOX    42.35  43.82   NOV  50  45   0.45  45.45  $0.45   Open
GILD    52.00  52.15   NOV  60  55   0.60  55.60  $0.60   Open
MANH    28.30  29.45   NOV  35  30   0.50  30.50  $0.50   Open
ATH     68.61  65.88   NOV  75  70   0.60  70.60  $0.60   Open
MDT     44.03  43.85   NOV  47  45   0.40  45.40  $0.40   Open
MMC     44.10  44.47   NOV  50  45   0.65  45.65  $0.65   Open

The position in Anheuser-Busch (NYSE:BUD) was closed last week
when the issue rallied on positive comments at a Morgan Stanley
Consumer Conference and an upgrade by Bear Stearns.  Wellpoint
Health Networks (NYSE:WLP), which has previously been closed to
limit potential losses, returned to profitability on Monday.
The speculative positions in Manhattan Associates (NASDAQ:MANH),
Medtronics (NYSE:MDT) and Marsh & McLennan (NYSE:MMC) should be
monitoring daily for timely exit (or adjustment) signals.

Synthetic Positions

No Open Positions

Debit Straddles

No Open Positions

Questions & comments on spreads/combos to Contact Support


This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.



All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.


The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

AMAT - Applied Materials  $25.44  *** Bullish Outlook! ***

Applied Materials (NASDAQ:AMAT) develops, manufactures, markets
and services semiconductor wafer fabrication equipment for the
worldwide semiconductor industry.  The firm manufactures systems
that perform most of the primary steps in the chip fabrication
process, including atomic layer deposition, CVD or chemical vapor
deposition, physical vapor deposition, electroplating, etch, ion
implantation, rapid thermal processing, wafer cleaning, chemical
mechanical polishing, metrology and wafer inspection.  Applied
Materials' subsidiary, AKT, manufactures CVD systems used to make
flat panel displays that are used in notebook computers, desktop
monitors, televisions and other applications.  Another business
subsidiary, Etec, is a manufacturer of systems used to generate,
etch and inspect circuit patterns used in the photolithography
process.  The firm also provides manufacturing facility management
software, as well as services to enhance manufacturing yields.

AMAT - Applied Materials  $25.44

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 25    ANQ WE    17263  0.65  24.35  19.0%   2.7%
SELL PUT  DEC 22.5  ANQ XX    25072  0.45  22.05   4.8%   2.0% *
SELL PUT  DEC 25    ANQ XE    17703  1.25  23.75   9.4%   5.3%

EYE - Visx  $24.71  *** Entry Point? ***

Visx (NASDAQ:EYE) is engaged in the development of proprietary
technologies and systems for laser vision correction.  Laser
vision correction relies on a computerized laser system to treat
nearsightedness, farsightedness and astigmatism with the goal of
eliminating or reducing reliance on eyeglasses and contact lenses.
The company's Excimer Laser System (the Visx System) ablates or
removes submicron layers of tissue from the surface of the cornea
to reshape the eye, thereby improving vision.  The Visx system
also treats certain types of corneal pathologies in an outpatient
procedure known as PhotoTherapeutic Keratectomy.  The company's
significant customers include Laser Vision Centers, and TLC Laser
Eye Centers.

EYE - Visx  $24.71

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 22.5  EYE WX    5030   0.40  22.10  15.1%   1.8%
SELL PUT  DEC 20    EYE XD     326   0.35  19.65   5.2%   1.8% *
SELL PUT  DEC 22.5  EYE XX     365   0.85  21.65   8.2%   3.9%

ICOS - ICOS Corporation  $46.30  *** Premium Selling! ***

ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products
with significant commercial potential by combining its unique
capabilities in molecular, cellular and structural biology,
high-throughput drug screening, medicinal chemistry and gene
expression profiling. The firm applies its integrated approach
to erectile dysfunction and other urologic disorders, sepsis,
pulmonary arterial hypertension and cardiovascular diseases, as
well as inflammatory diseases. The company has established
collaborations with pharmaceutical and biotechnology companies
to enhance its internal development capabilities and to offset
a substantial portion of the financial risk of developing its
product candidates.

ICOS - ICOS Corporation  $46.30

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 45    IIQ WI    3785   1.10  43.90  18.3%   2.5%
SELL PUT  DEC 35    IIQ XG    1924   0.45  34.55   3.8%   1.3% TS
SELL PUT  DEC 40    IIQ XH    1247   1.20  38.80   7.4%   3.1%

LLTC - Linear Technology  $44.33  *** New 2003 High! ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military
and space systems.

LLTC - Linear Technology  $44.33

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 42.5  LLQ WV    1184   0.30  42.20   5.6%   0.7% *
SELL PUT  DEC 40    LLQ XH     454   0.55  39.45   3.2%   1.4% TS
SELL PUT  DEC 42.5  LLQ XV     602   1.20  41.30   5.8%   2.9%

MRVL - Marvell Technology  $44.59  *** Uptrend Intact! ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.

MRVL - Marvell Technology  $44.59

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 42.5  UVM WH    2582   0.30  42.20   5.7%   0.7% *
SELL PUT  NOV 45    UVM WT    2571   0.80  44.20  12.8%   1.8%

NVLS - Novellus Systems  $44.45  *** BofA Upgrade! ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous

NVLS - Novellus Systems  $44.45

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 42.5  NLQ WA    3395   0.45  42.05   8.4%   1.1%
SELL PUT  DEC 40    NLQ XH    2126   0.80  39.20   4.7%   2.0% *
SELL PUT  DEC 42.5  NLQ XA     879   1.50  41.00   7.1%   3.7%

PHTN - Photon Dynamics  $40.58  *** The Rally Continues! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display (FPD) industry.  The company
also offers yield management solutions for the printed circuit
board assembly and advanced semiconductor packaging industries
and the cathode ray tube display and CRT glass and auto glass
industries.  The firm's test, repair and inspection systems are
used by manufacturers to collect data, analyze product quality
and identify and repair product defects at critical steps in the

PHTN - Photon Dynamics  $40.58

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 37.5  PDU WU      33   0.30  37.20   6.8%   0.8%
SELL PUT  DEC 35    PDU XG       9   0.75  34.25   5.4%   2.2% *
SELL PUT  DEC 37.5  PDU XU      72   1.35  36.15   7.7%   3.7%

PMCS - PMC-Sierra  $21.90  *** On The Move! ***

PMC-Sierra (NASDAQ:PMCS) designs, develops, markets and supports
a broad range of high-performance integrated circuits primarily
used in the telecommunications and data networking industries.
The company has more than 120 different semiconductor devices
that are sold to equipment manufacturers, who in turn supply
their equipment principally to communications network service
providers and enterprises.  The firm also provides semiconductor
solutions for customers by leveraging its intellectual property,
design expertise and systems knowledge across a wide range of
applications.  The company's networking products are sold into
four areas of the global network infrastructure: metro, access,
enterprise/storage and consumer-related markets.

PMCS - PMC-Sierra  $21.90

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 20    SQL WD    4556   0.30  19.70  12.7%   1.5%
SELL PUT  DEC 17.5  SQL XW     629   0.40  17.10   6.9%   2.3% *
SELL PUT  DEC 20    SQL XD    5432   0.95  19.05  10.0%   5.0%

SAP - SAP AG  $38.98  *** Multi-Year High! ***

SAP AG (NYSE:SAP) operates as a business software company.  The
firm primarily offers the mySAP Business Suite, which is a suite
of unique business software applications and an application and
integration platform designed to enable companies to manage the
entire value chain across business networks, allowing SAP to adapt
quickly and remain flexible when faced with changing business
conditions.  In addition to its software solution portfolio, the
company provides service offerings such as business solutions
consulting, solution operations services, educational services,
hosting services and support services including project planning,
implementation assistance, ongoing post-implementation support
activities and virtual classroom training for new and existing
customers.  SAP's customers include multi-national enterprises,
as well as small and mid-sized businesses.

SAP - SAP AG  $38.98

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 37.5  SAP WT     305   0.30  37.20   6.3%   0.8% *
SELL PUT  DEC 35    SAP XG     460   0.45  34.55   3.1%   1.3% TS
SELL PUT  DEC 37.5  SAP XT     275   1.15  36.35   6.2%   3.2%



These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

KLAC - KLA-Tencor  $60.08  *** Bullish Outlook! ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.

KLAC - KLA Tencor  $60.08

PLAY (less conservative - bullish/credit spread):

BUY  PUT  DEC-50.00  KCQ-XJ  OI=9940  ASK=$0.50
SELL PUT  DEC-55.00  KCQ-XK  OI=6807  BID=$1.25
POTENTIAL PROFIT(max)=17% B/E=$54.25

MIK - Michael's Stores  $50.55  *** All-Time High! ***

Michaels Stores (NYSE:MIK) is an arts and crafts specialty retailer
providing materials, ideas and education for creative activities.
The firm operates over 700 Michaels retail stores in 48 states, as
well as in Canada, offering a products for the do-it-yourself home
decorator and arts and crafts supplies.  The company also operates
over 150 Aaron Brothers stores in nine states, with photo frames,
a full line of ready-made frames, custom framing services and a
wide selection of art supplies.  In addition, the company owns and
operates Star Wholesale, a single-store wholesale operation located
in Dallas, Texas, offering merchandise primarily to interior
decorators/designers, wedding/event planners, florists, hotels,
restaurants and commercial display companies.

MIK - Michael's Stores  $50.55

PLAY (less conservative - bullish/credit spread):

BUY  PUT  DEC-42.50  MIK-XV  OI=1708  ASK=$0.45
SELL PUT  DEC-45.00  MIK-XI  OI=263   BID=$0.70
POTENTIAL PROFIT(max)=14% B/E=$44.70

SMH - Semiconductor HOLDRS Trust  $44.65  *** Strong Sector! ***

The Semiconductor HOLDRS Trust (AMEX:SMH) is a unique instrument
that represents an investor’s ownership in the stock of specified
companies in the semiconductor sector.  HOLDRS allow investors to
own a diversified group of stocks in a single investment that is
highly transparent, liquid and efficient.  Each HOLDR is a fixed
basket of 20 stocks (except the Telebras HOLDR, which holds 12
companies).  They work operate much like ADRs; American Depositary
Receipts, which allow U.S. investors to purchase foreign-owned
companies on the U.S. exchanges in dollar denominated amounts.  In
just the same way, the investor actually owns the shares of each
underlying company, receives dividends, proxies, and annual reports
from each.  The HOLDRs are not managed, and once the companies and
amounts have been determined they are fixed, no companies will be
substituted.  In this way, the HOLDRs differ somewhat from Spiders
(SPDRs), or Standard & Poor Depositary Receipts and other exchange
traded funds, which will add and delete stocks on a regular basis,
usually in conjunction with an index that they are tracking.

A complete description of this issue, including the companies that
make up each HOLDRS' particular industry, sector or group can be
found here:


SMH - Semiconductor HOLDRS Trust $44.65

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-37.50  SMH-XU  OI=11011  ASK=$0.30
SELL PUT  DEC-40.00  SMH-XH  OI=20747  BID=$0.55
POTENTIAL PROFIT(max)=11% B/E=$39.75



Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.


The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

IACI - InterActiveCorp  $33.80  *** Recent Slump! ***

InterActiveCorp (NASDAQ:IACI), formerly known as USA Interactive,
is a multi-brand interactive commerce firm transacting business
worldwide via the Internet, television and the telephone.  Their
portfolio of companies collectively enables direct-to-consumer
transactions across many areas, including home shopping, tickets,
personals, travel, teleservices and local services.  During 2002,
InterActiveCorp completed two major transactions that together
transformed the company.  The firm acquired a majority interest
in Expedia.com and it accomplished the contribution of its
entertainment businesses to Vivendi Universal Entertainment, a
joint venture controlled by Vivendi Universal, S.A.  The firm's
business is organized into three groups: Electronic Retailing;
Information and Services, and Travel Services.

IACI - InterActiveCorp  $33.80

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  NOV 35    QTH KG    8415   0.40  35.40   9.6%   1.1%
SELL CALL  DEC 37.5  QTH LU    1134   0.45  37.95   3.6%   1.2% TS
SELL CALL  DEC 35    QTH LG    2345   1.15  36.15   7.0%   3.2%

WEBX - WebEx Communications  $19.80  *** Premium-Selling Only! ***

WebEx (NASDAQ:WEBX) develops and markets services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video
services are also available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and
deploying new services, expanding its sales and marketing
organizations and deploying its global WebEx Media Tone Network.
The company sells WebEx Meeting Center, WebEx Meeting Center Pro,
WebEx Training Center, WebEx Support Center, WebEx OnStage and
WebEx Enterprise Edition.  It also provides a service called
WebEx Business Exchange to existing customers.

WEBX - WebEx Communications  $19.80

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  NOV 20    UWB KD     567   0.60  20.60  21.9%   2.9%
SELL CALL  DEC 25    UWB LE    1273   0.30  25.30   5.8%   1.2% *
SELL CALL  DEC 22.5  UWB LX     979   0.60  23.10   8.5%   2.6%



All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

BGEN - Biogen  $38.57  *** Bearish Biotech? ***

Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally
engaged in the business of developing, manufacturing and marketing
drugs for human healthcare.  The firm derives revenues from sales
of its Avonex (Interferon beta-1a) product for the treatment of
relapsing forms of multiple sclerosis (MS) and from royalties on
worldwide sales by its licensees of a number of products covered
under patents it controls.  In addition, Biogen has a number of
ongoing research programs and a pipeline of development-stage
products, the furthest along of which, Amevive (alefacept), is
being considered for approval by the United States Food and Drug
Administration and regulatory authorities in the European Union
and Canada for the treatment of moderate to severe psoriasis.

BGEN - Biogen  $38.57

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  DEC-45.00  BGQ-LI  OI=870   ASK=$0.20
SELL CALL  DEC-42.50  BGQ-LV  OI=1917  BID=$0.45
POTENTIAL PROFIT(max)=11% B/E=$42.75

NE - Noble Corporation  $33.79  *** Sector Slump! ***

Noble Corporation (NYSE:NE) is a provider of diversified services
to the oil and gas industry.  The firm performs contract drilling
services with a fleet of 49 offshore drilling units located in
key markets worldwide.  Its fleet of floating deepwater units
consists of nine semisubmersibles and three dynamically positioned
drillships, seven of which are designed to operate in water depths
greater than 5,000 feet.  Its premium fleet of 34 independent leg,
cantilever jack-up rigs includes 21 units that operate in depths
of 300 feet and greater, four of which operate in depths of 360
feet and greater, and 11 units that operate in depths up to 250
feet.  Its fleet also includes three submersible drilling units.
Over 60% of the fleet is deployed in global markets, principally
the North Sea, Brazil, West Africa, the Middle East, India and
Mexico.  The firm also provides labor contract drilling services,
site and project management services, and engineering services.

NE - Noble Corporation  $33.79

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  DEC-37.50  NE-LU  OI=355   ASK=$0.15
SELL CALL  DEC-35.00  NE-LG  OI=1925  BID=$0.55
POTENTIAL PROFIT(max)=19% B/E=$35.40




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Note: Options involve risk. Risk disclosure:

Watch List

Bounce Ready Candidates

SanDisk - SNDK - close: 84.99 change: +3.39

WHAT TO WATCH: Shares of SNDK produced a big bounce after finding
short-term support near $81.00.  Volume was very strong and the
stock looks ready to make a rally attempt towards the $90 mark.
Traders should be cautious because the stock is so overbought but
a tight stop might make it worthwhile.



Diebold Inc - DBD - close: 55.74 change: +0.93

WHAT TO WATCH: We highlighted DBD as a potential bullish
candidate in the MarketMonitor this afternoon.  Shares have a
very strong rising channel and investors have been using the 21
and 30-dma's to buy the dips.  The recent pull back (a.k.a.
profit taking) has stalled at the round-number support of $55.00
that just happens to be underpinned by the 30-dma.  Shares
bounced today and bullish traders could buy the bounce with a
tight stop under yesterday's low.  Target $60.00.



Thor Industries - THO - close: 61.98 change: +1.48

WHAT TO WATCH: Shares of THO have pulled back to five-week old
support at the $60 level.  However, this time support is
bolstered by its rising simple 50-dma.  Bullish traders
aggressive enough to buy the bounce here could stick a stop loss
under the low on Tuesday (59.50).  Otherwise, momentum traders
may want to wait for another breakout above the $64 mark.



Alliant Tech Systems - ATK - close: 52.49 change: +0.59

WHAT TO WATCH: Shares of ATK are currently struggling with P&F
resistance near $53.00 but if you look at its daily chart the
resistance appears to be $52.50.  Option traders who believe the
stock will breakout could buy a $50 call and look for a run
toward the $55 mark.  The escalating violence in Iraq could have
a positive affect on defense stocks like ATK even if the reaction
is purely psychological.


RADAR SCREEN - more stocks to watch

PETM $27.66 +1.12 - Wow! PETM put together to back-to-back
rallies after consolidating sideways for a month.  Next stop
could be the $30 level.

CVH $56.20 +1.65 - Shares of CVH found strong support at its
simple 50-dma last week and have now reclaimed the $55 mark.
Bulls could target $60.00.

CDWC $60.95 +1.89 - Another big bouncer today is CDWC.  Shares
rebounded from the simple 50-dma and broke the short-term trend
of lower highs.


Relief Rally

To Read The Rest of The OptionInvestor.com Market Posture Click Here


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