Option Investor

Daily Newsletter, Monday, 11/17/2003

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The Option Investor Newsletter                   Monday 11-17-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Terrorism Spooks Global Markets
Futures Wrap: Let the Opex Games Begin
Index Trader Wrap: Indices finish lower, but off their lows

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
     11-17-2003            High     Low     Volume Advance/Decline
DJIA     9710.83 - 57.85  9765.64  9629.87 1.62 bln    794/2030
NASDAQ   1909.61 - 20.65  1919.23  1890.72 1.84 bln    965/2126
S&P 100   516.23 -  2.78   519.01   511.74   Totals   1759/4156
S&P 500  1043.63 -  6.72  1050.35  1035.28
RUS 2000  526.21 -  6.75   532.96   521.51
DJ TRANS 2893.13 - 34.51  2926.59  2874.64
VIX        18.60 +  1.66    19.36    18.04
VXO        18.82 +  1.19    20.27    18.24
VXN        27.81 +  1.65    28.56    26.96
Total Volume 3,923M
Total UpVol  3,045M
Total DnVol    800M
52wk Highs     269
52wk Lows       42
TRIN          1.94
PUT/CALL      0.84

Terrorism Spooks Global Markets
by James Brown

Monday proved to be another rough day for investors around the
globe.  Asian and European exchanges swooned and U.S. averages
joined the retreat with an extremely broad-based sell-off that
left no survivors.  Not one U.S. sector index closed in the green
today.  The catalyst for the declines, or as some market pundits
might call an excuse to take profits, are renewed concerns that
Al Qaeda is still threat.  The terrorist network took credit for
two synagogue bombings in Istanbul, Turkey over the weekend and
threatened to bomb Tokyo if Japan sends troops to Iraq.  Last
week OptionInvestor.com reported on the Al Qaeda threat to launch
a new attack in the U.S. during the Muslim holy month of Ramadan.
Ramadan, the fourth pillar of Islamic belief, is a month-long
fast (during daylight hours).  This year it began on October
27th, 2003 and should end around November 27th.  Major news media
failed to carry the threat story last week and they still remain
cautious on highlighting the threat today.  Either they don't see
it as credible or they don't want to raise a panic.  The U.S.
department of Homeland Defense has kept the risk level unchanged
at elevated (yellow).

Japan's stock market didn't take the threat to bomb Tokyo
lightly.  The NIKKEI index dove 3.74 percent or 380 points to
close under the 10,000 mark for the first time in three months.
The selling in Japanese stocks was exacerbated by concerns that
their banking system continues to defy improvement despite the
government's actions.  The Hong Kong Hang Seng index joined its
neighbor with a 206-point decline to close at 11,997.  Meanwhile
European stocks were walloped one day before President Bush is
set to appear in London for the first formal visit by a U.S.
President.  The English FTSE index lost 1.32% to close at 4338
but the German DAX lead the decliners down 3.24% to 3674.

Here at home stocks started the day with early weakness that
eventually brought the S&P 500, the Dow Jones Industrials and the
NASDAQ Composite down to their respective simple 50-dma(s).  Yet
by 2:00 PM ET the worse was behind us and traders began to buy
the dip.  By the end of the day the DJIA and the NASDAQ had cut
their losses in half to close down 57 and 20 points,
respectively.  Not all averages were so fortunate.  Several
sector indices broke their 50-dma, technically a bearish
development.  The heaviest selling was in gold stocks, airlines
and technology (Internet, hardware and disk drives).  The selling
in gold stocks was probably due to the failed rally in December
gold futures.  Gold shot up to $399.90 but couldn't break the
$400 barrier.  By the close, gold futures had lost $6.50 to close
at $391.50 an ounce.  The XAU gold index lost 2.13 percent.  The
XAL airlines fell almost three percent, which is most likely
attributed to terrorism jitters.  The group has been a big winner
for investors so the urge to take money off the table is rather

It is that very urge to harvest gains that many market
commentators say is the real culprit behind today's losses.  The
S&P 500, the most common barometer and measure for the markets,
was up 17 percent year-to-date last week and up about 26 percent
from its March lows.  Many a mutual fund manager is looking at 20
percent gains in their portfolio and could be thinking to quit
now and lock in a very good year after three years of losses.
Speaking of losses, there were certainly a lot of them today.
Declining stocks outnumbered advancing stocks 20 to 8 on the NYSE
and 21 to 10 on the NASDAQ. More telling was how down volume was
five times up volume on the NYSE and three times up volume on the

Chart of the DJIA:

Chart of the NASDAQ:

The economic calendar this week is devoid of any major reports
and littered with second or third tier news.  This morning
unveiled a positive surprise as the Empire State Index jumped to
a record 41.0 in November compared to what most had been
expecting as a loss towards the 31 level.  Obviously the news
failed to fuel any buying but it is one more mile market on the
road to economic recovery.  Meanwhile the flight to quality in
U.S. bonds continued today, stretching the bond rally to four
days in a row.  Terrorism concerns, if they continue, should fuel
additional "safety" buying for U.S. debt.  As bonds rise their
yields fall.  The bump today pushed the 10-year yield down to
4.188 percent.

Wall Street continues to hear from late cycle earnings
announcements and two big caps making headlines were LOW and TOY.
Home improvement and building supplies center Lowe's Companies
(LOW) announced Q3 earnings of 56 cents a share, three cents
better than estimates.  Revenues also topped analysts' forecasts
at $7.92 billion for the quarter.  The company is seen moving in
on larger rival Home Depot's (HD) turf and stealing market share.
The stock failed to move much on the report and LOW's guided
inline for the fourth quarter.  Home Depot is due to announce its
own earnings tomorrow before the opening bell.  Estimates are for
46 cents a share.  Shares of HD did react poorly to LOW's
earnings report, dropping nearly 2 percent on the session.  Or
maybe it was just the widespread selling across the markets.  Or
maybe it was a comment from a Morgan Stanley strategist
suggesting traders short HD and try and cover near the $30 level.
Whatever the case, HD, as a Dow component, could be a stock to
watch tomorrow after their morning report.

Contributing to the negative market action was Toys 'R Us (TOY),
who's 12.24 percent drop to close under its simple 200-dma was
the biggest percentage decliner in the S&P 500.  The company
severely missed its Q3 earnings numbers today.  Analysts had been
looking for a loss of 10 cents.  TOY turned in a loss of 18 cents
a share.  Management commented on the growing competition from
Wal-Mart, which investors fear the company is losing to.  In
their press release TOY stated they plan to close 146
freestanding Kids 'R Us and 36 freestanding Imaginarium stores
along with 3 distribution centers that support these stores.
"The majority of these facilities are expected to close on or
before January 31, 2004."  You know what that means, right?  If
they plan to close all of these before the end of January, not
only will we probably see some huge sales during the holiday
shopping season but the after-Christmas clearance sales at these
locations could turn into an "everything must go" mob scene.

Now it wouldn't be a Monday without some merger news.  Today's
merger springs from the insurance sector.  St. Paul Cos. (SPC)
has announced their plans to acquire their larger rival Travelers
Property Casualty Corp (NYSE: TAPa & TAPb) for $16.4 billion in
stock.  Investors rewarded SPC with a 2.63% gain in its stock
price since the company is paying zero premium for Traveler's
stock.  Together they will become St. Paul Travelers Cos and will
be the second biggest property insurer in the country behind AIG.

Drum roll please... remember on Friday that the SEC teased the
market with a "big announcement" concerning action against a
major Wall Street broker?  That news sent the XBD broker dealer
index to a 4% loss on Friday as everyone wondered who was to be
fined and how big would the fine be?  Ta da!  The SEC announced a
$50 million fine against Morgan Stanley (MWD) who was charged
with failing to disclose incentive payments it was receiving from
various mutual funds for pushing their products on MWD clients.
Considering that the company brings in a net income close to $3.5
billion a year, the $50 million fine seems a little anti-
climatic.  Now maybe the fine fits the scope of the alleged
"crime" but shares of MWD rose 9 cents by Monday's close.

Schwab, Bear Stearns and Putnam also made minor headlines.
Schwab reportedly sent an email to all of its 16,000 employees
stating they had uncovered 18 trades that were "problematic".
Two employees were fired after the company retrieved deleted
emails pertaining to the issue.  Bear Stearns also fired six
employees last week over the growing mutual fund probes.
Meanwhile Putnam Investments, the lead pig in this scandal so
far, reported that it has lost some $16 billion in assets under
management due to withdrawals, leaving it with $256 billion.

Tomorrow could be interesting.  The major U.S. averages have all
bounced from their simple 50-dma(s).  This normally sounds like a
buying opportunity and the afternoon rebound today could easily
continue into Tuesday's session.  The real question is how long
will it last?  Tuesday will bring more earnings, the CPI report,
and potentially more headlines from a number of ongoing analysts

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Let the Opex Games Begin
Jonathan Levinson

We had classic options expiration action today, with the shorts
blown out on the opening bounce, followed by a relentless
stairstep south to kill the dippers, followed by a ferocious end-
of-day ramp to wipe out anyone left standing.  The indices
finished within points of the opening gap down, and so anyone
trying either a buy and hold or short and hold intraday either
got stopped out or finished nearly flat.  Bonds advanced, gold
and silver got sold, and the US Dollar Index bounced.

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 bounced from 91, but didn’t get far despite
the sharp uplegs.  I will expect bounces until the 90-91 level
falls, but in the meantime the dollar action is providing plenty
of excitement in the currency and commodity markets.  Gold,
silver and the commodities index (CRB) got sold aggressively.

Daily chart of December gold

I've sacrificed candle clarity in favor of a broader focus with
11 months' worth of data to put today's sharp selloff in
perspective.  We saw an overnight high of 399.80 for the December
gold contract, with an intraday low of 386.10 to close at 390.60.
The price trend is up, and the oscillator phase is also bullish,
but 390-410 is a significant resistance level, and I don't expect
it to give up easily.  I suspect that it will take a US Dollar
Index below 90 to get the breakout for which gold bulls are
hoping.  382, followed by 378 and 372 are immediate support
below.  HUI dropped 4.08 to close at 221.86, XAU –2.18 to 100.20,
and silver dropped .175 to close at 5.24, with a low of 5.122

Daily chart of the ten year note yield

Bonds delivered again today.  I can't help but wonder if the Fed,
whose impotence at propping up treasuries has been demonstrated
lately with comments from the likes of Bernanke himself getting
faded by the bond market, isn't more sympathetic to an
equities... correction, to shepherd defensive money into bonds.
The ten year yield gapped lower again today, closing down 4.5
basis points at 4.188%.  The oscillators are in a fresh
downphase, and 4.1% is the next downside support.

Daily NQ candles

The NQ closed less than 10 points below its gap down open,
despite a steady grind south until 1:45PM and a pathetic attempt
to bounce until 3PM.  What appeared to be another leg to the so-
far feeble bounce took off to return to within 5 points of the
pre-cash opening range.  The move bottomed at 1380 before
bouncing at secondary trendline support.  The break below 1405 is
clearly a failure of the minor bear wedge, bringing in a downside
projection of 1300.  However, the trendline at 1385 will have to
break before serious technical damage such as to threaten the
current price uptrend can occur.  The oscillators are lined up to
the downside, synchronously with the weekly (not shown).

30 minute 20 day chart of the NQ

The drop of the past two days ended this afternoon, with the 300
minute stochastic on the 30 minute candle chart taking its time
along the bottom, just as it did on the last trough last Monday.
The upphase will be fighting the downphases on the daily and
weekly charts, and so I expect to see bulls having difficulty at
each resistance level.  1405 is the first such spot, followed by
1415.  The bounce looks like bull wedge breakout with an upside
target of 1448, but if today's persistent weakness is any
indication, I doubt if we'll see it.

Daily ES candles

The daily ES bounced at the 50 day EMA after falling below the
1048 wedge support on the opening gap down.  1028 ES is the lower
rising trendline and Bollinger support, while a return to the
scene of the crime rally will encounter resistance at 1050.  The
price trend remains up, and the doji hammer printed today
portends further upside followthrough tomorrow.  However, the
selling was strong and steady, and so long as the 1060-64 level
remains intact, it should be merely corrective within the ongoing
daily cycle downphase.

20 day 30 minute chart of the ES

As with the NQ, the ES has that potential bull flag breakout
lined up with the 30 minute cycle upphase now in progress.  The
upphase is merely another representation of the doji hammer on
the daily candle print.  Failed support becomes resistance,
however, and, particularly with November options expiring at the
end of this week, we have the perfect setup for rangebound chop.
The 30 minute upphase is countertrend to the daily and weekly
downphases, and the net effect should ideally be either a lower
high or a sideways move.

Note that a net 8.25B in Fed intervention money was added today,
with negative closes for equities and a positive close for bonds.
Even with all of this liquidity added, there was still a large
herd of sellers knocking back the bids.  The VXO jumped,
challenging 20 but closing at a very respectable 18.82.

150-tick ES

The two day 150-tick chart of the ES shows an already-overbought
market on the short cycle oscillators.  Bulls are clearly faced
with an uphill battle for the 30 minute cycle upphase.

Daily YM candles

Same setup on the YM, which also bounced sharply from its 50 day
EMA.  Bulls need to recover the broken support line immediately
to spare a potentially deep correction on the current daily cycle

20 day 30 minute chart of the YM

Bonds were bid and metals sold, with equities unable to do more
than pare their losses despite a large injection of liquidity
from the Fed.  I do not expect to see the rally highs revisited,
given the current oscillator setup and the fact that it's opex
week.  The abrupt disappearance of the bulls today was surprising
as we waited for the 30 minute upphase to get going.  If that
rocket launch on the YM was just Fed money hitting the tape, then
we could see the selling resume tomorrow.  However, the 30 minute
upphase has a ways to go, and, given that the daily and weekly
oscillators are lined up to the downside, the top of the
remaining upphase should be a choice spot for new shorts.  We'll
be watching for it live in the Futures Monitor – see you there!

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Indices finish lower, but off their lows

Not one of the equity sectors we follow in our U.S. Market Watch
finished today's trade in positive territory as a weekend
terrorist attack in Turkey set a negative tone for global equity
markets and had the major indices here in the U.S. continuing
Friday's slide lower, after many of the major indices had traded
new 52-week highs late last week.

Economic data released today, while generally better than
economists' forecast proved to sway some investors into buying
late in the session, as the broader S&P 500 Index (SPX.X)
1,043.63 -0.63% finished its full session lower by 6.7 points,
after trading as low as 1,035.28 just after the lunch hour.

In what would have to be described as a more defensive session
largely tied to this weekends acts of terrorism, the U.S. Dollar
Index (dx00y) 91.61 +0.18% managed a 0.17-point gain and was able
to hold above its multi-year lows 91.01, while Treasury bonds
found some defensive buying that held to the close, with the 10-
year Treasury Bond's YIELD ($TNX.X) falling 4.5 basis points to

Some comments from the bond pits had traders citing short
covering, as today's economic data was generally viewed as
positive.  One dealer was quoted as saying today's trade in the
bond market was "counterintuitive, it has to be ongoing short-
covering, outside the flight to quality action overnight."  Some
players were bemoaning the lack of liquidity and logic of late,
while others believe the bond "rally has to fade; it is losing
steam," acknowledging "they are still oddly strong.  There is no
rationale here."

The "lack of rationale" in the bond market was directly tied to
today's release of the November New York Empire State Index
reading of 41.00, which showed manufacturing activity much more
robust than the 28.0 forecast of economists, as well as some sign
that business' were turning a little more optimistic on the
economy as business inventories rose 0.3% in September, where
economists' had forecasted inventories to remain flat.  While the
rise in inventories might raise some eyebrows of concern that
demand was lagging, September sales showed a 0.6% gain after
slipping -0.3% in August.

While we might have looked for selling in Treasuries based on the
stronger NY Empire State Index, the "flight to quality" trade in
bonds becomes even more prevalent when we consider the October
Treasury budget range up $69.5 billion of red ink and was $15.4
billion larger than a year ago.  The two positives that could
possibly have been taken away from this data was that the $69.5
billion deficit was not as large as economists' forecast for
$71.0 billion, and that tax receipts in October of $135.8 billion
were above the $124.5 billion for October 2002.

I'm not trying to paint an overly optimistic view of the Treasury
budget data.  But when we consider what the Federal Government
does have control over, it might be reasonable for economists or
traders/investors to think that receipts, or revenue derived from
taxes, is a much larger wild card and dependent on the economy
than outlays, or spending, due to government programs.

Still, the increasing budget deficit remains one of the main
points of concern, or items most often discussed for the U.S.
dollar's weakness versus major foreign currencies and with the
Office of Management and Budget forecasting a fiscal 2004 deficit
of $475 billion (September 2004), today's gain in Treasuries,
which are backed by the full faith of the U.S. Government, give
today's trade and gains in Treasuries a defensive look.

If there was one sign of a technical breakdown that I saw in
today's trade, it was Monday's trade in Japan's Nikke-225 ($NIKK)
9,786 -3.74%, where near-term technical support above 10,100 was
broken and longer-term bullish support to 9,800 was tested by the

In a recent November 11, 2003 Index Trader Wrap
we reviewed the Nikkei-225's point and figure chart, and I dare
say that today's break below the 10,100 level was also a
contributing negative for today's trade here in the U.S., and has
be taking on a more defensive posture toward the major indices in
the U.S. near-term, where I think we need to continue to follow
the $NIKK at this longer-term support trend, with near-term
resistance building at 10,150, and intermediate-term resistance
back near 10,650.

Once we review the Nikkei-225 here tonight, It would be my
thought that the WEEKLY R1s in this week's pivot matrix, become
rather formidable resistance for the U.S. Indices.  Tonight, I've
quickly calculated what would be the $NIKK's MONTHLY pivot matrix
levels, and what really stick out at me is the $NIKK's MONTHLY
Pivot, which is right at the apex of the bullish triangle we had
been monitoring as somewhat of a mid-point for the $NIKK.  With
the $NIKK seeing trade at and below its MONTHLY S1, I'm more
cautious toward the U.S. major indices, as I do think the
weakness in the Nikkei-225 ($NIKK) will have some negative impact
on global markets.

Nikkei-225 Index ($NIKK) - 50-point box

Since our last update (11/11/03) the $NIKK did find some buyers
up to the 10,400 level, fell back to 10,200 in Friday's session,
but showed a rather significant break of what I considered to be
important "near-term support" with today's trade at 10,100.

Make no mistake that the U.S. market indices have shown relative
strength versus the $NIKK in recent months, but the $NIKK is an
index I thought we should keep a close eye on near-term, when the
dollar had been weaker against the yen.  While it generally
accepted that Japan's economy is dependent on its exports to the
U.S., and other global economies, today's breaking of 10,150
support has me alert that further weakness most likely impact the
U.S. indices, as I think was the case early this morning.

With the $NIKK now making a lower low from its October (Red A)
lows, I view 10,650 as more formidable resistance.  This is
pretty close to not only the apex of the bullish triangle we had
discussed as being somewhat of a gravitational point several
weeks ago, that may have been the mid-point of a developing
range, but would also be a November MONTHLY Pivot.

I have NOT been tracking trade in the $NIKK as it relates to
DAILY/WEEKLY/MONTHLY pivot analysis, but place the longer-term
MONTHLY levels on the $NIKK chart so that we might begin to get a
better "feel" or observation as to further test the thought that
the $NIKK's trade may have impact (positive/negative) on the
major U.S. indices.

As we quickly review our Pivot Analysis Matrix for the major
indices here in the U.S., we will note that today's trade did see
the MONTHLY Pivots traded in INDU, DIA, OEX, NDX and QQQ.  Only
the SPX 1,043.63 -0.63% and SPY $104.93 -0.5% did NOT see trade
at their MONTHLY Pivots.  The S&P Banks Index (BIX.X) 329.19 -
0.23% did not trade its MONTHLY Pivot either, and I would not
expect the BIX.X to trade its MONTHLY Pivot of 321.97, unless the
MAJOR indexes were trading their MONTHLY R1s, similar to the
Nikkei-225 ($NIKK) did today.

Pivot Analysis Matrix -

One technical scenario for bulls to look for a bullish trade
setup tomorrow is for the $NIKK to FIRM in Tuesday's trade, but
look for a reversal of this afternoon's late recouping of losses
to find the SPX fulfill a test of its MONTHLY Pivot, like the
other major indices did and a rebound to build into week's end
and option expiration near WEEKLY R1.

I've tried to place two different UPSIDE Nikkei-225 levels for a
"dead cat bounce" in the $NIKK, with the 10,500 level being more
of a round number level of resistance, where I would expect some
bulls that have now seen a break below 10,000, to be more eager
sellers on a bounce back to the 10,500 level, which after a TEST
of WEEKLY S2's (see SPX WEEKLY S2 and MONTHLY Pivot overlap) a
bounce back to WEEKLY R1's in the major U.S. Indices becomes a
bull's exit point.

After seeing the Nikkei-225 Index ($NIKK) break below the 10,100
support level, its is also a bounce back to the WEEKLY R1's in
the major U.S. Indices, where I would look for a BEARISH entry

My ONLY caveat for a bearish trade at WEEKLY R1, is that I would
much prefer some near-term weakness to the WEEKLY S2's,
otherwise, after seeing a 52-week high in the SPX Friday morning,
I would have to assess upside risk to WEEKLY R2.

I can't say that I follow Japan's economy as economists' and
market analysts' comments regarding bullish and bearish scenarios
as closely as I do U.S. economists/analysts comments, with which
I TEST those comments against the technicals in the market, but
one comment I have read out of Japan, is that most analysts in
that region didn't think the $NIKK would "unravel" below 10,000,
but would more than likely develop a range of trade either side
of the 10,000 mark, until more clarity was given to the Japanese
economy, and strength/weakness of the yen versus the dollar.

Dow Industrials (INDU) Chart - Daily Interval

For those technicians that track relative strength of one
security against the other, you will see how the INDU and the
$NIKK seem to trade off with each other as it relates to relative
strength.  In late October, the INDU gave a relative strength buy
signal versus the $NIKK and would currently be considered a
stronger major index, or market, when compared to the $NIKK.  As
such, we would look for some INDU leadership to the upside, but
to get the move, it is my thought that the $NIKK needs to firm at
current levels, at a MINIMUM.

I've added the INDU's MONTHLY S1, where under EQUAL relative
strength, gives us the impression of how the Nikkei's trader from
here could play a role in how the INDU trades.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Still "bull correction" status
at 80.00%.

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

The SPX did break below some relatively important near-term
support at the 1,047 level today, and while a couple of late buy
program premium alerts, which were first seen at 1,040 did have
the SPX recovering into the close, I would monitor the 1,040
level early tomorrow for support, but after seeing continued
willing seller back near 1,061, would prefer to see a test of
WEEKLY S2 and the 1,032 area, then look for a good rebound to
build into the week's end toward 1,062.

Today's trade saw a net loss of 5 stocks to point and figure sell
signals as the broad S&P 500 Bullish % ($BPSPX) fell 1% to
79.80%.  Still "bull confirmed" and would take a reversing lower
reading of 76% to achieve a "bull correction" status.

The narrower S&P 100 Bullish % ($BPOEX) saw a net loss of 1 stock
to a point and figure sell signal and has the bullish % slipping
to 79%.  Still "bull correction" status.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

I didn't even attempt to profile a QQQ trade (bullish or bearish)
today.  Would not rule out a QQQ decline to $33.67, that finds a
more attractive bullish trade setup for "one last run" back to
$36.00.  I say "one last run" as I've been waiting for "one last
run" in the QQQ for several months.

What has me getting a little more willing to take a shot at a QQQ
chart back near $36.00 in coming sessions is the NASDAQ-100
Bullish % ($BPNDX), which did see a net loss of 2 stocks to point
and figure sell signals in today's trade, and has the bullish %
falling to 70%.  Still "bear confirmed" and $36.00 looking a
little more formidable as market participants seem to be showing
conviction with their selling near that level.

Jeff Bailey

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The Option Investor Newsletter                   Monday 11-17-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: DGX, NFLX
Dropped Calls: None
Dropped Puts: None
Play of the Day: Call - DGX
Watch List: See Note

Updated on the site tonight:
Market Posture: Red Claw Marks Found on Wall Street

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Note: Options involve risk. Risk disclosure:


DGX - call
Adjust from $65.50 up to $67.50

NFLX - put
Adjust from $51.01 down to $49.50





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Quest Diagnostics - DGX - cls: 71.33 chng: +1.13 stop: 67.50*new*

Company Description:
Quest Diagnostics was the result of a 1996 Corning spinoff, and
currently holds the title of the world's #1 clinical laboratory.
DGX performs more than 100 million routine tests annually,
including cholesterol, HIV, pregnancy, alcohol, and pap smear
tests.  Operating laboratories throughout the US and in Brazil,
Mexico, and the UK, DGX also performs esoteric testing (complex,
low-volume tests) and clinical trials.  The company serves
doctors, hospitals, HMOs, and other labs as well as corporations,
government agencies, and prisons.

Why we like it:
Wasting no time, our DGX play pushed up through that key $70 level
at the open on Friday, triggering our play to live status.  With a
lack of strength in the rest of the market though, DGX had no
success in building on that early move and spent the remainder of
the session chopping sideways in a very narrow range.  But at the
end of the day (despite the broad market losses), DGX held above
$70 on above average volume and we'll take that as a continuation
of the breakout.  Traders that wanted to enter on strength got
their opportunity on Friday and may get another opportunity to add
to positions on a break above Friday's range early next week.  At
this point, the better entry point appears to be on a pullback
near the $68 support (former resistance) and rebound.  Once DGX
gets moving to the upside, the $75 level should be a reasonable
initial target, and then we can re-evaluate the potential for
higher levels.  Maintain stops at $65.50 for now.

Why This is our Play of the Day
After trading below the $70 resistance level for more than a year,
there was a fair amount of energy released when DGX cleared that
level late last week.  With every major sector closing in the red
on Monday, DGX kept right on going, tacking on 1.6% and closing
very near its high of the day.  Adding to the stock's bullish tone
was the above average volume, which along with the close near the
day's high, indicates more upside to follow.  Our initial target
of $75 will be a good place for conservative traders to harvest
some gains and at this rate, we could see that before the week is
out.  Intraday dips that find buying support above this morning's
low ($69.42) look attractive for new entries.  Support near $68
should be firming up now, with the 10-dma ($67.97) and 20-dma
($67.40) rising to meet that support (broken resistance) level.
This gives us the freedom to reduce our risk in the play by
raising our stop to $67.50.  With price now up against the upper
Bollinger band (which is pointing down), now would not be the time
to chase the stock higher with momentum entries -- wait for the

Suggested Options:
Aggressive short-term traders can use the November 70 strike, but
need to be careful with less than a week until November
expiration.  Our preferred option is the December 70 strike, which
gives a nice balance due to being in the money and having plenty
of time until expiration.  Traders looking for even more
insulation against time decay can look out to the January strike.

! Alert - November options expire this week!

BUY CALL NOV-70 DGX-KN OI=1994 at $1.80 SL=0.60
BUY CALL DEC-70 DGX-LN OI=1046 at $3.30 SL=1.75
BUY CALL DEC-75 DGX-LO OI= 459 at $1.10 SL=0.50
BUY CALL JAN-75 DGX-AO OI= 242 at $1.60 SL=0.75

Annotated Chart of DGX:

Picked on November 13th at   $69.46
Change since picked:          +1.87
Earnings Date               1/20/04 (unconfirmed)
Average Daily Volume =        869 K

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Watch List

We're sorry.  There will be no OptionInvestor.com watch list
tonight.  Please look for the watch list column to continue on


Red Claw Marks Found on Wall Street

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


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