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Daily Newsletter, Tuesday, 11/18/2003

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The Option Investor Newsletter                Tuesday 11-18-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Do You Hear Singing?
Futures Markets: Metals rally, Treasuries Gain, Equities Fall
Index Trader Wrap:
Market Sentiment: Is The Top Behind Us?


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-18-2003           High     Low     Volume Advance/Decline
DJIA     9624.16 - 86.70  9750.46  9622.39 1.62 bln   1288/1850
NASDAQ   1881.75 - 27.90  1926.00  1881.75 1.86 bln   1183/1929
S&P 100   512.22 -  4.01   518.82   512.09   Totals   2471/3779
S&P 500  1034.15 -  9.48  1048.77  1034.00
W5000   10082.84 - 89.60 10227.18 10081.66
RUS 2000  521.68 -  4.53   531.39   521.58
DJ TRANS 2866.95 - 26.20  2915.34  2866.95
VIX        19.11 +  0.51    19.17    17.78
VXO (VIX-O)19.90 +  1.08    19.90    18.33
VXN        29.65 +  1.84    29.71    27.88
Total Volume 3,805M
Total UpVol  1,060M
Total DnVol  2,605M
52wk Highs  318
52wk Lows    32
TRIN       1.58
NAZTRIN    1.79
PUT/CALL   0.76
************************************************************

Do You Hear Singing?

Some traders claimed to be hearing the proverbial fat lady
singing today but I am not convinced. There were numerous
reasons for the drop but none of them were catastrophic. The
markets simply need a breather and the opportunity to rotate
into different sectors. While the four day Dow drop may seem
like a disaster if you are long it is only a blip in the
longer term trend. What does bother me is the weakness into
the close and events on the horizon so grab those reading
glasses and let's get started.

Dow Chart



Compx



S&P Chart




The morning economic reports were not very positive. The
Chain Store Sales for last week fell -0.8% and gave back
two thirds of the prior weeks gains. Overall the trend for
the last two months has been very choppy with excuses the
norm and sales weak. The Bank of Tokyo left the estimates
for the month at +4.0% but they are going to have to hurry.
Fortunately the Thanksgiving shopping is still ahead and
there is a good chance there will be a rebound.

Inflation is still at 40-year lows according to the Consumer
Price Index, which was released this morning. The index was
flat at +0.0% with the core rate only +0.2%. This raised the
rate for the last twelve months to only +1.3% and only a
tenth of a point from the +1.2% 40-year low in September.
On the surface this frees the Fed from worrying about the
inflation monster for at least another month. The bad news
is that the real prices we pay were rising with beef prices
at a 24 year high. The internal number that skewed the
results was a -3.9% decline in energy prices. That offset
some of the other gains but you can bet the Fed knows how
to count and will be looking at the internal components.

The home building market may be losing some of its luster
according to the NAHB numbers for November which dropped to
69 from 72 in September. While this is still high it shows
the pressure from the higher mortgage rates. The buyer
traffic fell to 46 from 52 and was the largest drop of
any component. CTX bucked the number today with a positive
outlook and suggesting that the boom will last. They said
that 2005 was looking very strong. This enthusiasm carried
over into their stock price which jumped +2.08 to 101.38 on
the outlook and a 2:1 stock split announcement.

The Fed is apparently not worried about the creeping
inflation and two Fed heads actually brought up the deflation
potential again. There comments on deflation/inflation along
with comments about being on the sidelines for some time
were welcomed by bond traders. Bonds were bought to the
relief of everyone but that did not help stocks.

Strong earnings from Home Depot failed to help the markets
out of their slump. HD credited tax check liquidity and
several natural disasters as well as an overhaul of their
stores for the strong sales in all sectors. Sales were up
nearly +15% with earnings at 50 cents beating estimates
by four cents. HD lost -50 cents on the day after trading
up strongly at the open.

The biggest factor dragging on the market was the various
terror alerts and incidents. With Ramadan ending next Tuesday
it is almost a sure thing there will be an escalation in
events over the next week. The threats are coming fast and
furious and most are directed at friendly Arab nations and
the U.S. There was a strong rumor during the day that traders
were moving to the sidelines due to the Bush trip to London.
Even with security at the highest possible level it is still
more risky than the same exposure in the U.S. Traders were
worried that putting Bush at higher risk during the last
week of Ramadan was too tempting a target for terrorists.
This trip had been planned for 18 months so plenty of time
for them to get their act together.

Some of the biggest targets are the various oil fields and
pipelines in Arab world. Saudi Arabia is said to be very
concerned that their pipelines could be attacked as well
as other critical points. Oil prices are rocketing as the
worry filters through the markets. Oil finished over $32
today and a multi month high. The growing terror threat is
also causing a run on the gold markets. Some say the Arabs
are buying gold as insurance against an oil knockout. There
is also the growing fighting in Iraq and a continuing flood
of insurgents from other countries. Several military analysts
are predicting a war with Syria soon. Evidently they are not
cooperating with the U.S. and are harboring terrorists. Any
U.S. attack on ANY other country in the region would seriously
destabilize the region and weaken support among other Arab
countries. I seriously doubt this is going to happen since
the Iraq conflict is getting worse instead of better but
the rumors are flying.

Another challenge is the falling dollar. With the Euro at
a two year high over the dollar it makes it more profitable
to sell oil to Europe instead of the U.S. This means the
prices we pay to offset the weaker dollar will be higher.
Also, according to the money watchers the money flow into
the U.S. markets from abroad has nearly stopped. The monthly
average inflows into the bond market for the prior four months
had been $39 billion. In October only $5 billion was invested
in our bonds. This is the equivalent of a trickle. The same
is said to be true of inflows into stocks. Overseas investors
are becoming increasingly worried that the U.S. will not be
able to fund the deficit, which could swell to $4 trillion
according to some estimates, without selling massive amounts
of debt over the next couple of years. They are also worried
that the Fed is going to be forced to raise rates to combat
inflation and that will stall the recovery and make the
deficit worse. Add in soaring oil prices and terrorist
threats of 100,000 American deaths in a coming attack and
foreigners think the risk is too great.

Foreign investors were also hit with trade sanctions against
China and worries that the U.S. is becoming more protectionist.
This was triggered when the U.S. imposed temporary "safeguard"
trade sanctions against textile products from China on Tuesday.
Under China's WTO accession agreement there was a provision
for caps on imports if the flow of goods became unbalanced.
U.S. manufacturers requested the sanction be imposed and that
limits imports to 7.5% of last years levels. Much of China's
textile exports are from state-owned firms subsidized further
by state-owned banks. Profit is not a motive but employment
of the population. Dumping of these products into the U.S.
market harms U.S. manufacturers.

The dollar hit a five month low against the Euro at $1.19
to buy 1 Euro. This 20% difference is well above the
historical highs of 80 cents to the Euro and is causing
havoc on the currency markets. George Soros is short the
dollar and has been taking every chance possible to hammer
it even more. The world events are simply adding to the
pressure.

Nikkei Chart



The Nikkei rallied +110 points last night to near 9900 but
the gain was minor compared to the -1500 points the index
had lost from the October highs. The rebound on Tuesday may
have only been a dead cat bounce or a small relief rally.
The continuing global pressures could continue to press the
Nikkei down to real support at 9500. Any decline like this
overnight would put some serious pressure on our markets.

Our markets do not need any more pressure. They are on the
verge of cracking and need for those mysterious buyers who
always seem appear at critical points to show up at the bell
tomorrow. The Dow, Nasdaq and SPX all closed under their
critical 50 day moving averages. This has provided support
since March. The indexes only broke that support by a few
points on a day where the Dow lost -86 points but it was a
very negative day. It was not that bad in points lost but
it appeared to be an acceleration of the recent down trend.
The Dow has closed down for four consecutive days on good
economic news. The total loss is only -220 points but that
drop has put us right on the verge of breaking that strong
support.

The closing sentiment was negative and we closed on the
lows of the day. The Dow at 9624 is well below the lofty
levels near 9900 just three days ago. The Dow 10,000 hopes
have been dashed and replaced with Dow 9500 fears. Looking
at the charts tonight those fears could easily come true
this week should the markets not be able to mount a rebound
at tomorrows open.

Helping depress the open already was late news of 47
currency traders being arrested in New York for scamming
small investors. Details are very sketchy at 7:PM but
there is plenty of film footage of handcuffed traders
being loaded into FBI vans. The futures dropped
substantially on the news and are now near their closing
lows.

There was also more mutual fund news after the close with
claims that the founder of Strong Funds had been accused of
front running his funds purchases. According to reports he
bought large quantities of small cap stocks that his funds
were going to buy and then resold them at a profit when the
fund went into the market to buy stock. This came on top of
news that the Janus International CEO had been terminated
along with several managers for improper trades. It was also
announced that investors withdrew another -$7 billion from
Putman in the last week making more than $25 billion over
the last three weeks. Putman's assets were down almost -10%
and Calpers announced they were withdrawing another $1.2
billion in managed assets. With withdrawals coming in faster
than deposits it is no wonder the equity markets are under
pressure.

Need more reasons for financials to be under pressure?
FRE was under pressure after it was announced that Federal
investigators are looking into investment transactions that
were arranged by major investment banks like LEH, MWD, MER
and Citibank. Apparently they structured temporary transactions
to move profits off the FRE books so that FRE would not have
to report windfall profits from derivative transactions. In
one instance Citibank was said to have hidden $700 million
in profits so that FRE could report earnings inline with
estimates. Many of the banks earned fees in excess of $25
million a year for assisting in these transactions.

In a week where all the news has been bad there was one
highlight. Merrill Lynch upgraded GE to buy with a target
of $33. Surprised? Merrill Lynch cut estimates on GE just
last week from $1.65 to $1.60 for the year. With the upgrade
the same analyst now believes GE will hit $1.85 earnings in
2005. His reason for the upgrade? The double-digit earnings
growth from his lowered estimate last week. Duh! This
analyst had a buy on GE from $57 all the way down to $22
when he went to neutral. GE was over $28 when he cut it
last week and $27.50 when he upgraded it today. GE jumped
to a high of $28.92 on the upgrade and declined to 28.50
at the close. Guess they had bought all the GE they wanted
on the way down and needed to lighten the load some.

Wednesday could be exciting. We do not have any major
economic announcements but there is sure to be a flurry of
news events to rile the markets. If the Dow can hold over
9600 we have a chance of pulling out of this slump. Just
remaining flat could give the bargain hunters confidence
and we could see a relief bounce. However, with Bush
overseas, the end of Ramadan still a week away and breaking
news on the continuing trading scandals we are not likely
to breakout into a new bullish trend. We just need to
consolidate peacefully and let time pass. The week before
Thanksgiving has been bullish for the last 10 years but it
is going to have to hurry to close this week in positive
territory. Regardless of the market move tomorrow the
overall market health is still strong. This is a normal
profit taking event helped by the strong news flow. Unless
the Dow breaks below 9000 the uptrend is still intact.
Until the end of Ramadan next Tuesday I would not be in
a hurry to buy the dips. Just look at it as research time
and a future buying opportunity.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Metals rally, Treasuries Gain, Equities Fall
Jonathan Levinson

The HUI printed a new 7 year high, closing at 235.22, with gold
and silver advancing, treasuries reversing earlier losses, and
equities falling.  The US Dollar Index fell to a new multiyear
low.

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 chart says it all.  I suspect that all eyes are on round
number support at 90, but in the meantime commodities and
precious metals made strong advances, with the CRB up 1.80 to
close at 255.37.  Crude, heating oil and silver led the charge,
with crude futures closing higher by 4.88% at 33.28.


Daily chart of December gold


As I did yesterday, I've packed in a longer timeframe at the
expense of clarity with 11 months' daily candles.  December gold
closed at 398.70, up 7.20, 20 cents below its high of the day.
Silver added 11.7 cents to close at 5.34.  Gold is looking quite
bullish, pushing above the upper rising trendlines on the
different rising formations on the daily chart.  The breakouts in
the HUI and XAU are particularly encouraging.  I personally
expect gold and silver to get sold (at first) in a severe
correction, just as we saw at various points during 2002.  I
believe that a liquidity drain will hurt all assets, abd I've
been noting that 390-410 is an important resistance level.  That
said, there's nothing bearish in the action of the tape, and
different traders with different styles will play the current
environment differently.  I have sold part of my long position in
this sector based on my nearterm outlook, but hold the remainder
as it is the sector on which I am most bullish.  Above the
support levels at 384, 378 and 372, goldbugs are sitting pretty.


Daily chart of the ten year note yield


Treasuries had a weak open and traded lightly in the red for most
of the session, reversing in the mid-afternoon just as the equity
decline began to pick up steam.  As we've been discussing, it's
not inconceivable that the Fed, in its effort to keep rates low,
will allow equities to fall in order to generate a defensive bid
in bonds.  This certainly appeared to be the case today, with a
large open market operations drain and bonds trading inversely to
equities.  For the day, the TNX dropped 2.1 bps to close at
4.167%.


Daily NQ candles


There was plenty of excitement today in the various markets, and
equities were no exception.  So persistent has been the Fed's
end-of-day stick-saves and repo jams, short covering frenzies and
opex-week flagpole rallies that none expected the utter failure
at the end of the cash session.  The equity charts all sustained
noteworthy technical damage, and only an immediate reversal can
save bulls from what could be shaping up to be rout.  The VXO
added 1 to close at 19.82, adding to yesterday's big gains and
signaling the first scent of fear in the markets.

The NQ closed just off the bottom of 43.5 point day range  The
primary and secondary rising support lines have now been
violated, with 1392 support failing decisively.  The daily and
weekly cycle oscillators are in gear to the downside, with the
bear wedge target of 1300 now in play.  Next support is at 1355,
and could be tested on a weak open tomorrow.


30 minute 20 day chart of the NQ


The 30 minute cycle upphase was sharp and weak.  This oscillator
is oversold but so far showing no signs of life.  We are at
levels that would normally portend a bounce, but the combination
of those downphasing daily and weekly cycles has so far proven
disastrous for dippers.  A bounce to a lower high would fit the
cycle picture, and 1392 support will now serve as resistance.


Daily ES candles


ES did not sustain the same damage as NQ, still within its rising
trend above 1025-8.  Nevertheless, the bearish oscillator
divergences and bear wedge breakout are performing according to
plan, and if the NQ is fulfilling its traditional leadership
role, then we can expect a test of that lower rising trendline.
The question is whether the 30 minute cycle will attract enough
energy to overcome the longer term downphases currently in
progress.  It's still early to pronounce the end of the rally,
but bears are so far off to a nice start.


20 day 30 minute chart of the ES


The end of session selloff on ES was nowhere near as bad as that
on the NQ, but the 300 minute stochastic is nevertheless in a
bottoming zone.  I expect to see support beginning at 1028, but
if it fails, it should be a quick drop to 1016 on the way to the
daily bear wedge target of 987.  I believe the race for the exits
in the NQ will ultimately weigh on the ES, and we'll continue to
keep an eye on both contracts in the Futures Monitor.


150-tick ES


The short cycle oscillators are in oversold territory on ES, but
not overwhelmingly so.  Depending on how the futures do
overnight, we could see a continuation of today's move in the
morning as the terminal push on the 30 minute cycle downphase.

Daily YM candles


Nothing to add on the YM.  9600 looks like short term support,
with the higher low on the 300 minute stochastic (30 minute chart
below) possibly setting up a bullish divergence.


20 day 30 minute chart of the YM



On the one hand, intermarket conditions look unequivocally
bearish for equities, with breakouts in oil and mining shares,
gold and silver on the verge, and the US Dollar Index clinging by
its fingernails.  Bonds are advancing, though so far
uninspiringly.  It is a market that is becoming fearful, and
equities are another bad day or two away from significant
breakdowns.

That said, it is op-ex week, the 30 minute cycle is bottomy, and
the VXO has come a long way up off its lows.  I believe that most
are expecting a bounce, and such would be the least surprising
outcome.  That's either a bullish or a bearish observation,
depending on your outlook, but for tomorrow, caution remains key.
Chasing moves is dangerous to your account, and whatever you do,
respect your stops.  See you in the Futures Monitor!


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

Free markets don't like quotas

The U.S. dollar suffered one of its biggest daily declines with
the U.S. Dollar Index (dx00y) 90.28 -1.36% falling to a new 5-
year low.

There were probably more rumors or scenario's for the dollar's
decline than there were buyers for the dollar, but if I were one
scenario for the dollar's steep declines in today's session, it
may well be the U.S. government's announced plans to curb Chinese
textile imports, which ups the ante in a simmering trade war
between the two countries.

In what has slowly become a game of chess between China and the
U.S. where the Chinese government said weeks ago that it would
only approve government spending in 2004 on software products
designed outside China under special circumstances, the U.S. has
recently answered those policies by limiting imported steel and
now textiles.

The Commerce Department said it planned to set quotas limiting
growth in Chinese textile imports to 7.5% a year.

The move follows a sharp increase in shipments of Chinese
clothing products over the past 14 months.

U.S. Commerce Undersecretary Grant Aldonas said the surge in
imports had been helped by government subsidies.  "It's not just
a question of a dramatic surge, but a heavily state-owned
industry that's subsidized by state-owned banks," he said.

The decision underlines Washington's determination to bring its
spiraling trade deficit with China, which is forecasted to reach
$120 billion this year, back under control.

The U.S. government, and most likely the Bush administration
ahead of an election year, fears the flood of Chinese imports is
squeezing domestic manufacturers, forcing them to shed jobs.
While many Republicans may blame the Clinton administration for
free trade policies implemented years ago, the White House has
been spurred by U.S. Industry lobby group to pressure Beijing to
lift currency controls which keep the Chinese yuan artificially
low against the dollar.

But China has held firm, rebuffing persistent calls for it to
alter its currency regime, as China has its own interests for a
healthy economy at stake, where exports of manufactured goods are
critical for the country's growth and job creation.

US textile industry associations, which claim that 300,000 US
textile jobs have disappeared since 2001, welcomed the prospect
of import quotas.

"Today's decision sends a strong signal to China that they should
take immediate steps to cease their attempts to dominate
international trade in textiles and apparel," said Cass Johnson,
interim president of the American Textile Manufacturers
Institute.

The saber rattling by the U.S. government sent jitters through
the equity markets as well as the dollar as the session
progressed, where modest gains on the heels of upbeat earnings
and raised guidance from Home Depot (NYSE:HD) $34.95 -1.46%
vanished by session's end.

In what has been seen as a "global economy" where markets should
trade freely, currency manipulations and growing attempts to
create trade barriers where quotas are placed on products,
certainly appears to have investors moving to the sidelines.

Late this afternoon, a look of disgust could be seen on the faces
of Larry Kudlow and James Cramer, hosts of CNBC's Kudlow and
Cramer, which in my opinion was different look than has been seen
in recent months from two of bigger bulls on Wall Street.

I can't remember Mr. Cramer's exact words, but they were pointed
toward the dollar's decline and trade tariffs and quotas when he
said foreign investors hate the thought of trade barriers, and
when they sense it, they "sell everything."

For many traders, the U.S. dollar is the starting point for how
U.S. assets are viewed by foreign investors, and today's rather
sharp drop in the dollar, was a warning signal we didn't want to
ignore in today's trade.

Gold was once again the major benefactor in a weaker dollar trade
where December Gold futures (gc03z) $397.60 +1.66% gained $6.10
and currently trade higher still at $399.00 as Wednesday's
session is underway.  The equity side of the trade saw the AMEX
Gold Bugs Index ($HUI.X) 235.22 +6.02% find another all time
high, and now take out on a firmer trade, its point and figure
chart bullish vertical count of 226.00.  With the $HUI.X breaking
to new highs and exceeding its bullish vertical count, I'm going
to use the fitted retracement technique to establish further
upside bullish target levels.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals




As noted in prior commentary, bullish vertical count may be
achieved, and may not be achieved.  Often times they are achieved
and even exceeded like we see taking place in the $HUI.X.  It now
becomes a more difficult task to assess risk/reward, but I've
tried to use the "fitted retracement technique" of taking
retracement from a relative low, and then trying to fit the
retracement bracket so that it makes sense with how the $HUI.X
has traded in recent sessions.  I wanted to at least try and
honor the bullish vertical count of 226.00 in the newly added
PINK retracement, and I do like the way the 19.1% retracement of
201.57 and 38.2% retracement at 216.67 may have been viewed as
levels of pullback support the past two weeks.

Gold bugs may "know" that they look for further dollar weakness
to extend the impressive rally in gold stocks, so lets take a
look at our U.S. Dollar Index (dx00y) where we track this index
in our WEEKLY/MONTHLY pivot analysis matrix.

U.S. Dollar Index (dx00y) Chart - Daily Intervals




The $dx00y shows the dollar breaking SHARPLY to new lows and
below a support zone.  Just as it can be difficult to tell where
a stock can run to on the upside when extreme buying is present,
its equally difficult to tell where a level of support is when a
stock or security is breaking to multi-year lows.

The current bearish vertical count for the U.S. Dollar Index
(dx00y) using a 0.50-point box scale is 83.50, and the above
chart using WEEKLY/MONTHLY pivot analysis retracement gives a
near-term zone of support at 89.80-89.94.

A trader in gold stocks may equate such a decline to 89.90 in the
U.S. Dollar Index (dx00y), with the AMEX Gold Bugs Index ($HUI.X)
at 250.42.

Is a trade war between the U.S. and China the reason for today's
weakness in equities?  To tell the truth, I wasn't aware of
today's news of textile import curbs being potentially
responsible for the dollars steep slide, but thought it might be
prudent to initiate a bearish trade in the broader S&P 500 Index
(SPX.X) 1,034.15 -0.9% in today's Market Monitor, and 01:00 PM
EST update, when the SPX was trading at unchanged levels.

Let's quickly take a look at the pivot analysis matrix where
today's trade did see the NDX 1,364.70 -2.08%, QQQ $33.88 -2.3%
and BIX 325.51 -1.11% see trade at their WEEKLY S2s for the first
time this week.  In the MONTHLY Pivot Matrix, the SPY $103.82
-1.05% traded its MONTHLY Pivot for the first time this month.

Tomorrow morning I will be closely monitoring the U.S. Dollar
Index (dx00y) after it traded its WEEKLY S1 for the first time
this week and foreign market's response to today's dollar slide.

While a weaker dollar is seen as beneficial for U.S.-based
company's that compete against other foreign products abroad,
that benefit could be eliminated if a global trade war is in the
making, where quotas and tariffs are placed on imported products
by various countries.

Pivot Analysis Matrix -




Tonight we see some more formidable and correlative resistance
showing up at the WEEKLY Pivots and DAILY R2's for tomorrow.
After profiling a bearish trade in the SPX with a stop above
1,055, I think that stop may be well placed based on what I see
in the matrix at this point.

It is notable that the S&P 100 Index (OEX.X) 512.22 -0.77%, which
traded its WEEKLY S2 yesterday, did not see a trade at that level
today (session low was 512.09, so there is obviously some type of
formidable buying still at that level) and may certainly hint
that institutional computers were going to wait for a reaction
out of foreign markets in Wednesday's trade.

In last night's Index Trader Wrap, I had not planned on looking
for a bearish trade in today's session, unless we saw a bounce
further higher to the WEEKLY R1s.  However, I was also not
looking for the dollar to get hit like it did, and felt it was
worth the risk to take a bearish trade this afternoon, just in
case foreign markets found substantial selling before U.S.
markets open for trading tomorrow.

As I type, I've just updated tonight's Market Monitor and note
Japan's Nikkei-225 ($NIKK) 9,714.06 -1.85% opened lower and in
early trade has seen a session low of 9,691.19 and session high
of 9,804.70.  As it relates to today's 01:00 PM EST intra-day
update, this action would have the $NIKK's point and figure chart
unchanged from yesterday's trade.

In the above MONTHLY Pivot matrix, I've PINK squared the MONTHLY
S1s in the major indices, which aside from the BIX.X (mostly
regional banks) may be vulnerable to those levels should the
WEEKLY R2s not hold support.

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




I would certainly consider a bearish trade in the SPX as being
EARLY as the SPX still holds above a key support level at the
MONTHLY Pivot (1,033.49) and WEEKLY S2 (1,032.30), but the
dollar's weakness had me wondering what type of lower trade might
be found overnight in foreign markets.  It is difficult, if not
impossible to forecast price action based on oscillators, but
with MACD still trending lower towards zero, a break below SPX
1,032 may have the SPX falling quickly to 1,020.

Today's trade saw a net loss of 3 stocks to point and figure sell
signals in the S&P 500 Bullish % ($BPSPX).  This has the bullish
% slipping to 79.2%, but still reading "bull confirmed" status.

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




While the broader SPX may benefit from correlative MONTHLY Pivot
and WEEKLY S2 support, the OEX looks to have WEEKLY S2 as the
only level of support standing between tonight's close and an
upward trend from the August relative low, which at this point
has not yet been tested.  If the current upward trend and
correlative MONTHLY 61.8% retracement are violated to the
downside, then the OEX further vulnerable to 504, where I would
be alert to a rebound, but would then view the 521 area as
becoming more formidable resistance as an equal high of 525 was
found, and a lower low if 505.98 were also violated.

Today's trade saw no net change in the S&P 100 Bullish %
($BPOEX).  Still "bull correction" status at 79%.

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




It has been a general observation that technology stocks along
with Asian markets had been leading the bullish advance since
March.  Today's violation of the WEEKLY S2 and close below the
$34.13 level in the QQQ is the lowest close in the QQQ since late
September.  Near-term support is viewed as $33.67, but the more
volatile QQQ may be further vulnerable to its MONTHLY S1 of
$33.11, where I would fully expect some type of bounce back
higher.

Today's trade saw a net loss of 2 stocks to point and figure sell
signals in the NASDAQ-100 Bullish % ($BPNDX) and has this bullish
% falling to 68%.  Still "bear confirmed."

Dow Industrials (INDU) Chart - Daily Interval




Despite the weaker dollar, 25 components traded lower compared to
5 gainers.  While INDU looks near-term oversold, INDU also looks
further vulnerable to 9,500 if 9,600 violated tomorrow.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Still "bull correction" status
at 80%.

Jeff Bailey


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

Is The Top Behind Us?
- J. Brown

The major U.S. stock indices (DJIA, S&P 500, and the NASDAQ
Composite) have all broken their rising simple 50-dma's.  This is
certainly a bearish technical development and given the rise in
the volatility indices one begins to wonder if the markets have
finally put in a short-term top.

Market internals were bearish as the DJIA and NASDAQ closed lower
for their fourth decline in a row.  Decliners out paced advancing
stocks 17 to 11 on the NYSE and 15 to 14 on the NASDAQ.  The Big
Board saw most of the selling with down volume twice as strong as
up volume.  Only four of the 30 Dow Jones Industrial components
closed in the green.

Yesterday's late day bounce appeared to have "buy the dip"
written all over it but the follow through failed to appear
Tuesday morning.  Making headlines were growing concerns over the
U.S. dollar, which is trading near its lows against the Japanese
yen and the euro.  The weak dollar is fueling the rise in gold
and the shiny metal is trading above the $400 mark in after hours
tonight.

Looking at the technical indicators below (in the sentiment)
traders will notice that the short-term 5-dma on the ARMS index
or TRIN is fast approaching the 1.50 level.  Typically readings
over 1.50 tend to be bullish buy signals but last time the 5-dma
hit the 1.65 mark before the markets turned.  Plus, these TRIN
signals tend to be a little early.  It sounds like we have
farther to fall.

Levels to watch involve the 1020 area on the SPX, the 1840-1850
area on the NASDAQ, and the 9500 mark on the DJIA.  A breakdown
below these support levels could denote a possible trend change
and not just profit taking.


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

Market Averages

DJIA ($INDU)

52-week High:  9903
52-week Low :  7197
Current     :  9624

Moving Averages:
(Simple)

 10-dma: 9777
 50-dma: 9644
200-dma: 8924



S&P 500 ($SPX)

52-week High: 1063
52-week Low :  768
Current     : 1034

Moving Averages:
(Simple)

 10-dma: 1050
 50-dma: 1035
200-dma:  958



Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1364

Moving Averages:
(Simple)

 10-dma: 1417
 50-dma: 1389
200-dma: 1213



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

We are finally beginning to see the volatility indices react and
the market top could now be behind us.  The question now is will
the selling continue?

CBOE Market Volatility Index (VIX) = 19.11 +0.51
CBOE Mkt Volatility old VIX  (VXO) = 19.90 +1.08
Nasdaq Volatility Index (VXN)      = 29.65 +1.84


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.76        745,954       565,047
Equity Only    0.63        568,928       355,730
OEX            0.87         49,631        43,197
QQQ            0.84         45,598        38,306


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

Bullish Percent Data

           Current   Change   Status
NYSE          72.9    - 1     Bull Confirmed
NASDAQ-100    68.0    - 4     Bear Confirmed
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       79.2    - 2     Bull Confirmed
S&P 100       79.0    - 1     Bull Correction


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

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

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


 5-dma: 1.46
10-dma: 1.29
21-dma: 1.20
55-dma: 1.14


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1133      1410
Decliners    1701      1570

New Highs     167       166
New Lows       21        28

Up Volume    501M      521M
Down Vol.   1091M      634M

Total Vol.  1602M     1173M
M = millions


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

Commitments Of Traders Report: 11/11/03

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

Commercial traders continue to stall on making any big bets.
They remain slightly net short in the big S&P contracts. We
see the same hesitation in the small traders with little
overall change.


Commercials   Long      Short      Net     % Of OI
10/21/03      394,176   411,246   (17,070)   (2.1%)
10/28/03      391,596   412,498   (20,902)   (2.6%)
11/04/03      391,079   415,136   (24,057)   (3.0%)
11/11/03      389,965   415,259   (25,294)   (3.1%)

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

Small Traders Long      Short      Net     % of OI
10/21/03      136,643    88,290    48,343    21.5%
10/28/03      137,791    76,791    61,000    28.4%
11/04/03      137,829    78,206    59,623    27.6%
11/11/03      136,072    74,249    61,823    29.4%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Hmm... now we are seeing some action in the e-minis.
Commercial traders have eliminated 12K short contracts and
upped their longs by 7K.  This has narrowed the gap but they
remain net short.  Small Traders have made big changes and
reduced a big chunk (40K) of their long positions and 12K
of their shorts but they remain net long.


Commercials   Long      Short      Net     % Of OI
10/21/03      226,985   236,906    ( 9,921)  ( 2.2%)
10/28/03      220,171   260,644    (40,473)  ( 8.4%)
11/04/03      242,409   270,785    (28,376)  ( 5.5%)
11/11/03      249,864   258,503    ( 8,639)  ( 1.7%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
10/21/03      168,236    56,564   111,672    49.7%
10/28/03      123,569    59,742    63,827    34.8%
11/04/03      135,525    63,006    72,519    36.5%
11/11/03       94,649    51,815    42,834    29.2%

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


NASDAQ-100

Unfortunately we still don't see any big changes in the
NDX futures from the Commercial traders.  They have slowly
been upping their short positions, which is bearish for
the tech-heavy NDX.  Meanwhile small traders are at their
most bullish in four weeks.  Sounds like a potential top.


Commercials   Long      Short      Net     % of OI
10/21/03       36,314     43,305   ( 6,991) ( 8.8%)
10/28/03       36,168     46,272   (10,104) (12.3%)
11/04/03       34,159     48,293   (14,134) (17.1%)
11/11/03       35,889     49,201   (13,312) (15.6%)

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

Small Traders  Long     Short      Net     % of OI
10/21/03       16,917     9,750     7,167    26.9%
10/28/03       21,640     8,830    12,810    42.0%
11/04/03       24,132     9,703    14,429    42.6%
11/11/03       26,212    10,730    15,482    41.9%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercials still aren't making big bets in the INDU futures
and remain net long.  Small traders are hedging their bets a
bit by upping their longs and reducing their shorts by about
1,000 contracts each.


Commercials   Long      Short      Net     % of OI
10/21/03       16,876     9,037    7,839      30.3%
10/28/03       20,504    11,366    9,138      28.7%
11/04/03       21,756    11,903    9,853      29.3%
11/11/03       20,209    11,660    8,549      26.8%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
10/21/03        5,392     8,842   (3,450)   (23.1%)
10/28/03        5,295     8,864   (3,569)   (25.2%)
11/04/03        5,099     9,160   (4,061)   (28.5%)
11/11/03        6,105     8,201   (2,096)   (14.7%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   8,523  -  8/26/03

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


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The Option Investor Newsletter                  Tuesday 11-18-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: JCI
Dropped Puts: None
Call Play Updates: APA, DGX, MME, PGR
New Calls Plays: None
Put Play Updates: AVID, AZO, AMGN, MDC, NFLX
New Put Plays: GDW, MXIM


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

Johnson Controls - JCI - cls: 104.64 chg: -0.88 stop: 104.99

The daily chart looks a little worse than it really is.
Yesterday shares of JCI show an intraday low close to $103 but
upon closer inspection it looks much more like a bad tick.
Unfortunately, bad tick or not, it's a moot point.  Shares of JCI
succumbed to the market wide profit taking on Monday and hit our
stop at 104.99.  That was enough to close our play and Tuesday's
session merely confirmed it.  Bullish traders may want to keep
JCI on their watch list as the 100-102 area might be strong
enough support to stop the descent and give buyers another entry.

Picked on October 30 at $107.07
Change since picked:     - 2.43
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      432 thousand
Chart =



PUTS:
*****

None


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option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

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

Apache Corp. - APA - close: 71.34 change: -0.16 stop: 70.00

Profit taking continued on Wall Street this week and in light of
the weakness in the rest of the market, our APA play has held up
rather well.  We were expecting some potential weakness near the
$73 level as the highs from early October were tested.
Unfortunately we didn't quite get there, as the highs from last
Friday were all the bulls could muster.  APA has now pulled back
a bit and is attempting to build a new base just above $71, with
the 10-dma ($70.71) rising to provide additional support.  Dips
near that area can be used for new entries ahead of a renewed
push towards $73.  So long as energy prices continue to push
higher, APA should do the same.  If the bulls can get through
that $73 level, then we can turn our focus to the potential for
APA to rally towards the top of its rising channel, now above
$76.  Maintain stops at $70, which should be below solid support
now.

Picked on November 2nd at    $69.72
Change since picked:          +1.62
Earnings Date               1/22/04 (unconfirmed)
Average Daily Volume =     1.29 mln
Chart =


---

Quest Diagnostics - DGX - close: 70.54 change: -0.79 stop: 67.50

The third consecutive day of profit taking in the broad market
finally took its toll on our DGX play, with the stock weakening
slightly and pulling back towards the $70 level.  Based on the
breakout of the bull flag pattern last week, the stock should be
able to continue upwards the same distance as the rally that
preceded that consolidation pattern.  The initial move was from
$60-68, so the breakout over $68 has upside potential to the $76
area.  That lines up nicely with our initial target of $75 and
that seems a good place to harvest some gains.  Look for a
rebound from the $69.50-70.00 area to provide for new entries.
Note that our stop is now at $67.50, which is below both the 10-
dma ($68.25) and the 20-dma ($67.78), both of which should
reinforce strong support near $68.  With today's reversal from
the upper Bollinger band (which is likely to provide near-term
resistance), momentum entries do not seem favorable at this time.

Picked on November 13th at   $69.46
Change since picked:          +1.08
Earnings Date               1/20/04 (unconfirmed)
Average Daily Volume =        875 K
Chart =


---

Mid Atlantic Medical - MME - cls: 57.20 chng: -0.65 stop: 55.55

After 2 days of being rejected from the $58 resistance level, it
looked like MME might actually manage a breakout over that level
this morning.  But the opening strength vanished faster than ice
on a hot griddle and the stock spent the remainder of the day
gradually working its way lower.  Of course, it didn't help that
UNH (connected to MME through the pending merger) was once again
turned back at the $50 mark, causing that stock to trend lower
throughout the day.  Traders still looking for an entry into the
play can consider a dip and rebound from the area of last week's
gap ($56.65-57.00) as the best possibility, but only if UNH holds
above its 200-dma ($48.34).  The upside target for the play is
still for a test of the $60-61 resistance area, at which point it
would be prudent to harvest some gains.  Maintain stops at
$55.55, just under the lows from early last week.

Picked on November 11th at   $56.65
Change since picked:          +0.55
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =        713 K
Chart =


---

Progressive - PGR - close: 77.63 chg: -0.80 stop: 74.99

It should not be any surprise to see some profit taking in PGR
with both the DJIA and the NASDAQ composite down four days in a
row.  Actually, bullish traders might see the recent weakness in
shares of PGR as a potential entry point.  The pullback has thus
far been mild and any bounce above the $76 mark is a potential
entry, although we'd prefer to see the $77 level hold as new
support.  We're going to keep our stop loss at 74.99.

Picked on November 07 at $76.25
Change since picked:     + 1.38
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      654  thousand
Chart =



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

None


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

Avid Technology - AVID - cls: 48.40 chg: -0.69 stop: 51.26

The consolidating trend in shares of AVID continues but the stock
has not yet given up its support level at the $48 mark.  Instead
we've seen selling pressure push its highs lower and lower and
the last two days have both produced failed rallies at the $50
level.  The skeptic inside us paused to wonder...why isn't AVID
weaker with the markets down four days in a row?  That's a good
question and we don't have an answer except that the tug-of-war
between buyers and sellers is about to climax as the stock coils
tighter into its wedge-pattern.  More aggressive traders can use
the failed rallies at round-number support-resistance at $50 to
initiate new positions but more conservative types may want to
wait for that $48 level to crack first.  No change in our stop
loss.

Picked on November 16 at $48.45
Change since picked:     - 0.05
Earnings Date          10/16/03 (confirmed)
Average Daily Volume:       637 thousand
Chart =


---

AutoZone, Inc. - AZO - close: 91.10 change: +0.22 stop: 94.00*new*

For a few days, it wasn't clear if AZO would head lower or
swiftly retrace its decline from above the century mark.  When
the stock rolled back over from the $93.50 area, the tide was
clearly shifting in favor of the bears, but here we see buyers
staunchly defending support near $91, just above the 11/10 low.
So here we are still unclear on whether the bulls or bears will
emerge victorious, but the goal lines have narrowed somewhat.
Ideally, we'll see AZO break below last week's low ($90.44) and
continue down towards our $86-87 target.  Aggressive traders can
use that break as an entry for a quick move down to that target.
Alternatively, a failed rebound below $93 can be used for new
entries as well, as the 10-dma ($92.98) crosses below the 50-dma
($93.10) to reinforce that resistance.  If AZO is going to
continue down as we expect, then our new stop at $94 should not
be threatened.

Picked on November 9th at    $93.30
Change since picked:          -2.20
Earnings Date              12/22/04 (unconfirmed)
Average Daily Volume =     1.13 mln
Chart =


---

Amgen Inc - AMGN - close: 58.84 chg: -1.10 stop: 61.01

Ah...nothing like a little excitement to your blood pumping.
Shares of AMGN bucked the overall market trend on Monday to close
just under the $60 level as investors reacted to the positive
phase III trial news for its kidney-disease related bone loss
drug.  That bounce continued today but shares were rebuked at the
declining 21-dma and rolled over to close near their lows for the
session.  Coincidentally, the BTK biotech index closed near its
lows for the session and was a leading sector to the downside.
From the looks of it the BTK is poised to continue the slide,
which probably makes today's failed rally in AMGN a tempting
entry point.  No change to our stop loss.

Picked on November 09 at $59.95
Change since picked:     - 1.11
Earnings Date          10/21/03 (confirmed)
Average Daily Volume:       8.8 million
Chart =


---

M.D.C. Holdings - MDC - close: 64.46 change: +0.56 stop: 67.00

Investors have had a hard time deciding what to do with Housing
stocks this week, with a failed selloff yesterday and a failed
rebound today.  Shares of MDC satisfied our entry trigger
yesterday morning with the initial dip below $64 and things
looked encouraging with the close just below that mark ($63.90).
But the bulls came out swinging today, sending the stock well
over $65 by midday before the strength faded and the stock gave
back the bulk of its intraday gains.  Those two doji candlesticks
(the first bullish and the second bearish) certainly give the
impression of indecision.  Overall, MDC still looks weak and now
that our trigger has been satisfied, we have a couple ways to
proceed.  Failed rebounds below the $66 level look viable for new
entries, especially with price being turned back by the 30-dma
($65.61) today and the 10-dma ($66.05) having now crossed below
the 20-dma ($66.49).  Alternatively another break below the $64
level can be used for aggressive entries, although we'll need to
be cautious of another bounce from the vicinity of $62.50 like
yesterday.  Maintain stops at $67, just above last week's highs.

Picked on November 16th at   $64.55
Change since picked:          -0.09
Earnings Date                1/8/04 (unconfirmed)
Average Daily Volume =        233 K
Chart =


---

Netflix Inc - NFLX - close: 46.57 change: +1.91 stop: 49.50

Almost right on cue shares of NFLX have bounced from their simple
50-dma near the $45 level.  We mentioned that this was one of the
first obstacles (support) that bears would have to conquer.  The
combination of potentially eager bulls buying technical support
or bears merely covering for a profit helped NFLX buck the
overall trend in the markets today but it should make traders
pause.  The declining 10-dma, which is approaching 48.50, should
act as new overhead resistance.  Aggressive players,
coincidentally the only type of players that should be trading
NFLX these days, can use a failed rally under the 10-dma as a new
entry point for bearish positions.  We did lower our stop
yesterday to 49.50 but if you can stand the heat then bumping it
up to 50.01 is probably a better stop.  Considering that NFLX has
been down three days in a row today could just be an oversold
bounce.  Trade carefully!

Picked on November 13 at $48.50
Change since picked:     - 1.93
Earnings Date          10/15/03 (confirmed)
Average Daily Volume:       1.7 million
Chart =



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

Golden West Financial - GDW - cls: 99.54 chg: -0.46 stop: 102.26

Company Description:
Headquartered in Oakland, California, Golden West is one of the
nation's largest financial institutions with assets of over $75
billion as of October 31, 2003. Currently operating 476 savings
and lending offices in 38 states under the World name, the
Company has one of the most extensive thrift branch systems in
the country.  (source: company press release)

Why We Like It:
Yesterday the DJIA and the NASDAQ tested their respective 50-
dma's and bounced.  That bounce was short-lived as the selling
renewed today with both major market indices closing under
technical support and suggesting more selling is on the way.
That selling was echoed in the BIX and BKX banking indices, which
have both begun to lose momentum.  We feel that loss of momentum
is also appearing in shares of GDW and it could be ready to pick
up speed.

There is no doubt that GDW has been one of the banking sector's
biggest performers.  Shares have been in a virtual non-stop rally
from spring with occasional dips to its own 50-dma.  Well now the
stock is carrying a big sign that says, "I'm still available for
profit taking."  A pull back to its 50-dma would put it near the
$95 mark, which is our first target.  There is some short-term
support near $97 but if the markets began to fall even faster
then we doubt $97 will hold.  Today's close under the round-
number support-resistance marker at $100 is certainly bearish and
looks like a decent entry point for new positions.  We're going
to start the play with a stop loss at $102.26.

Take note...there is the potential risk that GDW could surprise
us with a split announcement.  The company last announced a 3-
for-1 split on Nov. 2nd, 1999 when shares were trading near $114.
We do feel it's a very high risk for our short-term trade but it
does exist and a good reason to use a stop loss.

Suggested Options:
Stocks tend to fall faster than they rise so we like the December
puts but longer-term traders can mull over the February '04
strikes.

BUY PUT DEC  95 GDW-XS OI= 75 at $0.95 SL= --
BUY PUT DEC 100 GDW-XT OI= 47 at $2.75 SL=1.40
BUY PUT DEC 105 GDW-XA OI=  0 at $6.10 SL=4.25

Annotated Chart:



Picked on November 18 at $99.54
Change since picked:     - 0.00
Earnings Date          10/21/03 (confirmed)
Average Daily Volume:       608 thousand
Chart =


---

Maxim Int. Prod. - MXIM - close: 49.89 change: -1.24 stop: 52.30

Company Description:
MXIM designs, develops, manufactures and markets a broad range of
linear and mixed-signal integrated circuits, commonly referred to
as analog circuits.  The company also provides a range of high-
frequency design processes and capabilities that can be used in
custom design.  MXIM's objective is to develop and market both
proprietary and industry-standard analog integrated circuits that
meet the increasingly stringent quality standards demanded by
customers.

Why we like it:
After leading the NASDAQ higher these past several months, the
Semiconductor index (SOX.X) was way overdue for some serious
profit taking as of last week and it got kicked off on Thursday.
Last week's highs near $530 were a logical place for it to get
started, being strong resistance from 2001-2002, but we needed to
see more than a 2-day decline to have some conviction that this
downward move might actually have some life in it.  The SOX has
now broken back inside its 9-month ascending channel and it looks
like a retest of the bottom of the channel (currently $462) is in
order.  That ought to give us sufficient downside for a nice
bearish play if we can find a stock that is trading similarly,
don't you think?  MXIM looks like a viable candidate, as the
stock broke near-term support at $50 today, closed back inside
its own ascending channel that it had broken above a couple weeks
ago.  This looks like the beginning of a solid bearish move that
ought to take the stock back to strong support in the $45-46
area.  Note that the midline of the stock's multi-month channel
is currently just below $46 and the 50-dma is at $45.40.  That
would certainly hint that this level is a likely near-term
target.

Note that this is an aggressive play, with the PnF chart still on
a Buy signal, although currently in a column of O's.  Note also
that the first solid support on the PnF chart is also at the $45-
46 area.  Maybe we're onto something here.  On the way down, MXIM
will likely find near-term support at the 20-dma ($49.31) and the
30-dma ($47.85).  Initially we were going to use the $50 level as
a trigger, but since the stock closed below that mark today,
we'll consider it already triggered and seek entries accordingly.
Momentum entries can be taken on a break below today's intraday
low of $49.83, while traders looking to get in on a failed bounce
can target a rollover from between the top of the channel
($50.90) and the 10-dma ($51.32).  Due to the aggressive nature
of the play, we're going to use a tight stoop at $52.30, just
over yesterday's intraday high.

Suggested Options:
Aggressive short-term traders can use the December 45 Put, while
those with a more conservative approach will want to use the
December 50 put.  Our preferred option is the December 50 strike,
which gives a nice balance due to being at the money and having
plenty of time until expiration.

! Alert - November options expire this week!

BUY PUT DEC-50 XIQ-XJ OI=1133 at $2.55 SL=1.25
BUY PUT DEC-45 XIQ-XI OI=1218 at $0.85 SL=0.40
BUY PUT JAN-45 XIQ-MI OI=1823 at $1.50 SL=0.75

Annotated Chart of MXIM:



Picked on November 18th at   $49.89
Change since picked:          +0.00
Earnings Date                1/27/04 (unconfirmed)
Average Daily Volume =      6.43 mln
Chart =



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The Option Investor Newsletter                  Tuesday 11-18-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: Put - GDW
Traders Corner: Sliding Down a Slippery Slope


*********************
PLAY OF THE DAY - PUT
*********************

Golden West Financial - GDW - cls: 99.54 chg: -0.46 stop: 102.26

Company Description:
Headquartered in Oakland, California, Golden West is one of the
nation's largest financial institutions with assets of over $75
billion as of October 31, 2003. Currently operating 476 savings
and lending offices in 38 states under the World name, the
Company has one of the most extensive thrift branch systems in
the country.  (source: company press release)

Why We Like It:
Yesterday the DJIA and the NASDAQ tested their respective 50-
dma's and bounced.  That bounce was short-lived as the selling
renewed today with both major market indices closing under
technical support and suggesting more selling is on the way.
That selling was echoed in the BIX and BKX banking indices, which
have both begun to lose momentum.  We feel that loss of momentum
is also appearing in shares of GDW and it could be ready to pick
up speed.

There is no doubt that GDW has been one of the banking sector's
biggest performers.  Shares have been in a virtual non-stop rally
from spring with occasional dips to its own 50-dma.  Well now the
stock is carrying a big sign that says, "I'm still available for
profit taking."  A pull back to its 50-dma would put it near the
$95 mark, which is our first target.  There is some short-term
support near $97 but if the markets began to fall even faster
then we doubt $97 will hold.  Today's close under the round-
number support-resistance marker at $100 is certainly bearish and
looks like a decent entry point for new positions.  We're going
to start the play with a stop loss at $102.26.

Take note...there is the potential risk that GDW could surprise
us with a split announcement.  The company last announced a 3-
for-1 split on Nov. 2nd, 1999 when shares were trading near $114.
We do feel it's a very high risk for our short-term trade but it
does exist and a good reason to use a stop loss.

Suggested Options:
Stocks tend to fall faster than they rise so we like the December
puts but longer-term traders can mull over the February '04
strikes.

BUY PUT DEC  95 GDW-XS OI= 75 at $0.95 SL= --
BUY PUT DEC 100 GDW-XT OI= 47 at $2.75 SL=1.40
BUY PUT DEC 105 GDW-XA OI=  0 at $6.10 SL=4.25

Annotated Chart:



Picked on November 18 at $99.54
Change since picked:     - 0.00
Earnings Date          10/21/03 (confirmed)
Average Daily Volume:       608 thousand
Chart =



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

Sliding Down a Slippery Slope
By Linda Piazza

Bollinger bands, envelopes, channels:  whatever your preference,
catching moves from one boundary to another can be profitable.
What about those times when prices slide along a band or envelope
instead of rebounding toward the opposite side?  No one wants to
be stuck on the wrong side of a trade while prices slide along a
slippery slope.

OEX 30-Minute Chart with 1.35% Envelope Surrounding a 21-pma




Is there a way to identify those times when prices will likely
slide rather than rebound?  What affects the rate at which prices
rebound?  One possibility appears obvious:  the slope of the
envelope, channel, or band at the time price hits it.

To test that thesis, I used a 1.35% envelope surrounding a 30-
minute 21-pma on the OEX.  I gathered data for each first touch of
that outer envelope for a year, beginning in October, 2002 and
continuing through the end of September, 2003.  I calculated slope
as a change in envelope value (y) divided by a change in time (x).
The y-portion of the slope was the difference between the value of
the touched envelope one bar before the touch and at the time of
the touch.  I divided that result by the time span.  That
established a slope with a price per minute label.  Determining
the strength of the rebound proved more difficult, but for this
test, I used the number of 30-minute bars between a first touch of
the outer envelope and the next touch of the central 21-pma as the
most objective and easily calculated measure.

Interestingly, the year’s data resulted in an even number of data
collection points for the upper and lower envelope boundaries:  48
for each.  The average number of 30-minute bars between the first
outer envelope touch and the next central average touch calculated
to be 11.83 bars, almost six hours.  Separating touches of the
upper envelope boundary from the lower boundary demonstrated some
differences.  Touches of the lower envelope boundary resulted in
an average rebound of 10.79 bars’ duration.  Touches of the upper
envelope boundary resulted in an average rebound of 12.88 bars’
duration.

While it may prove helpful to know how many 30-minute bars it
might usually take the OEX to rebound to the central average, that
wasn’t the subject of this inquiry.  This test hoped to pinpoint
the impact of the envelope's slope on the quickness of the
rebound.  If I’d had any expectations previous to the test, I
would have expected prices to rebound most sharply when slope
approached zero (the envelope band was horizontal) and prices to
slide if the channel sloped at the time of the touch.  I would
have expected the data to show a critical point at which the slope
would be too steep, and a rebound would also tend to occur.

Using a scatter chart to display all 96 data points revealed a
different-than-expected concentration.  If my original assumptions
had been correct, the scatter chart would have been shaped like an
elongated eye mask, with data points pinched in as they
concentrated at a low number of rebound bars (quick rebound) for a
slope near zero, widening on either side of zero, and then
pinching in again as slope moved farther away from zero in either
direction.  Instead, the shape was vaguely like that of megaphone,
concentrating near 10 when slope was most negative and widening as
slope grew most positive.

Scatter Chart Showing All Data Points:




An analysis of this chart reveals that when the envelope sloped
down (negative slope), rebounds gathered fairly reliably near 10.
When the envelope sloped up (positive slope), rebounds scattered
more widely.  No correspondence could be found between slope and
the strength of the rebound, at least when the slope was positive.
No concentration of data points pinched together near zero,
depicting quick rebounds.

Because rebounds concentrated differently when slope registered
negative values than when it registered positive values, the next
question to be asked was whether rebounds concentrated differently
after hitting the upper and lower envelope boundaries.  A scatter
chart of data points collected during the 48 touches of the lower
envelope demonstrated some of the same patterns seen in the chart
of all data points.  When slope registered negative values, data
points tended to collect near the calculated 10.79 average for
touches of the lower envelope boundary.  When slope registered
positive values, data points scattered more widely.

Scatter Chart Showing Touches of the Lower Envelope:




In contrast to the pattern seen on the previous chart, the scatter
chart depicting the 48 touches of the upper envelope showed no
discernable pattern.  These data points scattered widely with no
particular concentration.

Scatter Chart Showing Touches of the Upper Envelope:




After examining the charts depicting lower and upper envelope
touches, I concluded that when the envelope slanted down (negative
slope) and prices touched the lower boundary, rebounds tended to
be faster.  Thinking about that tendency in relationship to the
bullishness that characterized some periods of this year, I
wondered if the quick rebounds off the lower envelope boundary
owed more to that bullishness than to anything relating to the
slope of the envelope.  To test that thesis, I divided the year’s
data points into four quarters:  Q4 2002, Q1 2003, Q2 2003, and Q3
2003.

Q4 2002 showed a heavy concentration of data points near and below
10, showing relatively quick rebounds from both upper and lower
boundaries.

Scatter Chart Showing Q4 2002:




A volatile quarter, Q4 2002 produced numerous touches of both the
upper and lower envelope boundaries, with prices dropping quickly
early in the quarter and then climbing steeply after that drop.

OEX Daily Chart of Q4 2002




Because the values on the Q4 2002 scatter chart proved similar as
slope varied from -2 to +2, the quick rebounds did not seem
dependent on the slope or on whether the upper or lower envelope
was touched, but rather seemed a product of the volatility of the
markets.

Other quarters backed up this observation.  For example, many
traders commented on the range-bound trading in Q3 2003.  This
quarter produced fewer touches of the envelopes, so fewer data
points.  This quarter also produced the most widely scattered data
points.

Scatter Chart of Q3 2003:




In summary, although the various scatter charts of all data points
across the entire year showed some correlation between quick
rebounds and touches of the lower envelope boundary when the
envelope sloped down, that result appeared to be due to Q4 2002's
results, varying widely from quarter to quarter.  The inevitable
conclusion was an obvious one.  When markets are volatile, they
rebound from outer envelope boundaries more quickly.
Unfortunately, instead of slope-dependent results, this test
revealed volatility-dependent results.  It may therefore be
dangerous to draw too many conclusions about likely price action
based on whether an envelope, Bollinger band, or channel slopes up
or down, as many of us are prone to do.  That’s the bad news.  The
good news?  We don't have to spend a whole lot of time diligently
calculating slopes during fast-moving markets.


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