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Daily Newsletter, Monday, 11/24/2003

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The Option Investor Newsletter                   Monday 11-24-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Techs Soar as Bulls Buy The Dip
Futures Wrap: Dollar Rescue, Flagpole Rally
Index Trader Wrap: A good day for the consumer!
Traders Corner: NQ-ES Spread


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     11-24-2003            High     Low     Volume Advance/Decline
DJIA     9747.79 +119.26  9749.35  9629.87 1.59 bln   2188/ 666
NASDAQ   1947.14 + 53.26  1947.14  1907.29 1.76 bln   2249/ 880
S&P 100   519.31 +  7.54   519.33   511.77   Totals   4437/1546
S&P 500  1052.08 + 16.80  1052.08  1035.28
RUS 2000  539.51 + 13.58   539.51   525.93
DJ TRANS 2898.98 + 53.66  2899.54  2846.28
VIX        17.44 -  1.54    18.98    17.19
VXO        17.15 -  2.74    19.13    17.06
VXN        27.07 -  2.01    29.80    26.77
Total Volume 3,730M
Total UpVol  3,077M
Total DnVol    604M
52wk Highs     549
52wk Lows       32
TRIN          0.48
PUT/CALL      0.65
*******************************************************************

Techs Soar as Bulls Buy The Dip
by James Brown

Stocks rushed higher on Monday as investors blew a collective
sigh of relief.  The weekend was a quiet one with no terrorist
events being reported as we approach the close of Ramadan, which
should end tomorrow.  This left investors with one focus and that
was the host of economic reports due to be announced tomorrow and
Wednesday.  The underlying theme today was "buy the dip" as UBS
said investor optimism rose to 20-month highs.  Investors are
expecting the economic news this week to be positive and reaffirm
that the world's largest economy is still on its path to
recovery.

Asian markets were relatively flat but European exchanges
reported strong gains.  The English FTSE rose 1.47% and the
German DAX rocketed 2.6%.  Both exchanges have bounced strongly
the last few days with the German DAX up more than 4% from its
recent intraday lows near 3590.  Bulls took their cue from their
European counterparts and U.S. exchanges witnessed a very broad-
based rally.  The only sector not in the green today was the XAU
gold & silver index, which closed down 1.59%.  December gold
futures fell about $5 to settle at $391.50 an ounce after the
U.S. dollar improved against the yen and the euro.

The buying pressure was strongest in technology stocks with the
NASDAQ 100 (NDX) index rising 3.34%.  All of the major
technology-related sector indices ($SOX, $NWX, $INX, $GSO, $GHA,
$DDX) added 3 percent or better with a few adding close to 4
percent in today's session.  Investors also saw strong gains in
airlines (+3.85%), biotech (+3.95%), homebuilders (+3.72%),
retail (2.59%) and the HMO index (+2.54%).  The rise in the
DJUSHB home construction index broke through the 600 level to
close at new all time highs.  By the closing bell the DJIA added
119 points to settle at 9747.  The NASDAQ Composite added 2.81%
(53 points) to close at 1947 and the S&P 500 added almost 17
points to close at 1052.

Market internals were very bullish.  Advancing stocks outnumbered
declining stocks 21 to 7 on the NYSE and 22 to 9 on the NASDAQ.
The only big losses were in the volatility indices with the VXO
(old VIX) falling 13.77% and the VIX down 8.1%.  The up/down
volume numbers were very optimistic with up volume approximately
5 times down volume across both exchanges.  Unfortunately, total
volume was rather mild and will probably continue to worsen as we
head toward the weekend in this holiday-shortened week.

Chart of the DJIA:




Chart of the NASDAQ:




Chart of the S&P 500:




Surprise, surprise!  As if the huge gains today didn't say it
enough but UBS reported that investor optimism has soared to 20-
month highs.  The UBS Index of Investor Optimism jumped to 93 in
November, a gain of 24 points.  According to the survey 57
percent of investors are optimistic about the country's economy
and 60 percent feel the economy to be in a recovery.  All of this
pent up optimism is great but it sets us up for one heck of a let
down if any of the major economic reports this week fail to
deliver.  Contrarian investors, who like to run opposite the
crowd have to be cringing, especially as the volatility indices
plummet today.

Tomorrow's economic reports will take center stage with the Third
Quarter Preliminary GDP numbers, the Redbook Retail Sales report,
the October Existing Home Sales figures, and the November
Conference Board Consumer Confidence numbers.  Paramount on the
list is the GDP figures.  It was only a few weeks ago that the
Commerce Department reported a 7.2% annual pace from July through
September.  Now economists are estimating that the government
could revise these numbers even higher, not lower as previously
thought.  Some estimate that the new upward revision could put
GDP at 7.8 to 8.0 percent growth.  This would be the strongest
quarter since early 1984 where GDP grew at 9.0 percent.
Furthermore the National Association for Business Economics
believes the economy may expand by 4.5% in 2004, an upward
revision from their previous 4.0% forecast.

There were several companies making headlines today.  Boeing (BA)
led the list as it fired its CFO Mike Sears "for cause".
Evidently, Sears had unethically hired one Darleen Druyun, an Air
Force official.  The two had communicated about future employment
with Boeing before Druyun removed herself from acting as a
government official in business deals regarding Boeing.  Druyun
was apparently involved in BA's tanker-leasing deal and the Joint
Strike Fighter contract.  Shares of BA closed up 3 cents on the
session.

Time Warner (TWX), previously known as AOL Time Warner, reported
that it had sold its music business for $2.6 billion.  Buying the
music division was an investor group lead by Thomas H. Lee
Partners, Bain Capital, Providence Equity Partners and Edgar
Bronfman Jr.'s Lexa Partners.  Shares of TWX rose better than 2
percent on the news.

Jumping more than 5% today was Boston Scientific (BSX).  Weeks
ago Johnson & Johnson (JNJ) tried to get a preliminary injunction
against Boston Scientific to stop development and marketing of
its Taxus drug-coated stent, which would compete with JNJ's
Cypher stents.  The majority of analysts did not expect JNJ to
win the suit but it had kept a lid on BSX's share price.  Today a
U.S. District Judge has denied JNJ's request.  Analysts believe
drug-coated stents could be a $4 billion business in the U.S. by
2005 and BSX is going to be stiff competition for JNJ.

Another Dow component making the rounds was Wal-Mart (WMT).  WMT
affirmed that its November same-store sales were tracing inline
with estimates for 3 to 5 percent growth.  Most believe that this
holiday season will probably be the best since 1999.  Recent
earnings announcements from a number of apparel stores have been
strong and investors have high hopes the trend will continue.

Tech investors will also be happy to hear that Novellus (NVLS),
the manufacturer for tools used to make semiconductors, raised
its earnings guidance after the closing bell.  NVLS' CEO told
investors in a mid-quarter update that expected orders were on
track to rise 25% to $275 million.  The company said total
revenues for the quarter should actually come in at $220 million,
topping analyst estimates of $217 million.  NVLS raised their net
income guidance to the top of their range at 6 cents, a penny
above consensus estimates.  The SOX added 3.6% today but given
its bounce from the rising 30-dma this NVLS news could propel it
to current overhead resistance near the 530 level.

This hasn't been the best year for using historical trends to
time market performance but once again traders are faced with a
strong history for bullishness during Thanksgiving week.  The
general concern is that volume tends to dry up as market players
go home for the holiday.  The low volume will then exacerbate
moves in either direction.  The real danger here is the numerous
economic reports on Wednesday, one of the lowest volume days of
the week.  A positive surprise and we may or may not get the pop
higher one might be expecting.  Yet a negative surprise could
catch many off guard and quickly send us lower.  In spite of my
cautionary tone today's gains, which erased most of last week's
losses, confirms that buyers are still there.  The upward trend
hasn't been broken just yet.  Another couple of positive days and
we could see NASDAQ 2000 by Thanksgiving.


************
FUTURES WRAP
************

Dollar Rescue, Flagpole Rally
Jonathan Levinson

The US Dollar Index bounced more than 10 basis points to clear
91.50, drilling down gold and the CRB in the process.  Treasuries
declined and equities advanced.

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 pulled back from the edge of the abyss today,
cranking higher from a low just north of 90.40 to hold the 91.60
level for the bulk of the cash session.  The CRB got hammered for
3.58 points, closing at 246.23, despite strength in natural gas,
copper and live cattle futures. Gold and silver fell.


Daily chart of December gold


December gold found support at 390.00, the low of the day, and
spent most of the session trading both sides of 392, trading
391.50 as of this writing.  The move triggered a bearish kiss on
the oscillators, and appears to have capped the upphase on the 10
day stochastic.  If today's losses aren't reversed tomorrow, a
downphase from here confirms a large bearish divergence on the
Macd oscillators.  384, 380 and 371 are the immediate support
levels below, and a break below 365 will be a major failure if it
occurs.


Daily chart of the ten year note yield


Treasuries abruptly reversed course today, selling off against
the dollar and equity strength.  The ten year note yield added 8
basis points to close at 4.227%.  The move was not sufficient to
abort the downphase on the TNX and would appear corrective except
for the sharpness of the gap up and strength of the move.  4.4%
is price confluence coinciding with the apex of the broken
pennant trendlines, and the outlook remains bullish for ten
year bonds with the yield below that level.


Daily NQ candles


It was nothing short of a miraculous rescue executed on the NQ,
with the broken wedge trendline regained on today's advance.  The
daily cycle downphase was terminated, and while an actual buy
signal was not printed, any further strength from here will do
it.  1400 resistance fell with relatively little struggle, and
all of last week's losses were reversed by today's 2.68% gain.
Note that every daily buy signal on the 10 day stochastic since
July has resulted in new highs for the year.

On the other hand, even if the stochastic does begin a new
upphase from here, it printed the first lower low since July on
this downphase.  Today's move stopped right at strong resistance
commencing at 1418.  As we shall see below, the usually
trustworthy 300 minute stochastic left off on a sell signal.
Unless it begins trending in overbought territory, we should see
at least a pause to the current run.


30 minute 20 day chart of the NQ


Today opened on a gap higher, ran straight to a consolidation
zone just north of 1400, began to roll over, and then melted up
to new highs.  The bullish divergence and ongoing 30 minute
upphase from Friday hinted at the move, but the strength was
surprising, as was the frailty of upside resistance levels.  As
can be seen on this 30 minute chart, the 300 minute stochastic
doesn't usually trend for long, and it's as overbought as it's
been in several weeks.  The afternoon's sudden launch above the
consolidation range left a small bearish divergence on the 300
minute stochastic.  I'd expect a pullback from here, except for
the preliminary buy signals on the daily cycle oscillators in the
chart above.  With the potential for a retest of the year highs
implied by that signal and the bull wedge breakout here on the 30
minute chart, it's safer to wait for either a breakdown to short,
or a move above 1425 to evaluate the conditions.  Given the speed
of today's opening moves, it could happen very quickly.


Daily ES candles


ES also wiped last week's slate clean, breaking and nearly
holding 1050.  As on the NQ, the rescue was nothing short of
miraculous, and bailed out a week's worth of trapped bulls almost
in the first hour alone.  If tomorrow proves this bounce to be
anything more than a flash in the pan, we'll have a buy signal on
the daily stochastic, setting us up for a retest of the broken
trendline at 1056 on our way to 1065.  To the downside, 1044 is
the beginning of support.


20 day 30 minute chart of the ES


The upper wedge trendline on last week's bull wedge was broken on
the opening gap up and never retested.  Upside breakaway gaps,
particularly above resistance on bullish chart patterns, are not
bearish.  If I were to guess at a breakout targeting the upside
completion of a bull wedge, one such as we saw today would be it.
The upside target here is 1064.50.  That said, the end of
session's bearish stochastic divergence is not to be ignored, as
is the failure back below 1050.  Again, my guess would be
downside immediately from here.  However, without the protective
cover of a daily cycle downphase, shorts are much riskier here,
and I'm inclined to wait to see the fate of the daily cycle
before placing any bets beyond short term scalps based on
intraday setups.  Once again, 1044 is the beginning of support,
with next resistance above 1050 at 1055.


150-tick ES


Anatomy of a flagpole rally:  vertical move higher, followed by
excruciatingly narrow range lasting hours to days right at the
top of the move.


Daily YM candles


Nothing to add on YM, which most closely resembles ES.  Support
is at 9712, 9700 and 9690.  Resistance 9750, followed by 9780.


20 day 30 minute chart of the YM



We saw abrupt reversals of last week's trends, with the dollar
and equities up, treasuries and metals down.  Note that the
reversal in treasuries paled in comparison to that of equities,
and I don't expect equities to get far at the expense of
treasuries.  There are many reasons to doubt the solidity of
today's equities rally, and we might have seen the top, but until
that bullish kiss on the daily oscillators is resolved it will be
risky to place bets in either direction.  Hopefully, tomorrow
will favor us with a decisive move in either direction, and we'll
be able to locate lower risk entries in line with both the longer
and shorter cycles.  With the weekly cycles now bearish, the
conditions are present for today's gains to fizzle quickly.  See
you tomorrow morning!


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

A good day for the consumer!

It was a good day for the consumer as well as the investor as the
major indices recouped nearly all of last week's losses on
Monday as a rebound in the dollar underpinned a broad-based rally
ahead of tomorrow's important economic data.

The foreign currency weighted U.S. Dollar Index (dx00y) 91.60
+1.07% jumped nearly a full point and had the dollar showing
strength in today's trade.  The dollar was up 0.7% against
the yen at 109.43, while the euro fell 1.1% percent at
$1.1772.  Last week, the dollar touched an all-time low in euro
trading.

Tomorrow, investors will get a revised look at third-quarter
gross domestic product, with economists' forecasting the
economy to have grown at a more robust 7.6% annual rate of
growth, after a preliminary reading showed the economy grew at a
7.2% rate.

Consumers received some positive news out of lawmakers today.

Legislation that would add prescription drug coverage to the
Medicare program overcame two procedural hurdles in the Senate
today, and moved closer to a final vote that's expected to result
in the biggest expansion of the popular entitlement program in
its 38-year history.

An effort led by Senator Edward Kennedy, D-Mass., to filibuster
the bill fell short.  The Senate voted 70-29 to limit debate,
easily exceeding the 60-vote supermajority needed to end a
filibuster.  Senator Kennedy, who backed an earlier Senate
version of a prescription drug bill, said the final version of
the bill produced by House-Senate negotiators goes well beyond
creating a drug benefit, providing billions to drug companies and
HMOs while instituting competition provisions that could
undermine the entire Medicare program.

Investors responded by pushing the HMO Index (HMO.X) 808.16
+2.54% to an all-time high, while the Morgan Stanley Health
Provider Index (RXH.X) 355.91 +1.53% and Pharmaceutical Index
(DRG.X) 321.79 +1.3% found gains in today's rather bullish
session.

Senate Majority Leader Bill Frist, R-Tenn., predicted the drug
bill would eventually pass with an "overwhelming bipartisan
majority," and criticized Kennedy and other Democrats for using
parliamentary maneuvers to delay a vote.

As lawmakers scurried to push through legislation for a Medicare
drug bill ahead of the Thanksgiving holiday here in the U.S.,
consumers received an early holiday gift in phone-number
"portability," while some telecom service providers and their
investors viewed the Federal Communications Commission's
finalized portability rules as a possible lump of coal.

The portability law, which lets customers keep their existing
phone numbers when switching service, will likely boost carriers'
expenses and limit revenue growth for years to come, industry
analysts say.  Wireless stocks have suffered as a result, falling
as much as a third since the Federal Communications Commission
finalized portability rules on October 7, 2003.

Rudy Baca, a wireless analyst at market researcher Precursor and
a former FCC official said, "There aren't going to be any big
winners from this.  It's all about cost."

The immediate effect of the law, which takes effect today, is
expected to intensify already-stiff competition in the wireless
and traditional phone markets.

The North American Telecom Index (XTC.X) 533.72 +0.69% edged
higher by 3.6 points, while the broader Combined Telecom Index
(IXTCX) 171.53 +2.71%, which contains a greater number of
wireless service providers rose more than 4 points.  The
Networking Index (NWX.X) 248.46 +3.13% showed a larger percentage
gain as it would related to some telecom-equipment stocks
benefiting from the number portability law.

The wireless business of Verizon (NYSE:VZ) $32.50 +0.93% and
Nextel Communications (NASDAQ:NXTL) $24.09 +4.69% are least
likely to be hurt by portability, industry analysts say.

Verizon (VZ) is the No. 1 U.S. wireless carrier, and has the
nation's largest network and a technology viewed as superior to
most of its rivals.  Still, Nextel (NXTL) is seen as having a
loyal customer base for its key features, such as its walkie-
talkie-like service.

Investors have shown a greater willingness to shun shares of
Sprint PCS (NYSE:PCS) $4.61 +5.97%, and AT&T Wireless (NYSE:AWE)
$7.31 +4.42%, which are down a respective 26% and 17% since their
October 7, 2003 close.

After trading their WEEKLY S2s in our pivot matrix last week, the
major indices jumped higher today and trade up through their
WEEKLY Pivots and WEEKLY R1s.  While today's move above the
WEEKLY Pivot was rapid at the opening bell, this week's trade
begins to look similar to that found the last week of October
(10/27-10/31) after the major indices had traded their lower
WEEKLY S1s the week prior.

Here is a quick review of prior WEEKLY pivot analysis retracement
and how the major indices traded AFTER a trade at WEEKLY S2
support was found.

WEEKLY Pivot Matrix - 10/20/03-11/14/03 periods



We've made similar WEEKLY pivot matrix observations as it relates
to "where" the major indices traded in a prior week, and what
levels were traded, and not traded in following weeks.

For the week of 10/20-10/24 the major indices traded at and below
their WEEEKLY S2s and then rebounded the following week of 10/27-
31, seeing trade at or above their WEEKLY R1s, but came shy of
their WEEKLY R2s.  ONLY the BIX.X, which is a sector within our
matrix traded its WEEKLY R2 for the week of 10/27-10/31 (take
note of this for current week).  The above would be a study
period for the last time, since last week (11/17-11/21), that the
major indices traded their WEEKLY S2 and where me might look for
the major indices to trade somewhere in-between their WEEKLY R1-
R2 this week, which after today's trade is not a stretch to the
imagination.

One thing I'm going to observe from the above, is that from
11/03-11/07, I'm going to note how the major indices highs for
that week (represented in the bottom WEEKLY Matrix and
High/Low/Weekly Close) had the High coming very close to the
WEEKLY R2s of "For 10/27-10/31 WEEKLY."  We might also note that
there was little change in the major indices closing values from
10/31 (maybe similar to the upcoming 11/28/03 close?) and 11/07.

What these observations have me thinking is that THIS WEEK may
not a good point for BEARS to be looking for bearish entries,
unless they are fully assessing current upside risk to a trade
somewhere between WEEKLY R1 and WEEKLY R2, with some potential
bullish carryover into next week.  While there is no guarantee
that past history will repeat itself this week, we can check this
week's new pivot matrix levels to make further determination if a
historical tendency for the markets to trade bullish into the
Thanksgiving holiday, may indeed be represented in the pivot
matrix analysis.

While it may seem "late" at this point, bulls might look for
bullish entry points back near the WEEKLY pivot.

Here's a look at the pivot matrix for Tuesday, and this WEEK's
new pivot levels.

Pivot Matrix Analysis -



The GDP data for Q3 is due out before the markets open for
trading, and I see some correlative near-term support at the
DAILY Pivot and WEEKLY R1 for the SPX, with similar correlation
showing up in the QQQ.

Resistance should be present early at the DAILY R1 and WEEKLY R2
correlative points highlighted.

Then at 10:00 AM EST, November consumer confidence (forecast is
85.0 versus prior 81.1) and October existing home sales (forecast
is 6.53 million) versus prior 6.69 million units are scheduled
for release.

About the only more formidable or correlative level of support
that I see in the matrix would be in the DIA at its MONTHLY Pivot
and WEEKLY Pivot, where today's trade saw the DIA gap higher, and
low session trade was right at its WEEKLY Pivot.

In Thursday evening Index Trader Wrap, we thought Thursday's
trade may have been due to option expiration, and while I was out
of the office on Friday and was not observing Friday's trade, I
do think today's strength in the Dollar Index ($dx00y) may have
had some short-term bears running for cover, that may have been
looking for some further dollar weakness from last Wednesday,
that may have been shorting on Thursday and Friday based on an
interpretation that some of the intra-day weakness seen in the
latter 2-days of last week's trade was more than option related
trade.

Here's a look at the major indices within our pivot matrix where
strong moves back above the WEEKLY Pivots and WEEKLY R1's were
seen today.  One of the key drivers in my opinion was the rebound
in the dollar, which pressed some shorts into covering, in what
tends to be a bullish week for stocks.

S&P 500 Index Chart - Daily Intervals



Today's trade saw a net loss of 1 stock to a point and figure
sell signal in the broader S&P 500 Bullish % ($BPSPX).  Still
"bull confirmed" status at 78.60%.

S&P 100 Index Chart - Daily Intervals



Today's trade saw not net change in the narrower S&P 100 Bullish
% ($BPOEX).  Still "bull correction" status at 78%.

Dow Industrials Chart - Daily Intervals



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

NASDAQ-100 Index Tracking Stock (QQQ) - Daily intervals



Today's trade saw no net change in the NASDAQ-100 Bullish %
($BPNDX).  Status remains "bear confirmed" at 68%.

Jeff Bailey


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NQ-ES Spread

I first read about the spread between the Nasdaq 100 and  the
S&P500 in the Active Trader Magazine. The article, titled "The
Telltale Spread," was written by Thom Hartle, a writer whose work
I have come to highly respect over the years but this one in
particular aroused my interest because it was not a mainstream
tool and used divergences and I love trading divergences.

But before we get into the mechanics of the spread, let's talk
about the relationship of the S&P500 and the NDX and see why this
could be something of interest to us. This discussion could use
the S&P500 and the Nasdaq 100 index or the futures. Since I am
futures trader I will use the S&P500 e-mini (ES) and the Nasdaq
100 e-mini (NQ).

NQ is the futures on the Nasdaq 100 index (NDX), which includes
100 of the largest domestic and international non-financial
companies listed on the NASDAQ Stock Market. This index is based
on market capitalization with a large technology component,
whereas the S&P500 is a much broader index of the large cap
market. And it is because of the technology component in the NDX
that makes the spread interesting.

In an expanding economy, technology should be leading the way and
NDX (or NQ) should rise at a faster rate than the larger less
technologically laden ES. This would put the NQ-ES spread in an
uptrend. The reverse is also true. When the economy starts to
contract, money starts to find its way to the safe haven of
financial stocks and out of the volatile technology stocks
resulting in NQ falling at a faster rate than ES. This would put
the NQ-ES spread in a downtrend.

In other words an uptrending spread is bullish and a downtrending
spread is bearish.

The formula for this relationship is (NQ + ES) / ES. I found the
best way to get a handle on how the formula works was to plug some
numbers in for ES and NQ.

ES   NQ   Spread

100  100  100 + 100 = 2 Both markets equal
            100
50   100  50 + 100 = 3 NQ stronger in relation to ES - spread
rises       50
25   100  25 + 100 = 5 NQ stronger in relation to ES - spread
rises        25
100  50   100 + 50 = 1.5 NQ weaker in relation to ES - spread
declines    100
100  25   100 + 25 = 1.25 NQ weaker in relation to ES - spread
declines    100


On a weekly chart I have put NQ in the top panel, ES in the middle
panel and the spread in the bottom panel and all with a simple 10
MA in cyan.





The green circles on the above chart show you the market lows in
October 2002. NQ was making lower lows but ES was only making
equal lows. As you can see this market movement was supported by
what you would expect in the spread for it was making lower lows
also. But something interesting happened within those circles that
could have alerted you to a potential reversal or at least NQ
building strength. Notice when the spread crossed its 10MA,
neither ES nor NQ crossed their respective 10MAs until about 1
week later.  This marked the beginning of the biggest bull run
since March 2000.

Next I would like to draw your attention to the red circles. In
the top panel you will notice NQ dipping below its 10MA and ES not
only dipping below its 10 MA but also making a lower low. Now
notice what the NQ-ES spread did, it hardly even printed below its
10MA and as a matter of fact was making higher highs. This could
have alerted you to the fact that this dip was only temporary.

Another way to gauge strength or weakness is to use swing highs or
lows. I have placed yellow trendlines in the chart drawn from
corresponding swing lows in NQ, ES and the spread. If the spread
trades below its last swing low before either NQ or ES this is
showing NQ weakness in relation to ES and could mark a tradable
retracement.

Let's drill down to a daily chart and take a look at some of these
observations a little closer.





I have placed the red circles from the weekly chart on the daily
chart so you can see what it would look like from the daily
perspective. ES is making lower lows while the spread was charging
upward making higher highs, a very good clue we were going to see
more upside.

If you examine the daily chart you can see most swing lows or
swing highs were mirrored by a swing high or low in the spread.
For example the timeframe in the green circles you see NQ and ES
making equal highs as does the spread. Then ES and the NQ both
make lower lows as does the spread, which is the norm for the NQ-
ES relationship.

Now let's start looking for clues in the current market that will
tell us there is more upside or we are starting the retracement so
many are saying is due. So I don my Sherlock hat and pick up my
magnifying glass and start examining the current ES/NQ/spread
movement. First of all look at the yellow trendlines (which happen
to be the same yellow trendlines I have on the weekly chart). I
have started the trendline at the October 24th swing low and as
you can see the spread has traded below its trendline whereas NQ
and ES have not, something that was not obvious on the weekly
chart. This could mean we are in for a tradable retracement.





Let's drill down to the 60-minute (pick up a magnifying glass with
greater magnification) and see if we can get a clearer picture. I
have put the yellow trendline from the October 24th swing low on
this chart also and it has become very clear the spread has traded
below it while NQ and ES have not. This is not what you would want
to see if you were short-term bullish. Let's look for other clues
that will tell us we may be in for a period of bearishness. I have
also placed a red trendline at the November 11th swing low and I
see ES, NQ and the spread all trading through their respective
trendlines at about the same time. But what happened after started
to paint a much more bearish picture. ES not only traded back the
trendline it traded above it. NQ only traded up to it but not
above it but the spread fell quite a bit short of touching its
trendline on a return visit.

I meant to conclude this article with a discussion of how I use
the spread in my daytrading but have run out of time. However, I
would like to say I use it in almost the same way but on the 5
minute chart instead of the weekly/daily/60 minute.

If the spread theory holds up we are seeing NQ weakness and as I
discussed earlier changes the market tone to bearish.

Now, of course, this is not a trading system for I have not
discussed money management, entry, exit or any of the really
important aspects of trading and investing but it can be one tool
in your trading arsenal to help you determine overall bullishness
or bearishness.

Remember trade your plan and plan your trade.

Jane Fox


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The Option Investor Newsletter                   Monday 11-24-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: HOV
Dropped Calls: MME
Dropped Puts: None
Play of the Day: Call - UTX
Watch List: Another Round of Gains

Updated on the site tonight:
Market Posture: Last Week Officially Never Happened


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*****************
STOP-LOSS UPDATES
*****************

HOV - call
Adjust from $81.99 up to $86.49

*************
DROPPED CALLS
*************

Mid Atlantic Med. - MME - cls: 60.15 chng: +0.85 stop: 57.75

As noted over the weekend, we wanted to use a rally into the $60-
61 area to manage favorable exits from our MME play.  Well, with
the broad market in strong rally mode, it didn't take long before
the stock was above the $60 level this morning.  Then after a
brief consolidation, MME surged a bit higher to hit $60.30 before
closing near the end of the day.  Could the stock just continue to
power higher from here?  Certainly.  But we're going to stick with
the disciplined action plan we initiated a couple weeks ago.  We
played the rebound from just below $56, targeting a return to the
late October highs.  Don't look now, but we're there and it's time
for conservative traders to harvest those gains.  For aggressive
traders willing to hold for a breakout above the $61 level, a
tight stop no lower than Friday's $58.40 intraday low.

Picked on November 11th at   $56.65
Change since picked:          +3.50
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =        713 K



************
DROPPED PUTS
************

None


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

United Technologies - UTX - cls: 85.10 chng: +1.20 stop: 82.00

Company Description:
As a diversified manufacturing company, UTX has four principal
operating segments: Otis (elevators and escalators), Carrier
heating, ventilation and air conditioning systems), Pratt &
Whitney (aircraft engines and space propulsion), Flight Systems
helicopter electrical systems).  Between the Pratt & Whitney and
Flight Systems divisions, UTX participates in virtually all
aspects of the design and manufacture of aircraft propulsion
systems, from engines and their associated flight controls to
auxiliary power units, compressors and instrumentation.

Why we like it:
Ever since bottoming near $54 in early March, UTX has been
marching steadily higher on the premise of economic recovery later
this year and into 2004.  So strong has been the rally, that in
early November the stock came within a nickel of $88, eclipsing
the prior all-time high of $87.50, set back in early 2001.  A
measured pullback certainly makes sense after that feat and that's
precisely what transpired, with the stock falling back to the 50-
dma (now at $82.72) earlier this week.  The early August and late
September pullbacks also found support right at the 50-dma before
UTX rebounded and went on to set new 52-week highs.  Until price
action proves otherwise, we're going to set our sights on a
continued rebound and a rally to new all-time highs over the next
couple weeks.  While the PnF chart is still quite bullish, it is
really no help in picking a price target as the first buy signal
in this series gave a target of $85, which has already been
exceeded.  We'll pick $90 as our target, although it's a safe bet
the bulls will have their work cut out for them as UTX nears the
$88 level.

Clearly, the ideal entry point into the play would have been
yesterday's rebound from the 50-dma, which just happens to be
right on top of the upward-sloping (and therefore supportive)
lower Bollinger band ($82.66).  Adding to the support near this
level is the dip back to just above $82 in late October before the
rebound and run to new highs earlier this month.  Another dip and
rebound from the vicinity of the 50-dma would be ideal for entry
into the play, but more realistically, we'll have to settle for an
entry near current levels.  More conservative traders may want to
wait for a break above the 30-dma ($84.65) before playing, as that
would also get the stock over the $84.50 resistance level from
mid-October.  It may seem a bit tight, but we're setting our stop
initially at $81.25, which is below several layers of support,
including the 50-dma, and support from early October.

Why This is our Play of the Day
When we initiated coverage of UTX over the weekend, we were
looking for a breakout over $84.50 to give us confidence in the
upside, as that would be a breakout over mid-October resistance,
as well as the 10-dma (currently $84.74) and 30-dma (now at
$84.72).  UTX went through that barrier shortly after the open and
then crept a bit higher into the close.  With volume running a bit
over the daily average, this certainly looks like the beginning of
a move back towards the early November highs.  The next obstacle
will be the 20-dma ($85.20) and then resistance near $86.50.  At
this point, intraday pullbacks and rebounds from above $84 can be
used for new entries as can a push through the 20-dma.  Maintain
stops at $82.00.

Suggested Options:
Shorter Term: The December 85 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the January 90 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the January 85 Call.

BUY CALL DEC-80 UTX-LP OI= 392 at $5.70 SL=3.75
BUY CALL DEC-85*UTX-LQ OI=2149 at $1.75 SL=0.80
BUY CALL JAN-85 UTX-AQ OI=1435 at $2.45 SL=1.25
BUY CALL JAN-90 UTX-AR OI=4365 at $0.80 SL=0.40

Annotated Chart of UTX:



Picked on November 23rd at   $83.90
Change since picked:          +1.20
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =     1.84 mln




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Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
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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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**********
Watch List
**********

Another Round of Gains

Amazon.com - AMZN - close: 51.33 change: +2.75

WHAT TO WATCH: Several of the largest Internet stocks added more
than 5% today with investors buying the dip in hopes of a strong
end of year rally.  AMZN was one such stock adding 5.66%.  The
rebound back above the $50 level is tempting but shares still
have resistance at $53 and its simple 50-dma.  Early oscillators
like stochastics, momentum and RSI have already spiked higher.
Aggressive traders could tempt fate with an early entry and use a
stop under $48.00.

Chart=


---

Pulte Homes Inc - PHM - close: 95.31 change: +4.53

WHAT TO WATCH: It's a bird!  No, it's a plane!  No, it's a U.S.
homebuilder that can't go down.  Okay, that's an exaggeration but
shorts are likely to feel that way.  The stock soared higher
today after a broker upgraded the stock on valuation.  The entire
group hit new all-time highs via the DJUSHB index.  Bullish
traders may want to look for a potential dip to the 92.50 region
and evaluate entries there.  Normally stocks that break $90 tend
to trade to $100.  That would be our first target.

Chart=


---


Boston Scientific - BSX - close: 35.70 change: +1.79

WHAT TO WATCH: Shares of BSX surged more than 5 percent today
because a U.S. District court judge denied JNJ a preliminary
injunction against BSX's Taxus drug-coated stent.  This should
help clear the way for BSX to bring those stents to market.  An
FDA advisory panel recently approved the stent and BSX is
awaiting formal FDA approval.  Several analysts came out and
reiterated their buy ratings on the stock.  Estimates put the
U.S. stent market worth $4 billion by 2005.

Chart=


---

United Health - UNH - close: 52.80 change: +1.08

WHAT TO WATCH: Shares of UNH broke above resistance at the 52.50
level as the entire HMO sector surged with news the Medicare bill
was slowly overcoming resistance.  If the Medicare bill gets
signed into law the entire group could see another wave of buyers
as they bet on HMO's jumping back into the Medicare business.
The next resistance level for UNH is $56.00.

Chart=


-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------

KSS $49.75 +0.87 - KSS painted an "inside day" and failed to
break the $50 resistance and its 10-dma despite the broad market
strength.  A breakout up or down could be around the corner.


**************
MARKET POSTURE
**************

Last Week Officially Never Happened

To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/mp_112403.asp


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