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Daily Newsletter, Tuesday, 11/25/2003

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The Option Investor Newsletter                Tuesday 11-25-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Bulls Back In Control
Futures Markets: Complacency Rallies
Index Trader Wrap: Like watching the Thanksgiving turkey thaw
Market Sentiment: Markets Hold Their Gains


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-25-2003           High     Low     Volume Advance/Decline
DJIA     9763.94 + 16.20  9795.21  9723.79 1.65 bln   2112/1099
NASDAQ   1943.04 -  4.10  1956.20  1942.02 1.81 bln   1918/1358
S&P 100   519.54 +  0.23   521.74   517.97   Totals   4030/2457
S&P 500  1053.89 +  1.81  1058.05  1049.31
W5000   10300.96 + 29.20 10336.42 10250.62
RUS 2000  543.18 +  3.67   544.33   539.17
DJ TRANS 2923.32 + 24.30  2931.87  2888.99
VIX        16.71 -  0.73    17.87    16.40
VXO (VIX-O)16.29 -  0.86    17.25    15.96
VXN        25.99 -  1.08    27.33    25.55
Total Volume 3,722M
Total UpVol  2,327M
Total DnVol  1,263M
52wk Highs  695
52wk Lows    25
TRIN       0.87
NAZTRIN    1.16
PUT/CALL   0.63
************************************************************

Bulls Back In Control

Chalk up another bullish day for the broader markets and one
more day within striking range of the 52-week highs. While
the Nasdaq did finish in negative territory due to a sell
program at the close it was still a bullish day to retain
most of the gains from Monday. Using the broader averages
the markets have stretched their winning streak into two
days and there are two historically bullish days still ahead.

Dow Chart



Nasdaq Chart



The economic reports for the day began with another blowout
GDP estimate which was revised up to +8.2% for the 3Q. The
estimate was for a revision to +8% so traders were pleased.
The futures spiked to morning highs on the news but the
news was quickly sold. That high lasted until the 3:PM
bounce as traders consolidated gains from yesterday. The
GDP number showed a growth rate at a 20-year high and it
is not surprising that there was a murmur of disbelief on
the trading floor. While the numbers indicate a veritable
explosion in the economy the anecdotal evidence from those
companies that just reported earnings would suggest that
the real economy grew at a much slower rate.

The majority of the gains in today's number were related to
a better than expected gain in inventory levels to -$14.1
billion from -$25.8 billion. Corporate profits rose +11.8%.
The main supporter of the economy is still the consumer and
Q3 saw a jump of +26.5% in durable-goods consumption that
was funded by the tax rebates. This consisted largely of
strong auto sales. We already know that auto sales have
slacked off in the 4Q as well as retail sales. The good
news is that business investment is picking up and we
could be seeing the rotation from consumer to business
for economic support. The +11.8% jump in corporate profits
was the strongest jump since 1985. The biggest problem
with the upgrade in the Q3-GDP is the ratcheting up of
the 4Q expectations. With numbers hitting 20 year highs
for Q3 almost any number for Q4 is going to be a let down.

Consumers are still buying the economic recovery story with
the Consumer Sentiment number jumping to 91.7 for November
from 81.7 in October. This was well over the estimates for
a gain to 85.0. This really caught traders off guard and
they did not know how to react to it. The initial spike
ran into strong selling resistance just like earlier GDP.
This was the highest sentiment reading since Sept-2002.
Current conditions jumped from 67.7 to 80.1 but the number
of consumers planning on buying a new car or home shrank.
Overall the sentiment number was very positive considering
the growing terror threats and the worsening conditions in
Iraq. Existing home sales dropped -5% in October to 6.35
million units on an annual basis. While this was a big drop
it was from a record breaking pace. The major factor was
the jump in interest rates. Homebuilders are still
predicting strong sales of new homes through 2005 so it
remains to be seen if this is the start of a new trend or
just a pause to survey the economic landscape.

Also adding to the positive attitude was another gain in
the NY-NAPM report to 227.3 from 226.4. While this was not
a huge jump it was the third consecutive gain. The gain in
the headline number was remarkable considering that the
manufacturing component which fell to 54.4 from 90.0 in
October. Current conditions also fell to 51.9 from 58.2.
The overall numbers may show continued expansion but there
were cracks in the foundation. This is what traders fear
the ISM will show next week.

They will not have to wait until next week to get a glimpse
of the current conditions. Because of the Thanksgiving
holiday the economic calendar for the rest of the week has
been accelerated into Wednesday. There are twelve major
reports on Wednesday morning.

7:00 Mortgage Applications
8:30 Jobless Claims
8:30 Consumer Comfort Index
8:30 Durable Goods
8:30 Personal Income
9:45 Consumer Sentiment
10:00 Chicago PMI
10:00 Help Wanted Index
10:00 New Home Sales
10:00 Monthly Mass Layoffs
10:30 ECRI Weekly Leading Index
12:00 Fed Beige Book

The mutual fund scandal chalked up another first today.
Regulators issued a death penalty sentence to Security
Trust Company for illegal trading. STC is a Phoenix based
trust bank and they let hedge funds trade as late as 9:PM
for the 4:PM price. The reason they received the death
sentence was the way they did it. They clearly knew it was
wrong and engineered a way to hide the trades as retirement
plan contributions. They allowed Canary Capital Partners
to trade in up to 400 mutual funds and generated profits
for Canary of over $85 million. They also worked a deal to
get a cut of the profits from Canary to handle the illegal
trades. Security Trust is a custodian for more than 2500
retirement plans with more than $13 billion in assets. The
regulators told them to close the doors by March 31st 2004,
which would give investors time to move to another firm.

Putman reported that investors withdrew $9 billion from
their firm last week and that was the biggest withdrawal
period so far. That brings the total withdrawals to over
$30 billion since Oct-31st. The next report will be on
Dec-1st. If the acceleration continues this could put
additional pressure on the market. The closing of Security
Trust may create additional fear among investors that they
could get caught in a fund in trouble and lose money. While
this is extremely remote investor psychological sentiment
is very fragile. While most are not old enough to remember
runs on banks they have repeatedly heard horror stories
now more fiction than fact about how investors were wiped
out. This could accelerate the run on mutual funds now in
trouble with regulators. While there is no shortage of
money for funds it is the rotation that could hurt stocks.
There is definitely plenty of money available to float the
markets. According to ICI the total inflows year to date
were $123 billion compared to net outflows at the same
period in 2002 of -$26 billion. Small wonder the market
is near its highs again.

SSB cut chip stocks and chip makers yesterday based on
valuation claiming they were up +92% year to date. NVLS
countered that over valuation with their earnings claiming
that their 4Q bookings were up +25% and well above their
prior +5% to +10% estimates. They claimed that the
recovery was for real and not a head fake. Still, the
Nasdaq struggled today and then led the sell off at the
close.

The Dow opened positive on the GDP news but quickly fell
into negative territory. It ran back into positive territory
on the Consumer Sentiment news but was immediately hit with
selling and again fell back into negative territory. The
buyers stepped in once again and managed to break the 9750
resistance again before lunch but could not hold it. Not
until 2:PM did the Dow manage to creep over that strong
resistance level and make an assault into the close. A buy
program coupled with some short covering powered the Dow
to 9795 and only a handful of points away from 9800 but
the bulls could not hold it. The Nasdaq followed the same
pattern around 1950 resistance and managed to touch 1956
before the sell trigger was pulled.

That sell trigger was the VXO. (old VIX) In the Market
Monitor we had been watching the VXO slide all day as
the bullish internals built to the afternoon climax. We
had been betting that the VXO could break to a new five
year low below 16.0 before the close. That happened at
exactly 3:35 PM. That is exactly when the sell program
was triggered that sent the averages plummeting before
the close. The Dow dropped -30 points from 9790 to 9760
and the Nasdaq from 1954 to 1942.

Now the question for tomorrow is why? Is there a deeper
problem confronting us or was it just a program driven
sell based on the extremely low levels of the VXO. Based
on the timing of the VXO tick I am pretty confident the
drop was a sell program triggered by the VXO at 16.00.
This is an extreme level of bullishness and one where
a sell off is almost guaranteed. It is the equivalent of
everyone on the Staten Island ferry not only standing on
the same side of the boat but leaning over the rail as
well.

The problem is what happens in the morning. There are
not typically any major program trades in the last 30
min of trading. This sets up the potential for another
volley at the open on Wednesday. Adding to the confusion
are the twelve economic reports at the open or shortly
thereafter. The day before Thanksgiving is typically
bullish the sentiment building up to this event was fairly
bullish as well. Internals were strong with 2:1 advancing
volume to declining volume and new 52-week highs nearing
700 again. We have had two days of strong internals and
that relief rally may be getting tired.

In my opinion the stage is set. On Sunday I told you to
expect a relief rally this week if there were no terror
events over the weekend. That rally was right on schedule.
I told you that the rebound would run into resistance
beginning around 9725 and we hit that level at 10:15 on
Monday and could not get above it until just before
Monday's close. We still struggled between 9725 and 9750
most of Tuesday. Now that we have broken out of that
range we are facing even stronger resistance at 9800-9820.

The major pressure on the markets last week was due to
the terror warnings. No attack over the weekend prompted
the relief rally. However, every piece of positive news
that spiked the market attracted strong selling pressure.
Tonight as I type this the airwaves are being bombarded
with warning after warning about a new terrorist threat
for the Thanksgiving period. They are talking about
chemical and biological threats being imminent and that
ties in with the Al-Queada boast that they are planning
an attack that will kill up to 100,000 Americans.

I could see a scenario where good economic news Wednesday
morning would spike the markets back to near the 9800
level and that bounce would attract some serious selling.
Mutual funds are still under pressure. There are strong
terror alerts on every channel. The markets are near their
highs and there is a long weekend ahead of us. With the
heaviest travel and shopping days of the year beginning
tomorrow there is a perceived amount of increased risk
for civilians whether it is real or not. We have been
fortunate that they have not chosen to strike again in
the U.S. but we all know the clock is ticking. While
the markets are normally bullish on either side of
Thanksgiving these are not normal times. They sold the
news today and I am betting they will sell it again
tomorrow.

Nothing fundamental has changed and until the economic
reports say so the markets should continue to trend up.
If we do see some cautionary profit taking on Wednesday
it should just be profit taking and not a change in the
trend. Institutional investors with huge profits are just
trying to get to the year end without taking a hit. As
long as the outlook remains overall positive we should
be ok. If we had any negative reports tomorrow I do not
think it would matter. They might help spark some profit
taking that would not have occurred on a positive report
but investors are optimistic. They will believe the first
couple of bad reports are just blips in an uptrend and
continue to buy the dips. So that leaves us with the
terror wild card again and this close to the highs it
could promote extra caution. I suggest you do the same.
Watch for a spike at the open on good news and snug up
your stops. Then sit back and relax and start thinking
about aunt Martha's turkey or who is going to win the
football game and let the markets take care of themselves.
Enjoy your Thanksgiving and we will start our diet next
week.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Complacency Rallies
Jonathan Levinson

I saw the VXO (the old VIX) touch 15.96 today, a multiyear low,
as fear and option premiums reached new rally lows.  This
occurred at lower equity highs, but that fact didn't appear to
fluster the bulls in the least.  Treasuries, gained, equities
were mixed, gold declined and the miners rose.  A difficult day.

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 chopped along uncertainly but held its gains
from yesterday, trading 91.47 as of this writing against a double
top spike above 91.70.  Gold and the CRB fell slightly, while
silver rose.


Daily chart of December gold


December gold touched a lower low at 389.10 with a lower high at
391.50, closing down .50 at 391.  The move did not change our
technical picture, with rising support at 390 still intact, with
the daily cycle oscillators now on sell signals.  The lack of a
selloff was instructive, given the blowout GDP data released at
8:30AM, and while I believe the technicals are short term bearish
for gold, its strength remains very impressive.


Daily chart of the ten year note yield


As was the case with gold, the strength in treasuries was
surprising in light of the apparently bullish GDP number.  For
the day, the TNX dropped 4.1 bps to close at 4.186%, engulfing
yesterday's bullish candle but failing to fill the gap.  The ten
year note yield remains in a downphase, but it appears to be
running out of time and may have already printed its low for the
move on Friday.

A 23B 4-week t-bill auction generated a bid to cover ratio of
2.63 with a high yield of .94%.


Daily NQ candles


The NQ closed lower by 1.00 at 1414, compared with the ES' 3.75
point or 3.6 bp gain and the YM's 25 point or 2.6 bp gain.
Again, this doesn't jibe with the GDP data, but the bulls tried
hard today.  The move challenged the broken lower trendline but
failed, with an intraday high of 1429.50.  Despite the 1 point
loss, the day's action was sufficiently strong to print a bullish
cross on the 10 day stochastic, and while the signal is thus far
weak, any further strength will confirm it.  Resistance is now
1430, support first at 1400, followed by 1392.


30 minute 20 day chart of the NQ


The 30 minute chart is a picture of frustration, with the bulk of
a 30 minute cycle downphase wasted on a minor sideways decline in
price.  While the chart pattern is a steep and fragile bearish
rising wedge, the lack of pullback all day despite the downphase
on this key timeframe lent credence to the otherwise unimpressive
daily cycle upphase trying to form.  While the chart pattern
projects to 1358 below, bears have a lot of catching up to do if
they wish to achieve it.  We see resistance at 1408 on this
timeframe, followed by 1400 and 1392.


Daily ES candles


The ES was unable to clear 1058 resistance, but not for lack of
effort on the part of bulls.  Today's green candle could not
regain the broken rising wedge trendline, but it gave us a buy
signal on the 10 day stochastic.  This is a very early buy
signal, and it comes atop a steep climb.  With solid resistance
every step of the way to the rally highs at 1065, bulls should
have a tough time of the next 10 points.  However, many shorts
are inevitably relying on stops at and just above the 52 week
high, and a break above 1065 could set off a short squeeze.  If
so, the daily cycle upphase trying to form will get a strong
boost, and bears will want to wait for the dust to settle before
reapplying shorts.


20 day 30 minute chart of the ES


The bull case thus stated, I find it mind-bendingly difficult to
contemplate even a revisit to the highs with volatility as low as
we saw today.  Compound that 15.96 VXO reading with barish
divergences on the 30 minute cycle oscillators and a bear wedge
nearing its apex on the 30 minute candles, and the case can be
made for a downside luge-run from here.  A move below 1052 should
kick off the move, but note that we have the combination of a
seasonally bullish holiday week with a plethora of economic data
due tomorrow.  Light volume, end of month, etc- there is no
shortage of externalities to confound bears.  I'm hoping for a
spike up to the year high tomorrow, hopefully early, followed by
a move down.

150-tick ES


The post-3PM ramp job was met with solid selling, and my wish may
be overly optimistic.  However, above 1052, bulls have a shot at
a higher high.


Daily YM candles


The YM was most impressive, printing a bullish hammer and,
depending on your placement of the lower support line, regained
the broken wedge.  Again, we see preliminary buy signals on the
10 day stochastic.


20 day 30 minute chart of the YM


Again we see a bearish oscillator divergence on the 30 minute
chart, with support just below 9750 on the steep rising wedge.
However, bullish risks abound:  we see a possibly truncated 30
minute cycle downphase lined up with that early buy signal on the
daily candles.

Today was a strange session from beginning to end, and it did
more to confuse our indicators than anything else.  Equities can
go either way from here, and while more than short-lived upside
would surprise me, I can imagine the charts printing either a
rally or a breakdown from here.  Tomorrow promises more of the
same, with lighter volume and more news.  If in doubt, stick to
the sidelines until it looks clearer, and don't let the market
trap you into holding a bad position.  See you tomorrow.


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

Like watching the Thanksgiving turkey thaw

We've seen some rather tight intra-day trading ranges in the
past, but today's trade for the major indices was about as
eventful as watching a Thanksgiving turkey thaw out, prior to
being stuffed and stuck in the oven for Thursday's Thanksgiving
feast.

Don't mistake my boredom for disappointment, but I find it a
tough turkey to swallow that an upward revision to Q3 GDP to 8.2%
from it previously reported 7.6% annual growth rate and a
November consumer confidence reading of 91.7, which was well
above economists' forecast of 85.0, and October's 81.1 reading
didn't find more of a market reaction, up or down, than was seen
today.

While most Washington watchers began to predict a more certain
passage of the Medicare drug bill yesterday, which was passed
earlier this morning, the narrow passage of the bill drew mixed
comments from drug and healthcare analysts on Wall Street, as
investors struggled with deep-seated disagreements about the
future of the U.S. healthcare system, which faces both rising
costs and serious gaps in coverage.

Conservative Republicans fear that the expansion of Medicare will
lead to its future bankruptcy, with the system predicted to run
out of money by 2026 without further increases in payroll taxes.

Some Democrats warn that the cost-cutting measures included in
the legislation will lead to the privatization of Medicare.
And they fear that big drug companies and private health
insurance companies will be the main beneficiaries.

I don't want tonight's Index Trader Wrap to turn into an ins-and-
outs of the Medicare drug bill, but in the spirit of the
holiday's, when I try to read up on just what the Senate voted on
today, it was like looking at a fruit cake and wondering just
what all was in it!

Not that the bill was analogous to a fruitcake, but if I had to
look at a fruitcake, and understand its ingredients, then type
out a recipe for its duplication, I'd be telling a lie if I were
to say I fully understand what companies will benefit or suffer
most.

While I've always thought the President of the United States
George W. Bush, or even past Presidents have a difficult and
stressful job, and by many accounts are faced with very
challenging decisions each day, I dare say a fundamental analyst
asked to ascertain what company's are going to be the true
benefactors or losers of the Medicare drug bill are faced with
equally challenging tasks in the weeks, months and years ahead.

To think today's passage of the Medicare drug bill, which brings
sweeping changes to the Medicare program is just drug or
healthcare-stock related, traders and investors should think
again.

For instance... I didn't know that Congress just promised an $86
billion subsidy to big companies to ensure that they continue to
offer health-related benefits to their retired workers.

Did you know the bill also gives an extra $25 billion to rural
hospitals?  Some Washington watchers made note of this feature in
the Medicare bill as a way for Congressmen and Senators from
smaller Western states to gain votes from their constituents.

In a controversial move, the bill also prohibits the Federal
government from negotiating discounts with drug companies, or
restricting the number of drugs that will be eligible for
coverage.  This is a major difference when compared to the
European health care system.

To me (Jeff Bailey), it would appear on the surface that the U.S.
government has taken an open wallet approach to drug benefits.
Doesn't it?

Pharmaceutical Index (DRG.X) Chart - Weekly Intervals



I do wish I were smart enough to give a definitive answer on
whether or not today's passage of the Medicare drug bill will be
bullish, neutral or bearish for drug stocks.  My thinking based
on what seems to be an open wallet type of approach from the
government and the prohibiting of government officials
negotiating discounts on drugs, would be positive catalysts, not
negative.

The test for such thought would be for the DRG.X to trade above
330, and not trade below 300.

I've drawn very basic, yet effective trends on the DRG.X chart,
that show the DRG.X trying to move higher from a BIG wedge, where
in April of 2002, the DRG.G moved lower from a BIG wedge near the
360 level.

I'm quickly noting that according to Dorsey/Wright and
Associates' sector bullish %, their Drug Bullish % (BPDRUG) is
currently "bear alert" status at 54.35%, so I would want to at
least see the DRG.X make a bullish move above 330 near-term or
get a bullish reversal back higher in the sector bullish %,
before getting to aggressive from the "buy side" in this sector.
In June of this year, the sector bullish % and reached 80% its
bullish % chart.  That's probably the same time the DRG.X spiked
to 350 for the week of June 15-20.

I would note that the Pharmaceutical HOLDRs (AMEX:PPH) $75.00
-0.68% look very similar to the DRG.X, where a DRG.X 330, looks
to be equivalent to a PPH $80.00, and DRG.X 300.00 equivalent to
$72.00.

While I'm sure I haven't fully answered trader's and investors e-
mail regarding the Medicare drug bill's future impact on drug
stocks with any certainty at this point, I've set up some tests
for future trade, and with analysts, lawmakers, and citizens
somewhat perplexed as the bill, the market's will eventually
decide, and I would think the DRG.X eventually breaks above or
below the 330-300 range.

Moving on to today's trade, I'm left to believe that after
monitoring and attempting a day trade short in the QQQ from
$35.20, which was eventually stopped out at $35.42 after
continually fine raising a bearish target and lowering a stop
loss, that tomorrow's trade may be very similar, but perhaps just
the inverse, where tomorrow's trade could well see a round trip
within the DAILY S2 to R2 range.

Before we start, I want to quickly make note of some intra-day
observations as to today's trade.

First observation this morning was made before the 09:30 AM EST
cash open, when just after the 08:30 AM EST release of the Q3 GDP
data, the NASDAQ-100 Tracking Stock (AMEX:QQQ) $35.18 (unch)
trading a pre-market high of $35.55, which is this week's WEEKLY
R2 of $35.55.  During regular market hours, the QQQ traded a high
of $35.45, which was a penny below its DAILY S1.

If the phrase "trying to pick up pennies in front of a bulldozer"
were to ever make any sense, then today's tight range of trade in
the QQQ was certainly such an attempt with my QQQ bearish trade.

A second observation is that the S&P Dep. Receipt (AMEX:SPY)
105.99 +0.37% did trade its WEEKLY R2 of $106.26 with a session
high of $106.42.  The S&P 500 Index (SPX.X) 1,053.89 +0.17% came
close to its WEEKLY R2 of 1,058.09, when it traded a session high
of 1,058.05.

With these observations in mind, I begin to thing that there is
going to be selling prior to the weekend at the WEEKLY R2s, and
other than trying to get a potentially decent day trade tomorrow,
a swing-trader that has been contemplating taking an extended
holiday and coming back to these markets next week, might want to
weigh the alternatives between frustration and relaxation here
tonight.

I view today's economic data as largely being bullish.  With a
tendency for the major indices to also trade bullish into a
Thanksgiving weekend, and after seeing today's trade, I would
look for a potential short-term bullish trade back near the
WEEKLY R1s, and just the inverse of today's trade, a strong close
back near the WEEKLY R2s.

Let's take a look at the pivot matrix, where after Friday's
trade, we will get new MONTHLY and WEEKLY pivot analysis levels.

Pivot Matrix -



Today's trade was "boring" yet I was actually glued to my charts
despite the rather tight range of trade, as if expecting
something to actually take place and some type of tradable move
actually take place.

While I do not perceive any "fireworks" the remainder of the
week, it never hurts to be prepared.  But with the bond market
closing an hour early tomorrow and Friday at 02:00 PM EST, the
tendency among stock traders/investors is to do little unless
some type of major surprise from economic data, or geopolitical
events moves a trader from their easy chair.

I did think some of today's slight weakness in the U.S. Dollar
Index (dx00y) 91.48 -0.12% and some buying in Treasuries with the
10-year YIELD ($TNX.X) edging down 4.1 basis points to 4.186% was
going to have a more negative impact on stocks, which I would
have to confess never really played out during the session.

Here's a last look at today's NASDAQ-100 Tracking Stock
(AMEX:QQQ) $35.18 (unch) intra-day trade, which I'm also going to
show with some of Monday's late session trade, which to me, looks
like a potential gravitation point for early tomorrow, where
WEEKLY R1 marks the spot of Monday's consolidation, where a QQQ
pullback to that level, might find support, where a late
afternoon rebound might then take hold for a rebound back to the
WEEKLY R2.  I've left today's 5-minute retracement brackets on
the QQQ chart, just to show how tight the bulk of today's range
was, as if the MARKETS were determined to not go anywhere in
today's session.

NASDAQ-100 Tracking Stock (AMEX:QQQ) Chart - 5-minute intervals



I don't want the Index Trader Wrap to appear as though its a "day
trading" wrap, but today's tight range of trade, and Thursday
being a holiday, I'm not expecting a major market move.

My thoughts this morning after seeing a QQQ pre-market trade at
$35.55 find immediate selling had me thinking the market was
saying... "no no you don't, not yet" and after setting up my 5-
minute retracement brackets, I thought the QQQ could be shorted
at $35.20 after seeing trade just below the $35.20 level in the
first 40-minutes of trade.  I had also made note of a couple of
sell program premium levels, that had me suspicious to some
institutional computers set up to do some selling just below the
WEEKLY R2s.  My initial bearish target was $34.76, with stop at
$35.51.  As the session progressed, I kept raising target and
lowering stop.

I've pointed to some of Monday's late-afternoon consolidation
near the WEEKLY R1, which was eventually broken to the upside on
Monday, when the bond market closed at 03:00 PM EST.  This might
be an area of consolidation, where if tested tomorrow, finds a
bullish bounce into the close.

The thin red downward trend on the QQQ chart was a trend I had in
place from a relative high point of 11/12/03.  Today's "test" of
that trend at the session high of $35.45 was the first successful
BEARISH test of that trend, and I'll continue to monitor that
trend's progression is sessions to come.

Tomorrow, that trend may once again be of use should the QQQ find
buyers to its DAILY R1 of $35.39, as extension of that trend to
the far left of the chart, would be pretty close to $35.39 when
the clock strikes 4:00 PM EST.

While the QQQ and NDX traded a tight range today, there was
actually some surprising action taking place in the internals.
Today's trade saw a net gain of 4 stock to point and figure buy
signals, and all be darned if that wasn't enough to have the
NASDAQ-100 Bullish % ($BPNDX) reversing back up to "bear
correction" status.  Since July (red 7 on PnF chart) we have now
seen this bullish % move like this.... "bull confirmed", then
turn lower to bull correction by August (red 8), then further
lower to "bear confirmed", then reverse back up to bear
correction status by early September (red 9),  then back lower to
"bear confirmed" by October (red A) then back up to "bear
correction", then back lower to "bear confirmed" and now back up
to "bear correction."

S&P 500 Index Chart - Daily Intervals



Last week I did NOT think the SPX should trade above the 1,055
level, and while 3.05 points isn't all that much above 1,055, it
is enough to calm any overly bearish thoughts toward the major
indices.

As a note to just what a plunge in the Market Volatility Index
(VIX.X) 16.71 -4.18% can do to an index option trade that was put
on in a Dec. 1,040 strike when the SPX was trading 1,042, that
option (SPQXH) was purchased at $18.70 and now trades with a
$9.70 bid and $10.30 ask.

The SPX put/QQQ long "hedge" trade discussed this weekend
currently shows a BOTTOM LINE loss of $440.00.

I'm running way late on my deadline, so better type quick.
Today's trade saw a net gain of 4 stocks to PnF buy signals in
the broader S&P 500 Bullish % ($BPSPX) and has the bullish %
edging up 0.8% to 79.4%.  Still "bull confirmed" status.

The narrower S&P 100 Bullish % ($BPOEX) saw no net change and
still remains "bull correction" status at 78%.

Dow Industrials Chart - Daily Intervals



The one note I would make in the INDU is related to today's trade
and INDU closing right on its shorter-term 21-day SMA which now
starts to trend higher.  This is very similar to early October,
where when the INDU broke above that 10/02/03 day's trade, the
INDU sprinted higher to challenge its prior relative higher.

This may need close monitoring tomorrow, as the INDU can be
important for market psychology.

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
****************

Markets Hold Their Gains
- J. Brown

The U.S. stock markets held their gains today after an incredible
rally on Monday.  For some just holding its gains may be a let
down, especially after the favorable economic reports out this
morning.  However, for many professional traders just hoping to
end the year at current levels today could be viewed as a
victory.

The big numbers today were not coming from the NYSE and the
NASDAQ but from the Commerce Department.  The GDP growth for last
quarter was revised up to 8.2%, a full percentage point above the
preliminary reading of 7.2%.  This is absolutely incredible and
the fastest growth rate since the first quarter of 1984.  Another
"economic" number blowing past estimates was the November
Consumer Confidence figures.  Analysts had been looking for a
reading at 85.0.  November confidence numbers came in at 91.7.
This is great news for the economy and Wall Street and it bodes
very well for this coming holiday shopping season, which is
estimated to be the best since 1999.

Overall the market internals were bullish with advancing stocks
outpacing decliners 19 to 9 on the NYSE and 18 to 12 on the
NASDAQ.  Up volume beat down volume and new highs continued to
surge despite some minor profit taking.  But not everything was
bullish.  The volatility indices continue to crash.  The VXO (the
old VIX) broke under the 16.00 level intraday and closed at 16.29
for the first time in years.  This blinking, flashing, buzzing
warning light is starting to sound like a police siren.  Traders
should be very careful.  The volatility indices don't drop this
low very often and are usually strong clues to a change in market
direction.  There's nothing to stop the indices from hitting even
lower lows but investors should keep an eye on it and the major
indices.  It's definitely a warning to tighten stops and
reconsider new long positions.

Tomorrow will be all about the flood of economic reports.  Those
still working on Wall Street and not en route to family for the
holidays will be focusing on the Michigan Consumer Sentiment
numbers and the Chicago Purchasing Managers survey.  Additional
reports scheduled to announce are Initial jobless claims, October
Personal Income and Spending, October Durable Goods orders,
October Help Wanted Index, October New Home Sales, and the Beige
book.

Happy Thanksgiving!


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

Market Averages

DJIA ($INDU)

52-week High:  9903
52-week Low :  7197
Current     :  9763

Moving Averages:
(Simple)

 10-dma: 9724
 50-dma: 9666
200-dma: 8968



S&P 500 ($SPX)

52-week High: 1063
52-week Low :  768
Current     : 1053

Moving Averages:
(Simple)

 10-dma: 1046
 50-dma: 1037
200-dma:  963



Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1411

Moving Averages:
(Simple)

 10-dma: 1399
 50-dma: 1392
200-dma: 1223



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

It's been a LONG time since the VXO (old VIX) traded under the 16
level and that occurred today as the volatility continued to
crash.  This observation was a key factor for some veteran
traders to cover or tighten stops.  This screams market turning
point but it could go lower, which it seems to have developed a
habit of doing.

CBOE Market Volatility Index (VIX) = 16.71 -0.73
CBOE Mkt Volatility old VIX  (VXO) = 16.29 -0.86
Nasdaq Volatility Index (VXN)      = 25.99 -1.08


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.62        688,827       430,183
Equity Only    0.48        549,189       263,896
OEX            1.25         19,658        24,570
QQQ            2.45         18,220        44,603


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

Bullish Percent Data

           Current   Change   Status
NYSE          72.7    + 0     Bull Confirmed
NASDAQ-100    72.0    + 4     Bear Correction
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       79.4    + 1     Bull Confirmed
S&P 100       78.0    + 0     Bull Correction


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

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


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

 5-dma: 0.94
10-dma: 1.22
21-dma: 1.14
55-dma: 1.15


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    1927      1845
Decliners     906      1262

New Highs     243       223
New Lows       13        13

Up Volume   1140M     1072M
Down Vol.    472M      718M

Total Vol.  1626M     1826M
M = millions


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

Commitments Of Traders Report: 11/18/03

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

Will it never end?  The commercial traders refuse to move any
positions or make any more big bets in the full S&P futures
contracts.  They've been oscillating in the current range for
weeks.  Small traders have bumped up both their short and long
positions but they remain relatively equidistance from each other.


Commercials   Long      Short      Net     % Of OI
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%)
11/18/03      393,893   414,442   (20,549)   (2.5%)

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
10/28/03      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%
11/18/03      147,842    80,047    67,795    29.7%

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

The e-minis are seeing some action.  Commercials upped their
short positions but not by too much.  Small traders also
raised their short positions by 10K contracts (almost 20% of
outstanding shorts).


Commercials   Long      Short      Net     % Of OI
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%)
11/18/03      249,286   264,083    (14,797)  ( 2.9%)

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
10/28/03      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%
11/18/03       95,119    61,975    33,144    21.1%

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


NASDAQ-100

Commercial traders are still stuck in limbo with outstanding
longs and shorts in NDX futures barely budging the last few
weeks.  Meanwhile small traders have turned more bullish with
a nice jump in outstanding long positions.


Commercials   Long      Short      Net     % of OI
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%)
11/18/03       35,608     49,689   (14,081) (16.5%)

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
10/28/03       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%
11/18/03       32,034    10,356    21,678    51.3%

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

Ditto here as well...commercials are not making any new big
bets and keeping the number of long and short contracts
relatively unchanged.  Small traders appeared to have scaled
back on longs and inched up their shorts.


Commercials   Long      Short      Net     % of OI
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%
11/18/03       20,746    11,080    9,666      30.4%

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
10/28/03        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%)
11/18/03        5,655     8,607   (2,952)   (20.7%)

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 11-25-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: GDW, NFLX
Call Play Updates: DGX, DHR, HOV, PGR, UTX
New Calls Plays: BBY
Put Play Updates: MXIM
New Put Plays: KSS


****************
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:
*****

None


PUTS:
*****

Golden West Fincl - GDW - cls: 101.20 chg: +0.25 stop: 101.75

We have not yet been stopped out of this put play in GDW but
we're not going to wait for it to happen either.  The lack of
follow through on last week's breakdown under the $100 mark was
concerning but shares were also producing a trend of lower highs.
That was until this week.  Honestly, we're shocked that GDW
didn't soar higher on the big market rally Monday.  We saw an
equally impressive number of new one-year highs for several
banking stocks today.  GDW's reluctant climb higher doesn't
inspire a lot of courage but we'd rather cut our losses and move
on.

Picked on November 18 at $99.54
Change since picked:     + 1.66
Earnings Date          10/21/03 (confirmed)
Average Daily Volume:       608 thousand
Chart =



---

Netflix Inc - NFLX - close: 48.01 change: +1.21 stop: 48.50

The recent market strength was too much for traders in NFLX to
bear and the stock broke out higher above its simple 10-dma.
Honestly, we're surprised the stock didn't roar higher on Monday
with all the major Internet stocks up 5%.  Maybe today is just a
delayed reaction.  Whatever the case shares of NFLX traded
through our stop at $48.50 and we're out of the play.  Its MACD
is starting to turn bullish and short-term oscillators like
stochastics and RSI have already turned bullish.  However we
would not consider bullish positions until it broke resistance
just north of $50.

Picked on November 13 at $48.50
Change since picked:     - 0.49
Earnings Date          10/15/03 (confirmed)
Average Daily Volume:       1.7 million
Chart =



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

Quest Diagnostics - DGX - cls: 72.46 chng: +0.76 stop: 69.90*new*

After spending most of last week building what looks like a
continuation flag pattern, DGX got the shortened week started out
right yesterday by pushing briefly over the top of the pattern at
$72 before falling back a bit at the end of the day.  But the
bulls were eager to give it another shot this morning, driving
DGX back over that level and this time holding it into the close.
This looks like a convincing break from the consolidation pattern
and it should presage a move to the $76 area.  That means we
ought to see our initial $75 target hit on the way and such an
event would provide a great opportunity for conservative traders
to harvest some gains.  Intraday dips that find support above
$71, with the 10-dma ($70.76) reinforcing that support can be
used for fresh entries.  DGX is still pressing the upper
Bollinger band higher, so momentum entries are still not the best
approach.  We're raising our stop to $69.90 tonight.  That is
just below the bottom of the recent consolidation and after
today's breakout, it would be a bad sign if the stock traded back
down through that entire consolidation zone.

Picked on November 13th at   $69.46
Change since picked:          +3.00
Earnings Date               1/20/04 (unconfirmed)
Average Daily Volume =        876 K
Chart =


---

Danaher Corp - DHR - close: 82.72 chg: +0.65 stop: 79.50

The rebound for shares of DHR continues.  While the stock didn't
soar quite so high on Monday when the rest of the market was red
hot DHR did out pace the markets today.  Shares have cleared
resistance at their simple 30-dma and broken above the 82.50
mark, both are good news for the bulls.  Should DHR offer any
weakness, buyers can look for a bounce from the $81.75 to 82.00
region.

Picked on November 23 at $81.95
Change since picked:     + 0.77
Earnings Date          10/16/03 (confirmed)
Average Daily Volume:       829  thousand
Chart =


---

Hovnanian Enterprises - HOV - cls: 91.16 chg: +0.26 stop: 86.49

The undying rally in homebuilders is nothing short of amazing.
I'm sure the amount of dying shorts is pretty amazing as well.
The DJUSHB homebuilders index rose to new all-time highs on
Monday's big rally and the group closed higher yet again today.
Shares of HOV soared on Monday to break resistance at $90 on
decent volume.  Short-term traders who were just in it for the
quick pop to $90 should have already exited.  We were expecting
some profit taking today after Monday's big move but it failed to
appear.  Actually, it failed to stick.  HOV continued higher
early this morning to trade above $92 and then promptly sold off
to the $89 level before bulls bought the dip one more time.  We
are very encouraged by the strength in this group this is a tough
spot to gauge new entries.  We would suggest patience.  HOV has
broken above the mid-line of its rising channel.  Now the
question is whether it falls back to bounce from $88 again or
whether it stretches to peg the top of the channel.  Yesterday we
raised our stop loss to $86.49.

Picked on November 21 at $85.51
Change since picked:     + 5.65
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =


---

Progressive - PGR - close: 77.99 chg: +0.09 stop: 75.99 *new*

If you've been following this PGR play then you already know
we've been expecting the bounce from the $76 level.  We got the
bounce on Monday when the entire market surged higher.
Unfortunately, that bounce faltered at the $79 mark and today's
intraday action is not expressing a lot of bullishness.  We're
suddenly a little cautious and expect that interested traders
still looking for an entry might get one on a retest of the $77
level soon.  We are going to cut our risk even further by bumping
our stop loss to $75.99.

Picked on November 07 at $76.25
Change since picked:     + 1.74
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      654  thousand
Chart =


---

United Technologies - UTX - cls: 85.41 chng: +0.31 stop: 82.00

UTX wasted no time in building on the bounce that got underway
last week.  Gapping higher on Monday, the stock cleared the 10-
dma ($84.76) and the 30-dma ($84.75) by the close and then
extended its gains a bit today to close just above the 20-dma
($85.28).  There's a bit more resistance to deal with in the
$86.50-87.00 area and then the bulls will be taking a serious
shot at besting the early November high of $87.95.  We're
actually looking for a breakout to a slightly higher high and
have set our target at $90.  At this point, dips near the $84.50-
84.75 support area look favorable for new entries into the play,
with daily oscillators now turning clearly bullish.  Raise stops
to $82.50, as that is just below last week's lows, as well as the
50-dma ($82.97).  While a breakout over $86 could be used as a
new momentum entry, we're not enthusiastic about that strategy
due to the fact that $86 is actually closer to resistance than
our stop, making the risk-reward ratio rather unattractive.

Picked on November 23rd at   $83.90
Change since picked:          +1.51
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =     1.84 mln
Chart =



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

Best Buy Co - BBY - close: 60.36 chg: +0.67 stop: 56.95

Company Description:
Best Buy Stores, owned and operated by Minneapolis-based Best Buy
Co., Inc., is the nation's leading specialty retailer of
technology and entertainment products and services. Best Buy was
founded in St. Paul, Minn. in 1966. Best Buy Stores reach an
estimated 300 million consumers per year through 600 retail
stores in 48 states and online at BestBuy.com.
(source: company press release)

Why We Like It:
"...Silver bells...silver bells... It's Christmas time in the
city..." Okay, so maybe it's a little early to be singing
Christmas carols but the holiday shopping season is about to be
launched this Friday.  Consumer electronics are huge and BBY is
one of the biggest players on the field.  UBS recently reiterated
their buy rating and upped their price target to $70.

The company recently opened their 600th store (in Hartsdale, New
York) and they've already launched the holiday price wars with
rival Circuit City.  Earnings should be about three weeks away
and a strong run into its announcement is a good possibility.
Looking at the chart, shares of BBY have been consolidating
sideways for the last three weeks between $57 and $60.  The stock
just broke out above $60 today and should have a clear shot at
trading to $65 - our first target.  Since shares have not traded
below $56.95 all month that's where we'll stock our stop loss.

Suggested Option:
We'd be looking over the December and January calls with a
preference for the $55 and $60 strikes.  Right now our favorite
would be the DEC 60, but if you think the Santa Claus rally will
show up, then the January 60's look good too.

BUY CALL DEC 55 BBY-LK OI= 6951 at $6.00 SL=3.75
BUY CALL DEC 60*BBY-LL OI=10967 at $2.35 SL=1.00
BUY CALL DEC 65 BBY-LM OI= 2537 at $0.60 SL= --
BUY CALL JAN 55 BBY-AK OI= 3673 at $6.80 SL=4.15
BUY CALL JAN 60 BBY-AL OI= 4345 at $3.40 SL=1.70
BUY CALL JAN 65 BBY-AM OI=  953 at $1.45 SL=0.75

Annotated Chart:



Picked on November 25 at $60.36
Change since picked:     + 0.00
Earnings Date          12/17/03 (unconfirmed)
Average Daily Volume:      3.6  million
Chart =



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

Maxim Int. Prod. - MXIM - close: 51.47 change: +0.25 stop: 52.30

Our MXIM play has clearly been a disappointment so far, with the
stock rebounding after a one-day blip below the $50 support
level.  The stock actually tapped the $52 resistance level on
Tuesday before it and the rest of the Semiconductor sector
(SOX.X) headed sharply lower in the final minutes of the day.
While this rebound has not been exactly the price action we
expected, we could be looking at a failed rally setting up just
below the $52 level.  Only those with an aggressive risk profile
should consider entries up here though, as the safer approach
would be to wait for confirmed weakness with MXIM falling back
under the 20-dma ($50.64).  The real key to the downside though
will be a break of $49 support and conservative traders will want
to wait for that to break before taking the plunge.  In order for
a break under $49 to be convincing, the SOX will need to break
its own key support at $495.  If our stop at $52.30 is taken out,
then we'll know that it is still too early to get aggressive with
the downside in the Chip sector.

Picked on November 18th at   $49.89
Change since picked:          +1.55
Earnings Date                1/27/04 (unconfirmed)
Average Daily Volume =      6.43 mln
Chart =



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

Kohl's Corporation - KSS - close: 48.75 change: -1.00 stop: 52.00

Company Description:
Kohl's Corporation operates family-oriented, specialty department
stores, primarily in the Midwest.  The company's stores sell
moderately priced apparel, shoes, accessories and home products
targeted to middle-income customers shopping for their families
and homes.  Kohl's stores have fewer departments than full-line
department stores, but offer customers assortments of merchandise
displayed in complete selections of styles, colors and sizes.  Of
the 420 stores the company operates, 116 are takeover locations,
which have facilitated the entry into several new markets,
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.

Why we like it:
The Retail index (RLX.X) has been in a persistent uptrend since
the March lows.  The index hit a local high near $370 in early
September before a pullback that was simply a prelude to new
highs in October and again in November.  In contrast, KSS hit a
local high near $65 in early September as well, before pulling
back itself.  That's where the similarity ends though, as the
bulls really haven't been able to stop the stock's downward
slide.  A feeble bounce attempt in late October met with a solid
rollover at the 50-dma (then at $56.40) and a pullback down to
strong support near $50.  Not only is that the site of horizontal
support, but it was also the location of the rising trendline
from the October-2002 low.  Last week KSS broke below that
trendline, put in a failed bounce below it and from the looks of
today's price action the stock is about to break down again.
There is some horizontal support near $48.25 and then $46.25.
Both of those levels will need to be breached before KSS can take
a serious shot at $44 support (the 10/02 low) and then our $42
target (the site of the 9/01 low).

Those tiered levels of support make entering on failed bounces
below resistance ($50-51) the preferred strategy.  More
aggressive traders can certainly consider new positions on a
break below $48, but with the understanding that a delayed bounce
could occur, requiring taking a bit of heat before the next
rollover.  KSS has show a propensity to trade that way recently,
with breaks to new lows followed by consolidation and then a
failed bounce before continuing its downward trek.  Taking a
quick look at the PnF chart, it comes as no surprise to see the
stock on a Sell signal, but the $45 bearish price target tells us
that looking for a decline below that level may be asking a bit
much.  So more conservative traders may want to target exits in
the $44-45 area.  The PnF price target doesn't necessarily have
to define a bottom, but it will more than likely provide enough
support for a near-term bounce.  We're initially setting our stop
at $52, just above what should be strong resistance, along with
the 20-dma at $51.85.

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 slightly in the money and
having ample time until expiration.

BUY PUT DEC-50*KSS-XJ OI=5029 at $2.50 SL=1.25
BUY PUT DEC-45 KSS-XI OI=1949 at $0.60 SL=0.30
BUY PUT JAN-45 KSS-MI OI=7053 at $1.10 SL=0.50

Annotated Chart of KSS:



Picked on November 18th at   $48.75
Change since picked:          +0.00
Earnings Date                2/12/04 (unconfirmed)
Average Daily Volume =      3.97 mln
Chart =



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The Option Investor Newsletter                  Tuesday 11-25-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - KSS


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

Kohl's Corporation - KSS - close: 48.75 change: -1.00 stop: 52.00

Company Description:
Kohl's Corporation operates family-oriented, specialty department
stores, primarily in the Midwest.  The company's stores sell
moderately priced apparel, shoes, accessories and home products
targeted to middle-income customers shopping for their families
and homes.  Kohl's stores have fewer departments than full-line
department stores, but offer customers assortments of merchandise
displayed in complete selections of styles, colors and sizes.  Of
the 420 stores the company operates, 116 are takeover locations,
which have facilitated the entry into several new markets,
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.

Why we like it:
The Retail index (RLX.X) has been in a persistent uptrend since
the March lows.  The index hit a local high near $370 in early
September before a pullback that was simply a prelude to new
highs in October and again in November.  In contrast, KSS hit a
local high near $65 in early September as well, before pulling
back itself.  That's where the similarity ends though, as the
bulls really haven't been able to stop the stock's downward
slide.  A feeble bounce attempt in late October met with a solid
rollover at the 50-dma (then at $56.40) and a pullback down to
strong support near $50.  Not only is that the site of horizontal
support, but it was also the location of the rising trendline
from the October-2002 low.  Last week KSS broke below that
trendline, put in a failed bounce below it and from the looks of
today's price action the stock is about to break down again.
There is some horizontal support near $48.25 and then $46.25.
Both of those levels will need to be breached before KSS can take
a serious shot at $44 support (the 10/02 low) and then our $42
target (the site of the 9/01 low).

Those tiered levels of support make entering on failed bounces
below resistance ($50-51) the preferred strategy.  More
aggressive traders can certainly consider new positions on a
break below $48, but with the understanding that a delayed bounce
could occur, requiring taking a bit of heat before the next
rollover.  KSS has show a propensity to trade that way recently,
with breaks to new lows followed by consolidation and then a
failed bounce before continuing its downward trek.  Taking a
quick look at the PnF chart, it comes as no surprise to see the
stock on a Sell signal, but the $45 bearish price target tells us
that looking for a decline below that level may be asking a bit
much.  So more conservative traders may want to target exits in
the $44-45 area.  The PnF price target doesn't necessarily have
to define a bottom, but it will more than likely provide enough
support for a near-term bounce.  We're initially setting our stop
at $52, just above what should be strong resistance, along with
the 20-dma at $51.85.

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 slightly in the money and
having ample time until expiration.

BUY PUT DEC-50*KSS-XJ OI=5029 at $2.50 SL=1.25
BUY PUT DEC-45 KSS-XI OI=1949 at $0.60 SL=0.30
BUY PUT JAN-45 KSS-MI OI=7053 at $1.10 SL=0.50

Annotated Chart of KSS:



Picked on November 18th at   $48.75
Change since picked:          +0.00
Earnings Date                2/12/04 (unconfirmed)
Average Daily Volume =      3.97 mln
Chart =



------------------------------------------------------------
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Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

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