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Daily Newsletter, Monday, 12/01/2003

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The Option Investor Newsletter                   Monday 12-01-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Ho Ho Ho...Hello December
Futures Wrap: Bear-a-la-Mode
Index Trader Wrap: Bulls satisfied, while bears look starved!


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     12-01-2003            High     Low     Volume Advance/Decline
DJIA     9899.05 +116.59  9902.23  9785.35 1.65 bln   2168/ 694
NASDAQ   1989.82 + 29.56  1989.82  1968.54 1.80 bln   2041/1086
S&P 100   526.60 +  5.86   526.97   520.74   Totals   4209/1780
S&P 500  1070.12 + 11.92  1070.47  1058.20
RUS 2000  554.59 +  8.08   554.64   546.51
DJ TRANS 2961.58 + 40.35  2961.93  2922.40
VIX        16.77 +  0.45    17.03    16.77
VXO        15.97 -  0.74    16.66    15.71
VXN        26.29 +  0.66    26.63    25.97
Total Volume 3,835M
Total UpVol  2,878M
Total DnVol    849M
52wk Highs    1250
52wk Lows       17
TRIN          0.62
PUT/CALL      0.71
*******************************************************************

Ho Ho Ho...Hello December
by James Brown

Bulls showed up on Wall Street rested and ready after the long 
Thanksgiving weekend.  Early reports for a strong opening to the 
holiday shopping season had investors in a buying mood.  News 
that the ISM numbers hit 20-year highs merely fanned the flames.  
The NASDAQ hit a new 22-month high while the DJIA and the S&P 500 
hit new 18-month highs.

U.S. stocks weren't the only ones in the green.  The Japanese 
NIKKEI average jumped 3 percent or 302 points to close at 10,403.  
The Hong Kong Hang Seng followed with a 139-point rise to 12,456.  
European stocks fared almost as well with a 1.55% rise in the 
British FTSE 100 and a 2.01% jump in the German DAX.  A Reuters 
manufacturing survey in Europe also reported improvement 
suggesting the recovery could be spreading from the U.S. to other 
nations.  

The 116-point gain for the Dow Jones Industrial Average (DJIA) 
placed the index just under the 9900 level.  A strong showing in 
technology stocks pushed the NASDAQ to an arm's length away from 
the 2000 level at 1989.  The S&P 500 actually hit new intraday 
highs and broke out over the 1060-1063 region to close at 1070.  
Monday's rally was very broad-based with not one sector index 
closing in the red.  Out performing to the upside was the BTK 
biotech sector, which rose 4.25%.  The move was fueled by news 
that Protein Design Labs (PDLI) had settled a patent dispute with 
Genenetech (DNA).  This sent shares of PDLI soaring 22.79% to 
$17.02.  The DJUSHB home construction index was the next best 
performer, up 2.51%.  Homebuilders enjoyed a strong day after the 
strong construction numbers came out this morning.  The third 
best sector index today was the XAU gold & silver index, up 
2.32%. Gold stocks rose strongly as inflation concerns and the 
dollar's decline pushed gold futures to a 7-year high up $5.80 to 
$403.80 an ounce.  

Market internals were very bullish with the NYSE reporting 21 
stocks gaining for every 7 losers.  The NASDAQ's advance/decline 
ratio was also a bullish 2:1.  New highs soared to 889 between 
the two exchanges compared to just 16 new lows.  Up volume was 
more than 4 times down volume on the NYSE and 2.6 times down 
volume on the NASDAQ.  Total volume was a decent 3.4 billion for 
both the NYSE and NASDAQ.

Chart of the DJIA:

 

Chart of the NASDAQ

 

Chart of the S&P 500

 

According to ShopperTrak the holiday shopping season is off to a 
good start.  Store parking lots were full and consumers were in a 
spending mood.  Retail sales for "Black Friday", the day after 
Thanksgiving, were up 4.8 percent to $7.2 billion.  ShopperTrak, 
who combines Commerce Department data with its network of 30,000 
store traffic monitors, was upbeat for the 2003-shopping season.  
Friday's 4.8% gain is pretty strong considering that it is being 
compared to last year's Black Friday, which was up 6.8% from 
2001.  

Retail titan Wal-Mart issued its own Black Friday numbers and 
they were staggering.  The retailer sold $1.52 billion in 
merchandise on Friday alone.  That means $1 out of every $5 spent 
on Friday ended up at WMT.  The $1.52 billion number is a new 
one-day sales record for WMT but the stock ended the day down 2% 
as the biggest decliner in the DJIA and the heaviest drag on the 
S&P 500.  A couple of analysts were concerned that WMT's results 
weren't stronger.  The year over year 6% gain looks good but WMT 
had increased its square footage by 7 to 8 percent so 
expectations had been set pretty high.  

Overall the initial sales data was encouraging not only for its 
gains but because consumers appeared to be moving beyond discount 
items.  Higher-end stores showed improvement and that's a great 
vote of confidence by the consumer.  Unfortunately, it may be a 
facade.  Visa USA reported that sales using Visa credit and debit 
cards for the Friday and Saturday after Thanksgiving soared 12% 
from last year to more than $6.5 billion.   

The biggest event today was the November factory activity index 
numbers by the Institute for Supply Management.  Economists had 
been looking for an increase from 57 percent in October to 57.9 
percent in November.  What we got was a jump to 62.8 percent in 
November, making it the best month since December of 1983.  
Readings over 50 are signs of improvement and expansion while 
readings under 50 are read as declines and a contracting economy.  
The new orders component also hit a 20-year high rising to 73.7 
percent in November from 64.3 percent in October.  The ISM 
backlog of orders component rose to 59 percent up from 53.5 
percent in October.  The ISM production component rose to 68.3 
percent from 62.6.  One of the most encouraging increases was the 
3.3 percent jump in the ISM employment index.  This component 
jumped from a negative 47.7 percent in October to a 51 percent 
reading in November.  It was the first time factories had hired 
new workers since September of 2000 and it bodes well for this 
Friday's employment report.  The Institute said November was the 
fifth consecutive month of growth for the manufacturing sector 
and the 25th consecutive month of growth for the overall economy.  
You can read their report here:
http://www.ism.ws/ISMReport/ROB122003.htm

Overshadowed by the ISM report was a positive construction 
spending number from the Commerce Department.  Economists had 
been looking for a rise of 0.7 percent growth and the report 
surprised with a 0.9 percent increase.  This set total 
construction spending to a record high annual pace of $922 
billion.  The news was not lost on homebuilders, which sent the 
DJUSHB index to a new all time high.  

I was a little surprised that the SOX semiconductor index didn't 
perform better today.  The Semiconductor Industry Association 
(SIA) reported the strongest monthly gain in 13 years with 
October chip sales surging 23 percent to $15.4 billion.  SIA 
President George Scalise commented on October's performance by 
saying the recovery is broad-based and from "all geographic 
markets" and "all product sectors".  The SOX index did hit a new 
intraday and closing one-year high but the gain was a muted 0.6 
percent.  

One of the biggest stories today was that of Boeing's CEO Phil 
Condit stepping down after 38 years at Boeing.  Last week Boeing 
(BA) was hit with scandal when it fired its CFO Mike Sears for 
violating company policies.  Allegedly Sears improperly 
communicated with an Air Force officer Darleen Druyun about 
future employment with Boeing while she was still acting as a 
government agent in the now controversial tanker-leasing 
contract.  Condit claims he was not involved in anything 
unethical but agreed to resign after pressure from the board of 
directors.  To replace him Boeing is waving the mandatory 
retirement age of 65 and calling on former BA employee Harry 
Stonecipher, currently 67 years old.  Stonecipher had been the 
CEO of McDonnell Douglas before the company merged with BA.  

Aside from the Boeing resignation it was a scarce day for bad 
news and investors may have been relieved to make it through the 
whole session without hearing more from Wall Street's mutual fund 
scandal.  We may not be so lucky tomorrow.  Looking ahead to 
Tuesday it will be interesting to see if buyers are willing to 
keep the momentum going in the NASDAQ and finally tag the 2000 
mark.  Meanwhile the DJIA has yet to conquer its battle with the 
9900 level.  

Traders will want to keep an eye on the bond market.  It was 
suggested that today's bond weakness was a combination of 
inflation concerns and money rotation out of bonds and into 
stocks.  The strong ISM data today combined with the dollar at 
new lows and spiking commodity prices has many speculating that 
the Federal Reserve may be forced to raise rates sooner than 
expected.  While no one expects a rate hike at next Tuesday's 
FOMC meeting the financial world will certainly be focused on 
their comments.  

As you may have heard December has a very strong history in favor 
of the bulls.  The Stock Trader's Almanac documents that over the 
past 50 plus years December is the best month for the S&P 500 and 
the second best month for the DJIA.  Now 2003 hasn't been the 
best year for trading seasonal trends but it's nice to know that 
the markets will be cruising toward 2004 with a tailwind.


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

Bear-a-la-Mode
Jonathan Levinson

The US Dollar Index and treasuries fell, equity indices and 
precious metals rose, bringing the US Dollar Index to new 
multiyear lows, gold, silver, HUI and XAU to multiyear highs, and 
the ES to new a 52 week high.  

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 broke 90 overnight and reversed weakly back 
higher, trading 90.33 of this writing.  The pattern of weak 
dollar / weak bonds / strong equities / strong commodities was 
taken to new extremes today, and while the whole mess feels 
entirely unsustainable, there's also no telling how long it will 
persist.  The CRB gained 4.49 to close at 254.37, led by cocoa, 
natural gas and copper futures.


Daily chart of February gold


Gold had a very good day, trading a new high of 405.40.  Like 
with the broader equity indices, gold is defying the sellers with 
a mostly-steady advance to higher highs.  The daily cycle 
oscillators are now trending in overbought, and we have Fibonacci 
resistance next at 405.50, tested today.  HUI also went out at 
the highs, +7.16 at 255.59, a new record.  XAU gained 2.55 to 
close at 112.21.


Daily chart of the ten year note yield


Ten year treasuries got sold aggressively again today, with the 
ten year note yield adding 7.4 basis points to close at 4.394.  
Resistance at 4.4% held, but the daily cycle oscillators are just 
getting started to the upside, and there is the potential for an 
extended yield rally above the 4.4% level.


Daily NQ candles


The ability of equities to rally from current levels of price, 
breadth and volatility is a source of continued amazement.  Yet 
again, the VXO went out below 16 at 15.97, overbought intraday 
oscillators grew more overbought.  A new 52 week high was set on 
ES, but not NQ or YM, with gains of 1.09%, 1.33% and .90% 
respectively.  As with precious metals, no price appears to be 
high enough, but the weakness in bonds remains puzzling.  One 
would expect bonds and metals to fall and rise together, or bonds 
and stocks to fall and rise together.  Selling in the US Dollar 
appears to be missing equities entirely.

The NQ toughed a high of 1448, jest below the broken rising wedge 
trendline.  The daily cycle oscillators confirmed their new 
upphases, and no participant left today not expecting a higher 
high tomorrow morning.  1460 is the next significant overhead 
resistance.


30 minute 20 day chart of the NQ


The 30 minute chart tells more of the story.  Strength associated 
with Friday's outgoing 30 minute cycle upphase and the morning's 
bullish ISM report brought the NQ to its high of the day, 
followed by an aggressive sell off to kick off the anticipated 
downphase.  Shortly thereafter, news of an apparent suicide at 
the UN made the rounds, the market faded the news, and the 
previous highs were restored in short order.  The rise continues 
to look like a bear wedge, but a second, enormously bullish 
interpretation would see either 1430 or 1450 as the neckline of a 
reverse head and shoulders formation.  I vote for the former, but 
the oscillators are positioned such that it could go either way.  
Allowing for a throwover to 1460, I expect the bear slaughter to 
accelerate dramatically above that top level.


Daily ES candles


The ES was the big winner today, breaking new ground at 1070.  As 
with the NQ, however, the broken wedge trendline was never 
broken, but tomorrow could do the trick on even a small gap up.  
The oscillator buy signal was confirmed, and though still in the 
preliminary stages, it clearly hasn't failed out of the gate.  By 
the same token, I expected a frantic short covering rally above 
1065, and the best we got was 5 points. 1062-1070 is the new 
range, and the daily upward trend remains firmly intact.  


20 day 30 minute chart of the ES


I've added a possible reverse head and shoulders neckline at 
1064, while in fact anywhere from 1062-4 works fine.  If so, then 
that support should not be meaningfully violated again on the way 
to a reverse h&s target around 1100.  On the other hand, the bear 
wedge support at 1066 could kick off a move to 1030.  Confused?  
We're pretty much directionless with the 300 minute stochastic 
buried in overbought and the Macd trying to cross down against 
the daily cycle upphases kicking off.  Direction remains entirely 
up in the air, and so traders can wait for a range break and 
follow the breakout.  I'd only add that the VXO readings are in 
blowoff territory below 16, and longs must bear that additional 
risk.  So far, however they've been rewarded handsomely.


150-tick ES


The short cycle oscillators are topped out, with the wavelet 
bounce likely from here.  A spike up open followed by an intraday 
downphase would fit the cycle setup, but the firmness of support 
today suggests that bears might not get much out of any selling 
until 1062-4 is broken.


Daily YM candles


Nothing to add on YM, which resembles NQ more closely than ES, 
possibly because of the weakness in MSFT today.


20 day 30 minute chart of the YM


The intermarket relationships that continued throughout today 
remain entirely puzzling.  However, the persistent blowoff low 
readings on the volatility indices tells us that there's a battle 
between titans currently in progress.  The rise in equities has 
drilled volatility down to levels where many simply will not be 
buyers, and yet price continues to push higher.  It reeks of 
central bank intervention, yet bond yields continue to rise.

For tomorrow, the prescription remains extreme caution.  Longs 
need to be patient and use tight stops, as the afternoon selloff 
demonstrates.  Shorts need to be very patient, and wait for 
entries to come to them.  See you in the Futures Monitor. 


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

Bulls satisfied, while bears look starved!

The historically bullish month of December got started off on a 
bullish note with the major indices closing at their highest 
levels of the year as the bulk of market participants returned 
from what was most likely an extended Thanksgiving holiday, where 
bulls found economic data satisfying, while bears looked starved.

Reports that the Bush administration intends to lift its 
controversial duties on steel imports, most likely within the 
week, helped boost global equity markets earlier in the session, 
while stronger-than-expected economic data added fuel to today's 
rally on Wall Street.

The news of the Bush administration ending imported steel tariffs 
16 months ahead of schedule to comply with a World Trade 
Organization ruling gave bullish relief to many investors that 
fear a global trade war is about to unravel, which might not only 
hurt a global economic recovery, but a U.S. economic recovery as 
well.

The decision, if made, could also spark a political backlash 
against President Bush in the pivotal steel-producing states of 
Ohio, Michigan, Pennsylvania and West Virginia in advance of his 
reelection bid next year.  

Still, sources close to senior Bush advisors concluded the 
tariffs were causing more harm than good and that lifting steel 
tariffs would boost his standing with small and medium-sized 
Midwestern manufacturers, as well as automakers whose profits 
have been squeezed by the higher price of steel.

The president was expected to sign off on his advisers' final 
recommendation and lift most of the tariffs by Friday, just days 
before the European Union was set to make good on threats to 
retaliate on $2.2 billion worth of U.S. exports. 

Some Washington watchers cautioned that President Bush could 
still make some changes, like keeping some tariffs in place a few 
months longer.

Steel industry analysts said a drop in the value of the dollar 
over the past year and rising freight rates out of Europe would 
help U.S. steel remain competitive even if the tariffs were ended 
early. 

But Leo Gerard, president of the United Steelworkers of America 
union, warned President Bush could pay a price at the polls in 
next year's presidential election if he lifted the tariffs. 

"Caving into the blackmail of the European Economic Community is 
not going to float well in Ohio, Pennsylvania, West Virginia, in 
Illinois and the other industrial states," Gerard said in an 
industry conference call with reporters. 

To soften the blow to U.S. steel makers, the administration was 
expected to step up enforcement of rules that penalizes steel 
importers for dumping their products in the United States at 
below-market rates, and plans to keep an existing steel import 
licensing and monitoring system in place.

Wall Street applauded the news that steel tariffs may find an 
early end, and later cheered economic news on the manufacturing 
front, when the ISM Index jumped to a reading of 62.8% in 
November, and highest reading since December 1983, as new orders 
of 73.7% and production of 68.3% were the strongest in 17 years 
and where still low inventories (50.0%) and rising order backlogs 
(59.0%) continue to argue for fur further strengthening 
in production.

While an afternoon report of a shooting at the United Nations 
headquarters in New York found the major indices trading back 
from their session highs, later reports that the shooting may 
have been a suicide and were not terrorist related found the 
major indices recovering from a late-afternoon lull to finish at 
their highs of the session, and for the year.

Bears may have been hungry and pressed to close out some bearish 
positions after the Thanksgiving holiday failed to show any large 
scale terrorist events taking place, with added reason to cover 
on reports that the Bush administration may bring to an end 
tariffs on steel, which would most likely lesson the possibility 
of a global trade war.

This weekend I was checking short interest data and noticed that 
on November 15, 2003 short interest on the S&P Depository 
Receipts (AMEX:SPY) $107.60 +1.08% rose to 115.18 million shares, 
it highest level this year.  The NASDAQ-100 Tracking Stock 
(AMEX:QQQ) $35.90 +1.46% saw its short interest fall from 333.75 
million shares to 314.5 million shares (October's 333.75 million 
was a yearly high of short interest), while the Dow Diamonds 
(AMEX:DIA) $99.10 +1.03% saw short interest moving back above the 
20 million share mark at 21.54 million shares, up just over 1.9 
million shares from October 15th 19.56 million, but still below 
its August 15th yearly high of 23.31 million shares short.

Bond traders may also have taken some comfort in the news that 
the U.S. was about to lift tariffs on imported steel after as 
Treasuries recouped some of their early morning losses by 
session's end.  While the shorter-dated 5-year YIELD ($FVX.X) 
rose a sharper 8.8 basis points to close with a 3.439% yield, the 
longest-dated 30-year YIELD ($TYX.X) rose a more modest 3.2 basis 
points to 5.158%, while the belly of the yield curve had the 10-
year YIELD ($TNX.X) rising 7.2 basis points to 4.392%.

The U.S. Dollar Index (dx00y) 90.32 +0.09% showed the dollar 
gaining strength during the first half of today's trade to as 
high as 90.54, before settling back into the middle-part of the 
day's range, with currency traders weighing the negatives of a 
rising deficit against still strengthening economic indicators 
and calming geopolitical fears of a trade war.

The December Gold futures contract (gc03z) $402.70 +1.48% closed 
above the $400 level in today's trade and gained $5.90 with the 
AMEX Gold Bugs Index ($HUI.X) 255.59 +2.88% surging to yet 
another all-time high.  

One note for traders of gold, which we first discussed in an Ask 
the Analyst column back on June 22, 2003 regarding a new gold 
trading security that should catch a gold bugs attention has 
Merrill Lynch offering the Gold TRAKRS (NYSE:GLD), which will 
begin trading on December 4, 2003, and is designed to track the 
spot price of gold.  For a copy of the GLD prospectus, traders 
and investors are invited to visit http://www.trakrs.com 

According to the Stock Trader's Almanac, the month of December 
has been the most bullish month for the S&P 500 Index (SPX.X) 
1,070.12 +1.12% where from January 1950 to June 2002 (June 2002 
used as end day for publishing of the Almanac deadline for year-
end distribution), the Almanac shows the S&P 500 (SPX.X) rising 
1.8% and today's 1.12% gain for the SPX looks to have market 
participants eager to see market history repeat.

While history is no guarantee for the future, November has 
historically been the second-most bullish month of trade for the 
SPX with an average 1.6% gain.  This past November ended on 
Friday, saw the SPX rise a more modest 0.71%.

As I was reviewing the Stock Trader's Almanac notes of historical 
trade for November and looking at the S&P 500 Index with new 
WEEKLY and MONTHLY pivot retracement levels overlaid, I was 
expecting, or maybe I should say looking for some selling early 
this week to WEEKLY S1, to get a good trade setup for a buying on 
weakness, and looking for the SPX to rebound back to 1,075 this 
week, while finishing out the month near 1,071 where from its 
November 28th close would be a nice 1.2% gain.  However, as has 
been the case of late, that would have probably bee been too 
easy. 

I do think today's news that the Bush administration 
reconsidering tariffs on steel imports was a pretty big surprise 
to investors/traders as there were some heightened fears that a 
global trade war was just around the corner.  While the Bush 
administration hasn't made a formal announcement regarding its 
import tariff policy, I'm somewhat uncertain that a pullback to 
WEEKLY S1's is now in the cards, and after seeing new closing 
highs, both the MONTHLY and WEEKLY Pivots begin to provide the 
look for formidable support.

Pivot Analysis Matrix -

 

There are what I feel very good support correlations in the 
WEEKLY S2 and MONTHLY S1 levels, where this weekend I really 
thought the MONTHLY S1's provided strong technical support on 
their own merits, where I would expect institutional buying to 
really kick in at the WEEKLY S1s if the major indices were to 
edge back lower earlier this week.  

Today's trade was MUCH stronger than I had envisioned this 
weekend when reviewing the new MONTHLY/WEEKLY Pivot levels, and 
now gives a much more formidable look of support to the MONTHLY 
Pivot correlations, ESPECIALLY in the S&P 500 Index (SPX.X), as 
it would relate to short interest being at its highest level this 
year as of November 15th.

S&P 500 Index Chart - Daily Intervals

 

Last week I didn't trust the MACD/Stochastics oscillators and 
that disturbs when now having missed what would have been a very 
good bullish trade on the move above 1,051, or even a bullish 
stop on a prior bearish trade from 1,042, when the SPX fell to 
1,031 and may have had traders stopped out at 1,055 when the SPX 
traded a level (1,055) I didn't think it would trade for a 
bearish trader to still see 1,027.  While there is correlative 
resistance near term in the above MONTHLY/WEEKLY Pivot 
retracement chart with DAILY R2 also at 1,057.92 offering near-
term resistance, I'm hesitant to even try putting on a bearish 
trade.  There may be some traders holding bullish positions that 
could snug a stop just under the 1,066 level to protect some 
gains and look for Stochastics to turn back lower to "oversold," 
where I think the SPX might retreat back to its correlative 
WEEKLY and MONTHLY Pivots and rising 21-day SMA for another 
bounce back higher, but this time to its WEEKLY R2 of 1,075.

On the above chart I made some notes as to current oscillators 
matching those found in early October, where the SPX came within 
about 5-points of trading its MONTHLY R2.  While I can not say 
that similar trade is going to take place as it relates to 
Oscillators and MONTHLY R2, it sure has me envisioning an SPX 
still moving higher, where any pullback to the 21-day SMA finds 
support buying.

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

 

I can not come up with any resistance on the OEX except for 
correlative MONTHLY R1, WEEKLY R2 and DAILY R1 all near 529, but 
that many levels of correlative resistance in the matrix has 
often been enough from a bullish perspective to target for near-
term gains.

One chart I was looking at in the OEX for a really good bullish 
trade entry on pullback was at the WEEKLY S1 area based on the 
above chart, but also this more historical chart of the OEX and 
usage of conventional retracement, where I think a good pullback 
entry is found and may still be found in sessions to come.

Here's a weekly interval chart of the OEX.

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

 

This weekend I spent a couple of hours working with conventional 
retracement and had a heck of a time getting any retracement to 
really make sense as it related to the OEX's past and recent 
trade.  The above retracement would tie to our WEEKLY S1 of 
support and back in June and then again in early August, the 
tests at 490 also tied in with pivot matrix observations for 
support.  One retracement not show, which some traders and 
investor might be using is the same lower anchor point to the 
July 2002 lows, but with upper anchor point edged up to 600, 
which would have 61.8% retracement at 518.34, but here too, that 
61.8% would be broken to the upside, with 80.9% higher still at 
559.57.

Point here is that the only resistance I can find for the OEX is 
from the pivot matrix at this point, and I'm always hesitant to 
call that resistance formidable, when things are breaking to new 
52-week highs.

Dow Industrials (INDU) Chart - Daily Intervals

 

International Paper (NYSE:IP) $38.75 +4.13% surged 4.13% after an 
upgrade from Deutsche Securities and lead the list of Dow 
gainers, while discount retailer Wal-Mart (NYSE:WMT) $54.50 -
2.04% lead a very small list (4) of decliners on what analysts 
felt was a disappointing "black Friday" sales report.

I'll say this now and test it later, but if Procter & Gamble 
(NYSE:PG) $97.04 +0.83% closes above $97.25, then it should trade 
$100.00 and lead the Dow to 10,000.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval

 

The QQQ backfilled its morning gap higher to $35.47, but that 
lasted for about 15-minutes as it looked like bears hungrily 
snapped up the pullback.  With that type of intra-day action, I'm 
looking for support to be firm at $35.14 and the QQQ to challenge 
the $36.50 level over the next two weeks as MACD now looks to 
provide upward momentum.

Jeff Bailey


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The Option Investor Newsletter                   Monday 12-01-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: DGX, DHR, HOV, PGR, UTX, ZMH
Dropped Calls: None
Dropped Puts: None
Play of the Day: Call - UTX 
Watch List: Monday's Mixers

Updated on the site tonight:
Market Posture: On the First Day of Christmas Wall Street Gave to Me...


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

DGX - call
Adjust from $70.25 up to $71.25

DHR - call
Adjust from $79.50 up to $80.90

HOV - call
Adjust from $87.75 up to $90.25

PGR - call
Adjust from $75.99 up to $77.25

UTX - call
Adjust from $83.00 up to $84.25

ZMH - call
Adjust from $62.89 up to $64.00


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

None


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

None


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

United Technologies - UTX - cls: 87.39 chng: +1.69 stp: 84.25*new*

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:
Volume is a weapon of the bulls and with that tool locked away 
during Friday's short session, our UTX play really had no hope of 
continuing its bullish trend.  After a failed attempt to move over 
the $86.50 level, UTX headed steadily lower into the closing bell, 
giving back most of Wednesday's gains in the process.  It looks 
like the stock is setting up for a test of support in the $84.70-
85.40 area early next week, as that area is the site of combined 
moving average support at the 10-dma ($84.70), 20-dma ($85.36) and 
30-dma ($84.88).  Any rebound from above $84.50 looks like a solid 
entry point, while a break below that level will introduce the 
possibility of a dip and retest of major support at the 50-dma 
($83.24).  Any break of the 50-dma will be a very disconcerting 
development, so we're raising our stop to $83, just under that key 
moving average.  Aggressive traders targeting a rally up to the 
$90 level can consider breakout entries over $87, but need to do 
so with the understanding that the early November highs near $88 
are likely to present solid resistance.

Why This is our Play of the Day
Looking back, we can see just how great of an entry point that 
rebound off the 50-dma was just over a week ago, as UTX has now 
made up all of the losses that led to that rebound.  On Monday, 
led by a bullish broad market, the stock surged as high as $87.85 
and for awhile looked like it might stage that breakout today.  
Alas it wasn't to be, but with the stock ending on a rebound and 
in the upper half of the day's range, can that breakout over $88 
be far off?  We don't think so and if the DOW can push through to 
touch that elusive 10,000 level, we're looking for UTX to take a 
run at $90 before the week is out.  It's tough to justify new 
positions at this altitude, but aggressive traders just might be 
able to take a quick momentum play on a breakout through 
resistance, looking to harvest gains near the $90-91 area at the 
top of the rising channel.  Note that a breakout over $88 will 
also have UTX moving back into the upper half of the channel, 
which should add to the bullish tone.  More conservative traders 
may consider new entries on a pullback and rebound near the 20-dma 
($85.45) if the stock needs to gather its strength one more time 
for the expected breakout.  Note that we're once again trimming 
our risk in the play, raising our stop to $84.25.  That's high 
enough to get us above breakeven, but still below what should be 
strong support at $84.50-85.00.

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-85*UTX-LQ OI=2838 at $3.20 SL=1.50
BUY CALL DEC-90 UTX-LP OI=1079 at $0.55 SL=0.25
BUY CALL JAN-85 UTX-AQ OI=1505 at $4.20 SL=2.50
BUY CALL JAN-90 UTX-AR OI=4502 at $1.35 SL=0.75

Annotated Chart of UTX:

 

Picked on November 23rd at   $83.90
Change since picked:          +3.49
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =     1.84 mln




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Man Financial announces the formation of the OneStopOption 
Brokerage Group, addressing the demand for personalized, 
experienced service for both securities* and futures trading 
within the same firm. Licensed Option Principals Andrew Aronson 
and Alan Knuckman specialize in live assistance of stock*, 
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.

Live Broker and Online Trading Available     888-281-9569

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


**********
Watch List
**********

Monday's Mixers

QUALCOMM - QCOM - close: 45.60 change: +1.05

WHAT TO WATCH: Technical oscillators for QCOM are starting to 
turn bullish again and chart readers will notice the short-term 
trend of higher lows (okay, so it's very short-term).  A move up 
and over the $46 level might be an entry point for new bullish 
positions but watch out for tough resistance at $48.65.

Chart=


---

Fastenal Co - FAST - close: 50.85 change: +0.90

WHAT TO WATCH: The rally in FAST continues to push higher but 
shares are looking more and more extended.  The relative strength 
is very attractive but timing a bullish entry could be tricky.  
The $48.00 level looks like a good place to watch for a future 
bounce and potential entry point for new bullish plays.

Chart=


---


Apollo Group - APOL - close: 71.60 change: +2.24

WHAT TO WATCH: Shares of APOL have shot strongly higher in the 
last several days producing a triple-top ascending breakout on 
its P&F chart.  Its daily chart also shows the same strength with 
the stock closing over resistance at $70.  Bullish traders may 
want to watch APOL for a bounce from the $70 or $68 levels and 
follow it with a close stop loss.

Chart=


---

Ross Stores - ROST - close: 55.95 change: +1.17

WHAT TO WATCH: The strong retail sales figures helped lift ROST 
up and over resistance near $55.00.  Now the stock is at all-time 
highs but near the top of its rising channel.  It's a tough call 
whether to buy the breakout or wait for a pull back toward its 
50-dma.  Aggressive bulls could go long here but we'd suggest a 
tight stop, maybe under $54.00.

Chart=



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

On the First Day of Christmas Wall Street Gave to Me...

To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/mp_120103.asp


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