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Daily Newsletter, Wednesday, 12/03/2003

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The Option Investor Newsletter                Wednesday 12-03-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Have We Made A Market Top?
Futures Wrap: Summit Party
Index Trader Wrap: NASDAQ 2,000 wasn't purely psychological
Traders Corner: Adapting To Change - Part II


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     12-03-2003            High     Low     Volume Advance/Decline
DJIA     9873.42 + 19.78  9942.01  9851.42 1.65 bln   2168/ 694
NASDAQ   1960.25 - 19.82  2000.92  1960.13 1.80 bln   2041/1086
S&P 100   524.42 -  0.29   529.03   524.36   Totals   4209/1780
S&P 500  1064.73 -  1.89  1074.30  1064.63
RUS 2000  545.19 -  8.41   556.74   545.06
DJ TRANS 2939.51 +  3.15  2969.78  2936.48
VIX        16.63 +  0.36    16.68    15.77
VXO        16.41 -  0.12    16.41    15.84
VXN        27.34 +  0.62    27.34    26.25
Total Volume 4,364M
Total UpVol  2,492M
Total DnVol  2,492M
52wk Highs     898
52wk Lows       20
TRIN          1.10
PUT/CALL      0.71
*******************************************************************

Have We Made A Market Top?

The day started off with a bang that pushed all major indices to
new 520week highs and the Nasdaq and DOW past psychologically
important hurdles of 2000 and 9900 respectively. Unfortunately
the selling overtook the buying late in the session and the only
major index to end in the green was the DOW due to the General
Motors (GM) and Merck (MRK).

The sharp turn around we witnessed today this makes me wonder if
we have reached a market top. With all the talk about overbought,
overvalued and "the market needs a rest" one would be crazy to
not at least think it could be a short-term top.




Only time will tell if we have reached this pinnacle but for me a
market top would reveal itself very simply. I would need to see
MACD make a lower low, below the 0 line as well as price make a
lower low.

Over at the DOW, you could almost here the champagne corks
popping and the clear sparkling liquid flowing as the DOW made a
daily high of 9942 breaching the all important psychological 9900
level. Unfortunately the party did not last for it was not able
to hold on to those gains and closed at 9873. So was this a
market top in the DOW also? We could repeat the same story here
but with the caveat the DOW's MACD divergence is not as
pronounced as it is in SPX.




The champagne was not only flowing at the DOW by at the NASDAQ
exchange also. For the first time in nearly two years the NASDAQ
Composite broke above the 2,000 level, technically not an
important number but psychologically very important.  A lot of
analysts are saying this level was breached because of continued
strong economic data and positive comments made about technology
bellwethers Oracle (ORCL) and Intel (INTC) but I think it is just
a reflection of the underlying bid we have seen in the market
lately.  The NASDAQ actually reached 2001 at its intraday high,
the highest level since mid-January 2002. Unfortunately the party
did not last here either for the NAZ ended the day with a close
of 1960, a 1.00% loss. Once again, have we witnessed a market top
in the NASDAQ?





The story on the NASDAQ is identical to the SPX with a market top
revealing itself when the MACD and price both make lower lows.
And once again only time will tell for we have been fooled before
and one cannot discount the normally bullish time frame we are
in.

It was a good news day for those of you who hold General Motors
shares. GM gapped up this morning when an analyst went on record
that the company's pension plan is looking much better and it
could raise its 2004 earnings guidance. Critical of the
automaker's pension problems in the past, analyst Gary Lapidus
said the company is likely to announce some "really good news"
about the plan on a conference call Dec. 12. GM closed up 5.22%.





The other stock that helped the DOW to close in the green was
Merck's (MRK) whose share price closed up 2.66% after the company
said it expects net income to be between $3.11 and $3.17 a share
in 2004, up from between $2.90 and $2.95 this year. This forecast
 was based on higher sales of the osteoporosis pill Fosamax
offsetting the loss of overseas sales of its No. 1 seller, the
anticholesterol drug Zocor, due to expiration of foreign patents.
Zocor loses U.S. patent protection in 2006 and is also up against
stiff competition from two drugs, Lipitor and Crestor, often
viewed as more powerful.




Sector winners today were Morgan Stanley Cyclical Index ($CYC.X)
+ 0.43% and the Software index ($GSO.X) +0.29%, although there is
an ominous head and shoulders forming on the GSO.




Sector losers were the Disk Drive Index (DDX.X) -3.68%, Airline
Index (XAL.X) -2.78% and the Home Builders -1.92%.

Moving onto market internals we saw a mixed bag today with
declining issues outnumbering advancers by a 17 to 15 margin on
the NYSE and by a 20 to 11 score on the Nasdaq exchange. The
volume of stocks moving lower was 782 million shares on the Big
Board and 1,237 million shares on the Nasdaq, vs. higher volume
of 608 million shares and 943 million shares, respectively. New
highs to new lows painted a much healthier picture with NYSE new
highs clocking in at 472 to new lows of 8 and on the NAZ new
highs were 299 to 10 new lows.

The SEC has tentatively approved new rules for mutual-fund trades
that would require all buy or sell mutual funds orders to be
received at the company by 4:00ET PM in hopes this firm 4:00
closing will eliminate the potential for illegal late-trading.
 SEC chairman, William Donaldson says these new rules "will go a
long way toward restoring investor confidence in these important
investment vehicles."

On the global front, China has surpassed Japan as the No. 2
petroleum user after the U.S. China oil imports for the first 10
months of 2003 are up 30% from the year-earlier period and are
expected to double to some four million barrels a day by 2010.
Some say China, which doesn't have large oil fields, might start
competing with the U.S. for influence in the Middle East and
trade weapons technology to terrorist states. On the other hand
others think China will realize it has a vital interest in
keeping the region stable.

On the economic front, the ISM index of nonmanufacturing business
fell to 60.1 in November from 64.7 in October, indicating that
the service sector is still growing, but at a slower pace than it
has been. This was the eighth consecutive month of growth in the
sector; any number above 50 indicates growth.

Meanwhile, U.S. workers were much more productive in the third
quarter than previously thought, for nonfarm business
productivity, a measure of the amount an employee produces per
hour, grew at a seasonally adjusted annual rate of 9.4%, the
strongest showing since the second quarter of 1983. On a year-
over-year basis, the increase of 5% was the fastest rate in 53
years.

The dollar failed to get a lift from upwardly revised US
productivity number and remained soft after the release of
weaker-than-expected service sector data. It weakened against
most of other currencies hitting fresh lows against the euro for
the fourth consecutive session.

The 10-year Treasury note stood at 98 24/32, down 6/32 to yield
4.41%. The 30-year bond fell 12/32 to 102 27/32, yielding 5.18%.
The five-year note was down 3/32 to 99 23/32, yielding 3.43%,
while the three-year note was off 2/32 to 100 2/32, yielding
2.60%. The two-year note was down 1/32 to 99 19/32 to yield
2.08%.

The only economic report out tomorrow is the weekly 8:30 release
of initial claims where the market is looking for a slight
increase to 354K from a prior of 351K.

Jane Fox


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

Summit Party
Jonathan Levinson

Nasdaq bulls printed The Number, held it for awhile, and then
tried to tip-toe out the back door.  The trip to a lower low from
a high above yesterday's high was a key outside reversal, which
would generally portend more selling to follow tomorrow.  Bonds
fell, while precious metals moved sideways.  Equity futures sold
off until after the cash close.

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


At least the US Dollar Index didn't fall much further, resting at
89.47 as of this writing.  The move bottomed overnight at 89.30,
but despite the most bullish productivity numbers in 20 years,
could do no more than twitch on the canvas.  Gold and silver
moved sideways, and the CRB rose on 1.01 to close at 257.75 on
strength in natural gas, sugar and cocoa futures.

Daily chart of December gold


December gold put in a higher low and lower high, building energy
with an inside day but closing in positive territory just below
the high of the day, up .90 at 405.50.  The daily cycle upphase
continues to trend in overbought, and the best news for goldbugs
was that both the metal and mining shares firmed up on the sharp
afternoon selloff in the broader equity indices. Support moved up
to 400 on this leg of the upphase.  The XAU dropped .08 to close
at 112.21, and the HUI lost 2.33 to close at 254.51.


Daily chart of the ten year note yield


Ten year notes got sold today in a resumption of the current
daily trend, the yield rising 3 basis points to 4.41%.  Trendline
resistance went unchallenged while support held.  The upphase
continues, and triple top resistance just south of 4.5% is
clearly the level to beat.  The weakness in bonds correlated well
to both the falling dollar and the 2.5B net drain from the Fed
via its open market operations today.


Daily NQ candles


The NQ dropped 17.50 today or 1.22%, touching a high at 1453 but
finishing at 1418 in a sudden "beer goggle realization" reversal.
The failure to regain the rising wedge trendline seemed to dawn
on all participants simultaneously, and the NQ broke sharply in a
move better assessed on the 30 minute chart below.  As noted in
the Futures Monitor, little technical damage was done to the daily
cycle upphase, but we had the Nasdaq print 2000 without
confirmation of a higher high from the futures, and a close at
the lows in a key outside reversal with a gravestone doji print
on the daily candle.  While the interminable uptrend on the chart
is still intact, it was a good day for bears.


30 minute 20 day chart of the NQ


Amazingly, Maria was talking down what was clearly a significant
break on the 30 minute chart.  The rising wedge support line was
broken with authority, confirming a doozy of a bearish Macd
divergence and a smaller but respectable stochastic divergence.
Support at 1415 and 1400 are the next levels to watch on the way
to a downside bear wedge target of 1358.


Daily ES candles


Most bearish of all was the lack of movement in the VXO as
intraday support was obliterated, again given voice by CNBC's
anchors.  The ES dropped 2 to close at 1065, going out on a
gravestone doji after being rejected at a new 52 week high. The
clear leadership to the downside on the NQ should have ES and YM
bulls nervous.  However, the daily uptrend is still intact, as
are the daily oscillator upphases.  Whether Nasdaq 2K proves to
have been the top of the bear market rally of 2003 will only be
known once it's in the rearview mirror.  Until 1040 gets taken
out, it will just be another routine pullback in the rising daily
bear wedge.


20 day 30 minute chart of the ES


The 30 minute ES shows the same beating that was wrought on the
NQ despite the ES' stronger close.  1064 is first obvious
support, and the strong resistance at 1060-65 is now support on
the way down.  The bearish oscillator divergences and ongoing
cycle downphases from overbought territory have me expecting
further downside tomorrow, but the short cycle oscillators on the
following 150-tick chart show that a bounce from current support
at 1064 is the first order of business.  Either those shorter
cycle oscillators will begin trending in oversold territory, or,
more likely, we'll get a bounce either tonight or tomorrow
morning up to a lower high, followed by a fresh short cycle
downphase to resume the 30 minute cycle downphase, resulting in
new lows at or below 1060.  In other words, I expect a small
bounce to a lower high, followed by a deeper drop.


150-tick ES



Daily YM candles


The YM actually advanced today, gaining 20 points or .20%, the
leader of the pack.  It too failed beneath wedge resistance, but
needs to break 9840 before bears can relax.  The daily cycle
upphase is so far solid, and on this timeframe, 9840 should hold.
If the other indices continue to slide, however, then I don't
expect the YM to stand tall for long.


20 day 30 minute chart of the YM



It was a confusing day, but an exciting one to trade.  Once
again, the VXO kept bears secure in the knowledge that, at least
in the short term, the bull frenzy was unsustainable.  The dollar
weakness should be taking a larger toll on equities, and so long
as bonds and the dollar remain weak together, I'll expect
equities to follow suit.  However, it's very early for bears to
be congratulating themselves, and until those daily charts begin
to look bearish, they'll have to continue to expect dips to be
bought.  Once the 10 day stochastic is on a sell signal though,
it will be an entirely different story.  See you in the Futures
Monitor!


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

NASDAQ 2,000 wasn't purely psychological

No one in their right mind would sell stocks just because the
NASDAQ Composite (COMPX) 1,960 -1% traded 2,000.  Would they?

I sure has heck wouldn't have thought such a trade would have
triggered an intra-day reversal that saw the NASDAQ Composite
(COMPX) kiss the 2,000 level with a session high trade of
2,000.92, eventually see nearly a 40-point reversal take place in
the matter of 3 hours and 20 minutes.  But that's exactly what
happened today.

I feel somewhat depressed, as I didn't see it coming, and intra-
day reversal that took place just after the NASDAQ Composite
(COMPX) traded 2,000, now sets the stage for a decline back to
the WEEKLY/MONTHLY pivots, but view WEEKLY S1s and the formidable
support levels.

WEEKLY/MONTHLY Pivot Matrix - $COMPX, $NYA.X, $TRAN



I've never placed the NASDAQ Composite ($COMPX), NYSE Composite
($NYA.X) 6,142.72 +0.05%, or the Dow Transportation Average
($TRAN) 2,939.51 +0.1% in a pivot analysis matrix, and perhaps I
wish I had.  I'd love to try and track every major index/sector
in the matrix in each night's wrap, but time constraints simply
don't allow.  However, using the basic formula from a prior Ask
the Analyst column on January 19, 2003
http://www.OptionInvestor.com/ask/ask_011903_1.asp
I, and most likely you the trader/investor would have appreciated
some observation that the NASDAQ Comp's WEEKLY R2, where the
WEEKLY R2 can often be the upper-end of a weekly range and mark a
point for institutional selling to provide liquidity to market
participants, was also very close to the 2,000 level, where we
could have been alert to some resistance.

One reason I wanted to also add the Dow Transportation Average
($TRAN) to a WEEKLY/MONTHLY matrix, is that in early November we
saw the $TRAN see an intra-day test of a psychologically round
3,000 level on November 7th, and then trade back eventually see
the TRAN trade back to as low as 2,837.42 by November 21 (10
trading sessions later).  While the above table of WEEKLY/MONTHLY
pivots is for current WEEK of trade and the month of December, I
did go back and check levels for the TRAN for the week of
November 3-7.  That week, when the TRAN tested 3,000, its WEEKLY
R2 was 3,008.54 and MONTHLY R1 was 3,011.24, so it would appear
the PSYCHOLOGY was at play.  However, the pullback low of
2,837.42 found technical support at a rising 50-day SMA, a
MONTHLY Pivot of 2,743.81 and base of an upward trending
regression channel.

As such, a focus of tonight's wrap will be the MONTHLY Pivots,
and 50-day SMA's as levels of pullback support.  Where investment
theory that Transports will often lead a market move will also
have us following up on the TRAN chart shown in prior wraps,
where I feel the 50-day SMA and correlative WEEKLY S1 of 2,864
become key levels of intermediate-term support for the $TRAN.

In today's 01:00 PM EST intra-day update I posted the follow
chart of the NASDAQ Composite (COMPX), where this chart was
captured right at the 01:00 PM EST strike.  I showed the chart
with a conventional retracement overlaid from the early January
2002 relative high of 2,098.99 and early October 2002 low of
1,108.50.

NASDAQ Composite Chart - Weekly Intervals



Based on conventional retracement, I do feel a December/January
"Santa Claus" rally is still at hand, with the major test being
that the COMPX show support at 1,909.71.  I'll quickly note that
a decline from 2,000 to 1,909 would represent a rather modest
4.5% decline.

Here's a quick look at the NASDAQ Composite (COMPX), but this
time with WEEKLY and MONTHLY Pivot retracement overlaid, where
here too we may seem some correlation this week with 1,909, in
the WEEKLY retracement.

NASDAQ Composite ($COMPX) Chart - Daily Intervals



Let me first say that I am NOT as convinced that institutional
computers would be trading pivot levels in the NASDAQ Composite,
but what the above chart does do is get our minds in a similar
perspective as the SPX and NDX, where these baskets of stocks
(SPX/NDX) will be bought and sold by institutional computers and
greatly influence price direction.

In today's futures monitor, both Jim Brown and Keene Little
(other analysts may have said something similar, but I saw
Keene's message per one of Jim's earlier notes) commented at
around 12:00 that NH/NL breadth was rather weak considering the
major indices making new highs.  This may have been one of the
more telling comments that bullish leadership just wasn't what it
should be.  I quickly posted our NH/NL breadth measurements taken
each day.

What I've also done in the above chart is post some various dates
and NH/NL breadth for the NASDAQ Composite.  While I don't
chart/tally the daily results until the close, at the very top we
can wee how Monday (453:10) was quite strong and matched a
similar 11/07/03 (452:13) NH/NL breadth reading.  However,
yesterday's NH/NL breadth (411:10) tapered off a bit, and I'm
impressed that Jim and Keene (maybe others) noticed some
suspicious lack of bullish leadership mid-way through the
session.

While these HIGH marks (in BLUE) give some relative high trade
benchmarks to the NASDAQ Composite, note in RED the recent two
relative low marks I've made for 10/24/03 and 11/21/03.  While
these are single day observations, where it took the "weakest"
NH/NL breadth, I will want to track the very short-term 5-day
average ratio of breadth in coming sessions, which I will want to
compare to the recent little consolidation low from 11/18/03 to
11/21/03, where the 5-day ratio on 11/21/03 was 85.7%.  This may
be helpful should at some point we see the COMPX or QQQ/NDX for
that matter, consolidate a low around the 1,925-1,930 zone of
support.

Since we're on the subject of market internals, the very broad
NASDAQ Composite Bullish % ($BPCOMPQ) saw a net loss of 0.01%, or
roughly 3 stock to point and figure sell signals in today's
trade.  This very broad indicator of market internals is still
"bull confirmed" at 72.58%.  This bullish % indicator reached a
high of 77.41% back on September 19, 2003, when the NASDAQ
Composite was trading.... Hmmmm... 1,909.

Now I'm thinking... BE ALERT for SIMILAR TRADE to that found JUST
AFTER 09/19/03.  We might look for a continuation lower TOMORROW
to the WEEKLY/MONTHLY Pivot, then a BOUNCE back on Intel's mid-
quarter update to about COMPX 1,980.

But here is where I think the Transports then come into play.

Dow Transportation Average (TRAN) - Daily Intervals



MACD on the daily interval chart just crossed above its Signal
today and for that to remain bullish, I could see how the TRAN
really needs to hold above its 21-day SMA and the 2,925 level in
our retracement.  This could be tough, but a very good test for
strength near-term as Stochastics are overbought (just like the
major indices) and in the past have seen the TRAN take a
breather.  The BIG question is how much of a breather.

It is my thinking that the TRAN can not fall below its recent
relative lows of 2,838, without the TRAN as a sector signaling
more meaningful weakness as this would then have the TRAN making
a lower high, but more importantly, a lower low.

Don't think there aren't some transportation related stock in the
NASDAQ.  Knight Transport (NASDAQ:KNGT) $24.00 +1.95% has traded
back from its September highs of $28.00 and in mid-November
slipped below its 200-day SMA of $24.22, where the 200-day SMA is
currently rising at $24.47, but finds the 50-day SMA providing
resistance in recent weeks and currently trends lower at $25.09.

While KNGT is not a component of the TRAN, ALEX, JBHT, NWAC,
ROAD, USFC and YELL are.

Dow Industrials (INDU) Chart - Daily Intervals



A lot of bears were growling in the bear's den, I mean the
futures monitor, once the INDU fell back below the 9,900 level.
While a bull isn't necessarily laughing at the close, I still
think the first sign of softening would be a decline back below
9,832.  Still, it was General Motors (NYSE:GM) $45.54 +5.2% and
Merch (NYSE:MRK) $43.63 +3.56% doing the bulk of today's work for
bulls.  Procter & Gamble (NYSE:PG) $96.81 -0.12% didn't come
close to the psychological $100.00 level.

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



I was more focused on the SPX today and noting how the futures
were finding steady resistance at the 1,073.30 level that I was
for NASDAQ Composite 2000.00.  There was a flurry of computer buy
programs today, which considering the number of buy programs on
the 5-minute time interval, just didn't have much impact on the
SPX itself.  What the steady resistance in the futures has me
thinking is there was some BIG hedging taking place, where
futures were being sold against stock bought.

This evening on CNBC, I heard James Cramer mentioning that some
of his contacts said there were some institutional hedges being
initiated.  This can create some near-term resistance, but will
give importance to 1,051.20 as a more significant level of
support.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals



The QQQ really shows some "leading weakness" as it relates to the
WEEKLY Pivot levels, and perhaps the lack of "bullish leadership"
as it is the only major index to not have been able to take out
its early November highs.  I would be looking for a bullish entry
on the QQQ as outlined in the chart ahead of the Intel mid-
quarter update.  Other index traders SPX/OEX/INDU will want to
monitor the currently weaker QQQ for support at its WEEKLY/MONTLY
levels first, and if QQQ breaks below, then SPX/OEX/INDU traders
begin to plan for tests of WEEKLY/MONTHLY levels.

I will post the Pivot Matrix with DAILY Levels in tonight's
Market Monitor and in tomorrow morning's 09:00 Update.

Jeff Bailey


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Adapting To Change - Part II
by Mark Phillips
mphillips@OptionInvestor.com

Two weeks ago, I spent all the time we had together expounding on
why I believe the ES has essentially become untradable, at least
using the methods I was using successfully earlier this year.
It's not that winning trades don't materialize.  It is that they
come along far too infrequently in relation to the bad trades that
setup several times per week.

When I put together the trading plan I use in the futures market
earlier this year, it was predicated on being able to win roughly
half my trades, but with the understanding that I would only risk
3-4 points to my initial stop on an ES trade, while targeting a
gain of 10 points.  Doing the math, we can see that even if half
my trades are 4 point losers, I'll still win over the long run.
The problem comes in when the ratio of winners to losers
approaches 1:3 or even 1:4.  If you've been trading the e-mini
these past few months, you know that there are weeks when ANY
method of trying to capture a piece of the intraday trend results
in multiple failed trades.  Lose 2 points here, 4 points there and
pretty soon the losses start to add up.  Again, it is a matter of
the ratio of winners to losers.  We all know what the problem is –
- markets that are far choppier and less trend-prone than any of
us have ever seen on an intraday basis.  The question is what to
do about it.

As I pointed out 2 weeks ago, there are a few choices we can consider:

1.	Try to retool the technical approach we're using to find
2.	something that is capable of handling the choppy conditions
3.	we're currently faced with.

2. Select a different market to trade - one that appears to be
more willing to trend on an intraday basis, preferably in a
smooth, rather than choppy manner.

4.	Become far more selective in the trades chosen and only take
5.	the ones that look too good to pass up.

I've spent an inordinate amount of time over the past several
months, using different combinations of oscillators, moving
averages, and volume studies.  I've done way too much analysis
each evening trying to "outguess" the market for the next day and
drawn so many lines on my charts, I can hardly see the price
action.  The net result is that I have come to the conclusion that
simple is best.  The more indicators and technical studies applied
to a chart, the more liable we are to develop "analysis paralysis"
and be unable to make a decision.  So after all the effort
expended, I've come right back to using my trusty Stochastics for
trade entries.  And I've spent enough time tinkering with this
indicator that I've determined the optimum settings for my use.
For intraday (5/10-minute) charts, the (10,5,3) setting seems to
be the best blend of responsiveness and smooth behavior.

Next up is the issue of perhaps using a different trading vehicle.
There are a few other choices in the futures arena.  In the equity
world, in addition to the ES, we have the Dow e-mini (YM) and the
NASDAQ e-mini (NQ).  And for those of you that want to play in a
different world altogether, there are the bond futures, ZN for the
10-year and ZB for the 30-year.  There are times when the bond
futures have trended very nicely in recent months, but the past
several weeks are not among them.  Not only that, but I've found
that for whatever reason, they trade very poorly with respect to
buy and sell signals on the Stochastics.

In terms of the YM and NQ, I've made some interesting, albeit
qualitative not quantitative, observations.  The YM appears to
trade in sync with the ES, subject to the same spiky action that
has made the ES so difficult to trade.  There are two problems
that come out of this behavior - stops are harder to hold and the
Stochastics don't give the nice smooth characteristics we'd all
like to see.  That said, the YM is a better behaved market right
now than the ES.  But I think the NQ trumps both the ES and the YM
on a couple of counts.  First is the fact that the NQ seems to be
a "smoother" market, which is probably due to less big money
players jerking it around at the expense of us little guys.  Let's
face it -- the big money still prefers the S&P.  The other
advantage of the NQ is that initial margin requirements are less
and stops can be kept tighter in terms of actual dollars at risk.
That 3-4 point initial stop in the ES equates to an initial risk
of $150-200 per contract.  I've found that a 5-6 point initial
stop in the NQ will normally serve quite well.  That equates to an
initial risk of $100-120, as one point of movement in the NQ is
equal to $20.

So let's recap.  I've decided that no matter what a given market
is doing, it is best to have a simple set of tools to work with,
preferably ones that we understand quite well.  That keeps me
focused on the Stochastics, which I'm using on the 5/10 minute
charts.  One important transition I've been able to make is to
move over from the ES to the NQ for my intraday trading.  While
I've been able to reduce my risk on a per-contract basis, there's
a downside that comes with trading this market.  One point equates
to only $20, as opposed to the ES where one point equates to $50.
That means that point-for-point, the ES gives me 2.5 times the
bang for the buck as the NQ.  It is that greater leverage that
initially drew me to the ES earlier this year.  The problem is
that leverage cuts both ways and when there are more losing than
winning trades due to an anomaly in the chosen market, that
additional leverage works against us.

Will I ever return to the ES and when?  Absolutely and I think
that event will be closely associated with the VIX/VXO getting out
of this multi-year low territory.  Once these volatility measures
get back up into the 22-25 (preferably higher) range, then I think
it is safe to say that we'll be seeing intraday trends in the ES
that span more than 5-7 points total.  In the meantime, I'll stick
with the NQ, for its inherent advantages right now.

Now that we've gone through all of the verbiage of why I've made
this switch, I want to take a look at a couple charts from today
to hopefully demonstrate what is a high-odds trade that I want to
take and what is a mediocre one that I'm better off avoiding.

5/10- Minute Chart Montage of the NQ - #1



The first potential trade setup we had this morning is denoted by
the "S1" notation on both the 5 and 10 minute charts.  If we are
just using the 5 minute chart, we might be tempted to take the
trade, but by the time we get in, the NQ is already bottoming and
turning around.  Shades of the ES, wouldn't you agree?  The clue
that this isn't a high-odds entry is the fact that the 10-minute
Stochastics hasn't reached overbought before tipping over.  This
indicates a lack of energy built up for the expected decline.

Next up is the potential long noted as L1.  This one has even less
going for it, as neither the 5 or 10-minute Stochastics entered
oversold territory, telling us once again that there just isn't
enough energy in the market to make for the powerful type of move
that we prefer to target.  The best course of action is simply to
leave it alone and wait for a better entry point.

5/10- Minute Chart Montage of the NQ - #2



Now here we're starting to find something interesting.  Look at
the circles noted as S2 and you can see both timeframes had
registered overbought readings and are in the process of reversing
down.  The circle with the S2a notation shows where the 5-minute
chart was first giving a sell signal, but it was too early to be
acted upon, as the 10-minute Stochastics are still solidly wedged
in overbought territory, not yet giving us any sign of weakness.
However, once the 10-minute Stochastics drop out of overbought,
then the next bearish cross on the 5-minute Stochastics give us
our high odds bearish entry point.  There's enough energy stored
up in this market to make it worthwhile.  Note that the fact that
the S2 crossover on the 5-minute chart is not dropping out of
overbought is not a problem, as the 10-minute chart shows us that
stored energy we desire is present.  Additionally, with the 5-
minute Stochastics unable to get back into overbought like in the
S2a instance, it gives a clear indication of a weakening market.

5/10- Minute Chart Montage of the NQ - #3



Finally, we can take a look just a bit later in the day and see
where there is a second opportunity to get aboard before the
downtrend really gets moving.  The 10-minute chart shows the clear
Sell bias going into the final two hours.  Our initial entry
signal is shown on the 5-minute chart just before 10am (all times
are Pacific Time), but we got another chance shortly after 11am as
the 5-minute Stochastics once again roll over from below
overbought (showing continued weakness) as the downmove really
gets underway into the close.  Peak to trough, the NQ gave up
nearly 30 points in almost a straight line.  That's the kind of a
trend move where it is possible to take a nice chunk of profit out
of the middle without going blind chasing 2-3 point scalp moves.

Take a look at the same timeframe on the ES and the YM today and
decide for yourself which market appears the most tradable right
now.  We could look at oodles of examples, comparing the ES to the
YM to the NQ, but space and time limitations are against me in
that regard.  Besides, if you're like me, you'll gain a better
feel for the differences if you bring up the charts yourself and
see the reality of the inherent pros and cons of the different e-
mini contracts.  Hopefully my descriptions above help to explain
why I've made the move to the NQ and I hope I've shown in a clear
enough manner what constitutes a solid entry that is likely to
have some real potential and what constitutes a mediocre trade
that is likely to continue chopping our accounts to pieces.

Questions are always welcome!

Mark


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The Option Investor Newsletter                Wednesday 12-03-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: KSS, NUE
Dropped Calls: BBY, SNDK
Dropped Puts: None
Play of the Day: Put - NUE
Spreads, Combinations & Premium-Selling Plays: Stocks End Mixed
    After Reaching 2003 Highs
Watch List: A Stocking of Four-Lettered Stocks

Updated on the site tonight:
Market Posture: Traders sell-off stocks into the close


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

Kohl's (KSS), put play.
  old stop: 50.25
  new stop: 48.60

---

Nucor (NUE), put play.  Play has been triggered.
  old stop: 56.00
  new stop: 54.51

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

Best Buy Co - BBY - close: 57.42 chg: -1.10 stop: 57.95

Retail leader Wal-Mart (WMT) has been falling fast and on big
volume the last few days and investors are taking the hint.
Plenty of retail stocks have also been hit by profit taking, not
the least of which is BBY.  Yesterday we said that odds were good
we'd be stopped out today at $57.95 and that's exactly what
happened.  The question now is will BBY hold at support near $55
and its simple 50-dma? The answer might be no.  Looking at the
daily chart BBY has a habit of piercing the 50-dma for a day or
two before rebounding.

Picked on November 25 at $60.36
Change since picked:     - 2.94
Earnings Date          12/17/03 (unconfirmed)
Average Daily Volume:      3.6  million
Chart =


---

Sandisk Corp. - SNDK - close: 71.90 change: -6.31 stop: 75.50

This is a very good example of why it's crucial to play with stop
losses.  SNDK had some news recently about opening a new plant
but there is no discernible catalyst for today's painful sell-
off.  The stock actually opened higher and then slowly began to
trade down.  Then the sell-off became a full-fledged route.
Shares closed near their low for the day and this is bad news for
tomorrow.  The stock does have some support at $70 but today's
high-volume drop is compounded with the new P&F sell signal.
We'll be curious to know if there isn't some news after the bell
or tomorrow to explain the sudden drop.


Picked on November 30th at   $80.82
Change since picked:          -8.92
Earnings Date               1/14/04 (unconfirmed)
Average Daily Volume =     3.63 mln
Chart =



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

None


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

Nucor Corporation - NUE - close: 52.66 change: -4.01 stop: 56.00

-Company Description-
Nucor Corporation manufactures and sells steel products, including
hot-rolled steel, cold-rolled steel, cold-finished steel, steel
joists and joist girders, steel deck and steel fasteners.  The
company produces its rolled sheet steel to satisfy customer
orders, while other products are manufactured in standard sizes
and inventories are maintained.  While the rolled steel products
are sold primarily to steel service centers, fabricators and
manufacturers throughout the United States, steel fasteners are
sold to distributors and manufacturers.  Steel joists , joist
girders and steel deck are primarily sold to general contractors
and fabricators in the United States.


- Most Recent Update (Tuesday, Dec. 02, 2003) -
Shares of the steel stocks have been trading strongly in recent
months, helped in part by the tariffs imposed on foreign steel
manufacturers.  It appears that tailwind is about to be removed
though as the Bush administration is now looking at lifting those
tariffs this week, 16 months ahead of schedule.  While there was a
news report out yesterday indicating that the premature end to the
protective action is unlikely to hurt U.S. steelmakers, investors
apparently had a change of heart today, helped along by some
notable downgrades in the sector this morning.  Before the open,
McDonald Investments cut their rating on NUE (the largest domestic
steel producer) from Buy to Hold this morning, citing concerns
about the company being able to pass along higher scrap metal
costs to customers.  Whether the catalyst was the downgrade or
concerns over the end of the tariffs on foreign producers, the
stock got hit very hard on Tuesday, losing more than 7% on volume
that more than tripled the ADV.

NUE has been trading in an increasingly volatile manner for the
past several weeks, building an expanding wedge pattern that hints
of future price weakness.  Today's slide dropped the stock to the
lower bound of that pattern, also right at horizontal support near
$52.60.  Should that support fail, NUE should have downside
potential to the $47-48 area, which is right at the 200-dma
($47.06), as well as the top of the 10/03 gap.  We'll use a $52.50
trigger for the play and aggressive traders can enter on the
initial break below that level.  There's the potential for a near-
term bounce from the 50-dma ($51.49), which is right at historical
resistance-turned support.  So the more conservative entry
strategy would be to look for a rebound off that support level to
roll over from new resistance in the $53-54 area.  Due to the
recent volatility, we're starting coverage with a wide stop at
$56, just over today's opening high.  Our recommended profit
target will be for a drop into the $47-48 area.

- Play of the Day Comments -
Right on cue...shares of NUE traded down through our trigger at
$52.50, bounced from $52 and proceeded to roll over again.  The
close under $52.00 is encouraging.  Optimists will point out that
NUE has not yet broken its simple 50-dma but if the markets
continue to slip NUE is likely to lead the way again.  Volume on
today's decline was almost 3 times the normal.


- Suggested Options -
Aggressive short-term traders can use the December 50 Put, while
those with a more conservative approach will want to use the
January 50 put.  Our preferred option is the January 50 strike,
which has ample time until expiration.

BUY PUT DEC-55 NUE-XK OI=137 at $3.70 SL=1.85
BUY PUT DEC-50 NUE-XJ OI=396 at $0.90 SL=0.45
BUY PUT JAN-50*NUE-MJ OI=531 at $1.80 SL=0.90

Annotated Chart:




Picked on December 2nd at    $52.66
Change since picked:          -0.81
Earnings Date                1/22/04 (unconfirmed)
Average Daily Volume =         655 K
Chart =



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*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

Stocks End Mixed After Reaching 2003 Highs
By Ray Cummins

The major U.S. equity averages surged to their highest levels in
18 months Wednesday, but the rally eventually faded as traders
booked profits in the wake of the recent bullish activity.

The Dow Jones Industrials Average ended 19 points higher at 9,873
on strength in General Motors (NYSE:GM), which hit a 52-week high
a day after the firm reported a sharp increase in U.S. auto sales
during November.  The NASDAQ Composite index finished 19 points
lower at 1,960 after eclipsing the 2000 mark for the first time
since mid-January 2002.  The S&P 500 index fell 1 point to 1,064
with pharmaceutical and brokerage shares seeing limited buying
pressure while gold and oil services stocks fell.  On the NYSE,
decliners barely outpaced advancers on volume of 1.4 billion
shares.  The technology exchange was more bearish with losers
pummeling winners by almost 2 to 1 as 2.2 billion shares changed
hands.  The bond market backpedaled from earlier gains to finish
lower, with the yield on the 10-year Treasury closing at 4.41%.


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

SUMMARY OF CURRENT POSITIONS - AS OF 12/02/03

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

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.


Naked Puts
**********

Stock   Strike Strike Cost  Current   Gain    Max    Simple
Symbol  Month  Price  Basis  Price   (Loss)  Yield   Yield

AMAT     DEC    22    22.05  24.06    0.45   4.81%   2.04%
EYE      DEC    20    19.65  24.10    0.35   5.21%   1.78%
ICOS     DEC    35    34.55  45.40    0.45   3.81%   1.30%
NVLS     DEC    40    39.20  43.44    0.80   4.65%   2.04%
PHTN     DEC    35    34.25  40.96    0.75   5.41%   2.19%
PMCS     DEC    17    17.10  20.38    0.40   6.88%   2.34%
ANPI     DEC    40    39.05  50.91    0.95   7.86%   2.43%
APPX     DEC    25    24.55  38.58    0.45   6.28%   1.83%
EASI     DEC    42    42.68  56.38    0.70   4.74%   1.64%
GPRO     DEC    25    24.65  34.16    0.35   4.88%   1.42%
INSP     DEC    22    21.85  25.65    0.65   8.33%   2.97%
MGAM     DEC    35    34.60  39.53    0.40   4.33%   1.16%
NEM      DEC    42    41.60  50.00    0.90   5.61%   2.16%
NVLS     DEC    37    36.95  43.44    0.55   4.49%   1.49%
PHS      DEC    50    49.40  67.00    0.60   3.91%   1.21%
UTSI     DEC    30    29.65  38.04    0.35   3.83%   1.18%
APPX     DEC    30    29.50  38.58    0.50   7.22%   1.69%
BRCM     DEC    32    32.10  36.51    0.40   4.65%   1.25%
EASI     DEC    46    46.08  56.38    0.55   4.75%   1.19%
GPRO     DEC    30    29.60  34.16    0.40   5.21%   1.35%
PHTN     DEC    35    34.60  40.96    0.40   4.79%   1.16%

There are few issues on the "watch" list, however traders
are always encouraged to close any suspect positions in the
interest of capital preservation.


Naked Calls
***********

Stock  Strike Strike Cost  Current   Gain    Max     Simple
Symbol Month  Price  Basis  Price   (Loss)  Yield    Yield

IACI     DEC    37   35.90  32.06    0.40   3.22%    1.11%
WEBX     DEC    25   25.30  19.60    0.30   5.79%    1.19%
MERQ     DEC    50   50.40  47.14    0.40   3.21%    0.79%
SEPR     DEC    27   27.75  25.82    0.25   5.36%    0.90%
TTWO     DEC    40   40.40  31.67    0.40   5.84%    0.99%
CVTX     DEC    25   25.40  17.71    0.40  13.63%    1.57%
TTWO     DEC    37   37.95  31.67    0.45   6.65%    1.19%

Mercury Interactive (NASDAQ:MERQ) remains on the "watch"
list.


Put-Credit Spreads
******************

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L   Status

KLAC    60.08  58.83   DEC  50  55   0.75  54.25   0.75   Open
MIK     50.55  47.51   DEC  43  45   0.30  44.70   0.30   Open
SMH     44.65  43.75   DEC  38  40   0.25  39.75   0.25   Open
BRCM    34.62  36.51   DEC  28  30   0.25  29.75   0.25   Open
BRL     81.14  84.73   DEC  70  75   0.50  74.50   0.50   Open
TOL     38.27  42.25   DEC  30  35   0.55  34.45   0.55   Open
TARO    68.59  72.11   DEC  60  65   0.45  64.55   0.45   Open
TECD    36.13  37.29   DEC  30  35   0.60  34.40   0.60   Open

Michael's (NYSE:MIK) remains an issue to "watch" as it recovers
from a recent test of the 50-dma.


Call-Credit Spreads
*******************

Symbol  Pick   Last   Month L/C S/C Credit  C/B    G/L   Status

NE      33.79  34.64   DEC  37  35   0.40  35.40   0.40   Open
HDI     45.17  46.71   DEC  50  47   0.25  47.75   0.25   Open
SYMC    30.17  32.98   DEC  35  32   0.40  32.90  (0.08) Closed
AMGN    58.14  58.89   DEC  65  60   0.65  60.65   0.65   Open
SNPS    29.57  31.00   DEC  35  32   0.25  32.75   0.25   Open

Symantec (NASDAQ:SYMC) has been closed to limit potential losses.
All of the remaining bearish plays in the portfolio are on the
"watch" list due to the recent rally.


Synthetic Positions
*******************

No Open Positions


Debit Straddles
***************

No Open Positions


Questions & comments on spreads/combos to Contact Support
*************

NEW POSITIONS

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

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

BULLISH PLAYS - NAKED PUTS

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

**************
BRCM - Broadcom  $36.02  *** Networking Sector Favorite! ***

Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated
silicon solutions that enable broadband communications and the
networking of voice, video and data services.  Using proprietary
technologies and advanced design methodologies, Broadcom designs,
develops and supplies complete system-on-a-chip solutions and
related hardware and software applications for all broadband
communications markets.  Their diverse product portfolio includes
solutions for digital cable and satellite set-top boxes; cable
and DSL modems and residential gateways; high-speed transmission
and switching for local, metropolitan, wide area and storage
networking; home and wireless networking; cellular and terrestrial
wireless communications; Voice over Internet Protocol (VoIP)
gateway and telephony systems; broadband network processors; and
SystemI/O(TM) server solutions.

BRCM - Broadcom  $36.02

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 32.5  RCQ XZ    5167   0.25  32.25   4.3%   0.8% *
SELL PUT  DEC 35    RCQ XG    3865   0.80  34.20  10.7%   2.3%


**************
EASI - Engineered Support Systems  $56.60  *** All-Time High! ***

Engineered Support Systems (NASDAQ:EASI) along with its various
subsidiaries, designs and manufactures military support equipment
and electronics for the United States armed forces.  The company
also engineers and manufactures air handling and heat transfer
equipment, material handling equipment and custom molded plastic
products for commercial and industrial users. Engineered Support
Systems' six wholly owned subsidiaries are Systems & Electronics
(SEI), Engineered Air Systems (Engineered Air), Keco Industries,
(Keco), Engineered Coil Company (d/b/a Marlo Coil), Engineered
Electric Company (d/b/a Fermont) and Engineered Specialty
Plastics.

EASI - Engineered Support Systems  $56.60

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 50    UFE XJ     320   0.55  49.45   6.3%   1.1% *
SELL PUT  DEC 55    UFE XK     326   2.00  53.00  16.5%   3.8%


**************
FCS - Fairchild Semiconductor  $25.51  *** Entry Point? ***

Fairchild Semiconductor (NYSE:FCS) is a leading global supplier
of high performance products for multiple end markets.  With a
focus on developing leading edge power and interface solutions
to enable the electronics of today and tomorrow, Fairchild's
components are used in computing, communications, consumer,
industrial and automotive applications.  Fairchild's employees
design, manufacture and market power, analog & mixed signal,
interface, logic, and optoelectronics products from its company
headquarters in South Portland, Maine, USA and numerous locations
around the world.

FCS - Fairchild Semiconductor  $25.51

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 22.5  FCS XX    3635   0.25  22.25   6.4%   1.1% *
SELL PUT  DEC 25    FCS XE     252   0.75  24.25  13.7%   3.1%


**************
KMRT - Kmart Corporation  $32.74  *** Strong Sector! ***

Kmart Corporation (NASDAQ:KMRT) is a discount retailer and a
general merchandise retailer.  The firm operates in the general
merchandise retailing industry through 1,829 Kmart discount
stores with locations in all 50 states, Puerto Rico, the United
States Virgin Islands and Guam, as of January 29, 2003, and
through its e-commerce shopping site, www.kmart.com.  In May
2003, the company emerged from Chapter 11 protection.

KMRT - Kmart Corporation  $32.74

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 30    KTQ XF    6327   0.50  29.50   8.8%   1.7% *
SELL PUT  JAN 30    KTQ MF     144   1.15  28.85   6.8%   4.0%


**************
MICC - Millicom Cellular  $75.40  *** Telecom Giant! ***

Millicom International Cellular S.A. (NASDAQ:MICC) is a global
telecommunications investor with cellular operations in Asia,
Latin America and Africa.  The company has a number of cellular
operations and licenses in countries around the world and the
group's cellular operations have a combined population under
license of over 500 million people.  In addition, MIC operates
a GSM clearing house, provides high-speed wireless data services
in various countries and has a licenses to develop high speed
wireless data services in other areas.  MIC also has a major
interest in Tele2 AB, an alternative pan-European telecom firm
offering fixed and mobile telephony, data network and Internet
services.

MICC - Millicom Cellular  $75.40

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 65    CQD XM     255   0.65  64.35   6.1%   1.0% *
SELL PUT  DEC 70    CQD XN     176   1.40  68.60  10.2%   2.0%


**************
ONXX - Onyx Pharmaceuticals  $28.31  *** Pure Premium-Selling! ***

Onyx Pharmaceuticals (NASDAQ:ONXX) is engaged in the discovery
and development of novel cancer therapies utilizing two primary
technology platforms, small molecules that inhibit the proteins
involved in excess growth signaling, and therapeutic viruses
that selectively replicate in cells with cancer-causing genetic
mutations.  The firm is developing a new small molecule compound,
BAY 43-9006, in collaboration with Bayer Pharmaceuticals.  Using
its proprietary virus technology, the company is also developing
ONYX-411, a second-generation product that targets cancers with
abnormal function of the retinoblastoma tumor-suppressor gene,
and is developing Armed Therapeutic Virus products.

ONXX - Onyx Pharmaceuticals  $28.31

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 25    OIQ XE    1282   0.35  24.65   8.0%   1.4% *
SELL PUT  JAN 22.5  OIQ MX       0   0.45  22.05   5.0%   2.0%
SELL PUT  JAN 25    OIQ ME     305   0.90  24.10   6.8%   3.7%


**************
RMBS - Rambus  $29.70  *** New Trading Range? ***

Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products.  These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces.  Rambus'
memory interface products provide an interface between memory chips
and logic chips.  In addition, the firm's logic interface products
provide an interface between two logic chips.  Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone.  Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.

RMBS - Rambus  $29.70

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 25    BNQ XE    9873   0.40  24.60  10.0%   1.6% *
SELL PUT  JAN 20    BNQ MD    7909   0.45  19.55   4.8%   2.3%
SELL PUT  JAN 22.5  BNQ MX    3396   0.85  21.65   8.5%   3.9%


**************
TELK - Telik  $21.85  *** New Drug Speculation! ***

Telik (NASDAQ:TELK) is a biopharmaceutical company working to
discover, develop and commercialize small-molecule drugs to treat
serious diseases, including cancer and diabetes.  Telik's most
advanced product development programs include TLK286, which it
expects to enter a Phase III registration trial beginning in the
1st-quarter 2003; TLK199, which is in a Phase I-IIa trial, and
TLK19781, which is in pre-clinical safety studies.  TLK286 is a
small-molecule tumor-activated cancer drug that the company is
evaluating initially to treat cancers that are resistant to
standard chemotherapy drugs.  TLK199 is a small-molecule bone
marrow stimulant being developed for the treatment of blood
disorders associated with low white blood cell levels.  TLK19781
is a proprietary, orally active small-molecule insulin receptor
activator for the potential treatment of Type II diabetes and
other conditions related to insulin resistance.

TELK - Telik  $21.85

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  DEC 20    ZUL XD     66    0.25  19.75   6.7%   1.3% *
SELL PUT  JAN 17.5  ZUL MW     10    0.30  17.20   4.3%   1.7%
SELL PUT  JAN 20    ZUL MD     30    0.95  19.05   8.2%   5.0%


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

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

***************
HAR - Harman International  $143.81  *** 2-for-1 Split Coming! ***

Harman International Industries (NYSE:HAR) designs, manufactures
and markets high-fidelity audio products and electronic systems
for the consumer and professional markets.  The Consumer Systems
Group has operating segments that design, manufacture and market
audio and electronic systems for vehicle, home audio, video and
computer applications.  The Professional Group designs, makes and
markets loudspeakers and electronics used by audio professionals
in concert halls, stadiums, airports and other buildings and also
recording, broadcast, cinema and music reproduction applications.
The company's Consumer Systems Group designs, manufactures and
markets loudspeakers and audio, video and electronic products
systems for home, vehicle and computer applications.

HAR - Harman International  $143.81

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-125.00  HAR-XE  OI=168  ASK=$0.70
SELL PUT  DEC-130.00  HAR-XF  OI=57   BID=$1.05
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$129.60


**************
SCHN - Schnitzer Steel  $49.98  *** Steel Sector Leader! ***

Schnitzer Steel Industries (NASDAQ:SCHN) collects, processes and
recycles metals by operating a metals recycling business in the
United States.  The company also owns a chain of self-service
auto parts stores in the United States, operating under the name
of Pick-N-Pull, and is also a maker of finished steel products at
its technologically advanced steel mini-mill.  As a result of its
vertically integrated business, Schnitzer is able to transform
obsolete or wrecked auto bodies and other unprocessed metals into
finished steel products.  In addition, it is a partner in joint
ventures that are either in the metals recycling business or are
suppliers of unprocessed metals.  The company owns interests in
five joint ventures that are engaged in buying, processing and
selling primarily ferrous metal.  Another joint venture is an
industrial plant demolition contractor that dismantles industrial
plants, performs environmental remediation and sells recovered
metals and machinery.

SCHN - Schnitzer Steel  $49.98

PLAY (less conservative - bullish/credit spread):

BUY  PUT  DEC-40.00  SQQ-XH  OI=364  ASK=$0.25
SELL PUT  DEC-45.00  SQQ-XI  OI=588  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$44.45


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

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

***************
CERN - Cerner  $42.20  *** Premium-Selling Only! ***

Cerner (NASDAQ:CERN) designs, develops, markets, installs, hosts
and supports software information technology and content solutions
for healthcare organizations and consumers.  The firm's solutions
give end users secure access to clinical, administrative and other
financial data in real-time.  Consumers retrieve appropriate care
information and educational resources via the Internet.  The firm
implements these solutions as stand-alone, combined or enterprise
wide systems.  Cerner solutions can be managed by the company's
clients or via an application outsourcing/hosting model.  Cerner
provides hosted solutions from its data center in Lee's Summit,
Missouri.

CERN - Cerner  $42.20

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  DEC 50    CQN LJ     428   0.30  50.30   6.1%   0.6% *
SELL CALL  DEC 45    CQN LI    1358   1.50  46.50  18.3%   3.2%


**************
CVTX - CV Therapeutics  $17.56   *** Ranexa Review Speculation! ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused
on the discovery, development and commercialization of new small
molecule drugs for the treatment of cardiovascular diseases.  The
company's New Drug Application (NDA) for Ranexa (ranolazine) for
the treatment of chronic angina has been filed at the U.S. FDA.
Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being
developed for the potential reduction of rapid heart rate during
atrial arrhythmias.  CVT-3146, an A2A-adenosine receptor agonist,
is being developed for the potential use as a pharmacologic agent
in cardiac perfusion imaging studies.  Adentri, an A1-adenosine
receptor antagonist, is being developed by the company's partner,
Biogen, for the potential treatment of acute and chronic congestive
heart failure.  CVTX also has several research and preclinical
development programs designed to bring additional drug candidates
into human clinical testing.

CVTX - CV Therapeutics  $17.56

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  DEC 25    UXC LE   10708   0.45  25.45  21.6%   1.8% *
SELL CALL  DEC 22.5  UXC LX    8406   0.80  23.30  35.3%   3.4%


**************
HYSL - Hyperion Solutions  $32.53  *** Trading Range? ***

Hyperion Solutions (NASDAQ:HSYL) is a provider of unique business
performance management software that enables companies to translate
strategies into plans, monitor execution and provide insight to
manage and improve financial and operational performance.  The
company's applications, along with its development and deployment
platform, enable business performance management across a variety
of functional and operational areas beyond the finance areas of
the business.  The company also offers support and services from
offices in 20 countries and works with over 330 partners to provide
solutions to more than 6,000 customer organizations worldwide.

HYSL - Hyperion Solutions  $32.53

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  DEC 35    WQE LG     132   0.40  35.40   6.9%   1.1% *
SELL CALL  JAN 35    WQE AG       0   0.90  35.90   5.3%   2.5%


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

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

**************
AMZN - Amazon.com  $51.51  *** Consolidation Underway ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.

AMZN - Amazon.com  $51.51

PLAY (less conservative - bearish/credit spread):

BUY  CALL  DEC-60.00  ZQN-LL  OI=5775   ASK=$0.10
SELL CALL  DEC-55.00  ZQN-LK  OI=11807  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$55.55


**************
ERTS - Electronic Arts  $42.27  *** The Sell-Off Continues! ***

Electronic Arts (NASDAQ:ERTS), headquartered in Redwood City,
California, is the world's leading interactive entertainment
software company.  The firm develops, publishes and distributes
software worldwide for the Internet, personal computers and
video game systems.  Electronic Arts markets its products under
four brand names: EA SPORTS, EA GAMES, EA SPORTS BIG and EA.COM.

ERTS - Electronic Arts  $42.27

PLAY (less conservative - bearish/credit spread):

BUY  CALL  DEC-47.50  EZQ-LW  OI=4111  ASK=$0.25
SELL CALL  DEC-45.00  EZQ-LI  OI=9999  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$45.25


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

SEE DISCLAIMER - SECTION 1

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


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

A Stocking of Four-Lettered Stocks

Electronic Arts - ERTS - close: 42.27 change: -1.63

WHAT TO WATCH: ERTS just hasn't been the same after breaking
under its 50-dma prior to its 2-for-1 split.  Now shares have
built new overhead resistance at $45.00 and seem intent on
testing support between 37.50 and 40.00 with its 200-dma at
38.79.  Today's drop was on very big volume of 16 million shares
versus the 2.4 million average.  That usually spells trouble.
Another failed rally at $44 or a move through today's low could
be entry points for bearish positions.

Chart=


---

KLA-Tencor - KLAC - close: 58.26 change: -0.57

WHAT TO WATCH: KLAC escaped the heaviest selling on Wednesday but
from the looks of it technology stocks may have to fight off the
bears again tomorrow.  Shares of KLAC hit $60 and began to roll
over.  No coincidence the NASDAQ hit 2000 and rolled over.
Volume was pretty strong today for KLAC and that smells like
distribution (a.k.a. people getting out).  It would not surprise
us to see KLAC retest the $55.00 level.

Chart=


---

Intuit Inc - INTU - close: 50.13 change: +0.38

WHAT TO WATCH: The GSO software sector was probably the strongest
group for the majority of the day but the afternoon sell off hit
tech stocks pretty hart.  INTU is a software stock that managed
to close in the green.  The bad news is shares performed yet
another failed rally at resistance of $51.00.  A move under
$49.00 could set up for a retest of its 200-dma near $45.00.

Chart=


---

Dollar Tree Stores - DLTR - close: 30.85 change: -0.65

WHAT TO WATCH: One niche that has been under performing the
markets recently has been the dollar value stores.  Stocks like
DLTR, FDO, DG, and NDN all look terrible.  Traders might want to
consider using a trigger under DLTR's 200-dma or round-number
support at $30.00.  Should these support levels break the next
test is likely to be $27.50 and then $25.00.

Chart=



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


BBBY $42.35 -0.16 - There isn't a lot of room to play here but
BBBY is forming a very big wedge with overhead resistance near
43.50-44.00 and the bottom of the rising wedge at its 200-dma.
After today's move it may be time for a test of the 200-dma
again.

TECD $36.81 -0.48 - Keep an eye on TECD.  A pull back and bounce
from the $35.00 mark might be a decent bullish entry point.


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

Traders sell-off stocks into the close

To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/mp_120303.asp


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