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Daily Newsletter, Thursday, 12/04/2003

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The Option Investor Newsletter               Thursday 12-04-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Warning Season Begins
Futures Markets: The Strong Dollar
Index Trader Wrap: Intel gives Wall Street the good news and bad news
Market Sentiment: Late Day Turn


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      12-04-2003           High     Low     Volume Advance/Decline
DJIA     9930.82 + 57.40  9933.86  9865.78 1.84 bln   1563/1620
NASDAQ   1968.80 +  8.60  1971.25  1942.67 2.11 bln   1436/1748
S&P 100   527.56 +  3.14   528.01   524.42   Totals   2999/3368
S&P 500  1069.72 +  4.99  1070.37  1063.15
W5000   10431.96 + 29.60 10437.68 10362.72
RUS 2000  544.15 -  1.04   545.89   537.23
DJ TRANS 2938.02 -  1.50  2944.22  2914.20
VIX        16.30 -  0.33    16.83    16.29
VXO (VIX-O)16.56 +  0.26    17.37    16.50
VXN        26.81 -  0.53    27.45    26.70
Total Volume 4,264M
Total UpVol  2,195M
Total DnVol  2,018M
52wk Highs  444
52wk Lows    25
TRIN       1.05
NAZTRIN    1.11
PUT/CALL   0.72
************************************************************

Warning Season Begins

It was a strange day in the markets with the opening bounce
fading midday and taking the indexes down to initial support
before a series of buy programs in the last hour rescued the
bulls from a dismal fate. That rescue ran into trouble after
the close with warnings from two companies that tanked the
futures in the overnight session.

Dow Chart


Nasdaq Chart



Russell-2000 Chart



The bad news started early with a jump in Jobless Claims
by +11,000 to 365,000 and an upward revision to last weeks
numbers to +354,000. It was not a material bounce but we
all know how traders count on new trends continuing. The
two consecutive weeks of declines gave traders hope and the
return to early November levels weakened those hopes. If
the Nonfarm Payroll report was not tomorrow I do not think
traders would have been so nervous. Continuing claims also
rose to 3.38 million. Actually the internal numbers were
great. 47 states and territories reported a drop in claims
while only six reported increases. The overall decline in
claims may have unintended consequences. It appears now that
lawmakers will NOT vote for a fourth extension of benefits
and that means over a million more workers will no longer
have any unemployment income. This could further depress
the retail sector as those on the bubble tighten their
wallets even further.

Also depressing sentiment was the lighter than expected
Retail Sales for November. The monthly sales came in at
+3.6% and slightly below already lowered estimates. The
Discount stores, Wholesale Clubs and Drug Stores were the
only real gainers. Apparel and Footwear lost ground from
October. Estimates for December are for a +4% to +4.5%
gain and while this is up from November it is still below
the late summer months in the 5.5% range. Only a few stores
said the post Thanksgiving sales were strong. Wal-Mart
specifically did NOT mention post holiday sales and DID
say sales in early November were stronger. Read between
the lines and you can probably decide that last weekend
was a disappointment for them. Complicating the situation
was the fact that last November was the weakest month of
the year for chain stores with December the second worst.
This makes the comparisons much easier for the current
period and they were only able to grow +3.6%. Does not
look good for the retail sector. The Retail Index was down
nearly -6% from the Dec-2nd high to today's lows. They
did benefit from the end of day buy programs and bounced
nearly +10 points off the 365.46 low. Also, more than
half of retailers MISSED their November projections. The
retailers said sales were slower due to lower inventory
levels, fewer sale items and smaller promotions. Sounds
like the retailers saw the decline coming. Leading the
decline in the retail sector were WMT, HD, LOW, JCP, FD
and ANN. Going against the trend was Target which gained
nearly $1 on its results.

National Semi announced earnings this morning and said
profit was up tenfold on lower costs and strong sales from
North America and the Asia Pacific region. Wall Street was
expecting 32 cents and NSM posted 36 cents. NSM said they
expected 4Q revenue to rise +3% to +5%. Suddenly traders
were shocked back to reality and the stock dropped over
-$3 on the news. Great sales, great profit but only +4%
growth? Traders dropped it like a hot skillet and despite
an end of day rebound it closed under $42 and well under
yesterday's nearly $45 high. This put even more focus on
Intel and their mid quarter update after the close.

Intel shocked investors after the close and the shock could
carry over to Friday's open. They raised their revenue range
to $8.5B-$8.7B from $8.1B-$8.7B. ($8.4B avg to $8.6B)
This is not what shocked investors because everyone had
already expected them to raise the range. Many had hoped
they would raise the upper end but Intel is smarter than
that. They give the wide range in their first estimate and
then adjust it to the center as the quarter progresses.
What shocked analysts was the announcement of a $600
million charge for unsold inventory and good will in their
wireless communications and flash memory business. They
said growth in that business was less than previously
expected. The charge will lower their earnings by six
cents for the 4Q. Andy Bryant said they were seeing
"normal" seasonal growth with good demand for processors.
Analysts never want to hear that growth is normal. Intel
dropped -$1 in after hours and all the other chip stocks
followed suit.

The problem is the perception of the charge. Intel would
want you to believe it was "not normal business" and
therefore their -6 cent earnings drop would not be a
warning but an adjustment. Some analysts differ on that
view. Since Intel is a chip company and that is a large
portion of their business they feel at least a portion
of the charge is "normal course" and represents a warning.
Either way Intel still said the microprocessor business
was still strong and strong enough to raise estimates
slightly. With the NSM slow growth comments and the INTC
earnings charge there is a good chance the semi sector
will not be a leader to the upside on Friday.

Another tech stock held an analyst update on Thursday but
failed to update anything. IBM spent a considerable amount
of time bragging on IBM and trying to suggest there was
a tech revolution underway but in the end they never gave
any revenue or earnings guidance. It was a pep rally for
analysts and nothing of substance. This suggests this
thought process. If they had any good news they would have
wanted to give it. Companies only disguise the bad news.
IBM rarely updates guidance in these analyst meetings so
we really can't draw too any negative conclusions despite
thinking about them. IBM did rise +1.12 after the dog and
pony show.

Jet Blue warned after the close saying that the airline
industry was faced with a challenging revenue environment.
They said capacity additions by the major carriers were
producing lower fares and more vacant seats. Western
routes were said to be under the greatest strain. Airlines
have been under pressure from rising fuel costs and there
are starting to be rumors of lower than expected bookings
for the coming holiday travel season. This warning came
after Raymond James cut Southwest Airlines (LUV) neutral
from buy saying that drops in November airfares could
continue into December.

The Nortel CEO said that they expected to see some growth
in the telecom sector in 2004 but they did not expect it
to be strong. He said there was "no spending boom" in the
near future. He also said prospects for Nortel's optical
division were weak. NT dropped about 20 cents on the news
to $4.40. Considering the downplay I thought this was a
positive sign that investors had already priced in the
bad news.

Despite all the bad news the markets crawled out of the
gates and picked up speed around 10:AM. The Dow moved
over the critical 9900 level and reached initial resistance
from yesterday at 9925 before stalling. For two hours the
Dow struggled to cling to 9925 while the Nasdaq was heading
lower. The Dow finally collapsed around 1:PM and fell to
support at 9875. This was not a big drop but the fall
from 9925 represented a lower high and the beginning of a
potential roll over. The 9875 level was support Wednesday
morning again Wednesday afternoon at the close. It began
as support again this morning so the afternoon retest was
a critical fourth test of support.

The Nasdaq touched 2000 right on schedule on Wednesday and
almost immediately started down as expected. It fell to
a low of 1942 on Thursday, -59 points from the Wednesday
high. That 1945 level was initial support and provided a
resting place for over an hour before the rebound began.

At exactly 3:PM we saw the first of three broad based buy
programs hit the market and A/D line gained +1600 issues
over the next hour. The rebound caught everyone by surprise
and the speed of the program spikes left most speechless
and stopped out of their shorts. The Nasdaq rebounded to
early morning resistance at 1970, still well off the 2000
highs from Wednesday but +28 points off the lows and back
in positive territory. There was speculation it was short
covering before the Intel update and the Jobs Report on
Friday. I don't buy this based on the three distinct buy
programs and the breadth of each. I suspect it was funds
putting November month end money to work ahead of any
potential Santa Claus rally. There was also a rumor at
2:55 that MSFT was going to announce a huge share buyback
and raise their dividend. MSFT stock jumped +2% in the
last hour of trading and a new high for the month.

The Dow was the real winner in terms of gains. The rebound
off the 9875 support propelled it to a 9934 close and only
8 points below its intraday 19-month high of 9942 from
Wednesday. While the Dow failed to touch 10,000 when the
Nasdaq hit 2K it was now poised to make another try on
Friday. I saw "was" because there are three big hurdles
in its path.

The first hurdle was the Intel earnings warning. Even if
it was not a warning it was less than exciting for traders
who were expecting just a boost in estimates. The S&P
futures fell almost immediately to 1065.50, about -4 points
off the close. The Nasdaq futures fell -10 points. Those
levels have eased some as the dip buyers speculate on
the morning Jobs report.

The second hurdle is the Jobs report itself. The whisper
number is about +200,000 jobs and the official estimates
are for a gain of +140,000. This sets up the market for
a potential disappointment much like the Jobless Claims
today. Even if we get another gain in jobs of say +50K or
so it will still be less than expected and not a vertical
ramp into a wonderland of full employment. With the
expectations so high we run the risk of any number being
sold as already priced into the market. A really good
number would be seen as negative because of the Fed meeting
on Tuesday. It would be seen as accelerating the Fed's
decision to raise rates or at least change their bias to
raising rates. This is where a good number can be bad and
a bad number can be good. Lately the good news has been
sold as readily as the bad news so the bottom line is
that flipping a coin for direction would have a better
chance of success than guessing this outcome.

The third hurdle is the continuing flood of terror alerts.
It seems like every Thr/Fri we get another round of warnings
about potential impending attacks. Tonight was no exception.
I know that we have had a hundred warnings to every real
event but they keep filling the airwaves with them because
they are breaking news. Whether they come to pass or not
there is always the fear by fund managers that months of
gains could be wiped out on any real event only days before
2003 closes. This has got to be weighing on many managers
and with the recent market weakness and the weekend
approaching there may not be any incentive to be bullish
Friday morning.

I told you on Tuesday I expected a continued bounce this
week to 9900/2000 and both occurred. I predicted a sell
off in the Nasdaq once that 2000 level was touched and
it played out as expected. I suggested that we would then
see a dip into next week in preparation for any potential
Santa Claus rally. The bounce back to 9934 at the close
leaves us right on the verge of either a test of 10,000
before the decline begins or looking at an opening drop
on the Intel news, or both. We have seen some serious
selling in the Russell-2000 yesterday and today. The buy
programs at the close erased an eight point drop on the
Russell and brought it back to the 545 level but still
down for the day. The Russell tends to be a leading
indicator for fund movement. When they decide to exit
many funds dump the smaller and less liquid small caps
first. The -12 point drop from yesterday's highs, (-20
at the lows for today), is a significant drop. However,
one funds exit could be another's entrance. We will not
know until real support is violated at 520 and that is
several days away even in a directional market. This is
just something else to keep your eye on. One measure of
market internal strength is the new 52-week highs. I
mention this often because it shows the breadth of the
market leaders. A decline in the new highs means the
leaders are losing support. On a day where the Dow closed
at a new two-year high you would expect the new individual
highs to be strong. Beginning with Monday the new highs
across all markets were 1254, 1113, 902 and today only
444. To put that in perspective the Dow failed to break
9900 on Monday or Tuesday but new highs were over 1100
each day. Yesterday and today when the Nasdaq and Dow
hit new highs the individual stock highs were dropping
drastically. The new highs today were only 1/3 of the
new highs on Monday. Does that indicate continued bullish
internals to you?

The market direction for Friday will be determined by the
Jobs Report, fear of the Fed and whatever damage is remaining
from the Intel news tonight. The Nikkei opened down nearly
-70 points but recovered to even in the first hour. No
obvious indication of Intel concern there. If I were flat
tonight I would find it very hard to go long on Friday.
With very strong resistance at 10,000 just ahead and known
resistance at Nasdaq 2000 I just do not see a compelling
reason to buy stocks. Odds are much better we can buy them
cheaper next week as warning season accelerates.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

The Strong Dollar
Jonathan Levinson

John Snow was talking up the administration's commitment to a
"strong dollar" again today as the USD Index hit a new multiyear
low at 89.25.  Gold and silver pulled back slightly, while the
CRB, treasuries and equities advanced.

Daily Pivots (generated with a pivot algorithm and unverified):


Note regarding pivot matrix:  The support, pivot and resistance
levels above are derived from the high, low and closing price
levels by a simple mathematical formula.  They are not intended to
be predictive of market turning points or to serve as targets, but
rather represent the range retracement levels as generated by
the pivot algorithm.  Do not think of them as market "calls" or
predictions.  Like any technically-derived indicator or price
level, the pivot matrix values should be regarded as decision
points at which to evaluate current market conditions.  Visit us
in the Futures Monitor for our realtime views of the various
markets covered here.

10 minute chart of the US Dollar Index


Currency traders should be practicing up on an Xbox or Gamecube
over the holidays to hone up for days like today.  The range was
75 bps wide, and saw coordinated moves in USD:JPY, USD:EUR and
USD:CDN.  The CRB rose .75 to 258.51, though it might have been
different without the 10+% upmove from Natural Gas.  Heating oil,
sugar and platinum futures were the other leaders.


Daily chart of February gold


Gold was higher on the initial dollar weakness, but pulled back
into light negative territory between 403 and 404 for the balance
of the session, closing at 403.60, –1.20 for the day.  HUI and XAU
were notably weaker, but closed above their lows, down 8.86 at
245.65 and –2.89 at 109.32 respectively.  The move in gold did not
rattle the current uptrend, but suggests a possible bear wedge
above 380.  The first sign of trouble will be a break below 400,
which targets next support at 390, 385 and finally 379 as the bear
wedge downside target.


Daily chart of the ten year note yield


Treasuries rose more strongly than the Fed's net 1.5B addition via
overnight repos would suggest, dropping 4.1 basis points to a
closing yield of 4.369%.  The move was mostly sideways on the
daily chart, still indecisive within the crisscrossing trendlines.
The daily uptrend in the yield continues to advance, but the
series of doji candle tops and the slight hesitation on the
oscillators appears to be giving bond bears pause.


Daily NQ candles


The NQ was all over the map today, printing a lower high and lower
but closing at 1032.50, above yesterday's low.  The outcome would
have been dramatically different but for a nearly vertical buying
explosion in the last hour launching from a short cycle bottom and
blowing effortlessly through upside resistance.  The market's
reaction to the INTC announcement was negative as of this writing,
and the move was either short covering or intervention, or a
combination of both.  In any event, the upside explosion lined up
the short, 30 minute and daily cycles to the upside with the
expected result.

30 minute 20 day chart of the NQ


The 3PM ramp broke the NQ upward from a steep bullish descending
wedge below the broken trendline of the bearish ascending wedge
that broke yesterday.  The failure at the 1435.50 high lined up
with Fibonacci resistance and price confluence on the 30 minute
chart, and the failure there was textbook.  Whether this uncertain
30 minute cycle upphase gets past the descending oscillator
trendline will be seen either overnight or with tomorrow's
employment report.  Note that the NQ had been underperforming the
other indices to such a degree today that the small bull wedge
never even developed on the ES or the YM.


Daily ES candles


The daily ES fell lower today but was also rescued by the 3:00AM
buying spree.  The daily cycle upphase hesitated today on the
lower high and lower low, and unless strong buying comes in
tomorrow, it will begin to weaken, setting up yesterday's high as
possibly The high for this cycle.  1062-64 was as firm as we
anticipated, but it was tested today, whereas yesterday's low was
1064.25.  Once again, if not for the last hour's sharp ramp, the
daily chart would look importantly different tonight.


20 day 30 minute chart of the ES


As of this writing the ES was trading 1066.75, well off its close
near 1070.  On the 30 minute chart, the bounce came from price
confluence at previous support below the then-52 week highs at
1065.  The move off the lows was sufficiently sharp to set the
oscillators up for a large bearish oscillator divergence if the
price fails to advance above 1072 tomorrow, as they have not had a
chance to "catch up" to the sudden price move.  A return-to-the-
scene-of-the-crime rally would see 1074 tested, at which point the
30 minute cycle will be overbought.  While the sharp closing move
is easy to doubt, the intraday and daily cycle oscillators are
currently in gear to the upside.  Technically, the market is set
up to go higher, but I expect heavy resistance all the way to
1074.


150-tick ES


As Jim pointed out in the Futures Monitor, the 3PM move was
comprised of 3 buy programs.  Whether it was intervention or a
private buy program, the result was the same.  Keltner resistance
was tested twice, and while the short cycle upphase is not yet
over, it should be by tomorrow morning at the cash open.


Daily YM candles


Nothing to add on YM, except that it was the strongest of the
indices again, barely touching negative territory at the lows.


20 day 30 minute chart of the YM


The US Dollar Index is certainly growing extended to the downside,
although the fact that John Snow was talking it up today inspires
little confidence in its strength.  The combined strength in
equities and treasuries went beyond the Fed's modest open market
operations, and we'll be watching closely tomorrow to see whether
this represents a new trend developing from that of the previous
weeks during which they've traded inversely.  While this shakes
out, traders should keep an eye on the prices, but focus more
keenly on the charts they're trading.  Intermarket relationships
are wonderful tools, but only when they're clear.

I believe that the bulls' best chance to blow the roof off the
highs will come with tomorrow's employment report, but I also
believe it will fail.  Bear in mind that that's my personal view,
and for the moment it's not aligned with the status of the
oscillators I follow.  As a technician, I'm breaking my own rule,
but as a trader, I just don't trust the current low-volatility,
high-optimism environment.  Everyone expects to see Dow 10,000
again.  The VXO says that everyone is bullish.  I see the risk of
some continued upside, but the downside from here looks far more
enticing to me.  See you tomorrow morning.


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

Intel gives Wall Street the good news and bad news

Aside from the smaller capitalized Russell 2000 Index (RUT.X)
544.15 -0.19%, which finished down 1-point in today's trade, the
major indices battle back from a late lunchtime low to finish in
positive territory, with the Dow Industrials (INDU) 9,930.82
+0.58% gaining 57 points to close within 70-points of the 10,000
level.

While bulls staged a late session rally ahead of tonight's mid-
quarter update from chipmaker Intel (NASDAQ:INTC) $33.54 +0.59%,
tonight's after-hours trade hints that some of today's modest
gains may be given back at the opening of tomorrow's trade.

As part of it mid-quarter update, Intel (INTC) give investors
some good news and bad news.  Intel's CFO Andy Bryant said
seasonal growth on top of a strong third quarter, with good
demand for its processors and steady demand for its networking
chips has the company narrowing its predicted revenue guidance to
between $8.5 billion and $8.7 billion compared with prior
guidance of $8.1-$8.7 billion, and that gross margins are now
predicted at around 62% compared with the company's prior goal of
60%.  While the revenue guidance was at the high end of recently
revised upward consensus for $8.55 billion, Intel surprised Wall
Street when it said it would take a $600 million charge, equating
to $0.06 per share in Q4 for goodwill impairment related to its
Wireless Communications and Computing Group.

Intel said the $600 million charge relates to its $1.6 million
purchase in 1999 of DSP Communications, a maker of chipsets used
in cellular baseband stations.

Intel determined the amount of its charge as part of its annual
accounting review that examines discounted cash flows, near- and
long-term growth assumptions, and asset values.

Mr. Bryant said current asset values of what it acquired from
DSP, its expectations for cellular baseband chipset demand and
long-term projections led to the current write-down.

Intel also said the company's struggles this year with its flash
memory chips business had a role in the write-down.

The wireless communications group is represented primarily by
flash memory chips, but also consists of application processors
and cellular baseband chipsets for cell phones and handheld
devices.  During the previous quarter, the segment posted an
operating loss of $124 million and revenue of $450 million.

In after-hours trade, INTC fell to $32.47, down 3.2% from regular
session close.

Another tech bellwether had IBM (NYSE:IBM) $91.42 edging lower to
$91.04 in tonight's late session trade, most likely in sympathy
with Intel.

At Big Blue's security analyst meeting, held shortly before the
closing bell, CFO John Joyce and other IBM executives discussed
how they believe IBM can provide the expertise and technology
necessary in an environment where customers' business value is
expected to drive demand for more efficient technology offerings.
In particular, Joyce said IBM believes that demand for business
solutions will soon grow twice as fast as the rest of the
information-technology industry.

IBM did not give any insight or forecasts regarding its current
quarterly earnings or revenue estimates.  Shares of IBM slipped
32 cents to $91.10 in after-hours action.

While I expected a little more volatility for the major indices
than we saw today, I think today's report from the Labor
Department that weekly jobless claims rose by 11,000 to 365,000,
which was a disappointment to economists' forecast of 355,000
along with some dollar volatility had traders sitting on their
hands in the first part of today's trade.

The U.S. dollar was up 0.2% versus the euro at $1.2082,
rebounding from a new all-time low of around $1.2158 reached in
intraday trading.  Profit-taking in the euro emerged, sending the
dollar up to an intraday high of around $1.2030, after a
newspaper report said European policy makers were studying
capital controls as a means to stem the rise in the euro.
Meanwhile, the European Central Bank left interest rates
unchanged, as expected.  Against the yen, the dollar was down
0.1% at 108.20.  The U.S. Dollar Index (dx00y) 89.70 +0.22% had
the 6 foreign currency weighted dollar (euro and yen most heavily
weighted) higher by its close, after trading a new low of 89.24
earlier this morning, with today's lifting of steel import
tariffs also adding to the dollar's volatility.

I wanted to take a moment to quickly discuss today's 03:15
mentioning and early Market Monitor profiling of a QQQ bullish
trade, and show an intra-day chart of the QQQ.  I think this is a
good lead in, for tomorrow's trade as it relates to tonight's
news and after hours trade from Intel, and may give traders a key
index to monitor early tomorrow morning.

NASDAQ-100 Tracking Stock (QQQ) Chart - 10-minute intervals



After the close I put together chart of the QQQ with our WEEKLY
pivot levels (S1-R1) on the 10-minute time interval, which gives
us a full week of trade on the chart.  I wanted to show the
POTENTIAL reverse head/shoulder bottom chart that might be
developing.

I wanted to show the above chart, so that traders that may have
taken a bullish trade in the QQQ near the $35.40 level not "freak
out" tomorrow morning, should the QQQ open lower.  In tonight's
after-hours trade, which I don't necessarily feel is indicative
of a true market response, the QQQ did fall to as low as $35.25
on the Intel news.  Still, the POTENTIAL head/shoulder pattern is
in play, and would only be violated on a break below the left
shoulder of $35.25, which interestingly enough is pretty close to
tomorrow's DAILY R1 of $35.25 (I've placed the 5 DAILY levels in
brown on the above chart).

I received a couple of excellent questions as to why I'd profile
a bullish trade in the QQQ at $35.39, if a reverse head/shoulder
pattern wouldn't develop until a right shoulder formed back near
$35.27.  This is a fair question, but after seeing the rather
quick snap back when the QQQ traded its $35.14 WEEKLY Pivot, I
also had to weigh the thought that maybe, just maybe, the market
knew something "for certain" that I didn't know in regards to the
Intel (INTC) mid-quarter update, that had buyers looking firm
near the $35.14 level.  Not to mention our longer-term upward
trend from the March lows.

While we did some work on the Q's in this morning's Market
Monitor with our 5-minute retracement technique, and added
together some prior intra-day observations that had me thinking
earlier this morning the Q's might gravitate back toward the
$35.65 level ahead of the INTC mid-quarter call, I must admit,
that after seeing a trade at the WEEKLY Pivot today, I was
starting to doubt that early morning analysis.

I do think though, if the QQQ gets above the $35.72 ascending
neckline on the potential reverse head/shoulder pattern, then a
bull's target of $35.99 may indeed be achievable, with DAILY R2
still higher at $36.10.  That's not to say a move back above
$35.80 and WEEKLY R1 is going to be a breeze, if tested, but if
some short-term bears see the reverse h/s pattern outlined above
and begin to panic a little, I'm going to then advise traders in
the market monitor, to begin raising stops to profitability on a
WEEKLY R1 test, and be ready to sell our target of $35.99.

As I type, it looks like QQQ last tick in extended hours is
$35.42.

Let's take a quick look at the pivot matrix, as there are two
levels of support that really look to be holding tough, and will
most likely be a levels to monitor for support tomorrow, with a
slightly negative tone in tonight's after hours.

Pivot Analysis Matrix -



In PINK I've made note of what I feel to be rather important
levels of support, and my current thoughts are rather bullish,
despite tonight's after-hours news.

In the above QQQ chart, we noted the test of WEEKLY Pivot in the
QQQ, which also correlated with the MONTHLY Pivot.  On first
test, there was certainly buyers on the first test, and that's a
good sign near term.

What has me rather bullish is the rather strong bid holding in
some of the larger caps of the S&P 100 Index (OEX.X) 527.56,
which for a third-straight session has shows solid support at the
524.50 level and WEEKLY R1.  While resistance certainly looks
formidable at the overlapping MONTHLY R1 and WEEKLY R2, the
ability to hold and not cave in, even at today's post-lunchtime
lows looks promising for the bulls.

I'll also note that while Intel is a Dow component, its lower
share price may not have as much negative impact on the INDU as
we might first thing, and with the INDU so near the 10,000, the
market's willingness to bid the INDU higher into the Intel mid-
quarter update, where there would still have been some hesitancy,
is perhaps hint that there's still some believers in Dow 10,000.

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



While I do not want to forecast a trade at Dow 10,000 tomorrow,
the OEX gives a good look for a support level at the 525 area
holding pretty firm, despite some intra-day adversity the past
three session, where on Tuesday and Wednesday, early gains were
reversed lower to the close, but buyers stood firm as the OEX has
started to creep above its October-November highs.  We might tie
in an OEX 530 with a trade at Dow 10,000.  Just as we know there
are some buyers at 525, there were definitely sellers yesterday
at 528.50, which was correlative with the NASDAQ Composite
(COMPX) 1,968 +0.43% trade at 2,000.00.

S&P 500 Index Chart - Daily Intervals



Today's trade has the SPX starting to look a little more sloppy
at WEEKLY R1 than the narrower OEX.  It is this observation that
has me putting some importance on the NDX/QQQ (as more of a
technology observation) and the OEX WEEKLY R1 (large cap, maybe
not as much tech volatility).

Yesterday's observations of heavy buy program premium alerts near
the 1,071 level, that really couldn't get bullish move going
above that level will have me monitoring any similar trade
tomorrow, should we see the SPX try and test the 1,071 area
again.  I do think there were some hedged put on yesterday and as
noted this morning, they can come off as quickly as they went on.

SPX trader most likely has to use the QQQ MONTHLY/WEEKLY Pivot
support observation and OEX WEEKLY R1 support observation to get
a better feel for SPX support right now.

Dow Industrials Chart (INDU) - Daily Interval



From what I read in the "bears den" yesterday, the Dow shouldn't
have done what it did today.  First sign of weakness is below
9,832, but INDU looks to have some momentum from that MACD.  In a
trending higher market, MACD tends to overrule Stochastics.

I think it can, I think it can, I think it can.

Jeff Bailey


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

Late Day Turn
- J. Brown

Bears seemed almost gleeful at the intraday weakness today but
victory was snatched from their jaws with a late day turnaround
that pushed the DJIA back to 9930 and the NASDAQ back to 1968.
Market internals were mixed but generally bearish.  Advancing
stocks slipped below declining stocks 1393 to 1410 on the NYSE
and 14 to 16 on the NASDAQ.  Up volume tripped below down volume
on the NYSE by a close margin but out paced down volume on the
NASDAQ.

Airlines and Gold stocks suffered the heaviest selling while
investors found strength in Oil Service stocks and Natural Gas
issues.  Odds are good that Airlines stocks (XAL) will see new
weakness tomorrow.  After the bell JetBlue Airways (JBLU) warned
and lowered its margins for the current quarter.

Meanwhile chip stocks might lead the way lower for tech tomorrow
as investors were not happy with Intel's mid-quarter update
tonight.  The SOX index had pulled back to the 500 level and
bounced but we wouldn't be surprised to see it test its 50-dma
soon near 485.

Investor sentiment is certainly mixed.  The early holiday cheer
on December 1st has faded replaced by concerns that retailers may
not be doing as well as expected.  Wal-Mart continues to see
declines on extremely high share volume.  Tech-retailer Best Buy
helped lead the decliners behind Abercrombie & Fitch, who had
reported a 13% decline in November same-store sales.

The big focus tomorrow will be the employment report.  Will the
small up tick in the ISM employment component translate into new
jobs overall?  And how will these numbers affect the Fed's
decision next Tuesday on interest rates?  These are the questions
currently on investors' minds.


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

Market Averages

DJIA ($INDU)

52-week High:  9933
52-week Low :  7197
Current     :  9930

Moving Averages:
(Simple)

 10-dma: 9787
 50-dma: 9700
200-dma: 9027



S&P 500 ($SPX)

52-week High: 1071
52-week Low :  768
Current     : 1069

Moving Averages:
(Simple)

 10-dma: 1056
 50-dma: 1042
200-dma:  970



Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1432

Moving Averages:
(Simple)

 10-dma: 1414
 50-dma: 1398
200-dma: 1237


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

Without any follow through on the recent selling these "fear"
indices remain near extreme lows.  We're still susceptible to
stronger declines.

CBOE Market Volatility Index (VIX) = 16.30 -0.33
CBOE Mkt Volatility old VIX  (VXO) = 16.56 +0.26
Nasdaq Volatility Index (VXN)      = 26.81 -0.53


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.72        682,634       489,126
Equity Only    0.57        584,895       330,837
OEX            0.79         21,062        16,645
QQQ            1.13         25,084        28,372


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.8    + 0     Bull Confirmed
NASDAQ-100    74.0    - 1     Bear Correction
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       81.8    + 0     Bull Confirmed
S&P 100       80.0    + 1     Bull Correction


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

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


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

 5-dma: 0.95
10-dma: 0.96
21-dma: 1.12
55-dma: 1.12


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1393      1418
Decliners    1410      1651

New Highs     199       182
New Lows       10        12

Up Volume    872M     1075M
Down Vol.    920M      972M

Total Vol.  1806M      2082M
M = millions


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

Commitments Of Traders Report: 11/18/03

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

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

S&P 500

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


Commercials   Long      Short      Net     % Of OI
10/28/03      391,596   412,498   (20,902)   (2.6%)
11/04/03      391,079   415,136   (24,057)   (3.0%)
11/11/03      389,965   415,259   (25,294)   (3.1%)
11/18/03      393,893   414,442   (20,549)   (2.5%)

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

Small Traders Long      Short      Net     % of OI
10/28/03      137,791    76,791    61,000    28.4%
11/04/03      137,829    78,206    59,623    27.6%
11/11/03      136,072    74,249    61,823    29.4%
11/18/03      147,842    80,047    67,795    29.7%

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


E-MINI S&P 500

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


Commercials   Long      Short      Net     % Of OI
10/28/03      220,171   260,644    (40,473)  ( 8.4%)
11/04/03      242,409   270,785    (28,376)  ( 5.5%)
11/11/03      249,864   258,503    ( 8,639)  ( 1.7%)
11/18/03      249,286   264,083    (14,797)  ( 2.9%)

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

Small Traders Long      Short      Net     % of OI
10/28/03      123,569    59,742    63,827    34.8%
11/04/03      135,525    63,006    72,519    36.5%
11/11/03       94,649    51,815    42,834    29.2%
11/18/03       95,119    61,975    33,144    21.1%

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


NASDAQ-100

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


Commercials   Long      Short      Net     % of OI
10/28/03       36,168     46,272   (10,104) (12.3%)
11/04/03       34,159     48,293   (14,134) (17.1%)
11/11/03       35,889     49,201   (13,312) (15.6%)
11/18/03       35,608     49,689   (14,081) (16.5%)

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

Small Traders  Long     Short      Net     % of OI
10/28/03       21,640     8,830    12,810    42.0%
11/04/03       24,132     9,703    14,429    42.6%
11/11/03       26,212    10,730    15,482    41.9%
11/18/03       32,034    10,356    21,678    51.3%

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

DOW JONES INDUSTRIAL

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


Commercials   Long      Short      Net     % of OI
10/28/03       20,504    11,366    9,138      28.7%
11/04/03       21,756    11,903    9,853      29.3%
11/11/03       20,209    11,660    8,549      26.8%
11/18/03       20,746    11,080    9,666      30.4%

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

Small Traders  Long      Short     Net     % of OI
10/28/03        5,295     8,864   (3,569)   (25.2%)
11/04/03        5,099     9,160   (4,061)   (28.5%)
11/11/03        6,105     8,201   (2,096)   (14.7%)
11/18/03        5,655     8,607   (2,952)   (20.7%)

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

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


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The Option Investor Newsletter                 Thursday 12-04-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: AMZN, BCR, DGX, DHR, HOV, PGR, UTX, ZMH
New Calls Plays: None
Put Play Updates: KSS, NUE
New Put Plays: PNRA, THO


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

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


CALLS:
*****

None


PUTS:
*****

None


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

Amazon.com - AMZN - close: 51.80 chg: +0.29 stop: 48.99

NASDAQ 2000 sparked some profit taking in technology stocks and
the Internet sector was not spared.  Fortunately, buyers bought
the dip today and AMZN bounced from the 50.75 level.  This might
be a new bullish entry point but we're cautious.  We suggest
waiting for a bounce back above the 52.50 level before evaluating
new positions.  The bad news is AMZN still has to deal with its
50-dma again.

Picked on November 30 at $53.97
Change since picked:     - 2.17
Earnings Date          10/21/03 (confirmed)
Average Daily Volume:     10.7  million
Chart =


---

C R Bard - BCR - close: 77.28 change: -0.17 stop: 74.99

Headlines remain a little scarce for BCR but we're not
complaining.  The stock has weathered the recent selling pretty
well.  Shares have managed to close above the $77 level the last
three days in a row.  Currently, we are still UNTRIGGERED and
until BCR trades at or above 78.01 we're just spectators.  More
aggressive players can look for a dip and bounce from the $76
level as a potential entry point, should it appear.

Picked on December 02 at $xx.xx
Change since picked:     + 0.00
Earnings Date          10/15/03 (confirmed)
Average Daily Volume:      322  thousand
Chart =


---

Quest Diagnostics - DGX - cls: 72.53 chng: -0.52 stop: 72.00

This is the moment of truth for our DGX play, which finally
succumbed to some profit taking over the past couple days. After
reaching an intraday high of $74.99 on Tuesday and then $74.98
yesterday, it became clear that the bulls would need to get a
running start to push through the $75 resistance level and the
stock began to pull back.  Thursday's drop almost did the play in
though, as our $72 stop was tested on two separate occasions,
with an intraday low of $72.04.  The stock rebounded into the
close, but it is still in a precarious position.  Our profit
target is still at $75-76, so conservative traders should have
harvested some gains on the dual test of that level earlier in
the week.  Aggressive traders can attempt to buy the dip here in
anticipation of another run at resistance but must rigidly adhere
to that $72 stop.  With daily Stochastics already heading south,
our inclination would be to harvest gains on a failure of this
bounce, rather than looking to squeeze a bit more out of the
play.

Picked on November 13th at   $69.46
Change since picked:          +3.07
Earnings Date               1/20/04 (unconfirmed)
Average Daily Volume =        882 K
Chart =


---

Danaher Corp - DHR - close: 84.16 chg: +0.68 stop: 82.49 *new*

We don't have much to say on the DHR play.  Shares continue to
trend towards $85 with successive higher lows.  Its MACD
technical indicator just produced a fresh buy signal.  The
afternoon bounce today does look inviting.  Buyers could look at
new positions here but the stock is close to the $85 level, which
is the next hurdle of resistance so it's not the best entry
point.  We are going to inch up our stop loss to $82.49.

Picked on November 23 at $81.95
Change since picked:     + 1.04
Earnings Date          10/16/03 (confirmed)
Average Daily Volume:       829  thousand
Chart =


---

Hovnanian Enterprises - HOV - cls: 94.91 chg: +1.07 stop: 92.94*new*

The relative strength in shares of HOV is amazing.  The DJUSHB
home construction index did suffer some very mild profit taking
the last three days and slipped back to the 600 level this
afternoon before bouncing.  HOV followed suit and slipped to the
$93 region before buyers bought the dip again.  On Tuesday we
struggled with the urge to close the play near $95 and take our
profits home or leave the play open with a tighter stop.  We
still struggle with that decision today, especially given the
recent weakness in the market indices.  However, HOV's ability to
retain its gains is enough for us to keep the play open.  Part of
HOV's strength today may be due to the press release it published
this morning.  HOV announced that the dollar value for its net
contracts in November 2003 were up 65% from the previous year.
HOV saw the strongest growth in the Northeast and Southwest with
130% and 157% contract growth for each region, respectively.  We
are NOT suggesting new positions and we are raising our stop loss
less than 50 cents to $92.94.

! Don't forget.  HOV is due to announce earnings on Tuesday.
While there is the potential for the company to announce a split
with their earnings we do not plan to hold over the event.
Currently, our trading plan is to end the play at tomorrow's
(Friday's) closing bell.  Proceed according to your risk
tolerance.

Picked on November 21 at $85.51
Change since picked:     + 9.40
Earnings Date          12/09/03 (confirmed)
Average Daily Volume:      827  thousand
Chart =


---

Progressive - PGR - close: 79.50 chg: +0.82 stop: 77.95 *new*

The painfully slow climb higher continues for PGR.  The recent
market weakness pulled PGR back to its simple 10-dma but it did
not break.  Buyers bought the dip today but couldn't push PGR
back above the $80 mark, so we have little reason to cheer.  We
did note a Forbes article by Laszlo Birinyi Jr. who recommended
PGR and commented on its low valuation at just 16 times trailing
earnings.  We are not recommending new positions until we see
another strong, confident close over $80. In the mean time we'll
inch up our stop just a tad to $77.95.

Picked on November 07 at $76.25
Change since picked:     + 3.25
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      654  thousand
Chart =


---

United Tech. - UTX - cls: 87.95 chng: +0.68 stop: 85.70*new*

Our UTX play has been a real performer this week, consistently
pushing higher in lock-step with the gains in the DOW.  While
today's intraday high of $88.09 didn't quite reach the high of
$88.33 posted yesterday, the stock did manage a new closing high
and appears poised to finally break out over that level of
resistance, which is also the midline of the rising channel the
stock has been riding since March.  A pullback that finds support
above $86.50 can be used for new entries, while more aggressive
players can enter on a breakout over Wednesday's intraday high.
Remember, we're targeting a rally to the top of the channel as
the point where we want to harvest gains, and the top of that
channel has now risen to $91.90.  That gives a bit more upside to
the play, with our official target now moving up to the $91-92
area.  Note that we're trimming our risk again tonight by
ratcheting our stop up to $85.70, keeping it just below the 20-
dma ($85.72).

Picked on November 23rd at   $83.90
Change since picked:          +4.05
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =     1.84 mln
Chart =


---

Zimmer Holdings - ZMH - close: 66.15 chg: -1.35 stop: 64.49*new*

ZMH managed to trade sideways Tues-Wednesday of this week but
profit taking finally hit this morning.  Fortunately, buyers
bought the dip at $65.29.  We had mentioned that a pull back
might be the next best entry point and we got it. Now we just
need to see some follow through on the afternoon bounce today.
We are going to inch up our stop loss about half a point to
$64.49.

Picked on November 30 at $65.92
Change since picked:     + 0.23
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      1.8  million
Chart =



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

None


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

Kohl's Corporation - KSS - cls: 46.96 chng: +1.67 stop:
49.25*new*

Once they pulled the plug on that $48 support level, shares of
KSS really got moving to the downside.  Tuesday's plunge was just
the beginning, as yesterday, we saw the stock fall all the way to
the $44.50 level before finding a bit of a bounce into the end of
the day.  Recalling that our initial target on the play was the
$44-45 area, conservative traders should have been harvesting
some gains on that drop.  Perhaps it was some pre-emptive selling
ahead of today's announced same store sales for November that
caused the drop, because when the report came out, the stock
gapped higher and ran as high as $47.54 before dropping and then
rebounding into the close.  The company said their same store
sales fell 4.4% (worse than the 3.1% consensus drop), but still
retained an optimistic outlook due to a solid start to the
holiday shopping season.  That leaves us with somewhat of a mixed
picture, which was reflected in the price action today.  KSS
remains below solid resistance at $48, which is now reinforced by
the 10-dma ($48.12).  A failed rebound below that level can be
used for fresh entries, looking for a return back to the $44-45
area, as the stock is likely to continue to feel pressure from
weakness in the overall Retail sector (RLX.X).  We're lowering
our stop to $49.25 tonight, which will be above the 20-dma
($49.41) by tomorrow.

Picked on November 18th at   $48.75
Change since picked:          -1.79
Earnings Date                2/12/04 (unconfirmed)
Average Daily Volume =      4.24 mln
Chart =


---

Nucor Corp. - NUE - close: 52.20 change: +0.35 stop: 55.00*new*

As expected, the Bush administration lifted the tariffs on steel
imports 16 months ahead of schedule and it is a safe bet that it
was anticipation of this event that drove shares of NUE sharply
lower earlier this week.  While the company's management tried to
put a happy face on it, thanking the administration for their
firm commitment to aggressively attack illegal trace practices,
there was clearly disappointment felt at the domestic steel
manufacturers.  Investors took advantage of the opportunity to
try to get a rally going off the 50-dma ($51.84), but there
wasn't much life to it, as stiff resistance was found near the
$52.50 area, the site of the break below the bottom of the
expanding wedge shown on Tuesday.  Look for strong resistance in
the $52.50-53.50 area to set up a rollover, which we can use for
more conservative entry points.  Traders looking to enter on
further weakness will need to wait for a break below the 50-dma
and yesterday's $51.66 intraday low.  If NUE has a real shot at
achieving our $47-48 downside target, then the stock shouldn't be
able to get above the dual resistance of the 10-dma ($54.32) and
20-dma ($54.30), so we're lowering our stop to $55.00 tonight.

Picked on December 2nd at    $52.66
Change since picked:          -0.46
Earnings Date                1/22/04 (unconfirmed)
Average Daily Volume =         677 K
Chart =



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

Panera Bread Co. - PNRA - close: 36.50 change: -1.60 stop: 39.75

Company Description:
Panera Brea Company, through its wholly owned subsidiary Panera
LLC, operates bakery-cafes under the names Panera Bread and Saint
Louis Bread Company.  As of the end of 2001, the company had a
total of 110 company-owned bakery-cafes and 259 franchise-
operated units.  The company specializes in meeting four consumer
dining needs (breakfast, lunch, daytime and take home bread)
through the provision of high quality food, including fresh baked
goods, made-to-order sandwiches on fresh-baked  bread, soups,
salads, and custom roasted coffees.

Why we like it:
It wasn't that long ago that PNRA could seemingly do no wrong, as
shares of the company charged to new all-time highs in September.
There were investors that saw the company as the next Starbucks
or Krispy Kreme.  But Americans are coming to terms with the fact
that they don't eat well and are getting fatter by the week.
Enter the Atkins diet, which has gained newfound popularity, in
large part due to its effectiveness.  New Atkins-type diet plans,
books and the like have sprung up to service this demand.  The
problem is that starch and carbohydrates are to be avoided.  That
leaves purveyors of yummy breads and other baked goods watching
their business shrink.  That reality is seen most clearly in the
price action of PNRA, which has been in a solid downtrend since
the major selloff in late October.  Lower highs and lower lows
have been the pattern and today's violation of the 200-dma looks
pretty convincing, especially when we note that it came on volume
that nearly doubled the ADV.

A quick look at the PnF chart shows that the supply/demand
picture has now turned decidedly in favor of the bears, with the
current Sell signal giving a bearish price target of $26.  The
combination of the 200-dma ($37.88), 10-dma ($38.38) and broken
support at $38, should provide strong resistance.   A rollover
below that level on any rebound attempt would make for a solid
bearish entry point.  Traders more interested in entering on
further weakness can use a drop below $36 to enter the play.
Note however that PNRA is sitting right on strong support in the
$35-36 area, so attempting to enter on the breakdown does carry
greater risk.  Once that support breaks, we can target a drop to
$32 support and then possibly a continued slide to stronger
support at $30.  We're initiating coverage with our stop set at
$39.75, just above last week's high, as well as the 20-dma
($39.44).

Suggested Options:
Aggressive short-term traders can use the December 35 Put, while
those with a more conservative approach will want to use the
January 35 put.  Our preferred option is the January 35 strike,
as it provides ample time until expiration.

BUY PUT DEC-40 UPA-XH OI=369 at $3.80 SL=1.75
BUY PUT DEC-35 UPA-XG OI=734 at $0.70 SL=0.40
BUY PUT JAN-35*UPA-MJ OI= 32 at $1.45 SL=0.75

Annotated Chart of PNRA:



Picked on December 24th at    $36.50
Change since picked:           +0.00
Earnings Date                1/29/04 (unconfirmed)
Average Daily Volume =         766 K
Chart =


----

Thor Industries - THO - close: 53.25 chg: -1.70 stop: 56.01

Company Description:
Based in Jackson Center, Ohio, Thor Industries is the largest
producer of small to mid-sized recreational vehicles (RVs) and
buses.  Trailers, fifth wheels and motor homes including all the
parts and accessories can be found in THO's product line.  The
company has plenty of subsidiaries like Airstream, Dutchmen
Manufacturing, Four Winds, Keystone RV Co, Komfort, Thor America
and more. (source: company press release)

Why We Like It:
Our put play in THO is mainly a technical play.  Shares are
breaking support on high volume declines.  That's never a good
sign and usually means there's more weakness to follow.  However,
we are going to use a TRIGGER to open the play because the stock
still has one more support level to break and investors may begin
to overlook the recent earnings announcement.

Actually, it was the earnings announcement on December 1st that
started the recent slide but the numbers are a little confusing.
Back in November THO pre-announced strong earnings claiming that
this last quarter would be a record-breaker for sales.  Revenues
were up 20%.  Yet when the company announced they turned in 83
cents a share compared to Thomson First Call estimates of 91
cents.  Investors didn't like the different and the selling
began.

We're going to use a TRIGGER at $51.99 to open the play.  Until
THO trades at or below this level we're just spectators.
Fortunately, THO's P&F chart looks pretty bearish.  A move under
the $52 mark and the next support level appears to be the $44-45
region.  Coincidentally, the simple 200-dma is approaching $44.
If we're triggered our target will be $45.00 with a stop loss at
56.01.

Suggested Options:
January options are a little thin but December options only have
two weeks left.  Our preferred option is the January 55 put.

BUY PUT DEC 55 THO-XK OI=261 at $3.30 SL=1.65 -2 weeks left-
BUY PUT JAN 55*THO-MK OI=  1 at $4.30 SL=2.15
BUY PUT MAR 55 THO-OK OI=189 at $5.90 SL=3.25
BUY PUT MAR 50 THO-OJ OI=103 at $3.40 SL=1.70

Annotated Chart:



Picked on December 04 at $xx.xx
Change since picked:     + 0.00
Earnings Date          12/01/03 (confirmed)
Average Daily Volume:      236  thousand
Chart =




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The Option Investor Newsletter                 Thursday 12-04-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - PNRA
Traders Corner: All Choked Up -- Adjusting The Strangle Hold


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

Panera Bread Co. - PNRA - close: 36.50 change: -1.60 stop: 39.75

Company Description:
Panera Brea Company, through its wholly owned subsidiary Panera
LLC, operates bakery-cafes under the names Panera Bread and Saint
Louis Bread Company.  As of the end of 2001, the company had a
total of 110 company-owned bakery-cafes and 259 franchise-
operated units.  The company specializes in meeting four consumer
dining needs (breakfast, lunch, daytime and take home bread)
through the provision of high quality food, including fresh baked
goods, made-to-order sandwiches on fresh-baked  bread, soups,
salads, and custom roasted coffees.

Why we like it:
It wasn't that long ago that PNRA could seemingly do no wrong, as
shares of the company charged to new all-time highs in September.
There were investors that saw the company as the next Starbucks
or Krispy Kreme.  But Americans are coming to terms with the fact
that they don't eat well and are getting fatter by the week.
Enter the Atkins diet, which has gained newfound popularity, in
large part due to its effectiveness.  New Atkins-type diet plans,
books and the like have sprung up to service this demand.  The
problem is that starch and carbohydrates are to be avoided.  That
leaves purveyors of yummy breads and other baked goods watching
their business shrink.  That reality is seen most clearly in the
price action of PNRA, which has been in a solid downtrend since
the major selloff in late October.  Lower highs and lower lows
have been the pattern and today's violation of the 200-dma looks
pretty convincing, especially when we note that it came on volume
that nearly doubled the ADV.

A quick look at the PnF chart shows that the supply/demand
picture has now turned decidedly in favor of the bears, with the
current Sell signal giving a bearish price target of $26.  The
combination of the 200-dma ($37.88), 10-dma ($38.38) and broken
support at $38, should provide strong resistance.   A rollover
below that level on any rebound attempt would make for a solid
bearish entry point.  Traders more interested in entering on
further weakness can use a drop below $36 to enter the play.
Note however that PNRA is sitting right on strong support in the
$35-36 area, so attempting to enter on the breakdown does carry
greater risk.  Once that support breaks, we can target a drop to
$32 support and then possibly a continued slide to stronger
support at $30.  We're initiating coverage with our stop set at
$39.75, just above last week's high, as well as the 20-dma
($39.44).

Suggested Options:
Aggressive short-term traders can use the December 35 Put, while
those with a more conservative approach will want to use the
January 35 put.  Our preferred option is the January 35 strike,
as it provides ample time until expiration.

BUY PUT DEC-40 UPA-XH OI=369 at $3.80 SL=1.75
BUY PUT DEC-35 UPA-XG OI=734 at $0.70 SL=0.40
BUY PUT JAN-35*UPA-MJ OI= 32 at $1.45 SL=0.75

Annotated Chart of PNRA:



Picked on December 24th at    $36.50
Change since picked:           +0.00
Earnings Date                1/29/04 (unconfirmed)
Average Daily Volume =         766 K




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

All Choked Up -- Adjusting The Strangle Hold
By Mike Parnos, Investing With Attitude

Senator Joseph Lieberman got down on the floor and did a dozen
pushups for the MSNBC cameras.  He was demonstrating his physical
prowess at his advanced age.  BFD.  Lieberman is taking on the
junk food industry in the battle against obesity.  I don't like
his chances.  Hey! Obesity is the American way.  Where would we
get our instant gratification if it weren't for Quarter Pounders,
Fritos, Twinkies, Hagen Daaz, and Krispy Kreme donuts?  The
companies that manufacture these items are the foundation of the
American economy.

Let Lieberman do his push-ups, pull-ups, and sit-ups while the
rest of us get fed up.  I doubt I'd want to live 10 years longer
if my diet consisted of bran and soy products.   Supermarkets
would be half the size and so would our taste buds.  Why would we
even need taste buds if everything tasted like shredded wheat?

I challenge Lieberman to get up off the couch, get to the kitchen,
defrost a lasagna TV dinner, shave, shower, answer three e-mails,
and get back to the couch – all during a three-minute commercial
brake.  That's a future Olympic event – and I've been training for
it my whole adult life.  When they call, I'm ready.

When I go, I want to choke on an M&M as a sundae topping.  And
speaking of choking, let's take a closer look at our QQQ in-the-
money Strangle strategy.  (How's that for a segue?)  The ITM
Strangle is rapidly becoming a favorite CPTI student strategy.
It's a great hands-off strategy, but the monthly adjustments need
thought and some TLC.
_________________________________________________________________

Mike,
I opened up a QQQ strangle similar to yours this month. Just
checking to see if I am on correct path.  I sold Dec. 35 calls and
puts against 2005 $29 call and $39 put for a credit of $1.95.

My thoughts are to let it rest until the QQQs hit $37 on a closing
basis. If they do, adjust by buying back Dec. short options and
selling Dec. $36 calls and puts.  If it stays in range of $34-$37
let time decay work.

They question is - does one just leave it until expiration or
should there be adjustments pre-planned during the month. I used
the 1.90 credit and added to each side as spot to adjust.
Obviously the LEAPS should be adjusted if a new trading range is
established, correct? Anyway, I'm just updating my written game
plan, and seeing if my mind is on right path.  Thanks for all the
work you put into your column.  Terry

Hi Terry,
You seem to have a pretty good grasp of the strategy.  The only
thing that's tough to figure out are the adjustments -- and those
are a judgment call.  So far (2+ months), I've been letting the
short options run their course and waiting until expiration week
before rolling.  Fortunately, they've bounced around and ended up
within a point or two of where we sold them.  The problem is what
to do if the QQQs run to 37 or 38 or higher -- and when to admit
that it's time to move to a new range.   It's easy to talk
ourselves into believing that the market will bounce back down --
because that's what we may want to happen.  It's a fine line.

At $38, we would have to buy back the short $35 for maybe $3.10.
The problem is that when we roll out, where do we roll out to?  We
don't want to give up that $3.10 it just cost us, so perhaps we
just sell the $35 again for the following month.  Already being $3
in the money, we may only be able to sell the $35 for $3.25 -- or
a time value credit of only about $.15.  Then, there's the
question of where to sell the new short put.  To get the most
premium we'd have to sell it close to or at the money ($38) when
we'd get perhaps $1.00.

You bring up an interesting alternative – adjusting a short
position within the originally sold option cycle.  If you did
that, you would want to adjust both positions (the calls and the
puts).  As of right now, it might cost you $.70 to roll up the
calls one point (to $36), but you could take in $.25-.30 to roll
up the puts and help defray the cost.  The end cost is about $.45.
These numbers will obviously vary -- depending on when, during the
option cycle, you decide to roll up (or down, as the case may be).

If the QQQs remain up, rolling up now would make the monthly
adjustment of the short options (now at $36) a little easier.
However, if the market reverses back down, you may have spent the
$.45 for nothing.  If it goes down more than a few points, you may
find yourself at a disadvantage.
______________________________________________________________

DECEMBER CPTI PORTFOLIO POSITIONS
SPX Iron Condor – 1069.72
We sold 7 contracts of December 1085 SPX calls and bought 17
contracts of December 1100 calls for net credit of about $1.75
($1,225).  Then, sold 7 contracts of December 1005 SPX puts and
bought 7 contracts of December 990 puts for net credit of about
$1.40 ($980).  Total credit $2,330.  Maximum profit range of 990
to 1075.  Max profit potential of $2,330.

BBH -- Baby Iron Condor - $130.24
BBH looks to be in a trading range.  To take advantage of this
range we sold 10 contracts of the Dec. BBH $130 calls and bought
10 of the Dec. $140 calls for a credit of about $2.00.  Then, we
sold 10 contracts of the Dec. BBH $125 puts and bought the $115
puts for a credit of about $1.85.  Total credit and maximum
potential profit of $3.85 if BBH finishes between $125 and $130.
Safety range and suggested bailout points would be $121.15 and
$133.85.   Maximum potential profit of $3,850.

OEX Credit Spread Boogie – 527.56
We sold 2 December OEX 520 calls @ $9.00
We bought 2 December OEX 545 calls @ $1.55
Total credit and potential maximum profit of $7.45 ($1,490).
Exposure $17.55 ($3,510).  Maintenance $25.00 ($5,000).

NDX Iron Condor – 1432.38
Here's an index we haven't traded before.  The NDX mirrors the
NASDAQ 100 stocks, just like the QQQs.  We sold the December NDX
1325 puts and buy the December NDX 1300 puts, taking in about
$1.70.  Then, we sold the December NDX 1525 calls and buy the
December 1550 calls for a credit of about $1.00.  Total credit:
$2.70.  Maximum profit range of 1325 to 1525.
_____________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $35.65
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We're
going to make money by selling near term puts and calls every
month.  Here's what we've done so far – all in 10 contract
quantities.
October: Sold Oct. $33 puts and Oct. $34 calls -- total credit of
$1,900. November: Sold Nov. $34 puts and calls – total credit of
$1,150.
December: Sold Dec. $34 puts and calls – total credit of $1,500.

Note:  Each month, near expiration, we buy back the expiring
options and sell options for the next option cycle.   We haven't
included any of the proceeds from this long term QQQ ITM Strangle
in our profit calculations.  It's a bonus!

QQQ Put Calendar Spread – Ongoing -- Trading @ $35.65
We created a cheap play that will let us take advantage of a nice
down move.  Meanwhile, we sell against the January puts while we
wait. Bought 10 January 04 QQQ $32 puts and sold 10 October 03 QQQ
$32 puts for a total debit of $1.00 ($1,000). We rolled out to the
November $32 and took in a $.30 credit and then rolled to the
December $32 puts for another credit of $.40.  Our cost basis is
now only $.30.
______________________________________________________________

I'd Like Mine Well Done . . .
What is a cannibal's favorite TV show?  A celebrity roast.
_____________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational plays or our strategies?  To find
past CPTI (Mike Parnos) articles, look under "Education" on the OI
home page and click on "Traders Corner."  They're waiting for you
24/7.
___________________________________________________________

Happy Trading!
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In
trading, as in life, it’s not the cards we’re dealt. It’s how we
play them. Your questions and comments are always welcome.

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

Couch Potato Trading Institute Disclaimer

All results reported in this section are hypothetical. While the
numbers represented here may have been achieved or beaten by our
readers, we make no representation that any individual investor
achieved these exact results. The tracking for the plays listed in
this section uses closing prices for the day the newsletter is
published and it is not meant to imply that any reader actually
received those prices or participated in these recommendations.
The portfolio represented here is hypothetical and for investment
education purposes only. It is only an illustration of what type
of gains a knowledgeable investor might receive utilizing these
strategies.


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