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Daily Newsletter, Sunday, 12/07/2003

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The Option Investor Newsletter                   Sunday 12-07-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Foundation Cracking?
**YEAR END RENEWAL ADD**
Futures Market: Dollar Tanks, Equities Ooze
Index Trader Wrap: Doji Week
Editor's Plays: Change of Target
Market Sentiment: Considerable Period
Ask the Analyst: Generating new trading ideas
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 12-05        WE 11-28        WE 11-23        WE 11-14 
DOW     9862.68 + 80.22 9782.46 +153.93 9628.53 -140.15 - 41.11 
Nasdaq  1937.82 - 22.44 1960.26 + 66.38 1893.88 - 36.38 - 40.48 
S&P-100  523.51 +  2.77  520.74 +  8.97  511.77 -  7.24 -  1.69 
S&P-500 1061.50 +  3.30 1058.20 + 22.92 1035.28 - 15.07 -  2.86 
W5000  10352.60 +  0.38 10352.2 +253.34 10098.8 -145.78 - 45.10 
RUT      539.01 -  7.50  546.51 + 20.58  525.93 -  7.03 - 10.00 
TRAN    2910.58 - 10.65 2921.23 + 75.91 2845.32 - 82.32 - 51.65 
VIX       17.09 +  0.79   16.30 -  2.68   18.98 +  2.04 +  0.01 
VXO       17.34 +  0.63   16.71 -  3.18   19.89 +  2.26 +  0.07 
VXN       27.05 +  1.44   25.61 -  3.47   29.08 +  2.92 +  0.96 
TRIN       1.86            1.04            1.04            1.35 
Put/Call   0.84            0.69            0.80            0.69
******************************************************************


 
Foundation Cracking?
by Jim Brown

Signs of economic weakness reappear and sellers edged out 
buyers by slightly more than 2:1. However, while the markets
took profits they still held their ground. Bonds soared as 
the fear of the Fed eased and yields hit new lows for the 
month. Is there a change in the wind?

Dow Chart

 
Dow Chart - Short Term

 
Nasdaq Chart

 

The big number out on Friday was of course the Jobs report
and traders were expecting a big surprise. Unfortunately the
surprise they got was not the one they expected. The official
consensus was for an increase of +140,000 jobs and the whisper
number was as high as +250,000. On CNBC Thursday night Kudlow
was positively giddy about the potential for a 250K number
and pressing all his guests to agree with him. This was only
the culmination of a week of bullish comments by analysts
and not an isolated incident. This set traders up for a
disappointment as I discussed on Thursday night. That is
exactly what they got. The actual number was for a gain of
only +57,000 jobs. While it was still a gain and the fourth
month of gains the market did not like it. How quickly traders
can become spoiled when several consecutive reports show
improvement. Even the upward revision from 126,000 to 137,000
for October failed to impress when the number for this month
was only about 1/3 of the official estimates. It also did 
not help that September was revised down from 125,000 to 
only 99,000, a drop of -26,000 jobs. If you don't like this
months numbers stick around they may change several times
over the next three months. 

Despite the minor gain in jobs the actual number of unemployed
dropped by -105,000 to 8.674 million. This dropped the rate
of unemployment to 5.9% and an eight month low. How can this
be? First the unemployment rate is actually derived from a
different survey that is considered less accurate than the
payroll survey. Encouraging? Also, it is a known fact that
many workers are giving up on the job hunt when the benefits
expire. Two income families decide to make it on one and 
the unemployed partner stays home to live on less or retire
early. The unemployment rate did not go down because many
people suddenly found jobs. 

The analysts were more disappointed about the +57K number
because they thought with the ISM, GDP, Jobless Claims and
the other stellar economic reports of late that they had a
real chance to actually have a blowout. It takes +150,000
jobs per month just to breakeven with additions to the
workforce. Workers coming out of school, immigrants and
decisions by single income families to become dual income
adds 150,000 people to the available workforce each month.
We have been running at a negative job rate so long, several
years in fact, that analysts felt all the stars had lined
up in our favor to break the trend. When it weakened instead
they immediately started grabbing for the silver lining. 

Temporary employment was up, the work week was longer, the
productivity was exploding and so on. Yes, but most sectors
showed decreases in jobs for the month with the exception
of construction payrolls. Even financial services lost jobs
as the mortgage refi industry implodes. Manufacturing jobs
fell -17,000 for the month and wage growth only rose by 
one cent per hour. It has been decelerating for a year and
could go negative soon. 

Not all the news was bad. This was the fourth consecutive 
month that jobs were created. While the gain in jobs was
modest it is exactly what had been expected for the last
year, slow jobs growth until the recovery had some history
behind it. The only history we have is a blowout 3Q that
was entirely due to the tax rebates and tax cuts. That put
cash in consumers hands and they spent it. Once that cash
was spent Oct and Nov have been retail wastelands. That
does not mean the recovery stopped. It just means than
the injection of speed we had in the 3Q has worn off and
we are right back in the slow growth we have seen all year.

This slow growth mode as evidenced from the jobs has one
really strong benefit. The Fed is now likely on hold until
the 1Q of 2005. Yes, 2005. The Fed funds futures were looking
for a 50% chance of a 25 point rate hike in April before
today. After today that chance has dropped to only 25%. 
With retail in the tank and airlines seeing a drop in 
bookings the Fed is not going to want to trip up the 
struggling recovery with a preemptive rate hike. The strong
drop in jobs from the prior month actually gave the Fed a
free pass for the 1Q. Since the economy is normally slow
over the 2Q they should not be pressed to hike rates then
either. 2004 is also an election year and hell would freeze
over before they hike in the 3Q just before the election.
That political gift to the democrats simply will not happen
in a republican administration. That makes December the
first free meeting and the Fed rarely hikes rates in 
December to spoil holiday sentiment. What this does mean 
is we can guarantee a rate hike, probably several, in the
1Q of 2005. I have said before that should Bush be 
reelected he will probably be riding the crest of the 
current liquidity wave and the results of the $165 billion
in tax cuts/rebates in 1Q 2004. That wave will give the 
recovery legs that will race into the election but in 2005
he will cut those legs out from under the economy with 
large tax hike. He has to raise taxes once the economy is
firing on all cylinders. Otherwise the country will be 
broke by 2008. Literally. Looks like I got ahead of myself
but the main point is the Fed is likely on hold through 
2004 with the only risk a minor hike in April. Want proof?
Look at the drop in yields on the Ten Year note on Friday.
It was the biggest one-day drop since Jan-2002.

Ten Year Note Yield Chart

 


Other good news included a jump in the Factory Orders by 
+2.2% in October, which was slightly better than consensus. 
The markets actually dismissed this news as well because 
they had expected more with the whisper number in the +3%
range. Blowout numbers like the PMI last week have spoiled
them to thinking that all future numbers will do the same
and while the numbers today were good they were just not
good enough for analysts. This was also an October number
and yesterday's news.

The markets were already looking weak on the Intel and Jet
Blue news and the Jobs Report sealed the deal. They gapped
down at the open but surprisingly enough not significantly.
The Dow hit -40 and held at 9880 support. The Nasdaq took
it harder due to Intel and gapped down -25 but also held.
They held those levels despite negative internals until
after 1:PM but the fear of darkness finally took hold with
a major sell program supplying the push over the cliff. It
was a short drop and the Dow came to rest on strong support
at 9850, Nasdaq 1940. They spent the last hour fighting 
off all sellers but were only able to hold their ground
and not gain any. 

The major problem was the Intel news. The chip sector had
been at 52-week highs on Wednesday with the SOX at 535 
but the Intel news coupled with the Nasdaq touch of 2000 
combined to induce some serious profit taking. The SOX 
closed at 499 for a -6.5% drop in three days. This is very 
strong support and this support helped hold the Nasdaq at 
1940. 

SOX Chart

 


Also helping push the indexes lower were the retailers. Sears
for instance has dropped nearly -$7 in three days (-12%) and
there appears to be no letup in sight. FD joined the party
with a -5.4% drop. The problem here is the weak retail sales
and lack of any positive guidance for December. With more
than 50% of chains missing estimates for November and many
expressing concerns about December there are no bargain 
shoppers picking up these blue light stock specials. 

The Jet Blue warning rippled across the airline sector with
all the minor carriers looking for a flat spot to land. JBLU
lost -$5.52 (-17.59%) and that was on top of a -$6 slide in
the prior three days. LUV was also cut on Thursday and they
dropped another -6% to $15.50 from their $18.50 high earlier
in the week. The majors dropped less but the entire sector
was under pressure. The XAL broke support at 60 and appears
headed lower. This should pressure the Transportation Index
and that will continue to drag on the Dow. 

Airline Index Chart

 

The Russell-2000 remained under pressure with another drop
of -5.14 and a close at 539. This was the fourth consecutive
day of declines but there is still room to fall. Real support
is in the 520-526 range and I would not be surprised to see
this tested next week. Funds are selling but not yet in 
volume.

Russell 2000 Chart

 

The fund scandal continues to weigh on the markets but the
flight out of the Putman funds may have slowed. Putman said
they had $32 billion in net outflows in November. The Strong
funds had -$2 billion in outflows in November as the founder
put the company up for sale. Despite these problems AMG
Data said that over the last three months there was a net
inflow to all equity funds of +$57 billion. The three-month
period nearly equaled the record high in the 1Q of 2000 and
the market top. Makes you wonder what is in store for us in
the near future if the bullish money flow is back to bubble 
levels. 

About the only thing investors did not have to worry about
on Friday was terrorists. The news services were nearly
silent about weekend warnings and the talking heads were
more concerned about the Jobs report than the terror reports.
There were more bombings, one very serious, but the markets
appeared to ignore them. 

Next week should be critical for the markets. We start a
new round of economic reports with the Kansas City Fed Survey
on Monday, FOMC Meeting and Richmond Fed Survey on Tuesday
and PPI and Sentiment on Friday. There is also a sprinkling
of other filler reports throughout the week. The focus will
be the FOMC meeting although the outcome is assumed to be
neutral. They will be looking for the deletion of the
"considerable period" comment although it has already been
discounted away. Should it stay there will be a strong 
relief rally as that would officially put the Fed on hold
for the foreseeable future. If it disappears I think the
markets will blip for a few minutes and then go back to 
business as usual. 

More important than the FOMC meeting is the critical
support levels for last week. The Dow closed right above
9850 which is very critical support. This has been support
all week and a failure of that level should see an immediate
drop to 9750 with a risk to 9600-9650. This should not be
a surprise to anyone who has been reading my recent articles.
The 50 DMA is 9711 and that uptrend support has held since
March. It will not hold forever but until it fails 
convincingly traders will continue to buy the dip at 
that level. 

The Nasdaq also closed at support for the week at 1940 and
the 50 DMA at 1920 should provide a pause if 1940 fails. 
Worst case support for next week should be 1880-1890. This
would be a major risk to the uptrend and a break below 1880
could set off a cascade sales event. I do not expect it
next week. 

What I expect is an opening bounce on Monday and then more
weakness before the week is out. I think the Dow will see
9700-9750 and then firm up as the dip buyers hit that 
test of the 50 DMA. In addition to the FOMC meeting and
the various economic reports we should see some more
earnings warnings so there will be no shortage of news
to move the markets. 

The main thing investors should remember about the next
three weeks is that they are NOT critical. We may see a
Santa rally begin around the 15th or we may not. We could
attempt a retest of 10,000 again or 9500. The odds are
very good that we will go nowhere. There is a lot of
bullish sentiment and the closer we get to the holidays
the stronger it will get. There is also a lot of overhead
supply so breaking through to new highs would be tough. 
This should mean we will remain range bound between now 
and year end. 

What "investors" should focus on is the expected drop in
January. We will devote more commentary to that as we get
closer. Over the last six years January has seen a drop
from the highs of between -550 and -1050 points. This is
due to hedge funds and portfolio managers waiting to take
profits until the new year to push the tax consequences
farther into the future. This is a recent trend and one
that has accelerated as the consecutive string gets longer.
Experienced investors have been able to play these trends
profitably. We have devised our current year-end renewal 
special to allow readers to profit from this. Be sure
to read about it below this commentary. 

For next week I would suggest only aggressive traders 
need apply. It is likely to be choppy and news driven.
For conservative traders I would watch the Dow 50 DMA 
and use that as your entry point for any potential 
Santa Rally. That rally when it occurs tends to begin
around the 15th and run into the end of the year. Be
prepared for it but don't count on it. The huge profits
by fund managers are just waiting to be harvested and 
the odds are good some funds will begin lightening the
load soon and using any Santa rally to offset their sales.
This is a good period to be conservative and get ready
for 2004. If you have an IRA I would use the holidays 
to decide what stocks you want to buy on the January
dip. I would use the rest of December to decide what
stocks you want to sell before that dip begins. Plan
your trades wisely and trade your plan.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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**************
FUTURES MARKET
**************

Dollar Tanks, Equities Ooze
Jonathan Levinson

The US Dollar Index set new bear market lows on Friday as 
equities took a controlled decline.  Treasuries and precious 
metals rallied, completing a week that saw bearish candles 
printed for the US Dollar Index and equities, with bonds and 
precious metals the winners.

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


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

10 minute chart of the US Dollar Index


The real damage started with a downside surprise in the non-farm 
payroll data, coming at 57,000 vs. expectations of 150,000 and a 
hisper number as much as 75,000 above that.  Nothing stemmed the 
tide, and only round number support at 89 seemed to carry any 
weight.  Precious metals advanced, the CRB fell fractionally to 
257.56, but the move higher in treasuries was puzzling unless it 
was a defensive "flight to quality" of domestic money.


Daily chart of February gold


The bearish tilt to the daily cycle oscillators on February gold 
was undone by today's sharp advance, though it did nothing to 
invalidate the bearish rising wedge.  The session high of 407.70 
was a new high for the move, and the gold future contract managed 
to hold just below it for most of the afternoon.  Support was 
again tested with a low of 400.50, and for the week a bullish 
break to new highs was printed.  The HUI finished up 6.95 at 
252.60, XAU up 2.01 at 111.33.


Daily chart of the ten year note yield


The yield rally in the ten year note came to a violent and 
unceremonious end on Friday as the ten year note was gapped 
higher on a breakaway move.  The TNX dropped 15.4 bps to close at 
4.215%, and unless there's a sudden, surprise selloff in bonds on 
Monday, the daily cycle upphase on the yield will turn back down.  
For the week, bonds printed a bullish reversal candle, and 
combined with the strength in gold and weakness in the dollar and 
equities, it looks like a defensive bid coming into bonds.  Next 
week will tell the tale.


Daily NQ candles


The NQ led to the downside again on Friday, dropping to a low of 
1405 and closing just north of it, underperforming its peers 
significantly.  On the daily chart, this drop was insufficient to 
truncate the ongoing daily cycle upphase, and there's a good deal 
of support at 1400 with price confluence lined up on a Fibonacci 
retracement.  Despite that, a number of trendline breaks occurred 
this week, none of them bullish, and given the extent of the 
bearish Macd divergence set up, a break below 1400 could have 
serious results for the majority of participants betting on 
higher prices from here. For the week, the NQ printed a bearish 
gravestone doji. 


30 minute 20 day chart of the NQ


The 30 minute NQ extended the bullish descending wedge discussed 
on Thursday night, briefly violating Fibonacci support at 1408 
and bouncing from price confluence just above 1400.  The fickle 
300 minute stochastic gave a number of false buy signals as it 
drifted lower beneath its descending trendline, stopping just shy 
of oversold territory.  This entire decline has been countertrend 
to the daily cycle upphase, and the refusal of that upphase to 
abort implies a potential upside break out of the descending 
wedge on the 30 minute chart.  Resistance is at 1415-18, and if a 
break of that level sees the 300 stochastic turn up out of its 
downphase, the ensuing upphase could have some punch.  For the 
past two weeks, the daily cycle upphase has complicated 
everything, forcing us to either ignore it or play the short side 
defensively from the Wednesday high.  Support looms just below to 
1392.


Daily ES candles


Like the NQ, the ES extended its daily cycle upphase this week, 
but finished far weaker than it started.  The daily cycle upphase 
is looking long-in-the-tooth here, and a break of support at 1055 
would confirm the downphase for which we've been waiting.  Any 
upside move to a high below Wednesday's peak could confirm the 
turn, as would a failure from here, but for the moment it's 
simply too early to call an end to this upphase.  As can be seen 
on the 30 minute chart below, the downphase has room to run, and 
so Monday will be a critical decision point from which to judge 
whether the daily cycle upphase will reassert itself, or whether 
it's indeed over.


20 day 30 minute chart of the ES


Fibonacci support stemmed the selling on the 30 minute chart of 
the ES, with the ES closing lower by 7.75 at 1061.75.  The long-
awaited move below 1062 could a head and shoulders breakdown, and 
for Monday, a break below 1059 or above 1062 will be our first 
clue as to what the market has in store for us.  By the same 
token, a break above 1067 could set up a retest of 1074 on a 
possible bull wedge breakout. Until the daily cycle upphase ends, 
we can expect another leg higher from the bottom of the 30 minute 
cycle downphase.  Below 1055, however, the 10 day stochastic 
should turn back down, and bears should be able to relax for a 
change.


150-tick ES


The 2 day chart of the ES highlights the neckline break at 1:20 
PM, and the failure to retake that level.  A short cycle upphase 
was nearing its end as of the close, and could portend another 
push lower on Monday morning.

Daily YM candles


Nothing to add on YM, except that its 47 point / .47% loss was 
the slimmest of its peers, and the neckline break on ES never 
occurred on YM.  This looks like the result of defensive bids in 
the blue chips (to line up with the rally in bonds) as part of a 
flight to quality. 


20 day 30 minute chart of the YM



Equities and the dollar were weak for the week, but equities left 
us holding a big question mark for Monday.  Either the selling 
will resume, or the dippers will pick up the ball and run it back 
up.  The intermarket relationships, along with the sentiment 
readings and the rally in the VXO, look extremely bearish to me, 
with AAII reporting 14.1% bearish advisors in its latest survey – 
a strong contrarian sell signal.  But cyclically, the markets are 
lined up for a directional move either higher or lower.  Another 
burst of strong selling from here would imply significantly more 
selling to come, as it would abort the daily cycle upphase.  A 
reversal higher would abort the 30 minute cycle downphase, and 
could imply a retest of the highs.  My strategy for Monday 
morning will be watch the support and resistance lines, and seek 
to follow a range break.  With this much ambiguity between the 
different timeframes, the stage is set for possibly violent 
swings, and I prefer to leave that to the scalpers.


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

Doji Week
Jonathan Levinson

The Nasdaq hit 2000 and the only panic was from bulls to buy the 
top.  The indices retreated shortly thereafter, and closed the 
week lower by 1.1% at 1937.  On Friday, the Dow lost .7% or 68 
points to close at 9862, the S&P 500 dropped 8.22 or .8% to close 
at 1061.50, and the Nasdaq lost 1.6% or 31 points.

Year to date, the Dow is up 18.2%, the S&P 500 20.6% and the 
Nasdaq 45.1%.

It was a week in which technical traders got whipsawed in both 
directions, and those with a bias in either direction were spared 
some of the false signals.  Wednesday's high was not revisited, 
but the Thursday afternoon ramp job, fueled entirely by three 
nearly symmetrical buy programs in one hour, nearly did it.  The 
selloff following INTC's earnings report took the futures back 
down afterhours, and Friday never came close to breaking above 
Thursday's close.

Volatility printed a fresh set of lows up to Wednesday, with the 
VXO spending most of Monday and Wednesday below the 16 level.  
Sentiment was overwhelmingly bullish, even amongst many bears.  
It appeared to be an inevitability that the Dow would print 
10,000 and the Nasdaq 2,000, and the selloff that followed the 
Naz 2K touch was as much from bearish relief as from bullish 
profit-taking.  The VXO closed on Friday at 17.34, near a 
weeklong high, and the various support breaks no doubt awoke some 
bulls to the significant downside risks from these lofty heights.

Nevertheless, the higher high on the Nasdaq muddied the weekly 
cycles somewhat, actually printing a buy signal but setting up a 
possible bearish oscillator divergence.  The bulls used a great 
deal of firepower on Wednesday, and the bears only appeared to 
realize it after the INTC disappointment at Thursday's close.


Weekly COMPX candles


The drop on the weekly candle from a new high printed a 
gravestone doji for the week, portending further downside to 
come.  This candle implies an abrupt rejection at the high and is 
a reversal signal.  However, the close above last week's lows 
could result in either consolidation or further selling, and it 
will take a trendline break below 1930 confirmed by a failure  
below 1900 to suggest that we've indeed seen the top.  We all 
know the bear wedge off the March lows by now, as well as the 
bearish divergences on the 10 week stochastic.  This week's 
decline confirmed the sell signal on the weekly Macd, however, 
and this suggests that the Nasdaq is putting in a rolling top at 
current levels.  A retest of the high would not be incompatible 
with that interpretation, and wedge resistance is now up at 2030.  
The oscillators suggest that such should not occur, and so next 
week promises to be enlightening as to the fate of this year's 
rally.

Weekly INDU candles


The Dow came close but did not reach 10,000.  It was stronger 
than the COMPX for the decline from Wednesday, and on the weekly 
chart its Macd sell signal is not fully developed.  The rise back 
to the highs left us with the same upward tilt on the 10 week 
stochastic as we saw on the COMPX, and we cannot rule out more 
upside for next week.  Nevertheless, the stochastic is still 
diverging lower, and suggests a break of the lower rising wedge 
trendline. 


Daily OEX candles


The daily chart of the OEX shows a rounding top at the current 
highs.  If you squint, you can see the shooting star doji on 
Wednesday, one of the most bearish candles you'll see.  The fact 
that the break above 525 resistance did not cause a short 
covering panic for longer than part of one session indicates the 
existence of serious overhead supply, and leaves bears breathing 
easier.  But former resistance at 518-520 is now support and 
should give bears a run for their money.  The daily cycle 
oscillator upphase, responsible for that upward twitch in the 
weekly stochastic above, still has room to run and could see a 
retest of the 528 highs.  But the Macd histogram suggests that 
Wednesday may have been the top, and any further selling from 
here should be enough to turn the stochastic back down.  If so, 
that would agree with the bearish divergences on the weekly 
cycles, and the ensuing downphase should do some damage. 
Provided that 528 does not get broken, that's what I expect to 
see.


20 day 30 minute chart of the OEX


The 30 minute OEX shows the wedge break with Wednesday's outside 
reversal day, but the selling that has ensued is difficult to 
read.  On the one hand, it could be a head and shoulders top, 
with a neckline at either 525 or 522.  On the other, a bull flag 
with resistance 526, support 522.  Above 526, I expect to see the 
30 minute cycle oscillator reverse to an upphase, and 528 will be 
within sight.  Below 522, the daily cycle upphase should abort, 
and the bulls will have a problem.


Daily QQQ candles


The Qubes never printed a higher high this week, a clear bearish 
divergence from the broader Nasdaq.  Friday's close near the lows 
was ugly but did not break any of the rising trendline supports.  
A decisive break of 35 will be the first sign of trouble, but 
34.30 is far more important, below which I expect to see the 
failure of the daily cycle upphase.  Given the extent of the 
bearish oscillator divergences, the next downphase should pack an 
"I told you so" punch.  Until then, however, the pullbacks in 
this daily cycle upphase look merely corrective.


20 day 30 minute chart of the QQQ


My "corrective" comment is exemplified by the bull wedge 
interpretation on this 30 minute cycle downphase.  However, a 
break below 34.75 could be construed as a neckline break, and 
again, we'll wait for a confirmation at 34.30 to be certain.  The 
30 minute cycle downphase should be good for another few hours of 
downside, but if it's merely sideways, we'll watch for a bull 
wedge breakout to the upside above the trendline at 35.20.


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**************
Editor's Plays
**************

Change of Target 

With the explosion out of the gate on Monday we only got the
chance to fill three of our expected four groups of DJX puts.
If you were following the plan you should have filled in the
75, 60 and 55 cent range as each trigger was reached and have
an average cost of 63 cents. 

While I expected 9900 to be touched I did not expect to spend
most of the week over that level. Well, as they say the higher
they are the farther they fall. Pardon my literary license.

The original target was a retest of 9600. With the very
strong week I am afraid we are going to have to revise that
target. The 50 DMA is 9711 today and was only 9670 last week.
This has been very strong sentiment support for the Dow since
March. With the continued bullish undertones I do not see
the 9600 level being tested unless we get a worsening of
sentiment on some unexpected news event next week. With 
the potential Santa rally ahead many retail investors will
gladly buy the dip at the 50 DMA. 

The new target will be Dow 9700. Exit all positions with a
touch of that level. The one good thing the gap open on
Monday did for us was to deflate the put premiums and 
knock off about 20% of the premium from the prior Friday. 

Your average cost should be 63 cents if you entered all
the positions and the contract closed this Friday at 55 
cents. A drop to 9700 should push the premium back over 
$1.00. An alternate exit method would be to set a limit 
order at $1.00 to capture an exit on any negative news 
that might not actually push the Dow to exactly 9700. 
Sudden spikes could push the premium to $1.00 only to 
see it retreat several minutes later. 

Exit all positions at Dow 9700 or a limit price of $1.00
whichever occurs first. 

DJX Chart

 



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

Play Recaps

No open plays


Powerball 

Ouch! The Nasdaq drop knocked 50% off our profit in just one 
week. Last week the portfolio profit was showing $1175 and 
this week it dropped -$650 to only $525. We were so close
to a 100%. We need to hope for a Santa Rally now to inflate
the calls for our target exit of Jan-5th.     

It would have taken $1,255 to buy one contract of each on 
January-2nd. Any bets on what this will be worth on 12/31/03 

Powerball Chart 

  

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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Considerable Period
- J. Brown

Last week was an intriguing start to December.  The headlines 
produced a roller coaster effect.  The strong ISM numbers on 
Monday sent us soaring higher as most coasters do at the 
beginning of the ride before the dips begin.  Profit taking, a 
negative investor reaction to Intel's mid-quarter conference 
call, a warning from JetBlue and a disappointing employment 
number left the NASDAQ lower on a week it touched 2000.

The big news on Friday was of course the jobs report.  Estimates 
had been for a gain of 140,000.  October's report had been 
+126,000 and economists were excited to see month over month 
gains.  Unfortunately, the November report was a disappointment 
with just 57,000 jobs gained.  The good news was an upward 
revision to 137,000 for the October report but this was just old 
news by now, especially given the "whisper" number of +250,000 
jobs in November.  

Overall unemployment dropped to 5.9% reaching an eight-month low 
but as many analysts pointed out this is not due to job growth.  
The most probable theory is drop off in the reportable figures.  
Thousands of workers who couldn't find a job have run out of 
unemployment benefits and could no longer be counted.  

The major focus next week will be the Federal Reserve meeting on 
Tuesday.  The verdict on interest rates should be out at 2:15 PM 
ET on Tuesday afternoon.  There has been much ado made about the 
term "considerable period" in the FOMC's previous statements 
regarding how long they plan to keep rates low.  Since no one 
expects them to raise rates the real focus is on what they have 
to say regarding the current state of the economy and when they 
might lift rates in the future.  In this weekend's wrap Jim gives 
a good argument on why we may not see a rate hike until the first 
quarter of 2005.  Whether or not the words "considerable period" 
are in this Tuesday's comments it may be replaced by a new phrase 
suggesting that the Fed is in no rush to raise rates.  

As we have suggested in the past the market's gains are being 
tempered by investors taking profits near the highs.  Most money 
managers are looking at their first profitable year since 1999.  
There is not a lot of desire to chase stocks higher when we're so 
close to the year-end.  However, I will note that commercial 
traders have suddenly become bullish in the e-minis future 
contracts.  Commercial traders, normally thought of as the "smart 
money", have reversed from being net short to net long.  This can 
be viewed as a bullish sentiment indicator.  

I would not be surprised to see the markets dip again this week 
but there are a large number of stocks that have pulled right 
back to support.  It's going to be another tug-of-war for 
direction.  Keep an eye on retail stocks.  They took a beating 
this last week and the massive snowstorm on the east coast, 
dumping 12 to 20 inches of snow this weekend, is not going to 
help their holiday sales.  The other side of that coin should be 
a strong surge in online shopping.  

Good luck.  We only have 18 shopping days left to Christmas day.


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

Market Averages

DJIA ($INDU)

52-week High:  9942
52-week Low :  7197
Current     :  9862

Moving Averages:
(Simple)

 10-dma: 9812
 50-dma: 9711
200-dma: 9027


S&P 500 ($SPX)

52-week High: 1074
52-week Low :  768
Current     : 1061

Moving Averages:
(Simple)

 10-dma: 1059
 50-dma: 1043
200-dma:  971


Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1406

Moving Averages:
(Simple)

 10-dma: 1418
 50-dma: 1400
200-dma: 1239


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

Insert broken record commentary here...the "fear" indices 
continue to show very little concern by investors as they trade 
near multi-year or all-time lows.  Yet we have seen a slight 
up tick in the trend, but we've seen before.

CBOE Market Volatility Index (VIX) = 17.09 +0.79
CBOE Mkt Volatility old VIX  (VXO) = 17.34 +0.78
Nasdaq Volatility Index (VXN)      = 27.05 +0.24


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.54        585,094       491,146
Equity Only    0.68        494,881       335,345
OEX            1.04         24,450        25,318
QQQ            7.06         13,620        96,175


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

Bullish Percent Data

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


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

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


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

 5-dma: 1.17
10-dma: 1.06
21-dma: 1.16
55-dma: 1.13


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    1161      1044
Decliners    1628      2012

New Highs     213       106
New Lows       10        12

Up Volume    435M      320M
Down Vol.    999M     1299M

Total Vol.  1468M     1643M
M = millions


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

Commitments Of Traders Report: 12/02/03

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

Long and short interest continues to flat line from the
commercial traders.  Everyone seems to be waiting for the year
to end before changing their bets.  Small traders have grown
slightly more optimistic.


Commercials   Long      Short      Net     % Of OI
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%)
12/02/03      394,531   414,223   (19,692)   (2.4%)

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
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%
12/02/03      154,788    85,776    69,012    28.7%

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

Wow!  We're actually seeing some action here in the e-minis.
Commercial traders have reversed from being net short to
net long.  This is bullish news.  Small traders have added
strongly to both their long and short positions and remain
bullish as well.


Commercials   Long      Short      Net     % Of OI 
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%)
12/02/03      283,199   268,833     14,366     2.6%

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
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%
12/02/03      119,555    77,609    41,946    21.3%

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


NASDAQ-100

Much like the large S&P contracts above, commercial traders
have fallen asleep.  There is very little change in positions.
Meanwhile, small traders have reduced positions on both
sides of the equation.  


Commercials   Long      Short      Net     % of OI 
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%)
12/02/03       35,569     48,552   (12,983) (15.4%)

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
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%
12/02/03       21,594     9,429    12,165    39.2%

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

The same story appears to hold true for DJ futures.  The
overall trend is flat with commercials slightly bullish
and small traders generally bearish.


Commercials   Long      Short      Net     % of OI
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%
12/02/03       21,128    12,379    8,749      26.1%

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
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%)
12/02/03        6,667     9,302   (2,635)   (16.5%)

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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***************
ASK THE ANALYST
***************

Generating new trading ideas

Can you give me some guidance in scanning for short-term (five to 
ten day) trade possibilities?  How do you come up with your 
ideas?

While I've been spending more time trying to cover the indices in 
the Market Monitor at OptionInvestor.com and haven't had the 
opportunity to profile as many individual stocks trades, there 
are several ways I generate trading ideas.

Since I don't have a lot of time to really poor through the 
fundamentals of a company, and I do believe fundamentals are 
important, one great way to generate a list of investment/trading 
ideas is to simply listen to a reputable investment show.  For 
instance, tonight, while I was updating the Pivot Analysis Matrix 
for this week's trade, I was listening to CNBC's Luis Rukeyser 
program, where the show's featured guest was Lawrence Auriana.  
You may recognize his name as he and his partner Hans Utsch, have 
managed the Federated Kaufmann fund (KAUFX) since 1986.

In tonight's (Friday's) show, guest host Maria Bartiromo asked 
Mr. Auriana what his favorite top 4 picks were right now.

Now, I'm figuring that Mr. Auriana and his partner, along with a 
their staff of analysts spend quite a bit of time poring over a 
company's financials.  In fact, Mr. Auriana said the Kaufmann 
Fund doesn't invest in a company without first meeting with a 
company's management, and visiting various business locations.  
While Mr. Auriana admits there will always be the occasional 
unpleasant "surprise" that even his analysis or research on one 
of their holding was unable to uncover, I figure Mr. Auriana's 
shop is probably on top of things, and may have a better idea 
than I of a company's fundamentals, the either he, or his mutual 
fund owns.

With that said, I'll listed to an investment manager, and if what 
he says makes sense, and sounds interesting, here's what I'll do.

The first thing I'll do is pull up a point and figure chart of 
the stock.

The second thing I'll do is calculate the bullish vertical count 
(the bearish count if the analysts says he/she is shorting it), 
and see if the current level of trade, compared to the vertical 
count and technicals makes sense for the stock to go on my "watch 
list."

If a stock does look/sound interesting, and the supply/demand 
chart (point and figure chart) looks to CONFIRM what the analysts 
said, then I begin the process of establishing action points.  
Where the third step is to identify a PULLBACK level to buy the 
stock, but also a BREAKOUT level to buy the stock, if demand for 
the stock's shares is simply too strong that the stock doesn't 
pull in to my entry point.  Once these two levels are identified, 
I will set both the downside alert (pullback) and upside alert 
(breakout trigger) on my QCharts trading software.

The four stocks Mr. Auriana said he likes from the buy side (and 
explained each one briefly as to why) were Advanced Auto Parts 
(NYSE:AAP) $80.72, Central European Media (NASDAQ:CETV) $16.30 
+0.74%, Orthofix Intl. (NASDAQ:OFIX) $42.71 -2.44% and Dyax Corp. 
(NASDAQ:DYAX) $6.19 +0.97%.

I should note that Mr. Auriana said some stocks in his mutual 
fund have been held for over 8 years.  While this is truly a 
longer-term investment style of management, later on I'm going to 
get you in the mindset of how these fund managers buy stocks.

I'm going to quickly run through my thinking on both of the above 
stocks, by simply looking at a point and figure chart.  I'm not 
going to show the charts here, as I've come up with a very 
interesting observation yet to come, but you can follow along by 
going to www.stockcharts.com and pull up FREE point and figure 
charts as it relates to these four stocks.

Advanced Auto Parts (NYSE:AAP) $80.72 :  AAP's point and figure 
chart has been BULLISH since April (red 4 on PnF chart) when the 
stock broke above its longer-term bearish resistance trend at 
$49.00.  After giving a double bottom sell signal in June (red 6 
on a PnF chart) at 58, the stock slipped lower to $57, but in 
early July (red 7) gave a triple top buy signal at $63.00, where 
the column of X from $58 to $69 built the current bullish 
vertical count to $94.00.  Hmmm... in October (red A) the stock 
generated the bullish triangle pattern when it traded $75.00.  
This stock certainly looks bullish.  Just for fun, I like to then 
go to my Qcharts trade station, and use the technique we've 
taught where I take the retracement tool, anchor at a low (how 
about the March low at $36.99, and then take the other end of 
retracement (100%) and attach it to the bullish vertical count 
target of $94.00.  Hmmm.... look at that!  I've got to show you 
this.

Advanced Auto Parts (NYSE:AAP) Chart - Daily Intervals

 

Hmmm... this unconventional use of retracement where we anchor 
the bottom and attach to the bullish vertical count does show 
some tie to AAP's bar chart 38.2%, 50% and recent 80.9% 
retracement.  See that little dip back under the 38.2% 
retracement?  That's the double-bottom sell signal on the PnF 
chart.  There's an old PnF saying that "the first sell signal in 
the upward trend is a buying opportunity."  What should we have 
been doing after that double bottom sell signal?  How about 
setting an upside alert at $63 for the triple-top buy signal?

I'm setting two alerts on my QCharts trading software.  One will 
actually be set for a pullback alert at $78.00, I want to be 
alert at that level (Monday, maybe a week from now), and the 
other alert will be set at a new 52-week high trade of $83.65.  
If the stock is going to $94.00, which is the BETTER entry point?  
We'll ask Mr. Auriana that question in a moment, as I'm going to 
try and show you how Mr. Auriana buys stocks.

There, that was pretty quick.  I'd also slap a quick retracement 
bracket on this chart from that little "sell signal" low of 
$56.80 and attack the upper end to $94.00 (see the $80.00 support 
at 61.8% retracement?) and using the same lower anchor point of 
$56.80, use the "fitted retracement" technique you learned in the 
July 6, 2003 Ask the Analyst column "Fibonacci retracement. Fit 
it or stack it!" and by performing a "fit" on AAP, I come up with 
a 100% retracement at $89.40, where the 80.9% ties wonderfully to 
Wednesday's close, the 61.8% matches nicely with that little gap 
lower to $76.94, where the gap lower stopped dead in its tracks 
as if some "level" were being traded as support.  This one sure 
looks good.

Central European Media (NASDAQ:CETV) $16.30 :  This is the 
Kaufmann fund's largest small cap holding.  Bullish vertical 
count is $11.75.  Stop... not interested at this point.  Make no 
mistake, this stock looks like a bull in a china closet, but 
tough to assess a bullish target.  Goodness me, look at that 
spread-triple top last December at $5.50.  Stock recently gave 
another triple-top at $17.50, traded $18.50, but is now pulling 
back.  I'll bet you dimes-to-doughnuts Mr. Auriana is a buyer at 
$15.50 though.  More on this thought in a minute.

Orthofix Intl. (NASDAQ:OFIX) $42.71 : Hey, a bullish vertical 
count of $61.00.  I'm interested, but need to do some work with 
retracement.  Look at that spread triple-top buy signal at 
$37.00!  Oh yes... I took a retracement from $23.69 (the March 24 
relative low) and place top at $61.00.  I can see OFIX at $61.  
Look at the way the bar chart ties in with 19.1% retracement of 
$30.83 (August pullback)and 38.2% $38.00 (October relative high).  
Setting downside alert at $40.00 (21-day and 50-day SMA $39 and 
$38) and upside alert at $45.50 (new 52-week high).

Dyax Corporation (NASDAQ:DYAX) $6.19 :  Oh my!  Stock gave a 
triple-top buy signal and broke above its longer-term bearish 
resistance trend at $4.50 in early September (red 9) and ran to 
$7.50, pulled back to $5.00, ran back up to $7.50, and now pulled 
all the way back to $4.50 (gave a double bottom sell signal at 
$4.75, fell another 25 cents to $4.50 (the first sell signal in 
the upward trend was $4.75) came close to testing its bullish 
support trend (first test of bullish support can be painful for 
the bears as institutions are often lurking nearby) and has now 
reversed up 4-boxes to $6.00.  If the stock trades $8.00, then 
that's a triple-top buy signal and would then have a bullish 
vertical count of $16.00 being construction.  Oooooo... very 
tight consolidation in the bar chart and hugging that 50-day SMA 
as support.  Upside alert at $6.30 for a partial position (no 
bullish count at this point) and pullback alert at $4.75, which 
would have the stock's PnF chart sitting right on the bullish 
support trend.

Wow!  The MARKET seems to agree with 4 of Mr. Auriana's "top 
picks."

Now lets have some fun, but also try and learn just how Mr. 
Auriana and most fund managers buy stocks.  Check this out!

I was looking for some info on Mr. Auriana, and found a bunch of 
inside trades he was making on a stock.  Aha!  He's dumping one 
of the stocks he mentioned tonight, while pumping it on Luis 
Rukeyser's program!  

Gulp!  No he isn't, he's been buying Mediware Information Systems 
(NASDAQ:MEDW) $15.96 since January 31, 2001!  

Check this insider trading report out, which I found at Yahoo! 
Finance.  http://biz.yahoo.com/t/09/44.html

Now... let's look at a PnF chart of MEDW, and try to see if we 
can't figure out just how Mr. Auriana builds a position.

MEDIWARE Information Systems (MEDW) - $0.25 & $0.50 box

 

If there was ever a perfect example of how in institutional
investor builds a position, and even "builds a chart" on a stock, 
then Mr. Auriana's SEC filings where I've circles his various 
bullish entry points is that example.

I really mucked the chart up, but look at all the triple-top buy 
signals on this chart, starting back in September of 2000 at 
$3.50 per share when MEDW also broke above its bearish resistance 
trend.  Maybe Mr. Auriana only buys stocks above trend?  While he 
missed two triple-top buy signal entry points, he made his first 
purchase at $5.88 (per the filings) on January 31, 2002.

Then, Mr. Auriana, who is a MEDW director, exercised options 
worth 5,000 shares on June 28, 2002, after the stock had pulled 
back to $7.00.

Hmmmm, that sell signal at $6.50 negated the prior bullish 
vertical count of $9.25 (Oh... stock already achieved the bullish 
vertical count when it traded $9.50) but what that first sell 
signal in the upward trend probably did is shake out some weak 
holders (that's OK, just recognize what happened) and then 
allowed for a new bullish vertical count (X's from $7.00 to 
$11.00) to then have MEDW's PnF chart building a new count to 
$20.50.

Shoot!  Mr. Auriana missed another triple-top buy signal at 
$9.00.  Oh well... wait for the pullback, then pick up another 
15,000, where on three consecutive days, Mr. Auriana buys 5,000 
each day.  What probably took place this day is some type of 
crossing of shares.  Mr. Auriana's trader on the phone, with 
another trader, whose client is a seller.  Mr. Auriana probably 
knows better than anyone where the stock is headed and becomes a 
more aggressive buyer.  He may also have wanted to "build the 
chart" and keep it looking bullish.

Hmmmm... February 3rd rolls around and evidently supply (O's on a 
PnF chart) of stock begins to dry up, and Mr. Auriana snaps up 
another 5,000.  Do you think Mr. Auriana knows something?

Shoot!  Mr. Auriana missed another triple-top buy signal at 
$11.50.  Well, I guess not, he was loading the boat in late 
January and early February at lower price levels.

Now what is he doing?  On October 28th, Mr. Auriana is back at it 
again.  Takes down another 5,000 shares between $14.00 and 
$14.10.

Do you kind of see how Mr. Auriana seems to be "working" the 
stock higher, buying on pullback, while perhaps at times, when 
stock price was much lower, where SMART MONEY knew of an eventual 
outcome, was willing to take partial positions, but get some 
exposure to the stock early in the game?  

Now... how crazy is it to actually anchor the base of a 
retracement bracket to the bottom of a stock's bar chart, and 
attach the upper end to the bullish vertical count?  

While the following bar char of MEDW is shown with weekly 
interval bars, a swing trader could also think of the bars as 
daily interval bars.  With MEDW trading a new 52-week high today, 
where's upside resistance and where's support?  If Mr. Auriana 
remains bullish on the stock, where is he most likely to be a 
buyer?  Do you see where were going?  We're trying to get inside 
the mind of Mr. Auriana, an institutional money manager, figure 
out what he has been doing, and more importantly, try to figure 
out what he IS GOING TO BE DOING if he's still bullish the stock, 
and we would want to try and join him.  He's been "right" so far.

MEDIWARE Information Systems (MEDW) - Weekly Intervals

 

I've really like looking at a stocks chart on both a point and 
figure basis and bar chart.  I've pointed to the often-times 
powerful and high probability bullish patterns of the point and 
figure chart known as the triple-top buy signal.  Those weekly 
bars show some 10% moves taking place in a single week!  

If you were a market maker in the stock, how is your inventory 
looking with the stock at a 52-week high?  You're probably a 
little light in inventory, and having to short to the market to 
provide liquidity.  Where are YOU and perhaps Mr. Auriana going 
to be battling for stock?  Where to you think an everyday 
investor/trader like you and I might be looking to pick up some 
shares of MEDW with a current upside target of $16.75?

While MEDW is a thinly traded stock (only 139,000 shares this 
week) and may not be the best type of stock to try and trade, I 
thought by showing you how Mr. Auriana, an institutional 
investor, buys a stock, and how we can match his buying from the 
SEC filings to how the stock was trading, what kinds of signals 
it was giving, and where Mr. Auriana chooses entry points (on the 
PnF chart) served as a good example as to....

Listening to an institutional money manager and his/her thoughts 
on what stocks they are buying or sometimes shorting....

then use their ideas to match against the technicals.....

then have an understanding of how an institutional money manager 
will go about building a position as long as they continue to 
view the stock attractive.  

While any "buy side" money manager that buys stock is not 
necessarily the MARKET, its this kind of money we want to try and 
follow, get in front of, or try and use their buying power to 
drive our trades higher.  

Mr. Auriana and his Kaufmann fund couldn't really do anything 
about the market's decline past years as he is supposed to invest 
his shareholders money in stocks.  However, we as traders will 
try and get inside the mind of the institutional investor/trader, 
try and figure out where he/she is buying and perhaps selling, to 
also choose our entry and exit points.

While I went a lot further than what the trader actually asked 
for, it was by pure accident that I ran across Mr. Auriana's SEC 
filings, but what a great accident to have happen.  

Here's an article I stumbled across on Mr. Auriana.  
http://www.neco.org/awards/recipients/leauriana.html

Jeff Bailey


*************
COMING EVENTS
*************

-----------------
Earnings Calendar
-----------------

Symbol  Co               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

HOV    Hovnanian Ent, Inc.   Mon, Dec 08  After the Bell     2.68


------------------------- TUESDAY ------------------------------

AZO    AutoZone Inc.         Tue, Dec 09  After the Bell     1.28
COST   Costco Wholesale Corp Tue, Dec 09  Before the Bell    0.31
EASI   Engineered Sprt Sys   Tue, Dec 09  Before the Bell    0.48
KR     The Kroger Co.        Tue, Dec 09  Before the Bell    0.29


-----------------------  WEDNESDAY -----------------------------

TOL    Toll Brothers         Wed, Dec 10  Before the Bell    1.14
TTC    Toro                  Wed, Dec 10  Before the Bell    0.21


------------------------- THUSDAY -----------------------------

ADBE   Adobe Systems         Thu, Dec 11  After the Bell     0.32
CIEN   CIENA Corporation     Thu, Dec 11  Before the Bell   -0.09
MDZ    MDS Inc.              Thu, Dec 11  Before the Bell     N/A
NDSN   Nordson               Thu, Dec 11  Before the Bell    0.39
COO    The Cooper Companies  Thu, Dec 11  -----N/A-----      0.62


------------------------- FRIDAY -------------------------------

PNY    Piedmont Natural Gas  Fri, Dec 12  -----N/A-----     -0.18


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Co Name              Ratio    Payable     Executable

MRTN    Marten Transport, Ltd     3:2      Dec   5th   Dec   8th
CRRC    Courier Corporation       3:2      Dec   5th   Dec   8th
ATA     Apogee Technology, Inc    2:1      Dec  11th   Dec  12th
CKFB    CKF Bancorp, Inc          2:1      Dec  11th   Dec  12th
TRID    Trident Microsystems Inc  3:2      Dec  12th   Dec  15th
ADTN    Adtran                    2:1      Dec  15th   Dec  16th
PX      Praxair Inc               2:1      Dec  15th   Dec  16th
IMDC    Inamed Corporation        3:2      Dec  15th   Dec  16th
FFIC    Flushing Finl Corporation 3:2      Dec  15th   Dec  16th
CFC     Countrywide Finl Corp     2:1      Dec  17th   Dec  18th
WSBK    Wilshire State Bank       2:1      Dec  17th   Dec  18th
CW      Curtiss-Wright C          2:1      Dec  17th   Dec  18th
ROST    Ross Stores Inc           2:1      Dec  18th   Dec  19th
CLE     Claires Stores Inc        2:1      Dec  18th   Dec  19th
AMHC    American Healthways Inc   2:1      Dec  18th   Dec  19th
MBFI    MB Financial, Inc         3:2      Dec  18th   Dec  19th


--------------------------
Economic Reports This Week
--------------------------

The main event this week is the FOMC meeting on Tuesday but 
Thursday and Friday are bristling with economic reports from
retail sales, import/export prices, PPI, sentiment numbers and
more.


==============================================================
                       -For-           

----------------
Monday, 12/8/03
----------------
None


-----------------
Tuesday, 12/9/03
-----------------
Wholesale Invntories(DM)Oct  Forecast:    0.1%  Previous:     0.4%
FOMC Meeting (DM)


-------------------
Wednesday, 12/10/03
-------------------
None


------------------
Thursday, 12/11/03
------------------
Initial Claims (BB)      12/06  Forecast:     N/A  Previous:     365K
Business Inventories (BB)  Oct  Forecast:    0.1%  Previous:     0.3%
Retail Sales (BB)          Nov  Forecast:    0.5%  Previous:    -0.3%
Retail Sales ex-autp (BB)  Nov  Forecast:    0.3%  Previous:     0.2%
Export Prices ex-ag. (BB)  Nov  Forecast:     N/A  Previous:     0.1%
Import Prices ex-oil (BB)  Nov  Forecast:     N/A  Previous:    -0.1%
FOMC Minutes (DM)


----------------
Friday, 12/12/03
----------------
PPI (BB)                   Nov  Forecast:    0.1%  Previous:     0.8%
Core PPI (BB)              Nov  Forecast:    0.0%  Previous:     0.5%
Trade Balance (BB)         Nov  Forecast: -$41.2B  Previous:  -$41.3B
Mich Sentiment-Prel. (DM)  Nov  Forecast:    96.4  Previous:     93.7


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 12-07-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Stocks To Watch!
Call Play of the Day: QLTI
Dropped Calls: DGX, HOV
Dropped Puts: None


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


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

Stocks To Watch!

Factset Research - FDS - close: 40.78 change: -0.72

WHAT TO WATCH: Earnings for FDS are less than two weeks away and 
from the trajectory of its stock price there is not a lot of 
excitement for this quarter's earnings.  FDS has pulled back to 
support at $40.00 and its simple 200-dma.  Given the signs the 
stock looks headed for a breakdown.  Shares have produced a 
number of lower highs and recently failed near 42.50, which was 
previous support.  A breakdown could lead to a test of support at 
$35.00.  

Chart=


---


Countrywide Financial - CFC - close: 107.70 change: +0.80

WHAT TO WATCH: Shares of CFC gapped higher on Monday Dec. 1st and 
then slowly drifted lower to fill the gap on Thursday.  With this 
new level of support below it CFC looks ready for another leg 
higher. The stock is due to split on December 18th and there may 
be some momentum traders still riding it into the split date.

Chart=


---

QLogic Corp - QLGC - close: 52.79 change: -1.71

WHAT TO WATCH: Several of the larger chip stocks have all pulled 
back to support.  The question now is will they bounce from 
support or break it?  QLGC appears to be breaking it having 
closed under its simple 50-dma on Friday. The stock could still 
bounce from 52.50 but the overall trend looks negative.  The $50 
level might offer some psychological support but next price 
support is near $47.50 and its 200-dma.

Chart=


---

KLA-Tencor - KLAC - close: 55.62 change: -1.79

WHAT TO WATCH: KLAC has not been immune to the profit taking in 
chip stocks. Shares pulled back from resistance at $60 to support 
at $55.  This support level is bolstered by the rising trendline 
of higher lows from August.   A breakdown here and traders could 
short KLAC to the $50.00 level.  A bounce and bulls could bet on 
a retest of $60.00.  

Chart=


---

Ingersoll-Rand - IR - close: 63.43 change: +0.71

WHAT TO WATCH: IR is one of the few stocks that has been able to 
resist some of the profit taking this last week.  The stock 
actually hit a new multi-year high on Friday afternoon.  The 
relative strength makes it attractive for new bullish plays but 
this may not be the best entry point.  Watch it for a bounce from 
the 61.00 region.  

Chart=



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

SNV $28.14 -0.54 - SNV continues to climb higher in its rising 
channel.  The recent consolidation has brought it back to the 
bottom edge of this channel.  Look for a bounce from $28 to go 
long.  Consider shorts if SNV breaks its 50-dma.

BJS $35.00 +1.62 - Friday was a big day for BJS.  The 4.85% gain 
pushed it up and through a descending trendline that began back 
in June.  Volume was strong but the rally ran out of steam at its 
200-dma.

FNM $70.65 +0.29 - Could this stock be curling higher for another 
rally attempt towards the $75 mark?  Look for a move past its 50-
dma.

S $48.96 -3.63 - Ouch!  That's a major breakdown in the rising 
trend for Sears.  It broke through its channel, its 50-dma and 
round-number support at $50.  It feels like a chase here but 
bears will want to watch it for another entry point.


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********************
THE PLAY OF THE DAY
********************

Call Play of the Day:
*********************

QLT Inc - QLTI - close: 18.86 chg: +0.39 stop: 16.99

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

Quest Diagnostics - DGX - cls: 71.65 chng: -0.88 stop: 72.00

Hindsight being 20/20, we should have just said "good enough" 
when our DGX play traded within a penny of our $75 profit target 
on Tuesday.  Since then, the stock has been pressured by the 
weakness in the overall market and fell to violate our $72 stop 
on Friday.  We still managed to book a gain, but it was 
significantly below what could have been realized earlier in the 
week if that ugly green monster (greed) hadn't reared its head.  
With the drop back inside the late November consolidation zone 
and a close under our stop, clearly any open trades should have 
been liquidated on Friday.  The moral of the story is that it's 
always a good idea to harvest gains when they're offered.  

Picked on November 13th at   $69.46
Change since picked:          +2.19
Earnings Date               1/20/04 (unconfirmed)
Average Daily Volume =        884 K
Chart =


---

Hovnanian Enterprises - HOV - cls: 95.16 chg: +0.25 stop: 92.94          

HOV has been hovering in the $93-95 range all week long.  The 
relative strength in this stock is incredible.  Unfortunately, 
earnings are early next week and we're going to follow our 
trading plan to exit as of Friday's close (see previous updates).  
HOV has been a very successful play for us with almost 10 points 
in our favor.  The question now is will investors sell the news 
when HOV announces?  And will HOV announce a stock split so close 
to the $100 mark?  Both are distinct possibilities.  Please note 
there seems to be some confusion over HOV's earnings 
announcement.  Some sources say Tuesday, Dec. 9th.  Other sources 
report Monday, Dec. 8th after the close.  We'll be sure to keep 
our eye on HOV post-announcement.

Picked on November 21 at $85.51
Change since picked:     + 9.65
Earnings Date          12/09/03 (confirmed)
Average Daily Volume:      827  thousand
Chart =



PUTS
^^^^

None


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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The Option Investor Newsletter                   Sunday 12-07-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: AMZN, BCR, DHR, PGR, UTX, ZMH
New Calls: QLTI
Current Put Plays: KSS, NUE, PNRA, THO
New Puts: AVID


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


******************
CURRENT CALL PLAYS
******************

Amazon.com - AMZN - close: 51.56 chg: -0.24 stop: 48.99

Company Description:
Amazon.com, a Fortune 500 company based in Seattle, opened its 
virtual doors on the World Wide Web in July 1995 and today offers 
Earth's Biggest Selection. Amazon.com seeks to be Earth's most 
customer-centric company, where customers can find and discover 
anything they might want to buy online, and endeavors to offer 
its customers the lowest possible prices. Amazon.com and sellers 
list millions of unique new and used items in categories such as 
jewelry and watches, gourmet food, apparel and accessories, 
sporting goods, electronics, computers, kitchenware and 
housewares, books, music, DVDs, videos, cameras and photo items, 
toys, baby items and baby registry, software, computer and video 
games, cell phones and service, tools and hardware, travel 
services, magazine subscriptions and outdoor living items.
(source: company press release)

Why We Like It:
We can't say much more than what we've already written about 
AMZN.  Plenty of investors think the stock is an overvalued "pig" 
but there's no denying shares have more than doubled this year.  
This last week may have thrown some doubt over what was believed 
to be a very robust holiday shopping season but there is no doubt 
that online sales are set to surge.

The recent November low was a bounce from the 38.2% retracement 
of the big multi-month run higher.  AMZN made it right back to 
the $55 level before profit taking in the NASDAQ pulled it back.  
This dip towards the $50 level might actually be a decent entry 
point but we'd prefer to see some signs of a bounce before 
committing any new capital.  Besides AMZN still has to deal with 
its 50-dma again just overhead.  

Suggested Options:
We have plenty of December and January options to choose from but 
our favorite is the January 50's.

! Alert - December options expire in 2 weeks!

BUY CALL JAN 47.50 ZQN-AW OI= 4269 at $5.70 SL=3.35
BUY CALL JAN*50.00 ZQN-AJ OI=12283 at $4.00 SL=2.25
BUY CALL JAN 55.00 ZQN-AK OI=12918 at $1.70 SL=0.90
BUY CALL JAN 60.00 ZQN-AL OI=10189 at $0.65 SL= --

Annotated Chart:

 


Picked on November 30 at $53.97
Change since picked:     - 2.41
Earnings Date          10/21/03 (confirmed)
Average Daily Volume:     10.7  million 
Chart =


---

C R Bard - BCR - close: 77.28 change: +0.00 stop: 74.99

Company Description:
C.R. Bard, Inc., (www.crbard.com) headquartered in Murray Hill, 
N.J., is a leading multinational developer, manufacturer, and 
marketer of innovative, life-enhancing medical technologies in 
the fields of vascular, urology, oncology, and surgical specialty 
products. (source: company press release)

Why We Like It:
Medical device makers have been strong in this market and BCR is 
no exception.  The company has a positive trend of earnings 
growth and double-digit sales growth.  It's no secret and shares 
have appreciated but investors are still buying the dips.  

We added this play on Tuesday with a TRIGGER at $78.01.  
Currently, the play is unopened as we wait for BCR to trade at or 
above our trigger price.  Until then more aggressive players 
might want to look for a dip to the 50-dma near $76.00 as an 
alternative entry point.  BCR does have a fresh buy signal in its 
MACD.  
 
Split fans will note that BCR has not split its stock since 1988.  
Shares are well over there previous split price and the company 
could announce one at any time.


Suggested Option:
There are only 2 weeks left for December options so our 
preference will be the January strikes.  Our favorite is the 
January 75 call.

! Alert - December options expire in 2 weeks!

BUY CALL JAN 75*BCR-AO OI= 88 at $3.80 SL=1.75
BUY CALL JAN 80 BCR-AP OI=767 at $1.20 SL=0.65

Annotated Chart:


 

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


---

Danaher Corp - DHR - close: 83.83 chg: -0.33 stop: 82.49      

Company Description:
Danaher, a leading industrial company, designs, manufactures, and 
markets innovative products, services and technologies with 
strong brand names and significant market positions.  The company 
was previously known as DMG Inc.  In addition to process/ 
environmental tools the company also supplies aircraft safety 
equipment.  Its general-purpose tools include hand tools, 
ratchets, sockets, wrenches and more.

Why We Like It:
Another week, another hard fought gain.  Shares of DHR continue 
to inch higher with a steady stream of higher lows but we need to 
see the stock breakout above resistance at $84.50.  Technically, 
the stock's relative strength is encouraging and its MACD 
indicator has just produced a fresh buy signal.  

This past week of economic reports have been bullish for "old" 
economy cyclical stocks like DHR.  We are optimistic that DHR can 
clear resistance but current levels don't make the best entry 
point.  Traders can look for a dip and bounce in the 82.50-83.00 
region or a breakout above 84.50 before evaluating new positions.  
 
The company last split its stock 2-for-1 in June of 1998 near $72 
so the possibility of another split announcement certainly 
exists.


Suggested Options:
There are only two weeks left for December options.  Our new 
recommended option is the January 80 call but look for a breakout 
or a dip to buy it.

! Alert - December options expire in 2 weeks!

BUY CALL JAN 80*DHR-AP OI= 627 at $5.40 SL=3.25
BUY CALL JAN 85 DHR-AQ OI=1312 at $2.20 SL=1.10

Annotated Chart:

 

Picked on November 23 at $81.95
Change since picked:     + 1.88
Earnings Date          10/16/03 (confirmed)
Average Daily Volume:       829  thousand
Chart =


---

Progressive - PGR - close: 78.72 chg: -0.78 stop: 77.95             

Company Description:
The Progressive group of insurance companies ranks third in the 
nation for auto insurance based on premiums written, offering its 
products by phone at 1-800-PROGRESSIVE, online at progressive.com 
and through more than 30,000 independent insurance agencies.
(source: company press release)

Why We Like It:
Once again we're at a short-term inflection point for shares of 
PGR.  The stock surged higher to a new all-time high on Monday 
and spent the rest of the week consolidating back toward the 
bottom of its rising channel.  We've been cautious lately and 
have not been recommending new positions as every week the stock 
looks ready to break its trend. Technically, this would be the 
entry point, here above $78 but odds are good that if the broader 
markets see any strong selling then PGR could breakdown and we'd 
be quickly stopped out.  

Headlines have been quiet for PGR but 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.  


Suggested Options:
We're not suggesting any new plays at this time until PGR can 
display a little more upward momentum.

! Alert - December options expire in 2 weeks!

Annotated Chart:

 

Picked on November 07 at $76.25
Change since picked:     + 2.47
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      654  thousand
Chart =


---

United Tech. - UTX - cls: 87.73 chng: -0.22 stop: 85.70

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

Why we like it:
To say that UTX has been resilient over the past week would be a 
gross understatement.  Despite all the gyrations in the DOW, the 
stock has stubbornly held just below the $88 resistance level on 
a closing basis, all the while posting slightly higher intraday 
lows.  It would have been nice to see the breakout to new highs 
ahead of the weekend, but it certainly looks feasible next week.  
A pullback near $86.50-87.00 could provide for a fresh entry, 
although at this point, we'd prefer to wait and enter on the 
breakout over $88.50.  That breakout would then propel UTX into 
the upper half of its rising channel and set things up for a 
continued rally to the upper channel line, now at $92.00.  As the 
channel has risen, it has given us the ability to raise our 
target on the play and now we're looking for a run to the $91-92 
area, where we're recommending traders look to book gains.  The 
combination of the 10-dma ($86.19) and 20-dma ($85.83) should 
keep our $85.70 stop safe, but if not, we'll definitely want to 
honor that stop, as it would be a distinct break of the strength 
of the past couple weeks.

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

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

! Alert - December options expire in two weeks!

BUY CALL DEC-85 UTX-LQ OI=2587 at $3.50 SL=1.75
BUY CALL DEC-90 UTX-LR OI=3264 at $0.45 SL=0.25
BUY CALL JAN-85*UTX-AQ OI=1657 at $4.40 SL=2.75
BUY CALL JAN-90 UTX-AR OI=4767 at $1.50 SL=0.75

Annotated Chart of UTX:

 

Picked on November 23rd at   $83.90
Change since picked:          +3.83
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =     1.84 mln
Chart =


---

Zimmer Holdings - ZMH - close: 65.78 chg: -0.37 stop: 64.49     

Company Description:
Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer is 
the worldwide #1 pure-play leader in the design, development, 
manufacture and marketing of reconstructive orthopaedic, spinal 
and dental implants, trauma products and related orthopaedic 
surgical products. The new Zimmer has operations in more than 24 
countries around the world and sells products in more than 80 
countries. In October, 2003, the company finalized its 
acquisition of Centerpulse AG, a Switzerland-based orthopaedics 
company and the leader in the European market. For the year 2002, 
the pro forma worldwide combined revenues of Zimmer and 
Centerpulse were approximately $2.2 billion. On a combined basis, 
Zimmer and Centerpulse are supported by the efforts of nearly 
7,000 employees. (Source: company press release)

Why We Like It:
Yet another medical device maker on our list, ZMH has managed to 
outpace the markets for months.  The company has also been on 
quite the buying spree.  Last month ZMH just finished its 
$3.2 billion acquisition of Swiss rival Centerpulse AG.  Now ZMH 
just recently announced a $108 million acquisition of New Jersey 
based Implex Corp.  The stock shot higher on the news and broke 
resistance at $65.00.  It's somewhat uncommon for the acquirer to 
trade higher on merger news but ZMH did. Usually that means the 
market strongly approves of the merger.  

Shares of ZMH spent this last week digesting its gains from 
Monday.  The profit taking has pulled it back to its simple 10-
dma just above round-number support at $65.00.  Normally, this 
would look like an entry point for new bullish positions but we'd 
like to see some signs of a bounce.  Aggressive traders can gauge 
entries now but use a tight stop loss and be ready to exit should 
ZMH break $65.00.  We are going to leave our stop loss at $64.49.


Suggested Option:
There are only two weeks left for December options so our 
recommended option will be the January 65's or 60's if you can 
afford it.  

! Alert - December options expire in 2 weeks!

BUY CALL JAN 60 ZMH-AL OI=   4 at $6.60 SL=4.00
BUY CALL JAN 65*ZMH-AM OI=  43 at $2.80 SL=1.45
BUY CALL JAN 70 ZMH-AN OI= 187 at $0.70 SL= --

Annotated Chart:

 


Picked on November 30 at $65.92
Change since picked:     - 0.14
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      1.8  million 
Chart =



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

QLT Inc - QLTI - close: 18.86 chg: +0.39 stop: 16.99

Company Description:
QLT Inc. is a global pharmaceutical company specializing in the 
discovery, development and commercialization of innovative 
therapies to treat cancer, eye diseases and niche areas for which 
treatments can be marketed by a specialty sales force. Combining 
expertise in ophthalmology, oncology and photodynamic therapy, 
QLT has commercialized two products to date, including Visudyne 
therapy, which is the most successfully launched ophthalmology 
product ever. (source: company press release)

Why We Like It:
Our new bullish play is a biotech-pharmaceutical stock.  The 
company has been getting a lot of press over its up and coming 
Visudyne treatment.  The drug is designed to fight age-related 
macular degeneration, which is the leading cause of blindness in 
people over 55.  Ninety percent of the 500,000 cases reported 
worldwide are the "wet" form of the disease, which can produce 
rapid vision loss.  Back in October QLTI received approval for 
its FDA Fast Track application process here in the U.S. and 
approval for use of Visudyne in Japan.  The company also beat 
earnings estimates by 6 cents with net income of 19 cents a share 
and guided higher for the next quarter.  The good news and the 
strong earnings prompted a wave of analyst upgrades.  

In the middle of November news came out that Pfizer and partner 
Eyetech Pharmaceuticals had released data that their experimental 
drug, Macugen, was 27 percent more effective than the placebo for 
treating macular degeneration.  Shares of QLTI soared because its 
own phase III trials indicate a 33 percent improvement (source: 
Reuters).  

When the markets rallied this last Monday, QLTI bounced from its 
simple 50-dma but the session was nothing special.  The next day 
QLTI soared 12% on nearly 3 times the average volume for no 
apparent reason.  We suspect someone heard some good news or just 
initiated a large bullish position in the stock.  Bulls should be 
excited because the profit taking this last week was stymied at 
the $18 mark, previous resistance.  The next clearest resistance 
level appears to be the $25 region.  Fortunately, QLTI's point-
and-figure chart is in a bullish catapult formation.  Now we just 
need someone to pull the launch lever.  We're going to start the 
play with a stop loss at 16.99, just over 10% from current 
levels.


Suggested Options:
Our preference is for the January calls. Our favorite is the 
January 17.50 strike.

! Alert - December options expire in 2 weeks!

BUY CALL JAN*17.50 QTL-AW OI=112 at $2.35 SL=1.15
BUY CALL JAN 20.00 QTL-AD OI= 61 at $1.00 SL=0.50


Annotated Chart:

 

Picked on December 07 at $18.86
Change since picked:     + 0.00
Earnings Date          10/23/03 (confirmed)
Average Daily Volume:      1.1  million 
Chart =



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CURRENT PUT PLAYS
*****************

Kohl's Corporation - KSS - close: 47.35 change: +0.39 stop: 49.25

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

Why we like it:
Following its precipitous plunge to the $44.50 level on 
Wednesday, KSS has been finding some buying interest, which we 
can only attribute to optimism over the company's bullish 
comments on Thursday about the start of the holiday shopping 
season.  Our initial target for KSS was in the $44-45 area and in 
retrospect, we should have dropped the play on Wednesday after it 
dipped into the middle of that zone.  Conservative traders should 
have certainly harvested gains on that drop and now we're left 
trying to decide if the current bounce is the beginning of a 
rebound or just the latest entry opportunity.  In favor of the 
bearish case, price was once again rejected at the 10-dma 
($47.86) on Friday, which has been providing resistance for 
nearly a month.  On the bullish side of the ledger, daily 
Stochastics are just beginning to hook up out of oversold 
territory, indicating there could be a more upside in store.  
Friday's gain is disconcerting on another level and that is in 
comparison to the Retail sector's 1% loss.  What happened to KSS' 
relative weakness.  At this point, the only viable entry strategy 
is to enter on a failure to push through $48 resistance.  We're 
maintaining our stop at $49.25, which is tight enough to keep our 
risk limited, while at the same time being above the 20-dma 
($49.16).

Suggested Options:
Aggressive short-term traders can use the December 45 Put, while 
those with a more conservative approach will want to use the 
December 50 put.  Our preferred option is the December 50 strike, 
as it is currently in the money.

! Alert - December options expire in two weeks!

BUY PUT DEC-50*KSS-XJ OI=10290 at $3.10 SL=1.50
BUY PUT DEC-45 KSS-XI OI= 4469 at $0.50 SL=0.25
BUY PUT JAN-45 KSS-MI OI= 9007 at $1.40 SL=0.75

Annotated Chart of KSS:

 

Picked on November 18th at   $48.75
Change since picked:          -1.40
Earnings Date                2/12/04 (unconfirmed)
Average Daily Volume =      4.34 mln
Chart =


---

Nucor Corp. - NUE - close: 51.36 change: -0.84 stop: 54.00*new*

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.

Why we like it:
After a one-day bounce attempt in "buy the news" fashion after 
the announcement of the Bush administration's premature 
termination of tariffs on steel imports, shares of NUE were back 
in the bears' sights on Friday.  The initial plunge on the 
employment news dropped the stock to its intraday low of $50.52 
before a sharp rebound, failure at $52 and then a slow bleed into 
the close.  Despite the rebound attempt from just above $50, it 
is clear the downtrend is very much in force and breaching the 
50-dma ($51,74) on Friday is going to be tough for the bulls to 
overcome.  At the current rate, reaching our $47-48 target by 
next week seems entirely possible.  NUE has strong resistance now 
in the $52-53 area, making it an ideal area to consider 
initiating new positions on a failed rebound.  With the 10-dma 
($53.85) and 20-dma ($54.06) about to cross down through the 30-
dma ($53.78), that area is about to become even stronger 
resistance, giving us the freedom to tighten our stop to $54 this 
weekend.

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.

! Alert - December options expire in two weeks!

BUY PUT DEC-55 NUE-XK OI= 163 at $4.10 SL=2.50
BUY PUT DEC-50 NUE-XJ OI= 549 at $0.85 SL=0.40
BUY PUT JAN-50*NUE-MJ OI=1006 at $1.90 SL=1.00

Annotated Chart of NUE:

 

Picked on December 2nd at    $52.66
Change since picked:          -1.30
Earnings Date                1/22/04 (unconfirmed)
Average Daily Volume =         689 K
Chart =


---

Panera Bread Co. - PNRA - cls: 35.30 chng: -1.20 stop: 38.50*new*

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:
Despite support in the $35-36 area, PNRA just continued its slide 
on Friday with volume still running well above the ADV.  The 
weakness in the broad market certainly put the wind at the backs 
of the bears, but the key to Friday's price action was probably 
follow-through from Thursday's break of the 200-dma.  After 
losing another 3% on Friday and coming to rest right on solid 
support near $35, chasing the stock lower does not sit high on 
our list of choices.  PNRA ought to stage a near-term bounce from 
near its current level and the optimum approach for new entries 
will be to pull the trigger on a rollover below stiff resistance 
at $37.00-37.50.  Of course, there is the possibility that 
support will just give way and allow PNRA to continue bleeding 
lower towards our $32 initial target.  Traders that don't want to 
take the chance on the play getting away from them can enter on 
the breakdown, but need to be aware of the risk of a bounce back 
up towards the 200-dma before the subsequent rollover.  If the 
stock does rally back through the 200-dma, we can take that as a 
clear sign that the breakdown has failed and we'll want to bail 
from the play.  Lower stops to $38.50, just above the 200-dma and 
Thursday's intraday high.

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 more time until expiration.

! Alert - December options expire in two weeks!

BUY PUT DEC-40 UPA-XH OI=360 at $4.90 SL=3.00
BUY PUT DEC-35 UPA-XG OI=754 at $1.10 SL=0.50
BUY PUT JAN-35*UPA-MJ OI= 40 at $1.85 SL=0.90

Annotated Chart of PNRA:

 

Picked on December 4th at     $36.50
Change since picked:           -1.20
Earnings Date                1/29/04 (unconfirmed)
Average Daily Volume =         766 K
Chart =


----

Thor Industries - THO - close: 54.25 chg: +1.00 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: (Thursday's Original Write up)
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.

! Weekend Update: 
Surprise, surprise, shares of THO decided to bounce on Friday.  
It was short-term oversold and in need of a bounce, which is one 
of the reasons we used a trigger.  Fortunately, the stock failed 
at its 100-dma, which just happens to coincide with the top of 
the gap from Thursday.  So now that the gap has been filled THO 
is cleared for further declines.  We just need it to hit our 
TRIGGER point at $51.99 to open the play.  More aggressive 
traders can try and gauge an entry on these failed rallies.  

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

! Alert - December options expire in 2 weeks!

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 =



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

Avid Technology - AVID - close: 48.46 change: -1.99 stop: 52.50

Company Description:
Avid Technology, Inc. develops, markets, sells and supports a 
wide range of software and hardware for digital media production, 
management and distribution.  Digital media are video, audio or 
graphic elements in which the image, sound or picture is recorded 
and stored as digital values, as opposed to analog, or tape-
based, signals.  The company's range of product and service 
offerings enable customers to make, manage and move media. 

Why we like it:
After gaining over 200% from the March lows, AVID topped out near 
the $60 level in early October and then began a slow profit-
taking decline into late November.  After rallying off the $48 
level in late November, things were looking pretty bullish.  AVID 
surged back above its 50-dma and was challenging the $55 
resistance level enroute to a retest of $60 resistance.  There 
isn't any news to explain it, but something happened to derail 
the stock last week and in the past four days, price has dropped 
$6.50 or nearly 12%.  But that drop looks like it may just be the 
opening act for a deeper plunge, especially with the PnF chart 
right on the verge of a new Sell signal.  If given, that signal 
will provide a tentative bearish price target of $38.  With 
strong historical support near $37 and the 200-dma at $39.67, it 
certainly looks like the $38-40 area is a viable downside target 
IF we get the breakdown.

We don't want to get stuck selling a bottom, so we're going to 
initiate coverage with a trigger set at $47.  If hit, that ought 
to open the door to some significant downside, as the next mild 
support isn't found until $43-45.  Aggressive entries can be 
taken on the initial break, while more timid traders can wait for 
a reflexive retest of that broken support ($47-48) as new 
resistance and enter on the rollover from that area.  We're 
initiating coverage with a fairly wide stop at $52.50 to give 
AVID room to move in case it takes a few days before the 
breakdown commences.  Note that our stop is below the 50-dma 
($52.51) this weekend, but will be above it on Monday.

Suggested Options:
Aggressive short-term traders can use the December 45 Put, while 
those with a more conservative approach will want to use the 
January 45 put.  Our preferred option is the January 45 strike, 
as it provides more time until expiration.

! Alert - December options expire in two weeks!

BUY PUT DEC-50 AQI-XJ OI=564 at $2.70 SL=1.25
BUY PUT DEC-45 AQI-XI OI=598 at $0.80 SL=0.40
BUY PUT JAN-45*AQI-MI OI= 23 at $2.00 SL=1.00

Annotated Chart of AVID:

 

Picked on December 7th at     $48.46
Change since picked:           +0.00
Earnings Date                1/15/04 (unconfirmed)
Average Daily Volume =         637 K
Chart =



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The Option Investor Newsletter                   Sunday 12-07-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: Perspective
Traders Corner: Mind Your Own Business – Your Trading Business!
Futures Corner: Moving Average Trading System (MATS)


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*****
LEAPS
*****

Perspective
By Mark Phillips
mphillips@OptionInvestor.com

As we speculated might be the case some months back, all eyes are 
now focused on whether the DOW can breach the venerable 10,000 
mark and I'd list it as an almost certainty to occur before Saint 
Nick arrives in less than 3 weeks.  That's right campers -- only 
17 more shopping days left until Christmas!  But I digress.  We're 
talking about this persistent rally in the broad market and when 
we can expect it to end.  How about this for a bold assessment -- 
the rally already ended, either in late September or early July or 
even back in March.  It's all about your perspective.

Full disclosure here - the idea I'm about to share is not my own.  
Oh sure, the idea was floating around in my head, but I hadn't yet 
figured out how to put the pieces together.  Fortunately, Rick 
(another of my readers, who just happens to be a fellow engineer) 
put it all together and sent it to me last week, complete with the 
pertinent charts.  All I did was say, "Wow, can I use that for my 
LEAPS article, dude?"  Lucky for me, Rick is more interested in 
money than fame, so gave me permission and promised to forward a 
bill for services rendered.

We had been working along similar lines, both looking for some 
clue as to how this strong bull market in gold was playing out in 
the other currencies.  We all know that gold looks strong in US 
dollar terms, but how much of that strength is attributable to 
dollar weakness and how much to actual strength in gold?  
Inquiring minds wanted to know!  After much searching, Rick found 
a site that showed the price of gold, denominated in several of 
the major currencies.  Without duplicating the charts here, 
suffice to say that gold has NOT broken to multi-year highs 
against most currencies yet.  That means the majority of the 
strength in the yellow metal so far has simply been due to the 
weakness in the US dollar.  Now if gold breaks out against 
currencies such as the Euro, the Canadian dollar, the South 
African Rand and others, I think it will be safe to say that the 
second leg of the bull market in gold will be underway.  Once 
again, I digress.

"This is all very interesting, but weren't we talking about the 
equity markets" you ask.  Exactly, and back there we shall go.  
The next step of this journey turned the focus back to the action 
in the DOW.  We've all seen endless copies of the DOW chart in the 
past several weeks, so I won't waste your time by duplicating it 
here.  But noodle on this for a moment - all of our charts are 
denominated in dollars, which has been a depreciating asset.  What 
happens if we show the DOW denominated in a different currency?  
The picture definitely changes.  Take a look at this chart of the 
DOW shown relative to the Euro.

Daily Chart of the DOW Relative to the Euro - 2003

 

Rather than continuing to creep to new highs, we can see that this 
view shows the DOW topping in early March and then drifting 
sideways for the past 9 months.  Note how price action continues 
to weaken relative to the important 50-dma and 200-dma.  For most 
of the summer, price vacillated about the 50-dma, then finally 
tested the 200-dma in late August.  This latest violation of the 
50-dma led to a break of the 200-dma for the first time this year 
and that last red candle hints that resistance may be forming at 
the 50-dma.  Support becoming resistance?  That doesn't sound 
bullish to me.

Actually, if you look at the heading on that chart, you can see 
that it is the DJIA/Europe Ratio.  Add that with the fact that the 
vertical axis scale doesn't seem to make sense relative to what I 
know about the relative value of the dollar and the euro, I'll 
have to assume that it isn't truly the DOW denominated in terms of 
the Euro.  But it was enough to really get me thinking.  What if 
this great new bull market is nothing more than a reflection of 
the weakening dollar.  For those of you a little slow on the 
uptake, if the DOW IS going up due to the fact its native currency 
is weak, is there any way that we can conclude that inflation is 
NOT heating up?  That's what I come up with and I'm left 
scratching my head wondering why there isn't the slightest hint of 
inflation in the government economic reports?  

Could it be that they really need to be able to keep interest 
rates low to hopefully spur the economy into real growth during an 
election year?  They know they can't do that if the public 
(especially the bond traders) see the evidence of inflation and 
know the Fed is soon going to embark on its tightening cycle.  
Back in June and July, bond traders called the Fed's bluff and 
made it quite clear that if they don't believe the rhetoric, they 
can take matters into their own hands to raise the long end of the 
interest rate curve.  You can bet that Greenspan, Bernanke and the 
rest of their gang took that lesson to heart!  We're just peeking 
down that rabbit hole here, but trust me when I say it opens into 
a vast cavern of interesting thoughts and speculations.  But I'm 
once again getting off track.

We were talking about the possibility that the recent rally in the 
DOW didn't really happen.  Since I wasn't convinced that the 
DJIA/EUR chart was truly what I thought it was, I figured I'd go 
back to first principles.  Let's look at the DOW in terms of the 
only measure of true money we have available...GOLD.  The beauty 
of gold is that it holds its value across the centuries, in sharp 
contrast to every fiat currency -- all of which eventually are 
inflated into worthlessness.  100 years ago, an ounce of gold 
would have purchased a nice suit.  Not an extravagant one, but a 
nice one.  Today, an ounce of gold will still buy a nice suit.  
The key is that gold cannot be inflated or devalued.  It has real, 
intrinsic value.  Paper currencies only have value because the 
issuing government says they do.  So if we want to see what is 
really happening with the DOW, don't you think it would be 
valuable to denominate it in a currency that is stable in terms of 
actual value?  Let's take a look.

Daily Chart of the DOW Scaled Relative to Gold - 2003

 

I like that picture even better for what it shows.  The DOW 
reached a peak in April, slightly exceeded it in July and then 
built a lower peak in October.  Wait a minute!  Isn't that a Head 
& Shoulders top?  I neglected to place the trendline on it before 
I snapped the chart, but you can do it yourself.  Draw a line from 
the May low (left armpit) to the late September low (right armpit) 
to construct the neckline and you can see it has already been 
broken.  By my reckoning, that gives a distance of roughly 2.50 
(27-24.5) downside from here.  That equates to a drop to 22 on the 
chart above.  I find it quite interesting how that target (which 
is a minimum target by the way) isn't far above the lows from 
February and March.  New bull market?  Santa Claus Rally?  Bah 
Humbug!  For those doubters out there, let's take a look at a 
longer-term view.

Weekly Chart of the DOW Scaled Relative to Gold: 2001-2003

 

Ouch!  That paints a pretty clear picture for me.  The DOW got a 
quick bounce from the Feb/Mar lows, but it has been weakening for 
months.  Not only that, but we haven't yet broken the pattern of 
lower highs, with the December-02 highs still well out of reach of 
the bulls so far.

I've been searching for some sort of indication as to whether the 
bulls would be vindicated in their faith in a recovering economy 
or if the bears would be shown to still be correct in waiting for 
this bear market rally to run its course and then pile back on.  
To me, the above charts paint the answer pretty clearly -- the 
rally in the DOW for the past several months has been fiction, 
created by the expansion of the money supply and the continued 
downtrend of the U.S. dollar.  I don't expect a big decline into 
the end of the year, but I also am bolstered in my belief that the 
strength we are seeing in the broad market will fail sometime next 
year, probably in the first quarter and we'll start seeing some 
real selling come in to remove the artificial props that have been 
keeping daily ranges so tight.  Maybe I'll revisit this concept 
with respect to some different market indices in next week's 
article.  Who knows, we may find more valuable insights awaiting 
us!

So there's my prediction for the next few months.  Steady as she 
goes into the holiday season, but look out below after the January 
fund inflows have worked their magic.  More than before, I feel 
like the appropriate course of action for playing the broad market 
is to short the failed rallies.  I'm not yet ready to enter on 
breakdowns, especially after Friday's defense of critical support.  
As we've harped on for months now, there isn't really any sign of 
weakness in the internals of the market; the VIX remains 
incredibly low, the bullish percents are still pegged very near 
multiyear highs and every time there is a dip in price, it is the 
result of a weakening in buying pressure, not an increase in 
selling pressure.

It's not yet the time to aggressive short the market, but I 
believe we have now reached the point where failed rallies can be 
shorted.  In addition, there are individual pockets of strength 
that probably will be able to continue even when the broad market 
does turn down.  All we have to do is find them and then hope that 
those stocks have LEAPS available.  Without further ado, let's go 
check out the action in the play lists.  I can tell you this -- 
our WMT play is finally in the black!

Portfolio:

WMT - Well it took long enough, but finally it looks like our WMT 
play has gotten a move on and fortunately it is in our favor.  We 
certainly had to wait long enough, but the continued bearish 
perception of Retail reports both from the company and the overall 
industry have been enough to exacerbate and solidify the downtrend 
in recent weeks.  We knew the $52-53 area would be pretty solid 
support, so the Thursday/Friday rebound from that area is really 
no surprise.  We should see this bounce roll over from a lower 
high as well, and perhaps the next leg will take us down to our 
$48-50 target range.  There should now be pretty solid resistance 
in the $55-56 area, with the 200-dma at $55.38 and the 20-dma 
($55.56) about to cross down through the 200-dma.  Obviously, it 
is time to tighten that stop, and I'm lowering it to $56.50, which 
is just above the bottom of the mid-November gap.  It should go 
without saying, that I'm TICKED about the pricing on this play.  
We entered the play on 10/3 at $57.48 and the price of the stock 
is now exactly $4.00 lower.  The market makers have been jacking 
with the option prices for the results we're looking at here.  The 
'05 LEAP has gained just under 12% and the '06 LEAP hasn't done 
squat for us!  Oh well, if we do reach our $48-50 target, then 
both options "should" show a decent gain.

SBUX - It doesn't look like investors are overly concerned about 
consumers halting their practice of standing at line at Starbucks 
for coffee during the holidays.  The mildest of dips occurred last 
week, but SBUX continues to work higher in that shorter-term 
ascending channel, the bottom of which is at $31.40.  The real key 
to near-term strength will be the 50-dma at $30.91 though.  As 
long as price remains above there on a closing basis, the stock 
has the clear potential to break out over the top of its longer-
term rising channel (and stay there).  Raise stops to $27.00, 
which is right at the bottom of the rising channel.

Watch List:

QQQ - We got lucky on Friday!  I watched the QQQ all week to see 
if once entering our lower entry target zone of $35.00-35.50, if 
price would be able to close below $35.00 and trigger entry.  As 
you should understand by now, my preference for initiating new 
bearish positions right now is to short the top of failed rallies, 
not enter on breaks of support.  So I was actually rooting for the 
QQQ to put together enough of a bounce to close above $35.  The 
bulls must have heard me, as they managed to eke out a close at 
$35.04, keeping us on the sidelines for one more week, even if we 
are leaning so far forward, we're almost on the playing field.  
I'd still prefer to enter on a foray up near the $36.50 level and 
that certainly seems possible if we can get one more push towards 
the 2000 level on the NASDAQ Composite.  But if the bottom falls 
out next week, then we'll take the secondary entry on the drop 
below $35.00 on a closing basis.

SMH - Semiconductor stocks got pummeled towards the end of last 
week, with Friday's session delivering a 3.19% drop in the SOX.  
Looking at the SMH, we can see that price came to rest just above 
$41 support and right on the convergence of the top of the long-
term rising channel (which SMH last broke above in late October) 
and the bottom of the shorter-term rising channel that has been in 
effect since early August.  Then there's the 50-dma lying in wait 
at $40.36 to provide further support.  We did get a lower high 
last week, but only fractionally so.  But the lower high was what 
I've been waiting for, so...  What to do?  I was tempted to put 
this one back into play, except for the way we got that lower high 
pattern in September, an apparent breakdown and then right back up 
to new highs.  I'm content to keep SMH on hold for another week.

NEM - Well, it sure is nice to see some level finally serve as 
resistance for NEM.  That's one heckuva run the stock has had 
since mid-October!  Can you say currency weakness?  You don't 
think the dollar plunging to new lows on a daily basis has 
anything to do with this do you?  GRIN  I want to have positions 
in NEM, but have no interest in chasing this one higher, so 
reluctantly I'll remain cautious and wait for the pullback.  Our 
official entry target remains down at $40, a level I strongly 
doubt we'll see visited between now and 2004.

DJX - DOW 10,000 certainly seems close now doesn't it?  An 
intraday high of 9942 on Wednesday and a new closing high of 9930 
on Thursday certainly bolsters the bulls resolve.  The long 
commentary above tells you what I think of the overall picture in 
this index, and my chosen approach is still to short the touch of 
$100.  Like with the QQQ, I was rooting for the DJX to hold above 
that lower entry target at $98.50 at the close so that we can wait 
for next week's rally attempt as the more favorable entry 
strategy.  The bulls just barely pulled it off!  So here's the 
strategy.  A close below $98.50 is an entry, as is a touch of 
$100.  The more conservative approach would be to split your 
entries.  Open a half position on whichever target is hit first 
and then round out to a full position if the other target is 
reached.  Remember, we're still going to use a wide stop of $104 
to give the DJX room to move before taking aim on the downside 
like we "know" it must.

QCOM - Missed it again!  Just when it looked like we'd get a dip 
into our $42-43 targeted entry zone, QCOM came out raising their 
guidance and the stock popped sharply higher on Thursday.  Coming 
to rest on Friday just below the key $50 resistance level is not 
where I'd be interested in initiating new positions.  After the 
latest dip and run to new recent highs, I redrew the rising 
channel the stock has been in these past several months and 
concluded that I simply screwed up in not raising the entry to the 
$44 level last weekend.  Sigh...  Maybe next time.  For now, I'm 
raising the entry target to $45 in hopes that we can get a nice 
little pullback between now and the holidays. 

AIG - Call me skeptical, but I've been burned enough times in this 
choppy and volatile market.  I looked at Wednesday's failed rally 
and intraday high of $59.98 and I was tempted to log that as an 
entry into the new bearish play.  But I decided to stick to the 
entry plan and wait for a foray into the targeted entry zone ($60-
-61) before playing.  I really see no hurry for entries here, as 
AIG is simply holding its ground as the broad market quietly 
creeps higher.  Of course, if the unexpected happens and AIG busts 
higher through the descending trendline at $61, all bets are off 
and we'll want to leave this one alone.  We're looking for the 
failed rally in the $60-61 area, not just an ability to move price 
into that area.


Radar Screen:

GENZ - I took another look at GENZ this week and something bothers 
me.  The weekly Stochastics (10,5,3) has begun to turn up from 
oversold territory.  That tells me there is a fair amount of 
longer-term bullishness that ought to be directed towards the 
stock and I think we'll actually see a test of the bottom of that 
channel or horizontal resistance at $52, whichever comes first.  I 
still would have put it on the Watch List this weekend, but I got 
carried away with all the DOW vs. currency commentary up above and 
ran out of time before my publication deadline.  Barring a large 
breakout or breakdown over the next week, GENZ will be in the 
Watch List next weekend.

MEL - I have the same concerns with MEL that I have with GENZ this 
week.  Weekly Stochastics are starting to tip up from near 
oversold and that is not normally conducive to good bearish entry 
points.  I still like the consistent downtrend that is still in 
place, but determining the right entry could be tricky.  Looking 
at the PnF chart, we can see that any entry below $33 will be in 
keeping with the overall downtrend.  Let's see if we can get in a 
bit higher later in the year or more likely next year.  Still in 
the waiting stage here as well.

EK - There aren't a whole lot of more pronounced downtrends in the 
market than that offered by EK.  As noted last weekend, finding 
the right entry is critical though and I don't believe this is it.  
Price is midway between support ($20.50) and resistance ($27.00), 
so we've got plenty of time to wait.

Closing Thoughts:

This week's commentary was a bit different than usual, but 
hopefully you found it useful.  It took far more time than I 
anticipated this weekend and therefore I didn't get to spend the 
necessary time on picking new play candidates.  Next week GENZ 
should move to the Watch List and I expect either QQQ or DJX 
(maybe both) will make the move to the Portfolio.  As if that 
won't keep things busy enough, I think I ought to be able to 
dredge up a couple more Radar Screen candidates.  We're getting 
these lists populated bit by bit again and getting ready for what 
ought to be an exciting and profitable 2004.  Just keep in mind 
that we're unlikely to make a commitment to a strong directional 
move for the broad markets between now and the end of the year.  
Like the big boys, we should be focusing our efforts on not 
getting hurt for the remainder of the year (trade conservatively 
over the near term) and position ourselves for a resumption of 
trending markets next year with the VIX getting out of multi-year 
low territory and acting normally.  Two more weeks of real market 
action and then we can coast into the end of the year.  I'll bet 
that phrase is on the lips of more than a few mutual fund and 
hedge fund managers.  My advice would be to make plans now to take 
off from the day before Christmas until the day after New Years.  
That period of time is not likely to offer an abundance of winning 
trade opportunities.  Remember, we need to carefully pick our 
battles!

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
SBUX   11/24/03  '05 $ 30  ZOS-AF  $ 4.30  $ 5.00  +16.28%  $27.00
                 '06 $ 30  WSP-AF  $ 6.40  $ 6.90  + 7.81%  $27.00


Puts:
WMT    10/03/03  '05 $ 55  ZWT-MK  $ 5.10  $ 5.70  +11.76%  $56.50
                 '06 $ 55  WWT-MK  $ 7.20  $ 7.20    0.00%  $56.50


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
NEM    10/05/03   $40          JAN-2005 $ 40  ZIE-AH
                            CC JAN-2005 $ 35  ZIE-AG
                               JAN-2006 $ 40  WIE-AH
                            CC JAN-2006 $ 35  WIE-AG
QCOM   11/16/03   $45          JAN-2005 $ 45  ZLU-AI
                            CC JAN-2005 $ 40  ZLU-AH
                               JAN-2006 $ 45  WLU-AI
                            CC JAN-2006 $ 40  WLU-AH



PUTS:
QQQ    08/10/03  $35, $36.50   JAN-2005 $ 32  ZWQ-MF
                               JAN-2006 $ 32  WD -MF
SMH    08/24/03  HOLD          JAN-2005 $ 35  ZTO-MG
                               JAN-2006 $ 35  YRH-MG
DJX    11/02/03  $98.50, $100  DEC-2004 $ 96  YDK-XR
                               JUN-2005 $ 96  ZDK-RR
AIG    11/30/03  $60-61        JAN-2005 $ 60  ZAF-ML
                               JAN-2006 $ 60  WAP-ML


New Portfolio Plays

None

New Watchlist Plays

None


Drops

None


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

Mind Your Own Business – Your Trading Business!
By Mike Parnos, Investing With Attitude

Buy Low – Sell High.  That doesn't mean buy when you're depressed 
and sell when you're stoned.  Actually, most traders do the 
reverse.  They use 80-proof judgment enhancers (plus a little 
wishful thinking) to justify buying decisions. Then, when they 
sober up and realize what they've done, they get depressed and 
finally sell at the lows and they can no longer stand the pain.

Couch Potato Trading Institute (CPTI) words to live by are "sell 
high and expire."  There's a premium to our method of trading – 
and it usually ends up in our pocket.   The options expire 
worthless while CPTI students are very much alive and prosperous.

Can you make a living in the stock market?  Yes, particularly if 
you use our CPTI strategies.  However, you still have to treat it 
like a business.  Before you invest – whether you’re trading 
options, stocks, baseball cards or Barbie Dolls – you need to 
invest in yourself.  You need to prepare yourself mentally, 
physically, and financially.  It takes commitment!  Are you up to 
it?
 
What Do You Need To Succeed?
1.  EDUCATION:  Your subscription to OptionInvestor is a giant 
step towards that end.  OI provides a ton of timely information.  
There’s something for everyone.  Everything is discussed, from 
aggressive trading strategies to our CPTI conservative trading 
strategies. But, it takes more than just reading the information.  
You have to lean how to implement it.

2.  INFORMATION:  You need to have access to the Internet for a 
variety of reasons.  The Internet is your primary source of 
information. CNBC is more a source of entertainment than 
information – and not something on which to base your trading 
decisions.

Ideally you should have streaming stock and index quotes.  Many 
Internet sites offer free 15-minute delayed quotes, but that’s not 
good enough.  The markets move much too fast.  Some brokerage 
firms now offer streaming quotes at no charge if you open an 
account (PreferredTrade, OptionsXpress, Scottrade, and others).  

The streaming real time quotes often include daily and real time 
intraday charting.  If not, there are a number of free Internet 
sites that will give you 15-minute delayed daily and intraday 
charts.  They are interactive charts that can show you different 
time frames, chart sizes, various indicators, moving averages, 
volumes, etc.  

There are many quote and charting services available – some for 
under $100 per month.  For the most sophisticated traders, NASDAQ 
Level II quotes and tick-by-tick charting can help with entering 
and exiting trades.  Some brokerages even offer free Level II 
quotes and charting services to very active traders

3.  BROKERAGE ACCOUNT:  You will need to have an online margin 
brokerage account.  Accounts where you have to talk to a human(?) 
to place your order will invariably cost you money.  Why?  Because 
by the time you dial the phone, get connected to a broker, explain 
what you want to do, get a quote, have him repeat it back to you, 
and place the order, the underlying could have moved a point in 
either direction. In that extra minute or two, the information you 
just received on the phone may now be obsolete.

Ideally, an on-line account will have software that will show you 
the bid and ask prices of an option on ALL exchanges on which the 
option trades.  The prices for an option can vary from one 
exchange to another.  Seeing the different exchanges enables you, 
with a simple mouse-click, to send your order directly to the 
exchange offering the best price – instantly.  If you send your 
limit order at the bid or the ask, it will likely be filled in a 
matter of a few seconds.  No phones, no fouls. 

When you open your account, you’ll need to get approval to trade 
options.  The levels of approval go from novice to professional.  
The more experience you have, the higher approval level you’ll 
get.  

If you’re relatively new to options, you’ll probably get approval 
to sell covered calls and the straight purchase of puts and calls.  
If you have more experience, you’ll be able to trade spreads.  The 
highest approval level will allow you to sell uncovered options 
(beware).   

4.  MONEY:   If you’re planning to treat trading, whether it’s 
stocks or options, as a business, your money and your positions 
represent your inventory.  They say, “It takes money to make 
money.”  It wouldn’t be a cliché if it weren’t true. 

How much money is necessary to start your business?  It depends on 
what strategies you want to use.  Do your strategies involve stock 
purchases?  If so, then you’ll need enough to subsidize the 
purchase (or half the purchase on margin) of the stocks.  If 
you’re going to simply buy calls and puts, you need enough to 
cover the purchases of the puts and calls.

For spread trades or trading uncovered options, the brokerage will 
likely require an account minimum.  When spread and uncovered 
option trading, you’ll need to have cash or other marginable 
securities (stocks, mutual funds, bonds, CDs, etc.) in your 
account to enable you to make the trades and adjustments in your 
positions.  Brokerages have different policies in determining what 
securities they accept as marginable.  CPTI strategies often 
require substantial maintenance, though normally only a small 
portion of it is at risk.

5.  TIME:  You’ve got it.  Now, you just have to prioritize it.  
If trading is your business, you’ll have to do research on what to 
buy, when to buy it and what’s the right price.  That takes time.  
If you don't spend your time wisely, it's not likely you'll have 
profits to spend – wisely or otherwise.

6.  EMOTION:  You can’t afford it.  It has no place in the 
business of trading.  Cry at sad movies, not over spilled milk or 
lost money.  If you properly followed your trading rules, a loss 
is just a cost of doing business.  Nothing more.

Keep emotion, along with your ego, on a short leash.   You’ll have 
good streaks and bad, but, if you use common sense, and know every 
aspect of your business, you'll likely do fine.

7.  DESIRE:  You have to want it badly enough.  It’s amazing, if 
you want something bad enough, the number of sacrifices you’re 
willing to make in order to achieve it.  You’ll be surprised how 
far desire will take you.

Knowledge is Power
If you want to trade for a living, you’ll spend the time to learn 
the strategies.  You’ll find the strategies that are most 
comfortable and learn them inside and out.  You’ll know what to do 
when the strategy works or if it goes against you.  You’ll know 
the adjustments you can make and when to make them.  You’ll know 
how to research and recognize opportunities and what strategies to 
use to take advantage of them.   Those are the things we try to 
teach at OI and the CPTI.  It’s here for the learning.
_____________________________________________________________

DECEMBER CPTI PORTFOLIO POSITIONS
SPX Iron Condor – 1061.50
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 - $129.29  
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 – 523.51
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 – 1406.90
Here's an index we haven't traded before.  The NDX mirrors the 
NASDAQ 100 stocks, just like the QQQs.  We sold six December NDX 
1325 puts and buy the December NDX 1300 puts, taking in about 
$1.70.  Then, we sold six 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 -- $35.04
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 @ $35.04
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.    
______________________________________________________________

Long Term Trader
How does a long term trader plan for the future?  He buys two 
cases of beer. 
_____________________________________________________________

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.


**************
FUTURES CORNER
**************

Moving Average Trading System (MATS)
Keene Little

There are as many ways to trade as there are traders. One of the 
things we as traders need to do is identify a system that works 
for us. As individuals we see the market differently, form our own 
opinions and make trading decisions based on these opinions. We 
read constantly to learn what works for others so that we can see 
if it will work for us. Ultimately we each need to develop a 
system that we can call our own, for it is our own money on the 
line.

For the Swing Trading model in the Futures Monitor, at this link 
if you'd like to review it: 
http://www.OptionInvestor.com/futurescorner/fc_110903_01.asp, I 
use a system that is based on Elliott Wave Theory and Fibonacci 
relationships to help me identify turning points in the market. I 
back it up with other technical indicators to give me greater 
confidence in forming an opinion about the market's direction and 
all of this combined in a system that I've honed over the years 
that works for me. If I can help others understand and use this 
system, then I will have accomplished what I set out to do--teach 
someone to fish so that they can feed themselves for the rest of 
their life.

Some people are visual traders, some are system traders and some 
are "numbers" traders. Those who like to watch the charts and 
trade off of moving averages and trend lines for example are 
visual. They react to what they see happening in front of them. 
System traders set up their trading parameters and when the system 
says trade, they trade. Traders who set up support/resistance 
levels, or who calculate pivot points, use statistics and 
probabilities, and yes Fibonacci and EWT, are the numbers players. 
I believe the truly great traders use a combination of all of 
these, otherwise it's easy to get tunnel vision.

One of the reasons I've followed OIN for many years is the vast 
resource of trading ideas. It's extremely helpful to me to use 
other peoples' ideas so as to avoid the tunnel vision that I could 
easily get caught in. For example, I realized I was not alone in 
struggling with when to exit a trade. I was giving back profits, 
and even letting profits turn into losses, much too often. A great 
trading partner and I were working on this "problem" when we 
developed MATS to help us get better exits, but as we used it, we 
defined and refined the rules to enable us to enter, manage and 
exit our trades more effectively. 

When you're in a trend you want to ride it until it's over. It's 
letting your winners run. Using the moving averages helps me 
identify an exit point for my trade. I believe one of the most 
difficult aspects of trading is exiting a trade. Once we're in a 
trade we feel like we've made a great accomplishment. Ending the 
trade will mean we've got to go through all that mental anguish 
again about where to set up the next trade. It's easier to stay in 
a trade, relax and let it ride, isn't it? While I now use MATS 
primarily to help me determine an exit point when I suspect my 
trade is getting close to the end of its run, I know others would 
be comfortable using it as one of their primary tools with which 
to trade.

For this system I use the 1-minute chart to execute trades. I use 
the longer time-frames to help me set up a trade so that I'm 
trading with the larger trend. I like to watch Bollinger Bands and 
other technicals, but MATS uses just three moving averages--the 
10-pma (period moving average), the 20-pma and the 40-pma, but 
primarily the 10 and the 20. When they cross, and when price 
crosses them is the basis of the system.

Towards the end of this article are the "rules" for this system. 
As with any trading system you must set up rules by which you 
trade. Risk management is a rule you must follow. One of your 
rules might be that you don't trade during the lunch period. We 
develop our own rules that are usually based on pain. We've lost 
money too many times doing the same thing over and over until we 
realize we need to stop doing that. Hence a rule is born.

For those who prefer to trade the ES over the YM or NQ, this 
system is challenged. I have found that ES tends to be "spikier" 
and is more difficult to keep tight stops than this system 
requires. YM has tighter spreads and is easier to control risk, 
and works well here. But it too is prone to manipulation and 
spikes. NQ seems to be the tamest, probably because the big boys' 
sandbox is the ES and to a lesser extend now the YM. Retail 
traders are the ones playing in the NQ sandbox and we are nicer to 
each other. Therefore, MATS is primarily designed for YM and NQ 
trading. For those who would like to trade ES with it, just 
remember that the YM is 1/10th the size of ES in its value per 
point so if I use 10 points to a stop in YM, it would equate to 1 
point for ES. In reality I've found that you need a 2-point stop 
for ES to stay away from the spikes, hence it's riskier. One of 
the things I like to do is watch all three though on their own 1-
min charts so that I can watch for divergence. It will help me 
decide whether or not to enter a trade or stay in a trade 
depending on whether or not I've got confirmation from the other 
indexes. 

The 1-minute chart of NQ below shows an example of how this system 
would have worked for us in the morning, Friday, 12/05/03. The 
rules at the end of this article further explain entry procedures 
and stop management, but the notes on the chart show where we 
would have entered and exited trades and why.



 

So, for the morning we would have finished two trades for a net 
+12 NQ points ($240) and went flat for the mid-day period, in 
keeping with rule #11 below. A nice morning!

By staying out of the market between 11-2:00, we missed a nice 
short set-up around 1:30 but it could just as easily have 
continued chopping around. You'll want to modify these times as 
you go along and see if you have more potentially profitable 
trades than not. Paper-trading this time period is the best way to 
determine that. So into the afternoon, picking up at 2:00 we see 
what a choppy day will do to this system:



 

We had five more trades for a net -6.50 points (-$130). Net for 
the day was +5.50 points ($110). Nice lunch money but not stellar. 
Don't forget commission costs on 8 trades.

This is a nice little system if you can catch a couple of trends 
during the day, but you will get chopped up in a non-trending 
market, as will happen with any moving average system in a choppy 
market. But as I mentioned earlier, this system helps me identify 
an exit point even if I don't use it to enter trades. Once I'm in 
a trade and I'm thinking the trend is getting close to a target 
price, I can either exit at the target price or let this system 
take over and exit for me.

Have fun with this, paper-trade it to get comfortable with it, and 
of course modify it to your own parameters. I offer these rules to 
start with:

Moving Average Trading System (MATS)--to be used during RTH only, 
not pre or post market hours (may need to use the All Sessions 
chart period for the first 15-30 minutes if the market gaps open).
1.  trade using the 1-minute chart; YM and NQ are the preferred 
contracts as the ES tends to be more volatile.
2.  trade when 1-minute candle closes and shows the 10-pma (period 
moving average) (exponential) has crossed the 20-pma; trade the 
opening of the next candle.
3.  set stop 10/3 points from entry for the YM/NQ, resp., which is 
a $50/$60 stop loss maximum for each trade entered.
    a.  modify the stop point to be just on the other side of the 
20-pma if the standard stop level is not far enough away to get 
the "protection" of the 20-pma (this will occur when the price has 
moved quickly and the M.A.s haven't "caught up" yet; this will 
increase the amount of the potential stop loss so this must be 
done prudently); this will necessitate a decision as to whether or 
not to take the trade based on the larger risk with a stop further 
away.
    b.  if the 20-pma is used for the stop, move the stop 10/3 
points from your entry as soon as possible
    c.  chase your stop by keeping it 5/1.5 points from the 20-pma 
once the price has moved sufficiently.
4.  stop out of play sooner if the 10-pma crosses the 20-pma 
giving the opposite signal (the M.A. cross is based on the closing 
of the candle).
5.  if an M.A. cross looks to stop you out but the other indexes 
are not confirming the same signal, subjective analysis is 
required to determine whether or not to take the stop and enter 
the opposite trade or to let the standard stop take you out.
6.  after being stopped out on a hit of the 5/1.5 points from the 
20-pma but the position of the M.A.s is still giving you a trade 
signal in the same direction, use subjective analysis to determine 
the momentum of the market to determine whether or not to wait for 
a clearer signal of M.A. position and momentum before entering the 
trade; e.g., if you were long the YM and then stopped out because 
the market dropped back down and triggered your trailing stop 5 
points below the 20-pma, and you see the 10-pma still above the 
20-pma (a long trade signal), but the 10-pma is coming down, then 
delay your trade signal to see if the 10-pma reverses back up. 
Additional methods to use to help get back into a trade:
    a.  wait 5 minutes before taking another trade signal in the 
same direction (a spike reversal may be a precursor of a larger 
reversal coming, so give it time to prove which way it's going); 
use confirmation of the other indexes if you want to take a 
quicker trade.
    b.  use the 5 or 15-minute chart(s) to confirm the longer-term 
trend and trade in that direction; this should allow a quicker 
reentry with a little more confidence.
    c.  use the cross of the 20-pma over the 40-pma as your entry 
signal.
    d.  if you miss the beginning of the move, or if stopped out 
and waiting to reenter same-direction trade, watch for price to bounce off the 20-pma and back through the 10-pma in the direction you want to trade.
7.  if the market moves quickly in your favor by 20/6 points, to 
limit your loss in the event of a spike reversal, move the stop 
immediately to the 20-pma each time you get a quick 20/6-point 
move in your favor, and then continue to trail it once the normal 
stop (5/1.5 points from the 20-pma) is back in play.
9.  approaching the end of the RTH, you can pull your stop up 
tighter after 15:45pm EST and use the 20-pma instead of 5/1.5 
points from the 20-pma; also, be careful of your margin if 
carrying multiple contracts--15:45 pm marks the time where the 
overnight margin is calculated.
    a.  alternatively, use subjective analysis to determine 
whether or not there appears to be enough momentum to stay in your 
trade using the standard stop settings; this includes carrying the 
trade until 16:14 (basis 16:15 trading stops in the NQ and ES), 
but it is recommended to close all trades NLT 16:14 to avoid 
trouble exiting a trade--with this system you do not want to carry 
a trade overnight!
10.  market-moving news must be traded around very carefully--if 
currently in a trade when an announcement is coming, remain in the 
trade but prudence dictates whether or not to enter a new trade as 
you approach the announcement.
11.  trading around the lunch hour period (11:00 am to 2:00 pm) is 
usually a choppy period and unprofitable time to trade and 
therefore is not recommended.
    a.  if you are in an open trade that goes past 11:00 am, move 
stop to break-even as soon as possible (e.g., up to near 20-pma) 
or if you're trading multiple contracts, take some off the table 
to create a free trade on the remaining open position.
    b.  entering a trade after lunch (start watching after 1:30 
pm)--watch for a trend starting with 20-pma crossing 40-pma and 
look for confirmation of the other indexes; use the 5-minute 
chart's 10 and 20-pma's to help confirm the direction of the 
momentum.

Lastly, for those who like to keep track of your trades in a 
spreadsheet, I've developed a spreadsheet to track just these 
trades (although certainly usable for all trades). I offer it to 
anyone who would like to have a copy. Just email me and I'll send 
it to you. It's hard to see here because I had to scrunch it and 
it's only part of the screen, but it looks like this:



 

All you have to do is enter you trade data in the blue boxes and 
everything else is calculated for you.

As always, good luck in your trading and let me know if there's 
anything I can do to clarify anything.

Keene Little


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The Option Investor Newsletter                   Sunday 12-07-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: More Q&A With The Covered-Calls Editor
Naked Puts: A Conservative Alternative For Put Writers
Spreads/Straddles/Combos: Santa Delayed By Snowstorm!

Updated In The Site Tonight:
Market Posture: And the Profit Taking Continues


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*************
COVERED CALLS
*************

Trading Basics: More Q&A With The Covered-Calls Editor
By Mark Wnetrzak

One of our new readers made some very interesting comments on a
specific chart pattern that often identifies bullish issues.


Attn: mark@OptionInvestor.com
Subject: Technical Analysis Terms

Hi Mark, 

I am looking over your website, specifically the covered call
writing strategy you employ.  It is the very one I like to use
best.  Thanks for all of your contributions.

One question...is the newsletter where I will find your current
discussion - contribution for covered calls?

The purpose of this email though is just to share with you one
of those slow head-shaking moments when an observation has been
validated.  I was reading your discussion on the stages of the
market, and you mentioned the Runner's Crouch.  I have never
heard the term before, yet I knew exactly what I would see when
I looked at the chart.  The head-shaking grin came when I saw
the "track shoe."  What you, and apparently the rest of the
trading world, call the "crouch," I have always called the "track
shoe."  The chart is FLML and just prior to the rally, the stock
dips, which I am presuming is the crouch.  For me, I would see
that same pattern form and say, 'there it is'.  Look at the first
couple of days with the longer tails, like heel spikes, then the
price rolls down just a bit, like the arch of the shoe, and then
flattens and pushes off, again with tails, like spikes at the
ball/toe of the shoe.  Specifically I am talking about the few
days on both sides of the line separating the AMJ and JAS periods.
Actually, that line goes right through the arch of the foot.  It
is, as this one was, usually a pattern of maybe 5-8 days.

Good luck tomorrow.

Frank


Hello Frank, 

Thanks for the kind words and yes, all of my contributions will be
in the OIN.

Actually Stan Weinstein described the "Runners Crouch" in his book,
"Secrets for Profiting in Bull and Bear Markets."  Generally it is
simply seen as a final wash-out of the weak stock holders after the
stock has been in a consolidation phase.  It also just depends on
your time frame.  Take a look at FLML over several years: the 2001
to 2002 period could fit the description too (seven year time-frame).
But, the change in character isn't confirmed until the stock moves
above its long-term moving average and resistance area on increasing
volume.  Stan advised waiting for the break-out and then entering
the position on a pullback towards the long-term MA.  (Easier said
than done...)

Best regards, 

Mark W. 
OIN


Editor's Note: For readers who are unfamiliar with the stages of
a stock, here is a brief description of the first two categories
and a simple explanation of how they can help identify favorable
issues for bullish positions, as well as some hints for timing
the entry transactions.

Stage I is the basing stage that can last for months or sometimes
years.  The condition is usually defined by little or no vertical
activity with a long-term moving average that is basically flat.
A common axiom suggests that, "the longer the base, the stronger
the case" (when a stock breaks out) and issues with this type of
pattern have relatively low capital risk as there is usually 
little downside potential remaining.

Stage II is when the issue begins to exhibit signs of a new upward
trend.  The stock price closes above a long-term moving average
(150-200 DMA) with the average turning up, and that is the ideal
time to enter a bullish play.  Investors should look for the next
resistance level to identify the potential profit target or range
of  movement.  You should focus on stocks that have "room to run,"
picking only those issues that are in stage II climbs and buying
on pullbacks to technical support; trend-lines, moving averages,
previous resistance, etc.

And some hints...

1. Stage II is the "ideal" time to enter for a bullish play.  For
   trend trading, pick stocks that are in stage II rallies and buy
   on the pullbacks to technical support or major trend-lines.

2. Look for volume -- this is vital!  Most big movers climb on
   substantially larger volume than that which occurs at any time
   during the basing stage.

3. Look for strong Relative Strength.  When a stock breaks out of
   a base, the relative strength should cross up above the zero
   line into positive territory.  The higher the climb to cross
   above the zero line, the more upside potential in the movement.

4. Look for the "Runner's Crouch" pattern before the stock breaks
   out of a long-term base.  In many cases, stocks will go through
   a short period of "building steam."  It's usually a small dip
   to gather strength for the upward push above the moving average.
   Once the stock crosses above the top of the base (resistance)
   it should also continue through the moving average.

5. As the rally begins in earnest, the long-term moving average
   should start to turn upward and after the stock corrects back
   to a technical support area, the next run-up, which must be
   supported by heavier-than-average volume, and should continue
   until a new (near-term) high is achieved.



SUMMARY OF PREVIOUS CANDIDATES
*****

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.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

NTPA    15.30   14.75  DEC 15.00  1.30    0.75    7.8%
ARIA     7.70    8.00  DEC  7.50  0.80    0.60*   7.6%
GSS      5.90    7.85  DEC  5.00  1.25    0.35*   6.5%
PAAS    12.57   13.35  DEC 12.50  0.70    0.63*   5.8%
MOBE    11.19   11.00  DEC 10.00  1.60    0.41*   4.6%
ISSI    16.33   15.23  DEC 15.00  1.90    0.57*   4.3%
MMR     16.30   18.95  DEC 15.00  2.00    0.70*   4.3%
CLHB     6.12    7.50  DEC  5.00  1.35    0.23*   4.2%
INSP    24.39   24.14  DEC 22.50  2.70    0.81*   4.1%
IBIS    16.25   16.12  DEC 15.00  1.65    0.40*   4.0%
ESPR    22.21   22.53  DEC 20.00  2.90    0.69*   3.9%
CANI    14.05   14.50  DEC 12.50  1.95    0.40*   3.6%
TLAB     8.08    7.79  DEC  7.50  0.80    0.22*   3.3%
KMRT    30.44   29.40  DEC 30.00  1.50    0.46    2.3%
XXIA    12.70   12.04  DEC 12.50  0.70    0.04    0.5%
AVII     4.99    4.58  DEC  5.00  0.40   -0.01    0.0%
SLNK    20.61   19.22  DEC 20.00  1.25   -0.14    0.0%

*   Stock price is above the sold striking price.

Comments:

After an exciting Monday rally, the major averages were unable
to follow through and now appear at the mercy of Tuesday's FOMC
meeting.  In fact, the more speculative Russell 2000 and NASDAQ
Composite indices ended the week in a rather worrisome fashion.
Once again, a defensive nature may be appropriate as the major
averages could move to test their support areas.  As for the
covered-call portfolio, the listed play for Protein Design Labs
(NASDAQ:PDLI) was unavailable as the stock opened Monday's session
well above last Friday's closing price.  A few issues are acting
horridly and should be monitored closely as potential early-exit
candidates:  Integrated Silicon Solutions (NASDAQ:ISSI) - which
violated the 30-day MA; Infospace (NASDAQ:INSP) - also violated
the 30-day MA; Kmart (NASDAQ:KMRT) - bearish candlestick pattern
(Evening Star); Ixia (NASDAQ:XXIA) - a "key" test of 30-day MA;
and Avi Biopharma (NASDAQ:AVII) - testing a major support area.
Spectralink (NASDAQ:SLNK) is also at a key moment, with the next
support area near its 150-day MA (~$16.50).

Positions Previously Closed: Brocade (NASDAQ:BRCD) and TiVo
(NASDAQ:TIVO).

 
NEW CANDIDATES
*********

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open   Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.   Basis Exp. Yield

IMMU    5.35  DEC  5.00  QUI LA  0.60  2143    4.75  14  11.4%
NEOL   18.32  DEC 17.50  UOE LW  1.40  860    16.92  14   7.4%
XING   10.66  JAN 10.00  QAE AB  1.35  227     9.31  42   5.4%
NTIQ   12.53  JAN 12.50  CDJ AV  0.85  1922   11.68  42   5.1%
IBIS   16.12  DEC 15.00  UIB LC  1.45  320    14.67  14   4.9%
MYGN   12.76  JAN 12.50  GSQ AV  0.95  123    11.81  42   4.2%
IM     15.06  DEC 15.00   IM LC  0.30  21     14.76  14   3.5%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
IMMU - Immunomedics  $5.35  *** On The Rebound ***

Immunomedics (NASDAQ:IMMU) is a biopharmaceutical company focused
on the development, manufacture and marketing of monoclonal
antibody-based products for the detection and treatment of cancer
and other serious diseases.  The company has developed a number
of advanced proprietary technologies that allow it to create
humanized antibodies that can be used either alone in unlabeled
form or conjugated with radioactive isotopes, chemotherapeutics or
toxins to create highly targeted agents.  Using these technologies,
IMMU has built a broad pipeline of diagnostic and therapeutic
product candidates that utilize several different mechanisms of
action.  Its technologies are supported by an extensive portfolio
of intellectual property that includes approximately 80 issued
patents in the United States and 233 other issued patents abroad.
Immunomedics suffered in early November after announcing that
partner, Amgen (NASDAQ:AMGN), elected to drop development of an
experimental drug.  The stock has rebounded on heavy volume this
month, shortly after the company's annual shareholders meeting.
This play offers reasonable short-term speculation for investors
who wouldn't mind owning IMMU near a cost basis of $4.75.

DEC-5.00 QUI LA LB=0.60 OI=2143 CB=4.75 DE=14 TY=11.4%


*****
NEOL - NeoPharm  $18.32  *** Bracing For A Rally? ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged in
the research, development and commercialization of drugs for the
treatment of various cancers.  The company has built its drug
portfolio based on its two novel proprietary technology platforms,
the proprietary NeoLipid liposomal drug delivery system and a 
tumor-targeting toxin platform.  NeoPharm has several promising 
compounds in various stages of development.  The company's lead 
compound is IL13-PE38, a tumor-targeting toxin being developed
as a treatment for glioblastoma multiforme, a deadly form of brain
cancer.  NeoPharm appears to moving up and out of its recent 
consolidation area and this short-term position simply offers a
method to participate in the future movement of the issue with 
relatively low risk.

DEC-17.50 UOE LW LB=1.40 OI=860 CB=16.92 DE=14 TY=7.4%


*****
XING - Qiao Xing  $10.66  *** Chinese Telecom ***

Qiao Xing Universal Telephone (NASDAQ:XING) is engaged in the
design, manufacture and sale of telecommunication terminals and
equipment in the People's Republic of China, including in-house
corded and cordless telephone sets under the Qiao Xing trademark.
Its QX Communication subsidiary also designs, develops and 
manufactures global standard for mobile (GSM) mobile telephones
for CEC Telecom Co., Ltd.  Qiao Xing has a nationwide sales
network that includes 3,500 retail outlets in China.  The
company has introduced smart card telephones and expects to
develop and introduce a number of special function corded
telephones to the market.  Qiao Xing has also developed and
introduced caller ID display and coin operated telephones.
Qiao Xing rallied this week after a subsidiary said that it
expects a substantial increase in both sales and profits over
last year.  XING seems to be stuck in a lateral trading range
and this position allows for a reasonable reward at the risk of
owning XING shares near recent technical support.

JAN-10.00 QAE AB LB=1.35 OI=227 CB=9.31 DE=42 TY=5.4%


*****
NTIQ - NetIQ  $12.53  *** Bottom Fishing: Part I ***

NetIQ (NASDAQ:NTIQ) provides systems and security management
and Web analytics software solutions for assuring, analyzing
and optimizing the performance, availability and security of
its customers' IT infrastructure and Websites.  Historically
focused on Microsoft Windows applications management, NetIQ
has become a provider of software to test, migrate, administer,
monitor, secure and analyze complex, distributed Windows-centric
computer systems.  The company's UNIX and Linux modules address 
its customers' growing need to manage heterogeneous environments
with cross-platform solutions, and enable them to manage more 
applications, servers and operating systems with its products.
NTIQ has been forging a Stage I base for almost a year and this
position offers speculators a method to profit from the current
lateral trend.

JAN-12.50 CDJ AV LB=0.85 OI=1922 CB=11.68 DE=42 TY=5.1%


*****
IBIS - Ibis Technology  $16.12  *** Rally Mode! ***

Ibis Technology (NASDAQ:IBIS) develops, manufactures and markets
SIMOX-SOI implantation equipment and wafers for the worldwide 
semiconductor industry.  SIMOX, or Separation by IMplantation of
Oxygen, is a form of silicon-on-insulator (SOI) technology that
creates an insulating barrier below the top surface of a silicon
wafer.  SIMOX-SOI products are well suited for many commercial
applications, including servers and workstations, portable and
desktop computers, wireless communications and battery-powered
devices such as laptop computers, personal digital assistants 
(PDAs) and mobile telephones, integrated optical components and
harsh-environment electronics.  Sales of 300-millimeter wafers
accounted for approximately 44% of the company's total wafer
product sales in 2002.  Shares of Ibis Technology continue to
rally (since May) and are now testing an "old" resistance area.
Investors who have a bullish outlook and believe the rally will
continue can use this position to establish a favorable cost
basis in the issue.

DEC-15.00 UIB LC LB=1.45 OI=320 CB=14.67 DE=14 TY=4.9%


*****
MYGN - Myriad Genetics  $12.76  *** Bottom Fishing: Part II ***

Myriad Genetics (NASDAQ:MYGN) is a biopharmaceutical company
focused on the development of novel therapeutic products and
the development and marketing of predictive medicine products.
The company's researchers have made important discoveries in
the fields of cancer, Alzheimer's disease, viral diseases (such
as HIV), depression and obesity.  These discoveries point to
novel disease pathways that may pave the way for the development
of new drugs.  Flurizan (MPC-7869), their lead therapeutic
candidate for prostate cancer, is in a large, multi-center
clinical trial.  Myriad is also conducting a Phase I clinical
trial for the evaluation of MPC-7869 for Alzheimer's disease.
MYGN has been forging a Stage I base for almost a year and this
position offers speculators a method to profit from the current
lateral trend.

JAN-12.50 GSQ AV LB=0.95 OI=123 CB=11.81 DE=42 TY=4.2%


*****
IM - Ingram Micro  $15.06  *** Breaking Out? ***

Ingram Micro (NYSE:IM) is a distributor of IT products and services
worldwide.  Ingram sells computer hardware, networking equipment
and software products to nearly 170,000 reseller customers in more
than 100 countries.  It also provides supply chain optimization
services and demand generation services for its suppliers and
reseller customers.  As a distributor, the company markets its
products and services primarily to resellers and suppliers that,
in turn, market and sell directly to end user customers.  It offers
its customers an aggregation of, and access to, a broad array of
products and services by distributing and marketing hundreds of
thousands of IT products worldwide from over 1,700 suppliers,
including most of the computer industry's hardware suppliers,
networking equipment suppliers and software publishers.  Ingram
Micro is on the verge of a breakout above a resistance area near
$15.  Investors who believe shares of IM are destined to climb
higher can profit from that outcome with this position.

DEC-15.00 IM LC LB=0.30 OI=21 CB=14.76 DE=14 TY=3.5%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open   Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.   Basis Exp. Yield

CLHB    7.50  DEC  7.50  QPB LU  0.35  400     7.15  14  10.6%
IMCL   41.25  DEC 40.00  QCI LH  2.40  5013   38.85  14   6.4%
GNTA   10.89  DEC 10.00  GJU LB  1.10  7061    9.79  14   4.7%
ELN     5.51  JAN  5.00  ELN AA  0.80  41175   4.71  42   4.5%
ISSX   18.05  DEC 17.50  ISU LW  0.90  2528   17.15  14   4.4%
PDLI   16.15  JAN 15.00  PQI AC  2.00  610    14.15  42   4.3%
VIRL   10.32  JAN 10.00  UVB AB  0.85  29      9.47  42   4.1%
NTGR   16.01  JAN 15.00  TUD AC  1.80  30     14.21  42   4.0%
IMGN    5.05  JAN  5.00  GMU AA  0.30  757     4.75  42   3.8%




*****************
NAKED PUT SECTION
*****************

Options 101: A Conservative Alternative For Put Writers
By Ray Cummins

This week, we continue with part II of the narrative concerning
margin requirements for uncovered puts and other option selling
strategies.

In the previous article, we discussed the various formulas that
brokerages use to determine the necessary margin (or collateral)
for writing uncovered options.  In most cases, the initial margin
is equal to roughly 25% of the value of the underlying issue,
however the collateral requirement can increase significantly in
volatile markets.  One way to reduce the amount of margin for a
"naked" (short) option is to cover it with a more distant series
and that technique is the basis for a popular combination play:
the (vertical) credit spread.


Credit Spreads

A credit spread is a simple strategy that allows traders to have
time decay work in their favor while maintaining a favorable
risk-reward outlook.  To initiate a bullish credit spread, an
investor would simultaneously write a put option and buy a put
option that expire at the same time, but with different strike
prices.  The written (sold) option is closer to the price of the
underlying issue than the purchased option, and therefore has a
higher premium.  Traders will receive a credit in their account,
hence the name "credit" spread.  The objective of the strategy
is for both options to expire worthless so that an investor can
keep all of the credit (profit) in their account.  Normally, a
credit spread trader utilizes front-month options only, as the
time-value premium evaporates most rapidly in the final month
of expiration and this erosion effect is beneficial to the
overall position.

The risk-reward calculations are:

Maximum profit = the "net" credit received from the purchase
and sale of the options.

Maximum risk (and margin requirement) = the difference between
the strike prices - the "net" credit.

Break-even point = the sold strike price - the "net" credit.

Return on Investment = "net" credit / margin requirement.


An example using a naked-put play from last Wednesday's OIN:

BRCM - Broadcom  $35.88

PLAY (sell 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    3542   0.40  32.10   4.7%   1.2%

Note: The Maximum (monthly) Yield of 4.7% is based on E-trade's
margin requirements and 23 days until option expiration.


Compare the position above to this put-credit spread:

BRCM - Broadcom  $35.88
   
PLAY (bullish/credit spread):

BUY  PUT  DEC-30.00  RCQ-XF  OI = 2503  ASK = 0.20
SELL PUT  DEC-32.50  RCQ-XZ  OI = 3542  BID = 0.40
NET-CREDIT = 0.20
SIMPLE YIELD = 0.20 / (2.50 - 0.20) = 9%
MAX YIELD (monthly) = 9% / 23 X (365 / 12) = 11%

As this example reflects, credit spreads can offer similar reward
potential with far lower margin/collateral requirements and often
less risk than (short) uncovered options.  However, both methods
are useful and only you can decide what strategy is most suitable
for a specific situation, as well as your personal experience
level, risk-reward tolerance and portfolio outlook.

Good Luck!

                        
SUMMARY OF PREVIOUS CANDIDATES 
*****

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.

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

RMBS    30.00   29.30  DEC 25.00  0.55    0.55*   3.3%  10.6%
RDWR    23.46   24.89  DEC 20.00  0.65    0.65*   2.9%   8.6%
SANM    11.11   11.45  DEC 10.00  0.25    0.25*   2.8%   7.6%
RDWR    26.84   24.89  DEC 25.00  0.60    0.49    2.9%   7.5%
APPX    32.62   35.50  DEC 25.00  0.45    0.45*   2.0%   7.0%
APPX    32.29   35.50  DEC 25.00  0.55    0.55*   2.0%   6.8%
AEIS    26.30   25.00  DEC 22.50  0.45    0.45*   2.2%   6.8%
NTE     36.99   38.20  DEC 22.50  0.35    0.35*   2.3%   6.5%
SWIR    18.75   15.57  DEC 15.00  0.30    0.30*   1.8%   6.4%
ALTR    23.93   23.43  DEC 22.50  0.50    0.50*   2.5%   6.3%
FFIV    25.07   24.95  DEC 22.50  0.55    0.55*   2.2%   6.0%
XMSR    22.10   22.95  DEC 17.50  0.25    0.25*   1.6%   5.8%
APPX    36.04   35.50  DEC 30.00  0.35    0.35*   1.7%   5.8%
PDII    25.97   27.84  DEC 22.50  0.45    0.45*   1.8%   5.3%
MGAM    42.90   36.45  DEC 35.00  0.45    0.45*   1.4%   5.0%
NPSP    29.26   30.75  DEC 25.00  0.35    0.35*   1.5%   4.9%
FLEX    16.00   14.83  DEC 15.00  0.30    0.13    1.3%   3.3%
ECLG    24.14   18.51  DEC 20.00  0.40   -1.09    0.0%   0.0%
ADEX    25.14   18.64  DEC 22.50  0.45   -3.41    0.0%   0.0%

*  Stock price is above the sold striking price.

Comments:

Expectations were high Friday but data from the Labor Department
failed to inspire investors and the market eventually drifted to
a new low for the month of December.  The jobs report wasn't bad
from a relative perspective, however it simply was not up to the
"exceptional" standards currently priced-in to share values.  A
similar situation occurred with ADE Corporation (NASDAQ:ADEX),
which plunged almost 20% Wednesday after reporting no worse than
"acceptable" earnings for its fiscal second quarter.  The firm
noted increased revenues, bookings and order backlog, and a much
improved cash flow, but that did little to stem the selling that
occurred after the company mentioned additional expenses due to
upcoming litigation with KLA-Tencor.  In any case, traders should
have been out of the position with a stop-loss order on Wednesday,
or in a worst case, by the market close on Thursday, and neither
exit would have resulted in a loss as large as that which is shown
in the summary.  Our recent "watch" list candidate: eCollege.com
(NASDAQ:ECLG) also succumbed to a sell-off on Wednesday as the
education group tanked in conjunction with the precipitous decline
in Career Education (NASDAQ:CECO).  CECO was hammered by investors
for a 30% loss amid new allegations of inflated enrollment numbers.
Our position in ECLG was closed Thursday (at a lower than published
debit) to limit potential losses.  New issues on the "early-exit"
list include Radware (NASDAQ:RDWR), Flextronics (NASDAQ:FLEX),
Multimedia Games (NASDAQ:MGAM) and Sierra Wireless (NASDAQ:SWIR).
 
Previously Closed Positions: None


WARNING: THE RISK IN SELLING NAKED 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.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) 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 Monthly 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 position.


NEW CANDIDATES
*********

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

RMBS   29.30  DEC 25.00  BNQ XE 0.40 9014 24.60  14   3.5%  11.1%
MMR    18.95  DEC 17.50  MMR XW 0.30 70   17.20  14   3.8%  10.1%
QLTI   18.86  DEC 17.50  QTL XW 0.25 1169 17.25  14   3.1%   8.4%
USNA   34.39  DEC 30.00  UNX XF 0.35 160  29.65  14   2.6%   7.8%
ONXX   27.63  DEC 25.00  OIQ XE 0.25 1388 24.75  14   2.2%   6.3%
DIGE   38.50  DEC 35.00  QDG XG 0.35 247  34.65  14   2.2%   6.2%
MEDI   27.04  DEC 25.00  MEQ XE 0.25 6474 24.75  14   2.2%   6.0%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).

*****
RMBS - Rambus  $29.30  *** Recent Unocal Settlement! ***

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.
Shares of RMBS rallied last week in the wake of a new legal ruling
involving Unocal (NYSE:UCL), which analysts say could foreshadow a
positive outcome for Rambus in its suit with the government.  The
ongoing saga of the company's royalty issues may be resolved in a
favorable manner after this ruling, and traders can profit from
that outcome with this position.

DEC-25.00 BNQ XE LB=0.40 OI=9014 CB=24.60 DE=14 TY=3.5% MY=11.1%


*****
MMR - McMoRan Exploration  $18.95  *** Sector Rally! ***

McMoRan Exploration (NYSE:MMR) is engaged in the exploration,
development and production of oil and gas offshore in the Gulf
of Mexico and onshore in the Gulf Coast region.  The company
has rights to explore on over 400,000 gross acres, which is
one of the largest exploration acreages held by any independent
company in the Gulf of Mexico.  In November, shares of McMoRan
rallied sharply after it said it found hydrocarbons at an 
exploratory well in the Gulf of Mexico, making a total of three
such wells successfully drilled in the last 12 months.  The
news has pushed this stock to multi-year highs and the current
upside momentum in the oil and gas industry should help support
the share value in the near term.

DEC-17.50 MMR XW LB=0.30 OI=70 CB=17.20 DE=14 TY=3.8% MY=10.1%


*****
QLTI - QLT Inc.  $18.86  *** New Multi-Year High! ***

QLT Inc. (NASDAQ:QLTI) is a bio-pharmaceutical company engaged in
the development and commercialization of products in ophthalmology
and oncology and in other fields where the product can be marketed
by a focused specialty sales and marketing team.  QLT is a provider
in the field of photodynamic therapy, a field of medicine that uses
photosensitizers (light-activated drugs) in the treatment of disease.
QLT is also actively developing pharmaceutical products that do not
employ photodynamic therapy.  Visudyne, QLT's commercial product,
is a photosensitizer used to treat choroidal neovascularization in
patients with wet form, age-related macular degeneration.  Shares
of QLTI have been in "rally mode" since the first day of December
and it appears that investors are celebrating the potential for a
favorable ruling on reimbursement and positive numbers for the 4th
quarter.  Traders can speculate conservatively on continued upside
movement in the issue with this position.

DEC-17.50 QTL XW LB=0.25 OI=1169 CB=17.25 DE=14 TY=3.1% MY=8.4%


*****
USNA - USANA Health Sciences  $34.39  *** A Healthy Stock! ***

USANA Health Sciences (NASDAQ:USNA) develops and manufactures
nutritional, personal care and weight management products that
are distributed through a network marketing system throughout
the United States, Canada, Australia, New Zealand, the United
Kingdom, Hong Kong, Japan and Taiwan.  The firm's three primary
product lines consist of USANA Nutritionals, Sense-Beautiful
Science and LEAN Lifelong.  USANA Nutritionals include a range
of antioxidants, minerals, vitamins, and other nutritional
supplements.  The Sense-Beautiful Science product line is
comprised of products designed to support healthy skin and hair.
LEAN Lifelong products were developed to provide a comprehensive
approach to weight management, proper diet and nutrition and
healthy living.  There has been little news on this health
products company since the quarterly report and 2-for-1 stock
split in October.  However, the volatility in early November
has inflated the option premiums and the technical indications
suggest a reasonable probability of a profitable outcome in this
bullish position.

DEC-30.00 UNX XF LB=0.35 OI=160 CB=29.65 DE=14 TY=2.6% MY=7.8%


*****
ONXX - Onyx Pharmaceuticals  $27.63  *** Own This One! ***

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 is a
popular issue among biotech traders and the potential for future
volatility keeps the option premiums robust.  Investors who favor
the recent technical indications for ONXX can establish a cost
basis below $25 in the issue with this position.

DEC-25.00 OIQ XE LB=0.25 OI=1388 CB=24.75 DE=14 TY=2.2% MY=6.3%


*****
DIGE - Digene  $38.50  *** Entry Point? ***

Digene (NASDAQ:DIGE) develops, manufactures and sells proprietary
gene-based testing systems for screening, monitoring and diagnosis
of human diseases.  Its primary focus is in women's cancers and
infectious diseases.  The firm has applied its proprietary Hybrid
Capture technology to develop a unique diagnostic test for human
papillomavirus, which is the primary cause of cervical cancer and
is found in greater than 99% of all cervical cancer cases.  In
addition to its HPV Test, the company's product portfolio includes
gene-based tests for detecting chlamydia, gonorrhea, hepatitis B
virus and cytomegalovirus.  A recent study suggests that an HPV
DNA test is more effective than a Pap smear alone in identifying
women with cervical cancer or its precursors, and may facilitate
earlier treatment, while allowing others to avoid unnecessary,
invasive follow-up procedures.  The research utilized Digene's
DNAwithPap Test, which is the only FDA-approved test that detects
the presence of HPV -- the primary cause of cervical cancer.  The
news may explain Friday's rally in DIGE and traders who wouldn't
mind owning the issue near a basis of $35 should consider this
position.

DEC-35.00 QDG XG LB=0.35 OI=247 CB=34.65 DE=14 TY=2.2% MY=6.2%


*****
MEDI - MedImmune  $27.04  *** Bottom-Fishing Only! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of
unique products on the market and a diverse product pipeline.  The
firm is focused on using advances in immunology and other biological
sciences to develop new products that address significantly unmet
medical needs in areas of infectious disease, immune regulation and
cancer.  MedImmune actively markets four products, Synagis, Ethyol
and CytoGam and FluMist.  MedImmune co-markets the FluMist vaccine
with Wyeth and the company plans an initial product run of 4 to 5
million doses of FluMist for the 2003-2004 flu season.  Last week,
MEDI reported that live, attenuated vaccines may have a greater
potential to produce a broad immunity to influenza such as drifted
strains like those currently circulating, than the inactivated flu
vaccines.  In addition, the unexpectedly strong demand for flu shots
may have helped the nasal product's flagging sales and investors who
believe the rebound in MEDI will continue can speculate on that
outcome with this position.

DEC-25.00 MEQ XE LB=0.25 OI=6474 CB=24.75 DE=14 TY=2.2% MY=6.0%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

IBIS   16.12  DEC 15.00  UIB LC 1.45 320  13.55  14  23.2%  46.5%
NEOL   18.32  DEC 17.50  UOE XW 0.50 29   17.00  14   6.4%  15.5%
ADRX   22.83  DEC 22.50  QAX XX 0.55 531  21.95  14   5.4%  12.8%
NPSP   30.75  DEC 30.00  QKK XF 0.55 361  29.45  14   4.1%   9.9%
ARTC   23.04  DEC 22.50  ARU XX 0.40 18   22.10  14   3.9%   9.6%
QCOM   49.48  DEC 17.50  AAO XW 0.45 5616 17.05  14   5.7%   9.4%
DY     26.01  DEC 25.00   DY XE 0.40 29   24.60  14   3.5%   8.9%
DAKT   20.36  DEC 20.00  QKC XD 0.30 0    19.70  14   3.3%   8.1%
ADSK   23.53  DEC 22.50  ADQ XX 0.25 781  22.25  14   2.4%   6.3%
NCEN   39.62  DEC 35.00  URE XG 0.25 1202 34.75  14   1.6%   4.7%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

Santa Delayed By Snowstorm!
By Ray Cummins

The holiday rally came to an unscheduled halt Friday as weaker
than expected employment data and mediocre guidance from Intel
(NASDAQ:INTC) conspired to instigate a selling spree.

The Dow Jones industrial average ended down 68 points at 9,862
with the majority of blue-chip components in the red.  Among the
bullish issues were Caterpillar (NYSE:CAT), SBC Communications
(NYSE:SBC) and Wal-Mart (NYSE:WMT).  The tech-laden NASDAQ slid
30 points to 1,937 with semiconductor shares leading the retreat.
The Standard & Poor's 500 Index finished 8 points lower at 1,061
with only oil service and gold shares enjoying buying pressure.
Losers edged past winners by a ratio of 6 to 5 on the Big Board,
where only 1.2 billion shares traded.  Declining shares outpaced
advancing issues 2 to 1 on the NASDAQ, where 1.7 billion shares
changed hands.  The bond market was buoyed by the uninspiring
jobs report, which some experts say will keep the Fed's optimism
in check during its interest rate policy-setting meeting next
week.  The yield on the benchmark 10-year Treasury fell to 4.22%.

 
*****************
PORTFOLIO SUMMARY
*****************

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 or 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.


PUT CREDIT SPREADS
******************

Symbol  Pick    Last   Month  LP  SP  Credit  CB     G/L   Status

MGAM    41.45   36.45   DEC   30  35   0.45  34.55   0.45   Open?
ANPI    48.77   49.15   DEC   35  40   0.45  39.55   0.45   Open
PFE     34.08   34.20   DEC   30  32   0.25  32.25   0.25   Open
PHS     58.10   66.20   DEC   47  50   0.30  49.70   0.30   Open
SII     39.07   40.22   DEC   35  37   0.45  37.05   0.45   Open
IVGN    64.85   66.40   DEC   55  60   0.50  59.50   0.50   Open
NTLI    58.96   63.40   DEC   45  50   0.45  49.55   0.45   Open
NVLS    42.54   40.80   DEC   35  37   0.25  37.25   0.25   Open
HOV     92.25   95.16   DEC   80  85   0.55  84.45   0.55   Open
IMCL    39.29   41.25   DEC   30  35   0.55  34.45   0.55   Open
MATK    60.74   58.39   DEC   50  55   0.45  54.55   0.45   Open
MSTR    54.00   51.00   DEC   45  50   0.65  49.35   0.65   Open?

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

Multimedia Games (NASDAQ:MGAM) and Microstrategy (NASDAQ:MSTR)
are the new issues on the "watch" list and any further downside
movement in these issues should be seen as a potential early-exit
signal.


CALL CREDIT SPREADS
*******************

Symbol  Pick    Last   Month  LC  SC  Credit  CB     G/L   Status

AIG     58.28   58.63   DEC   65  60   0.90  60.90   0.90   Open
BJS     32.18   35.00   DEC   37  35   0.30  35.30   0.30  Closed
SNPS    30.85   30.55   DEC   37  35   0.25  35.25   0.25   Open
CCMP    54.16   52.22   DEC   65  60   0.50  60.50   0.50   Open
KKD     41.85   38.66   DEC   50  45   0.60  45.60   0.60   Open
SNPS    30.28   30.55   DEC   37  35   0.20  35.20   0.20   Open
MRVL    38.90   38.01   DEC   45  42   0.30  42.80   0.30   Open
QCOM    43.97   49.48   DEC   50  47   0.25  47.75  (1.73) Closed
MHK     72.08   71.24   DEC   80  75   0.45  75.45   0.45   Open
TTWO    33.10   30.11   DEC   37  35   0.25  35.25   0.25   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss

Qualcomm (NASDAQ:QCOM) gapped higher Thursday after the company
raised its forecast for the first quarter, citing stronger demand
for its wireless phones and the computer chips used to power them.
There was little chance to close the position without a loss.  BJ
Services (NYSE:BJS) became an early-exit candidate after its sharp
rebound in conjunction with the rallying oil service group.  The
position in Intermune (NASDAQ:ITMN) has previously been closed to
limit losses.


CALL DEBIT SPREADS
******************

Symbol  Pick   Last   Month  LC  SC   Debit   B/E   G/L   Status

VLO     44.00  45.04   DEC   37  40   2.20   39.70  0.30   Open
ADRX    21.66  22.83   DEC   17  20   2.15   19.65  0.35   Open
ELAB    48.17  52.99   DEC   40  45   4.50   44.50  0.50   Open
ANPI    49.32  49.15   DEC   40  45   4.50   44.50  0.50   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss


PUT DEBIT SPREADS
*****************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

CTMI    16.08  15.53  DEC   20  17   2.25   17.75  0.25   Open

As noted last week, Apria Healthcare (NYSE:AHG) was on the "watch"
list and the position was closed for a small loss during Monday's
rally.


SYNTHETIC (BULLISH)
*******************

Stock   Pick   Last   Expir.  Long  Short  Initial   Max.   Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

IDCC    19.00  19.77   JAN     25     15     0.20    0.45   Open
ELX     29.50  27.37   APR     35     25     0.10    0.00   Open

The recent rally in Emulex (NYSE:ELX) failed at resistance near
$30 and with the bearish trend now resuming, a move below support
at $26.50 would signal our exit in the position.

     
SYNTHETIC (BEARISH)
*******************

No Open Positions


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short    Current   Max.   Play
Symbol  Price  Price   Option    Option    Debit   Value  Status

SCRI    20.52  26.74   FEB-22C   DEC-25C   1.40    2.10    Open
CEPH    46.34  46.56   FEB-50C   DEC-50C   1.30    1.60    Open


DEBIT STRADDLES
***************

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

MACR    20.22  18.76   DEC    20    20     2.20    2.10    Open
ATN     17.93  17.80   JAN    17    17     2.40    2.75    Open
MYL     25.32  25.45   JAN    25    25     2.25    2.10    Open

         
CREDIT STRANGLES
****************

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 investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance, and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
CME - Chicago Mercantile  $70.63  *** Consolidation Complete? ***

Chicago Mercantile Exchange Holdings (NYSE:CME) is the holding
company for Chicago Mercantile Exchange and its subsidiaries.
CME is a designated contract market for the trading of futures
and options on futures contracts.  Trades are executed through
open outcry, electronic trading and various privately negotiated
transactions.  Through its in-house Clearing House Division, CME
clears, settles, nets and guarantees performance of all matched
transactions in its products.  CME resulted from the completion
of a demutualization process whereby Chicago Mercantile Exchange,
an Illinois not-for-profit membership organization, became a
Delaware for-profit corporation.  The transaction resulted in a
conversion of membership interests in the Illinois organization
into stock ownership in the Delaware corporation.

CME - Chicago Mercantile Exchange  $70.63

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-60.00  CME-ML  OI=200  ASK=$0.45
SELL PUT  JAN-65.00  CME-MM  OI=80   BID=$0.90
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$64.50


*****
NCEN - New Century Financial  $39.62  *** New 2003 High! ***

New Century Financial Corporation (NASDAQ:NCEN) is one of the
nation's largest specialty mortgage companies, providing first
and second mortgage products to borrowers nationwide through its
operating subsidiaries.  It offers mortgage products to borrowers
who generally do not satisfy the credit, documentation or other
underwriting standards prescribed by conventional mortgage lenders
and loan buyers, such as the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.  New Century is
committed to serving the communities in which it operates with
fair and responsible lending practices.

NCEN - New Century Financial  $39.62

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-30.00  NWR-MF  OI=258  ASK=$0.55
SELL PUT  JAN-33.37  NWR-MX  OI=440  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=15% B/E=$32.92


*****
SII - Smith International  $40.22  *** New Trading Range? ***

Smith International (NYSE:SII) is a worldwide supplier of premium
products and services to the oil & gas exploration and production
industry, the petrochemical industry and other industrial markets.
The firm provides a comprehensive line of technologically advanced
products and engineering services, including various drilling and
completion fluid systems, solids control, waste management services,
production chemicals, three-cone and diamond drill bits, turbines,
fishing services, drilling tools, under-reamers, casing exit and
multilateral systems, packers and liner hangers.  The firm also
offers supply chain management solutions through an large North
American branch network providing pipe, valves, fittings, mill,
safety and other maintenance products.

SII - Smith International  $40.22

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-30.00  SII-MG  OI=1533  ASK=$0.25
SELL PUT  JAN-37.50  SII-MU  OI=216   BID=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$37.25


*****
CECO - Career Education  $38.45  *** Scandalous Accusations! ***

Career Education Corporation (NASDAQ:CECO) is a provider of
private, for-profit post-secondary education, with 51 campuses
throughout the United States, Canada, France, the United Kingdom
and the United Arab Emirates.  The company also offers online
programs through American InterContinental University-Online,
its e-learning division.  The company's schools have master's
degree, bachelor's degree, associate's degree and a range of
diploma programs in career-oriented disciplines.  The company's
schools offer educational programs principally in five major
career-related fields of study: visual communication and design
technologies, offered at 34 campuses; business studies, offered
at 32 campuses; information technology, including Internet and
intranet technology, offered at 27 campuses; culinary arts,
offered at 10 campuses, and health education, offered at three
campuses.

CECO - Career Education  $38.45

PLAY (speculative - bearish/credit spread):

BUY  CALL  DEC-50.00  CUY-LJ  OI=2685  ASK=$0.20
SELL CALL  DEC-45.00  CUY-LI  OI=4509  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$45.40


*****
S - Sears, Roebuck & Co.  $48.96  *** Profit-Taking Underway! ***

Sears, Roebuck & Co. (NYSE:S) is a multi-line retailer that offers
an array of merchandise and related services.  Sears is organized
into four principal business segments: retail and related services,
credit and financial products, corporate and other and Sears Canada.
The firm has 872 full-line stores and approximately 1,300 specialty
stores spread across the United States.  It conducts similar retail,
credit and corporate operations in Canada through Sears Canada.  In
June 2002, Sears acquired Lands' End, Headquartered in Dodgeville,
Wisconsin, Lands' End is was direct merchant of traditionally styled
casual clothing for men, women and children, accessories, footwear,
home products and soft luggage.

S - Sears, Roebuck & Co.  $48.96

PLAY (very speculative - bearish/credit spread):

BUY  CALL  DEC-55.00  S-LK  OI=4583  ASK=$0.10
SELL CALL  DEC-50.00  S-LJ  OI=821   BID=$0.75
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$50.65


*****
SNDK - SanDisk  $64.35  *** Sell-Off In Progress! ***

SanDisk (NASDAQ:SNDK) designs, manufactures and markets flash
memory storage products that are used in a wide variety of
electronic systems and devices.  SanDisk's products are
compatible with a number of consumer electronics applications
including digital cameras, PDAs, portable digital music players,
digital video recorders and mobile telephones, as well as in
industrial and communications applications, such as communications
routers and switches and wireless communications base stations.
The company's products include removable CompactFlash (CF) cards,
SD cards, miniSD cards, xD-Picture cards, SmartMedia cards,
FlashDisk cards, MultiMediaCards (MMC), Memory Stick and Memory 
Stick Pro version, CompactFlash and SD card Wi-Fi access and
storage cards, Cruzer, Cruzer Mini Universal Serial Bus flash
drives, plus-embedded flash chipsets and NAND flash components
ranging in storage capacities ranging from 16 megabytes to four
gigabytes.

SNDK - SanDisk  $64.35

PLAY (very speculative - bearish/credit spread):

BUY  CALL  DEC-75.00  SWQ-LO  OI=5429  ASK=$0.40
SELL CALL  DEC-70.00  SWQ-LN  OI=4713  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$70.60


*************
DEBIT SPREADS
*************

These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
OSX - PHLX Oil Service Sector  $89.45  *** Strong Sector! ***

The PHLX Oil Service Sector (PHLX:OSX) is a price-weighted index
composed of the common stocks of 15 companies that provide oil
drilling and production services, oil field equipment, support
services and geophysical/reservoir services.  For a list of the
companies in the index and their weightings, click here:

http://www.phlx.com/products/sectors/osxcomp.htm

OSX - PHLX Oil Service Sector  $89.45
 
PLAY (conservative - bullish/debit spread):

BUY  CALL  JAN-80.00  OSX-AP  OI=2412  ASK=$10.20
SELL CALL  JAN-85.00  OSX-AQ  OI=2846  BID=$5.70
INITIAL NET-DEBIT TARGET=$4.40-$4.50
POTENTIAL PROFIT(max)=11% B/E=$84.50

*****
SYMC - Symantec  $32.42  *** Post-Split Slump Coming? ***

Symantec (NASDAQ:SYMC) provides content and network security
software and appliance solutions to enterprises, individuals
and service providers.  The company provides client, gateway
and server security solutions for virus protection, firewall
and virtual private network (VPN), security management,
intrusion detection, Internet content and e-mail filtering,
remote management technologies and security services to
enterprises and service providers worldwide.  Symantec has
offices in 36 countries worldwide.  The company views its 
business in five operating segments: enterprise security,
enterprise administration, consumer products, services and
other activities.

SYMC - Symantec  $32.42

PLAY (conservative - bearish/debit spread):

BUY  PUT  JAN-37.50  SYQ-MU  OI=191   ASK=$5.40
SELL PUT  JAN-35.00  SYQ-MG  OI=2070  BID=$3.20
INITIAL NET-DEBIT TARGET=$2.15-$2.20
POTENTIAL PROFIT(max)=14% B/E=$35.30


*******************
SYNTHETIC POSITIONS
*******************

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

*****
NE - Noble Corporation  $36.09  *** Trading Range Break-Out? ***

Noble Corporation (NYSE:NE) is a provider of diversified services
to the oil and gas industry.  The firm performs contract drilling
services with a fleet of 49 offshore drilling units located in
key markets worldwide.  Its fleet of floating deepwater units
consists of nine semisubmersibles and three dynamically positioned
drillships, seven of which are designed to operate in water depths
greater than 5,000 feet.  Its premium fleet of 34 independent leg,
cantilever jack-up rigs includes 21 units that operate in depths
of 300 feet and greater, four of which operate in depths of 360
feet and greater, and 11 units that operate in depths up to 250
feet.  Its fleet also includes three submersible drilling units.
Over 60% of the fleet is deployed in global markets, principally
the North Sea, Brazil, West Africa, the Middle East, India and
Mexico.  The firm also provides labor contract drilling services,
site and project management services, and engineering services.

NE - Noble Corporation  $36.09

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-37.50  NE-AU  OI=365   ASK=$0.70
SELL PUT   JAN-35.00  NE-MG  OI=8350  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.05-$0.15
INITIAL TARGET PROFIT=$0.70-$1.05

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $1400 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($35.00).


*****
PTEN - Patterson-UTI Energy  $31.34  *** Oil Service Soars! ***

Patterson-UTI Energy (NASDAQ:PTEN) is an operator of land-based
drilling rigs in North America.  Formed in 1978 and reincorporated
in 1993, the company focuses its contract drilling operations in
Texas, New Mexico, Oklahoma, Louisiana, Mississippi, Utah and
Western Canada (Alberta, British Columbia and Saskatchewan).
Patterson-UTI's operates in three industry segments: contract
drilling, which the company markets to major and independent oil
and natural gas producers and operators; drilling and completion
fluids services, which provides drilling fluids, completion fluids
and related services to oil and natural gas producers, and pressure
pumping services, which provides pressure-pumping services in the
Appalachian Basin.

PTEN - Patterson-UTI Energy  $31.34

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-32.50  NZQ-AZ  OI=836  ASK=$0.90
SELL PUT   JAN-30.00  NZQ-MF  OI=813  BID=$0.70
INITIAL NET-DEBIT TARGET=$0.00-$0.10
INITIAL TARGET PROFIT=$0.65-$0.90

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $1200 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($30.00).


****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

*****
OIH - Oil Service Holdrs Trust  $58.73  *** Sector Rally! ***

The Oil Service Holdrs Trust (AMEX:OIH) is a unique instrument
that represents an investor’s ownership in the stock of specified
companies in the oil service sector.  HOLDRS allow investors to
own a diversified group of stocks in a single investment that is
highly transparent, liquid and efficient.  Each HOLDR is a fixed
basket of 20 stocks (except the Telebras HOLDR, which holds 12
companies).  They work operate much like ADRs; American Depositary
Receipts, which allow U.S. investors to purchase foreign-owned
companies on the U.S. exchanges in dollar denominated amounts.  In
just the same way, the investor actually owns the shares of each
underlying company, receives dividends, proxies, and annual reports
from each.  The HOLDRs are not managed, and once the companies and
amounts have been determined they are fixed, no companies will be
substituted.  In this way, the HOLDRs differ somewhat from Spiders
(SPDRs), or Standard & Poor Depositary Receipts and other exchange
traded funds, which will add and delete stocks on a regular basis,
usually in conjunction with an index that they are tracking.

A complete explanation of this issue, including the companies that
make up each HOLDRS' particular industry, sector or group can be
found here:

http://www.holdrs.com/holdrs/main/index.asp?Action=Definition

OIH - Oil Service Holdrs Trust  $58.73
  
PLAY (speculative - bullish/calendar spread):

BUY  CALL  JAN-60.00  OIH-AL  OI=4856  ASK=$1.35
SELL CALL  DEC-60.00  OIH-LL  OI=2706  BID=$0.50
INITIAL NET DEBIT TARGET=$0.75-$0.80
INITIAL TARGET PROFIT=$0.45-$0.70


*****


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


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

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