Option Investor

Daily Newsletter, Wednesday, 12/10/2003

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The Option Investor Newsletter                Wednesday 12-10-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Stocks Slip Slowly
Futures Wrap: Santa's Sled Stalls
Index Trader Wrap: That was neat.  Now do it again!
Traders Corner: Emotion and Logic - The Never-Ending Story

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
     12-10-2003            High     Low     Volume Advance/Decline
DJIA     9921.86 -  1.56  9958.38  9882.38 1.73 bln   1048/1813
NASDAQ   1904.65 -  3.67  1916.00  1887.46 1.92 bln   1034/2036
S&P 100   525.33 +  1.18   526.62   522.34   Totals   2082/3849
S&P 500  1059.59 -  1.13  1063.02  1053.41
RUS 2000  528.49 -  6.05   535.58   526.42
DJ TRANS 2912.67 -  8.25  2933.09  2893.87
VIX        17.87 +  0.24    18.27    17.58
VXO        17.33 +  0.25    19.71    17.13
VXN        27.84 -  0.48    28.66    27.79
Total Volume 4,114M
Total UpVol  1,663M
Total DnVol  2,413M
52wk Highs     307
52wk Lows       38
TRIN          1.09
PUT/CALL      0.81

Stocks Slip Slowly
by James Brown

Given the pace of Tuesday afternoon's decline plenty of traders
thought today was going to be a tough one for the market.  Yet by
the close of business the major U.S. indices were relatively
unchanged.  There were plenty of stories to follow like AutoZone
cratering and SBC slashing jobs but overall the session was
characterized by widespread but mild profit taking.  If you're
feeling truly optimistic one could even call it a small victory
for the bulls by the lack of heavy selling.  Granted there were
pockets of weakness.  Gold stocks and homebuilders were hit hard
but then these sectors had made some of the biggest gains this
year and investors were taking some money off the table.

Global markets were generally weaker lead by strong declines in
the Japanese NIKKEI index.  The constant weakness in the dollar
continues to put pressure on Japanese exporters and despite
intervention by the Bank of Japan to sell yen to weaken their own
currency the NIKKEI dropped 213 points or 2.11% to close at 9910.
It has been a tough few days for the Japan's markets.  The NIKKEI
has lost more than 500 points since last Thursday and investors
are nervous about this Friday's Tankan survey for the Japanese
economy.  European markets are also suffering from some profit
taking and the FTSE lost 44 points to close at 4335 while the DAX
lost 25 points to close at 3820.  Meanwhile the greenback
actually strengthened somewhat against the yen and the euro.

The U.S. dollar wasn't the only thing on traders' minds.  There
was a sharp surge in energy prices early in the session.  Crude
oil shot to $32.63 a barrel, a three-week high, before slipping
back to $31.88.  Natural gas spiked to $7.55 intraday before
closing down 1.1 cents at $6.711/BTU.  Investors also noticed
some volatility in gold.  February gold futures hit an intraday
high near $413 an ounce but ended the day with a $1.90 loss at
$407.  This sent the XAU gold & silver index to a 4.44% decline.
It was just a few weeks ago when gold was trading near $380 that
there was renewed talk of seeing $420 an ounce before December
31st. That target doesn't seem so far away now but gold may
retest the $400 level again before bouncing.

Market internals were a lot more bearish than the final tally in
the indices may suggest.  Declining stocks overwhelmed advancing
stocks 18 to 10 on the NYSE and 2 to 1 on the NASDAQ.  Down
volume flooded past up volume 2179 million to 1443 million
between the two exchanges.  The volatility indices (VXO, VIX,
VXN) did inch higher showing some small amount of investor fear
but they remain stuck in their downtrends.  Technology stocks may
have been spared a worse fate by strength in the SOX, today's
best performing sector.  Of course the SOX was down 10% in the
last six sessions so today's move could just be an oversold

Chart of the DJIA:

Chart of the NASDAQ:

There were plenty of company or stock-specific stories today but
probably the biggest one was the selling in the homebuilders.
The DJUSHB home construction index dropped more than 5% as
investors took profits from one of the best performing sectors
all year.  This sector has more than doubled from its March 2003
lows and the threat of higher interest rates (per the Fed's new
neutral stance) and a drop in the U.S. mortgage application index
had traders running to sell these winners and lock in gains.
This morning's report from the Mortgage Bankers Association
showed that mortgage applications had dropped 12.2% to a new 52-
week low.  Part of this drop is due to a decline in refinancings,
which do not affect the homebuilders but it was a perfect excuse
to sell.

While we're on the subject of declines shares of AutoZone (AZO)
were hammered for a 12 percent loss ($11) for the biggest drop in
the S&P 500.  The company had reported earnings yesterday evening
that beat estimates by 7 cents with net income of $1.35 per
share.  Unfortunately, revenues only rose 5.2% to $1.28 billion,
which missed the average estimate of $1.3 billion.  As would be
expected the news produced a number of broker downgrades.

On the positive side shares of SBC Communications added 2.67% to
lead the Dow's gainers after announcing 3,000 to 4,000 job cuts
in the fourth quarter.  The 2.5 percent reduction in its
workforce is an effort by SBC to offset the company's declining
revenues.  Rival Verizon (VZ) also rallied strongly after
announcing a $3.7 billion buyout for nearly 10 percent of its
workforce.  Short-term the charge will affect earnings but
analysts believe it will strengthen the company's balance sheet

Traders also bid up shares of Cisco Systems after its CEO John
Chambers mentioned that they are seeing rising corporate budgets
for the first time in years.  While Chambers was optimistic for
2004 he didn't offer any specific numbers that might indicate
tech spending would outpace the recent Gartner-Soundview survey,
which forecasted a dismal 1.6% growth for 2004.

Tomorrow is another busy session.  Investors will be eager to
hear the November retail sales report.  Estimates are for a 0.7
percent increase leapfrogging the 0.3 percent decline in October.
Wall Street will also absorb the November import and export
numbers, the October business inventories and the weekly jobless
claims.  Expectations are for a drop in jobless claims to 359,000
down from 365,000.

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Santa's Sled Stalls
Jonathan Levinson

Equities fell from lower highs today, with the US Dollar trapped
below 89, but managed to return to positive territory at the
close.  Treasuries retraced part of yesterday's losses, metals
pulled back and gold miners were sold off.

***Note that December equity futures (Z3) roll over tomorrow, and
March (H4) will become the front month.  While I have profiled
today's action using December contracts, the pivot matrix with
tomorrow's levels has been done with March contracts, as we'll be
trading those in the Futures Monitor tomorrow.

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

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

10 minute chart of the US Dollar Index

The US Dollar Index made valiant attempts to regain the 89 level
but it was not to be.  Word of the Bank of Japan's attempt to
intervene overnight didn't persuade the currency markets, but the
morning bounce set off from a higher low.  Nevertheless, metals
were lightly sold during today's trading, while mining stocks got
shellacked.  The CRB dropped .61 to close at 260.44, with
strength in platinum, lean hogs and crude oil futures.

Daily chart of February gold

February gold went to a new high today and failed, printing a
gravestone doji below the upper bear wedge resistance line.  The
lower low at 406 with the failed higher high constitutes a key
outside reversal, which portends a lower low and possible break
below the bear wedge support line for tomorrow.  The action in
the miners was far more distressing, however, with the HUI
getting sold to below the 230 level and XAU below 105. February
gold closed lower by 2.30 at 406.60, HUI –14.60 at 227.62, and
XAU –4.79 at 103.04.

Daily chart of the ten year note yield

The Fed added a modest 1.75B in overnight repos today, as the
treasury auctioned off 5 year treasury notes.  The auction
generated an average 3.375% yield and a 1.92 bid-to-cover ratio,
which was below the average of 2.36.  Despite this apparent
disinterest in US debt, treasuries were firm today, with the ten
year note yield dropping 3.4 basis points to close at 4.318%.
The move retraced part of but did not reverse yesterday's
trendline breakout on the yield, and in fact closed right on the
line.  The oscillators are in potential rollover territory, but
at this level no direction is clear either way.

Daily NQ candles

In what is becoming routine, the dippers of the last two days
were trapped beneath a sea of cement, only to be miraculously
rescued by a triad of buy programs commencing at 3PM.  Take a
look at the 150 tick ES chart below for a clearer snapshot of the
rescue operation.

The daily NQ3Z printed a throwover, or rather a throwunder
beneath the last rising support trendline and but for the 3 buy
programs in the last hour, would have closed below it.  Other
than the ES, which closed unchanged for the day, both the YM and
NQ managed positive closes.  Despite the late day advance, the
NQ's daily cycle downphase is in progress, and 1380 support is
far from homefree.  A move above 1400 will be the first sign that
bears are in trouble, but I believe that it will take a test of
1420 to actually abort the daily downphase currently in progress.

30 minute 20 day chart of the NQ

The 30 minute NQ3Z broke below the apex of the bullish descending
wedge, but the late-day stick-save returned the NQ to just above
it at 1393.  The 30 minute cycle upphase aligns itself with the
buying that occurred, and exhausted about half its energy in the
process.  So long as the daily cycle remains in a downphase, I
expect this 30 minute cycle upphase to be shortlived and weak,
and 1400 again looks like a worthy upside target, with 1410 the
next strong resistance.

Daily ES candles

The ES3Z sold off but closed on a perfect doji star, unchanged
for the day.  This print indicates indecision, and given the
rapid bounce from 3PM, it's no wonder.  The daily cycle downphase
did not confirm on the ES' oscillators, but any downside from
here will do it.  1062-4 remains strong resistance, with support
at 1048-50.  Any net selling tomorrow should give us our bearish
confirmation and target the rising trendline currently at 1045.

20 day 30 minute chart of the ES

The 30 minute cycle oscillator gave us a tipoff on the 3PM ramp
job, with a bullish divergence printed on the higher oscillator
low.  Again we see the heavy confluence from 1060 to 1064, and
the 30 minute upphase is going to have difficulty breaking above
it.  I don't expect to see 1065 exceeded, but with the daily
cycle not on a formal sell signal yet, we can't rule it out.  A
move above 1065 would likely renew the upphase currently stalling
on the daily.

150-tick ES

The end of day buy program was another example of a heavily
divergent move, running over my wide Keltner bands for nearly
half an hour.  The short cycle is in an upphase that should peak
out in the opening hour tomorrow, and again, resistance up to
1064-5 looks formidable.

Daily YM candles

The daily cycle upphase on YM3Z retreated today, closing on a
bearish kiss despite the rescue ops carried out into the close.
The doji star indicates a lack of commitment in either direction,
but the bulls appear to be running on fumes.

20 day 30 minute chart of the YM

On the 30 minute chart, the YM3Z is not printing a head and
shoulders top, but the uptrend appears to be weakening.  9670 is
trendline and confluence support, with resistance at 9930.

Bear in mind that the March YM contract was backwardated, trading
20-30 points below the December YM all day, while the NQ March
traded higher than the December, as normal.  Keep an eye on your
charts and note that the December levels discussed above will
diverge from the March levels we'll begin discussing tomorrow.
The pivot matrix has been calculated with March levels for this


That was neat.  Now do it again!

The Santa Claus rally might just be in the setup stage, but
traders and investors will want to be sharp tomorrow, as we'll be
using some of today's observations as a test tomorrow.

While trading was a bit sloppy within the pivot matrix for the
NDX/QQQ, the SPX/SPY and OEX, the progression of the NASDAQ-100
Index (NDX.X) 1,388.96 +0.38% and its Tracking Stock (AMEX:QQQ)
$34.56 +0.37% leading today's session weakness and find trade
just below their WEEKLY S2s did see a late-session rebound on
very week market internals placing a few pieces of candy in a
bull's holiday stocking by session's end.

The notably weaker NDX/QQQ trade just below their WEEKLY S2,
helped pull the broader S&P 500 Index (SPX.X) 1,059.05 -0.10%
below its WEEKLY S1 of 1,055.99, as the staggered trade within
the WEEKLY pivot matrix plays itself out.  Meanwhile, the Dow
Industrials (INDU) 9,921.86 -0.01%, which traded a session low of
9,882.38, didn't quite see a test of its WEEKLY Pivot (9,863.40)
with a session low of 9,882.38.

Tonight's wrap is for everyone.  It doesn't matter if you're a
bull or a bear.  It doesn't matter if you believe, or don't
believe in Santa Claus.

All you need to do, when looking at the Pivot matrix is imagine
the logistics of just how Santa Claus gets to where he's supposed
to go.

Rudolph the red-nosed reindeer need to lead the team of reindeer,
if Santa's sleigh is ever going to get to where it is supposed to
go.  As I see it right now, the Dow Industrials are the
equivalent of Rudolph.

I can't for the life of me remember all the other reindeer's
names, but I see the rest of the team being the S&P 500 Index
(SPX.X) 1,059.05 -0.10% and the S&P 100 Index (OEX.X) 525.33

And at the far end of the line, is jolly old Santa Clause, or at
least his sleigh, where the sleigh full of end of year "goodies"
is currently weighed heavily with a bunch of technology stocks.

Let's take a quick look at today's market snapshot, where for the
most part, the deer looked to be coming down with that flu virus
again today, as market internals were rather weak.

Market Snapshot / Internals - 12/10/03

Since I started posting the intra-day advance decline line, I've
received a lot of questions as to just how a trader interprets
such an indicator of breadth.  To tell you the truth, the A/D
line has never been one of my "favorite" indicators, but how I
find it useful is to thing of bulls (advance) and bears (decline)
playing tug-of-war with a rubber band.  An INVESTOR will do the
same, but most likely with the end of day, or 04:00 tabulations.

Let's use the NYSE 10:00 and 11:00 hour comparison.  You can see
how the advancer from 10:00 to 11:00 show some addition to their
numbers (+98), while the decliners also added to their number
(+230).  The observation, and perhaps the "feel" for lack of a
better word, is that the rubber band was being stretched at both
ends, but it was BEARS or decliners that was actually leading, or
doing the bulk of the stretching.  It would be an ERROR to then
simply assume price action will follow, as the major indices are
weighted, with some stocks carrying greater weight, but for the
most part, the A/D line and 11:00 marks for the major indices did
show price decline at the 11:00 hour.

You can make a similar hourly comparison for the NASDAQ breadth
and make the notable observation that some indices (NASDAQ
Composite, Russell-2000 and QQQ) found greater price movement
lower.  This may not be a surprise, based on what we've been
noticing in the pivot analysis matrix.  The NASDAQ stocks (4-
lettered stock symbols) have been showing greater weakness of

If we move on to 12:00, what happened?  Internals weakened
further at both the NYSE and NASDAQ, but PRICE action actually
saw improvement.  In today's market monitor, I commented on this
type of internal/price action, which is what traders/investors
call BEARISH DIVERGENCE.  While price action matters most to a
trader/investor, this DIVERGENCE is often times a heads up, that
something has got to give!

Moving on to 01:00 PM EST, what gave?  By 12:00, PRICE action
fell, while A/D lines IMPROVED.  Even here, by thinking of a
rubber band the A/D line compared to price "feeling" like a
rubber band being pulled at both ends, then some tension being
released (snapping back a bit, but still weak) and price action
fluctuating as that tension is applied, then released.

Again... these breadth indicators are really observed, so that
the trader/investor develops a "feel" for what is taking place

NEVER underestimate what PRICE action has on MARKET psychology!
Why would a weaker A/D line and higher price action one hour
(12:00 for example) find a slightly improved A/D line and LOWER
price action the next hour (01:00 PM EST)?  I think it is because
BEARISH traders see price improvement in a major index/sector,
and when they've got a nice gain at risk, they tend to want to
lock in the gain.  For example, I sell the ABCDE stock short on
Monday at $35.00, and see at 12:00 PM EST, I see the major
indices holding relatively tough, look at my ABCDE short trading
$32.00 -0.05% at the 12:00 PM EST mark, and decide to cover that
short and lock in gains.  While I alone am probably not dictating
ABCDE's price action, there are perhaps other traders thinking,
observing some of the same things, and more inclined to book the
gain near-term, than risk the stock rebounding with slight price
gains, or stability being found in the indices.

I discuss the above, MAINLY for those intra-day traders that
asked quite a few questions today.  Try and use the analogy of
bulls and bears pulling at both ends of a rubber band.

As we get set to look at the pivot matrix, today's trade did see
the S&P Banks Index (BIX.X) 328.07 -0.56% finish lower by 1.87
points, where session low of 326.31 did see a test of its
correlative levels of support at the 328 levels of DAILY S1,
WEEKLY S2, MONTHLY S1.  Observation is that while there was most
likely some basket buying of banks today, the session low wasn't
an exact match, so I'm still not overly aggressive for a bullish

Still... "that was neat.  Now do it again!"

S&P Banks Index (BIX.X) Chart - Daily Intervals

I've stretched the BIX.X chart about as vertical as I can to give
all of us the observation at what a powerful move this group of
stocks has had since breaking above its summer's highs.  This
isn't a technology sector!  But they've traded like it.  Look at
that 50-day SMA rocketing higher!  It did serve as greater
support than our Pivot levels.  After two days of sharp declines
(for the BIX.X) I now begin making some assumptions as to levels
I think this sector needs to hold for BULLISH thoughts toward a
rebound.  I think 325.00 needs to hold support, and sign of
strength is above 331.  Since the BIX.X did pierce below its
MONTHLY S1 and WEEKLY S2, then I will monitor for FIRMING or more
anxious buying to show up, should the BIX.X show intra-day
support at these MONTHLY S1 and WEEKLY S2 levels.

Let's look at the pivot matrix now, use some of the BIX.X
observations, 331 and 325, and see if any of this ties into the
DAILY levels, for testing tomorrow.  With the oscillators
suggesting bullish caution (bullish as MACD is still above zero,
and BIX.X is still in a longer-term upward trend, hasn't broken a
relative low), this is still a sector that I feel needs to be
monitored for support.  Remember that long ago we labeled the
regional banks as somewhat of a sector, that while interest rate
sensitive, gives us a pretty good representation for financials,
which make up about 28% weighting in the SPX.

Pivot Matrix -

Underlined in PINK :  BIX.X , QQQ, NDX WEEKLY S2s.  I think of
this as the lower end of a week's range, and all three traded
these level, and just below, then closed above these levels as if
there was formidable buying triggered at those levels.    Today
we saw brief violations of those levels.  One thing to look for
early tomorrow morning, should we see weakness early in the
session, is for these levels to FIRM.

Now take note of the NDX's DAILY S2 at 1,376.32.  This
observation is noted in dashed green, to depict tentative
support, but the observation of this DAILY WEEKLY support
correlation suggests a level to look for support on a retest.

We've noted how the BIX.X and the NDX/QQQ have NOTHING in common
as it relates to stock composition, but these two indices seem to
mirror each other in the MATRIX.  Note the BIX.X DAILY S1.  I
highlight this in a PINK box, only because it matches almost to
the penny, the rising 50-day SMA.  Here too, a level early
tomorrow morning to monitor as a support level in the BIX.X,
should the BIX.X once again try and violated its correlative
MONTHLY S1 and WEEKLY S1.  These observations in the BIX.X, with
"bad news" in the sector (mortgage refinancing) provides the
ultimate test for strength, or stability!  I think the BIX.X is
going to hold these support levels.  Now note the THREE levels of
correlative resistance in the BIX.X at MONTHLY Pivot, WEEKLY S1
and DAILY R1.  This certainly looks like formidable resistance.
My thoughts here are that if the BIX.X tests these levels, it
would be a sign of strength considering the news in the sector.
If the BIX.X breaks above these levels.... here comes Santa

The SPY resistance correlations at WEEKLY Pivot and DAILY R1 of
$107.18 and $107.15.  I view these as near-term resistance, so
I'm setting upside alerts there to alert to bullishness building
to a higher degree.

Let me quickly mention the OEX!  On Friday of last week, I used
the OEX break below 524 as a trigger for a QQQ short at $35.08.
Folks... the OEX is trading 525.33 at tonight's close, while the
QQQ is trading $34.56, where QQQ traded a session low of $34.13
today!  This observation and comparison certainly has to hint
that there is a underlying bid to the OEX, if not the markets.

This has me VERY ALERT TOMORROW to be monitoring any early
session weakness at NDX/QQQ WEEKLY S2, and SPX/SPY WEEKLY S1 for
support, and perhaps some strong bounces.

One reason I think the markets have a good shot at a rally, or
just don't seem to be giving up some larger declines, is that
fund managers may well be trying to protect gains for the year-
end reviews.  While market internals A/D are weak, my best guess
at this point, is that the declines, in stock-related terms are
not overly large.  Yes, there are some exceptions (WM, AZO,

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

The OEX has been back and forth its WEEKLY Pivot, but a range
from 522-529 (that's 7 points) really begins to show up.  This
type of range, in my opinion, has to have an OEX trader
monitoring a sector like the BIX.X, which has been weaker, as
their directional index.  As tough as the OEX has been holding
around the 525 level, despite the banks weakness, if the banks
rebound, then it would have to be my best estimate that the OEX
breaks out of this consolidation to the upside.

When I say "The best trade setup for a bullish Santa Claus.... is
to buy the OEX 520," what I would look for is ... IF the OEX were
to trade back to 520 area, but the BIX.X be holding at or near
its rising 50-day SMA and showing stability, then there is very
good risk/reward trade setup, for the bullish side.  My thinking
is that the BIX.X has been weaker the last couple of session, but
if it firms, and should the OEX compress lower to 520, then this
is somewhat equivalent to pushing/compressing a coiled spring
together, where I think there's still enough upside pressure for
the end-of-year rally.

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

The QQQ is our weaker major index right now, and today's trade
just under the WEEKLY S2 did manage to find enough buying to
drive the QQQ back near its morning highs.  This was what I would
consider the first test of a rather CRITICAL near-term support

I want to quickly put myself in a BEAR's shoes.  "Oh crud... did
I miss my MAX weekly decline cover point?"  I may have, and this
is why on any weakness tomorrow, I look to COVER a short back
near $34.22, and CLOSE OUT a bearish trade on a break above
today's high.

I'm trying to think how I would if I were still short the QQQ and
hadn't gotten stopped out yesterday morning.  How would I be
using a trailing profit stop in that trade to protect the bearish
gain after seeing a late session bounce today from the WEEKLY S2?

Dow Industrials (INDU) Chart - Daily Intervals

The INDU is holding very tough after seeing trade at 10,000
yesterday.  My main thoughts here are this...

The INDU holding tough keeps market psychology rather bullish.
"Hey, it isn't getting sold as hard like NASDAQ Composite (COMPX)
1,904.65 -0.19% did from 2,000 trade."

Right now, the QQQ is perhaps looking for this type of stability
from the Dow, to help put a bid under the QQQ and have it firm.

Meanwhile, the INDU is looking back at the QQQ and saying "c'mon
you bugger, I can't hold this market up by myself, I need some
strength from the bottom!"

Thinking like this is where I now place a greater emphasis on the
INDU's WEEKLY Pivot as an important support level, and tie that
to the QQQ's MONTHLY S1, which I deem a rather CRITICAL support
level near-term.

I'm past deadline.  I'll have an SPX chart in the morning, and I
will try and get the weekly Mortgage Banker's Association data
shown tomorrow morning too.  I'm simply out of time!

Still, I think it very important for traders and investors to try
and "feel" the trade ahead, make some observations as we have
tonight, and then define near-term levels as we get more
information, to then act on.

Jeff Bailey


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Emotion and Logic - The Never-Ending Story
by Mark Phillips

Before we even get started today, I have to apologize for not
getting to the followup article from my weekend discussion of the
DOW as it relates to strength in different currencies.  I actually
managed to get most of the article done, but can't seem to keep my
cable modem alive long enough to capture the charts I wanted to
use for illustration.  So I decided to take a detour tonight and
delve into another topic that I think is far more important to our
long-term investing success - that of understanding how human
psychology drives the markets.  Next week, I promise we'll pick up
where we left off on the currency/market issues.

To be a successful investor, it is necessary to have a fundamental
understanding of the philosophy that drives the stock market. The
mass psychology of human nature is the biggest single factor you
must comprehend if you expect to trade profitably on a consistent
basis. This emotional and psychological ingredient doesn't
necessarily have anything to do with the state of the economy, but
it does have an overwhelming affect on the movement of the market.

The first unwritten rule is that rumors are the prime movers of
the stock market. It's amazing how quickly speculation of upcoming
events can change the character of the current trend.  When
investors and analysts begin to discuss bearish trends, the market
generally reacts negatively because the public believes it is
destined for a downturn.  Similarly, we have recently seen the
slightest hint of an economic uptick launch many Technology
related stocks on 200-300% rallies since the March lows.  Is that
logic at work?  I think not.

Serious mention of inflation can cause investors to rush for the
exits in order to dump their holdings.  This type of activity will
often precipitate a general market decline long before the economy
actually changes into that state or condition. The market
anticipates the movement of the economy and shows us in advance
what we can expect with regard to corporate health, unemployment,
interest rates and other financial trends. It is also said that a
crash in the market is foretold by events that are mostly
psychological, not economic.  Sure enough, the euphoria that
preceded the current bear market would have led any new investor
to expect the markets to rise to the sky.  Why didn't they?
Because an extreme emotion cannot be sustained by either an
individual or a group of individuals.  Once that euphoric mood had
affected all those involved, it was bound to dissipate.  As it
began to diminish, investors became increasingly aware of the
lunacy in which they had participated, and each wave of selling
generated more selling.  This created waves like those that
emanate out from a stone dropped in a lake, affecting all those in
the water.

Similarly, the rally of the past year can be attributed to the
same phenomenon.  The pessimism had gotten so thick, you could cut
it with a knife last October and the market and investors needed a
chance to exhale.  Any hint of an economic upturn or even the
promise of a future economic improvement was latched on as the
"reason" to buy stocks.  As it turned out, this was justified to a
certain extent, as the flood of liquidity and government spending
unleashed in the past year has at least given the impression of an
improving economy.  The big question is whether the pendulum has
swung to far towards the optimists and the possibility that a
correction in the emotions of market participants is necessary.

When a major financial report is rumored as favorable, the market
erupts far in advance of the actual announcement.  Rumblings of
interest rate reductions can have the same effect as rocket fuel -
it provides a quick boost until investors come to their senses and
realize the folly of their just-completed buying frenzy.
Similarly, the issue before the markets right now is when will the
Fed start raising interest rates again and the slightest hint of a
change in the assumed timetable can send things reeling.  Not due
to logic, but due to emotions, as investors react in fear or greed
to the most miniscule change in the winds.  Take yesterday's huge
drop in the bond market following the FOMC meeting.  No change in
bias, no change in interest rates and only a slight rewording of
the policy statement that we've seen for months now sent bond
junkies on the biggest one-day selling spree we've seen in months
-- and it all happened in only 30 minutes.

Once the initial surge and consolidation has run its course
though, investors will step back and evaluate the situation in a
more rational  manner.  They are still ruled by their emotions,
but at least they are not completely blinded by them.  If they
believe the economy is about to turn upwards, and more
importantly, that other investors believe the same thing, they
will trample one another in their rush to buy equities.  This in
turn leads to increasing equity prices, fueled by more investors
coming off the sidelines, their greed overwhelming their fears, as
the markets move into rally mode.  Emotion taking precedence over

This all happens before the first signs of true economic recovery.
The recovery in equity prices will begin 1-2 quarters before the
signs of recovery can be seen in the economy.  Investors know
this, and not wanting to be left behind when the market takes off
again, many will follow the emotion of greed and jump into the
markets prematurely, only to be justly punished for their over-
exuberance.  Buying the dips on the way down has decimated many an
investors account, and the psychological beating inflicted by
watching the losses mount, conspires to make investors afraid to
get into the market even when all the signs are positive.  Emotion
rules again.

How about going the other direction?  It works the same way.  How
many bears have been repeatedly run over in the past year, as they
have continued to stubbornly play the short side as their personal
ego/opinion told them that the market just "couldn't" go up.  Each
time those shorts covered, it provided a bit more fuel for the
market to rise.  Logic or emotion?  I say emotion.  The bears
covering are motivated by fear of loss and the bulls continuing to
buy at these nosebleed valuation levels are motivated by greed.
It is hard to justify buying most stocks at current valuation on
any rationale other than the "greater fool theory", as few stocks
are actually being valued as a part of a growing business that
will throw off a consistent cashflow.  If that logic were part of
the equation, then valuations would be significantly lower than
they are now.  That doesn't mean the market can't continue to
rise, but we must understand that it is driven by volatile
emotions (greed and fear) and not by any underlying economic

After having been flattened by the freight train known as a bear
market, many investors will be paralyzed by fear, unable to step
back onto the tracks, even though they can see that the train has
passed.  Afterall, the last time they stepped into the markets
(following the crowd at the last market peak or trying to buy the
dips on the way down), they got flattened.  Just because this
train has passed, doesn't mean there isn't another one speeding
down the track right at that moment.  Not wanting to repeat that
painful experience, they stand on the sidelines, waiting for the
next major pullback to give them the "thumbs up" signal to jump in
with both feet.  Alas, it never seems to look quite good enough to
overcome their fear.  With each pullback that results in markets
running higher, a bit of that fear dissipates, until they finally
have enough courage to overcome their fear.  Sound familiar?  It
shouldn't take a great leap of intellect to see that it works both
ways.  The shorts have been beaten up so many times in the past
year that they've gotten downright timid in their attempts to
drive the market lower.  We might say that each step higher in the
market should logically embolden the bears as the market is thus
that much closer to its elusive top, but the problem is that each
move higher also removes a level of technical resistance, making
it harder for them to show the necessary conviction to take the
big positions.

Let's look at the typical cycle of hope to exuberance to despair,
in order to learn something about how human psychology fits into
the movement of the markets.  After a significant market decline,
all but the most adventurous investors are afraid to venture back
in.  They have had one position after another go bad and have
begun to question their own abilities.  As the bolder investors
venture into the markets near the bottom, the recovery begins
slowly, gradually attracting more players from the sidelines.
Despair begins to give way to hope, as those that were beaten up
by the market on its way down, timidly venture back into the fray.
The cycle begins to feed on itself with increased buying volume
attracting more buyers, which in turn creates more buying volume,
driving prices higher and attracting more buyers.  At the same
time, broad investor sentiment moves from despair to hope to
enthusiasm.  This phase of the market growth cycle is entirely
healthy, but the next step is dangerous.

Investors see everything go up on a weekly basis, and their
enthusiasm gives way to unbridled exuberance.  Everyone is an
equity investor now, buying stocks with abandon and without any
consideration of whether the inflated prices are warranted.
Voices of caution can be heard in the mainstream media, but the
crowd drowns them out, as they believe new market highs will
continue forever, punctuated by brief dips that offer new entry
points.  When investors' emotions have become uniformly bullish,
and they consistently ignore signs of slowing economic growth, we
know the end is near.  If every investor is long the market, who
is left to bid prices still higher?  The first few to jump ship
are ignored by the majority, who "know" that the law of gravity
has been repealed, and that prices will go up indefinitely,
punctuated by brief, inconsequential dips.

Emotions have driven the markets too high, and the inevitable
correction will have the impact of yelling fire in a crowded
theatre.  People can't get out fast enough, and many are trampled
in the panicky process.  The market decline will be met first with
surprise, then disappointment, as investors see support levels
give way to selling pressure in the midst of signs of slowing
economic growth.  That disappointment will give way to despair as
investors who have held onto "invincible" stocks, watch them
crumble to prices they thought would never be seen again.  This
despair feeds on itself and the bulk of investors become myopic,
able only to see gloom and doom around every corner.  When every
one is lined up in the bearish camp, that is where the seeds of a
market recovery are sown.  Hope begins to emerge in select areas,
and the cycle repeats itself.

Those looking for a recent "micro" example need look no further
than Technology stock SNDK over the past couple weeks or shares of
any of the education stocks (APOL, CECO, COC, UOPX, etc.) as the
persistent bullish trends were shattered by rumors and
allegations.  Greed was instantly supplanted by fear of loss and
there was a rush for the exits.  Note that in both cases it was a
matter of price action being ruled by emotions, not logic.
Looking to the end of that cycle, can we maybe make the inference
that at some point early next year, some of these stocks might
make attractive bargains for investors that can sniff out the
underlying values in the wake of the emotional orgy that has
driven them lower?  It certainly merits consideration.

Once again, emotion trumps logic.  But there is the seed of
opportunity for sharp-eyed investors.  If you can perform your
analysis devoid of human emotion, then you know that your
decisions are based on logic.  Selecting stocks that should lead
an economic recovery is only the first step.  The next, and
perhaps more important step is to identify what I call the
"Pinnacle of Fear" in the market.  This is the confluence of
events that has driven all but the strongest hands out of
equities, allowing those of us with vision to step forward and
scoop up bargains at nearly every turn.  It sounds so easy and is
likely one of the hardest things to practice, because it means
that you have to step forward and hit the "Buy" button when all
those around you are screaming that the sky is falling.

Separating your logical market analysis from the emotions present
in the daily gyrations of the market is one of the most difficult
(and important) tasks that will face an investor.  It is a long
process and requires much work (heck, I'm still working on it!),
but the rewards far exceed the price because it allows you to know
that your actions are  based on the bedrock of solid knowledge,
not the shifting sands of group psychology.  A key to this process
on a daily and weekly basis is to perform your research and
analysis when the markets are closed, with the evidence upon which
you will base your decision sitting before you in black and white.
Whether that evidence is fundamental or technical (depending on
your individual preference), if we each take responsibility for
our own analysis, and do it in the absence of real-time market
noise, we are far less apt to make rash decisions with our
investment capital.

So emotion trumps logic over the near term.  But here's where the
rubber meets the road.  Over the long term, logic will win,
meaning that the markets will rise so long as earnings are
growing, and fall if earnings are falling.  But if you can stand
aside from the emotional masses without having your decision-
making process affected by them, it will allow you to buy near the
emotional troughs (extreme depression) and sell near the emotional
peaks (extreme optimism), supercharging your investment results
over a lifetime in the markets.  And that will produce the most-
desired emotion (feeling) of which I am aware -- Security.

Have a great week!



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Contact Support
The Option Investor Newsletter                Wednesday 12-10-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: QLTI, AVID
Dropped Calls: DHR
Dropped Puts: None
Play of the Day: Put - AVID
Spreads, Combinations & Premium-Selling Plays: Stocks Drift Lower
    Amid Cautious Outlook
Watch List: To Go Long or Short?
Market Posture: Traders are still FED-up


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QLTI (call) raise stop from 16.99 to 17.49

AVID (put)lower stop from 51.00 to 50.25


Danaher Corp - DHR - close: 82.70 chg: -1.15 stop: 82.49

We were expecting a headline or two out of DHR's annual
shareholder meeting today and the company reaffirmed its fiscal
year 2003 guidance.  Unfortunately that was not enough for
investors and the selling that began yesterday continued today.
The low for the session was 82.35, stopping us out at 82.49.
DHR's short-term rising channel that began mid-November is broken
and the strong volume on the last two days of selling might
suggest there is more to come.  Bulls can hope for support at
DHR's 50-dma but we would expect a test of the $80 level.

Picked on November 23 at $81.95
Change since picked:     + 0.75
Earnings Date          10/16/03 (confirmed)
Average Daily Volume:       829  thousand
Chart =




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Avid Technology - AVID - cls: 45.53 chng: -1.07 stop: 50.25 *new*

-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.

- Most Recent Update (Tuesday, Dec. 02, 2003) -
Look out below!  AVID offered up a really tasty entry point this
morning for those willing to take it before our official $47
trigger was hit.  The stock pushed up to kiss $50 resistance and
was firmly rejected right there at the converged 10-dma ($50.21)
and 20-dma ($50.45).  The stock quickly fell back from there,
finally satisfying our trigger during the lunch hour and then
closing right at its low of the day.   This represents a complete
break of the support that has been holding for the past several
weeks and with volume running nearly double the ADV, it looks
like the beginning of a solid breakdown.  There is potential
support near $45 and then again at $43, but we're viewing those
levels only as potential bounce points on the way to our $40
target.  Aggressive traders can consider new entries on a break
below today's low, while those looking for a more conservative
entry will want to target a failed bounce below $50 now that the
PnF chart has issued a fresh Sell signal with a tentative price
target of $38.  Lower stops to $51, which is just above today's
intraday high, as well as the 10-, 20-, 30- and 100-dmas.

- Play of the Day Comments -
Shares of AVID saw additional selling today to confirm
yesterday's high volume breakdown below support.  The stock
actually traded to $44.65 midday before some last hour buying
lifted it from its lows.  We like the continued sell off but
traders might want to look for a short-term oversold bounce-
failed rally set up near the 47-48 region.  Its MACD indicator
is growing more bearish.  Note that we are lowering our stop loss
to 50.25.

- 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.

BUY PUT JAN 50 AQI-MJ OI=182 at $6.10 SL=4.00
BUY PUT JAN-45*AQI-MI OI=236 at $3.10 SL=1.50

Annotated Chart:

Picked on December 9th at     $47.00
Change since picked:           -1.47
Earnings Date                1/15/04 (unconfirmed)
Average Daily Volume =         637 K
Chart =


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option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for

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Stocks Drift Lower Amid Cautious Outlook
By Ray Cummins

The major equity averages lingered in the red for most of the
session Wednesday as investors sifted through the FOMC's newest
comments about the condition of the U.S. economy.

The Dow Jones Industrials closed down 1 point at 9,921 after
recovering from a 40 point slide in late-afternoon trading.
Among the best performing issues were International Business
Machines (NYSE:IBM), SBC Communications (NYSE:SBC) and Altria
Group (NYSE:MO).  The technology segment saw similar activity,
with a late-session slump followed by a recovery at the close.
The NASDAQ composite finished 3 points lower at 1,904.  The
broader S&P 500 index slid 1 point to 1,059 with oil service
stocks standing out among the few bullish sectors.  Trading
volume was 1.41 billion shares on the Big Board, where losing
issues outpaced gaining stocks better than 3 to 2.  The NASDAQ
saw 1.93 billion shares change hands with decliners doubling
advancers 2 to 1.  The bond market closed with gains across the
yield curve and the 10-year note up 9/32, bringing its yield
down to 4.31%.




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.


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

Naked Puts

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

AMAT     DEC    22    22.05  21.36   (0.69)  0.00%   0.00%
EYE      DEC    20    19.65  24.05    0.35   5.21%   1.78%
ICOS     DEC    35    34.55  40.81    0.45   3.81%   1.30%
NVLS     DEC    40    39.20  39.00   (0.20)  0.00%   0.00%
PHTN     DEC    35    34.25  36.83    0.75   5.41%   2.19%
PMCS     DEC    17    17.10  17.66    0.40   6.88%   2.34%
ANPI     DEC    40    39.05  48.24    0.95   7.86%   2.43%
APPX     DEC    25    24.55  34.60    0.45   6.28%   1.83%
EASI     DEC    42    42.68  60.56    0.70   4.74%   1.64%
GPRO     DEC    25    24.65  30.75    0.35   4.88%   1.42%
INSP     DEC    22    21.85  23.51    0.65   8.33%   2.97%
MGAM     DEC    35    34.60  37.24    0.40   4.33%   1.16%
NEM      DEC    42    41.60  47.77    0.90   5.61%   2.16%
NVLS     DEC    37    36.95  39.00    0.55   4.49%   1.49%
PHS      DEC    50    49.40  65.05    0.60   3.91%   1.21%
UTSI     DEC    30    29.65  36.52    0.35   3.83%   1.18%
APPX     DEC    30    29.50  34.60    0.50   7.22%   1.69%
BRCM     DEC    32    32.10  32.78    0.40   4.65%   1.25%
EASI     DEC    47    46.08  60.56    0.55   4.75%   1.19%
GPRO     DEC    30    29.60  30.75    0.40   5.21%   1.35%
PHTN     DEC    35    34.60  36.83    0.40   4.79%   1.16%
BRCM     DEC    32    32.25  32.78    0.25   4.27%   0.78%
EASI     DEC    50    49.45  60.56    0.55   6.30%   1.11%
FCS      DEC    22    22.25  22.99    0.25   6.38%   1.12%
KMRT     DEC    30    29.50  26.25   (1.65)  0.00%   0.00% *
MICC     DEC    65    64.35  71.00    0.65   6.05%   1.01%
ONXX     DEC    25    24.65  26.90    0.35   7.96%   1.42%
RMBS     DEC    25    24.60  28.40    0.40  10.03%   1.63%
TELK     DEC    20    19.75  21.60    0.25   6.66%   1.27%

Tuesday's sell-off made a number of positions "early-exit"
candidates and the majority of the issues in the portfolio
are on the "watch" list.  Among the obvious laggards are:
Applied Materials (NASDAQ:AMAT), Broadcom (NASDAQ:BRCM),
Fairchild Semi (NYSE:FCS), Novellus (NASDAQ:NVLS), Photon
Dynamics (NASDAQ:PHTN), and PMC Sierra (NASDAQ:PMCS).
Kmart's (NASDAQ:KMRT) quarterly earnings announcement was
last Friday and the sharp drop in the stock price, below
the sold (put) strike at $30, forced a quick exit in the
new position.  The summary reflects the closing debit as
of 12/05/03.

Naked Calls

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

IACI     DEC    37   35.90  29.48    0.40   3.22%    1.11%
WEBX     DEC    25   25.30  17.37    0.30   5.79%    1.19%
MERQ     DEC    50   50.40  45.67    0.40   3.21%    0.79%
SEPR     DEC    27   27.75  24.37    0.25   5.36%    0.90%
TTWO     DEC    40   40.40  29.11    0.40   5.84%    0.99%
CVTX     DEC    25   25.40  12.22    0.40  13.63%    1.57%
TTWO     DEC    37   37.95  29.11    0.45   6.65%    1.19%
CERN     DEC    50   50.30  37.43    0.30   6.08%    0.60%
CVTX     DEC    25   25.45  12.22    0.45  21.60%    1.77%
HYSL     DEC    35   35.40  30.24    0.40   6.95%    1.13%

Put-Credit Spreads

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

KLAC    60.08  53.20   DEC  50  55   0.75  54.25  (1.05) Closed
MIK     50.55  43.20   DEC  42  45   0.30  44.70  (0.95) Closed *
SMH     44.65  39.40   DEC  37  40   0.25  39.75  (0.35) Closed
BRCM    34.62  32.78   DEC  27  30   0.25  29.75   0.25   Open
BRL     81.14  82.00   DEC  70  75   0.50  74.50   0.50   Open
TOL     38.27  39.45   DEC  30  35   0.55  34.45   0.55   Open
TARO    68.59  68.80   DEC  60  65   0.45  64.55   0.45   Open
TECD    36.13  35.44   DEC  30  35   0.60  34.40   0.60   Open?
HAR     71.90  69.63   DEC  62  65   0.25  64.75   0.25   Open
SCHN    49.98  55.20   DEC  40  45   0.55  44.45   0.55   Open

KLA-Tencor (NASDAQ:KLAC) became the second "early-exit" victim
in Wednesday's credit-spreads portfolio for December when the
issue slumped in conjunction with Tuesday's broad retreat.  Our
recent watch-list candidate; Michael's (NYSE:MIK), was the first
loser as it closed below the sold (put) strike at $45 during
last Friday's sharp downdraft.  The portfolio summary reflects
the closing debit on 12/05/03.

Call-Credit Spreads

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

NE      33.79  36.96   DEC  37  35   0.40  35.40 ($1.56) Closed
HDI     45.17  46.14   DEC  50  47   0.25  47.75  $0.25   Open
SYMC    30.17  32.18   DEC  35  32   0.40  32.90  $0.40  Closed
AMGN    58.14  57.93   DEC  65  60   0.65  60.65  $0.65   Open
SNPS    29.57  31.79   DEC  35  32   0.25  32.75  $0.25   Open
AMZN    51.51  49.34   DEC  60  55   0.55  55.55  $0.55   Open
ERTS    42.27  41.43   DEC  47  45   0.25  45.25  $0.25   Open

The bearish position in Noble (NYSE:NE) was a casualty of the
recent surge in oil service shares and although last week's
rally helped our bullish spreads in that group, we were forced
to close the play on Friday for a smaller than published loss.
Fortunately, we recouped that loss this week with a synthetic
position (12/7 Spreads/Combos) in Noble.  Symantec (NASDAQ:SYMC),
although now profitable, has previously been closed to limit
potential losses.

Synthetic Positions

No Open Positions

Debit Straddles

No Open Positions

Questions & comments on spreads/combos to Contact Support


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



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


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.

AMHC - American Healthways  $47.70  *** Near All-Time Highs! ***

American Healthways (NASDAQ:AMHC) is the nation's leading and
largest provider of specialized, comprehensive care enhancement
services to hospitals, physicians and health plans.  In addition,
American Healthways is the only company in its industry whose
programs are designed to meaningfully address the needs of 100%
of its customer populations.  The clinical excellence of the
firm's programs have been reviewed and approved by Johns Hopkins,
and their quality has been recognized by the National Committee on
Quality Assurance, the Joint Commission on Accreditation of Health
Care Organizations, and the American Accreditation Health Care
Commission, making American Healthways the first and only care
enhancement provider in the nation to be accredited or certified
by all three organizations.  American Healthways contracts to
provide disease and care management programs to health plans with
members in all 50 states, the District of Columbia and Puerto Rico.
The company also operates diabetes management programs in hospitals

AMHC - American Healthways  $47.70

PLAY (sell naked put):

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

SELL PUT  DEC 45    QMH XI      72   0.30  44.70   6.1%   0.7% *
SELL PUT  JAN 45    QMH MI      47   1.35  43.65   6.1%   3.1%

FRX - Forest Labs  $57.51  *** Rally Mode! ***

Forest Laboratories (NYSE:FRX) develops, manufactures and sells
both branded and generic forms of ethical drug products that
require a physician's prescription, as well as non-prescription
pharmaceutical products sold over-the-counter.  The company's
most important U.S. products consist of branded ethical drug
specialties marketed directly, or "detailed," to physicians by
its Forest Pharmaceuticals, Therapeutics and Specialty sales
forces.  The company's many products include those developed by
Forest and those acquired from other pharmaceutical companies
and integrated into Forest's marketing and distribution systems.
Principal products include Celexa, an SSRI for the treatment of
depression; the respiratory products Aerobid and Aerochamber;
Tiazac, a once-daily diltiazem for the treatment of hypertension
and angina; and Infasurf, a lung surfactant for the treatment and
prevention of respiratory distress syndrome in premature infants.

FRX - Forest Labs  $57.51

PLAY (sell naked put):

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

SELL PUT  DEC 55    FHA XK    3058   0.30  54.70   4.9%   0.5% *
SELL PUT  JAN 55    FHA MK    4096   1.00  54.00   3.7%   1.9%

NPSP - NPS Pharmaceuticals  $31.61  *** Drug Speculation! ***

NPS Pharmaceuticals (NASDAQ:NPSP) is a biopharmaceutical company
engaged in discovering, developing and commercializing small
molecule drugs and recombinant proteins.  The company's product
candidates are primarily for the treatment of bone and mineral
disorders, gastrointestinal disorders and central nervous system
disorders.  NPS Pharmaceuticals has three product candidates in
active clinical development and several pre-clinical product

NPSP - NPS Pharmaceuticals  $31.61

PLAY (sell naked put):

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

SELL PUT  DEC 30    QKK XF    1212   0.25  29.75   7.4%   0.8% *
SELL PUT  JAN 30    QKK MF      54   1.20  28.80   7.8%   4.2%

NTLI - NTL Incorporated  $66.10  *** Up, Up And Away! ***

NTL Incorporated (NASDAQ:NTLI) provides communications services
to residential, business and wholesale customers.  The company
offers residential telephony, cable television and Internet
access services.  NTL also provides national and international
carrier telecommunications, satellite and radio communications,
as well as digital and analog television and radio broadcast
transmission services.

NTLI - NTL Incorporated  $66.10

PLAY (sell naked put):

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

SELL PUT  DEC 60    NUD XL    2632   0.35  59.65   5.7%   0.6% *
SELL PUT  JAN 55    NUD MK     512   1.05  53.95   5.1%   1.9%
SELL PUT  JAN 60    NUD ML      12   2.00  58.00   7.2%   3.4%

ONXX - Onyx Pharmaceuticals  $26.54  *** Entry Point? ***

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

ONXX - Onyx Pharmaceuticals  $26.54

PLAY (sell naked put):

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

SELL PUT  DEC 25    OIQ XE    1502   0.30  24.70  10.8%   1.2%
SELL PUT  JAN 22.5  OIQ MX       9   0.50  22.00   5.7%   2.3% *
SELL PUT  JAN 25    OIQ ME     531   1.05  23.95   8.3%   4.4%

QCOM - Qualcomm  $48.75  *** New Trading Range? ***

Qualcomm (NASDAQ:QCOM) is a developer and supplier of code division
multiple access (CDMA)-based integrated circuits and system software
for wireless voice and data communications and global positioning
system (GPS) products.  Qualcomm offers complete system solutions,
including software and integrated circuits for wireless handsets and
infrastructure equipment.  This complete system solution approach
provides customers with advanced wireless technology and enhanced
component integration and interoperability, as well as reduced time
to market.

QCOM - Qualcomm  $48.75

PLAY (sell naked put):

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

SELL PUT  DEC 47.5  AAO XW    6895   0.50  47.00   9.0%   1.1%
SELL PUT  JAN 45    AAO MI   21918   0.70  44.30   3.4%   1.6% TS
SELL PUT  JAN 47.5  AAO MW    4026   1.45  46.05   5.9%   3.1%

RMBS - Rambus  $27.93  *** Entry Point? ***

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

RMBS - Rambus  $27.93

PLAY (sell naked put):

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

SELL PUT  DEC 25    BNQ XE   10235   0.50  24.50  19.4%   2.0%
SELL PUT  JAN 20    BNQ MD    9200   0.50  19.50   6.6%   2.6% *
SELL PUT  JAN 22.5  BNQ MX    3883   1.00  21.50  11.9%   4.7%



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

NBIX - Neurocrine Biosciences  $53.83  *** Next Leg Up? ***

Neurocrine Biosciences (NASDAQ:NBIX) is a unique, product-based
biopharmaceutical company focused on neurological and endocrine
diseases and disorders.  Their product candidates address some
of the largest pharmaceutical markets in the world including
insomnia, anxiety, depression, diabetes, multiple sclerosis,
irritable bowel syndrome, eating disorders, pain, autoimmunity
and certain female and male health disorders.  The company has
a large number of programs in various stages of research and
clinical development.  Its lead clinical development program is
indiplon, a drug for the treatment of insomnia that is being
evaluated in Phase III clinical trials.  The company's other
products under clinical development are altered peptide ligand,
gonadotropin-releasing hormone antagonist, interleukin 4 fusion
toxin and corticotropin-releasing factor.

NBIX - Neurocrine Biosciences  $53.83

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-45.00  UOT-MI  OI=10  ASK=$0.30
SELL PUT  JAN-50.00  UOT-MJ  OI=90  BID=$0.95
POTENTIAL PROFIT(max)=15% B/E=$49.35

NE - Noble Corporation  $37.01  *** 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  $37.01

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-32.50  NE-MZ  OI=641   ASK=$0.25
SELL PUT  JAN-35.00  NE-MG  OI=8877  BID=$0.55
POTENTIAL PROFIT(max)=14% B/E=$34.70

WGO - Winnebago  $60.60  *** All-Time High! ***

Winnebago Industries (NYSE:WGO) is a United States manufacturer of
motor homes, self-contained recreation vehicles used primarily in
leisure travel and outdoor recreation activities.  Motor home sales
by the company represent more than 86% of its revenues.  Winnebago
motor homes are sold through dealer organizations, primarily under
the Winnebago, Itasca, Rialta, and Ultimate brand names.  Other
products manufactured by the company consist primarily of extruded
aluminum, commercial vehicles, and a variety of component products
for other manufacturers.  Finance revenues consist of profits from
floor plan unit financing for a limited number of the company's

WGO - Winnebago  $60.60

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-50.00  WGO-MJ  OI=115  ASK=$0.30
SELL PUT  JAN-55.00  WGO-MK  OI=270  BID=$0.75
POTENTIAL PROFIT(max)=11% B/E=$54.50



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


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

AZO - Autozone  $80.24  *** Sell-Off In Progress! ***

AutoZone (NYSE:AZO) is a specialty retailer of automotive parts
and accessories primarily to do-it-yourself customers.  During
the fiscal year ended August 31, 2002, the company operated 3,068
auto parts stores in the United States and 39 in Mexico.  It also
sells parts and accessories online at autozone.com.  Each auto
parts store carries an extensive product line for cars, vans and
light trucks, including new and remanufactured automotive parts,
maintenance items and various accessories.  AutoZone also has a
commercial sales program in the United States, AZ Commercial,
which provides commercial credit and prompt delivery of parts and
other products to local, regional and national repair garages,
dealers and service stations.  In addition, the company sells
automotive diagnostic and repair software through ALLDATA and
through alldatadiy.com.

AZO - Autozone  $80.24

PLAY (sell naked call):

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

SELL CALL  DEC 85    AZO LQ     404   0.35  85.35   4.3%   0.4% *
SELL CALL  DEC 80    AZO LP     382   2.00  82.00  19.7%   2.4%
SELL CALL  JAN 85    AZO AQ       0   1.60  86.60   4.4%   1.8%

MRVL - Marvell Technology  $36.14  *** In A Trading Range? ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.

MRVL - Marvell Technology  $36.14

PLAY (sell naked call):

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

SELL CALL  DEC 37.5  UVM LU   1,189   0.45  37.95  11.2%   1.2%
SELL CALL  JAN 40    UVM AH     805   0.75  40.75   5.3%   1.8% *
SELL CALL  JAN 37.5  UVM AU     164   1.55  39.05   8.4%   4.0%

TTWO - Take-Two Int. Software  $28.21  *** The Slump Continues! ***

Take-Two Interactive Software (NASDAQ:TTWO) is an integrated
developer, marketer, distributor and publisher of interactive
entertainment software games and accessories for the personal
computer, PlayStation, PlayStation2, Nintendo Game Boy Color,
Nintendo GameCube, Nintendo Game Boy Advance and the Xbox.  The
company publishes and develops products through various wholly
owned subsidiaries including Rockstar Games, Rockstar Studios,
Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star
and under the Take-Two brand name.  The company maintains sales
and marketing offices in Cincinnati, New York, Toronto, London,
Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland.

TTWO - Take-Two Int. Software  $28.21

PLAY (sell naked call):

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

SELL CALL  DEC 32.5  TUO LZ   5,336   0.25  32.75  11.7%   0.8% *
SELL CALL  DEC 30    TUO LF     811   0.70  30.70  23.2%   2.3%
SELL CALL  JAN 35    TUO AG     912   0.45  35.45   5.9%   1.3%



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

COF - Capital One  $55.30  *** Profit-Taking In Progress! ***

Capital One Financial (NYSE:COF) is a holding company whose major
subsidiaries market a variety of financial products and services
to consumers using its proprietary information-based strategy.
The company's primary business is consumer lending, with a focus
on credit cards, but including other consumer lending activities
such as unsecured installment lending and automobile financing.
The company's principal subsidiary, Capital One Bank, a limited
purpose, state-chartered credit card bank, offers credit card
products.  Capital One, F.S.B., a federally chartered bank, offers
consumer lending and deposit products.  Capital One Services, the
other major subsidiary, provides various operating, administrative
and business services to the company and its subsidiaries.

COF - Capital One  $55.30

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-65.00  COF-AM  OI=5424  ASK=$0.25
SELL CALL  JAN-60.00  COF-AL  OI=6760  BID=$0.85
POTENTIAL PROFIT(max)=15% B/E=$60.65

POWI - Power Integrations  $31.41  *** Technical Break-Down? ***

Power Integrations (NASDAQ:POWI) designs, develops, manufactures
and markets proprietary, high-voltage, analog integrated circuits
for use primarily in alternating current to direct current power
conversion.  The firm's products address market segments including
communications, consumer, computer and industrial electronics.
The company's high-voltage power conversion ICs include TOPSwitch,
TinySwitch, LinkSwitch and DPA-Switch.  Since introducing its
TOPSwitch family of products in 1994, the company has shipped into
the market approximately 890 million ICs.  These ICs achieve a high
level of system integration by combining a number of electronic
components into a single IC.

POWI - Power Integrations  $31.41

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-40.00  QPW-AH  OI=703   ASK=$0.35
SELL CALL  JAN-35.00  QPW-AG  OI=1024  BID=$1.05
POTENTIAL PROFIT(max)=16% B/E=$35.70

SRCL - Stericycle  $44.20  *** A Big "Down" Day! ***

Stericycle (NASDAQ:SRCL) is a leading provider of waste management
services in the United States.  Stericycle operates on a regional
basis and internationally, providing waste collection, treatment,
and disposal services.  The company also has a fully integrated,
national medical waste management network.  Stericycle's network
includes 36 treatment/collection centers and 94 additional transfer
and collection sites.  The firm uses the network to provide medical
waste collection, transportation and treatment and many related
consulting, training and education services and products.  The
firm's Stericycle's treatment technologies include its proprietary
electro-thermal-deactivation system (ETD), as well as traditional
methods, such as autoclaving and incineration.

SRCL - Stericycle  $44.20

PLAY (speculative - bearish/credit spread):

BUY  CALL  DEC-50.00  URL-LJ  OI=274  ASK=$0.15
SELL CALL  DEC-45.00  URL-LI  OI=69   BID=$0.55
POTENTIAL PROFIT(max)=9% B/E=$45.45




Watch List

To Go Long or Short?

Toro Co - TTC - close: 45.16 change: -3.02

WHAT TO WATCH: Shares of TTC fell right to support at $45.00 as
investors took profits after the company announced earnings.
Results were good with a 12% increase in net income and the
company raised guidance for 2004 where they expect a 10% jump in
earnings on 8% growth in sales.  Unfortunately they expect the
first quarter next year to be a tough one.  Keep an eye on TTC.
Shares could easily bounce from $45, which coincides with its
rising long-term trendline.  If it breaks $45, then look for more
support at 42.50 (resistance last July) and its 200-dma.  If
you're really patient wait and see if it pulls back to $40.



O'Reilly Automotive - ORLY - close: 40.03 change: -2.62

WHAT TO WATCH: The car wreck in shares of AutoZone today
reverberated across the group and rival ORLY felt some of AZO's
sting.  The pull back in ORLY broke its 50-dma but stalled at
round-number support resistance of $40.00.  The stock looks prone
to more profit taking but we would watch further weakness under
the $40 level.



Labranche & Co - LAB - close: 9.82 change: +0.53

WHAT TO WATCH: It's been a pretty rough year for LAB.  Earnings
announced in October had dropped 40% from the previous year.  The
company suspended its dividend program for the foreseeable future
until profitability was back inline.  Soon thereafter the SEC
subpoenaed the company along with several other specialist firms
over trading violations.  Less than two weeks after the SEC news
LAB's CEO resigned.  After all the bad news it looks like LAB may
have finally hit bottom.  Its low last month was $7.40.  Now the
stock is approaching psychological support-resistance at $10.00
and its 50-dma just above there near resistance at $11.00.  Can it



Netease.com - NTES - close: 38.96 change: -0.85

WHAT TO WATCH: Previous high-flyer Chinese Internet stock NTES is
getting a price readjustment.  After reporting earnings back in
October the stock has suffered steady declines as traders take
profits.  The recent bounce from its October lows near $40.00
support failed at the descending 30-dma.  Now the stock has
broken $40.00 and touched its 200-dma today.  The $40 mark is a
key level because it also represents the 50% retracement of its
$10 to $70 run.  A break under its 200-dma could easily lead to a
test of $35 if not $30.00.  Trade with caution!



Digital River - DRIV - close: 23.35 change: +1.41

WHAT TO WATCH: DRIV might be attempting a comeback.  Share are
trading just above its 50% retracement of its March '03 lows to
its October '03 highs.  Oscillators are turning bullish again and
a move back over the $25.00 mark might be a potential entry point
for new long positions.


RADAR SCREEN - more stocks to watch

CDWC $57.40 -0.45 - We mentioned CDWC in the MarketMonitor today
after the stock broke support at $57.50.  Shares should test the
$55 level and might consolidation to stronger support near

SINA $31.09 -0.57 - We'd keep an eye on SINA too.  If the stock
breaks $30.00-29.50 it could consolidate back to its 200-dma near


Traders are still FED-up
by - Nich Sheldon

A quick once over on today's closing prices for the indexes and it
is easy to see that sellers outnumbered buyers by more than a 2:1
ratio.  Only seven indexes closed higher on the day and only one
of those indexes managed to move more than one percent higher.

The SOX Semiconductor Index was the only index to close more than
one percent higher, as it gained +1.21 percent by the closing
bell.  Traders should note that today's gains were not enough to
push the SOX back over it's 20-DMA and the MACD is still in bear
territory.  We're still cautious on the SOX.  The index lost 10%
in the last six sessions and today could be an oversold bounce.

Out of our 20 losing indexes the DJUSHB DJ US Home Construction
Index took the hardest hit on Wednesday, nearly falling to its gap
higher open on October 28th, 2003.  The DJUSHB fell -5.29 percent
on the day but stopped above the 550 level and its simple 50-DMA.

Gold bugs took the second hardest hit of the day, as the XAU Gold
and Silver Index fell -4.44 percent.  Today marks the third
consecutive day of loses for the index.  Together the recent
weakness has produced a new sell signal in its MACD indicator.

The only other index to lose more than two percent was the DDX
Disk Drive Index, which fell -2.33 percent.


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