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Daily Newsletter, Thursday, 12/11/2003

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The Option Investor Newsletter                Thursday 12-11-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Santa Came Early
Futures Markets: Summit Push Part Deux
Index Trader Wrap: Two paragraphs have Dow closing above 10,000
Market Sentiment: Party Like It's 1999


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      12-11-2003           High     Low     Volume Advance/Decline
DJIA    10008.16 + 86.30 10026.53  9920.97 1.70 bln   2231/ 899
NASDAQ   1942.32 + 37.70  1945.92  1903.93 1.74 bln   2258/ 851
S&P 100   530.16 +  4.83   531.44   525.33   Totals   4489/1750
S&P 500  1071.21 + 12.16  1073.63  1059.05
W5000   10430.54 +134.80 10448.80 10295.70
RUS 2000  542.92 + 14.43   542.93   528.49
DJ TRANS 2965.90 + 53.20  2970.09  2910.84
VIX        16.74 -  1.13    17.95    16.51
VXO (VIX-O)15.86 -  1.47    17.16    15.66
VXN        26.44 -  1.40    28.05    26.34
Total Volume 3,812M
Total UpVol  3,286M
Total DnVol    472M
52wk Highs  456
52wk Lows    36
TRIN       0.45
NAZTRIN    0.38
PUT/CALL   0.66
************************************************************

Santa Came Early

Nobody really knows why but Santa came early to the markets
and left a load of goodies for all the nice bulls. The Dow
opened up and never looked back and there were as many
excuses as there were points on the board but the bottom
line was a complete lack of sellers.


Dow Chart - Daily


Nasdaq Chart - Daily



This bullish bounce was surprising on the surface because
the primary economic report for the day was negative. The
Jobless Claims jumped to 378,000 for the week and the first
time over 370,000 since mid October. On the surface this
would appear negative as the second consecutive weekly gain
but analysts were quick to dismiss the number as skewed by
the Thanksgiving holiday. They felt many newly unemployed
workers may have put off applying for benefits during the
holiday week and that pushed the current reporting week
higher. For the first time in recent memory the prior
week's number at 365,000 was not revised upward. The four
week average moved up to 364,750 and continuing claims
rose to 3,346,000. The Jobless Claims were ignored despite
it being the highest number in six weeks. When the bulls
want to buy do not confuse them with the facts.

Helping boost the sentiment was a larger than expected
bounce in the Retail Sales for November by +0.9%. The
consensus had been for only a +0.6% gain. While this is
still well off the highs from the summer there were worries
that it could have been worse. Auto related sales boosted
the headline number which would have been only +0.4%
without autos. Helping build investor confidence was the
+7% increase in year over year sales and suggests that
this holiday season will be the best since 1999. This is
contrary to the recent dire predictions of retail weakness.
This turnaround in retail sentiment helped inspire traders
and put the spirit of Christmas into their holiday stock
shopping.

The Business Inventory number rose by +0.4% for October
and was twice the consensus estimates. This was the second
month of gains for inventories and sales rose at an even
faster rate at +0.7%. This pushed the inventory to sales
ratio to 1.35 and an all time low. This suggests that the
4Q GDP could already be building to stronger than expected
levels.

The last economic report was the Import and Export Prices
which rose unexpectedly by +0.4%. While the FOMC minutes
discussed below claim there is no danger of inflation there
are several signs of the inflation monster creeping back
into the picture. Import and Export Prices is one of them.
A +1.1% increase in petroleum prices helped fuel the
headline number but ex-energy the prices still rose +0.3%
overall.

The biggest impact to the market came from the FOMC minutes
for October that were released at 2:PM. The outlook expressed
in the minutes was for continued growth and shock that
the growth was so strong in the 3Q. However, there were
some surprises. Some of the members expressed willingness
to change the bias if the economy continued to strengthen
in the 4Q. We saw that morphing of the bias in the Dec-9th
announcement when they tied inflation to that considerable
period statement.

Other surprising views included a doubt that employment
will rise substantially until LATE 2005. This is a huge
change in expectations. Last month we had every Fed head
on the panel making speeches about growing employment
and how jobs will follow the recovery. Nobody said they
would follow two years later. The other statement causing
excitement was a very distant view of any inflation problem.
They felt the economy was growing too slow to produce any
inflationary conditions for quite some time. This was
interpreted by many as late 2004 or even early 2005.
This was a huge positive for the market. With the bond
market keying on jobs as the primary reason for the Fed
to not raise rates and inflation not expected to be a
problem for a long time the obvious conclusion was the
Fed is not going to raise rates for an even longer period
than originally thought. I had mentioned earlier that due
to the election any hike had to be in March or before
and after today's Fed minutes release it is extremely
unlikely that hike will happen. The conventional wisdom
tonight is no rate hikes until 2005. We speculated about
this last week and now it almost appears to be a sure
thing. If there was any bad news it was the traders
pricing this into the market and setting themselves up
for a monster disappointment if conditions suddenly
change in March.

Overall the Fed was very optimistic about the economic
outlook but almost unbelievably calm about the potential
for inflation. If you believe them inflation is on
hold until after the election. Quite a coincidence. They
feel business spending is filling the gap the consumer
created in the 4Q and will continue to grow. The biggest
shocker was their outlook was so far reaching going to
late 2005 in some areas and they were not seeing any
need to make changes for quite some time. This is a
major relief to the bond market and to the equity
market. Thank you Santa.

Tech stocks got a boost from Cisco after CEO Chambers
said they were seeing a rise in orders and a rise in
budgeting for 2004. PC box makers also got a boost
from an IDC survey that said PC shipments for 2003 are
going to be +9% higher than 2000, which was a record
year and +11.4% over last year. Notebook computers are
the hot item with desktops lagging. Dell said customer
traffic for the first week of December totaled nearly
five million visitors compared to only four million in
the same week last year. HPQ CEO Carly Fiorina also
said this week that holiday sales were going well.

I have mentioned this several times in the past but I
think it bears repeating. I think the PC makers are all
beating each other up on price point and nobody is really
making any real money. We bought two 2.0GHZ computers
over the last couple weeks to replace some Y2K 600mhz
models. We paid $289 plus shipping for 2.0GHZ Intel,
256MB ram, 40GB disk and all the bells and whistles.
(no monitor) Considering the computers I replaced cost
me over $2000 each three years ago where is the profit?
Using the ratios above the box makers have to sell seven
boxes today to equal the gross revenue of only one box
three years ago. Like the HWP CEO said last week, Dell
is trapped in an ever increasing price/commodity struggle
with no way out. While that is obviously a biased view it
does have a lot of truth. This is why Dell and others are
rapidly trying to branch out into consumer electronics,
cameras, printers, plasma TVs, etc. Computers have no
profit left and they have to sell 25% more each quarter
just to break even. If it were not for the boom in
notebooks the PC makers would be in serious trouble.

Despite the problem mentioned above the tech stocks took
off on the double dose of good news about rising IT budgets
and higher PC shipments. The SOX bounced +2.54% on the
news that Taiwan Semiconductor said 4Q sales would beat
forecasts and hit a record high. This was an unusual move
and came on the heals of cautious comments on Tuesday by
TSM and United Microelectronics that November sales would
be flat or down from October. The semiconductor sector
had dropped strongly on the earlier news and TSM sought
to correct the impression that business was bad. I guess
it is all in how you report the numbers. November could
be flat to down but maybe it was flat to down from a
strong October. Maybe December orders surged strongly.
It just seems strange to caution on Tuesday and then
guide higher on Thursday.

The markets blasted out of the gate this morning and the
Dow came very close to 10,000 at 9993 but was unable to
break that psychological level. The Dow traded sideways
with a very slight negative trend until the ten-year note
auction concluded badly and it dropped to near 9960. When
the Fed minutes were released and investors got a glimpse
of a distant future without rate hikes and no inflation
it was too much for those undecided investors to take.
The Dow surged to break 10K and traded over that level
into the close. While the close over 10K was the first
close over that level since May-24th 2002 it was barely
convincing. The 10026 high lasted for about 20 min before
the profit taking began. Even then it was very light profit
taking and they managed to hold the 10K level. The Nasdaq
tacked on +37 points but was unable to touch the 1950
resistance level.

In reality neither the drop yesterday or the bounce today
is relative to anything but the reporters. According to
sources that claim to know there was a large mutual fund
unloading some major positions on Tue/Wed after the first
touch of 10,000. They concluded their selling yesterday
afternoon and the rebound began. This makes sense to what
we saw intraday today. The market did not move up prior
to the FOMC minutes in normal fashion. The gains were
slow and methodical with no bouts of selling. There were
only a couple of noticeable buy programs and no sell
programs. In fact there was almost no selling at all.

The market internals were very lopsided with only one
missing ingredient. The advancing volume was 6:1 over
declining volume. Very bullish under any conditions.
The declining volume across ALL markets was only 472
million shares with 3.3 billion in advancing volume.
What was missing was volume. With only 3.7 billion shares
overall that is less than the 4.1 billion on the down
day on Wednesday. Those volume levels are well below
the 4.5 billion share days we were seeing when the
market was rising in October. Also light were the new
52-week highs. Despite a 5:2 advancer over decliner ratio
the new highs across all markets were only 468. This is
well below the 1100-1200 levels back on Dec 1st/2nd.

The most bullish factor I saw was the +14 point jump in
the Russell-2000. This was very strong and indicates a
new round of buying by funds. At this stage in December
this is very bullish. The RUT retraced nearly all the
selling for week in only one day.

Where are we going from here? This is the $64 question
tonight. The Dow closed right on psychological resistance
at 10000 and the Nasdaq is stuck under 1950 resistance.
The Wilshire 5000 did NOT set a new high and only managed
to retrace to 10450 resistance. The high was 10506 last
week. The S&P also failed to reach a new high. With the
Dow standing out in the crowd I glanced at the Dow stocks
for a hint of what happened. CAT soared +1.94 on news that
their Chairman and CEO would retire and be replaced by a
30 year veteran. Home Depot rose +1.45 on news of a new
$1 billion share buyback and news that they had $5 bil
in cash at the end of the 3Q despite completing a $3 bil
buyback since July-2002. UTX jumped +1.00 on new guidance
to +14% earnings growth. AA jumped +.92 on news that
China wanted to import more raw aluminum and that a
supply shortfall in China was causing a spike in the price.
Finally MO rose +.78 on a favorable court ruling and BA
spiked on a contract win. Those six Dow stocks accounted
for +56 points of the +86 points the Dow gained. Not
exactly a strong showing.

This produces some conflicting indications. Breadth was
strong but new highs were weak. The Dow broke to a new
high that just happened to be over 10,000 but all the
other indexes failed to follow suit. On the surface it
would appear that a Santa rally had begun. Considering
that sentiment is a surface commodity anyway the positive
press tonight could help stimulate buyer interest on
Friday. The Nikkei opened up +140 points and our futures
are positive in the overnight session. All seems well
with the market.

I suggested on Tuesday that the Dow would probably test
strong support at 9850 before beginning the Santa rebound.
On Wednesday the low was 9882. Evidently there were enough
traders watching the 9850 support level that they jumped
in front of that level and the race was on. It helped to
have that mutual fund run out of stock there as well.
I have to admit I am surprised. I did not think the Dow
would close over 10K until next week or even Christmas
week. Now that we are there the markets may lack motivation
for any future gains. The distinct lack of any short
covering makes me wonder if anyone believes there could
be a higher high in our future. Now that we have closed
over 10K there is congestion all the way to 10,300. It
will not be a walk in the park to higher ground. My view
for the rest of the year was to remain range bound between
9700-10000. The minor move over 10K has not changed my
view but I may need to raise the upper boundary depending
on Friday's action. Economic reports for Friday include
the PPI, International Trade and Consumer Sentiment. None
should be market movers unless there is a significant
change in the readings. If you are not in the markets
tonight I would probably not go long at the open. You
may want to err on the side of caution and wait until
Monday to see if the apparent bullishness holds until
next week. We saw what profit taking from one fund can
do and as long as we hold at the 10K level without moving
higher we have a bulls eye on our back and carrying a sign
saying bears are sissies. It is dangerous to tempt fate
this close to year end.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Summit Push Part Deux
Jonathan Levinson

In what must have been an attempted Jedi mind-trick, the FOMC
minutes reiterated the Fed's view that it sees inflation
remaining "at very low levels over the next year or two."  With
higher prices in everything but the US Dollar the only theme in
the financial press since March, I was and remain stunned.  The
bulls knew what to do, though, buying up equities, gold miners
and bonds while selling dollars.  The only surprise, other than
the Fed's myopia, was the weakness in the CRB.


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


When the Department of "Yes We Have No Inflation" says that it
thinks it might have to continue printing dollars into oblivion
for the foreseeable future, traders sell, which is what occurred
from the minute of the release of the FOMC minutes.  Not all
governors concurred, which might account for the residual
softness in gold and the CRB.


Daily chart of February gold


February gold got sold on what was most likely more intervention
from Fukui-San and the BoJ, but recovered only slightly following
the FOMC dollar dump at 2PM.  The move left a doji bottom below
the rising lower wedge trendline, with February gold closing
lower by .60 at 406.40.  The more impressive action was in the
miners, which were sold hard in the morning and then Steve
McQueened to close deep in the green, with HUI +7.76 at 235.38
and XAU +2.97 at 106.01.  The daily print on gold left the daily
cycle oscillators on the cusp of a downphase, and any selling
tomorrow should be enough to push them over the brink, with price
diving back below 405 wedge support.


Daily chart of the ten year note yield


Bonds rose alongside equities at the very suggestion that the Fed
would continue printing dollars and suppressing rates.  The TNX
dropped a whopping 8 basis points, a key outside reversal for the
yield despite the earlier ten year auction results indicating a
lukewarm 1.78 bid to cover ratio on fresh treasury debt.  The
move left the TNX at 4.238%, and gave us a preliminary sell
signal on the yield's daily cycle oscillators.  If 4.2% breaks
tomorrow, then it's off to the races for the ten year bond.


Daily NQ candles


The chorus tonight promises to be "Dow 10K" on a closing basis,
and so I'll stick to the cycles.  The daily NQ confirmed
yesterday's doji hammer as a true reversal print, and resistance
at 1425-30 is clearly the next hurdle.  Looking over the daily
chart from September, we see this level as a key confluence zone
that should not, under normal circumstances, fall easily.  The
fact that the Dow made new year highs today while the broader NQ
and ES could not is not a bullish sign, but if the Dow can hold
10K, one might expect the NQ to catch up.

The daily cycle downphase hesitated on a bullish kiss, and if
1425-30 falls, I expect to see a new buy signal on this cycle.
If so, 1437-40 will be the next resistance before the year highs
come into view.  To the downside, 1380 is next support.


30 minute 20 day chart of the NQ


On the 30 minute chart, NQ broke upward out of its bull
wedge/flag, stalling just below that 1425-30 zone.  The 30 minute
cycle oscillator completed its upphase and spent the last hour
diverging from the price increase, which should indicate that the
high is in.  However, prices were firm afterhours as of this
writing, and any bullishness tomorrow morning could reignite the
bullish frenzy.  Again, 1380 is the only support that interests
me, but below 1410 we will have confirmation of a new 30 minute
cycle downphase in progress.


Daily ES candles


We have the same doji reversal confirmation printed on the ES
beginning at 1058, with the ES pausing below 1072 resistance.
The year highs are spitting distance from the close, and a short
covering rally could kick off at the slightest increase.  That
said, the upper wedge trendline is up to 1075, will Bollinger
band resistance a hair above that, and these levels should
provide resistance.  Were I short ES here, my pain threshold
would be between 1079 and 1081, and I would expect the real
covering to take place from that zone upward.

The daily cycle never gave us our sell signal yesterday, and we
see the Macd bouncing away from it, reaching higher into
overbought territory.  With the daily, 30 minute and intraday
cycles all maxxed out in overbought, the only buying I'd be
seeking to do would be to cover shorts, and even then I'd be
resisting the urge because of the likelihood of these cycles
turning down for a fresh synchronous downphase.  Whether we saw
the blowoff top after 3PM or not cannot yet be known, but it will
be in the early going tomorrow morning.


20 day 30 minute chart of the ES


The 30 minute ES broke north above its upper descending
trendline, and like the NQ printed a fairly steep bearish
oscillator divergence on that last price spike.  The Macd always
lags, and indicates that there might be more gas in the tank, but
the 300 minute stochastic looks ready for the next move south.
Above 1072, it will begin trending, while below 1068 should have
confirmation of the new downphase.  Expect trendline support
between 1058 and 1060, followed by confluence support at 1056.


150-tick ES


The short cycle oscillators on the 150 tick ES were trending in
overbought for much of the afternoon rally, while the action from
2PM onward hints at a head and shoulders top, neckline 1068.50.
It projects only to 1064, but that level would be sufficient to
kick off the 30 minute cycle downphase.  A weak downphase on that
cycle would be bullish, while anything impulsive should spell the
end of the daily cycle downphase and convert us to "short every
bounce" mode.


Daily YM candles


The daily YM is today's hero, peaking at 9995.  The daily cycles
are in topping territory but show no sign of weakness.  The next,
imminent 30 minute could change that if it's anything steeper
than sideways.


20 day 30 minute chart of the YM


The 30 minute YM is the most divergent of the 3 indices, with
both the 300 minute stochastic and Macd printing lower highs so
far beneath the new price highs for the year.  The next move
should be lower, and any move higher would a trending move on the
30 minute, and possibly daily cycles.  This is possible, but less
likely- as can be seen on the oscillators, the settings I use
have trended very rarely in either overbought or oversold
positions.

For tomorrow, we should find out very quickly how much resolve
the bulls have left.  Depending on the reaction to 8:30's
economic data, the direction could be determined by the cash
open.  See you there.


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

Two paragraphs have Dow closing above 10,000

What started to look like a rather normally bullish rebound got a
boost late this afternoon as the Federal Open Market Committee's
October 28th, 2003 meeting minutes were released at 02:00 PM EST,
where a rather shocking revelation was interpreted by the markets
that the Fed really is thinking that the weak dollar and high
productivity can allow for low interest rates, potentially into
2005.

Here are two paragraphs that I copied from The Federal Reserve
Boar's website, and the Federal Open Market Committee minutes
from October 28, 2003.  You can view the full report if you would
like (it is rather interesting what they discuss) at this
http://www.federalreserve.gov/fomc/minutes/20031028.htm

In their review of the outlook for inflation, members emphasized
that the prospects for persisting slack in labor and other
resources in combination with substantial further increases in
productivity were likely to hold inflation to very low levels
over the next year or two.  Indeed, many saw modest further
disinflation as likely, at least over the year ahead, though they
also agreed that the probability of substantial and worrisome
disinflation had become increasingly remote in light of the
recent strengthening in economic activity.  Members also cited
the weakness in the dollar as a factor that would tend to reduce
the degree of any domestic disinflation.  Some members emphasized
that the outlook for inflation was clouded by a high degree of
uncertainty about the underlying trend in productivity.  The
growth in productivity could remain higher than had earlier been
anticipated, damping employment, labor costs, and price
pressures. On balance, the members did not view changes in
inflation in either direction as likely to generate significant
policy concerns over the forecast horizon.

In the Committee's discussion of policy for the intermeeting
period ahead, all the members agreed that an unchanged target of
1 percent remained appropriate for the federal funds rate.  The
current degree of policy ease evidently was contributing to an
upturn in the expansion of economic activity.  The strengthening
economy had reduced concerns of significant further disinflation,
but those concerns had not been eliminated.  The pickup in demand
had yet to materially narrow currently wide margins of idle labor
and other resources, and these margins along with the
uncertainties that still surrounded current forecasts of robust
economic growth suggested that an accommodative monetary policy
might remain desirable for a considerable period of time.
Members referred to the contrast between their current policy
expectations and the typical experience during earlier cyclical
upturns when it was felt that policy adjustments needed to be
made quite promptly to gain greater assurance that inflation
would not rise from what were already relatively elevated levels.
In present circumstances, the degree of slack in resources and a
rate of inflation that was essentially consistent with price
stability suggested that the Committee could wait for more
definitive signs that economic expansion would otherwise generate
inflationary pressures before making a significant adjustment to
its current policy stance.

You know me (Jeff Bailey), I like to benchmark things from time
to time.  On October 28th (October FOMC Meeting), the U.S. Dollar
Index (dx00y) 88.87 +0.02% had the 6 foreign currency weighted
dollar index trading at 91.87, and we can see since that time,
the dollar has shown weakness.  Now, I will also make note that
the U.S. Dollar Index (dx00y) did rise to 94.00 in early
November.  However, the comments regarding the dollar's weakness
is viewed by the committee as lessening the possibility of
deflation being a problem, combined with the dollar's further
decline, did receive some positive comments from economist's this
afternoon.

What seemed to shock investors and seemed to create the bullish
response toward equities and Treasury bonds, was the last
sentence of the first paragraph I copied and the statement, "did
not view changes in inflation in either direction as likely to
generate significant policy concerns over the forecast horizon."

And that sentence is still the topic of discussion as Treasuries
suddenly found strong buying, which drove the benchmark 10-year
YIELD ($TNX.X) lower by 8 basis points to 4.238% by the close,
and reversing earlier session price losses.

The topic of discussion is if the Fed is keeping rates low only
because it feels the weaker dollar helps keep any deflation at
bay, while at the same time, productivity is so high and labor
plenty, that this offsets the possibility of inflation over the
Committee's forecast, which is looking out two years to 2005?

While I don't have the answer to this debate, I would have to
interpret the market's reaction as rather bullish, and I'll
discuss this not only from price action, but from what we saw
from the market's internals just after the 2:00 PM announcement.

Market Snapshot / Internals - 12/11/03 Close



Did the FOMC minutes get a market response?  Look at the volume
rate jump from the 03:00 to 04:00 mark.  The biggest jump
actually came in the last hour of trade, where both the NYSE and
NASDAQ showed hourly volume increase by about 400 million shares,
while from the 01:00 EST to 03:00, volume builds were rather
steady.

Internals certainly showed some improvement from the 02:00 hour,
and while the volume levels jumped from 03:00 to 04:00 (read the
FOMC notes, then make a buy/sell decision) the increase in volume
shows interest in what the Committee had written.  While price
action matters most, and was relatively unchanged from 03:00 on,
I would have to disagree, based on the internals, with some
comments I read from analysts saying the eventual reaction was
negative, on concern that the Fed holding to its decision to keep
rates low, is a sign that the Fed is OVERLY worried about the
economy.

Here's a quick look at the pivot analysis matrix for tomorrow,
where some of the recent two session's of losses in the lagging
NASDAQ-100 Index (NDX.X) 1,416.96 +2.01% and its Tracking Stock
(AMEX:QQQ) $35.30 +2.14% was recouped.

Pivot Analysis Matrix



I'm not going to make any adjustments to today's profiled bullish
swing trade in the QQQ from $35.05, stop $34.20, target $35.75.
However, one test tomorrow that I think a bull would like to see
the QQQ find some intra-day support at is at the Daily Pivot of
$35.06, but some work I've done elsewhere, has $34.97 a more
likely point where I would really want to see some QQQ support.

There aren't a lot of good correlations in the matrix for
tomorrow, but a good test for further upside would be if the
BIX.X can move back above its WEEKLY Pivot and WEEKLY R1.  The
banks might just be able to do this based on the Fed's October
comments.  The reason I say this is the sudden decline from Fed
funds futures, which to me signals that there were a lot of
market participants really thinking the Fed was going to raise
rates this spring, but with Fed funds futures falling rather
sharply, it may be that some of the weakness in the banks, might
have been attributed to thoughts of higher interest rates, which
can be viewed as a negative for banks.

Dow Diamonds (AMEX:DIA) - Daily Intervals



I spent too much time on this DIA chart, but I wanted to show an
index, where I could display some volume.  The DIA is also a good
chart to look at when the 10,000 mark on the Dow Industrials
(INDU) has been tested again, which for the indices we've
discussed like the Dow Transports (TRAN) 2,965.90 +1.82% which
traded down rather sharply from 3,000.00, and the NASDAQ
Composite (COMPX) 1,942.32 +1.97%, which traded down rather
sharply from 2,000.00, the DIA and INDU have held up rather well
after Tuesday's test of 10,000, and today managed to hold that
level by the close.

I did some work with a regression channel from the March lows to
TODAY's trade.  At the lower left corner of the above 30-minute
interval chart, this brings into view a test of its base
regression on November 21st, and on a DAILY interval bar chart,
would show this base regression also being tested.

My thoughts for a Santa Claus Rally would be that the mid-point
of this regression will provide bullish resistance, and I would
simply be amazed if the DIA traded much above $102.00 between now
and the end of December.  For now, holding support at MONTHLY R1,
would in my opinion, be a strong sign of support.

S&P 500 Index Chart - Daily Intervals



Today's bold move back higher came just in the "St. Nick" of time
for a bull's thoughts of a Santa Claus rally.  Without so much as
a look back lower, like I thought we might see early in the
session, the WEEKLY Pivot should be viewed as support tomorrow,
and a break above the 1,075 level could well see 1,080.  I'm not
aware of what this expiration's "Max Pain" levels are, but a
break above 1,075 could trigger some unraveling of at or in the
money puts, with option expiration next week.

The reason I say this, is in yesterday's market monitor, fellow
analyst Jonathan Levinson thought the lower trade might have been
attributed to futures rollover.  This is something I'm not all
that up to speed on (impact of futures rollover) but with
rollover complete, the SPX sure seemed to want to recoup
yesterday's losses in quick fashion.

NASDAQ-100 Tracking Stock - Daily Intervals



I'm surprised at today's percentage gain, and I thought it would
be a bullish day for a swing trade long if the QQQs could muster
a move to the MONTHLY Pivot.  While a follow through day would
certainly be positive for a swing trade bull, I would like to see
the QQQ hold $35.09-$35.10 and have MACD turning back higher from
its zero level.

With the NASDAQ bullish % reversing to "bear alert," I don't want
to get cute with a bullish trade, and will gladly look to book
gains on a trade at $34.75.

Jeff Bailey


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

Party Like It's 1999
- J. Brown

Wow!  The Dow Jones Industrial Average traded above the
psychological 10,000 mark on Tuesday of this week but could not
hold it.  The very first time the DJIA traded above 10,000 was
March 16, 1999. Back then the index couldn't close above the big
five-digit round number either.  It was two weeks later on March
29th, 1999 that the DJIA finally closed above the 10K level.

This time it only took two days for the index to actually close
above this mark.  Most veteran traders will tell you it's just a
number.  They're right but it's a number with significance.
Untold thousands of traders big and small had been planning on
shorting the market when the Dow hit 10,000.  They tried on
Tuesday and tried on Wednesday but they couldn't get any downside
moment.  Now the index has closed above it and we could see a
short-squeeze as bears panic to close positions before they get
away from them.

Back in 1999 it only took six weeks for the DJIA to run from
10,000 to 11,000.  Short-squeeze or not I don't know anyone
expecting a repeat performance.  However, we could very well see
a continuation of the current rally.  As Jim said, it looks like
the Santa Claus rally may have started a little early.  Market
internals were VERY bullish.  Advancing stocks crushed decliners
21 to 7 on the NYSE and 22 to 8 on the NASDAQ.  Up volume was
almost 7 times down volume on the NYSE and it was 8 times down
volume on the NASDAQ.  Those are some pretty hefty numbers and
indicate just how wide and deep the rally was today.

Contributing to investor confidence this week has been two high
profile stock buy backs.  Normally, companies offer stock buy
backs because they're confident about future performance and it
enhances shareholder value.  This week both Lowe's (LOW) and
rival Home Depot (HD) announced $1 billion stock buy backs
(each). That sounds like a pretty big vote of confidence.
Hopefully we'll see a similar vote of confidence tomorrow in the
University of Michigan consumer sentiment numbers.  Analysts are
expecting it to rise from 93.7 to 96.0.

Meanwhile, look for some follow through in the software rally
tomorrow.  After the bell tonight Adobe Systems (ADBE) beat
earnings estimates and guided higher for the first quarter.


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

Market Averages

DJIA ($INDU)

52-week High: 10026
52-week Low :  7416
Current     : 10008

Moving Averages:
(Simple)

 10-dma: 9902
 50-dma: 9759
200-dma: 9078



S&P 500 ($SPX)

52-week High: 1074
52-week Low :  788
Current     : 1071

Moving Averages:
(Simple)

 10-dma: 1065
 50-dma: 1048
200-dma:  976



Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1416

Moving Averages:
(Simple)

 10-dma: 1416
 50-dma: 1407
200-dma: 1247


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

There is absolutely NO FEAR in the markets right now as traders
pushed the DJIA back above the 10,000 mark and the S&P 500 back
towards its yearly high.  This sent the volatility indices back
toward their multi-year lows.

CBOE Market Volatility Index (VIX) = 16.73 -1.14
CBOE Mkt Volatility old VIX  (VXO) = 15.86 -1.47
Nasdaq Volatility Index (VXN)      = 26.15 -1.69


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.67        767,216       514,764
Equity Only    0.50        589,907       297,193
OEX            0.92         40,403        43,783
QQQ            1.57         31,180        48,862


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.9    - 1     Bull Confirmed
NASDAQ-100    67.0    - 1     Bear Correction
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       80.2    - 1     Bull Confirmed
S&P 100       79.0    - 1     Bull Correction


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

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


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

 5-dma: 1.22
10-dma: 1.12
21-dma: 1.15
55-dma: 1.14


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    2142      2282
Decliners     688       788

New Highs     210       145
New Lows       15        26

Up Volume   1490M     1545M
Down Vol.    218M      192M

Total Vol.  1733M     1766M
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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The Option Investor Newsletter                 Thursday 12-11-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: ZMH
Dropped Puts: NUE, PNRA, THO
Call Play Updates: BCR, QLTI, UTX
New Calls Plays: QCOM, SNDK
Put Play Updates: AVID, KSS, NSM, XL
New Put Plays: None


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

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


CALLS:
*****

Zimmer Holdings - ZMH - close: 65.90 chg: +0.22 stop: 64.49

We're going to let go of ZMH early.  The stock remains above
support at $65.00 and we have not been stopped out.  We've chosen
to close the play because it did not participate in the rally
today.  Every sector but the oil service group was up and it was
a perfect chance for ZMH investors to buy at support near $65.
Instead the stock made a new lower high after peaking at $68 last
week.  More patient traders should feel free to hold it, just
watch your stop losses.  ZMH may yet surprise to the upside.
Unfortunately, we have limited resources and believe there are
better opportunities at this moment.

Picked on November 30 at $65.92
Change since picked:     - 0.02
Earnings Date          10/22/03 (confirmed)
Average Daily Volume:      1.8  million
Chart =



PUTS:
*****

Nucor Corp. - NUE - close: 53.10 change: +0.30 stop: 54.00

NUE nailed our stop to the penny on Thursday morning, before
price action reversed and the stock sold off into the close.
Whether being out of the play is a good thing or not remains to
be seen, but that's what stops are for -- to limit the damage in
a play that isn't performing.  NUE failed to break down like we
were expecting and yesterday's sharp rise definitely had us on
the edge of our seats today.  Aggressive traders that didn't get
stopped out today can live life on the edge and hope for
continued weakness into the weekend.  We're sticking with our
discipline and taking our lumps tonight.  NUE is a drop and a
disappointment in its inability to perform.

Picked on December 2nd at    $52.66
Change since picked:          +0.44
Earnings Date                1/22/04 (unconfirmed)
Average Daily Volume =         689 K


---

Panera Bread Co. - PNRA - cls: 38.40 chng: +0.84 stop: 38.50

Can you say bear trap?  Just when it looked like a breakdown was
in progress, PNRA got a new lease on life yesterday from a
Raymond James upgrade.  That was all that was needed to shoot the
stock back up through the 10-dma on heavy volume.  Without even
giving the bears a chance to catch their breath, PNRA shot higher
this morning, tripping our stop right at the open and after that
it didn't really matter what happened.  The stock did end a dime
below our stop, but it really doesn't count.  Buying volume has
been brisk the past couple days and daily Stochastics have now
turned firmly skyward.  It's time to let this failed play go.

Picked on December 4th at     $36.50
Change since picked:           +1.90
Earnings Date                1/29/04 (unconfirmed)
Average Daily Volume =         766 K


---

Thor Industries - THO - close: 59.20 chg: +5.50 stop: 56.01

Wow!  Talk about a delayed reaction.  Yesterday morning THO
announced a stock split and the stock did nothing.  Actually, it
lost ground.  Today Baird upgrades the stock to an "out perform"
and shares soar more than 10% on VERY strong volume.  Something
here doesn't add up but it doesn't matter.  We are very happy to
announce that THO was NEVER triggered and the play remains
unopened.  More aggressive bears might want to watch and see if
THO can break overhead resistance at $60 and its 50-dma.

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



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

C R Bard - BCR - close: 78.43 change: +0.47 stop: 76.49 *new*

Yesterday's candle did not look very encouraging.  The stock shot
higher at the open and almost touched $80 before quickly fading
as traders sold into strength.  This failed rally under
resistance at $80 had painted a large bearish-engulfing
candlestick, which can commonly been seen as a reversal when at
the top of a trend.  Fortunately, there was no follow through and
BCR held up above the 77.50 level.  While this might look like a
bullish entry point we're surprised that BCR did not bounce
higher today with such a strong market.  We would suggest new
positions only be considered on a move above $80.  We are raising
our stop loss to 76.49.  There was some news out yesterday for
BCR.  The company declared that their quarterly dividend would be
23 cents per share payable on January 30th to shareholder on
record as of January 19th.

Picked on December 08 at $78.01
Change since picked:     + 0.42
Earnings Date          10/15/03 (confirmed)
Average Daily Volume:      322  thousand
Chart =


---

QLT Inc - QLTI - close: 19.08 chg: +0.85 stop: 17.49 *new*

Once again bulls have come to the rescue and lifted shares across
the market from support.  Shares of QLTI had pulled back from the
$20 level (a failed rally) to the $18 region, which had been
previous resistance.  We all know that broken resistance usually
becomes support and vice versa.  We would have liked to have seen
more volume on the 4.66% gain today but we're not complaining.
The close over $19 looks strong and QLTI could be ready for its
next leg higher.  We're going to raise our stop loss to $17.49.

Picked on December 07 at $18.86
Change since picked:     + 0.22
Earnings Date          10/23/03 (confirmed)
Average Daily Volume:      1.1  million
Chart =


---

United Tech. - UTX - cls: 89.27 chng: +1.00 stop: 87.25

Another day and another new high.  The DOW finally managed to
close above 10,000 and UTX certainly did its part by tacking on a
full dollar to close at a new all-time high.  With the stock
trading in blue sky territory, the rising channel is really the
only metric we can use right now for determining how high is
high.  Another bullish factor from Thursday's session was that
UTX managed to close above the midline of the rising channel
($89.10) for the first time in a month, hinting that perhaps the
stock is finally ready to take a serious run at the top of the
channel, now at $92.50.  As we've noted in recent updates, we
aren't advocating new momentum entries at this point, as UTX is
so close to our upside target of $91-92.  Aggressive traders
still looking to play can consider a dip and rebound from the $88
area as a viable entry setup.  Just remember, that we're working
with a very tight stop now, as we've raised it to $87.25, just
under the intraday support that held through last week's
consolidation.

Picked on November 23rd at   $83.90
Change since picked:          +5.37
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =     1.84 mln



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

Qualcomm, Inc. - QCOM - close: 50.14 change: +1.39 stop: 47.50

Company Description:
Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated CDMA
chipsets and system software and technology licensing.  QCOM owns
patents that are essential to all of the CDMA wireless
telecommunications standards that have been adopted or proposed
for adoption by the worldwide standards-setting bodies.
Currently, QCOM has licensed its CDMA patent portfolio to more
than 80 telecommunications equipment manufacturers around the
world.

Why we like it:
It seems every time a major technical problem arises, some event
occurs to prop that stock or index up just when it is most
needed.  A couple weeks ago, it looked like QCOM's uptrend was in
danger of breaking, with the stock falling below the 50-dma and
threatening to break below the bottom of the long-term rising
channel.  Then a week ago, the company made positive comments
about strong chip demand and the new number portability boosting
first quarter earnings.  That was all the bulls needed to hear
and the stock exploded higher, gapping up more than $3 and never
looking back.  That gap took QCOM back into the upper half of the
rising channel and even in the midst of the serious NASDAQ
weakness earlier this week, the stock never came close to falling
back into the lower half of the channel.

The real kicker came this afternoon when QCOM broke out above
$50, a level it hasn't been able to crest since the end of 2001
and this looks like a significant milestone.  The next
significant resistance to contend with is up at $55.  What
remains to be seen is whether it will be a slow, plodding rally
within the rising channel, or if QCOM will break out in the near-
term to take a strong run at that level.  The optimum entry will
be a slight pullback into the $48.50-49.00 area, where a rebound
would confirm new support at old resistance.  Traders looking to
enter on strength will want to use an entry trigger of $50.50,
just over today's intraday high.  In either case, we're
recommending a tight stop at $47.50, which is just below the
bottom of last Thursday's gap.

Suggested Options:
Shorter Term: The January 50 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.  While we've listed the December $50 strike, with
expiration just over a week ago, that option should only be
considered by very aggressive traders.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the January 55 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 looking for more insulation from time decay
will want to use the April 55 Call.  Our preferred option is the
January $50 strike.

! Alert - December options expire next week!

BUY CALL DEC-50 AAQ-LJ OI= 9928 at $1.05 SL=0.50
BUY CALL JAN-50*AAQ-AJ OI=18291 at $2.15 SL=1.00
BUY CALL JAN-55 AAQ-AK OI= 8938 at $0.55 SL=0.25
BUY CALL APR-55 AAQ-DK OI=13947 at $2.10 SL=1.00

Annotated Chart of QCOM:



Picked on December 11th at   $50.14
Change since picked:          +0.00
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =     9.22 mln


---

Sandisk Corp - SNDK - close: 63.00 chg: +2.67 stop: 59.50

Company Description:
SanDisk, the world's largest supplier of flash memory data
storage card products, designs, manufactures and markets
industry-standard, solid-state data, digital imaging and audio
storage products using its patented, high density flash memory
and controller technology. SanDisk is based in Sunnyvale, Calif.
(source: company press release)

Why We Like It:
It has been a pretty amazing year for SNDK.  Actually, we can
just count the last eight and a half months.  SNDK's earnings
announcement in mid-April ignited a huge run.  The company's net
income of 33 cents a share had beat estimates by 15 cents with
revenues up more than 88%.  SNDK did it again in July with
earnings of 52 cents, beating by 21 cents.  They did it again in
October when revenues soared 99% and the company beat estimates
by 15 cents with net income hitting 60 cents a share.  At the
same time they guided higher for full year revenues and for Q4
results. Yes, it's been an incredible year because demand for
their flash memory cards, useful for digital cameras, mp3 players
and more has been white hot.

Suddenly in December there were new concerns that demand for
flash memory might begin to cool.  Growth was still expected to
be strong and certainly enviable compared to other tech sectors
but just maybe the build up in supply could be a sign that sales
were slowing.  SNDK had been such a big winner in 2003 that the
stock was hit with massive profit taking.  The company tried to
stem the tide by reaffirming their October projections but the
selling didn't stop until SNDK hit the $60 region.  The $59-60
level had been overhead resistance on the way up.  Now it has
become support on the way down.  Coincidentally it also happens
to be the 38.2% retracement level from the April to November run.

We're going to speculate that today's bounce might have a bit
farther to go.  The trend in SNDK may have changed but nothing
moves in a straight line.  The stock dropped 20 points in a very
quick time period and it could easily see a bounce back to the
$70 level, which should now be resistance.  This is an aggressive
play on an oversold bounce but it allows us to limit our risk by
placing a stop near the recent lows.  Our first target is $70 and
we'll use a stop loss at $59.50.

Suggested Options:
We like the January calls and our favorite is the JAN-60 strike.

BUY CALL JAN 60*SWQ-AL OI= 3991 at $6.20 SL=4.00
BUY CALL JAN 65 SWQ-AM OI= 3056 at $3.60 SL=1.80
BUY CALL APR 65 SWQ-DM OI=  926 at $7.30 SL=5.00

Annotated Chart:



Picked on December 11 at $63.00
Change since picked:     + 0.00
Earnings Date          01/14/04 (unconfirmed)
Average Daily Volume:      3.8  million
Chart =



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Avid Technology - AVID - cls: 47.54 chng: +2.01 stop: 50.25

After a couple of big down days in sympathy with the rest of the
NASDAQ, AVID was due for a bounce.  It got a big one today too,
gaining more than 4.4% on strong volume, just like we've been
seeing the past couple days on the downside.  Is this a reversal
or just the next bearish entry point?  Only time will tell, but
the price action near the $48.50 level should prove instructive.
Once AVID broke below that level, it should now act as strong
resistance.  So not only would a failed bounce near that level
make for a solid entry, it will also confirm that old support is
new resistance.  Above there, we have the 10-dma at $49.03 and
then the 20-dma ($50.11) before the stock will be able to
challenge our $50.25 stop.  Due to the strength of the rebound
off the $45 level, we want to avoid fresh breakdown entries below
that level.  Wait for rollover below resistance before adding new
positions.  Once below the $45 level, look for potential support
near $43 on the way to our $40 target.

Picked on December 7th at     $48.46
Change since picked:           -1.08
Earnings Date                1/15/04 (unconfirmed)
Average Daily Volume =         637 K


---

Kohl's Corporation - KSS - cls: 45.45 chng: -0.76 stop:
47.00*new*

A pocket of weakness in a strong market.  Now that's what we like
to see in bearish play!  Despite already being severely beaten
down in recent weeks, shares of KSS just couldn't get with the
bullish program on Thursday.  Even a more than 2% advance in the
Retail index (RLX.X) couldn't inspire the bulls and KSS ended the
session down just over 0.5%.  the 10-dma (now at $46.71) has been
an amazingly consistent resistance barrier for nearly a month now
and if it is broken, we'll know that we've overstayed our
welcome.  For that reason, our official stop on the play now
moves down to $47.  Sitting right above solid support in the $44-
45 area, this is not a setup that looks conducive to new entries.
Our attention is focused on maximizing gains from the play now.
While aggressive traders can certainly hang on for a drop down to
the $42 area, we're recommending that more conservative traders
take advantage of a dip into the $44-45 to harvest gains and move
to the sidelines.

Picked on November 18th at   $48.75
Change since picked:          -3.05
Earnings Date                2/12/04 (unconfirmed)
Average Daily Volume =      4.34 mln


---

National Semiconductor - NSM - cls: 39.95 chng: +1.63 stop: 42.00

While it wasn't necessarily what we wanted to see, it didn't come
as any great surprise to see the Semiconductor index (SOX.X)
bounce strongly from support, taking NSM along for the ride with
a 4.25% advance.  Recall from the initial writeup that NSM needed
to print $38 to create a fresh PnF Sell signal.  Isn't it
interesting how it did just that yesterday and then proceeded
with today's strong rebound?  That rally brought NSM back to the
site of the strong $40 support that was broken on Tuesday and now
we'll get to see if it does its job as newfound resistance.  A
rollover below $41 can be used for new bearish entries, while
momentum players will have to wait for a break below $37.50 (just
under yesterday's intraday low) before playing.  Maintain stops
at $42.

Picked on December 9th at     $38.70
Change since picked:           +1.25
Earnings Date                3/04/04 (unconfirmed)
Average Daily Volume =      4.10 mln


----

XL Capital - XL - close: 72.80 change: +0.13 stop: 75.51

In this market the only think bears can be thankful for is
relative weakness and XL qualifies.  The IUX insurance index is
breaking out to new one-year highs and the DJIA closes over 10K
for the first time since May 2002 and XL manages a meager bounce
from the $72 level.  Traders might get another chance to short it
at its 50-dma should the bounce continue tomorrow.  Yesterday
Prudential (PRU) reiterated their "over weight" rating on XL and
suggested that investors buy the stock before the company
announces its loss reserves charge in the middle of January.
Shares didn't react to the comment.

Picked on December 09 at $72.60
Change since picked:     + 0.20
Earnings Date          01/28/04 (unconfirmed)
Average Daily Volume:       1.2 million
Chart =



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The Option Investor Newsletter                 Thursday 12-11-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - QCOM
Traders Corner: Are You Fashionably Late?  Then You're Fashionably
    Gone!


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

Qualcomm, Inc. - QCOM - close: 50.14 change: +1.39 stop: 47.50

Company Description:
Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated CDMA
chipsets and system software and technology licensing.  QCOM owns
patents that are essential to all of the CDMA wireless
telecommunications standards that have been adopted or proposed
for adoption by the worldwide standards-setting bodies.
Currently, QCOM has licensed its CDMA patent portfolio to more
than 80 telecommunications equipment manufacturers around the
world.

Why we like it:
It seems every time a major technical problem arises, some event
occurs to prop that stock or index up just when it is most
needed.  A couple weeks ago, it looked like QCOM's uptrend was in
danger of breaking, with the stock falling below the 50-dma and
threatening to break below the bottom of the long-term rising
channel.  Then a week ago, the company made positive comments
about strong chip demand and the new number portability boosting
first quarter earnings.  That was all the bulls needed to hear
and the stock exploded higher, gapping up more than $3 and never
looking back.  That gap took QCOM back into the upper half of the
rising channel and even in the midst of the serious NASDAQ
weakness earlier this week, the stock never came close to falling
back into the lower half of the channel.

The real kicker came this afternoon when QCOM broke out above
$50, a level it hasn't been able to crest since the end of 2001
and this looks like a significant milestone.  The next
significant resistance to contend with is up at $55.  What
remains to be seen is whether it will be a slow, plodding rally
within the rising channel, or if QCOM will break out in the near-
term to take a strong run at that level.  The optimum entry will
be a slight pullback into the $48.50-49.00 area, where a rebound
would confirm new support at old resistance.  Traders looking to
enter on strength will want to use an entry trigger of $50.50,
just over today's intraday high.  In either case, we're
recommending a tight stop at $47.50, which is just below the
bottom of last Thursday's gap.

Suggested Options:
Shorter Term: The January 50 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.  While we've listed the December $50 strike, with
expiration just over a week ago, that option should only be
considered by very aggressive traders.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the January 55 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 looking for more insulation from time decay
will want to use the April 55 Call.  Our preferred option is the
January $50 strike.

! Alert - December options expire next week!

BUY CALL DEC-50 AAQ-LJ OI= 9928 at $1.05 SL=0.50
BUY CALL JAN-50*AAQ-AJ OI=18291 at $2.15 SL=1.00
BUY CALL JAN-55 AAQ-AK OI= 8938 at $0.55 SL=0.25
BUY CALL APR-55 AAQ-DK OI=13947 at $2.10 SL=1.00

Annotated Chart of QCOM:



Picked on December 11th at   $50.14
Change since picked:          +0.00
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =     9.22 mln



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

Are You Fashionably Late?  Then You're Fashionably Gone!
By Mike Parnos, Investing With Attitude

What ever happened to the simple concept of respect?   It's
missing in action – or rather, inaction.  Have you noticed that
tardiness is so easily accepted and forgiven?  I don't buy it.
But then, I'm always early – for a date, a business appointment or
even to a dental appointment.  Why?  Simple.  It's a matter of
respect – or, rather, a lack of it.   You've heard the saying,
"better late than never."  Well, sometimes never is better.

"Diss" & Dat
When I make a one o'clock appointment with one of my private
students, I'm there -- and I'm prepared.  No questions.  No
excuses.  Why?  Because I respect them – and I expect the same in
return.  I respect their time plus I made a commitment.  I will
live up to my end of the bargain and expect them to reciprocate.
If they're late, they're "dissing" me.  In my dealings with
people, I make it a point to under promise and over deliver.  What
motivation do I have to make an extra effort for someone who has
"dissed" me?  None.

What does it take to be prepared and on time?  Discipline and
priorities.  Do you see the parallel between life and trading?  In
life, irresponsibility leads to loss – of friends, relationships
and respect.  In trading, irresponsibility leads to loss of money.
What are your values?  How do you set your priorities?  Examine
your actions.  They will tell the tale.  Actions speak volumes.
Intentions are meaningless.

I've received emails about how traders weren't at their computer
the crucial last few days of the option cycle.   They didn't pull
the trigger at the right time and had to settle for a smaller
profit or even a loss on a trade.  The last few days prior to
expiration are not the time to go pick up your dry cleaning, take
a power walk, or drive your kid to a piano lesson.   You've had
the better part of a month to make other arrangements.

Many traders have to work.  That makes it tougher.  However, at
work, one can certainly make phone calls during those critical
days.  Working traders will have to have exit orders in place and
have the agility to change those orders if necessary as the market
moves during the course of the day.  Being a trader involves a
commitment – one that you have to live up to.  You can't afford to
be a day late or you'll be more than a dollar short.

Know The Rules Before You Play
In Detroit, we have a chain of Speedway gas stations.
Traditionally, they sell their gas at the best prices in the metro
area.  Over a period of time, local drivers have come to take for
granted that posted Speedway prices are the best.  They've been
trained using Pavlovian conditioning methods.

Those slightly more astute than a Beagle at the wheel may have
noticed that, every so often, there are price spikes in gas
prices.  It's common knowledge that, as oil prices change, the
prices at the pump change.  However, it's just too much of a
coincidence that these changes seem to happen at regular intervals
-- on Thursdays, to be precise.  Then, magically, on Saturdays the
prices revert back to more competitive prices.  Coincidentally,
Thursdays and Fridays are prime gas buying days -- when many
drivers gas up for weekend car trips.  I'm betting that the extra
$.10 per gallon, garnered weekly from Speedway's "conditioned"
customers, goes straight to Speedway's bottom line.  Multiply that
by thousands of gallons and you have a nice piece of change.

Let's Review.
What have we learned here?  That a degree of awareness will go a
long way towards avoiding many of life's pitfalls and enables the
recognition of life opportunities as they present themselves.
Isn't it funny how this concept applies to your trading life as
well?

Are you missing out on trading opportunities?  Are profits turning
into losses?  Examine your priorities.  It may be time to take
another look at your trading habits.  Don't delay.  There is only
a short time left until option expiration.  Remember, being late
is not acceptable.  It shows a lack of respect.  For who?  In this
case, it's you.  And, if you don't respect yourself, you can't
expect to receive it from anyone else.
_____________________________________________________________

DECEMBER CPTI PORTFOLIO POSITIONS
SPX Iron Condor – 1071.21
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 1085.  Max profit potential of $2,330.

BBH -- Baby Iron Condor - $129.10
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 – 530.16
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 – 1417.00
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 -- $35.30
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 @ $35.30
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.
______________________________________________________________

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

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

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

Couch Potato Trading Institute Disclaimer

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


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