Option Investor

Daily Newsletter, Sunday, 12/14/2003

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The Option Investor Newsletter                   Sunday 12-14-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Holiday Sentiment Fades
Futures Market: The Teflon Market
Index Trader Wrap: New Highs
Editor's Plays: Painful But Quick
Market Sentiment: Merry Markets
Ask the Analyst: Vertical count confusion
Coming Events: Earnings, Splits, Economic Events

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 12-12        WE 12-05        WE 11-28        WE 11-23
DOW    10042.16 +179.48 9862.68 + 80.22 9782.46 +153.93 -140.15
Nasdaq  1949.00 + 11.18 1937.82 - 22.44 1960.26 + 66.38 - 36.38
S&P-100  531.78 +  8.27  523.51 +  2.77  520.74 +  8.97 -  7.24
S&P-500 1074.14 + 12.64 1061.50 +  3.30 1058.20 + 22.92 - 15.07
W5000  10464.48 +111.88 10352.6 +  0.38 10352.2 +253.34 -145.78
RUT      547.59 +  8.58  539.01 -  7.50  546.51 + 20.58 -  7.03
TRAN    2983.41 + 72.83 2910.58 - 10.65 2921.23 + 75.91 - 82.32
VIX       16.41 -  0.68   17.09 +  0.79   16.30 -  2.68 +  2.04
VXO       15.95 -  1.39   17.34 +  0.63   16.71 -  3.18 +  2.26
VXN       25.86 -  1.19   27.05 +  1.44   25.61 -  3.47 +  2.92
TRIN       1.02            1.86            1.04            1.04
Put/Call   0.75            0.84            0.69            0.80

Holiday Sentiment Fades
by Jim Brown

Bah Humbug! That may not have been the sentiment expressed
in the Friday morning report but it was definitely how traders
felt when the report was released. That did not prevent the
early holiday bargain shoppers from rushing to buy the dip
and hold the Dow over 10,000 for the weekly close.

Dow Chart - Weekly

Nasdaq Chart - Weekly

Wilshire-5000 Chart - Weekly

The Consumer Sentiment was not the only report that surprised
on Friday. The PPI for November was well below the estimate
of +0.2% with a headline number of -0.3%. Minus 0.3%! Much
of the decline was due to a fall in energy prices. The core
rate excluding food and energy declined only -0.1%. This
was the first decline after five months of increases. Also
impacting the headline number was a drop in the price of
autos. On the surface it would appear inflation is not a
problem but the internals showed that prices for intermediate
and crude goods continued to rise in November just like they
have been doing for the last several months. With commodity
prices soaring off the charts the odds of a continued rise
in the prices of producer goods is very likely. Friday's
report should not be seen as confirmation of the Fed's no
inflation outlook although I am sure they were pleased.

The International Trade deficit rose to $41.8 billion in
October and that was slightly higher than expected. Imports
rose +$500 million more than exports for the period. The
strong growth in both numbers indicates increasing demand
both in the US and abroad. The weak dollar makes US exports
attractive and depresses growth in imports. This report was
neutral for the markets on Friday but a slight positive for
the continued recovery.

The Federal Budget Balance came in at -$43 billion for Nov
and the second month in the 2004 fiscal year and very close
to the OMB estimate of -$44 billion. This was well under the
street consensus of -$52 billion. The street was high because
the October budget deficit was $69 billion and they were
looking for a repeat. This brings the deficit for the first
two months of fiscal 2004 to $112 billion. Multiply that
$56B per month average by 12 months to see why there was
little demand for treasury notes by foreign banks this week.
Foreign investors are worried that the US deficit could run
over a trillion dollars a year for the next two years and
this causes conservative thinkers to ponder repayment.

The biggest surprise of all was the Consumer Sentiment for
December. This was the first reading for the month and
analysts had expected 95.5 to 96.0, up from 93.7 last month.
The 89.6 headline number shocked everyone and sent the street
back to the drawing board scratching for answers. The majority
of the decline came in the present conditions index and a
drop from 102.5 to 93.6. Expectations also fell from 88.1
to 87.1. The excuses were quick to surface although none
were conclusive. Some thought maybe the bounce in the Jobless
Claims could have soured the expectations but that just came
to pass this week. No sale there. Others thought the drop in
the Jobs Report to only 57,000 from the 140,000 estimate
could have started people worrying again. I would put more
credence in that outlook. The Jobs Report was widely reported
last week and could have depressed consumers. Maybe. Others
thought the blizzard in the Northeast depressed shoppers
by taking a weekend out of their holiday season. Come on
guys, snow may close schools and work but shopping will
always continue. Before you fire off the emails I know there
were some stores closed in the Northeast but enough to spoil
consumer sentiment? I think the problem was cashflow and the
flu. Shoppers got their injection of extra cash over the
summer and that cash is gone. They are now trying to make
ends meet and buy for the holidays on budget money. Bonuses
are going to be very light this year for workers and nearly
nine million people are still out of work. Nothing spoils
holiday sentiment any faster than unemployment worries and
an empty wallet. With retail prices still dropping there
will be plenty of bargains over the next six weeks to lift
those spirits again. Retailers are going to be blowing out
that inventory at record low prices if this holiday shopping
season begins slowing any further. Mall reports from around
the country claim good crowds and long lines so the sentiment
numbers could be just a flu blip.

The main factor in the sentiment dip could be due to the
flu stories making the rounds. Almost every newscast is not
complete without a total of the sick and dead from the flu.
The lack of any flu vaccine and the dire predictions from
some could have easily depressed family sentiment. Tales of
children dying all over the country and shock value stories
of millions of deaths possible have prompted people to stand
in line for remaining shots for hours. In one city reported
on Friday, homeless people were getting in line earlier and
selling their spaces for $20 to late comers afraid they were
going to run out of the vaccine. Consumers are wearing masks
to the malls in hopes of preventing infection. How confident
in the current situation are you under these conditions?
Before you start assigning too much value to the first
reading of Consumer Sentiment remember it comes from only
250 households in a nation of 280 million people. It would
only take a few pessimists to spoil the picture.

Challenger, Gray and Christmas, an employment research firm,
said today that 50 million workers could catch the flu this
season. They said more and more workers are reporting to
work sick because of worries about their job. The actual
numbers are at a 13 year high. A poll of Dow companies
found that most offered flu shots to their employees, with
as many as 50,000 workers accepting the offer at one firm.

The markets tanked on the news as traders recoiled in shock
but the dip was quickly bought. Helping the Dow today were
UTX and KO. UTX held an analyst get together last night and
the stock was a favorite again today tacking on another
+2.33 to $92.00. This rocket just keeps on flying. We had
considered UTX as a candidate for the Top Stocks for 2004
Special Investor Guide but with the stock at an almost daily
new high and closing in on $100 the options were grossly
expensive. We tried to focus on stocks that will turn into
a UTX and not those that are already out of sight. I like
the company but it is just too expensive for most traders.

KO also rocketed to a new 52-week high on news they were
buying back $2 billion in stock. The company has tacked on
+$3 this week alone. GM continued to jump as the picture
just keeps getting better in their pension outlook. PG
rounded out the top four Dow gainers.

The Dow broke below 10000 at the open but the rush to buy
the dip was very quick. Once back over 10K the buying
pressure eased until the last hour. Traders are still not
eager to buy the top but they jumped at the chance to buy
the dip. About 3:PM we began to see some short covering as
those with a bah humbug attitude were squeezed out of the
market by holiday shoppers trying to front run any potential
Santa rally. There was no rush into the market but there a
constant bid. The Nasdaq was not as strong as the Dow with
most of the day spent under water. The end of day rebound
finally pushed it into positive territory but it failed
to break resistance at 1950 once again.

The Nasdaq was handicapped by the annual rebalancing it
announced for Dec-22nd. The Nasdaq announced the removal
of eight stocks from the Nasdaq-100 putting those stocks
under pressure. The eight being dropped include ADCT, BRCD,
CIEN, ERICY, HGSI, ICOS, MNST and RFMD. Stocks being added
to replace those above include MRVL, GRMN, CECO, LRCX, LVLT,
ISIL, ATYT and RIMM. Two of those stocks are on the Top
50 Stocks for 2004 Guide. Considering there are over 400
global products and index funds that track the Nasdaq 100
there will be strong demand for those issues over the next
week. Just remember that strong demand is relative because
these stocks are coming in at the bottom of the Nasdaq and
the index is market cap weighted. What will help is the
tracking by individuals who tend to add these stocks to
their portfolios whenever the Nasdaq makes a change.

Over the next two weeks the Nasdaq is likely to lag the Dow
simply due to the amount of profit accumulated over the last
nine months. There will be excess overhead supply until the
funds rebalance their portfolios in January. This suggests
the Dow will be trying to move higher while dragging the
Nasdaq along behind. The Dow continues to surprise everyone
and make new highs despite growing bearish sentiment. It
has broken very convincingly the down trend from Jan-2000
at 9900 and the psychological 10,000 level. While the bulls
are having their "been there, done that" bumper stickers
printed for each of those events the buyers just keep
pushing the index higher. This victory lap could come to
a halt soon when the next real resistance is reached in the
10200-10250 range. Most analysts think the index is running
on borrowed time but then they are not the ones buying the

I am one of those in disbelief as I thought the index would
slow at 10K and trade in a 9700-10000 range for the next
two weeks. We are still not far out of that range but with
two consecutive closes over 10K the Dow is winning converts
daily. With retail investors focusing on the much discussed
Santa Claus rally the odds are good we will see another
new high before the year is out. The rally is based on the
almost always positive holiday week. This "certainty" in
some minds suggests that next week could finish positive
in hopes of capitalizing on the trend. Nowhere in the trend
is there a rule that the week before the holidays must go
up as well but given the bullish sentiment I would be very
surprised if it didn't. There is a past saying for this
trend that bears repeating. It is derived from historical
trends for bear markets to follow weak holiday performance.

If Santa Claus should fail to call,
bears may come to Broad and Wall.

The market managers (makers, excuse me) got their wish of
a weekly close over 10K and the breakfast table conversation
on Saturday will not only what toys to buy for the kids but
also the market recovery. "Shucks, Martha the market has
recovered from that bear market bubble thing. Maybe we
should cash out those CDs and buy some stock before the
market gets too high again." While that thought process is
not they way you and I think it will be repeated thousands
of times this weekend. I am not going into any detail about
the long term market potential today but the odds are very
good any money transferred into the market over the next
two weeks could be a victim of bad timing. I feel the next
two weeks will be a traders market and once we get to
January the real fun will begin. We have spent a lot of
effort picking stocks for the Top Stocks CD and I can't
wait for those entry points to start getting hit.

For the next two weeks I would look for the Nasdaq to remain
locked in the 1900-2025 range. I have upgraded my range for
the Dow to 9850-10250. The resistance at 10250-10300 is
very strong and is very technical unlike the psychological
10,000 level. Plan your entries and exits at the extremes
of these ranges and try to stay out of the chop in the middle.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

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The Teflon Market
Jonathan Levinson

Equities sold off briefly on a series of synchronous sell signals
following the release of disappointing consumer sentiment data at
9:45AM, only to bounce back to ultimately challenge and, in the
case of the YM, set new highs.  Bonds fell slightly, gold and
silver advanced, and the CRB rose to a new multiyear high.

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 fell to 88.50, finishing near the low end of
this week's range and completing a shooting star doji on the
weekly chart.  The dollar looked excessively, obviously bearish
at this time last week, prompting most speculators to expect a
bounce.  Such contrarian reasoning holds that any move that is
widely anticipated by market participants will not occur, often
prompting seasoned traders to fade whatever trend makes the non-
financial headlines.  That notwithstanding, the dollar sunk after
a minor bounce attempt early in the week and the Fed took care of
any residual bullishness in its FOMC minutes, finishing the week
on a sour note.

Daily chart of February gold

Predictably, gold, silver and the CRB all rose strongly on the
dollar weakness, with the CRB breaking 362 on a closing basis.
The XAU climbed .66 to close at 106.67, HUI +2.44 to 237.82.  The
move left February gold higher by 4.60 at 410, and once again
defied what continues to appear to be an imminent selloff on the
daily chart.  The rising bear wedge lower support line held, and
the daily cycle oscillators trended higher.  As with the YM
below, the top of this move in gold is proving impossible to
call, and while further significant upside from here appears
unlikely, price has proven itself firm for the week.

Daily chart of the ten year note yield

Treasury bonds fell slightly on Friday, the ten year note yield
finishing higher by 0.4 basis points at 4.242%.  The move did
nothing to reverse the sell signal on the yield printed with
Thursday's Fed-induced treasury rally, and for the week, yields
printed a bearish candle.  Break below the rising support line at
4.2% should confirm the bond rally, with the daily cycle
oscillators on the yield rolling over from a lower high.

Daily NQ candles

The NQ closed on Friday in unchanged territory, recovering from a
precipitous selloff at 9:45AM, the only one of the major equity
indices to fail to finish positive.  NQ traded notably weaker
than the YM and ES all week, and continues to fulfill its daily
cycle downphase, still resolving most uncertainty to the
downside.  The YM, on the other hand, has yet to roll over and is
currently in an upphase.  I mention this because, if memory
serves, it is the first time this year that the YM has outpaced
the NQ to such an extend for such an extended period of time.

The NQ bounced from 1407, close enough to our 1408 confluence
level for government work.  The daily cycle downphase remains
uncertain but intact, and it feels as if but for the YM's new
"all rally all the time" stance, the NQ would be trading at
significantly lower levels.  A break above 1425-30 resistance
could be sufficient to abort the current downphase, while below
1407, the bears regain control, targeting 1400 and 1392 as first

30 minute 20 day chart of the NQ

The NQ rose suddenly just before 3PM on Friday, and the turn,
coming unexpectedly from an ongoing 30 minute cycle downphase,
was sufficient to truncate that downphase and initiate a new
upphase.  Bollinger resistance is in the 1425-30 area, and I
wouldn't expect the bounce to get far except for the anticipated
weekend bullhorning and celebrations from the bulls over their
Dow 10K+ close.  I expect Uncle Lou to be winking and grinning
compulsively, Kudlow and Cramer to be frothing, drooling and
highfiving each other into hernias, and Fox's Bull-Bear show to
feature a ceremonial bear-roast.  Fleck, Noland, Lewis and others
will likely be despondent or even suicidal, while my father will
be euphorically discussing a shopping list for the new, imminent
bull market.  Santa Claus will be the most popular technical
indicator cited by the financial press until further notice.

The only question is how far that "Get me in NOW" buying lasts
before it flames out.  Technically speaking, Friday's buy
programs defied sell signals, downphases and negative oscillator
divergences that have tended to give very reliable signals.
There were no correlative or compelling buy signals to justify
the timing or the extent of the buying, and for that reason, we
need to take the toppy oscillators with a grain of salt.  The
type of buyers I expect to see on deck for Monday are those who
are expected to make their moves at the very top of every rally
and the bottom of every selloff, and likely think that
"Fibonacci" is an exotic sex position.  Be careful out there.

Daily ES candles

The ES printed a bullish hammer on Friday, promising further
upside for Monday's open. The 1073.50 high set a new 52 week
high, but I don't expect to see bears panicking if and until the
upper trendline in the 1075-77 area gets taken out.  The daily
cycle oscillators are maxxed out, and technical traders will be
keenly aware that any buying at current levels is a bet in favor
of a trending move, which is the lower-odds outcome.  But, again,
oscillators don't tend to make it to the front page of the New
York Times, I'm guessing that buyers will, at least initially, be
falling all over themselves to buy the Dow so far below its
projected 36,000 or whatever bullish level is currently in vogue.

20 day 30 minute chart of the ES

The front-running of Monday's anticipated bid-a-thon left the 30
minute cycle oscillator on an early buy signal, in a young
upphase in breakout territory.  Horizontal resistance has now
fallen, and trendline resistance will be the bears' last stand in
the 1077-8 area.  Downside support is now at 1068, and a move
below that level would terminate the current 30 minute cycle
upphase.  Note that the bull wedge objective of 1072 has already
been met, and if we read the current formation as reverse head
and shoulder of sorts, the upside target would be approximately
1092 ES.

150-tick ES

The 150-tick ES reveals a possible upsloping head and shoulders
pattern, a hunchback, with the neckline roughly 1069, a break
below which could kick off some fire works.  However, the
intraday trend is clearly up, with the short cycle oscillators
trending in overbought.

Daily YM candles

You're looking at the prime culprit for this week's confusion,
ambivalence, and general technical chaos.  The YM, the future
contract of a mere 30 stocks, ground relentlessly higher, defying
all bearish developments and responding only to buyers.  The YM
closed at a new 52 week high, with the daily cycle oscillators
refusing to cross despite numerous bearish kisses throughout the
week.  The intraday high of 10025 is just below intersecting
trendline resistance at 10035.  While the daily cycle upphase
continues, it appears very close to running out of racetrack.

20 day 30 minute chart of the YM

We see the failed bearish oscillator divergence on the 30 minute
chart, and a possible bear wedge shaping up and projecting to
approximately 10030.  I intend to scope for short entries as
close to 10035 as the bulls take us on Monday, but will keep a
short leash on it in the event that the bulls are more rabid than
currently projected on these charts.  Note that the YM is far
more extended than either the ES or NQ, and I'd be surprised to
see it continue to lead the NQ for long.

For Monday, we have the US Dollar apparently intent on making
lower lows, gold extended but firm, the YM in blowoff territory
and the NQ and ES following along from a safe distance.  With
price action currently defying our indicators, traders are urged
to exercise safe and sound account management, whichever
direction they choose to trade.  We saw sharp and sudden moves
this week, less predictable than usual.  Don't try to fight the
tape for longer than your account can easily stand.  See you
Monday morning.


New Highs
Jonathan Levinson

The Dow and SPX closed Friday at their highest levels since May
2002, with the Dow closing above 10K on a very light volume
day.  A feeble 1.21B NYSE shares and 1.46B Nasdaq shares were
traded, marring the otherwise bullish picture.  The Dow added
34 points or .3% to close at 10,042, adding 1.8% for the week
and bringing its yearly gain to 20.4%.  The Nasdaq closed
higher by 6.68 points or .3% at 1949, up .6% for the week and
45.9% for the year.  The S&P 500 was up 2.93 points to 1074.14,
a .3% daily gain, 1.2% weekly gain and 22.1% YTD gain.

Noteworthy in the above statistics is that the Dow has been
leading to the upside, fueling speculation that the markets are
being supported by the index covering the smallest number of
stocks.  Whatever the reason, the Dow has been playing catchup
to the Nasdaq for the past week, leading consistently to the
upside and pulling back very shallowly even when the Nasdaq
dived.  The Nasdaq broke below its rising lower bear wedge
trendline for the first time since the March lows, but bounced
to close just above it.

Volatility returned to its low range, with prints below 16 for
the VXO on an intraday basis.  The cycles we follow became very
extended, and the Dow's first break of the technically dubious
but psychologically significant Dow 10K prompted the expected
cheering and lofty proclamations from those voices that tend to
herald the very extreme ends of market moves.  An excellent
anecdotal indicator, the famous "shoeshine boy tipster", is
becoming overbought, with the non-financial press reporting on
the banner number in big bold letters.  The only question is
how far the punch will go before the bowl runs dry.

The Fed, once again turning a blind eye to new 7 year highs in
the CRB, gold, silver, and strong gains in the prices of all
assets but the dollar, reignited speculation that another tidal
wave of Fed-sponsored liquidity would be unleashed to combat
the "low inflation" that the governors continue to claim they
somehow see.  Bonds were bought, equities were bought, miners,
drillers and foreign currencies were bought.  In other words,
the dollar was sold.

On a technical basis, the indices squeezed higher within their
ongoing cycle configurations and chart patterns.  Nothing
appears to have changed, except that the Nasdaq's bounce from
its intraweek lows took the shape of a doji hammer, a reversal
pattern that can portend higher highs to come.  THE question
will be whether the Dow gets a lift from Nasdaq strength next
week, or whether it has already spent its energy.  Cracks in
the foundation, such as continuing lows from WMT, support the
bearish interpretation, but the matter can be argued
convincingly both ways.  The market will have to judge.

Weekly COMPX candles

The Naz wanted to break down this week, fulfilling last week's
gravestone doji top to a "t".  This week's bounce doji portends
upside to come, and the combination of the two portend
uncertainty and possibly rangebound chop.   The herd ran up and
found an absence of bidders, then ran south and found an
absence of sellers.  Meanwhile, the weekly cycle rolled lower,
and given the steep bearish rising wedge into which price has
been compressing, the COMPX is not the most inspiring of
bullish charts.  A closing break below 1900 or above 2075 will
resolve the deadlock, but the odds favor the former over the

Weekly INDU candles

Compared to the COMPX, the Dow was on fire.  The only challenge
to the bearish rising wedge was to the upside, with the upper
rising trendline holding back the advance.  A gap up on Monday
would suggest a test of Dow 10,600, which incidentally is the
level at which I sold my last Dow position in 2002.  I would
view any such move as a throwover such as we've seen repeatedly
in our charts at the apex of rising and descending wedges this
year, but for the time being, this week's action was clearly
bullish.  Even the weekly cycle oscillators, still bearishly
diverging, twitched back up, and more upside will extend them
back into trending territory.

Daily OEX candles

The OEX ground out a new high, catching many traders by
surprise on the heels of what on Wednesday appeared to be a
perfectly priced, perfectly timed cycle rollover.  The daily
cycle remains in an upphase, and the 525 level which had
provided such strong resistance should now serve as equally
compelling support.  533 is now trendline resistance.

20 day 30 minute chart of the OEX

The 30 minute cycle oscillators have been negatively diverging
from the bulk of the post-Wednesday bounce, and given the
wedge-like appearance of that latter leg of the climb, all does
not appear well in paradise.  However, as noted in the Futures
Wrap, the type of buying that I expect to come in at the top is
not concerned with technical or risk-analysis.  The patterns
set up thus far should bear little relation to the type of
hysteria buying that might be prompted by an aggressive,
permanently bullish financial press.  Remember the COMPX in
March 2000, with Maria repeating "a new record" like a mantra?
There's simply no telling how far such a blowoff can go before
it tops, and for this reason our cyclical and price analyses
are of only secondary predictive utility.  Look for resistance
at 532, then 533, with support at 529, followed by 525.

Daily QQQ candles

The Qubes, on the other hand, look like an accident waiting to
happen.  There is a huge, extended bearish oscillator
divergence refuting the autumn climb, and the 10 day stochastic
is in a downphase that has so far only twitched in response to
the post-Wednesday bounce.  Resistance is 35.50 followed by 36,
support at 33.70, followed 33.

20 day 30 minute chart of the QQQ

We will find out on Monday whether there's a reverse head and
shoulders neckline at 35.40 or not.  If so, 36.60 is the
implied target, as difficult as that price is to imagine.  36-
36.20 has so far been a brick wall.   On the bullish side,
however, the 30 minute cycle downphase truncated from a higher
oscillator high, and could be tipping the hand of a very
bullish bid below the surface.

Cyclically, we have the weekly cycles topping on the Dow and
rolling over tentatively on the Nasdaq, the daily cycle
upphasing but running out of time on the Dow/OEX and
downphasing on the COMPX/QQQ, while the 30 minute cycles have
flipped back to upphases.  If that 30 minute upphase has legs,
it should extend the daily OEX in a potentially terminal move,
while possibly aborting the Nasdaq's downphase.  The strength
and duration of Monday's buying will be critical.  It is also
unpredictable, and for this reason, both bulls and bears should
keep their entries on very tight leashes.

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Editor's Plays

Painful But Quick

With the Dow bounce on Monday we were stopped out of the
DJX put position at 3:PM when the DJX touched 99.50. The
puts were trading at 30 cents at the time. Our average
cost was 63 cents for a 33 cent loss. If you had filled
all 15 contracts according to the plan your loss should
have been in the $500 range. It was painful but at least
it was over quickly.

Home for the holidays?

If you are going home for the holidays the chances are
you will not be booking a flight on Priceline.com. The
travel company's fortunes have taken a turn for the worse.
Seems like there is a new weekly entry into the web based
travel field and the current trend is for the hotels and
airlines to offer discount prices on their own websites.

There is a move underway to limit the amount of inventory
that the companies like Priceline can get and some sources
are saving the cheapest seats for their own website. If
they can cut out the middleman they save money. Now that
the public has become so accustomed to booking online
there is no need to give the travel companies the cheap
inventory so they can compete with the higher prices on
the providers own website.

Why give them the bullets to shoot down your own prices?
It was great deal to dump excess inventory when the
travel companies first hit the web. It is not such a
good deal now that the consumer has become web fluent.

PCLN enjoyed a high of $990 per share back in April of
1999. (pre-split) On Friday it was trading at $17.35
after several downgrades over the last few weeks. The
last downgrade on Wednesday to underweight by JP Morgan
knocked the stock below support at 17.50 to 16.12. It
has recovered back to that prior support level which
should now be resistance.

The company is also suffering from weak results and an
earnings warning from late November. The CEO said 3Q
results were affected by weakening demand for tickets
and that weak demand had carried over into the 4Q. He
later tried to retract that statement saying he meant
only the "opaque" tickets Priceline sells but since then
JBLU has warned of the same thing. PCLN is trying to
overcome the opaque fare problem by selling full price
air fares. (their story) Considering the airlines are
holding back the cheap seats they may not have any

I think the 4Q could be weak for air travel due to the
flu bug. Travelers will not want to be cooped up in a
plane with potentially sick flu patients for several
hours. This could depress PCLN earnings even farther
and set them up to fall even further out of favor with

I am looking at a longer-term play here with the April
$15 put option. It closed on Friday at $1.30. By using
an April option we can take advantage of any January
drop and the 4Q earnings news and still have time left.

Buy April $15 Put PUZ-PC  ($1.30 on Friday)

Profit Target PCLN at $10.00

Stop loss PCLN at $20.00

PCLN Chart - Daily


Play Recaps

No open plays


After the drop in the Nasdaq knocked -50% off our profit last
week it did not get any better this week. The +11 point gain
in the Nasdaq did little to take us back to the 95% profit
level from the week before. Time is running short and we
need that Santa rally to push the Nasdaq back in the 2000
range before our Jan-5th exit.

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

Powerball Chart

The profit high of $1175 was hit on Friday November 28th.


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

Good Luck

Jim Brown


Merry Markets
- J. Brown

Is the path of least resistance still up?  That's what some
market watchers are saying.  Disappointing consumer sentiment
numbers and PPI results could not dissuade investors from buying
the early Friday dip and the DJIA posted two consecutive closes
over the 10,000 mark.

Investor sentiment does indeed seem cheerful.  Equities have
managed to hold on to their gains and money managers are getting
closer to their best year-end since 1999.  The fight now is the
urge to take profits versus hanging on just a little while longer
to catch the top if indeed a Santa Claus rally has materialized.

The next five to seven trading days are historically bullish
heading into the Christmas holiday and this year looks ready to
follow the seasonal pattern.  Now that talk has turned from a
stimulus-induced economic recovery to a self-sustaining one the
mood is certainly more optimistic.  This is especially true given
the expectation for the Federal Reserve to hold back on any
future rate hikes.

The odds are leaning toward new highs for the DJIA & SPX with the
NASDAQ panting wearily behind them.  Meanwhile the volatility
indices are likely to hit even new lows as bullish sentiment
reaches holiday-induced heights.


Market Averages


52-week High: 10052
52-week Low :  7416
Current     : 10042

Moving Averages:

 10-dma: 9928
 50-dma: 9770
200-dma: 9089

S&P 500 ($SPX)

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

Moving Averages:

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

Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1417

Moving Averages:

 10-dma: 1416
 50-dma: 1408
200-dma: 1249


No changes here.  With the major stock indices at or near their
highs for the year these volatility indices are near their multi-
year lows.  Given the strength in equities we could see these
sentiment indicators continue to sink.

CBOE Market Volatility Index (VIX) = 16.41 -0.32
CBOE Mkt Volatility old VIX  (VXO) = 15.95 +0.09
Nasdaq Volatility Index (VXN)      = 25.86 -0.29


          Put/Call Ratio  Call Volume   Put Volume

Total          0.75        683,513       513,507
Equity Only    0.50        511,771       257,406
OEX            1.16         29,641        34,370
QQQ            1.76         24,533        43,075


Bullish Percent Data

           Current   Change   Status
NYSE          74.1    + 0     Bull Confirmed
NASDAQ-100    67.0    + 0     Bear Correction
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       80.4    + 0     Bull Confirmed
S&P 100       79.0    + 0     Bull Correction

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

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


 5-dma: 1.09
10-dma: 1.13
21-dma: 1.15
55-dma: 1.13

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1908      1897
Decliners     933      1112

New Highs     294       177
New Lows       10        17

Up Volume    937M      828M
Down Vol.    507M      511M

Total Vol.  1464M     1426M
M = millions


Commitments Of Traders Report: 12/09/03

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

There is just a hint of bearishness in the Commercials who have
upped their short positions. Right on cue the small traders have
increased their long positions but to a greater extent.

Commercials   Long      Short      Net     % Of OI
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%)
12/09/03      396,882   420,859   (23,977)   (2.9%)

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
11/11/03      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%
12/09/03      172,178    99,484    72,694    26.8%

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

E-MINI S&P 500

The spread is narrowing between longs and shorts in the
commercials.  The opposite is happening in small traders'
positions with longs surging more than 20K contracts.

Commercials   Long      Short      Net     % Of OI
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%
12/09/03      294,006   288,385      5,621     1.0%

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
11/11/03       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%
12/09/03     142,173     76,171    66,002    30.2%

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


There is a similar surge in commercial positions for the NDX
as seen in the S&P futures.  Small traders also increased
long and shorts but leaning heavily on new longs.

Commercials   Long      Short      Net     % of OI
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%)
12/09/03       39,612     51,443   (11,831) (13.0%)

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
11/11/03       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%
12/09/03       25,842    10,228    15,614    43.3%

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


There is little to report for DJ futures by commercial
traders but small traders have significantly increased their
short positions.

Commercials   Long      Short      Net     % of OI
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%
12/09/03       20,378    11,934    8,444      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
11/11/03        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%)
12/09/03        6,858    12,006   (5,148)   (27.3%)

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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Vertical count confusion

I'm all confused about the vertical counts, and wondered if you
can help me?  I read your column on how to calculated the bullish
and bearish vertical counts, but when I look at StockCharts'
point and figure charts, the bullish vertical count on IBM is
nowhere close to my calculation of $122.  Is it me, or

It's Stockcharts.com!  So be careful!

I've now figured out why I get quite a few e-mail from traders
and investors that have them asking if the bullish vertical count
(or bearish vertical count) for a particular stock or index is
XXX.XX, where that value is nowhere close to the conventional
method for calculating a stock's bullish or bearish vertical

After further reviewing the trader's hand calculations, I came up
with the same price objective the he did, and I have no clue how
StockCharts.com is calculation its bullish price objective.

I tried and tried to figure out how StockCharts.com is
calculating their bullish vertical counts, but I can't figure it
out, but here's what I think is happening, and being somewhat of
a supply/demand purist, I'd want to be very careful of this....

When you look at a StockCharts.com point and figure chart, when
you first type in the stock symbol, this is what comes up.

IBM Chart - $1 box size

For the life of me, I can't figure out how StockCharts.com is
coming up with $142.00 as the bullish vertical count for IBM.  I
read their instructions for "About Price Objectives" and
following those instructions, couldn't come up with $142.00.

Long story short... be careful if looking at the StockCharts.com
calculated bullish vertical count, which somehow is "revised" as
a stock's price fluctuates.  This dynamic changing of price is
like putting a carrot on a pole and strapping it to the neck of a
horse.  Adjusting the bullish (or bearish) price objective is
like leading a horse around with a carrot, that the horse
probably will not achieve.  It's also a moving target.

Remember!  The bullish (or bearish) vertical counts are to be
used for establishing some type of longer-term risk/reward in a
stock.  While StockCharts.com correctly instructs investors that
"the price objective should not be used as the sole reason for
buying or selling a stock - it is just a guide based on what the
current P&F chart is saying.  Stocks frequently move past the
price objective and just as frequently reverse before getting to
the price objective.  The best way to use a price objective is as
a cautionary sign - if prices get to the price objective, it
might be prudent to monitor the stock more closely and move stops
closer in case the move is done."

The reason a point and figure chart "purist" will disagree with a
dynamic, or constantly changing price objective, is that one of
the fundamental beliefs behind the bullish (or bearish) vertical
count is that the vertical count column, once constructed, is the
market's way of telling investors that it may know something
about the future, that is going to have the stock achieving its
bullish (or bearish) vertical count.

In essence, its just ONE bullish (or bearish) vertical count
column, not a series of price movements, or new buy and sell
signals that is thought to be THE signal from the market of where
a stock is headed.

For instance... let's say 5 institutions suddenly figured out in
September (red 9 on a PnF chart) that there was some catalyst
that had just presented itself, that would have IBM eventually
being worth $120, and those institutions, with that information,
began buying the stock at $80.00, all the way up to $93, on the
thought that IBM's stock was going to be worth $120.  This buying
from $80.00 up to $93.00 is the bullish vertical count column.

For those wanting to know how to calculate the bullish and
bearish vertical counts, I've written columns in the Bailey's
Basics section of the newsletter, which were written on September
14, 2001.  The articles are titled "The Bullish vertical count"
and "The bearish vertical count."

The trader asking the question on IBM was actually interested in
IBM after reading the above articles.

I don't want to sound like I'm beating up on StockCharts.com, I
believe their instruction falls short of how to properly
calculate vertical counts.

Anyway... the above chart is difficult to read.  Isn't it?  Click
the "text" button on the chart, and I think you will find the
"text version" much easier on the eyes.

Can IBM trade its bullish vertical count of $120?  What would be
the catalyst for the move higher?

C'mon... think real hard.

Believe me... we can lay out 10 different scenarios of why, and
even why IBM will NOT trade $120.

I was talking to my dad on the phone today.  He called to see how
things were going, and he had heard that the Dow Industrials had
traded 10,000 and was wondering how the market was doing.

He also asked me if I still had that General Motors (NYSE:GM)
stock.  He read in the papers that it had just traded a 52-week
high.  When I told him I was sill holding an option on it (dad
isn't real sure about options and how they work), he asked me
when I was taking him and mom out for dinner!

Long story short, dad thought I was real smart, and that I should
buy mom and him dinner, as I should be grateful for how I figured
out that car sales were going to recover as the economy improved,
and that GM's price would rise.

The reason dad asked about GM, is that after I had profiled some
GM January 2005 $50 LEAPS calls back in July of this year when
the stock was trading near $38.00, dad and I had gone out to
dinner, and got started talking about stocks and GM came up.

Boy... I had laid out this wonderful scenario of how GM could
fulfill its bullish vertical count of $52, based on the scenario
that auto sales were starting to steady, but the main reason that
GM was going to move higher was that as the economy improved, GM
would eventually stop offering 0% financing deals, and offering
all these different incentives, and all that money would flow to
the bottom line and the stock would rise.

Laughing... I told my dad that he and mom should buy me dinner,
because the wonderful scenario I had laid out wasn't the reason
at all for the stock's price move higher, and I wasn't as smart
as he thought, and because I had to live with this brain the rest
of my life, they should feel sorry for me, and buy me dinner.

You see, the reason, or what has suddenly become the reason, for
the stock shooting higher and now nearing its bullish vertical
count, wasn't that auto sales were surging, or that GM has
cancelled its 0% financing.  No!  It's because the broader market
just found out, or figured out, that the rise in stock prices
(the broader market) has actually lessened the amount of capital
GM needed to come up with to fund its pension plan.

How overly simple would that have been to figure out?

For the last 8 months, you and I, and even some highly paid
analysts, that do nothing BUT follow/analyze GM, didn't figure
out that broader market equity gains would have GM's pension fund
actually showing improvement, and lessen the amount of money GM
needed to come up with to fund the pension plan for its current
and retired employees!

Could it be that the "reason" GM generated that "low pole
warning" in April (column of X from $31 to $37) and then its
bullish vertical count column ($34 to $39), was that SMART MONEY
figured all this out back in April and June?  And that knowledge,
or smarts, established a potential price target of $52?

One just never knows for sure, but it sure makes you wonder.

While this article was really to make traders aware that the
price objectives calculated for the StockCharts.com point and
figure charts are not how a point and figure charting purist
would calculate price objectives, I would also suggest that
traders and investors read an article I wrote in a prior Ask the
Analyst column titled "Risk/Reward, Point & Figure, and
minimizing risk with options."

STOCK traders and investors are also URGED to read that article,
as it brings into the fold of how a bullish (or bearish) vertical
count can be used in trade management.

After you read that article, pull up a chart of the stock used in
that example, and understand the significance of the bullish
support trend, especially when you calculate bearish vertical
counts ABOVE trend.

Jeff Bailey


Earnings Calendar

Symbol  Co               Date           Comment      EPS Est

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

LEN    Lennar Corporation    Mon, Dec 15  After the Bell     3.06
ORCL   Oracle                Mon, Dec 15  After the Bell     0.11

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

FDS    FactSet Research Sys  Tue, Dec 16  -----N/A-----      0.39
GTK    GTECH Holdings Corp.  Tue, Dec 16  Before the Bell    0.63
MATK   Martek Biosciences    Tue, Dec 16  After the Bell     0.21
PIR    Pier 1 Imports, Inc.  Tue, Dec 16  -----N/A-----      0.35

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

COMS   3Com                  Wed, Dec 17  -----N/A-----     -0.14
BSC    Bear Stearns          Wed, Dec 17  Before the Bell    1.79
BBBY   Bed Bath & Beyond Inc Wed, Dec 17  After the Bell     0.31
BBY    Best Buy Co., Inc.    Wed, Dec 17  Before the Bell    0.37
KMX    CarMax, Inc           Wed, Dec 17  Before the Bell    0.17
CTAS   Cintas Corporation    Wed, Dec 17  Before the Bell    0.39
CC     Circuit City Stores   Wed, Dec 17  Before the Bell   -0.07
COGN   Cognos                Wed, Dec 17  After the Bell     0.25
FDX    FedEx                 Wed, Dec 17  Before the Bell    0.90
GIS    General Mills, Inc.   Wed, Dec 17  -----N/A-----      0.85
MLHR   Herman Miller         Wed, Dec 17  After the Bell     0.16
JBL    Jabil                 Wed, Dec 17  After the Bell     0.23
LEH    LEHMAN BROS HLDGS INC Wed, Dec 17  Before the Bell    1.57
SCHL   Scholastic            Wed, Dec 17  After the Bell     1.67
TIBX   TIBCO Software        Wed, Dec 17  After the Bell     0.02
WGO    Winnebago             Wed, Dec 17  Before the Bell    0.86
WOR    Worthington Ind       Wed, Dec 17  -----N/A-----      0.11

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

AYI    Acuity Brands, Inc .  Thu, Dec 18  -----N/A-----      0.25
APOL   Apollo Group          Thu, Dec 18  Before the Bell    0.39
BMET   Biomet, Inc.          Thu, Dec 18  Before the Bell    0.31
CCL    Carnival Corp & Crnvl Thu, Dec 18  -----N/A-----      0.28
DRI    Darden Restaurants    Thu, Dec 18  After the Bell     0.16
FDO    Family Dollar         Thu, Dec 18  Before the Bell    0.37
GPN    Global Payments Inc.  Thu, Dec 18  After the Bell     0.41
GS     Goldman Sachs         Thu, Dec 18  Before the Bell    1.52
MWD    Morgan Stanley        Thu, Dec 18  Before the Bell    0.89
NKE    Nike                  Thu, Dec 18  After the Bell     0.61
PAYX   Paychex               Thu, Dec 18  After the Bell     0.21
RHAT   Red Hat, Inc.         Thu, Dec 18  After the Bell     0.02
RAD    Rite Aid Corporation  Thu, Dec 18  Before the Bell    0.02
SLR    Solectron             Thu, Dec 18  -----N/A-----     -0.03
SCS    Steelcase Inc.        Thu, Dec 18  After the Bell    -0.06
TTWO   Take-2 Inter. Sftwr   Thu, Dec 18  Before the Bell    0.59
TEK    Tektronix Inc.        Thu, Dec 18  After the Bell     0.16

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

ATYT   ATI Technologies      Fri, Dec 19  Before the Bell    0.18
GUC    Gucci Group NV        Fri, Dec 19  Before the Bell    0.63
JOYG   Joy Global Inc.       Fri, Dec 19  Before the Bell    0.16
KBH    KB Home               Fri, Dec 19  After the Bell     3.08

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Co Name              Ratio    Payable     Executable

ADTN    Adtran                    2:1      Dec  15th   Dec  16th
PX      Praxair Inc               2:1      Dec  15th   Dec  16th
IMDC    Inamed Corporation        3:2      Dec  15th   Dec  16th
FFIC    Flushing Finl Corporation 3:2      Dec  15th   Dec  16th
CFC     Countrywide Finl Corp     2:1      Dec  17th   Dec  18th
WSBK    Wilshire State Bank       2:1      Dec  17th   Dec  18th
CW      Curtiss-Wright C          2:1      Dec  17th   Dec  18th
ROST    Ross Stores Inc           2:1      Dec  18th   Dec  19th
CLE     Claires Stores Inc        2:1      Dec  18th   Dec  19th
AMHC    American Healthways Inc   2:1      Dec  18th   Dec  19th
MBFI    MB Financial, Inc         3:2      Dec  18th   Dec  19th
SSYS    Stratasys Inc.            3:2      Dec  22nd   Dec  23rd
EDMC    Education Management Corp 2:1      Dec  22nd   Dec  23rd
DFG     Delphi Financial Grp, Inc 3:2      Dec  22nd   Dec  23rd

Economic Reports This Week

There are two and a half trading weeks left for 2003 and traders
will be hoping the Santa Claus rally can stay aloft. This Tuesday
and Thursday are packed with economic reports like the CPI,
industrial production, capacity utilization, business inventories
and the semi book-to-bill report.


Monday, 12/15/03
NY Empire State Index(BB)  Dec  Forecast:    35.0  Previous:     41.0

Tuesday, 12/16/03
CPI (BB)                   Nov  Forecast:    0.1%  Previous:     0.0%
Core CPI (BB)              Nov  Forecast:    0.1%  Previous:     0.2%
Housing Starts (BB)        Nov  Forecast:  1.910M  Previous:   1.960M
Building Permits (BB)      Nov  Forecast:  1.900M  Previous:   1.973M
Current Account (BB)        Q3  Forecast:-$136.1B  Previous: -$138.7B
Industrial Production (DM) Nov  Forecast:    0.5%  Previous:     0.2%
Capacity Utilization (DM)  Nov  Forecast:   75.3%  Previous:    75.0%
GE's Annual Outlook

Wednesday, 12/17/03

Thursday, 12/18/03
Initial Claims (BB)      12/13  Forecast:    360K  Previous:     378K
Business Inventories (DM)  Nov  Forecast:    0.3%  Previous:     0.4%
NY Empire State Index (DM) Dec  Forecast:    25.5  Previous:     25.9
Semiconductor Book-to-Bill Report

Friday, 12/19/03

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


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The Option Investor Newsletter                   Sunday 12-14-2003
Sunday                                                      2 of 5

In Section Two:

Watch List: Breakouts, Bounces and More
Call Play of the Day: QCOM
Dropped Calls: None
Dropped Puts: None


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Watch List

Breakouts, Bounces and More

Eaton Corp - ETN - close: 107.38 change: -0.50

WHAT TO WATCH:  Highflying stock ETN managed to hold onto its
gains after hitting a new all-time high on Thursday's rally.  A
bounce from $105 might be worth a short-term trade higher.
Should the markets see a stronger pull back then the $100-102
levels offer support for ETN.



Eli Lilly - LLY - close: 72.19 change: +0.39

WHAT TO WATCH: We've been keeping our eyes on LLY for a little
while.  The drug giant continues to edge higher, bouncing off the
bottom of its rising channel.  Now the stock is approaching its
recent high.  We would not be surprised to see a little bit of
profit taking and bullish traders can look for another bounce
above the $70 level.



PACCAR - PCAR - close: 81.88 change: -0.31

WHAT TO WATCH: We continue to put PCAR on the watch list.  It's
getting closer and closer to breaking out above resistance in the
82.50-82.75 range.  The company just recently announced a 3-for-2
stock split effective on February 5th.  Bulls might want to
target PCAR's old highs near $87 first.



Mid Atlantic Medical - MME - close: 61.79 change: +0.45

WHAT TO WATCH: MME is a health insurance stock that has broken
out above resistance at $60 and has now come back to retest it as
support.  The bounce looks like a bullish entry point.  Our first
target would be $65 but since MME is at all-time highs there is
no telling how far it can run.



Juniper Networks - JNPR - close: 17.50 change: -0.40

WHAT TO WATCH: JNPR recently broke its rising channel and 50-dma
but shares found support near the $17.00 region.  The stock
market rally on Thursday lifted JNPR back toward the $18 region
but it failed to follow through on Friday.  Bears might want to
keep an eye on JNPR for a breakdown back through the $17.00 mark
and then consider short positions with a target near its 200-dma
at $14.00.


RADAR SCREEN - more stocks to watch

TASR $87.45 -2.81 - The meteoric rise of TASER Intl continues and
aggressive traders might want to watch it for a bounce or a
breakdown at $85 and/or $80.

SNV $28.13 +0.04 - Regional banking stock SNV has been able to
maintain its rising channel and currently shares are trying to
bounce off the bottom of this channel near its 50-dma an d
support near $28.

GYI $48.76 +4.75 - GYI pre-announced stronger earnings and the
stock soared on Friday with huge volume.  Look for some profit
taking before considering any new bullish positions.


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Call Play of the Day:

Qualcomm, Inc. - QCOM - cls: 51.00 chng: +0.86 stop: 48.00*new*

See details in play list


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






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

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

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


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The Option Investor Newsletter                   Sunday 12-14-2003
Sunday                                                      3 of 5

In Section Three:

Current Calls: BCR, QLTI, QCOM, SNDK, UTX
New Calls: None
Current Put Plays: AVID, KSS, NSM, XL
New Puts: FD



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C R Bard - BCR - close: 78.69 change: +0.26 stop: 76.49

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

Why We Like It:
The bullish play in medical device maker BCR is only about one
week old since we opened it with a trigger at $78.01.  The stock
shot higher last Monday to trade through our trigger on decent
volume.  In the last few sessions we've seen it fail at the $80
level once but retested the $77.50 mark as support and investors
bought the dip.  Several market pundits believe the bull market
will narrow in 2004 as investors turn to companies with a higher
quality of earnings.   BCR should be a good candidate and we
think investors will continue to buy the dip considering BCR's
strong earnings and sales growth.

We would have liked to have seen BCR breakout to a new high this
past week like the Industrials and the S&P 500.  If BCR can not
break through the 80.00-80.50 region this will begin to look like
a bearish double-top pattern.  Momentum traders may want to wait
for BCR to trade above 80.51 before considering new entry points.
We're going to leave our stop loss at $76.49 but more
conservative traders might want to use 77.49.

Split fans will note that BCR has not split its stock since 1988.
Shares are well over there previous split price and the company
could announce one at any time.

Suggested Option:
There is only 1 week left for December options so our
preference will be the January strikes.  Our favorite is the
January 75 call.

! Alert - December options expire on Friday!

BUY CALL JAN 75*BCR-AO OI=120 at $4.60 SL=2.30
BUY CALL JAN 80 BCR-AP OI=772 at $1.50 SL=0.75

Annotated Chart:

Picked on December 08 at $78.01
Change since picked:     + 0.67
Earnings Date          10/15/03 (confirmed)
Average Daily Volume:      322  thousand
Chart =


QLT Inc - QLTI - close: 19.05 chg: -0.03 stop: 17.49

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

Why We Like It:
It has been a very volatile week for biotech-pharmaceutical stock
QLTI.  We added the stock last week after a very high-volume
breakout above the $18 level.  Actually, we added it after it
pulled back a bit to consolidate some gains and find support at
previous resistance of $18.00.  The last few sessions have seen
QLTI surge to the $20 mark, which cued additional profit taking
but the $18 level held again.  The strong bounce on Thursday was
encouraging but there was no follow through on Friday.  This
probably shouldn't come as a surprise since the NASDAQ spent much
of Friday underwater and the BTK biotech index closed higher with
only a fractional gain.  Not that we expect any news soon but
there hasn't been any additional news on their Visudyne treatment
or its progress towards an FDA approval here in the U.S.

We're going to keep our stop loss at $17.49 for now.  Traders can
choose to buy dips toward $18 or wait for another rally past the
$20 mark

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

! Alert - December options expire on Friday!

BUY CALL JAN*17.50 QTL-AW OI=409 at $2.40 SL=1.20
BUY CALL JAN 20.00 QTL-AD OI=397 at $1.00 SL=0.50

Annotated Chart:

Picked on December 07 at $18.86
Change since picked:     + 0.18
Earnings Date          10/23/03 (confirmed)
Average Daily Volume:      1.1  million
Chart =


Qualcomm, Inc. - QCOM - cls: 51.00 chng: +0.86 stop: 48.00*new*

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

Why we like it:
Proving that Thursday's breakout over $50 wasn't a fluke, QCOM
tacked on another 1.7% on Friday to end at another 52-week high.
Closing right at the top of its rising channel, the stock is
looking quite strong, with buying volume once again running above
the ADV.  While there's the risk of a rejection from the top of
its channel, a breakout over $51.25 could see some strong follow-
through and aggressive traders can use such a move for initiating
new momentum-based positions.  Those with a more cautious
approach can look for a pullback into the $49-50 area to enter on
the rebound.  There's the possibility of some resistance in the
$52.50-53.00 area, but after that the bulls will be aiming for
strong resistance near $55.  As one of the stronger stocks in the
NASDAQ, any continued rebound in that index should be led by
QCOM.  The midline of the channel ($48.25) should offer strong
support on any pullback, so it should be safe to raise our stop
to $48 this weekend.

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 in just one week, 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 this week!

BUY CALL DEC-50 AAQ-LJ OI=10457 at $1.45 SL=0.75
BUY CALL JAN-50*AAQ-AJ OI=20278 at $2.60 SL=1.25
BUY CALL JAN-55 AAQ-AK OI= 9236 at $0.70 SL=0.35
BUY CALL APR-55 AAQ-DK OI=13719 at $2.40 SL=1.25

Annotated Chart of QCOM:

Picked on December 11th at   $50.14
Change since picked:          +0.86
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =     9.22 mln


Sandisk Corp - SNDK - close: 62.28 chg: -0.72 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: (Thursday's Original Write up)
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.

! Weekend Update: There is nothing new to report on our new call
SNDK.  Shares slipped back slightly on Friday but tech stocks
were generally weak most of the session.  Traders might get a
chance to buy another bounce from the $60 level if the NASDAQ and
hardware sectors slip again on Monday.

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

! Alert - December options expire on Friday!

BUY CALL JAN 60*SWQ-AL OI= 4111 at $5.90 SL=3.85
BUY CALL JAN 65 SWQ-AM OI= 5762 at $3.30 SL=1.60
BUY CALL APR 65 SWQ-DM OI= 1059 at $6.90 SL=4.90

Annotated Chart:

Picked on December 11 at $63.00
Change since picked:     - 0.72
Earnings Date          01/14/04 (unconfirmed)
Average Daily Volume:      3.8  million
Chart =


United Tech. - UTX - cls: 91.60 chng: +2.33 stop: 89.75*new*

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

Why we like it:
Leading the DOW higher on Friday, UTX tacked on an amazing 2.6%
to set a new all-time high.  After peeking over the $92 level,
the stock pulle3d back just slightly into the close, but with
volume that more than doubled the ADV, UTX looks like it may have
the strength to continue even higher.  Driving the strength on
Friday was enthusiasm over the company's comments after the close
on Thursday that it expects double-digit earnings and revenue
growth in 2004.  Of course it didn't hurt that Prudential came
out on Friday morning with an upgrade from Neutral to Overweight.
Our initial profit target was for a move into the $91-92 area and
that was clearly achieved on Friday.  On that basis, conservative
traders should have harvested gains into that strength.  We
actually considered dropping the play this weekend, as it is up
nearly $8 from where we initiated coverage.  But based on its
strength and the good news, we decided to aggressively tighten
the stop to $89.75 (just under Friday's low) and see how much
more gas is in the tank with the DOW posting its 2nd consecutive
close over 10,000.  We're not interested in opening new positions
at this altitude, as the potential reward doesn't justify the
risk.  At this point, we're just attempting to squeeze a bit more
profit out of the play.  Let's keep a tight stop on the play and
see if UTX can reach the $95 level heading into the holidays.  If
that level is reached next week, we'll close the play without

Suggested Options:
Given the strong rally already in the past couple weeks and UTX's
proximity to the top of the channel, we are not recommending new
positions at this time.

! Alert - December options expire this week!

Annotated Chart of UTX:

Picked on November 23rd at   $83.90
Change since picked:          +7.70
Earnings Date               1/15/04 (unconfirmed)
Average Daily Volume =     1.84 mln



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Avid Technology - AVID - close: 47.09 change: -0.45 stop: 50.25

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

Why we like it:
After satisfying our entry trigger with its breakdown under $47
on Tuesday, AVID gave momentum traders hope that it would just
keep on falling.  But with support appearing in the NASDAQ,
bargain hunters appeared right at the key $45 support level on
Thursday, sending the stock right back up to resistance in the
$47.50-48.00 area.  Had the bulls managed to follow through with
more buying on Friday, we might be looking at a drop this
weekend.  But price stalled right at $48 on Friday and the stock
fell back to end just barely above that initial breakdown
trigger.  Speaking of last week's breakdown, it delivered the PnF
Sell signal we were looking for, and that has the vertical count
pointing to a downside target of $34.  While that's below our
target for this play, it does reinforce the stock's bearishness.
The 10-dma ($48.68) is falling to reinforce that resistance and
rollover entries below that moving average offer a favorable risk
to reward ratio with our stop set at $50.25, just over the 20-dma
($49.95) and 30-dma ($50.18).  Based on the strong rebound from
support last week, we're less enthusiastic about breakdown
entries from here.  Once below $45, there's potential support
also at $44 and than again at $42 on the way to a test of the
200-dma just over the $40 level.

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

! Alert - December options expire this week!

BUY PUT DEC-50 AQI-XJ OI=610 at $3.50 SL=1.75
BUY PUT JAN-50 AQI-MJ OI=189 at $4.90 SL=3.00
BUY PUT JAN-45*AQI-MI OI=557 at $2.45 SL=1.25

Annotated Chart of AVID:

Picked on December 7th at     $48.46
Change since picked:           -1.37
Earnings Date                1/15/04 (unconfirmed)
Average Daily Volume =         637 K


Kohl's Corp. - KSS - close: 45.01 change: -0.69 stop: 46.75*new*

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

Why we like it:
It is hard to find a Retail stock that looks less healthy than
KSS does, as it is currently testing its lows from October of
2002.  Of course, it does help that the Retail index (RLX.X) had
a pretty bearish week, actually breaking and closing below the
100-dma ($364) on Wednesday.  KSS has been in a consistent
downtrend since early November, finding consistent resistance at
the 10-dma (now at $46.40).  The $44 level is important support
due to it being the low of the October plunge last year, so the
potential exists for a reversal at any time.  But even with the
strength in the overall market lat in the week, the stock just
continued to trade weakly, ending at its lowest closing level
since September of 2001.  It is that 2001 low near $42 that is
our eventual target for the play and it looks like the stock just
might hit it early next week.  We're a bit hesitant to recommend
new positions on weakness, but another failed bounce under the
10-dma might do the trick for aggressive traders.  Lower stops to
$46.75, which is just above Thursday's intraday high and the 10-
dma.  If the $42 level is reached next week, we're recommending
an exit from the play, which we'll follow up with a drop.

Suggested Options:
Aggressive short-term traders can use the January 40 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 is currently at the money.

! Alert - December options expire this week!

BUY PUT DEC-45 KSS-XI OI= 4469 at $0.50 SL=0.25
BUY PUT JAN-45*KSS-MI OI= 9007 at $1.40 SL=0.75
BUY PUT JAN-40 KSS-XJ OI=10290 at $3.10 SL=1.50

Annotated Chart of KSS:

Picked on November 18th at   $48.75
Change since picked:          -3.74
Earnings Date                2/12/04 (unconfirmed)
Average Daily Volume =      4.34 mln


National Semiconductor - NSM - cls: 39.57 chng: -0.38 stop: 42.00

Company Description:
National Semiconductor Corporation designs, develops,
manufactures and markets an array of semiconductor products,
including a line of analog, mixed-signal and other integrated
circuits (ICs).  These products address a variety of markets and
applications, including amplifiers, personal computers, power
management, local and wide area networks (LANs and WANs), flat
panel and cathode ray tube displays and imaging and wireless
communications.  The Company's operations are organized in five
groups: the Analog Group, the Displays Group, the Information
Appliance and Wireless Group, the Wired Communications Group and
the Custom Solutions Group.

Why we like it:
Last week's plunge in the Semiconductor stocks was too good for
the bulls to pass up and once again they bought the dip.  The SOX
rebounded from just above the key $475 support level and by
week's end was resting just below the $500 level, which should
now begin to act as resistance.  Tuesday's convincing breakdown
below $40 support and the 50-dma was another dip-buying entry for
the bulls, but something seems amiss in the rebound.  Rather than
following through to the upside on Friday, NSM found stiff
resistance at the 50-dma (now at $40.38) and the stock spent most
of the day languishing below that critical level.  There wasn't
any follow-through to the downside, but the failure to move
higher hints that perhaps this resistance level will hold.
Helping to paint this bearish picture is the PnF chart, which
issued a Sell signal on Tuesday with the intraday trade below
$38.  The vertical count now points to a downside target of $30,
although that may be a bit far down for the purposes of our play.
More realistically, NSM should first break the $36 level and then
work its way down to a test of major support at $32.  The best
approach for new entries is to target a rollover from resistance
near the 50-dma, as it allows us to tightly control risk with our
$42 stop.  Monitor the SOX for signs of weakness before playing.

Suggested Options:
Aggressive short-term traders can use the January 35 Put, while
those with a more conservative approach will want to use the
January 40 put.  Our preferred option is the January 40 strike,
as it is at the money and provides ample time until expiration.
While we've listed a December strike, it is not the preferred
strike due to the proximity of December expiration.

! Alert - December options expire this week!

BUY PUT DEC-40 NSM-XH OI=5442 at $1.30 SL=0.60
BUY PUT JAN-40*NSM-MH OI=2180 at $2.55 SL=1.25
BUY PUT JAN-35 NSM-MG OI=1278 at $0.80 SL=0.40

Annotated Chart of NSM:

Picked on December 9th at     $38.70
Change since picked:           +0.87
Earnings Date                3/04/04 (unconfirmed)
Average Daily Volume =      4.10 mln


XL Capital - XL - close: 73.35 change: +0.55 stop: 75.51

Company Description:
XL Capital Ltd, through its operating subsidiaries, is a leading
provider of insurance and reinsurance coverages and financial
products to industrial, commercial and professional service
firms, insurance companies, and other enterprises on a worldwide
basis. As of September 30, 2003, XL Capital Ltd had consolidated
assets of approximately $39.6 billion and consolidated
shareholders' equity of approximately $7.4 billion.  (source:
company press release)

Why We Like It:
It has been a rough couple of quarters for XL.  Shares have been
stuck in a downtrend since June.  Shares were hammered even
harder in mid-October when the company issued an earnings
warning.  The stock did manage to rebound back to the $75 level
and tried to fill the gap but was turned back by its simple 200-
dma.  The very next day XL warned again.  Estimates for 2004 had
been $9.28 a share.  Now they are 9.05 to 9.25.  Selling has
brought it back under its simple 50-dma and the stock looks
vulnerable to retest its lows near 67.50, especially with its
MACD rolling over back into a sell signal.

Shares of XL have found temporary support at $72 while the IUX
insurance index breaks out to a new high.  We're encouraged by
XL's relative weakness compared to its peers and the general
market.  However, more conservative traders may want to wait on
initiating new plays until XL breaks the $72 mark.  More
aggressive players can try shorting the stock if it fails at its
50-dma, just overhead.  If XL surprises us and breaks above is
50-dma it still has resistance at $75 and this might offer
another aggressive entry point.

Suggested Options
We like the January puts.  Our favorite is the January 75s.

! Alert - December options expire on Friday!

BUY PUT JAN 75*XL-MO OI=1766 at $3.20 SL=1.60
BUY PUT JAN 70 XL-MN OI=3903 at $1.05 SL=0.55

Annotated Chart:

Picked on December 09 at $72.60
Change since picked:     + 0.65
Earnings Date          01/28/04 (unconfirmed)
Average Daily Volume:       1.2 million
Chart =


Federated Dept. Stores - FD - cls: 45.41 chg: -1.57 stop: 47.51

Company Description:
Federated, with corporate offices in Cincinnati and New York, is
one of the nation's leading department store retailers, with
annual sales of more than $15.4 billion. Federated operates more
than 460 stores in 34 states, Guam and Puerto Rico under the
names of Macy's, Bloomingdale's, Bon-Macy's, Burdines,
Goldsmith's-Macy's, Lazarus-Macy's and Rich's-Macy's. The company
also operates macys.com and Bloomingdale's By Mail.
(source: company press release)

Why We Like It:
Bears have several reasons to drool over FD.  The stock is
incredibly overbought on a longer-term time line.  Shares have
been in a non-stop rally and more than doubled from their spring
lows.  Propelling shares higher the last few months has been
surging expectations that this holiday season would be the best
in four years.  Now, suddenly, those expectations are being
challenged.  FD announced November same-store sales that were
down 0.1%.  That's certainly not the kind of growth investors
were looking for.

Once this same-store sales news for November came out shares of
FD, which had been struggling with the $50 resistance level for
three weeks, finally began to fail.  The stock dropped on strong
volume for three days in a row and bounced from the $45 level
after breaking its simple 50-dma.  The $45 mark is a strong
support resistance level and it is a natural place to buy the
dip.  Unfortunately, no one appears to be buying.  FD has now
failed several days in a row under the $47.50 mark and Friday's
high-volume drop looks ominous.

Our plan is to use a TRIGGER at $44.95.  If and only if FD trades
at $44.95 or lower we'll open the play with a stop loss at 47.51.
Our first target is the $40 level.

Suggested Options:
Traders have both January and February strikes to choose from.
Our favorite is the January 47.50.

BUY PUT JAN 40.00 FD-MH OI= 796 at $0.55 SL= --
BUY PUT JAN 42.50 FD-MV OI=1783 at $0.95 SL=0.45
BUY PUT JAN 45.00 FD-MI OI= 666 at $1.70 SL=0.90
BUY PUT JAN 47.50*FD-MW OI= 187 at $3.00 SL=1.55

Annotated Chart:

Picked on December xx at $xx.xx <-- see trigger
Change since picked:     + 0.00
Earnings Date          11/12/03 (confirmed)
Average Daily Volume:       1.7 million
Chart =

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The Option Investor Newsletter                   Sunday 12-14-2003
Sunday                                                      4 of 5

In Section Four:

Leaps: Bittersweet Victory
Traders Corner: Waxing Philosophical To Put A Shine On Your


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Bittersweet Victory
By Mark Phillips

In January, I penned an article where I called for the NASDAQ to
be the best performing index for the year.  From its starting
point in January, the COMPX advanced more than 48% to its peak at
2000 just over a week ago.  By comparison, the DOW gained just 20%
from January 2nd to Friday's closing high of 10042 and the SPX
tacked on 22% in the same period of time.  Clearly, my call at the
beginning of the year for the NASDAQ to be the best performer to
the upside proved to be right on target.  So I must be feeling
pretty smug about all those QQQ LEAP Calls, right?

Well, no.  Not exactly.  Now, I did manage to get some favorable
entries off the bottom back in March, but like most everyone else,
I expected the rally to stall and fail much earlier than what
actually happened.  So in August, with the bullish percents
already buried deep in overbought territory, the VXN (NASDAQ
Volatility index) launching from near all-time lows and the QQQ
breaking below the bottom of the ascending channel and the 50-dma,
it was a no-brainer to pull the plug on a winning trade.
Technically, it was the right decision and from a money management
and discipline standpoint it was definitely the right decision.
So why am I reviewing it here?  Because of the emotions that cloud
the judgment even when it was a winning trade and it has already
been closed.

It comes down to something that I believe is endemic to male
traders -- for some reason (I think it is related to
testosterone), it doesn't really apply to the women in our
profession.  Sure, we're all playing in this arena to make money,
but for some reason, us guys get all tied up about BEING RIGHT.  I
think that's the most dangerous part of our psychological makeup
in this profession.  If we're in a losing trade, we don't want to
get out because it would be admitting that we were wrong.  Not
only that, but we have the nagging fear that as soon as we exit
the trade, the stock/index will turn around and go in our favor,
thus making us wrong twice -- once on the entry and once on the

Nothing feels better to us guys than entering a bullish position
right at the low and riding it up and exiting (due to dumb luck)
right at the high.  We feel like we're on top of the trading world
and invincible.  It is a great lie, because it allows us to delude
ourselves into thinking that it was our great trading prowess that
enabled us to make those perfect decisions and we're looking for
the next opportunity to repeat the process.  The problem is that
this wonderfully fulfilling experience was a fluke.  We've all had
the experience at least once and I think it is the recollection of
that experience that clouds our judgment in the trenches on a
daily basis.

So let's come back to the QQQ.  For the sake of simplicity, let's
say that my entry came in the $25 area and the exit came near $30
following both the 50-dma and channel breaks.  That's a net
movement of about $6 and close to a 25% move.  Clearly that's
nothing to be ashamed of...except, the QQQ went on gain ANOTHER $6
from my exit point to its highs.  "I left half the profits on the
table!  How could I be so stupid?"  Have you ever had
conversations like that with yourself?  Or is it just me?  No
matter.  Over the years, I have become far more disciplined about
my trading and I don't issue nearly as much self-recrimination for
what I label missed "coulda, woulda, shoulda" profits.  But every
once in awhile a trade like this is still sticking its tongue out
at me, several months after my exit, saying "Ha Ha, We Gotcha!"

Back in September, I noted with the breakout over 9500, the DOW
would more than likely make a move up to the 9800 and then 10,000
levels.  I was right and entering on a rebound from the late-
September lows produced a nice return if held through to last
Friday's close.  But I didn't make one red cent off of that move.
Why?  Because at the time, everything technical told me that a
bullish position on that index was too risky.  The same culprits
were at work here -- bullish percent, VIX, major overhead
resistance.  So I sat on the sidelines waiting for the next likely
level to take a bearish stance.  Too bad.  The two things the
bulls had going for them was sentiment and liquidity -- and it was
all they needed.

I made the decision to stay out of the bullish side of both of
those trades from August on forward due to some very valid
technical reasons.  Intuitively, I "knew" both markets were headed
higher because of the overwhelming bullish sentiment, but my
technical view told me that there was too much risk involved and I
stood aside.  As I sit here I am intellectually perfectly content
with those decisions, but emotionally, I'm still playing the "what
if" game.

So I share these stories with all of you in hopes that you'll all
understand that the frustration with not perfectly timing both
ends of the trade is normal and common (at least for us guys).
But more importantly, it should not be dwelled upon, as the time
can be much better spent focusing on new trades that actually have
the potential to make money.  I'm not saying that all trades
shouldn't be critically reviewed.  It is just that once that
review process is over, we need to put it out of our mind.

I haven't mentioned the SPX here yet, but it has also achieved its
overall objective.  The 1068 level was the line in the sand for
this index, as that is the 38% retracement of the entire bear
market decline.  Price stalled very near that level for more than
a week before finally popping a bit higher at the end of the week.
Reinforcing that level is the 50% retracement of the entire range
for 2002, right there at 1073, just one point under Friday's

I know what you're thinking -- "Nice history and psychology lesson
Mark.  But what does that have to do with making money for the
rest of the year?"  Nothing.  But it does have a bearing on what
we do for the remainder of the year and what our expectations are.
I got an interesting email from a reader as I was writing this
column on Saturday that bears directly on this issue.

I won't share the actual text of it here, but basically the reader
is wondering what the trading prospects are for the remainder of
the year.  I'm sure he isn't the only one with this question as we
all ponder the appropriate balance of time spent between financial
and family pursuits.

Of course, I already have a bias on this topic, which you are
probably all too familiar with if you saw my article from just
before the Thanksgiving holiday.  If you missed it, feel free to
check it out at the following link

Pick Your Battles

The long and the short of it (all puns intended) is that next week
is really the last useful trading week of the year.  And even that
one will be obscured by the options expiration shenanigans.  I
remember when op-ex week offered some stellar trading
opportunities.  Not any more though, as that week tends to be the
most difficult to trade of the entire month!  After that, we can
expect the pros to begin filtering out on December 23rd and we
shouldn't expect them to reappear in any significant numbers until
the Monday after New Years.

Does that mean that we can't or shouldn't trade during the
intervening time?  No, we just need to understand that price
action is likely to be more erratic and difficult to trade.  And
expectations for significant directional moves should be kept in
check.  The funds worked long and hard to get the major indices
where they are and with bonuses riding on it, we can expect them
to have a vested interest in holding the markets near their highs
heading into the end of the year.  At the same time, there is
unlikely to be enough volume or a sufficient catalyst to send them
markedly higher either.

The result is that we're likely to see fewer solid trade setups
from 12/22/03-1/2/04.  I won't argue that the POTENTIAL exists
from strong moves on every day during that period, but we each
have to weigh the benefits of that activity against the
opportunity cost of time that could be better spent on other
activities such as with family, friends or charity.  I think you
can accurately infer that I'll personally be placing a much
greater emphasis on non-trading activities beginning on 12/24, and
it will remain on a low priority until January 5th, at which point
I'll be ready to hit the new year at full strength.

With that as our backdrop of what I expect over the near term,
let's dive in and look at our plays.


WMT - While last week didn't have much to offer in the way of
price action, it's hard to be disappointed in the continued
deterioration in WMT.  The stock of the largest Retailer in the
world just continues to look weak and the weakening Retail index
(RLX.X) certainly isn't helping.  That provides quite the contrast
to the rest of the market, don't you think?  So far, WMT is
holding above the $52 support level, but with the price action
looking weak, I still think a breakdown is to be expected.  It's
too late to contemplate new positions, and those with open trades
should be looking to harvest any gains that exist on a foray into
the $48-50 target zone.  I'm trimming the risk somewhat on the
play by lowering our stop to $55, which is above what should be
strong resistance near $54.50, reinforced by the 20-dma, now at

SBUX - It was a pretty safe bet that SBUX wasn't going to be an
exciting play, given the way the stock has been trading for the
past year, so there's really nothing to be disappointed about yet.
Over the past couple weeks, SBUX has been drifting sideways and is
once again testing the bottom of the more aggressive rising
channel.  Can it rebound and charge to new highs before the end of
the year?  Or are we set for a bit of profit taking?  Honestly, I
don't know, but I wouldn't be surprised at a slightly deeper
pullback, maybe to the $30 area, which will find strong historical
support, as well as support from the midline of the longer-term
rising channel, as well as the 100-dma ($29.59).  Needless to say,
I would view such a dip as a solid entry point.  For now, we'll
maintain our stop at $27.

Watch List:

QQQ - It seems like forever that we've had QQQ on the Watch List,
waiting for a viable entry point.  Last week, we narrowly avoided
an entry on the breakdown, but not this week.  QQQ finally makes
the move to the Portfolio.  See below for details.

SMH - Alright, it is still aggressive, but it is high time that we
put our money where our mouth is on the Semiconductor stocks.
With a lower high on the last rally attempt and the strong selloff
last week, the SMH is ripe to offer us up a solid play.  Let's
reactivate it and look for one more failed rally attempt to let us
into the play.  I still have no interest in chasing a breakdown
move lower, but a rollover in the $42-43 area should offer a solid
risk-reward ratio.  The bottom of the broken short-term channel is
at $42 and should offer some resistance, reinforced by the rolling
30-dma ($42.52).  Normally, I'd say we should target a rebound
back near the $44 highs for entry, but I just don't think we'll be
able to get there.  The clincher for me is the weekly Stochastics
(10,5,3), which are finally starting to tip over out of
overbought.  This could be the beginning of a major move lower.
There will be a lot of support to overcome on the way down, first
at $38, then $36 and $34.  I suspect that may be the bottom of the
move, as by that time, the 200-dma ($32.62) will likely have risen
near that level.  To summarize, SMH is back on active status with
a $42-43 entry target.

NEM - Now that's profit taking!  NEM and the rest of the gold
stocks have been needing to do this for several weeks and it was
encouraging to see.  However, I don't think that's the end of it.
There's been a lot of gains built into this sector over the past
several months, and the vast majority of it has been driven by
weakness in the dollar.  Everyone seems to be focused on that
dollar weakness/gold strength and that tells me that we're due for
a bit of a reversal.  Look for an actual rebound in the dollar to
help bring gold back down into the $375-380 area, which ought to
correspond with NEM coming down into the $40 area.  It may seem
aggressive for an entry target, but if we can get it, it ought to
be a position worth holding onto.

DJX - The only way this could have played out any better would
have been if our entry on Tuesday had seen the DJX holding onto
the $100 level at the close.  But I have to say that it looks like
we got a great entry into this play that we've been following for
so long.  See below for details on the new Portfolio play.

QCOM - What can I say?  We just barely missed the entry into QCOM
and now the stock appears to have built up a head of steam.  Next
stop appears to be $55 and maybe even $60.  But with price right
at the top of the rising channel, there's no way to justify taking
a position here.  We'll have to simply hope for a pullback to the
bottom of the channel to give us an entry point.  Until that
happens, the safest choice is for us to remain on the sidelines.

AIG - Did I actually list AIG as a PUT play?  Based on the price
action the past couple days, I'm having some serious second
thoughts.  The stock came right up to the $60 area on Tuesday and
Wednesday but didn't show enough weakness to justify taking an
entry.  Thank goodness!!  Thursday's move blasted the stock up to
the $61 level and on Friday AIG broke out with conviction,
clearing the 2-year descending trendline.  This looks like a
significant reversal of trend, so I'm going to place AIG on hold
this weekend to keep everyone safe.  If AIG continues its bullish
move and breaks above $65, then we'll definitely be dropping the
play due to a break of the stock's consistent trend of lower highs
over the past 3 years.

Radar Screen:

GENZ - As I mentioned last week, there's just something that
doesn't feel right about a bearish play on GNEZ right here.  The
weekly Stochastics have now turned clearly bullish, and last week
we got another rebound from the 200-dma.  Despite my pledge to put
it on the Watch List this weekend, I just don't feel right about
doing it yet.  I want to see what price action develops up near
the bottom of that broken channel (now at $51) and strong
historical resistance at $52.  Let's wait a bit longer.

MEL - Deespite what looked like an attractive setup a few weeks
back, I no longer think MEL is worth considering as a bearish
long-term play.  While the stock remains under its bearish
resistance line on the PnF chart, it is on a Buy signal (I don't
know why I missed that before) with a price target of $60.  This
just doesn't seem like a high odds candidate right now, so I'm
going to remove it from the Radar Screen this weekend.

EK - I like what I see here, as EK seems to be drifting lower in a
bull flag pattern.  Why do I like that in a bearish play
candidate?  Because a bullish resolution might be just the ticket
to get the stock back up into the $27 area, where we want to
consider it for new bearish entry points.  If we can get that
entry, then we ought to be in good shape to play it down to the
$20 level and below next year.  There's till plenty of time, but I
think we'll move EK onto the Watch List between now and the end of
the year.

HD - I stumbled across this one last week and it looks like we
could be setting up a nice bearish play.  HD has been trading in a
broad descending channel since early 2000 and the rally of the
past year has just managed to raise the price back near the top of
the channel.  That would be one thing on its own, but the weekly
chart is also giving us some bearish Stochastics divergence.
Couple that with a housing sector that has been running hard for
months and HD's lack of participation and I think we've got a
winner on our hands.  Near-term, HD needs to bounce back from its
recent selloff down near the 200-dma.  Look for the stock to make
progress back up towards the $36-37 area, at which point we can
actually contemplate a bearish play setup.  Once HD does roll over
from the top of its channel, we'll be looking for drop to at least
the midline of that channel in the $26-27 area.

SNDK - Due to its dominance in the flash memory market, especially
as it pertains to consumer electronics, SNDK had an amazing run
this year, vaulting from $15 to $85 in less than 7 months.  That
trend was bound to break and some negative comments from INTC a
couple weeks ago seem to have done the trick.  Right now, SNDK is
trying to bounce from the $60 area, but I think we could see a
break still lower early next year.  SNDK still has a great product
and business, and that makes the stock attractive on a deep
pullback.  I've got my eye on potential support near the 200-dma
($48.88) and I think a bullish entry taken there should do quite
well in 2004.

Closing Thoughts:

With expiration week right in front of us, I think we can
effectively say that 2003 is over in terms of meaningful trade
opportunities.  The winning trade for the year was to go long the
NASDAQ in March and hold on through all the gyrations that brought
us here.  I didn't manage to do that myself, but my hat's off to
any of you that did.  I would recommend using the next week to
finalize any trading activity that needs to be handled before the
end of year -- namely for tax purposes.  The funds managed to
achieve their upside goals for the major indices and I expect to
see a pretty firm holding action right into the ball drop on New
Year's Eve.  Technicals really aren't going to matter much over
the next couple weeks, at least in terms of the big picture.  The
markets are still grossly overextended and likely to remain that
way until January.  Save your strength, because we're probably
going to need it once 2004 gets rolling!

Have a great week!


LEAPS Portfolio

Current Open Plays


SBUX  11/24/03  '05 $ 30  ZOS-AF  $ 4.30  $ 4.80  +10.42%  $27.00
                '06 $ 30  WSP-AF  $ 6.40  $ 6.60  + 3.13%  $27.00

WMT   10/03/03  '05 $ 55  ZWT-MK  $ 5.10  $ 6.20  +21.15%  $ 56.50
                '06 $ 55  WWT-MK  $ 7.20  $ 7.70    6.94%  $ 56.50
DJX   12/09/03  '04 $ 96  YDK-XR  $ 5.70  $ 5.20  - 8.77%  $104.00
                '05 $ 96  ZDK-RR  $ 7.10  $ 6.70  - 5.63%  $104.00
QQQ   12/09/03  '05 $ 32  ZWQ-MF  $ 2.65  $ 2.30  -13.21%  $ 38.00
                '06 $ 32  WD -MF  $ 3.70  $ 3.40  - 8.11%  $ 38.00

LEAPS Watchlist

Current Possibles


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

SMH    08/24/03  $42-43        JAN-2005 $ 40  ZTO-MH
                               JAN-2006 $ 40  YRH-MH
AIG    11/30/03  HOLD          JAN-2005 $ 60  ZAF-ML
                               JAN-2006 $ 60  WAP-ML

New Portfolio Plays

DJX - Dow Jones Industrials $99.23  **Put Play**

After what seemed an eternity, the DOW finally reached its 10,000
target last week, with the first touch coming on Tuesday.  That
gave us the entry point we were looking for, and the DJX relaxed
down to $99.23 at the close.  As noted above, I have little
expectation for significant weakness between now and the end of
the year.  Too many people want to see 2003 go out on a high note.
The week immediately in front of us has good chances of seeing the
DJX go out very near the $100 level as the market makers will
jockey to pin the index to that round number.  We've got a much
longer-term focus here and the action we're looking to take
advantage of should appear early next year.  Just to be perfectly
clear, we're not looking for a major decline, just a solid drop
back to major support in the $90-92 area.  Should a major drop
ensue, then we'll take that in stride, but let's keep our
expectations in check for now and let the price action dictate our
expectations.  The bullish percent for the DOW remains up in
overbought territory at 80%, still refusing to give a bearish
signal.  The VIX remains mired near multi-year lows just above 16
and the weekly Stochastics are still hovering near overbought,
just as they have been since late April.  All conditions are
poised to give us a nice downside play and now the waiting game
begins.  Look for an upside bias into the end of the year and take
advantage of any strength to gain a more favorable entry point in
the $100-102 area.  In order to give the play some room before the
downside gets underway, we're using a wide stop at $104, which
should be safe, as it is above strong resistance in the 103.00-
103.50 area.

BUY LEAP DEC-2004 $96 YDK-XR $5.70
BUY LEAP JUN-2005 $96 ZDK-RR $7.10

QQQ - NASDAQ-100 Trust $34.43  **Put Play**

After just avoiding an entry a week ago, I thought we'd get the
higher entry this week, as the NASDAQ looked poised for a bounce
near the FOMC meeting.  Unfortunately, that bounce never really
appeared and following the FOMC (non)decision, price fell below
our lower trigger at $35.00, satisfying that lower trigger.
Things look to be lined up nicely in our favor nonetheless, as
weekly Stochastics are in the midst of a grudging decline, the VXN
volatility index is still quite low and the NASDAQ-100 bullish
percent is still in Bear Confirmed status.  Adding to the bearish
picture is the fact that the QQQ rolled over near the bottom of
the rising channel that defined the upward trend since March.
That said, it wouldn't surprise me to see the bulls take one more
run at the highs near $36, with a possible foray slightly above
that level before any bearish action really gets moving.  I would
view a near-term move back above $36 as simply a better entry
point ahead of the weakness we're expecting after the first of the
year.  The first concrete sign that the bears are gaining strength
will be when we see the QQQ finally penetrate its 100-dma,
currently at $33.81 and close below that point.  In order to give
this play some room to move, we're going to use a wide and
aggressive stop at $38, which should keep us out harm's way until
the decline begins in earnest.  More conservative traders can use
a slightly tighter stop at $37.

BUY LEAP JAN-2005 $32 ZWQ-MF $2.65
BUY LEAP JAN-2006 $32 WD -MF $3.70

New Watchlist Plays





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Waxing Philosophical To Put A Shine On Your Trading
By Mike Parnos, Investing With Attitude

Recently I have been waxing philosophical.  No, it's not something
that puts a shine on your Toyota.  It, hopefully, is how one
learns new habits – and, potentially, gets rid of old ones.  Mr.
Miyagi taught the Karate Kid with "wax on, wax off."  Well, lately
I've been doing my fair share of waxing.

I've been reading.  It's a lost art.  We now get most of our
information from electronic sources -- the boob tube or the
Internet.  It's easy.  It's too easy.  So, we have a tendency to
overlook a whole world of information they manage to conveniently
hide in books.

I discovered a noted psychologist who has an interesting take on
life – and, coincidentally, it holds true to one's trading life.
He states, "If what you are choosing is not working, that tells
you that those things are worthy of change.  If your priority is
winning, be willing to 'move your position.'"

"If what you're doing is not working, change it.  Measure your
thinking and behavior by that simple yardstick.  Is it working or
not working?  What have you got to lose?  You can always go back
to your old way of doing things."

Who wrote this?  These simple truths were espoused by good old Dr.
Phil in his book "Life Strategies."  A lot of people don't care
for his "in your face" approach.  However, I appreciate it.  I
don't shrink from constructive criticism (and I get my share).  As
a matter of fact, I welcome it.  Regular readers of this column
know I'm not shy about giving advice – trading or otherwise.  And
I'm pretty straightforward.

We are creatures of habit.  Certain behaviors become ingrained in
our lives.  Another universal truth is that change is scary for
most people.  There is a comfort level with the status quo – even
if it includes negative behaviors.  Why?  Because they are
predictable – and there is a degree of security in predictability.

I've noticed a groundswell (I like that word) of traders who are
emigrating from swing trading and day trading to CPTI trading
philosophies.  I'm getting a lot of emails and phone calls.   OI
readers want to become CPTI students and private students.
They're willing putting aside (at least temporarily) old
unsuccessful trading habits and explore what we do here rather
successfully.  I applaud open minds.  I applaud change.  It's
daring.  It's exciting.  It's taking a giant step into the
unknown.  It makes sense – and, in our case, usually makes a nice
profit.  It worked for the Karate Kid, why not us?  Wax on . . .

This Month's Quickies
I only came up with a few "hypothetical" quickie trades for this
option cycle.  It seems the market wants to trend up – which is
not conducive for our style of trading.  There will be a pullback,
but to narrow it down to happening this upcoming week is bit
ludicrous.  Therefore, I suggest that you take extreme care and
consider that any one-week trades should be done with pure risk

Quickie Position #1 – SOX Iron Condor (Semiconductor Index) –
Sell 10 contracts of SOX Dec. 520 calls
Buy 10 contracts of SOX Dec. 530 calls
Credit:  $.70
Sell 10 contracts of SOX Dec. 475 puts
Buy 10 contracts of SOX Dec. 465 puts
Credit:  $1.00
Total net credit of $1.70 ($1,700).  Maximum profit range is 475
to 520.  Safety range is 473.30 to 521.70.

Quickie Position #2 – RUT Iron Condor (Russell 2000 Small Cap
Index) – 547.59
Sell 10 contracts of RUT Dec. 560 calls
Buy 10 contracts of RUT Dec. 570 calls
Credit:  $.60
Sell 10 contracts of RUT Dec. 530 puts
Buy 10 contracts of RUT Dec. 520 puts
Credit:  $.60
Total net credit of $1.20 (1,200).  Maximum profit range is 530 to
560.  Safety range is 528.80 to 561.20.

Quickie Position #3 – S&P 500 – SPX – Iron Condor – 1074.14
Sell 6 contracts of SPX Dec. 1090 calls
Buy 6 contracts of SPX Dec. 1105 calls
Credit:  $1.20
Sell 6 contracts of SPX Dec. 1055 puts
Buy 6 contracts of SPX Dec. 1040 puts
Credit:  $1.10
Total net credit of $2.30 ($1,380).  Maximum profit range is 1055
to 1090.  Safety range is 1052.70 to 1092.30.

Quickie Position #4 – QQQ – Cheap Lottery Straddle -- $35.24
Let's position ourselves to take advantage of any extreme market
move that may take place this week.  We'll risk $250.  We could
double or triple our money.  Stranger things have happened.
Buy 10 contracts of Dec. QQQ $34 puts @ $.10
Buy 10 contracts of Dec. QQQ $36 calls @ $.15
Total debit:  $.25 ($250)

Those Friendly Reminders
December is a standard four-week option cycle.  The premiums
quoted on the above educational trades are based on Friday's
closing bid/ask prices.  On Monday the premiums may be different
due to market movement and/or the additional two days of time
erosion.  In a few instances, when the bid/ask spread is wide, we
figure you may be able to shave off a nickel here and there.  Be
careful.  If a stock gaps up or down, it may change the entire
dynamic of the trade.  Don't skydive without a parachute.  Just
because you have a pulse and evidence of brain activity doesn't
mean you a trader.  And make sure you know the intricacies of a
strategy before you trade.

SPX Iron Condor – 1074.14
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 - $130.56
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 – 531.78
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 – 1417.27
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.

QQQ ITM Strangle – Ongoing Long Term -- $35.24
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
October: Sold Oct. $33 puts and Oct. $34 calls -- total credit of
$1,900. November: Sold Nov. $34 puts and calls – total credit of
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 @ $35.24
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

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


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The Option Investor Newsletter                   Sunday 12-14-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: A Conservative Approach To Covered-Calls
Naked Puts: Success With Stops
Spreads/Straddles/Combos: Santa Claus Rally In Progress!

Updated In The Site Tonight:
Market Posture: Bear-Humbug


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Trading Basics: A Conservative Approach To Covered-Calls
By Mark Wnetrzak

One of our readers asked about our profit and loss goals for
the candidates in this section.

Attn: markw@OptionInvestor.com
Subject: Goals for your picks

Hi Mark,

Several times throughout your discussions you mention the goal
is for 3-5% or 4-6% etc yield, and 10-15% downside protection
using the ITM call.  Yet for the picks of Nov 30, some don't
meet that criteria.  Actually they do if we consider a margin
account, but not an un-margined account.  If you have the time,
would you mind commenting on what makes you select a particular
candidate that is outside of the more conservative criteria.



Hello Frank,

In his book, "Options: As A Strategic Investment," Lawrence
McMillan, the "guru" of option trading strategies, suggests
looking for a minimum return of just 1% (2% with margin) per
month, with downside protection of at least 10%, because it
will force one to choose "in-the-money" covered-calls.

At the OIN, we agree with McMillan's conservative strategy
(selling ITM covered-calls) and we use a two-pronged approach
to find a variety of candidates to supplement your search for
profitable trading positions: technical scans and option scans.
I personally sort through hundreds of charts each week looking
for technically strong stocks with favorable option premiums.
I then evaluate several "over-priced" option lists, looking for
stocks with favorable technical patterns.

Our primary goal in this section is to provide positions that
make acceptable returns while still receiving an above-average
amount of downside protection, market permitting.  As with all
recommendations, it remains up to each individual to perform
due diligence, thoroughly research any issue, and make sure
that it fits their personal risk-reward tolerance.  In short,
we simply try to provide the best candidates the market has to
offer and when there aren't enough technically favorable stocks
with 4-6% (ITM covered-call) yields to complete the section, we
will publish slightly more conservative positions.

Best Regards,

Mark W.


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

Note:  Margin not used in calculations.

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

ARIA     7.70    7.65  DEC  7.50  0.80    0.60*   7.6%
NEOL    18.32   17.50  DEC 17.50  1.40    0.58    7.4%
GSS      5.90    7.00  DEC  5.00  1.25    0.35*   6.5%
PAAS    12.57   12.60  DEC 12.50  0.70    0.63*   5.8%
IBIS    16.12   15.40  DEC 15.00  1.45    0.33*   4.9%
MOBE    11.19   10.10  DEC 10.00  1.60    0.41*   4.6%
ISSI    16.33   16.25  DEC 15.00  1.90    0.57*   4.3%
MMR     16.30   17.95  DEC 15.00  2.00    0.70*   4.3%
CLHB     6.12    7.84  DEC  5.00  1.35    0.23*   4.2%
INSP    24.39   24.95  DEC 22.50  2.70    0.81*   4.1%
IBIS    16.25   15.40  DEC 15.00  1.65    0.40*   4.0%
ESPR    22.21   22.90  DEC 20.00  2.90    0.69*   3.9%
CANI    14.05   13.00  DEC 12.50  1.95    0.40*   3.6%
IM      15.06   15.70  DEC 15.00  0.30    0.24*   3.5%
TLAB     8.08    8.02  DEC  7.50  0.80    0.22*   3.3%
SLNK    20.61   19.39  DEC 20.00  1.25    0.03    0.2%
NTPA    15.30   14.00  DEC 15.00  1.30    0.00    0.0%
IMMU     5.35    4.40  DEC  5.00  0.60   -0.35    0.0%
AVII     4.99    4.22  DEC  5.00  0.40   -0.37    0.0%

NTIQ    12.53   13.08  JAN 12.50  0.85    0.82*   5.1%
MYGN    12.76   12.75  JAN 12.50  0.95    0.69*   4.2%
XING    10.66    9.23  JAN 10.00  1.35   -0.08    0.0%

*   Stock price is above the sold striking price.


The Dow Jones 30 and the S&P 500 are leading the market to the
best levels of the year but the NASDAQ stubbornly refused to
climb to a 2003 high.  Next week should be interesting with the
mixed technical signals and options expiration.  Several stocks
in the "model" portfolio above have tested their 50-day MAs,
which could be offering a second chance to exit or adjust the
positions.  Then again, any rebound could be the start of a new
leg up.  Isn't trading fun!  Both Kmart (NASDAQ:KMRT) and Ixia
(NASDAQ:XXIA) are shown closed as both stocks continued to act
horridly this week, moving below near-term support (50-day MA).
Avi Biopharma (NASDAQ:AVII) has also broken its previous support
level near $4.50, which doesn't bode well for the future.  We
will show the position closed, in the name of money management.
Mobility Electronics (NASDAQ:MOBE) looks a tad distasteful as
the stock broke through its 50-day MA, and the current rebound
appears to be a bit listless.  We will show the position closed
next week as a move towards the 150-day MA near $7.50 could be
forthcoming.  As always, this is not an all-inclusive list but
rather a few simple examples of one person's money-management

Positions Previously Closed:  Brocade (NASDAQ:BRCD), Kmart


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

WIND    7.48  JAN  7.50  QWV AU  0.50  2       6.98  35   6.2%
CE     13.50  JAN 12.50   CE AV  1.80  20502  11.70  35   5.9%
TKTX   15.35  JAN 15.00  UFT AC  1.25  367    14.10  35   5.5%
VTS    10.05  JAN 10.00  VTS AB  0.55  1008    9.50  35   4.6%
MYGN   12.75  JAN 12.50  GSQ AV  0.85  102    11.90  35   4.4%
EMBT   15.98  JAN 15.00  MBQ AC  1.65  0      14.33  35   4.1%
CNH    15.27  JAN 15.00  CNH AC  0.95  28     14.32  35   4.1%

Company Descriptions

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

WIND - Wind River  $7.48  *** What's Up? ***

Wind River Systems (NASDAQ:WIND) is a supplier of embedded
software and services for embedded systems.  These systems
consists of a microprocessor, or a series of microprocessors,
and related software, and is used to control, monitor or
assist the operation of electronic devices, equipment and
machinery.  Embedded systems are used in diverse products
such as digital imaging products, auto braking systems,
Internet routers, jet fighter control panels and factory
automation devices.  The company's products help customers
to enhance product performance, standardize designs across
projects, reduce research and development costs and shorten
product development cycles.  The stock rallied sharply on
Thursday and Friday on increasing volume which suggests
further upside potential.  The stock appears to be forming
a long-term "rounded bottom" pattern and a move through
near-term resistance near $8 would be bullish.  Investors
can use this position to target-shoot an entry point closer
to technical support.

JAN-7.50 QWV AU LB=0.50 OI=2 CB=6.98 DE=35 TY=6.2%

CE - Concord  $13.50  *** First Data Christmas Present? ***

Concord EFS (NYSE:CE) is an electronic transaction processor
that provides the technology and network systems that make
payments and other financial transactions fast, efficient and
secure.  The company is organized in two business segments:
network services and payment services.  The network services
segment provides ATM processing, debit card processing and
coast-to-coast debit network access principally for financial
institutions.  The payment services segment provides POS
processing, settlement and related services, with specialized
systems focusing on supermarkets, major retailers, gas stations,
convenience stores, restaurants and trucking companies.  First
Data (NYSE:FDC) appears to be close to a settlement with U.S.
antitrust authorities that would clear the way for its purchase
of rival Concord.  Obviously traders have begun to position
themselves for a quick resolution and investors can use this
position to speculate on the outcome.

JAN-12.50 CE AV LB=1.80 OI=20502 CB=11.70 DE=35 TY=5.9%

TKTX - Transkaryotic  $15.35  *** New Drug Speculation ***

Transkaryotic Therapies (NASDAQ:TKTX) is a biopharmaceutical
company developing therapeutics for the treatment of rare
genetic diseases caused by protein deficiencies.  TKT has
received approval to market and sell Replagal (agalsidase alfa),
an enzyme replacement therapy for the long-term treatment of
patients with Fabry disease, in 25 countries, principally in
Europe.  Among the products the company has developed or is
developing are therapeutics for the treatment of rare diseases,
such as Iduronate-2-Sulfatase (I2S) for Hunter Syndrome and
Glucocerebrosidase (GCB) for Gaucher Disease.  Other products
include gene-activated versions of proteins such as Dynepo
for annemia related to chronic renal failure, gene-activated
granulocyte colony stimulating factor (GA-GCSF), gene-activated
follicle-stimulating hormone (GA-FSH) and gene-activated human
growth gormone (GA-hGH), as well as gene therapy products such
as Factor VIII gene therapy for Hemophilia A.  The current
technical outlook for Transkaryotic is recovering and our
position offers excellent reward potential at the risk of owning
the issue at a favorable cost basis.  Due diligence is a must!

JAN-15.00 UFT AC LB=1.25 OI=367 CB=14.10 DE=35 TY=5.5%

VTS - Veritas  $10.05  *** Oil Service Sector ***

Veritas DGC (NYSE:VTS) provides integrated geophysical services
to the petroleum industry worldwide.  Their customers include
national and independent oil and gas companies that utilize
geophysical technologies to identify new areas where subsurface
conditions are favorable for the production of hydrocarbons,
determine the size and structure of previously identified oil
and gas fields and optimize development and production of
hydrocarbon reserves.  The company acquires, processes and
interprets geophysical data and produces geophysical surveys
that are either two-dimensional (2-D) or three-dimensional (3-D)
images of the subsurface geology in the survey area.  Veritas
also produces four-dimensional (4-D) surveys that record fluid
movement in the reservoir.  In addition, it uses geophysical
data for reservoir characterization to enable its customers to
maximize their recovery of oil and natural gas.  Oil service
companies have rallied in recent weeks and this position offers
investors a reasonable entry point in Veritas at the risk of
owning the stock near $9.50.

JAN-10.00 VTS AB LB=0.55 OI=1008 CB=9.50 DE=35 TY=4.6%

MYGN - Myriad Genetics  $12.75  *** Bottom Fishing ***

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

JAN-12.50 GSQ AV LB=0.85 OI=102 CB=11.90 DE=35 TY=4.4%

EMBT - Embarcadero  $15.98  *** Next Leg Up? ***

Embarcadero Technologies (NASDAQ:EMBT) provides software products
that enable organizations to effectively manage their database
infrastructure and manage the underlying data housed within that
infrastructure.  The company's database administration, enterprise
data architecture, enterprise data integration and performance
management products offer customers comprehensive solutions
for managing the database life cycle, which is the process of
creating, optimizing and managing the databases that support
critical business applications.  By simplifying management of
the database life cycle, Embarcadero's products allow their
customers to ensure the availability, performance and reliability
of their critical business applications and extract maximum value
from their corporate data.  Shares of Embarcadero continue to
rally and once again have made a new 52-week high.  Traders who
have a bullish outlook for the company can speculate on the future
value of its shares with this position.

JAN-15.00 MBQ AC LB=1.65 OI=0 CB=14.33 DE=35 TY=4.1%

CNH - CNH Global  $15.27  *** Pure Speculation ***

CNH Global (NYSE:CNH) is primarily engaged in the engineering,
manufacturing, marketing and distribution of agricultural and
construction equipment.  The Company markets its products
globally through its Case, Case IH, New Holland, Steyr, Fiat
Kobelco, FiatAllis, Kobelco and O&K brand names.  CNH makes its
products in 45 facilities throughout the world and distributes
them in over 160 countries through an extensive network of
dealers and distributors.  The company also offers financial
services products, including retail.  CNH is controlled by Fiat
Netherlands Holding, a wholly owned subsidiary of Fiat S.p.A.,
which owned approximately 85% of the outstanding common shares
of CNH as of December 31, 2002.  CNH is another stock that has
been recovering since its March low and speculators who believe
the upside activity will continue can profit from that outcome
with this position.

JAN-15.00 CNH AC LB=0.95 OI=28 CB=14.32 DE=35 TY=4.1%



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

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

IDBE   13.10  JAN 12.50   QQ AV  1.40  238    11.70  35   5.9%
LTXX   15.24  JAN 15.00  UXT AC  1.20  35     14.04  35   5.9%
INGP    5.18  JAN  5.00  UAU AA  0.45  11      4.73  35   5.0%
CBST   12.61  JAN 12.50  UTU AV  0.75  2132   11.86  35   4.7%
DNDN    8.17  JAN  7.50  UKO AU  1.05  676     7.12  35   4.6%
RHAT   13.46  JAN 12.50  RCV AV  1.55  619    11.91  35   4.3%
OIIM   21.75  JAN 20.00  XQQ AD  2.70  25     19.05  35   4.3%
NTIQ   13.08  JAN 12.50  CDJ AV  1.15  1947   11.93  35   4.2%
GNSS   17.01  JAN 15.00  QFE AC  2.65  68     14.36  35   3.9%


Options 101: Success With Stops
By Ray Cummins

A new reader wants to know about the use of trading stops with

Attn: questions@OptionInvestor.com
Subject: Using Trading Stops


I just started reading your newsletter and I am learning a lot
about option trading and the different charting methods for
forecasting stock movements.  Up until now, I have been trading
in an online practice portfolio (no $$$) but I am almost ready
to "sink or swim."  One question I have is about stop orders.
There seems to be some major differences between the stop and
stop limit order and I just wanted to be sure I understood them
correctly.  Could you please explain how they work.  Also which
is more commonly used with options, a mental stop or mechanical

Thanks for your help!


Hello SW,

Learning to correctly manage portfolio positions; maximizing gains
while limiting losses, is one of the most important aspects of
successful trading.  The first thing a trader should realize is
that they should never enter a position without a pre-planned exit
strategy.  The reason for this approach is simple: the most common
reason for losing money in the options market is failing to close
a position in a timely manner, regardless of whether the action is
to limit losses or lock-in gains.  A surprising number of traders
achieve excellent profits, but end up giving most (or all) of the
gains back because they don't develop a sensible plan to manage
each position.  The majority of market professionals utilize limit
orders in conjunction with profit targets and protective stops to
curb losses, but the retail trader is far less proficient in this
practice.  Using sell-stops eliminates the risk of emotional or
reaction-based judgments in difficult situations and removes human
nature from the equation.  A mechanical and disciplined method for
achieving profit is the key to consistent success and allowing the
market to make the exit decision is much more precise than relying
on our complex human intuition.

There are two common types of stop orders:

STOP ORDER (most traders use this for a closing order)

An option stop order is an order to buy or sell option contracts
when the market for a particular contract reaches a specified
price, called the stop price.  A stop order to "buy" becomes a
market order when the option contract trades or is bid at or
above the stop price.  A stop order to "sell" becomes a market
order when the contract trades or is offered at or below the
stop price.

STOP-LIMIT ORDER (many traders use this for an opening order)

An option stop-limit order is an order to buy or sell option
contracts at a specified price or better, after a given stop
price has been reached or exceeded.  A stop-limit order to "buy"
becomes a limit order when the option contract trades or is bid
at or above the stop-limit price.  A stop-limit order to "sell"
becomes a limit order when the contract trades or is offered at
or below the stop-limit price.  An option stop-limit order is a
combination of a stop order and a limit order.  Stop-limit orders
that have been triggered and converted into limit orders will
execute if the option is thereafter offered at or below the ask
price for buy orders or at or above the bid price for sell orders.

In simple terms: If you use a STOP order and the underlying issue
trades at or below your stop loss, the order will become a market
order.  This is not the case with a stop-limit order.  If you use
a stop-limit order and the issue moves too quickly to trade at
the limit price, the order will not be executed.

As far as the use of manual versus mechanical exit orders, they
both have merit in certain situations and it is very important to
have all the necessary tools to manage your portfolio effectively.
That should include the ability to place trading stops on options
and also stops on stocks, which will trigger option-closing orders.
With regard to a "generally accepted" method for closing plays, I
believe the overwhelming number of traders use mechanical systems
on a regular basis, however there are many short-term strategies
that are better suited to manual order executions.  Keep in mind
these techniques require continuous monitoring of the position to
make sure the entry/exit trades are executed in a timely manner.

Good Luck!


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

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

RMBS    29.30   30.66  DEC 25.00  0.40    0.40*   3.5%  11.1%
RMBS    30.00   30.66  DEC 25.00  0.55    0.55*   3.3%  10.6%
MMR     18.95   17.95  DEC 17.50  0.30    0.30*   3.8%  10.1%
RDWR    26.84   27.51  DEC 25.00  0.60    0.60*   3.6%   9.2%
RDWR    23.46   27.51  DEC 20.00  0.65    0.65*   2.9%   8.6%
QLTI    18.86   19.05  DEC 17.50  0.25    0.25*   3.1%   8.4%
USNA    34.39   32.25  DEC 30.00  0.35    0.35*   2.6%   7.8%
SANM    11.11   11.52  DEC 10.00  0.25    0.25*   2.8%   7.6%
APPX    32.62   33.71  DEC 25.00  0.45    0.45*   2.0%   7.0%
APPX    32.29   33.71  DEC 25.00  0.55    0.55*   2.0%   6.8%
AEIS    26.30   25.34  DEC 22.50  0.45    0.45*   2.2%   6.8%
NTE     36.99   36.00  DEC 22.50  0.35    0.35*   2.3%   6.5%
SWIR    18.75   15.50  DEC 15.00  0.30    0.30*   1.8%   6.4%
ALTR    23.93   22.51  DEC 22.50  0.50    0.50*   2.5%   6.3%
ONXX    27.63   27.14  DEC 25.00  0.25    0.25*   2.2%   6.3%
DIGE    38.50   36.10  DEC 35.00  0.35    0.35*   2.2%   6.2%
MEDI    27.04   28.01  DEC 25.00  0.25    0.25*   2.2%   6.0%
FFIV    25.07   24.15  DEC 22.50  0.55    0.55*   2.2%   6.0%
XMSR    22.10   24.47  DEC 17.50  0.25    0.25*   1.6%   5.8%
APPX    36.04   33.71  DEC 30.00  0.35    0.35*   1.7%   5.8%
PDII    25.97   26.47  DEC 22.50  0.45    0.45*   1.8%   5.3%
MGAM    42.90   37.25  DEC 35.00  0.45    0.45*   1.4%   5.0%
NPSP    29.26   32.64  DEC 25.00  0.35    0.35*   1.5%   4.9%
FLEX    16.00   14.37  DEC 15.00  0.30   -0.33    0.0%   0.0%

*  Stock price is above the sold striking price.


Investors received their Christmas bonus this week as the "Santa
Claus" rally delivered sharp gains with many stocks hitting 2003
highs.  The market appears to be comfortably established in a new
trading range but with share values so inflated, there is certain
to be some year-end selling in less than outstanding issues.  One
of the stocks in that category now is Flextronics (NASDAQ:FLEX),
and our bullish position became an "early-exit" victim when the
issue closed well below the sold (put) strike at $15 on Wednesday.
A similar situation exists with Sierra Wireless (NASDAQ:SWIR) and
that position was likely closed by conservative traders during the
mid-week slump.  Altera (NASDAQ:ALTR), American Pharmaceutical
(NASDAQ:APPX); $30 strike, Digene (NASDAQ:DIGE), Multimedia Games
(NASDAQ:MGAM), and Usana Health Sciences (NASDAQ:USNA) are on the
"watch" list.

Previously Closed Positions: ADE Corporation (NASDAQ:ADEX) and
eCollege.com (NASDAQ:ECLG)


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.


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

For more information on margin requirements, please refer to:



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


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

SOV    23.70  JAN 22.50  SOV MX 0.90 1454  21.60  35   3.6%   8.5%
SLXP   21.50  JAN 20.00  PQN MD 0.60 1     19.40  35   2.7%   6.8%
NPSP   32.64  JAN 30.00  QKK MF 0.80 54    29.20  35   2.4%   6.2%
BLTI   14.01  JAN 12.50  BQF MV 0.30 159   12.20  35   2.1%   5.9%
RMBS   30.66  JAN 20.00  BNQ MD 0.40 9912  19.60  35   1.8%   5.3%
AAII   25.01  JAN 22.50  IUQ MX 0.45 0     22.05  35   1.8%   4.9%
EMMS   27.17  JAN 25.00  QMJ ME 0.50 1000  24.50  35   1.8%   4.7%

Company Descriptions

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

SOV - Sovereign Bancorp  $23.70  *** A Big Day! ***

Sovereign Bancorp (NYSE:SOV) is the parent company of Sovereign
Bank, a financial institution with 525 community banking offices,
approximately 1,000 automated teller machines and approximately
8,000 team members in Pennsylvania, New Jersey, Connecticut, New
Hampshire, New York, Rhode Island, Delaware and Massachusetts.
Sovereign's primary business consists of attracting deposits from
its network of community banking offices and originating small
business and middle market commercial and asset-based loans,
residential mortgage loans, home equity lines of credit and auto
and consumer loans in the communities served by those offices.
Sovereign also purchases portfolios of residential mortgage loans
and other consumer loans throughout the United States.  There is
little news to explain the strong rally Friday in SOV shares but
the stocks is a favorite among some institutional investors and
extreme buying pressure suggests the possibility of an unexpected
announcement.  Traders can speculate on the reason for the recent
upside activity with this position.

JAN-22.50 SOV MX LB=0.90 OI=1454 CB=21.60 DE=35 TY=3.6% MY=8.5%

SLXP - Salix Pharmaceuticals  $21.50  *** Technical Break-Out? ***

Salix Pharmaceuticals (NASDAQ:SLXP) is a specialty pharmaceutical
company dedicated to acquiring, developing and commercializing
prescription drugs used in the treatment of a large variety of
gastrointestinal diseases, which affect the digestive tract.
The company identifies and acquires rights to products that have
potential for regulatory approval or are already approved; then
applies its regulatory, product development and sales/marketing
expertise to commercialize these products, and uses its field
sales force focused on high-prescribing U.S. gastroenterologists
to sell its products.  SLXP soared to a multi-year high Friday
and the high trading volume suggests further upside potential.
Traders can establish a cost basis near $20 in the issue with
this position.

JAN-20.00 PQN MD LB=0.60 OI=1 CB=19.40 DE=35 TY=2.7% MY=6.8%

NPSP - NPS Pharmaceuticals  $32.64  *** Drug Sector Favorite! ***

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
candidates.  Shares of NPSP are testing 2003 highs and the recent
buying pressure suggests a successful outcome in the coming week.
Traders who agree with a bullish outlook for the issue should
consider this position.

JAN-30.00 QKK MF LB=0.80 OI=54 CB=29.20 DE=35 TY=2.4% MY=6.2%

BLTI - Biolase  $14.01  *** Speculation Only! ***

BioLase Technology (NASDAQ:BLTI) is a medical technology company
that designs, develops, manufactures and markets advanced dental,
cosmetic and surgical lasers and related products.  The company's
principal products are water- and laser-based systems focused for
use in dentistry.  The company holds patents and has received
clearances from the United States Food and Drug Administration
for applications in other markets  such as dermatology.  BioLase
Technology also manufactures accessories and disposable products
for its water- and laser-based systems.  Lots of speculation on
this issues after some positive comments in IBD and investors say
the company is a market leader with growing sales year over year
and renewed institutional interest.  The trend is bullish in the
short-term and traders can profit from additional upside movement
in the issue with this position.

JAN-12.50 BQF MV LB=0.30 OI=159 CB=12.20 DE=35 TY=2.1% MY=5.9%

RMBS - Rambus  $30.66  *** A New Multi-Year High! ***

Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products.  These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces.  Rambus'
memory interface products provide an interface between memory chips
and logic chips.  In addition, the firm's logic interface products
provide an interface between two logic chips.  Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone.  Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.
Shares of RMBS spiked again in late November in the wake of a legal
ruling involving Unocal (NYSE:UCL), which analysts say could lead to
a positive outcome for Rambus in its suit with the government.  The
ongoing saga of the company's royalty issues may be resolved in a
favorable manner after this ruling, and traders can profit from that
outcome with this position.

JAN-20.00 BNQ MD LB=0.40 OI=9912 CB=19.60 DE=35 TY=1.8% MY=5.3%

AAII - AaiPharma  $25.01  *** Up, Up And Away! ***

AaiPharma (NASDAQ:AAII) is a science-based specialty pharmaceutical
company that focuses on targeted therapeutic areas, to which the
company markets a growing portfolio of established branded products
and applies its technologies to increase the commercial potential
of these products.  At the same time, AaiPharma's R&D organization
is developing a pipeline of products to position the company for
near-term and long-term growth in its targeted therapeutic areas.
In addition to developing and marketing its own line of proprietary
pharmaceutical products, AaiPharma continues to provide contract
pharmaceutical development services through its AAI International
division.  AaiPharma soared higher last week after the company said
it expects revenue for 2004 to be in the range of $340 million to
$355 million and earnings to be in the range of $1.45 to $1.52 per
share.  Analysts on average had expected profit of $1.31 per share
and $314.1 million in revenue.  The recent sharp rally will likely
give way to a brief consolidation, pullback, thus readers should
target a higher premium initially in the issue.

JAN-22.50 IUQ MX LB=0.45 OI=0 CB=22.05 DE=35 TY=1.8% MY=4.9%

EMMS - Emmis Communications  $27.17  *** Rally Mode! ***

Emmis Communications (NASDAQ:EMMS) is a diversified media company
with radio broadcasting, television broadcasting and magazine
publishing operations.  The company operates 18 FM radio stations
and three AM radio stations in the United States that serve the
radio markets of New York City, Los Angeles and Chicago, as well
as Phoenix, St. Louis, Indianapolis and Terre Haute, Indiana.  The
firm also operates 16 television stations that serve geographically
diverse mid-sized markets in the United States, and has a variety
of television network affiliations.  In addition to its domestic
broadcasting properties, the company operates news and agriculture
information radio networks in Indiana and publishes magazines.  It
also has a 59.5% interest in a national radio station in Hungary
and owns 75% of one FM and one AM radio station in Buenos Aires,
Argentina.  EMMS has been one of the best performing stocks over
the past two weeks and traders who wouldn't mind owning the issue
should "target-shoot" a higher premium in this position, to allow
for some consolidation from the recent rally.

JAN-25.00 QMJ ME LB=0.50 OI=1000 CB=24.50 DE=35 TY=1.8% MY=4.7%



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

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

ATRS   33.43  JAN 30.00  QJI MF 1.45 20    28.55  35   4.4%  11.1%
RDWR   27.51  JAN 25.00  AUD ME 0.85 120   24.15  35   3.1%   7.9%
ARTC   23.38  JAN 22.50  ARU MX 0.80 5     21.70  35   3.2%   7.5%
ZGEN   15.30  JAN 15.00  GZU MC 0.55 0     14.45  35   3.3%   7.5%
IBIS   15.40  JAN 12.50  UIB MV 0.30 39    12.20  35   2.1%   7.3%
ATVI   15.70  JAN 15.00  AEZ MC 0.50 241   14.50  35   3.0%   7.1%
AEIS   25.34  JAN 22.50  OEQ MX 0.65 30    21.85  35   2.6%   7.1%
WYNN   27.61  JAN 25.00  UWY ME 0.70 500   24.30  35   2.5%   6.7%
RIG    23.08  JAN 22.50  RIG MX 0.65 2324  21.85  35   2.6%   6.1%
CPRT   15.65  JAN 15.00  KQJ MC 0.40 1055  14.60  35   2.4%   5.8%
SEAC   14.84  JAN 12.50  UEG MV 0.25 36    12.25  35   1.8%   5.6%
MEE    18.14  JAN 17.50  MEE MW 0.45 36    17.05  35   2.3%   5.5%
TYC    25.47  JAN 25.00  TYC ME 0.65 19221 24.35  35   2.3%   5.4%
SBGI   12.99  JAN 12.50  JQO MV 0.30 250   12.20  35   2.1%   5.2%



Santa Claus Rally In Progress!
By Ray Cummins

Blue-chip stocks finished the session at an 18-month high Friday
as optimistic investors focused on a positive earnings outlook
from Coca-Cola (NYSE:KO) while dismissing a slump in consumer

The Dow Jones industrial average gained 34 points to close at
10,042, its highest level since May 24, 2002.  The tech-laden
NASDAQ composite index ended 6 points higher at 1,949, despite
a slump in semiconductor shares.  The broader Standard & Poor's
500 index added 2 points to close at 1,074 as basic materials,
homebuilding, gold, and energy stocks moved higher.  Advancing
issues outpaced declining stocks by nearly 2 to 1 on the major
exchanges.  Over 1.4 billion shares were traded on the NASDAQ
while the Big Board saw 1.2 billion shares change hands.  For
the week, the Dow rose 1.8% and the S&P 500 index gained 1.2%,
while the NASDAQ earned honorable mention at 0.6%.  Bonds were
relatively unchanged with the yield on the 10-year note closing
at 4.24%.


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


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

MGAM    41.45   37.25   DEC   30  35   0.45  34.55   0.45   Open?
ANPI    48.77   46.93   DEC   35  40   0.45  39.55   0.45   Open
PFE     34.08   34.40   DEC   30  32   0.25  32.25   0.25   Open
PHS     58.10   65.38   DEC   48  50   0.30  49.70   0.30   Open
SII     39.07   40.25   DEC   35  37   0.45  37.05   0.45   Open
IVGN    64.85   65.56   DEC   55  60   0.50  59.50   0.50   Open
NTLI    58.96   68.80   DEC   45  50   0.45  49.55   0.45   Open
NVLS    42.54   40.30   DEC   35  37   0.25  37.25   0.25   Open
HOV     92.25   88.34   DEC   80  85   0.55  84.45   0.55   Open
IMCL    39.29   40.45   DEC   30  35   0.55  34.45   0.55   Open
MATK    60.74   58.77   DEC   50  55   0.45  54.55   0.45   Open
MSTR    54.00   51.17   DEC   45  50   0.65  49.35   0.65  Closed
CME     70.63   68.25   JAN   60  65   0.50  64.50   0.50   Open
NCEN    39.62   38.12   JAN   30  32   0.45  32.93   0.45   Open
SII     40.22   40.25   JAN   35  37   0.25  37.25   0.25   Open

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

Microstrategy (NASDAQ:MSTR) has been closed to preserve capital
while Multimedia Games (NASDAQ:MGAM) remains on the "watch" list.


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

AIG     58.28   62.12   DEC   65  60   0.90  60.90  (1.22) Closed
SNPS    30.85   34.27   DEC   37  35   0.25  35.25   0.25  Closed
CCMP    54.16   49.24   DEC   65  60   0.50  60.50   0.50   Open
KKD     41.85   37.15   DEC   50  45   0.60  45.60   0.60   Open
SNPS    30.28   34.27   DEC   37  35   0.20  35.20   0.20   Open
MRVL    38.90   38.46   DEC   45  42   0.30  42.80   0.30   Open
MHK     72.08   68.75   DEC   80  75   0.45  75.45   0.45   Open
TTWO    33.10   30.33   DEC   37  35   0.25  35.25   0.25   Open
CECO    38.45   40.27   DEC   50  45   0.40  45.40   0.40   Open
S       48.96   46.05   DEC   55  50   0.50  50.50   0.50   Open
SNDK    64.35   62.28   DEC   75  70   0.60  70.60   0.60   Open

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

On Thursday, American Int'l Group (NYSE:AIG) became a victim of the
"Santa Claus" rally and the spread was closed early (for a smaller
than published loss).  Synopsis (NASDAQ:SNPS) has also reversed
course and conservative traders should consider exiting the play.
Bearish positions in Qualcomm (NASDAQ:QCOM), BJ Services (NYSE:BJS)
and Intermune (NASDAQ:ITMN) have previously been closed to limit


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

VLO     44.00  45.11   DEC   37  40   2.20   39.70  0.30   Open
ADRX    21.66  23.25   DEC   17  20   2.15   19.65  0.35   Open
ELAB    48.17  52.90   DEC   40  45   4.50   44.50  0.50   Open
ANPI    49.32  46.93   DEC   40  45   4.50   44.50  0.50   Open
OSX     89.45  92.03   JAN   80  85   4.40   84.40  0.60   Open

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

Angiotech (NASDAQ:ANPI) is now on the "early exit" watch-list.


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

CTMI    16.08  15.64  DEC   20  17   2.25   17.75  0.25   Open
SYMC    32.42  33.21  JAN   37  35   2.15   35.35  0.35   Open

Apria Healthcare (NYSE:AHG) has previously been closed for a small


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

IDCC    19.00  19.61   JAN     25     15     0.20    0.45   Open
ELX     29.50  26.77   APR     35     25     0.10    0.00   Open?
NE      36.09  37.14   JAN     37     35     0.10    0.50   Open?
PTEN    31.34  31.94   JAN     32     30    (0.10)   0.50   Open

Noble (NYSE:NE) achieved a favorable "early-exit" profit in less
than one week.  The recent rally in Emulex (NYSE:ELX) failed at
resistance near $30 and conservative traders should have exited
the position after Tuesday's close below the trading-range bottom
near $26.50.


No Open Positions


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

SCRI    20.52  26.26   FEB-22C   DEC-25C   1.40    2.10    Open
CEPH    46.34  47.50   FEB-50C   DEC-50C   1.30    1.60    Open
OIH     58.73  60.65   JAN-60C   DEC-60C   0.80    0.90    Open


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

MACR    20.22  18.63   DEC    20    20     2.20    3.00    Open?
ATN     17.93  18.55   JAN    17    17     2.40    2.75    Open
MYL     25.32  25.20   JAN    25    25     2.25    2.10    Open

Macromedia (NASDAQ:MACR) achieved the initial profit target ($0.70)
in only two weeks.


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


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

CYBX - Cyberonics  $32.70  *** Next Leg Up? ***

Cyberonics (NASDAQ:CYBX) develops, manufactures and markets
medical devices that provide vagus nerve stimulation (VNS) for
the treatment of epilepsy and other debilitating neurological,
psychiatric diseases and disorders.  The firm's primary product,
the Cyberonics VNS Therapy System, is an implantable medical
device for the treatment of epilepsy, depression, Alzheimer's
disease and other debilitating chronic disorders.  The company
has approval for the therapy's commercial distribution in the
United States, Canada, Europe, Australia and other markets for
the treatment of epilepsy, and for its commercial distribution
as a treatment of depression in the European market and in
Canada.  VNS therapy is also being investigated as a treatment
option for disorders such as obsessive-compulsive disorder,
panic disorder and adult onset post-traumatic stress disorder.

CYBX - Cyberonics  $32.70

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-25.00  QAJ-ME  OI=438  ASK=$0.25
SELL PUT  JAN-30.00  QAJ-MF  OI=111  BID=$0.70
POTENTIAL PROFIT(max)=11% B/E=$29.50

INTU - Intuit  $52.16  *** New Trading Range? ***

Intuit (NYSE:INTU) is a provider of business tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals.  The company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include Small
Business, Tax, Personal Finance, Quicken Loans and Global Business.

INTU - Intuit  $52.16

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-45.00  IQU-MI  OI=2870  ASK=$0.35
SELL PUT  JAN-47.50  IQU-MW  OI=1618  BID=$0.60
POTENTIAL PROFIT(max)=11% B/E=$47.25

TRN - Trinity Industries  $31.36  *** Industrial Shares Rally! ***

Trinity Industries (NYSE:TRN) is engaged in the manufacture, sale
and leasing of a variety of products and services for the transport,
industrial, construction and energy sectors of the marketplace.  The
rail group manufactures and sells railcars and component parts.  The
construction products group manufactures and sells highway guardrail
and safety products, concrete and aggregate, girders and beams.  The
inland barge group makes and sells barges and related products for
inland waterway services.  The industrial products group makes and
sells container heads and pressure and non-pressure containers for
the storage and transportation of liquefied gases and other liquid
and dry products.  The railcar leasing and management services group
provides services such as fleet management and leasing.  The company
also has an all other segment that includes its captive insurance
and transportation companies, structural towers and other peripheral

TRN - Trinity Industries  $31.36

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-25.00  TRN-ME  OI=960   ASK=$0.25
SELL PUT  JAN-30.00  TRN-MF  OI=316   BID=$0.95
POTENTIAL PROFIT(max)=18% B/E=$29.25

CERN - Cerner  $39.22  *** UK Contract Speculation! ***

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

CERN - Cerner  $39.22

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-50.00  CQN-AJ  OI=1811  ASK=$0.40
SELL CALL  JAN-45.00  CQN-AI  OI=1711  BID=$0.90
POTENTIAL PROFIT(max)=12% B/E=$45.55

MDC - M.D.C. Holdings  $64.06  *** Premium-Selling Only! ***

M.D.C. Holdings (NYSE:MDC) is principally engaged in owning and
managing subsidiary companies that build and sell homes under the
name Richmond American Homes.  The company also owns and manages
HomeAmerican Mortgage Corporation, which originates mortgage loans
primarily for MDC's home buyers.  In addition, it provides title
agency services through American Home Title and Escrow Company to
MDC home buyers in Virginia, Maryland and Colorado and also offers
third-party insurance products through American Home Insurance
Agency, to the company's home buyers in all of its markets.

MDC - M.D.C. Holdings  $64.06

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-75.00  MDC-AO  OI=35  ASK=$0.30
SELL CALL  JAN-70.00  MDC-AN  OI=84  BID=$0.85
POTENTIAL PROFIT(max)=14% B/E=$70.60


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

ACDO - Accredo Health  $31.77  *** New Rally Underway? ***

Accredo Health (NASDAQ:ACDO) provides specialty retail pharmacy
services, clinical services, reimbursement services and delivery
services, pursuant to agreements with biotech drug manufacturers,
relating to the treatment of patients with certain costly chronic
diseases.  The firm addresses the needs of the manufacturers by
providing specialized services that facilitate product launch
and patient acceptance, including the collection of timely drug
utilization and patient compliance information, patient education
and monitoring through the use of written materials and telephonic
consultation, reimbursement expertise and overnight drug delivery.
ACDO has designed its specialty retail pharmacy services to focus
primarily on biotechnology injectable drugs that are used on a
recurring basis to treat chronic and potentially life threatening
diseases, are expensive and require temperature control or other
specialized handling as part of their distribution process.

ACDO - Accredo Health  $31.77

PLAY (less conservative - bullish/debit spread):

BUY  CALL  JAN-25.00  DZU-AE  OI=285  ASK=$7.00
SELL CALL  JAN-30.00  DZU-AF  OI=342  BID=$2.55
POTENTIAL PROFIT(max)=12% B/E=$29.45

DRIV - Digital River  $25.01  *** Bottom-Fishing! ***

Digital River (NASDAQ:DRIV) is a provider of electronic commerce
outsourcing solutions.  As an application service provider, the
company enables its clients to access its proprietary electronic
commerce system over the Internet.  The company's technology plat-
form allows it to provide a suite of electronic commerce services,
including Web commerce development and hosting, transaction
processing, fraud screening, digital delivery, integration to
physical fulfillment and customer service.  Digital River also
provides analytical marketing and merchandising services to assist
clients in increasing Web page view traffic to, and sales through,
their Web commerce systems.

DRIV - Digital River  $25.01

BUY  CALL  JAN-20.00  DQI-AD  OI=24  ASK=$5.30
SELL CALL  JAN-22.50  DQI-AX  OI=53  BID=$3.10
POTENTIAL PROFIT(max)=14% B/E=$22.20


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

CE - Concord  $13.50  *** FDC/CE Merger Speculation ***

Concord EFS (NYSE:CE) is an electronic transaction processor
that provides the technology and network systems that make
payments and other financial transactions fast, efficient and
secure.  The company is organized in two business segments:
network services and payment services.  The network services
segment provides ATM processing, debit card processing and
coast-to-coast debit network access principally for financial
institutions.  The payment services segment provides POS
processing, settlement and related services, with specialized
systems focusing on supermarkets, major retailers, gas stations,
convenience stores, restaurants and trucking companies.

CE - Concord  $13.50

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JAN-14.00  CE-AP  OI=8750   ASK=$1.00
SELL PUT   JAN-12.50  CE-MV  OI=12863  BID=$0.80

Note:  This position is based on a potential merger approval
that would value CE shares at approximately $15.70, based on
First Data's (NYSE:FDC) current price.  Please complete the
necessary due-diligence before participating in this play.
The minimum initial margin/collateral requirement for the sold
option is approximately $530 per contract.  However, do not
open this position if you can not afford to purchase the stock
at the sold put strike price ($12.50).

SHFL - Shuffle Master  $32.93  *** Bet On A Gaming Stock! ***

Shuffle Master (NASDAQ:SHFL)) develops, manufactures and markets
automatic card shufflers for use with card-based table games.
Shuffle Master also develops and markets table games and licenses
these products to casinos.  Table games include the Let It Ride
basic game, the Let It Ride Bonus game and the Three Card Poker
game.  Shuffle Master develops and markets slot games and slot
game operating systems for slot machines.  Shuffle Master has
actively marketed The Three Stooges, Let's Make A Deal, The
Honeymooners, Press Your Luck, Hollywood, Spider-Man and Five
Deck Pokergames.

SHFL - Shuffle Master  $32.93

PLAY (speculative - bullish/synthetic position):

BUY  CALL  FEB-35.00  SFQ-BG  OI=173  ASK=$1.40
SELL PUT   FEB-30.00  SFQ-NF  OI=579  BID=$1.00

Note: Target a higher credit in this play initially, to allow
for a brief consolidation in the issue.  Using options, the
position is similar to being long the stock.  The minimum
initial margin/collateral requirement for the sold option is
approximately $1150 per contract.  However, do not open this
position if you can not afford to purchase the stock at the
sold put strike price ($30.00).


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

EBAY - eBay  $57.68  *** Cheap Speculation! ***

eBay (NASDAQ:EBAY) is a web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

EBAY - eBay  $57.68

PLAY (very speculative - bullish/calendar spread):

BUY  CALL  JAN-60.00  XBA-AL  OI=14859  ASK=$1.50
SELL CALL  DEC-60.00  XBA-LL  OI=21804  BID=$0.25


Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

FCEL - FuelCell Energy  $12.56  *** Earnings Speculation! ***

FuelCell Energy (NASDAQ:FCEL), based in Danbury, Connecticut, is
a world-recognized leader for development and commercialization
of high efficiency fuel cells for electric power generation.  The
company's DFC technology eliminates external fuel processing to
extract hydrogen from a hydrocarbon fuel.  This results in a
product whose cost, combined with high efficiency, simplicity and
reliability, results in product advantages for stationary power
generation.  The company's quarterly earnings report is due on
Tuesday, December 16, 2003.

FCEL - FuelCell Energy  $12.56

PLAY (very speculative - neutral/debit straddle):

BUY CALL  DEC-12.50  FQG-LS  OI=284  ASK=$0.50
BUY PUT   DEC-12.50  FQG-XS  OI=333  ASK=$0.45




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by - Nich Sheldon

Bullish traders said Bear-Hum-Bug, as bears tried with all their
might to drag the Dow below 10,000.  While bears succeeded in
getting the Dow to drop below this psychological level, the dip
didn't last for long.  In fact, the Dow reached a new 52-week
high by the closing bell.

Today's action was bland at best, but the overall market
direction was higher.  A quick look at the indexes and we noticed
that the INDU Dow Jones Industrial Average, SPX S&P 500 Index,
OEX S&P 100 Index, OIX Oil Index, DFI Defense Index, and the IUX
S&P Insurance index all closed at new 52-week highs.

The INX CBOE Internet Index gained 4.42 percent on the day.
Yesterday, the index produced a doji candlestick after recording
six days of losses in a row.  Today the index gapped higher from
the open on stronger than usual volume.

The GHA GSTI Hardware Index gapped higher at the open today,
tacking on 2.64 percent by the close.

The OSX Oil Service Sector Index added 2.49 percent, closing at
92.03.  The index has not closed over 92 since August 28th, 2003.
While the MACD is still urging a buy signal, we speculate that
the OSX is resting right at hard resistance, and profit taking
could occur by year-end.

The SOX Semiconductor Index, DRG Pharmaceutical Index, RLX S&P
Retail Index, NWX Networking Index, and the HMO Morgan Stanley
Healthcare Index all reported fractional loses of less than half
a percentage point on Friday.


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