Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/16/2003

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Tuesday 12-16-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: New Dow High, Ho, Ho, Ho!
Futures Markets: Triple Digit Dow Gain
Index Trader Wrap: The head and tail of two markets
Market Sentiment: Blue Chips Cheer the CPI


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      12-16-2003           High     Low     Volume Advance/Decline
DJIA    10129.59 +106.70 10137.63 10023.34 1.84 bln   1892/1361
NASDAQ   1924.29 +  6.00  1927.09  1901.66 1.81 bln   1577/1670
S&P 100   534.75 +  4.28   535.17   530.47   Totals   3469/3031
S&P 500  1075.13 +  7.09  1075.94  1068.04
W5000   10441.40 + 56.20 10447.74 10366.46
RUS 2000  537.74 +  2.49   537.77   529.44
DJ TRANS 2967.28 + 16.50  2970.44  2942.01
VIX        15.93 -  1.30    17.45    15.90
VXO (VIX-O)15.70 -  1.21    17.11    15.60
VXN        26.15 -  0.92    27.59    25.88
Total Volume 3,949M
Total UpVol  2,286M
Total DnVol  1,597M
52wk Highs  347
52wk Lows    36
TRIN       0.88
NAZTRIN    0.85
PUT/CALL   0.68
************************************************************

New Dow High, Ho, Ho, Ho!

Great economic reports did what Saddam's capture could not.
The Dow set a new closing 52-week high and came within two
points of breaking yesterday's spike high. It definitely did
not hurt to have the Saddam news clear out all the resistance
between 10,000 and 10,140 and pave the way for today's gain.
Maybe Osama will volunteer to surrender and clear the next
resistance all the way to 10,250. Now that would be a holiday
treat.

Dow Chart


Nasdaq Chart




The morning reports began with the Consumer Price Index and
more evidence the Fed may be on the right track with their
no inflation in sight position. The headline number fell
-0.2% and well below the estimates for a small increase.
The core rate fell -0.1% and pushed the trailing 12-month
number to a 38 year low of only 1.1%. The -3.0% drop in
energy prices helped to offset the continued rise in food
prices. We are exporting more food than normal due to the
mad cow problems in other countries and that extra demand
is continuing to raise our prices at home. Used car prices
are falling through the floor with another -2.3% drop. Those
new car deals are flooding the market with older models and
dealers are having to give them away. The headline number
would have been even lower except for a sharp rise in
college tuition. Bet your glad to hear that. The main
reason for the drop in produced goods prices remains the
excess capacity.

Prices down and production up, what a perfect world. That
is what traders thought when the Industrial Production
number blew out at +0.9% compared to estimates for only
a +0.4% gain. The two prior months were also revised
upward. The +0.9% jump in the headline number was the
strongest gain since 1999. Suddenly there is a real
recovery underway and traders celebrated. Capacity
Utilization also jumped to 75.7% from 75.1% and suggests
a significant jump in demand and the highest rate in more
than a year. (these numbers do not move fast) Production
has now risen for five of the last six months. If you
remember exports were up +$500 million last week which
indicates the global picture is improving and that
production is showing up here.

Adding to the positive economic picture was yet another
upside surprise in Housing Starts. Single-family homes
set another record with overall housing starts hitting
an annualized 2.07 million units. October numbers were
also revised upward. Since housing impacts dozens of
other industries like lumber, roofing, appliances and
electrical components to name just a few, this is a very
good view of the potential fourth quarter GDP. The dip
in mortgage rates back down to decent levels again is
spurring one more building cycle. Homes started in Nov
will be completed in the spring and just in time for the
buying cycle to begin again. With $165 billion in tax
stimulus scheduled to hit in the first quarter you can
bet there will be buyers waiting. The only obstruction
to this process could be a Fed rate hike in March. This
is the last meeting they can safely raise the rates before
the election. The Fed is not stupid and they recognize
this and the psychological impact it will have on home
buyers. I doubt they will be anxious to trip up the
consumer just before the summer doldrums appear. This
inventory buildup is poised to give the economy another
quarter (Q2) of improvement.

The morning started off rocky despite the great economics
with more negative retail news. Wal-Mart warned yesterday
that sales would be at the low end of plan and gave traders
a clue that December was not going to set any records.
Target followed up with a warning that sales were slowing
as well. Today Sears was downgraded due to reported heavy
discounting and slowing sales. Reports surfaced that high
dollar toys, really high dollar like Harley Davidson motor
cycles, snowmobiles and ATVs were down between -5% to -9%.
Pier One said sales were not going well and would be down
-4% to -8% for December. This retail hiccup gave investors
a headache despite the positive economic news.

Add to this headache a Merrill downgrade of the chip sector
on valuation concerns and it is not surprising the Nasdaq
was the weaker performer.

The Dow roared out of the gate despite an earnings warning
from HON. The company guided down for 2003 and 2004 saying
higher employee costs would hurt performance. HON dropped
significantly at the open but only held the Dow back for
a couple minutes. HON immediately recovered all its losses
but then shed them again as the volume picked up. The
Nasdaq did not fare so well due to the chip downgrade and
fell from the start to come very close to support at 1900
before recovering to close up for the day. In reality the
Dow reached back and plucked the Nasdaq from danger with
its +100 point gain. Dow 10084 remained resistance most of
the day with the Nasdaq and Russell holding the Dow back.
Once that resistance broke everyone joined the party.

That party came to a halt at 10137.64, less than 2 points
from Monday's Saddam spike high. Had that Saddam spike not
cleared out significant resistance to that level today and
probably this week would have looked a lot different. If
you remember last Friday we closed right below resistance
at 10050 and internals were turning weaker. The outlook
for this week was a move higher but nothing impressive.
The Saddam spike cleared the way for better gains than
we could have made on our own.

If you look at the market internals and charts of the major
indexes you will see a troubling divergence. On December
2nd the Russell-2000 hit its high for the year. On Dec 3rd
the Nasdaq hit 2000 and both indexes immediately headed
lower. From that day forward the OEX (top 100 blue chips)
and the Dow started moving higher. Why? The answer is right
in plain sight. Portfolio managers know there is a profit
taking dip coming in January. Despite knowing there is
trouble ahead they do not want to go into the year end
in cash. They still have to be invested so those year end
statements and advertising literature looks impressive.
The way to do this is rotate out of the small caps and
techs and into blue chips. They can get out of the most
volatile stocks early and into the highly liquid stocks
in advance of the decline. Who would not want to own a
fund with IBM, MMM, GE, UTX, CAT, KO, MO and PG in it
when most are at 52-week highs? This allows the funds to
dress up their statements and still participate in any
further market gains with their flight to quality. Once
January begins they can be poised to exit those highly
liquid blue chips in a heartbeat without much risk.
Exiting $10 million in IBM is only a downtick on the
chart but exiting $10 million in a low volume small cap
is a major blow to the price. Anyone notice NTE today?
Or YRK, GWW or INFY? These low volume stocks got seriously
whacked on the slightest bit of news but they were just
those leaders where the incentive to exit and take profits
was accelerated by events. Multiply that by many of the
small caps and you get the picture. Funds want to be in
something liquid in January, not something that will drop
-10% if five funds decide to exit at once.

Russell-2000 Chart


Nasdaq Chart


Dow Chart


OEX Chart




With the Dow closing at a new 52-week high the obvious
question is what now? There are 5.5 trading days before
Christmas and another 3.5 days before January. The odds
are very strong that there will be major profit taking
by the second week of January. We are counting on that
in the Top 50 Stocks for 2004 renewal special. We are
targeting specific entry points on key stocks for January
to produce the most gains for the first quarter. Now if
everyone but the retail traders knows there will be profit
taking in January once the 2003 tax year and calendar year
ends then why should the Dow go higher?

The Dow "should" continue to see gains due to the rotation
out of small caps and into blue chips as I described above.
Funds want to be invested for year end statements AND they
are expecting the historical pop on Jan-5th from year end
retirement contributions. TrimTabs.com is estimating over
$10 billion in inflows between Dec-29th and Jan-9th. This
cash bonanza will provide one last bounce and the volume
needed to exit gracefully. For historical reference I
checked the highs for January for the last six years. In
Jan-2003 the high for the month was set on the 8th trading
day. In 2002 the high was set on the 4th day, 2001 the 3rd,
2000 the 9th, 1999 the 5th and 1998 the 2nd day. The average
high for all six years was made on the 5th day. That targets
Jan-7th for 2004 but we have had a bigger gain in 2003 than
any of the other prior years. This would suggest an earlier
exit for less risk. Personally I am targeting the 5th or 6th
for the January high.

I got sidetracked on the short-term topic. Yes, I think
we will see a higher Dow between now and year end despite
the rotation we are seeing in the small caps. How much
higher? There is significant resistance beginning at
10,200 to 10,300. That would be my target range for the
next three weeks. If we get to 10200 I am going short
and I am doubling down at 10250 and backing up the truck
at 10300. My only question is where will the cheating
start? We are not the only ones that can look at a
historical chart and count. With 9,000 mutual funds and
thousands of mini-funds and hedge funds there has got to
be some with enough profits that they want to beat the
pack to the door. Once this cheating starts it may be
difficult for the rest to maintain discipline until
January.

To complicate things we have the elusive Santa rally.
This is probably the most abused and over used term
mentioned in holiday trading. The official Santa rally
timeframe is considered to be the last five trading days
of December and the first two days of the new year. Those
seven days have averaged a +1.5% gain in the S&P since
1950. Even at these levels, S&P 1075, that +1.5% is a
whopping +16 points. Not exactly a banner week. Retail
traders hear the term Santa Claus rally and conjure up
visions of strong gains and a prosperous new year. As I
have outlined above the real result of the Santa Rally
is to line up the sheep for the slaughter. I do not
intend to be a sheep and hope you feel the same way.

The VXO closed at 15.70 today. That is a low not seen
since November 1996 in pre-Internet trading days. When
sentiment is that lopsidedly bullish the danger is very
real. I know you have heard it before because we have
been flirting with 16.0 for over a month. It is off
the scale for the reasons mentioned above. The VXO is
calculated on the OEX, the top 100 blue chip, most highly
liquid stocks. Sound familiar?

There are no material economic reports for Wednesday and
it will be left up to earnings warnings or news reports
to move the market. The strong gain today could give
traders another opportunity to lighten up but the more
likely prospect will be just holding the high ground.
Every dip today was met with decent volume and the same
is probably true for Wednesday. Regardless of what happens
tomorrow or the rest of the week we are trading on a tight
wire at these rarified levels. Everyone has high hopes for
the end of the year but there is always the chance for a
bolt of lightning out of a blue sky that changes the
picture instantly. Party on but be prepared to hit the
exits if the punchbowl suddenly runs dry.

Time is growing short for the end of year renewal special.
Our goal is to have the Top 50 Stocks for 2004 in your
hands before the holidays. They will be mailed by priority
mail on Monday Dec-22nd so you can have the entire holiday
period to review it and plan your trades. TIMING IS CRITICAL.
Do not delay. We based the entry points for each of the
stocks on the expected January dip. Don't miss out on
this opportunity to profit. Full details below.

Jim Brown
Editor


*****************************
2003 Year End Renewal Special
*****************************

TOP 50 STOCKS for 2004 SPECIAL INVESTOR GUIDE




What better bonus could we give you than the
potential to double or triple your money in 2004?

Each Option Investor analyst picked their favorite
stocks for 2004 out of our universe of 4500 and
applied their technical and analytical skills to
deciding how best to profit from them.

Some will be straight stock ownership, some
long term calls or puts and some with various
combinations of strategies.

There are actually more than 50 stocks presented
as there were so many profitable picks we added
a few extra.





As an additional bonus Jim has put together his

TOP 20 LOTTERY PICKS FOR 2004

These are cheap options with great potential for
achieving a profit of 200%, 300% or much more.
Also included are options on stocks he feels
are take over candidates in 2004.

TIMING IS CRITICAL

The Special Investor Guide will be provided on
CD and will be mailed by priority mail to you
before Christmas.

Because we at Option Investor feel strongly
that there will be a significant dip in January
we have planned these strategies to capitalize
on that dip.

We want you to have plenty of time to review the
stocks and strategies including the full color
charts and graphs over the holidays.

We want you to be prepared to take advantage
of the January dip and start 2004 off from a
profitable position.

Don't miss out on this highly profitable renewal
bonus.

Additional Bonuses

Every annual renewal subscriber will also receive:

TWO 2004 Option Expiration Calendar Mousepads

One for home and one for the office.


Also available are the:





2004 Stock Traders Almanac

Video on Successful Option Trading
By James Bittman

In order to get your The TOP 50 STOCKS for 2004
Special Investor Guide before the holidays you
MUST renew immediately.

Do not miss out on these profitable opportunities!

Click here to renew:

https://secure.sungrp.com/04renewal/


We are not responsible for late delivery of the
Special Investor Guide for renewals after
December 20th. We will still send it Priority
Mail but you will not receive it until three
days after your subscription is received.



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

Triple Digit Dow Gain
Jonathan Levinson

The Dow added 106 points, while the futures struggled to keep up,
with the NQ barely holding in the green.  The VXO closed at
15.70.  Equities, the US Dollar Index and treasuries were higher,
while gold, silver, the miners and the CRB fell.

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 rose slightly off new year lows, possibly
assisted by a large repo drain from the Fed.  The CRB dropped
1.53 to close below 260, while gold and silver corrected
slightly.  The more serious selling took place in the miners,
with the HUI dropping 7.73 to close at 232.32, the XAU -3.13 to
close at 104.73.


Daily chart of February gold


February gold fell 1.70, retracing part of yesterday's gains and
not altering the technical picture in any meaningful way.  The
bearish rising wedge remains in place, but with the oscillators
as extended as they are on the daily chart, even today's small
loss was sufficient to kick off a new downphase, with bearish
crosses printed on both the Macd and stochastic oscillators.   A
break below 405 would constitute a breakdown from the wedge with
an implied target of 372 or even 366 as the spike low in October.


Daily chart of the ten year note yield


Ten year bonds advanced strongly today, with the TNX dropping 4.1
basis points to close at 4.234%.  The move added fuel to the
daily cycle downphase in progress, and it appears that a test of
4.2% support is imminent.  The buying in bonds and equities was
difficult to fathom in light of the Fed's reverse repo, resulting
in a net drain of 7.75B from the markets.  Nevertheless, the
chart on the ten year yield is clear, and bonds remain in a
bullish uptrend barring a bounce in the yield from the 4.2%
pennant support.


Daily NQ candles


The NQ gained fewer than 5 points today, managing to gain the
1392 level but stopping dead at 1408 resistance.  The divergence
between the NQ and the YM remains a sight to behold, and placing
equity trades in either direction is complicated by the
discrepancy.  The YM is looking very extended to the upside,
while the NQ continues to drag.  Whichever side blinks first
should spark a sharp move, but the direction is unknown.

NQ managed to retrace only a slight part of yesterday's losses,
having spent much of the session in the red.  The bounce came
from the lower rising trendline connecting the recent lows, and
the bullish doji printed off the trendline kiss near 1380 looks
very bullish.  However, this move is countercyclical to the daily
downphase still underway, and plays out perfectly within the
interpretation posted last night, in which we expected a lower
high from the 30 minute cycle upphase.  That upphase is not yet
complete, however, and so it's early to call a continuation to
the selling.  A break above 1425-30 resistance should be the
upper limit of the daily cycle downphase, and if the bulls can
pull it off, a new upphase would likely begin.  To the downside,
1392 and 1380 remain the key supports to watch.


30 minute 20 day chart of the NQ


The 30 minute cycle upphase brought buyers today, but they had a
mostly uphill climb on the NQ.  I expect resistance to come in
the 1418-20 area, and 1425-30 should not be surpassed.  The 30
minute cycle bottom printed above the rising trendline, which is
bullish, but the lack of staying power demonstrated throughout
the afternoon was not.  The top of this upphase will tell the
tale, and so long as that 1425-30 level does not get surpassed,
the bears can expect more downside to come within the ongoing
daily cycle downphase.

For readers new to my analysis, you can conceptualize these
cycles (as measured by the oscillators on the daily and 30 minute
charts above) as defining channels that rise and fall in sympathy
with the oscillators.  The daily cycle is wider than, and in fact
contains the 30 minute cycle- like a wider pipe containing a
narrower one.  The 30 minute cycle channel rises and falls within
the wider daily cycle channel.  The daily is still pointed south,
even as the 30 minute bounces higher within it.


Daily ES candles


The daily ES rose off the lower trendline and peaked at the
upper, doing no damaged whatsoever to the downphase that kicked
off yesterday.  On this chart, we're looking at a retracement of
Monday's loss, and barring a break above the 1074-5 resistance
level, we can expect a resumption of the new downtrend.  1068,
followed by 1064 are the immediate support levels below.


20 day 30 minute chart of the ES


The 30 minute ES continues within its 30 minute cycle upphase,
but that upphase is further advanced than on the NQ, and while
the terminal phase of a cycle often results in a blowoff, we see
that the end should not be far off.  1074-5 remains the key
resistance area here, within 1068, 1064 and 1062 support below.

150-tick ES


The 150 tick ES was already kicking off a new downphase as of
this writing, suggesting that tomorrow's gains could be limited.
A pullback followed by one last surge to exhaust the 30 minute
cycle upphase could do it.


Daily YM candles


The YM is beyond recalcitrant, defying all analysis and
indicators.  The VXO closed at 15.70, at or near multiyear
closing low levels of volatility, leading me to conclude that we
are in the latter stages of a mania that appears to have focused
exclusively in the relatively narrow Dow.  The VXO bottomed far
above current levels at the March 2000 high.  Combined with the
toppy weekly and daily cycle oscillators, risk is simply
stratospheric for long plays being initiated at current prices.

That said, the YM is going up, and that's what we need to
remember.  Shorting at any point today was very risky business,
and bearish traders need to know that they're fighting the trend,
as unbelievable as that trend may be.  Catching falling or rising
knives is always dangerous.

The rise off the November lows takes the shape of a bear flag,
with today's gain rising off support just below 10000.  Any
further upside will abort the young daily downphase, and cause
that oscillator to begin trending.


20 day 30 minute chart of the YM


The 30 minute cycle upphase packed some punch today, but is very
near or at the top of its range.  Under normal conditions, one
would expect an immediate avalanche of selling to ensue,
particularly given the outrageously low VXO prints seen all the
way up to the close.  Caution has been thrown to the wind here,
and that tends to mark the commitment of the last bull.  However,
there's no telling where the blowoff will come, and so bears are
encouraged to either be tight with their stops or patient with
their entries.  And, given that the Dow remains the strongest
index, the NQ or ES should perform better to the downside.  Note
that the SOX actually closed in the red today.

The wildcard remains the dollar.  Are foreigners buying dollars
at a perceived bottom, and bonds and bluechips to ride back up?
This is a key relationship to watch tomorrow.  I don't think so,
but the market will tell us.


************************Advertisement*************************

No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?

OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!

Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.

http://www.OneStopOption.com

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


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

The head and tail of two markets

Something's got to snap, or at least I'd think it would as the
very broad NYSE Composite (NYA.X) 6,207.05 +0.56% mustered a new
52-week closing high, and while intra-day internals were not
overly strong, there continues to be notable disparity between
many 1, 2, and 3-lettered stocks, and those listed on the NASDAQ
with 4 and 5-lettered stock symbols.

Go figure it would be the NYSE showing strength in today's
session, after the California Public Employees' Retirement
Systems, calPERS said it was suing the NYSE Stock Exchange and
seven specialist floor-trading firms that do business at the
NYSE, for what calPERS is alleging are fraudulent trading
practices.

In the lawsuit, Calpers says it sold about three billion shares
of stock on the NYSE between October 1998 and October 2003 and
lost "millions" of dollars in damages from the specialists'
activities at the NYSE.

The suit alleges that the specialist firms, with the "knowledge"
and "active participation" of the NYSE, routinely engaged in
"inter-positioning," by placing themselves in front of investors
when they should have stayed out of the way to allow a natural
match to occur between buyers and sellers of stock.  The suit
also alleges the firms engaged in so-called front-running to
trade for their own accounts using confidential knowledge about
investors' orders.  Another practice alleged in the lawsuit was
"freezing" the specialists' books so that they could trade for
their own accounts prior to completing investors' orders.

These practices constitute "wide-ranging manipulative, self-
dealing, deceptive and misleading conduct," the lawsuit said.  As
far as Michael LaBranche, "he was an active and knowing
participant in the alleged unlawful conduct," the lawsuit said.

CalPERS cites a Wall Street Journal story about a confidential
SEC report extensively in its claim against the NYSE, saying it
showed that the specialists' activities were only able to
continue because the NYSE deliberately failed to halt or
discipline the firms for illegal trading practices.

Publicly traded stocks named in the calPERS suit found LaBranche
(NYSE:LAB) $9.32 -7.07%, Spear Leeds & Kellogg unit of Goldman
Sachs (NYSE:GS) $97.52 -0.23% and the Van Der Moolen Specialists
USA unit of Van Der Moolen Holdings NV (NYSE:VDM) $8.12 -6.66%
trading lower in the session.

While "market related," the news found the Securities Broker
Dealer Index (XBD.X) 631.59 +1.02% matching strong percentage
gains in the S&P Banks Index (BIX.X) 332.13 +1.15% and S&P
Insurance Index (IUX.X) 291.85 +1.08%, as upbeat economic data,
and recent geopolitical news made for a bifurcated trade in the
first half of today's session.

In general, I thought the bulk of the economic data released
prior to the open was largely positive, with one possible
exception being consumer prices falling 0.2%.  While the decline
in consumer prices will put the Fed at ease concerning
"inflation," the decline in prices paid at the consumer level
continues to suggest competitive pricing for goods and services.

Housing starts jumped to their highest annual rate in 20-years,
and while the Dow Jones Home Construction Index (DJUSHB) 547.75
+0.99% found the homebuilders under selling pressure early, with
the DJUSHB slipping to 559.11 in the early morning session, the
DJUSHB gathered its footing before testing its rising 50-day SMA
of 552.57, as buyers discounted November building permits, which
came in at an annualized 1.874 million unit rate and below
economists' forecast for 1.901 million units.

The United States trimmed its current account deficit in the
third quarter of 2003 after plunging into a record-sized
shortfall in the previous three months.

The current account deficit, which tracks foreign trade, income
and one-way transfers such as foreign aid, fell 3% to a smaller-
than-expected $135.0 billion.

In the second quarter, the United States had suffered a record
shortfall of $139.4 billion.

In trade of goods and services, the deficit in the third quarter
narrowed to $121.3 billion from US$124.2 billion in the second
quarter.

The surplus on foreign income, derived from investments and from
compensation for overseas workers, grew to $2.6 billion from $1.7
billion.

One-way transfers led to net outflows of $16.3 billion in the
quarter, which was down from an outflow of $16.9 billion in the
previous three months.

The narrowing of the U.S.'s current account deficit in the third
quarter and falling consumer prices in November put a bid under
Treasuries, with the benchmark 10-year YIELD ($TNX.X) trading
lower by 4.1 basis points to close at 4.234%.  While Treasuries
found buyers, the equity side of gold found the AMEX Gold Bugs
Index ($HUI.X) 232.32 -3.22% leading today's sector losses, where
sector losses diminished markedly by today's close.

Here's an hour-by-hour recap of today's internals and major
indices trade.  The observation that I would make is that the
NYSE may indeed be the head of the snake, where strength built at
the mid-point of today's trade, and helped pull the weaker NASDAQ
back into positive territory by the close.

Market Snapshot / Internals - 12/16/03 Close



What was it that had the weaker NASDAQ recouping earlier losses
by its close, and why such divergence, especially in price action
between the NASDAQ, even the Russell-2000 and the other major
indices?

As noted later this afternoon, the only observation, or tie, I
could make for today's late-session rebound for the NASDAQ and
RUT.X was Prime Minister Tony Blair's comments just before 01:00
PM EST market, regarding a U.S.-led Iraq Survey Group, which said
it had found a network of biological laboratories in Iraq.  It
would be impossible to confirm, but when weakness finds strength
just after this type of news, which follows a day after Saddam
Hussein's capture, this trade smell a bit of short-covering.
There was talk yesterday that Saddam's capture was "factored in"
to the markets, and while the afternoon bounce came as the
NASDAQ-100 Tracking Stock (AMEX:QQQ) $34.85 +0.2% was about to
try and retest its WEEKLY S1 of $34.43 for a second time intra-
day, the bid formed after Briefing.com headlined the Dow Jones
report at 12:45 PM EST.

Valuation is often cited as a reason for the recent NASDAQ
weakness relative the other major indices.  I would also add that
options expiration may be having some impact on trade, especially
in the NASDAQ-100 Tracking Stock (AMEX:QQQ).

One item here is notes we made intra-day back on October 15th,
regarding a large institutional buyer that day (as the QQQ was
spiking to a 52-week high) in the December $34 puts.  I made note
of this in the Market Monitor and then again in the October 15th
wrap.

With open interest in the QQQ heaviest at the $34 puts for
December expiration, we should well expect volatility.  The
reason I bring this note up tonight, is that in the October 15th
wrap, it was probably a "gutsy" trade to be buying QQQ $34 puts
for $1.05 or $1.10.  While the QQQ did see a low of $33.49 days
after our notes, $1.05 either side of $34 is $35-$33, where QQQ
traders might indeed note MONTHLY S1 of $34.05 (pretty close to
$34) and MONTHLY Pivot ($35.11).

Since I'm discussing the QQQ, I should note that I profiled a
swing trade bearish trade in the QQQ today at $34.51, stop
$35.12, target $34.11.  This trade was profiled at 12:33:38, and
was after the QQQ's initial test of DAILY S1.  I had set some
"tests" for this trade in today's market monitor, and when I look
at the pivot matrix for tomorrow, the bearish side of me, which
profiled the trade, doesn't feel comfortable at tonight's close.

Pivot Analysis Matrix -



When I profile the QQQ bearish trade, market internals were
weakening at the NASDAQ, and the QQQ had just started to reverse
back from the $34.77 level, as the Dow Industrials (INDU) was
trading either side its MONTHLY R2 of 10,075.25.  Surely the
market was set to sell off, with the QQQ more than likely falling
to my target of $34.11.  While this may still happen, one of my
tests was that the leadership Dow Industrials (INDU) would
certainly find sellers at its WEEKLY R1 to keep things in check
for the QQQ.

Nope!  The INDU, not only broke back above its WEEKLY R1 of
10,109.30, when it did, it kissed that level as support before
making a new session high.

Two things now concern me about my QQQ trade.  How many traders
shorted the QQQ on thought that Saddam's capture was fully baked
into the cake, or had NO IMPACT on financial markets (remember
investor psychology)?  While "max pain" for the QQQ is $34.00,
how many traders have shorted this market (QQQ) on the certainty
that the QQQ would trade $34.00 by expiration?

Ugh!  There's no way I thought the QQQ would trade as it did
toward the close today (this is the bear in me) and now I've
PROFILED a stop at $35.12, which is directly above WEEKLY Pivot
and DAILY R1.  Traders that are short my profiled bearish trade
may want to make a slight adjustment to their stop of $34.15, try
and build some room above this correlation in the matrix, but I
now feel that I'm counting on computer selling to hold back an
angry mob of bears, if this level is broken to the upside.  The
ability for the Dow Industrials to continue to march higher has
the QQQ bear in me very concerned about POSITIVE market
psychology.

The two levels highlighted in PINK on the INDU at DAILY S1, was a
level that after the first 25-minutes of trade today, NEVER saw
the INDU fall back below the 10,060 level, where this 10,060 INDU
held firm as the QQQ tested its WEEKLY S1 with a session low of
$34.42.  The PINK box at WEEKLY R1 in the INDU is a level of
trade where I thought this might give strength to the QQQ from
the bottom.  Both of these PINK levels in the INDU were mentioned
at the end of today's 01:00 PM EST update.

Dow Industrials Chart - 5-minute intervals



The Dow Industrials (INDU) traded inside of yesterday's range, so
I thought I'd show two day's trading on the 5-minute bar chart,
where the stronger INDU was quick to gravitate back higher to its
MONTHLY R2 of 10,075.29, then make a late afternoon move back
above 10,109.30.

I've marked a spot on the INDU intra-day chart, where the QQQ had
just traded its WEEKLY S1 and lows of the session.  This intra-
day chart may begin to disprove that Saddam's capture was fully
factored into the market, shows Dow leadership, and may well
serve importance as to how higher price action in the Dow, may
also be lifting to market psychology, and give even the weakest
of indices a lift.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - 5-minute intervals



While the INDU didn't trade below yesterday's lows, the QQQ did.
I've marked my last three trades on the QQQ where we raised stops
in a bullish trade early morning to our target of $34.75, and
were stopped out with a nice gain.  Then I profiled a bullish
trade back at $35.12 in the QQQ on Monday, as while we did see a
bounce from the MONTHLY Pivot of $35.11, the Q's turned south and
stopped that bullish trade out at $34.79.  Then today, I was
"certain" the QQQ was going to lead lower once again below the
WEEKLY S1 and fall to a decent target of $34.11, where a scenario
of "max pain" at $34 by expiration would be an easy bearish
trade.  It's not looking that way, and as a bearish trader in the
QQQ, I could blame the INDU for its strength, which gives bullish
lift to the QQQ.  Just as I've marked QQQ levels, which might be
correlative to INDU levels of trade near-term, I marked INDU
levels which I associate with the QQQ.

Guess which two indices are right in the middle?

S&P 500 Index Chart - 5-minute intervals



It becomes rather apparent that the SPX is stuck right in the
middle of the INDU/QQQ trade, where it would certainly behoove an
SPX trader to keep an eye on both ends of the snake, or the
inchworm.  I would say the SPX looks very strong and should hold
above WEEKLY Pivot of 1,067, which I might correlate with QQQ
WEEKLY S1.

While the internals of the NASDAQ strongly suggest weakness, it
is price action that matters most.  Do NOT be lulled into
complacency with thoughts that "max pain" will be achieved, or
that "Saddam was factored into things."

For those wondering what "max pain" is for the SPX, were not even
close at 1,025.

Jeff Bailey


************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

Blue Chips Cheer the CPI
- J. Brown

The big event today was the Consumer Price Index (CPI) for
November.  The price for consumer goods dropped 0.2 percent in
November, which marked the biggest drop since April.  The big
headline today was the drop in the "core rate" of inflation,
which discounts the volatile food and energy prices.  November's
"core" rate fell 0.1 percent for the first drop since December
1982.  Obviously inflation is NOT an issue right now and the
market's cheered.  With no visible signs of inflation the Federal
Reserve will be content to sit on their hands.  If we can make it
past the March FOMC meeting the markets could have clear sailing
until the first quarter of 2005 before we have to worry about
interest rate hikes.

Contributing to the strong economic news was an improving
industrial production rate, which grew 0.9 percent.  This was the
best improvement in four years.  To make it a Tuesday trifecta of
positive economic news the utilization numbers were also positive
with a rise from 75.1 to 75.1.

The strong economic data overshadowed a couple of earnings
warnings but it doesn't take a rocket scientist to notice the
NASDAQ under performing the DJIA the last couple of days.
Investors seem less inclined to buy the dip in some of 2003's
high flyers and instead are moving into big cap blue chip names.


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

Market Averages

DJIA ($INDU)

52-week High: 10139
52-week Low :  7416
Current     : 10129

Moving Averages:
(Simple)

 10-dma: 9968
 50-dma: 9789
200-dma: 9112



S&P 500 ($SPX)

52-week High: 1082
52-week Low :  788
Current     : 1075

Moving Averages:
(Simple)

 10-dma: 1067
 50-dma: 1050
200-dma:  979



Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1403

Moving Averages:
(Simple)

 10-dma: 1408
 50-dma: 1409
200-dma: 1253



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

As predicted last week, the VXO has hit a new low, closing at
15.70.  The VIX and VXN also remain near their lows.

CBOE Market Volatility Index (VIX) = 15.93 -1.30
CBOE Mkt Volatility old VIX  (VXO) = 15.69 -1.22
Nasdaq Volatility Index (VXN)      = 26.15 -0.92


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.68        814,131       556,412
Equity Only    0.50        634,957       315,241
OEX            1.21         37,667        45,663
QQQ            1.08         47,889        51,482


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

Bullish Percent Data

           Current   Change   Status
NYSE          74.1    + 0     Bull Confirmed
NASDAQ-100    68.0    + 1     Bear Confirmed
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       80.8    + 0     Bull Confirmed
S&P 100       81.0    + 1     Bull Correction


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

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


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

 5-dma: 0.94
10-dma: 1.14
21-dma: 1.12
55-dma: 1.10


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1687      1510
Decliners    1174      1573

New Highs     169       115
New Lows       13        15

Up Volume   1091M      930M
Down Vol.    678M      843M

Total Vol.  1815M     1786M
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


NASDAQ-100

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

DOW JONES INDUSTRIAL

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

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


************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 12-16-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: BCR, SNDK
Dropped Puts: KSS
Call Play Updates: QLTI, QCOM
New Calls Plays: HOV
Put Play Updates: AVID, FD, NSM, XL
New Put Plays: CTSH


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

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


CALLS:
*****

C R Bard - BCR - close: 77.29 change: -0.61 stop: 76.49

Shares of BCR are suddenly trading in volatile fashion the last
few days.  About five days ago the stock painted a big bearish
engulfing candlestick after failing at $80.  Normally, at the top
of a rising trend a bearish engulfing candlestick is translated
as a possible reversal.  The reversal failed to show as the DJIA
continued to march higher late last week and close strongly over
the 10,000 mark.  Shares of BCR did it again on Monday this week
with a new lower high under $80 and another bearish engulfing
candlestick.  This time there was some follow through and the
stock continued to sink into Tuesday.  BCR broke its simple 50-
dma and traded through our stop loss at $76.49.  Unfortunately,
it quickly bounced from the $76 level.  All of this volatility is
a little concerning and it's obvious that traders are selling
into strength as BCR approaches resistance at $80.00.  We will
keep an eye on it to see whether it breaks out between this 75-80
trading range.

Picked on December 08 at $78.01
Change since picked:     - 0.72
Earnings Date          10/15/03 (confirmed)
Average Daily Volume:      322  thousand
Chart =


---

Sandisk Corp - SNDK - close: 55.25 chg: -5.61 stop: 59.50

Ouch!  We knew that betting on a bounce from an oversold SNDK was
risky but this is getting painful. Two weeks ago SNDK and fellow-
flash memory maker LEXR were hammered on concerns that an excess
supply of memory would force price cuts in 2004.  Suddenly those
concerns got a whole lot bigger.  Over the weekend and Monday new
reports are coming out that Samsung plans to invest more than
$500 million to significantly raise its flash-memory output.
Furthermore, a story released on Monday said SNDK and LEXR would
have new competition next year from the likes of Micron
Technology (MU), Hynix Semiconductor, and STMicroelectronics
(STM).  With that kind of news out it comes as no surprise that
SNKD continued to sink.  The next stop appears to be its simple
200-dma near the $50 mark.  Maybe we can recoup some of our
losses on a put position?  A failed rally under $59-60 looks like
a tempting entry point for puts.

Picked on December 11 at $63.00
Change since picked:     - 7.75
Earnings Date          01/14/04 (unconfirmed)
Average Daily Volume:      3.8  million
Chart =



PUTS:
*****

Kohl's Corp. - KSS - close: 44.00 change: +0.75 stop: 45.50

It is time to bid farewell to what has been a very well-behaved
bearish play.  KSS has steadily declined over the past several
weeks, with failed bounces at the 10-dma providing consistent
entry point.  It took nearly two weeks, but the stock finally
fell below the $44.50 support level yesterday and continued to
the downside this morning, hitting an intraday low of $42.40.
That is only 40 cents above our final target and given the
strength of the rebound that continued right into the closing
bell, it feels like it is time to leave the party before we
overstay our welcome.  We're dropping coverage on KSS tonight and
recommend using any intraday weakness tomorrow to effect a more
favorable exit.  But whatever you do, don't let your gains slip
away.  If trying to capture that better exit point, make sure to
keep a firm stop just above the 10-dma, now at $45.50.

Picked on November 18th at   $48.75
Change since picked:          -4.75
Earnings Date                2/12/04 (unconfirmed)
Average Daily Volume =      4.34 mln
Chart =



************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

QLT Inc - QLTI - close: 18.45 chg: -0.28 stop: 17.49

We are starting to lose patience with QLTI.  The stock just can't
produce any sort of momentum when it bounces from the $18 level.
Granted the BTK biotech index isn't exactly going anywhere
either.  We're going to transform our thinning patience into
caution.  Aggressive traders can still eyeball new entries on a
bounce from $18 but the rest of us should probably wait for some
momentum up and over the $19.50 or $20.00 marks.

Picked on December 07 at $18.86
Change since picked:     - 0.39
Earnings Date          10/23/03 (confirmed)
Average Daily Volume:      1.1  million
Chart =


---

Qualcomm, Inc. - QCOM - cls: 49.83 chng: -0.24 stop: 48.00

The Saddam rally didn't last long on Monday and QCOM's early
thrust above the top of its rising channel was quickly taken
back, bringing price back to $50 by the close.  Weakness
prevailed in Tech-land on Tuesday and QCOM fell as low as $48.75
early in the day before the buyers appeared near the 10-dma
($49.01).  While certainly not impressive, it was encouraging to
see the bulls battle back to close the session near unchanged.
Relative to some of the heavy selling seen in other areas of the
NASDAQ like Semiconductors, QCOM has actually held up rather
well.  Intraday dips near the 10-dma or the midline of the rising
channel ($48.40) still look good for new entries.  Maintain stops
at $48.00, just under last week's intraday low.

Picked on December 11th at   $50.14
Change since picked:          -0.31
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =     9.22 mln
Chart =



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

Hovnanian - HOV - close: 87.49 change: +2.79 stop: 82.50

Company Description:
Hovnanian Enterprises, Inc. was founded in 1959 by Kevork S.
Hovnanian, Chairman, and is headquartered in Red Bank, New
Jersey. The Company is one of the nation's largest homebuilders
with operations in Arizona, California, Maryland, New Jersey, New
York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas,
Virginia and West Virginia. The Company's homes are marketed and
sold under the trade names K. Hovnanian, Washington Homes,
Goodman Homes, Matzel & Mumford, Diamond Homes, Westminster
Homes, Fortis Homes, Forecast Homes, Parkside Homes, Brighton
Homes, Parkwood Builders, Summit Homes and Great Western Homes.
As the developer of K. Hovnanian's Four Seasons communities, the
Company is also one of the nation's largest builders of active
adult homes. (source: company press release)

Why We Like It:
The new must-have mania stocks for the new millennia are the
homebuilders.  The vast majority of them have soared over the
last couple of years, doubling and tripling in price.  Yet they
have earnings growth to back up their price appreciation.  It's
hard to call these stocks overvalued when many of the highest
flyers all sport P/E around 11 (HOV's is 13).  The good news for
investors is that the trend is likely to remain intact and bulls
will be able to trade them over and over again through 2004.  An
interest-rate friendly Fed and historically low mortgage rates
have produced insatiable demand for homes.  Many builders have
forecasted strong business for the next two years.

HOV recently announced earnings on December 8th.  The company
beat estimates of $2.64/a share by 15 cents.  Revenues for the
quarter surged more than 25% and the company raised its fiscal
year 2004 estimates.  HOV now expects 2004 earnings to hit
$9.00/share on sales of $3.9 billion.  Reuters was looking for
$8.87 and $3.7 billion, respectively.

The recent profit taking in HOV is a gift to the bulls looking
for new short-term positions (emphasis on short-term).  Most of
these homebuilders stopped at support near their 50-dma's.  HOV
was one of them and the recent profit taking over the last two
sessions has turned out a double-bottom at the $82.50 mark.
We're willing to speculate on new entries at the current price
but more conservative types might feel better waiting for HOV to
trade back above minor resistance at $90.00.  Our profit target
is the $96 to $100 region and we'll open the play at the recent
lows of $82.49.

One last note, we played HOV before and said the stock was way
overdue for a stock split and odds were growing that management
might announce one with the earnings report.  It looks like we
were off by a week.  The company announced a 2-for-1 split today.
The split needs to be approved by shareholders and they'll vote
on it March 5th.

Suggested Options:
Bullish traders should probably consider the January and February
calls.  Our time frame is short-term, just 2-3 weeks, so our
choice is the January 90's.

BUY CALL JAN 85 HOV-AQ OI= 584 at $5.70 SL=3.00
BUY CALL JAN 90*HOV-AR OI=1275 at $3.20 SL=1.60
BUY CALL JAN 95 HOV-AS OI= 764 at $1.55 SL=0.75

Annotated Chart:




Picked on December 16 at $87.49
Change since picked:     + 0.00
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =



************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

Avid Technology - AVID - cls: 45.90 chng: -0.87 stop: 49.75*new*

Although it has been a rather bumpy ride, AVID is still adhering
to its downtrend and looks poised for another breakdown into the
end of the week.  Technology stocks are losing favor with
investors as the end of the year approaches, and AVID is no
exception.  The decline got moving in earnest a week ago, with
the failed rebound at the converged 10-dma and 20-dma, which was
followed later in the day by a major break below our $47 trigger.
After rebounding from that plunge into the end of last week, AVID
proceeded to tip over right at the 10-dma ($47.89) yesterday.
The stock couldn't really gain any traction today either and
ended in the red once again, with daily Stochastics (5,3,3)
tipping over in what looks like a short-cycle bearish reversal.
Clearly, the rollover entry was up near the 10-dma yesterday, and
successive failed bounces below that average still look viable
for entry.  There's the potential for support to be found near
last week's intraday low, so momentum traders will want to wait
for a break below $44.50 before opening new positions.  The last
level of support will then come in around $43 before the bears
take a serious run at the 200-dma ($40.59).  If reached, we're
recommending an exit from the play at that level.  Lower stops to
$49.75, just above the 20-dma ($49.70).

Picked on December 7th at     $48.46
Change since picked:           -2.56
Earnings Date                1/15/04 (unconfirmed)
Average Daily Volume =         637 K
Chart =


---

Federated Dept. Stores - FD - cls: 44.27 chg: +1.05 stop: 47.51

Retails stocks lead the markets lower on Monday, despite Saddam's
capture when Wal-Mart, the biggest of the big, guided sales to
the lower end of their 3% to 5% range.  Shares of FD produced a
nice technical breakdown under the $45 level of support and its
rising 100-dma.  This extremely high volume drop (5 million
shares) traded right through our TRIGGER at $44.95 and opened the
play for us.  FD fell straight toward its next level of support
at $42.50.  Having dropped $7.50 in just two weeks time the stock
was a little overdue for a bounce and produced one today
(Tuesday).  Fortunately, the bounce failed at the $45 level and
began to roll over again in the last half hour of trading.  The
markets closed strongly today so there may be some follow through
on the FD bounce tomorrow.  If FD actually trades back above $45
look for resistance at 45.50 and 46.00.  Our stop loss is 47.51.

Picked on December 15 at $44.95
Change since picked:     - 0.68
Earnings Date          11/12/03 (confirmed)
Average Daily Volume:       1.7 million
Chart =


---

National Semicond. - NSM - cls: 37.73 chng: -0.27 stp: 41.40*new*

Semiconductor stocks led the decline following the early bullish
tone in the market yesterday morning, with the Semiconductor
index (SOX) falling back sharply from its highs near $508.  That
weakness continued this morning, with the SOX actually breaking
below the $475 support level before finding support and
recovering back above that critical level at the close.  NSM
continued its slide below $38 this morning, with the early
weakness dropping the stock down to the $36 level, where we
expected a bounce would be forthcoming.  NSM didn't disappoint,
as the stock rallied for the remainder of the day, reclaiming
most of its intraday losses to end just below $38.  Upside
continuation will bring the $40 resistance level into play again
and a rollover near that level should be good for a fresh entry
point.  There's strong resistance just above there, with the 50-
dma ($40.46) and the 20-dma ($41.20) and intraday resistance in
the $41.25-41.40 area.  It should now be safe to lower stops to
$41.50, just above yesterday's intraday high.

Picked on December 9th at     $38.70
Change since picked:           -0.97
Earnings Date                3/04/04 (unconfirmed)
Average Daily Volume =      4.10 mln
Chart =


----

XL Capital - XL - close: 73.41 change: +0.46 stop: 75.51

So far so good?  Yes, that's a question mark.  Shares of XL
really aren't collapsing after its dramatic reversal two weeks
ago but then the stock isn't soaring either.  XL's relative
weakness is actually an encouraging sign.  The IUX insurance
index continues to build on its new highs and XL just meanders
sideways.  As we suggested over the weekend, aggressive traders
could look for a failed rally under $75 as a possible entry
point.  The rest of us may be better off waiting for a new low
under $72.00.

Picked on December 09 at $72.60
Change since picked:     + 0.81
Earnings Date          01/28/04 (unconfirmed)
Average Daily Volume:       1.2 million
Chart =



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

Cognizant Tech. - CTSH - close: 42.70 change: -2.18 stop: 47.25

Company Description:
Cognizant Technology Solutions Corporation delivers full
lifecycle  solutions to complex software development and
maintenance problems that companies face as they transition to e-
business.  These information technology (IT) services are
delivered through the use of a seamless on-site and offshore
consulting project team.  The company's solutions include
application development and integration, application management
and re-engineering services.  Among CTSH's prominent clients are
ACNielsen Corporation, ADP, Inc., Brinker Int'l, Computer
Sciences, The Dun & Bradstreet Corporation, First Data
Corporation and Nielsen Media Research.

Why we like it:
Technology stocks have been losing their appeal with investors
throughout the month of December, as the larger, industrial-
related stocks gain favor into the end of the year.  This was
clearly shown during Monday's sharp reversal from the highs, with
the declines led by Semiconductor and Software stocks.  While the
Software index (GSO.X) managed a solid rebound on Tuesday, the
same can't be said for our new bearish play, CTSH.  The stock
broke down out of its ascending channel last week and just in
classic textbook fashion, yesterday's early rally was turned back
right at the bottom of that broken channel.  CTSH continued to be
quite weak today, losing 4.85% after breaking below the 50-dma
($44.60) for the first time since early June.  There wasn't any
material news to explain Tuesday's plunge, but it does seem that
it is significant, as volume surged over 3 million shares, easily
tripling the ADV.  Today's breakdown was not just a violation of
the 50-dma, but also a break below what has been strong support
at $44.50 over the past several weeks (with only one violation in
late November).

Today's trade at $43 generated a PnF Sell signal (the first since
May), which gives a tentative bearish price target of $36, which
just happens to line up with strong historical support on the
daily chart.  While CTSH could continue to fall from here, a more
likely scenario will be a bounce that then fails below the 50-
dma.  Traders willing to wait for the bounce will want to enter
on the rollover when that rebound fails.  Aggressive momentum
traders can enter on a break below $42, as the stock takes out
today's low.  Next support is likely to appear near $40,
reinforced by the rising 100-dma ($39.53), and we can expect a
near-term bounce when that level is reached.  Intelligent stop
placement is a bit tricky, given the fact that the stock has
fallen more than $4 from yesterday's intraday high.  We'll set
our initial stop at $47.25 (just above yesterday's high).  That
level really shouldn't be challenged though and more conservative
traders can use a stop at $46.40, just above the intraday highs
from last Thursday and Friday, as well as the 20-dma ($45.79).
The downside target will be for a decline to that strong support
at $36.

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 already.

! Alert - December options expire this week!

BUY PUT JAN-45*UPU-MI OI=1834 at $3.70 SL=2.00
BUY PUT JAN-40 UPU-MH OI= 911 at $1.45 SL=0.75

Annotated Chart of CTSH:



Picked on December 16th at    $42.70
Change since picked:           +0.00
Earnings Date                1/20/04 (unconfirmed)
Average Daily Volume =         986 K



************************Advertisement*************************

No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?

OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!

Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.

http://www.OneStopOption.com

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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 12-16-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - HOV


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

Hovnanian - HOV - close: 87.49 change: +2.79 stop: 82.50

Company Description:
Hovnanian Enterprises, Inc. was founded in 1959 by Kevork S.
Hovnanian, Chairman, and is headquartered in Red Bank, New
Jersey. The Company is one of the nation's largest homebuilders
with operations in Arizona, California, Maryland, New Jersey, New
York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas,
Virginia and West Virginia. The Company's homes are marketed and
sold under the trade names K. Hovnanian, Washington Homes,
Goodman Homes, Matzel & Mumford, Diamond Homes, Westminster
Homes, Fortis Homes, Forecast Homes, Parkside Homes, Brighton
Homes, Parkwood Builders, Summit Homes and Great Western Homes.
As the developer of K. Hovnanian's Four Seasons communities, the
Company is also one of the nation's largest builders of active
adult homes. (source: company press release)

Why We Like It:
The new must-have mania stocks for the new millennia are the
homebuilders.  The vast majority of them have soared over the
last couple of years, doubling and tripling in price.  Yet they
have earnings growth to back up their price appreciation.  It's
hard to call these stocks overvalued when many of the highest
flyers all sport P/E around 11 (HOV's is 13).  The good news for
investors is that the trend is likely to remain intact and bulls
will be able to trade them over and over again through 2004.  An
interest-rate friendly Fed and historically low mortgage rates
have produced insatiable demand for homes.  Many builders have
forecasted strong business for the next two years.

HOV recently announced earnings on December 8th.  The company
beat estimates of $2.64/a share by 15 cents.  Revenues for the
quarter surged more than 25% and the company raised its fiscal
year 2004 estimates.  HOV now expects 2004 earnings to hit
$9.00/share on sales of $3.9 billion.  Reuters was looking for
$8.87 and $3.7 billion, respectively.

The recent profit taking in HOV is a gift to the bulls looking
for new short-term positions (emphasis on short-term).  Most of
these homebuilders stopped at support near their 50-dma's.  HOV
was one of them and the recent profit taking over the last two
sessions has turned out a double-bottom at the $82.50 mark.
We're willing to speculate on new entries at the current price
but more conservative types might feel better waiting for HOV to
trade back above minor resistance at $90.00.  Our profit target
is the $96 to $100 region and we'll open the play at the recent
lows of $82.49.

One last note, we played HOV before and said the stock was way
overdue for a stock split and odds were growing that management
might announce one with the earnings report.  It looks like we
were off by a week.  The company announced a 2-for-1 split today.
The split needs to be approved by shareholders and they'll vote
on it March 5th.

Suggested Options:
Bullish traders should probably consider the January and February
calls.  Our time frame is short-term, just 2-3 weeks, so our
choice is the January 90's.

BUY CALL JAN 85 HOV-AQ OI= 584 at $5.70 SL=3.00
BUY CALL JAN 90*HOV-AR OI=1275 at $3.20 SL=1.60
BUY CALL JAN 95 HOV-AS OI= 764 at $1.55 SL=0.75

Annotated Chart:



Picked on December 16 at $87.49
Change since picked:     + 0.00
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =



************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives