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Daily Newsletter, Tuesday, 12/23/2003

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The Option Investor Newsletter                 Tuesday 12-23-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: The Last Hurrah?
Futures Markets: Rejection at the Highs
Index Trader Wrap: Latest additions helped fuel NASDAQ-100 gains
Market Sentiment: All Hail Santa's Arrival


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      12-23-2003           High     Low     Volume   Adv/Dcl
DJIA    10341.26 +  3.26 10375.93 10296.15 1.40 bln 1784/1028
NASDAQ   1974.78 + 18.98  1974.78  1952.44 1.30 bln 1996/1057
S&P 100   543.42 +  1.14   544.13   541.36   Totals 3780/2085
S&P 500  1096.02 +  3.08  1096.95  1091.73
W5000   10657.14 + 37.56 10658.72 10607.84
RUS 2000  555.03 +  5.66   555.03   548.37
DJ TRANS 3006.61 +  1.34  3006.87  2985.95
VXO        15.57 -  0.63    16.39    15.30
VIX        16.49 -  0.45    17.40    16.29
VXN        23.49 -  1.26    25.11    23.31
52wk Highs  491
52wk Lows    13
PUT/CALL   0.76
TRIN       1.02
************************************************************

The Last Hurrah?
by Keene Little

Bulls will hate me tonight, bears will love me. For those of you
who don't follow me in the Futures Monitor, a little background
might help you understand the reasons for my opinions. I follow
Elliott Wave Theory. I will not bore you to tears with wave counts
but you should know that I am neither a bull nor a bear. I can't
afford to be either because every time I form a strong bullish or
bearish opinion I usually lose money. It's that forest-for-the-
trees problem. Instead I let price tell me what it's doing and use
EW analysis to give me some clues as to what might be next. I will
admit that I have a bearish view of the market for the long term
but I try to follow the wave pattern to tell me each day whether I
should be going long or short. My analysis below is based on what
these patterns are telling me. I use trend lines, fibonacci
levels, oscillators and a slew of other technical indicators to
help me identify turning points in the market. I think a major
turning point is upon us. But first let's look at what happened
today.

After cycling up and down during the night between 1093.75 early
last night and 1090.50 early this morning, the S&P e-mini futures
ran up slightly into the 8:30 reports but then worked their way
lower to the open--the e-mini futures made an immediate low of
1090.25 at the 9:30 open. After the initial pop in the morning, we
worked our way lower and by the late afternoon we came back to
that number, literally, before bouncing again into the close. All
in all, it was an uneventful day, at least from a price
perspective.

The early morning economic reports did little to excite today's
market. Overall, they were good numbers but just not exciting
numbers. The University of Michigan Sentiment was revised to 92.6
from the previously reported 89.6 (consensus was 91.0). GDP final
for Q3 was 8.2%, no change from previously reported. Monthly Mass
Layoffs was 1438 compared to 1532 in November. Personal income for
November was +0.6% while personal spending was +0.4%. The
expectation for spending growth had been +0.7% so this number was
a little disappointing. Even though this spending growth was the
fastest spending growth since August, the fact that their income
was up +0.6% means the consumer could have spent more! Where are
those consumers when you need them most? Don't they realize they
need to go into greater debt during this holiday period to support
this economy? The slower retail sales reported yesterday tell us
the consumer is not willing to do this. So there was no excitement
with all these numbers. In fact the pre-market futures dropped
slightly after all these announcements.

At the opening kick-off, there was a fair amount of volatility and
the market ran higher in the first hour of trading. From there the
market back-pedaled the rest of the day. It was a slow grind south
as some of yesterday's gains were returned. But as seems to be
happening a lot lately, the mid-afternoon rally kicked into gear
and we saw a fairly steep rally as we headed into the close. The
only indexes to make new highs for the day were the techies and
the small caps. It looked like some good short-covering going on
there. Check out the run in the Russell 2000 in the last hour of
trading. Too many eager shorts I'd say. I guess everyone got
excited about RIMM's 3rd-quarter earnings announcement that was
double the analysts' expectations. They also doubled the outlook
for the 4th quarter. Micron Technology added to the excitement by
increasing their earnings expectation by 3%. So if those two
companies are doing well it must mean all tech stocks are doing
well, so BUY was the word!

As sectors go, the Computer Hardware, Multimedia, Telecom,
Semiconductor, Biotech, etc. indexes ran up roughly 1.0% to 3.3%
today. Looks like what people did not want for the past two weeks,
they wanted it back today. The gold indexes also bounced strong
today, but got back only a little of what they've given up since
the beginning of December. At the other end of the market were the
Oil Service, Energy, Oil and Natural Gas indexes which took the
biggest drubbing today, down 1.9%, 1.0%, 0.7% and 0.5%,
respectively. I've seen evidence that oil prices may well have
peaked at last week's price of about $33.50/barrel. Projections
are for oil prices to sink back down to $20 some time next year
(it closed at $31.75 today). Now that would be a nice Christmas
present for next winter for all of us paying high prices at the
pump and for our heat.

For the DOW, it had a middle-of-the-road day today. It showed
greater weakness relative to the NAZ which was a different
behavior from what we've seen most of this month. Of the 30
components, 17 gained ground today, so only about half the
companies were pulling their share of the load today. But nearly
half of those 17 hit new 52-week highs today, as did the S&P 500,
which hit 1096.95 today, a high not seen since May 2002. As I'll
discuss below, this 1096 level is very important and may be a
rally high, or very near to it. The DOW components hitting their
52-week highs were Alcoa, Boeing, Caterpillar, DuPont, Exxon Mobil
(interesting as their sector was hit hardest), Honeywell and
Procter & Gamble.

Market internals were actually stronger than the closing numbers
would indicate. Advancing/declining issues and advancing/declining
volume were positive all day. Seems like we had slow bleeds
interspersed with buying spurts, so the buying was stronger but
"they" were letting the market settle back each time so "they"
could buy cheaper products. Just a guess. Overall market volume
was below average, but no surprise there.

Looking at the major indexes, we see an overbought and extended
market. Deja vu all over again, harking back to the days in late
1999, early 2000. My guess is that the result of this over-
exuberance will be the same as it was then. Longs need to suck up
your stops tight to get as much out of this as you can. Bears are
salivating for their turn at the food table. Bears have been
getting their paws slapped for trying to sneak a bite before it's
their turn. The bulls are pretty full and looking sleepy so it's
almost time to rotate positions.

Let's look at the major indexes:

The DOW daily:



The DOW weekly:



S&P 500(SPX) daily



Zeroing in a little closer, here's the Nasdaq-100 chart. So far
the high put in on December 3rd has not been exceeded, nor do I
think that it will. We're very close though, so just a little more
rally would do it.

NDX 120-min chart:




Now I know a lot of people are going to look at my bearish
comments as proof I've lost my marbles. Everyone knows that the
Santa Claus rally goes through the end of the year and into the
first week or two of January. I will admit that my opinion about
the market topping right here is causing me some consternation due
to this "belief" that we will rally. Too many people expect it and
will make it happen. Ah, therein lies the rub. How many times have
we seen high expectations for the market, only to then be
surprised? Didn't everyone expect a sell-off to occur in the
normally bearish period of September-October, especially after the
strong rally we had seen since the spring? What happened? We
rallied. Then everyone was expecting November to see a strong
sell-off since we hadn't taken a breather in 8 months. What
happened? We dropped a little but ended the month nearly back to
even. Now everyone is expecting Santa to not disappoint us. What
will happen? Mr. Elliott is telling me to pull my stops up tight
and that we may have an opportunity to short this market like we
haven't seen since early 2000.

But what about all that new money that will be coming into the
market in the beginning of January? Surely it will drive the
market higher since it's unlikely to make it into money market
funds. If the market starts down, as I suspect it will, my
expectation is that we will indeed see a rally in January. It
might even bring the market all the back up to the highs we're
currently seeing. But for the EW count I'm showing to stay intact,
once we tip over we will not make new highs in January. In fact
you may be witnessing highs that won't be seen again for, well,
let's just say a very long time. But that's for another
discussion.

Tomorrow morning we have a couple of economic reports. At 8:30 am
we have Durable Goods Orders for November. Forecast is +1.5% while
the market consensus is +0.6% (October was +3.3%). Initial
Unemployment claims will also be reported at 8:30 am. Forecast and
market consensus is 355K (353K was the prior number). New Home
Sales for November is reported at 10:00 am. Forecast is 1.14M
while market consensus is 1.11M (prior number was 1.105M).

I don't see anything earth shattering in these economic numbers so
it's tough to tell how it might affect the market. My expectation,
based on EW analysis and fibonacci levels (along with the myriad
bearish divergences) is that we could see an initial move up at
the open but it will be short-lived as I believe it will mark the
tippy top of this market. For the bears, consider shorting any
opening move higher. For the bulls, decide how much you're willing
to give back. I could be wrong on this (wouldn't be the first
time, not by a long shot), so only you can decide where you want
your stop. Bears, don't get overly enthusiastic such that you lose
your discipline. This market has defied most technical indicators
for a long time now. Keep your stops tight and don't let your
"belief" get in the way of sound money management.

Good luck to everyone in their trading tomorrow. Have a great
night and I'll see some of you in the Futures Monitor tomorrow for
a shortened day of trading (market closes at 1:00 pm). Let's see
what Ms. Market serves up in the morning.



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Rejection at the Highs
Jonathan Levinson

The Dow and S&P futures touched new 52 week intraday highs but
could not hold them, reversing back to negative territory where
the Dow futures spent the remainder of the session, with S&P
breaking back above unchanged.  The NQ was the stronger of the
three, remaining in positive territory. Bonds were negative and
metals lightly positive as the US Dollar Index moved sideways,
trading both sides of 88.


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 continues to grind along its bear market
lows, and it appears that the other US asset classes are waiting
for a resolution of the current dollar "bounce or break"
conundrum.  With bonds, equities, the CRB and metals all toppy
and the US Dollar Index looking bottomy, one wonders whether a
dollar bounce will result in dollar denominated assets
correcting.  I believe it will, but the charts will have to tell
us.

Daily chart of February gold


February gold was fractionally higher but traded firm throughout
the day, printing a marginally higher low at 409.60 and climbing
to a high of 412 to close near unchanged above 411.  The move
brought gold one step closer to the apex of the bear wedge, as
the daily cycle oscillators continue to diverge lower.  Like the
equity indices, gold looks like a top waiting to happen at or
near current levels, but until that occurs, the daily price
action continues to be bullish.


Daily chart of the ten year note yield


The Fed added another doozy of a repo today, replacing the
expiring 5.25B with a fresh 9.25B overnight repo.  The treasury
auction of 2 year notes was well-received, generating a bid-to-
cover ratio of 2.12, no doubt supported by the Fed's dealers.
10-year notes, however, gapped up and closed above the rising
pennant trendline, adding 10.5 bps to close at 4.269%.
Particularly on a day when the Fed has injected so much liquidity
into the system, a selloff that sharp in treasuries is an ominous
sign.


Daily NQ candles


The NQ was the strongest of the equities today, rising better
than 1% and printing a high at 1451.50, within 10 points of the
year high.  The lack of significant pullback and the
strengthening daily cycle upphase leads me to expect a test of that
high, except for the trouble brewing in the shorter 30
minute timeframe below.


30 minute 20 day chart of the NQ


The 30 minute NQ rose from the open and stayed above yesterday's
close throughout the session.  However, it printed bearish
divergences on the stochastics and Macd, with a 30 minute cycle
downphase in progress on the intraday double top.  If the end-of-
session bounce carries into tomorrow morning, then the bulls may
be able to steal this play from the bears.  That possibility is
currently just a slight uptick in the downphasing oscillators on
this timeframe.  With the 30 minute cycles currently fighting the
daily cycle upphase, we have a perfect recipe for chop tomorrow.
Add to that the light volume today, and tomorrow's shaping up to
be a wonderful day to stay out of the market.  Support below is
at 1437-40, followed by 1425-30.


Daily ES candles


The ES traded both sides of unchanged today but higher close at
1093, +.25, with the daily cycle oscillators trending higher in
overbought territory.  Like with February gold, the ES looks
toppy and dangerous, but until it breaks, it remains within an
uptrend.  Lower wedge support at 1084 seemed like a long way down
today, with the intraday low printed at 1090.25.


20 day 30 minute chart of the ES


The 30 minute ES sports a sharper bearish divergence than that on
the NQ, but it also has left the door open to an opening bounce
for tomorrow.  The break below wedge support was a classic bear
trap, so much so that most traders with whom I correspond barely
even shrugged at the trendline break.  With the daily cycle
oscillators toppy but inching higher, the 30 minute cycle
downphase is perfectly juxtaposed.  The break could bring a
directional move, but I'm expecting low volume rangebound
frustration for tomorrow's abbreviated session.

150-tick ES


The intraday ES hugged the unchanged line throughout the day, but
left a daily cycle downphase looming on the short cycle
oscillators.  With Keltner support just below at 1091.25,
tomorrow is shaping up for more sideways drift.


Daily YM candles


The YM was notably weaker than its peers closing in the red after
leading to the downside throughout the session.  The daily cycle
upphase looks longest in the tooth here, with the 10 day
stochastic flatlined in overbought territory.  The intraday high
was a new 52 week high at 10353, and that level was quickly
rejected, leaving a doji shadow in its wake.  Support begins at
the low of the day at 10274.


20 day 30 minute chart of the YM


I'm getting used to being surprised by the Dow.  The weakness
today was long overdue, but the bounce at the first lower
Bollinger band support of 10274 appears to be trying to abort the
30 minute cycle downphase early in its run.  If the bounce
follows through tomorrow morning, the bulls could get another
crack at the highs.

Like today, tomorrow is looking to be another light volume
session with perfectly juxtaposed cycles.  Thankfully, it's an
abbreviated session, and I don't expect to see any action of any
particular significance.  With any luck, the bulls will give it
another try, and leave us with a synchronous topping setup across
our multiple timeframes.


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

Latest additions helped fuel NASDAQ-100 gains

In the OptionInvestor.com March 12, 2003 01:00 PM EST update, we
noted the NASDAQ's announcement of changes being made to the
NASDAQ-100 Index (NDX.X) 1,448.17 +1.14% and one of eight newly
added stocks to this index, Research in Motion (NASDAQ:RIMM)
$69.61 +51% helped the recently lagging NDX and its Tracking
Stock (AMEX:QQQ) $35.84 +0.75% play catch up to the other major
indices, in what otherwise was a rather quiet pre-holiday trade.

NASDAQ-100 Heatmap - 12/23/03 Close



I've captured today's closing percentage changes of the 100
components of the NASDAQ-100 from the NASDAQ market site, which
shows RIMM's incredible gain after the company reported upside
earnings that shocked Wall Street.

According to NASDAQ's December 22nd update, Research in Motion
(RIMM) carried a very fractional 0.3156% weighting in the
NASDAQ-100.  Traders and investors can view daily updated
weightings of the various components by clicking this
http://dynamic.nasdaq.com/dynamic/nasdaq100_activity.stm

Using the above NASDAQ-100 Heatmap, I've also highlighted in
PINK, the other 7 additions to the NASDAQ-100 Index, which also
showed some above average gains in today's session and helped
breath some renewed life into this actively traded index.

If there would be one thing I take away from today's trade, its
that "overvalued" and "undervalued" are most likely opinions,
that are subject to the MARKET's confirmation.  Many investors
trader may have felt RIMM's valuation was stretched before Monday
evening's quarterly earnings report, and similar opinions may be
carried over to the broader market as well.

It's a day's trade in RIMM, which always has kept a trader from
over leveraging in a trade (biting off more than we might be able
to chew if the trade moves against us).

After writing this morning's 09:00 Update and quickly analyzing
RIMM's point and figure chart, I'm not sure there were many
bulls, even those long the stock, that thought RIMM would do what
it did today.  I certainly didn't!

Market Snapshot / Internals - 12/23/03 Close



Today's internals and hourly price measurements show slight
divergence from recent sessions, where the broader NASDAQ
Composite (COMPX) 1,974.78 +0.97% and broad smaller-cap Russell-
2000 Index (RUT.X) 555.03 +1.03% showed some strength.  While it
has been a very bullish year for the small cap RUT.X and they
have not shown as much lag as the COMPX and NDX/QQQ relative to
the INDU/SPX/OEX in recent weeks, they're just off their 12/02/03
52-week high of 557.42.

Aside from the NDX/QQQ or broader COMPX making new 52-week highs,
traders might monitor the smaller-cap RUT.X for further strength
above the 558.00 level as an alert to buyers becoming more
aggressive, or willing to take on what some might deem a higher
degree of risk.  Here again, the perception, or thought that
smaller cap stocks, which have had a very bullish year, might
have "stretched valuations" similar to RIMM, where the RUT.X
breaking to a new 52-week high, might have that fundamental
evaluation not being confirmed by the MARKET.

While it would be way out of line to think EVERY stock could be
as undervalued by the MARKET as RIMM appeared to be prior to
today's trade, the seed may have been planted.

Despite improved demand for today's 2-year note auction, where
the government auctioned off $26 billion of these shorter-dated
notes at 1.95% yield, with a bid to cover ratio of 2.15 versus
1.75 last month, Treasuries were hit with selling with the
benchmark 10-year YIELD ($TNX.X) jumping 10.5 basis points to
4.269%.  Some bond traders cited longs that bought on the recent
heightened concern regarding terrorism got squeezed out of their
trades, in today's light volume trading session.  Some bond
traders cited the upward revision to the University of Michigan's
index of consumer sentiment (revise up to 92.6 from 89.6) also
putting a squeeze on shorter-term bond bulls.

Pivot Analysis Matrix -



In PINK, I've marked today's HIGHS for the INDU, DIA, SPY and
BIX.X, which did see trade at their WEEKLY R1s.  It would be my
thinking, that there might be some institutional computers
selling at these levels, but at 52-week highs, would be selling
to provide liquidity to a market that simply lacked supply for
buyer's demand.

The Dow Industrials (INDU) was the only major index (not a
tracker like the DIA, SPY, QQQ) to see a trade at its WEEKLY R1,
and the INDU did trade a session low of 10,296.15 after it traded
its WEEKLY R1.  I'm going to show an intra-day chart of the INDU,
where my analysis is that this trade at WEEKLY R1 may indeed have
had some pre-holiday selling, or distribution take place, but
intra-day observation of the INDU's comeback to the close still
hints to me that there may be bulls still looking for some
holiday gains.  The test becomes... can the STRONG INDU continue
to lead a charge.

I look forward to reading tonight's Market Wrap from Keene
Little, where in tonight's Futures Monitor, Mr. Little wrote...
"I will offer up some more details in the market wrap tonight,
but I think tomorrow will be easy--short the opening high.  I
believe one more leg higher, but not by much, will end this
rally.  The interesting thing is that the YM may not make a new
high, or if it does, ES will get taken higher than I expect.  I
had expected ES and NQ to make a new high, but will be watching
very closely for NQ to stay below its Dec 3rd high of 1455.50.
NQ had a steeper pullback going into the close, which is making
that pattern a little more difficult to figure out what's going
on with it.  Did it already make its high just before the end of
the day? Not sure but will be watching that one closely."

For those that may not be familiar with futures talk, the YM is
the Dow futures, the ES is the S&P 500 futures, and the NQ is the
NASDAQ futures.

I don't want traders to think I'm "calling Keene to the mat."
He's talking about futures, and a 30, 40 or 50-point move in the
futures market is MUCH different than that in the cash market.

Dow Industrials (INDU) Chart - 15-minute intervals



I like reading "both sides of the story" and getting a bullish
and bearish view, then test the thoughts on why I should do
something.

While Keene Little will lay out his scenario, I'm more bullish
than Mr. Little as the current path of least resistance is up and
past INDU "tops" have yet to hold as resistance.  While history
is no guarantee for future trade, the Stock Trader's Almanac has
noted that the INDU has traded up 8 of the last 12 years on the
day before Christmas.  The day after Christmas (Friday) the INDU
has traded up 9 of the last 11 years.

For a BEAR to get a BULL'S attention would be to break below the
DAILY S1 tomorrow, where show bulls the weakness below DAILY S2
and correlative 38.2% in the WEEKLY pivot retracement.

For strength?  I've lost track at this point, but another 52-week
high would be a place to look for further strength.

S&P 500 Index (SPX.X) Chart - 15-minute intervals



I can perhaps see what Mr. Little is looking for when he thinks
traders will/should "sell the open."  I've marked this on the SPX
15-minute interval chart above, where on Monday, the SPX jumped
in the first 30-minutes of trade and traded back from there.

Now here at least, I see the WKLY R1 possibly serving up some
resistance, but today's sell program alert, which did have the
SPX falling to a session low.  Was this a sign that the top is
in, or an institutional computer providing liquidity to a market,
which was trading at a 52-week high?

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



While I profiled a bearish trade in QQQ February puts, this
morning's break above $35.69 and that little zone of resistance
which had been keeping the QQQ in check, didn't hold back some of
the bullishness that may have been brought on by RIMM.

I still think the QQQ VERY dependent on INDU/SPX/OEX strength to
continue to find a bid, and NASDAQ new high/new lows not nearly
as impressive as that found at the NYSE, so I'm not seeing a
great deal of bullish leadership at this point.  Certainly it
makes sense that the NASDAQ, which is still off its prior 52-week
highs wouldn't be showing as many new 52-week highs at this
points, but this is the ONLY major index that would show any sign
of a top being formed.

Jeff Bailey


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

All Hail Santa's Arrival
- J.  Brown

Markets made merry with yet another bullish close and new highs
for the DJIA and the S&P 500.  However, this time it was the
NASDAQ's turn to outpace its rivals with nearly a one percent
gain.  Bulls certainly ruled the day with the advance-decline
line hitting almost 18 to 10 on the NYSE and 2 to 1 on the
NASDAQ.  New highs soared again on the NYSE and up volume
strongly out paced down volume on both exchanges.  Much of the
talk today was about the low volume and it's expected to get
worse tomorrow (Christmas Eve) and Friday.   The markets close
early both sessions and the majority of market participants will
be absent.

Santa has indeed delivered thus far for 2003 and he has inspired
investors to buy the dip (yet again), which drove the indices
from minor losses to gains in the last couple of hours of
trading.  The Dow and the SPX may be overbought but we can
probably expect the trend to continue tomorrow and Friday.  It is
interesting to note that the Dow's bullish percent data has
turned ominously into a "bear confirmed" pattern.  That means the
internals of the index are weakening and it should set up for the
first quarter correction we're all expecting.

Wednesday does bring the November durable goods report and
economists are looking for a gain.  Analysts are also looking for
strong numbers in the new home sales data out tomorrow.


! Holiday schedule note:  The Market Sentiment column will be
absent over the Christmas holiday and will resume again on
Tuesday, December 30th, 2003.


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

Market Averages

DJIA ($INDU)

52-week High: 10375
52-week Low :  7416
Current     : 10341

Moving Averages:
(Simple)

 10-dma: 10147
 50-dma:  9848
200-dma:  9177



S&P 500 ($SPX)

52-week High: 1096
52-week Low :  788
Current     : 1096

Moving Averages:
(Simple)

 10-dma: 1077
 50-dma: 1055
200-dma:  984



Nasdaq-100 ($NDX)

52-week High: 1453
52-week Low :  795
Current     : 1448

Moving Averages:
(Simple)

 10-dma: 1416
 50-dma: 1412
200-dma: 1264



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

If the historical trends for a bullish second half of December
come true then look for these volatility indices to remain or
extend their current lows.

CBOE Market Volatility Index (VIX) =  16.49 -0.45
CBOE Mkt Volatility old VIX  (VXO) =  15.57 -0.63
Nasdaq Volatility Index (VXN)      =  23.49 -1.26


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.76        585,116       442,008
Equity Only    0.58        489,783       282,026
OEX            1.12         14,103        15,837
QQQ            1.46         35,861        52,297


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

Bullish Percent Data

           Current   Change   Status
NYSE          75.6    + 0     Bull Confirmed
NASDAQ-100    67.0    + 2     Bear Confirmed
Dow Indust.   76.6    - 3     Bear Confirmed
S&P 500       81.8    + 1     Bull Confirmed
S&P 100       81.0    + 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: 0.88
10-dma: 0.91
21-dma: 0.99
55-dma: 1.07


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    1783      1997
Decliners    1027      1057

New Highs     410       169
New Lows        9         6

Up Volume    852M      918M
Down Vol.    528M      360M

Total Vol.  1402M     1301M
M = millions


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

Commitments Of Traders Report: 12/16/03

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

Finally!  The commercials are finally putting some money to work
and we're seeing strong increases in both long and short positions.
New longs soared about 50K contracts while new shorts jumped about
40K contracts.  Overall, commercials remain net short.  Small
traders have also increased their net short positions but remain
net long.


Commercials   Long      Short      Net     % Of OI
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%)
12/16/03      448,103   460,670   (12,567)   (1.4%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   18,486  -  6/17/03

Small Traders Long      Short      Net     % of OI
11/18/03      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%
12/16/03      172,947   113,704    59,243    20.7%

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


E-MINI S&P 500

We are seeing the same surge of activity in the e-minis.
Commercial traders opened another 35K long contracts but opened
72K new short contracts, tipping the scales from long to short.
In contrast the retail traders reduced their shorts and opened
another 35K longs.


Commercials   Long      Short      Net     % Of OI
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%
12/16/03      330,273   361,316    (31,043)   (4.5%)

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
11/18/03       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%
12/16/03     177,193     73,694   103,499    41.3%

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


NASDAQ-100

Again, we're seeing new money from the commercial traders.
NDX futures have seen a bump in net longs and net shorts from
both professionals and small traders.  Commercials remain
net short and small traders remain net long.


Commercials   Long      Short      Net     % of OI
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%)
12/16/03       61,343     73,153   (11,810) ( 8.8%

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
11/18/03       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%
12/16/03       28,676    15,197    13,479    30.7%

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

Commercials are hedging their bets on the DJ futures.  Both
longs and shorts saw a bump of about 3K contracts each.
Meanwhile, small traders have turned decidedly bearish. The
surge of new shorts has produced the most bearish reading
in the DJ futures since 2001.


Commercials   Long      Short      Net     % of OI
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%
12/16/03       23,509    13,880    9,629      25.8%

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
11/18/03        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%)
12/16/03        9,497    19,633  (10,136)   (34.8%)

Most bearish reading of the year: (10,136) - 12/16/03
Most bullish reading of the year:   8,523  -  8/26/03

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


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The Option Investor Newsletter                  Tuesday 12-23-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: ADI, GD, GILD, HOV, QCOM
New Calls Plays: YHOO
Put Play Updates: CTSH, NSM
New Put Plays: None


! Holiday Schedule Notice !

Please note that the Option Investor Newsletter will not
be publishing any new option plays or updated option plays
on Thursday, December 25th through Sunday, December 28th.



****************
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:
*****

None


PUTS:
*****

None


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

Analog Devices - ADI - close: 44.84 change: +0.47 stop: 43.00

After last week's sharp rebound from the bottom of the rising
channel, ADI has been struggling to make any upward progress,
repeatedly turned back by the falling 10-dma ($45.13).  While the
stock is still holding above the lower channel line, the rebound
is clearly losing strength.  Fortunately, our $45.75 trigger has
not yet been satisfied, meaning that we're still on the
sidelines, waiting for ADI to prove itself to us.  We still want
to wait for that trigger to be hit, preferably in concert with
the Semiconductor index (SOX.X) making a convincing move above
the $500-505 resistance zone.  We initially specified our trigger
based on the position of the 50-dma, and since it has now moved
up to $45.77, we're going to raise our trigger to $45.80.  Once
through that price point, our first upside objective remains the
$48 resistance and then we can turn our attention to the
potential of the stock to reclaim its early December highs near
$50.

Picked on December 18th at   $45.12
Change since picked:          -0.28
Earnings Date               2/17/04 (unconfirmed)
Average Daily Volume =     3.33 mln


---

General Dynamics - GD - close: 89.14 chg: +0.48 stop: 83.49 *new*

Shares of GD continue to drift higher but honestly the stock is
not moving as fast as we'd expected it to.  The media buzz over
the heightened state of alert has lifted the DFI defense index but
GD seems to be drifting behind.  It's nothing bulls should be
alarmed about.  The stock's bullish trend is still very much
intact.  We'd still consider bounces from its 10-dma (currently
near 86.50) or move over $90 as potential entry points.  Meanwhile
the U.S. Navy has awarded another $63.5 million in defense
contracts to GD this week for work on the Trident submarines and
the USS Seawolf.  We're going to inch up our stop loss to $83.49.

Picked on December 21 at $88.78
Change since picked:     + 0.36
Earnings Date          01/21/04 (unconfirmed)
Average Daily Volume:      1.0  million
Chart =


---

Gilead Sciences - GILD - cls: 59.47 chng: -0.15 stop: 56.00*new*

The continued bullish tone in the markets on Monday helped GILD
to edge above its descending trendline/H&S neckline just below
$60 and then on Tuesday, the stock pushed through to an intraday
high of $60.48.  That's where the lack of holiday volume came
into play and the stock dropped sharply to hit an intraday low
just above $58.50.  That dip was enough for the bulls to come out
to play again and we saw the stock rebound into the close, ending
very near break even for the day and the week.  With this
morning's push through the $60 level, GILD was triggered to live
status.  Momentum entries above today's intraday high still look
viable, but we'd really prefer to enter on a pullback and rebound
near $58, where the 10-dma ($58.29) and 20-dma ($57.97) converge.
There should be strong support down at the 50-dma ($56.79) and
then again at the bottom of the rising trendline at $56.50, which
gives us the confidence to raise our stop to $56 tonight.

Picked on December 21st at   $59.40
Change since picked:          +0.07
Earnings Date               1/27/04 (unconfirmed)
Average Daily Volume =     4.24 mln


---

Hovnanian - HOV - close: 89.90 change: +0.91 stop: 83.50 *new*

Hmm... HOV isn't performing as expected either.  The DJUSHB
homebuilders index broke out above the 600 level on Monday and
confirmed the move with another small gain today.  In contrast
HOV continues to struggle with resistance at the $90 level and
appears to be under performing some of its high-flying kin.
Shares of HOV did trade above $90 earlier today, pulled back on
some selling and then started edging higher again.  We're not too
concerned but it does raise a caution flag.  We are encouraged by
the fresh double-top bullish breakout on its P&F chart created
today.  Short-term traders might want to consider new positions
above $90 or the 90.17 mark (today's high).  If the markets
unexpectedly pull back then look for a bounce from the $87.50
level (or above).  We're going to raise our stop to $83.50.  This
is a little wide but until HOV gives us a confident close over
$90 we're going to give it some room.

Picked on December 16 at $87.49
Change since picked:     + 2.41
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =



---

Qualcomm, Inc. - QCOM - cls: 53.52 chng: +1.27 stop: 50.75*new*

As expected, yesterday's breakout above the top of the rising
channel was technically significant for our QCOM play, as the
stock built on those gains today to end near $53.50, its best
close in over 2 years.  That breakout solidifies the bullish view
and has bulls eyeing the $55 level (our initial target), quite
possibly by the end of the week.  While volume is likely to be
light the rest of the week, it is certainly clear that QCOM is in
favor with the bulls.  Price is too close to that initial target
to recommend new entries on strength, but a pullback to confirm
support near $51.50-52.00 can certainly be considered.  If QCOM
does manage to rally up near the $55-56 area before the end of
the week, conservative traders should definitely lock in some
gains and then possibly look for a new lower entry point.  Note
that we've raised our stop to $50.75 tonight, just below Monday's
intraday low and the 10-dma ($50.83).

Picked on December 11th at   $50.14
Change since picked:          +3.38
Earnings Date               2/04/04 (unconfirmed)
Average Daily Volume =     9.26 mln



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

Yahoo! - YHOO - close: 43.68 change: +1.08 stop: 41.49

Company Description:
Yahoo! Inc. is a leading provider of comprehensive online
products and services to consumers and businesses worldwide.
Yahoo! is the No. 1 Internet brand globally and the most
trafficked Internet destination worldwide. Headquartered in
Sunnyvale, Calif., Yahoo!'s global network includes 25 world
properties and is available in 13 languages.
(source: company press release)

Why We Like It:
The markets still have a good two or three weeks left of untamed
bullishness with the seasonal late December and early January
buying spree.  A lot of that money gets thrown to the tech sector
and some of it is bound to land in the realm of Internet stocks.
Most of the brokers who cover the Internet group rank YHOO as one
of their top picks.  While I won't claim YHOO is a strong
fundamental play it can be a sentimental one.  Investors
expectations are pretty strong for 2004 and plenty will be
placing their bets in the next few weeks.

Looking at YHOO's chart we see a three-month consolidation that
is strongly hinting at a bullish breakout.  Actually, it sort of
looks like a rather ugly reverse head-and-shoulder pattern with a
neck line between $44 and $45.  Since $45 is round-number
psychological resistance, conservative traders can probably play
it safer by placing the neckline there.  We're going to use a
TRIGGER at $45.01 to open this play.  More aggressive players can
probably consider positions now but YHOO has struggled with
$44.00, 44.25, 44.50 and 44.75 in the last three months.  Plus, a
move over $45.00 should produce a new quadruple top breakout on
YHOO's point-and-figure chart.  Coincidentally, if you look at
YHOO's P&F chart you'll see the stock has a habit of sucking in
shorts with false bearish breakdowns before reversing course.
Meanwhile, YHOO's technicals are all positive with stochastics,
RSI and momentum turning higher and its MACD producing a fresh
buy signal today.

Once we are TRIGGERED at $45.01 we'll start the play with a stop
at $41.49.  Our first target is $50.00 but we suspect YHOO might
be able to surpass it.

Suggested Options:
We don't plan on holding YHOO calls longer than January's
expiration so our favorite strike is the January 42.50's.

BUY CALL JAN 40.00 YHQ-AH OI=11472 at $4.30 SL=2.15
BUY CALL JAN 42.50 YHQ-AV OI=10786 at $2.40 SL=1.20
BUY CALL JAN 45.00 YHQ-AI OI=20785 at $1.15 SL= --
BUY CALL FEB 40.00 YHQ-BH OI=   84 at $5.10 SL=3.00
BUY CALL FEB 42.50 YHQ-BV OI=  385 at $3.50 SL=1.75
BUY CALL FEB 45.00 YHQ-BI OI=  153 at $2.25 SL=1.13

Annotated chart of YHOO:



Picked on December 23 at $xx.xx <-- see trigger
Change since picked:     + 0.00
Earnings Date          01/14/03 (unconfirmed)
Average Daily Volume:      12.3 million
Chart =



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

Cognizant Tech. - CTSH - cls: 44.59 chng: +1.43 stop: 46.50

As good as CTSH was looking for a downside break last week, it is
now looking pretty grim for the bears.  The stock caught another
solid bounce from $41 and this time found some follow-through
buying to push it through the 10-dma ($43.98).  Not only that,
but the stock continued to rise, actually spending some time
above the 50-dma (44.75) before pulling back at the end of the
day to end just below that mark.  CTSH has some formidable
resistance to deal with in the form of the 50-dma, historical
resistance (broken support) in the $44.50-45.00 area and then the
descending trendline ($45.10) from the high on December 3rd.  If
that resistance is broken, then we'll have a clear reversal of
trend.  A rollover below $45 can be used for aggressive entries,
maintaining stops at $46.50.  More conservative traders would
need to wait for a break back under $44 before considering new
entries.

Picked on December 16th at    $42.70
Change since picked:           +1.89
Earnings Date                1/20/04 (unconfirmed)
Average Daily Volume =         988 K


---

National Semiconductor - NSM - cls: 39.80 chng: +1.26 stop: 41.40

Working its way back to resistance, NSM is back to tapping the
$40 resistance level in concert with the Semiconductor index
(SOX.X) testing its own resistance at $500.  This is shaping up
to be a serious battle between the bulls and the bears, as buyers
keep stepping in to buy the dips, but there is strong resistance
just overhead at $40, reinforced by the 50-dma ($40.61) the 20-
dma ($40.80) and the 30-dma ($40.94), not to mention horizontal
resistance at $41.25.  Traders looking for a fresh entry point
can still consider a rollover below all this strong resistance,
but must rigidly adhere to our $41.40 stop in case of a breakout.
Momentum entries should not be attempted until NSM breaks back
under the $38 level, preferably with the SOX once again testing
its own support in the $475 area.  The conservative approach for
traders not already in the play would be to wait until next
Monday to enter the play.

Picked on December 9th at     $38.70
Change since picked:           +1.10
Earnings Date                3/04/04 (unconfirmed)
Average Daily Volume =      3.80 mln



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

None


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**********

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The Option Investor Newsletter                  Tuesday 12-23-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - HOV
Watch List: Our Christmas Watch List

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

Hovnanian - HOV - close: 89.90 change: +0.91 stop: 83.50 *new*

-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)


- Most Recent Update (Tuesday, Dec. 23, 2003) -
Hmm... HOV isn't performing as expected either.  The DJUSHB
homebuilders index broke out above the 600 level on Monday and
confirmed the move with another small gain today.  In contrast
HOV continues to struggle with resistance at the $90 level and
appears to be under performing some of its high-flying kin.
Shares of HOV did trade above $90 earlier today, pulled back on
some selling and then started edging higher again.  We're not too
concerned but it does raise a caution flag.  We are encouraged by
the fresh double-top bullish breakout on its P&F chart created
today.  Short-term traders might want to consider new positions
above $90 or the 90.17 mark (today's high).  If the markets
unexpectedly pull back then look for a bounce from the $87.50
level (or above).  We're going to raise our stop to $83.50.  This
is a little wide but until HOV gives us a confident close over
$90 we're going to give it some room.

- Play of the Day Comments -
The DJUSHB index has broken back above the 600 level and we're
expecting some follow through on the move.  HOV should play a
little catch up once it absorbs current resistance at $90.00.


- 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= 876 at $6.70 SL=4.50
BUY CALL JAN 90*HOV-AR OI=1428 at $3.40 SL=1.75
BUY CALL JAN 95 HOV-AS OI=1020 at $1.40 SL=0.75

Annotated Chart:




Picked on December 16 at $87.49
Change since picked:     + 2.41
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =



------------------------------------------------------------
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Our Christmas Watch List

! Holiday Schedule Notice: The OI watch list will be absent
during the holidays and should resume the week after Christmas.


---

Amazon.com - AMZN - close: 52.48 change: +2.59

WHAT TO WATCH:  AMZN actually produced some decent volume on
today's rally given the Christmas holiday.  The stock has broken
its declining trend of lower highs that began in mid-October.
Shares have also bounced three times from the 38.2% Fibonacci
retracement level of its April to October run.  Bullish traders
might want to target a move to $60 if AMZN can break above its
simple 50-dma.  Also watch for resistance just above $57.00.

Chart=


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Nextel Communications - NXTL - close: 27.00 change: +1.08

WHAT TO WATCH:  NXTL added more than 4% today as the sector rose
amid speculation of future M&A activity.  This is almost a fresh
three-year high for the stock and shares are still in their
rising channel.  This might be a breakout worth chasing to the
$30 level.  If you prefer to buy the dip, hope for a bounce from
the $26.00-26.50 region.

Chart=


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Lehman Brothers - LEH - close: 75.69 change: +0.69

WHAT TO WATCH:  Shares of LEH are helping lead the XBD broker-
dealer index back toward its highs.  LEH has closed strongly
above resistance at $75 and is about to hit new 2 1/2 year highs
above $76.25.  The stock's chart appears to have formed a cup and
handle formation.  We strongly considered adding LEH to the play
list as a call at current levels with a target of $80 to 82.50.

Chart=


---

NVIDIA Corp - NVDA - close: 21.96 change: +0.86

WHAT TO WATCH:  NVDA is another stock we strongly considered for
a short-term bullish play.  Shares have been consolidating
sideways and with double-bottom near 19.50 the stock now looks
ready to breakout above the $22.25 mark.  Bullish traders could
use this level to set a trigger and then target a move to $25-26.

Chart=




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

AMAT $22.33 +0.33 - AMAT has been consolidating in a deep bull
flag (if you're optimistic) or a descending bearish channel.
Whatever the case a breakout above the 50-dma and/or the 23.00-
23.25 level could be a bullish entry point.

MXIM $48.86 +0.63 - MXIM is another chip stock in a bull flag-
style consolidation.  Look for a move above $50 to consider
bullish positions.

BRCM $34.64 +0.75 - Yet another chip stock but this one has
already started to break out of its consolidation.  A move above
$35.00 could be an entry point.

ERTS $47.23 +1.21 - The close just above its simple 50-dma is
encouraging and the stock is definitely on the rebound.

FDX $68.99 -0.31 - There has been no dead cat bounce after FDX
closed under $70 last week.  Shares are slowly slipping lower.
We're cautious on any bearish plays because this is a tough time
of year to be bearish but FDX looks headed for a test of its 200-
dma near $65.

BBY $49.50 -0.95 - BBY is another tempting bearish candidate.
The close under $50 is encouraging (to consider short positions)
but the stock has currently produced a short-term double-bottom
at 48.50.  A break down from there and it's an easy drop to its
200-dma near $45.00.


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