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Daily Newsletter, Tuesday, 12/30/2003

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The Option Investor Newsletter                 Tuesday 12-30-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap:
Futures Markets: Dolor for the Dollar
Index Trader Wrap: And now the other side of the argument
Market Sentiment: The NASDAQ Holds Its Gains


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      12-30-2003           High     Low     Volume Advance/Decline
DJIA    10425.04 - 25.00 10456.07 10405.85 1.23 bln   1796/1331
NASDAQ   2009.88 +  3.40  2010.13  1997.82 1.52 bln   1759/1471
S&P 100   549.07 -  0.16   549.56   547.75   Totals   3555/2802
S&P 500  1109.64 +  0.16  1109.75  1106.41
W5000   10799.44 +  6.80 10799.44 10764.22
RUS 2000  565.47 +  1.59   565.47   562.13
DJ TRANS 3021.95 - 16.20  3037.66  3012.62
VIX        17.69 +  0.60    17.97    17.20
VXO (VIX-O)16.97 +  0.93    17.04    16.46
VXN        23.36 -  0.37    24.18    23.36
Total Volume 2,996M
Total UpVol  1,676M
Total DnVol  1,211M
52wk Highs 1052
52wk Lows  1118
TRIN       1.06
NAZTRIN    0.66
PUT/CALL   0.59
************************************************************

Going Out at the Top!

A combination of factors produced a strong Monday rally to
new 52-week highs and the markets held the high ground on
Tuesday. Profit taking was limited to some consolidation
but no real selling despite a triple dose of weaker than
expected economic reports. The Nasdaq managed to add +3
points while the Dow gave up -24. The SPX/OEX both ended
within .16 of unchanged. An end of day buy program in the
Russell overcame a sell program 30 min earlier to push that
index back into positive territory as well.

Dow Chart


Nasdaq Chart



Those weaker than expected economic reports were led by the
Chicago PMI at 59.2 and below consensus at 61.3. The headline
number for November was 64.1 making December's drop to 59.2
significant. This is still well above the 51.2 for September
and low for the last eight months. Manufacturing is still
expanding but this could be showing a cooling off period
from the faster pre holiday pace. New Orders fell to 65.5
from 73.3 and Back Orders fell to 50.8 from 59.6. Inventory
levels continue to fall at 40.6 indicating no willingness
to stock up on products. This shows no conviction that the
recovery has legs. Overall this was a positive report but
one that will be watched closely in January for further
signs of weakness. Taken alone this drop is not material
but when seen in combination with the -3.1% drop in Durable
Goods Orders last Wednesday it could be spelling trouble
for the future.

Consumer Confidence fell to 91.3 and was weaker than the
consensus estimates of 93.5. This echoes the fall in the
Michigan Sentiment last week. The present conditions
component was the critical element dragging the index down.
It dropped from 81.0 to 73.9 while the expectations component
rose to 102.9 from 100.1. Continuing unemployment was blamed
as the reason for the drop in sentiment. The survey was taken
before the heightened terror alerts so that should not have
been a factor. Also, the capture of Saddam should have given
the index a lift. I wonder where it would have been without
the Saddam capture. The most likely reason for the dip was
a money shortage during the shopping season. Consumers with
jobs are conserving and the nearly nine million still without
jobs are rationing funds. Tough to spread holiday cheer
without discretionary funds in your pocket.

Existing Home Sales also fell significantly at -4.6% to 6.06
million units. This was a drop from the 6.35 level in Oct and
the 6.68 record pace in September. The continued low mortgage
rates are helping to maintain the six million plus levels but
the recent rate blip has definitely slowed the sales pace.
Cold weather also helped slow the trend as blizzards tend to
retard the shopping process. This dip is likely a seasonal
fade that will pick up again in the spring. We already know
that building permits are at record levels and inventory
of finished houses will be huge in the spring. As long as
interest rates remain low the stage is set for a banner
year for new home builders and existing home sales. All we
need is for the economic recovery to hold its gains for one
more quarter and supply the confidence needed for consumers
to make the purchases.

Talking heads on TV failed to mention the gains in the NAPM
NY Report to 242.6 from 227.3 in November. This was the 4th
straight monthly gain and the six month outlook jumped from
57.4 to a whopping 90.0. Current conditions jumped to 80.7
from 51.9. Purchasing managers are becoming increasingly
optimistic about 2004 which should be a leading indicator
for the manufacturing sector. The NY area is recovering
from its recession but is still a fragile economy. Should
the New Years celebration pass successfully we could see a
collective sigh of relief and a surge in conditions for the
area.

The Weekly Chain Store Sales showed a +2.0% bounce for last
week but the numbers were not enough to overcome a slow start
for December. Target said the week was strong but said sales
for the month would come in at the low end of guidance. This
was nearly identical to the Wal-Mart press release last week.
Post holiday crowds are reportedly strong as shoppers hunt
for bargains.

Micron may be about ready to admit it conspired to fix prices
on chips as part of an agreement with the Justice Dept to
avoid prosecution. If MU does make the admission it is likely
to implicate other companies in the conspiracy. Infineon,
Hynix and Samsung are suspected. Rambus rose +13% today on
speculation that Micron may be on the verge of settling with
them on their long running court case. If MU settles it would
set the stage for other companies to also settle. Seems like
Micron is in the settling mood and hoping to go into 2004
with a clean slate.

FedEx bought some copies on Tuesday, a lot of them. They
acquired Kinkos for $2.4 billion in cash in an effort to
offset the competitive edge UPS got from acquiring Mail
Boxes Etc last year. UPS picked up 3300 outlets in the US
with the purchase. FDX picked up 1100 Kinkos around the
world with plans on making them into shipping centers as
well as business centers. We had been talking about a
potential FDX move in the office when we were putting
together the Top-50 Stocks for 2004 list. I expected FDX
to make an acquisition play but Kinkos never crossed my
mind. I think it was a good move on their part. UPS sells
for almost twice the value as FDX and I think this will
help FDX bridge that gap. I ended up not picking FDX as one
of the Top-50 Stocks because of the rising oil prices and
concerns about terrorists and cargo aircraft.

Santa brought a bag of presents to traders with the indexes
breaking out to new highs on Monday. According to historic
trends we could have a couple more bullish days ahead as
retail traders filled with bullish holiday sentiment and
holiday bonuses take advantage of the holidays to add to
their 2004 portfolios. Historically this influx of cash
will continue to provide bullish lift for the first 2-3
days of January. Opinions are seriously mixed once we hit
January 6th.

The Nasdaq held its ground above 2000 for the second day
and the Dow held above 10400. Both are poised above recent
resistance and could move higher. Odds are good they will
not be taking a giant leap. The Dow 10450 resistance is
closely followed by 10650 resistance and that one is very
strong. The volume on Tuesday was light and Wednesday is
expected to be even worse. Bulls need volume to make serious
gains and odds are good it will be missing. The market
internals are off the scale positive with new 52-week highs
at 1118 on Monday and 1074 on Tuesday. New lows for both
days totaled only 48. Despite the imbalances the advancers
only beat decliners 4:3. This is typical of pauses at new
highs. Everybody wants to buy the dip but few want to buy
the top. Lately we have not had any dips and only in place
consolidations. Sprint, pause, sprint, pause. Today was the
pause and it remains to be see if tomorrow will make it out
of the starting blocks.

On Saturday Greenspan will give a speech on risks in the
current monetary policy. This has the bond groupies in a
head spin with the potential for good news/bad news. The
equity market should only expect Greenspan to say good
things and this could be priced into the market on Friday.
Greenspan is not likely to say anything to derail the rally
and force a change in the current rate environment.

Monday was the last day of year-end window dressing for
funds and Monday could be the first day of window stripping.
The wild card here is the threat of terrorist activity over
the New Years eve celebrations and the New Years day events.
If nothing happens then buyers waiting for the all clear
could pour cash into the market on Friday/Monday. Add in
the normal year end retirement cash and the next few days
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FUTURES MARKETS
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Dolor for the Dollar
Jonathan Levinson

The US Dollar got hauled out of its spider hole and beaten like
Dow resistance levels, selling off in a nearly-bounceless
testimony to the impotence of John Snow’s words.  Treasuries sold
but recovered some of their losses toward the close, gold and
silver hit multiyear highs, and equities pulled back very
slightly.

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


John Snow’s support of the strong dollar is the stuff of which
clichis are made.  The dollar tanked again today, setting a new
low at 86.90.  Stunningly, the last time that the Dow was in the
neighborhood of 10500, the USD Index was at 120.  The Dow has
made it back uptown, but the Dollar Index is below 87 during the
same period of time.  It’s of little consolation to Dow bears
that the Dow at current levels is worth a third less than it was,
because price is still price.  That said, silver and gold busted
to new highs with silver at 6, and the CRB added .22 to close at
255.81, led by natural gas, heating oil, crude and silver
futures, while live cattle futures led to the downside for the
fourth consecutive session.


Weekly chart of February gold


Against the falling dollar rose gold today.  I’ve zoomed out to a
weekly view of the GC contract for perspective.  It still looks
awfully extended to me, and like Dow bulls, which I’m not,
goldbulls have to be wondering about the expected correction.
Support at 412 moved up to 413 today, with the day low set at
415.90.  This is into daily breakout territory, and gold longs
should be trailing a stop higher and letting the market decide
when it will end.  The weekly cycle upphase is toppy but still in
progress, with today’s move adding 1.80 to close at 417.10, with
an intraday high at 418.


Daily chart of the ten year note yield


Ten year bonds got sold aggressively today, again, the yield
adding 1.16% or 4.9 bps to close at 4.279%.  Pennant trendline
resistance was gapped and held, and the daily cycle oscillators
are on buy signals in a fresh upphase.  4.39% looks like the next
significant resistance level, and at the rate at which the TNX is
climbing, it could get tested very soon.  Even as US equities
maintain their magical mystical levitation act against the
failing dollar, treasuries are beginning to feel some of the
heat.


Daily NQ candles



I remember a George Soros quote, something to the effect of
locating the trend whose premise is false, and then fading it.
Well, looking at February 36 QQQ puts being offered at $1 this
afternoon, I had occasion to reflect on that statement, and to
think that I was finally feeling the visceral truth to which
Soros refers.  Or not.  But it’s beyond me how anyone can be
shorting nearly ATM puts with the QQV below 22, with 2 months
worth of time for so small a premium.  Disclosure:  I own some of
those puts as of yesterday.

The NQ was strongest of the equities today, and not just because
I added a short position on it yesterday.  Today’s move saw the
NQ trade both sides of unchanged after doji-ing off a new 52 week
high at 1477.  The daily cycle remains up, and the lack of any
real guts to the 30 minute cycle downphase is a very bullish
sign.  After a weak sideways downphase usually follows a strong
upphase. With the daily cycle oscillators still pointing north
here, the NQ will be set up for a synchronous 30 minute and daily
cycle upphase.  First resistance is at 1477, almost certain to be
broken tomorrow morning based on the uptick in the 30 minute
cycle oscillator below.


30 minute 20 day chart of the NQ


The 30 minute NQ, with today’s net 4.5 point gain, shows the
shallowest of pullbacks intraday for an overdue 30 minute cycle
downphase.  The upturn at the close points to more upside ahead,
with the truncated cycle bottom coinciding with the steeply
rising trendline.  Resistance, if such a word still has currency
in the equity markets, is first at 1477, followed by the 1490
area, which my projection of the upper rising trendline.  Support
is now 1465.


Daily ES candles


The ES was unchanged today, hugging the upper rising Bollinger
band and leaving a doji star atop yesterday’s breakout candle.
This doesn’t look much like distribution to me, but more of a
consolidation, with no downside whatsoever on the 30 minute cycle
downphase-  just a pause in the buying.  The upper Bollinger
band, the bargain basement put to call readings all day after
yesterday’s monthly low close at .54, with equity p/c spikes down
to .29 intraday, all lead me to expect immediate downside.  But
the daily cycle is still gunning higher, but it’s not yet in
synch with the still-downphasing 30 minute cycle oscillators
below.  Resistance is at the day high of 1109.


20 day 30 minute chart of the ES


Support at 1105 was defended vigorously today, not that that it
was much of challenge.  The 30 minute cycle downphase got zero
traction, and a break above 1109 should bring a whole new round
of fireworks.  If the 30 minute oscillators follow the NQ’s lead
and turn up here, the bears will have a problem, but until they
do, the bears still have the ball.  A weak 30 minute cycle
upphase following the anticipated end of the current downphase
would also be bearish.  However, the most cursory glance at the
30 minute chart shows an ES that is headed higher- that is, price
has a steeply positive slope.


100-tick ES


Here’s a closeup of today’s flat (in)action.


Daily YM candles


The YM has been the most extended of the equities, and today it
led to the downside, actually closing negative by 34 points.
However, the broken rising trendline has become support, and the
lack of significant pullback remains bull.  A break below 10380
will be the first support to watch, but the daily cycle
oscillators continue to trend to the upside.


20 day 30 minute chart of the YM


Prophetcharts has again dropped the ball, only this time with the
YM 30 minute chart.  The 10395 close made it through, but not the
remainder of today’s 30 minute candles.  The 30 minute cycle
oscillator downphase was intact but twitching higher at the
close, and I expect some chop with an upward bias tomorrow
morning on this basis.

The markets remain treacherous for bulls and bears alike here,
with the sinking dollar a growing question mark.  How long US
denominated equities will continue to rise in nominal terms is
beyond me, but I don’t expect it to go much longer.  There are
only so many shorts to squeeze before foreign selling does to
stocks what it appears to be doing to bonds.  If I’m right, the
YM should go first, as I’m guessing that it’s the more widely
held by foreigners.  See you in the Futures Monitor tomorrow.


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

And now the other side of the argument

When the major indices trade unchanged and in a very tight range,
my mind begins to wander and I begin thinking a bit outside the
box.

One thing I read in today's market monitor triggered a thought,
or at least had me posing a question to myself.

In recent weeks, I've mentioned that I thought we might see some
"tax gain selling" in early January, which might have the major
indices digesting some gains and pulling back should bulls lock
in gains after an enormously bullish year of gains.

But then it struck me!

Jim Brown returned from a holiday vacation and wrote... "I don't
want to rein it in, I want to see a good strong exhaustion climax
soon.  I want all the buyers to get into the market at once and
quit waiting for the dip.  Once everyone is invested the bulls
will run out of steam and we will return to the normal market
action.  Normal as in several days of uptrend followed by several
days of down trend and then repeat."

Hmmmm.... I began to think.  This sounds familiar.  I've read
many "sell-side" calling for resistance at Dow 10,000, Dow
10,100, Dow 10,200, Dow 10,300, and Dow 10,400, where I begin to
wonder if its not bulls that are waiting for the pullback but
BEARS!!!!!

To Jim's credit, he used the word "buyers," which leaves us to
assume that it isn't just a bunch of love-crazed bulls that show
up at "the top," but most likely some very wrong BEARS.

Have you seen the short interest on the NASDAQ-100 Tracking Stock
(AMEX:QQQ) $36.56 +0.32%?  For those that may have missed
yesterday's trade, the QQQ broke to a new 52-week high.  While
fractional gains were seen today, the QQQ traded a new 52-week
high of $36.58, triggered a bullish action point I had set for a
swing trade long in the QQQ at $36.57, a level I really didn't
think the QQQ would trade as the session wore on.  Who in their
right mind is buying the Q's at their 04:15 PM EST close and at a
52-week high?

I know I ate some mad-cow beef in the last couple of days, but
there's got to be some QQQ bears, with December 15, 2003 short
interest now at an all-time high of 350 million shares short,
that are COUNTING on some tax-gain selling.

But what if there isn't a rush of tax-gain selling?  I read
through some books on trading and investing, and nowhere did I
read that after a large market rise, traders and investors can
COUNT on tax-gain selling the first month of the new tax year.

Have I only been looking at things from one side of story?  The
BEARISH side of the story, which is perhaps COUNTING on tax gain
selling?

Market Snapshot / Internals - 12/30/03 Close



The Dow Industrials (INDU) 10,425.04 -0.23%, S&P 100 Index
(OEX.X) 549.07 -0.02% and NASDAQ-100 Index (NDX.X) 1,470.01
-0.02% finished lower in today's trade, and if not for a 16-cent
move higher in the final 35-minutes of today's session, the
NASDAQ-100 Tracker (QQQ) $36.56 would have probably finished
today's trade with a loss.

Market internals were not nearly as bullish today as they were
yesterday, but NASDAQ NH/NL was almost identical to yesterday's
300:4.  The NYSE NH/NL was found fewer new high, but also new
lows than yesterday's 614:12.

When the NASDAQ Composite (COMPX) 2,009.88 +0.16% moved below the
2,000 level this morning, just after the release of 10:00 AM EST
economic data, it grabbed headlines on CNBC as the NASDAQ
Composite rebound to 2,000 was short-lived.

While it may be that BEARS are the ones hoping for a pullback,
there were quite a few signs, especially late in today's trade,
that some shorter-term momentum bulls are looking to play some
historical bullishness for the NASDAQ.

My surprise from today's trade was that NASDAQ turned 1.5 million
shares, and the highest full-day session volume since December
19th, when most traders headed out for the holidays.

Pivot Analysis Matrix -



At the conclusion of tomorrow's trade, we'll get new MONTHLY
Pivot levels, and right now, its only the NDX/QQQ that hasn't
found a trade at its MONTHLY R2.

I've marked tentative near-term resistance for the Dow
Industrials (INDU) at its DAILY Pivot and WEEKLY R2.  While 10-
points apart, its been common to the INDU trade within 10-points
of correlative support resistance levels, where the bigger move
comes when the INDU trades 10-points below or above a correlative
support/resistance level in the matrix.

I was scrambling before the QQQ 04:15 PM EST close to try and
quickly calculate today's DAILY Pivot levels.  I'd consider firm
near-term support building at the correlative DAILY S2/WEEKLY R1
of $36.20, with tentative support early tomorrow at the DAILY
Pivot $36.48 and MONTHLY R1 $36.50.  Today's QQQ low of $36.30
briefly pierced the QQQ's DAILY Pivot of $36.33, and a 01:10:00
PM EST low of $36.33 had the QQQ trading like it touched a
glowing red branding iron.

I tried and tried to convince the bearish side of me to NOT
profile/trade the QQQ bullish today.  I tried to set an upside
action point where I didn't think the QQQ could trade.  I tried
to make a QQQ WEEKLY Interval chart prove to me that with record
high short interest mounting in the QQQ, and it trading a 52-week
high, I should not trade the QQQ bullish.  I tried to convince
myself that LOW volume means lack of buyer, NOT lack of sellers!
I tried to convince myself that the QQQ hadn't gotten back above
its bullish trend from the March lows.

NASDAQ-100 Tracking Stock - Weekly Intervals



I'd call this my devil's advocate chart of the QQQ.  I could come
up with a bunch of reasons not to buy the QQQ.  One reason I
heard to not buy the major indices today and to think about
shorting futures or buying puts is that there might be a
terrorist attack in the United States on New Years Eve/Day.

I wouldn't disagree with the buying of a protective put to hedge
a long portfolio, but if trader's are shorting or buying puts on
such thinking, I would consider that to be speculative.

As Jim Brown said... he's waiting/looking for a good exhaustion
climax soon and wants all the buyers to get into the market at
once and quit waiting for the dip.

Maybe the recent break to new highs on LIGHT holiday volume has
just a few buyers showing up, and at a new high where supply
should be limited, a euphoric amount of buying might actually see
the Q's trade $38.75?

Heck... that might not be a bad idea with a during market hours
stop under $36.00 or $36.20!

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals



I "dashed pink" the DAILY R1 in the QQQ and marked it on the
above chart.  As I see it, when the QQQ traded $36.57, and three-
cents above the WEEKLY R2, a level I didn't think the QQQ would
trade if computers were lined up to sell the $36.54 level, there
may not be any levels of resistance until a round-number $37.00
to keep the QQQ in check.  While bears question of gains that
come on light volume, the light volume simply means there's not a
lot of interest or disagreement on price right now.

I do think it important for bulls to keep an eye on the QQQ 19.1%
MONTHLY retracement level as it relates to this morning's 09:00
AM EST comments and past observation in the OEX.

Here's what I saw late last night, and it may become an important
near-term test for strength for a QQQ bullish trade.

S&P 100 Index Chart - Daily Intervals



Index trader bulls have rotated from an index to a different
index in past week's or months, and using another index's rise to
alert that strength may build in a lagging index.  Past trades
have had us looking to buy a QQQ at a pullback low as the
INDU/SPX/OEX broke to new highs.  The OEX has surged in recent
weeks and when I started looking at the QQQ chart, it struck me
that the QQQ might actually be where the OEX was at on December
3rd.

Should the QQQ break above its MONTHLY 19.1% retracement
tomorrow, it could be a Gone!  Goodbye! trade for the QQQ's and a
similar sprint higher.  Again... I tried to set today's bullish
action point in the QQQ where it wouldn't get traded, but all be
darned if the QQQ didn't rally late to the action point.

S&P 500 Index (SPX.X) (candle chart) - Daily Interval



I haven't seen one of these funny little candles in the SPX and
that interests me a bit.  I remember Jonathan Levinson sending me
an explanation of what Dragonfly Doji Bearish pattern description
a while back, when I asked him just what the heck it was (I think
it showed up in a stock we were looking at).  Heck, I'm not a
candlesticker, but if this is a DDB, then a protective bullish
stop under the WEEKLY R2 should suffice.  If today's candle is a
weird doohickey like the candle which appeared as the SPX would
have just broken to a new 52-week high and the current WEEKLY S1
of 1,088.53, then a break above today's high (another 52-week
high) might turn out bullish.

Dow Industrials (INDU) Chart - Daily Intervals



The INDU was "very weak" today and fell 25-points.  I added a new
regression channel to try and give some type of resemblance of
near-term resistance at approximately 10,515.  Yes, the INDU
looks overextended, but it looked ripe for a fall at the 10,350
level and its May 27, 2002 relative high.

Wouldn't it be something if the QQQ were to make a similar move
as the INDU did when MACD just kept rising and rising as momentum
built at new highs?

Jeff Bailey


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

The NASDAQ Holds Its Gains
- J. Brown

Tuesday was a lackluster day for the markets.  The general tone
was bullish and there were plenty of new highs but covertly there
was a sense of minor profit taking after Monday's big rally.
Contributing to the mood were so-so economic reports.  December's
consumer confidence number slipped to 91.3 down from November's
92.5 and below estimates for a drop to 92.3.  Chicago's PMI index
fell to 59.2 from 64.1 in November.  Plus the existing home sales
report dropped an unexpected 4.6% to an annual pace of 6.06
million units.

The existing home sales drop was a surprise but home sales remain
strong.  The report probably caused some indirect profit taking
in the homebuilders, who fluctuate on the new home sales numbers
not existing home sales numbers.  The consumer confidence number
was a disappointment as well but not a blow out.  The raised
terror threat level and the lingering concerns over the job
market were just too much to keep confidence at its peak.

Investors have nothing to complain about, despite the reports.
The NASDAQ held on to its gains from Monday and its position
above the 2000 mark.  Year to date the NASDAQ is up a staggering
50% compared to a 25% gain in the DJIA and a 26% gain in the S&P
500.  Coincidentally, the Japanese NIKKEI also closed the year
with a gain of 26%.  I'm not expecting much tomorrow with a half
day for the markets and investors thinking about their New Year's
Eve plans instead of last minute investments.  Logically, at
these levels profit taking would make the most sense but there
may be a few nostalgic bulls hoping for the NASDAQ to close the
year out above the 2000 mark.

It is interesting to note that after research group IDC raised
their 2004 semiconductor sales projections from 16% to 18% and
Smith Barney raised their estimates for 2004 chip sales to 20%
from 14% that the SOX actually lost ground today.


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

Market Averages

DJIA ($INDU)

52-week High: 10450
52-week Low :  7416
Current     : 10425

Moving Averages:
(Simple)

 10-dma: 10298
 50-dma:  9896
200-dma:  9228



S&P 500 ($SPX)

52-week High: 1109
52-week Low :  788
Current     : 1109

Moving Averages:
(Simple)

 10-dma: 1092
 50-dma: 1059
200-dma:  990



Nasdaq-100 ($NDX)

52-week High: 1470
52-week Low :  795
Current     : 1470

Moving Averages:
(Simple)

 10-dma: 1436
 50-dma: 1415
200-dma: 1273


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

Believe it or not the volatility indices (VXO and VIX) have
managed to stage a short-term "rally" off their lows around the
18th of December.  Yet they remain near historical lows and offer
little help today.

CBOE Market Volatility Index (VIX) =  17.68 +0.59
CBOE Mkt Volatility old VIX  (VXO) =  16.97 +0.93
Nasdaq Volatility Index (VXN)      =  23.36 -0.37


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.59        660,409       392,442
Equity Only    0.37        557,304       204,816
OEX            1.14         13,275        15,111
QQQ            1.48         22,126        32,675


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.4    + 1     Bull Confirmed
NASDAQ-100    70.0    + 3     Bear Confirmed
Dow Indust.   80.0    + 4     Bull Correction
S&P 500       82.8    + 1     Bull Confirmed
S&P 100       82.0    + 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: 0.93
10-dma: 0.89
21-dma: 1.01
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    1632      1678
Decliners    1169      1405

New Highs     545       313
New Lows       11         2

Up Volume    651M      892M
Down Vol.    528M      560M

Total Vol.  1219M     1505M
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 12-30-2003
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, YHOO
New Calls Plays: DGX
Put Play Updates: CTSH, NSM
New Put Plays: None


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

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


CALLS:
*****

None


PUTS:
*****

None


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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.

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

Analog Devices - ADI - close: 45.69 change: -0.18 stop: 43.00

Even stretching out the space between updates during this period
of light holiday volume has left us with a dearth of market
action to comment upon.  ADI has done what we wanted, which is to
move up from the bottom of its ascending channel.  Prior to
yesterday's strong market advance though, there just wasn't much
to report, as the stock had been languishing under the $45.50
level and had failed to satisfy our trigger.  That all changed
yesterday, as ADI pushed through our $45.80 trigger and the play
became live.  Buyers tried to build on those gains this morning,
but with a lack of volume and no direction from either the
Semiconductor index (SOX.X) or the broader market, ADI fell back
to spend the majority of the session pinned below $46.  Dual
resistance is now offered by the 50-dma ($45.95) and the 20-dma
($45.87), conservative traders will want to wait for a decisive
(read:volume) move over the $46 level before playing.  More
aggressive entries can be considered on another dip and rebound
from the bottom of the channel - now at $44.60 - but keep in mind
that price patterns are likely to be rather unreliable until
volume begins to return to normal next week.

Picked on December 18th at   $45.12
Change since picked:          +0.57
Earnings Date               2/17/04 (unconfirmed)
Average Daily Volume =     3.31 mln
Chart =


---

General Dynamics - GD - close: 90.11 chg: -0.15 stop: 84.99 *new*

The virtually non-stop climb in the DFI defense index has
continued but shares of GD are not quite keeping up the pace.  GD
does look bullish but the trend of new highs is starting to look
tired.  Traders looking for a new entry point might want to wait
for a dip back toward the $87.50-to-88.00 levels.  We are going to
adjust our stop loss up to the $84.99 mark.

Picked on December 21 at $88.78
Change since picked:     + 1.33
Earnings Date          01/21/04 (unconfirmed)
Average Daily Volume:      1.0  million
Chart =



---

Gilead Sciences - GILD - cls: 58.14 chng: -0.46 stop: 56.00

Pushing up just far enough to hit our trigger last Tuesday, GILD
has been pulling back towards support ever since.  There hasn't
really been a rush for the exits, but neither is there a line of
traders looking to buy the stock near that clear resistance.
With volume running at roughly half the ADV, it is clear that the
lion's share of the problem is just a lack of enthusiasm in this
normally slow holiday period.  As such, our best approach to the
play is to enter new positions back near support in anticipation
of the expected breakout.  Currently, there is strong support
just above $56.50, which is both the site of the 50-dma ($56.73)
and the rising trendline from the late October low.  The first
clear sign of strength will come with GILD reversing course and
managing to post a close above the $60 level.  Note that we're
maintaining our stop at $56 for now.

Picked on December 21st at   $59.40
Change since picked:          -1.26
Earnings Date               1/29/04 (unconfirmed)
Average Daily Volume =     4.15 mln
Chart =


---

Hovnanian - HOV - close: 88.20 change: -1.80 stop: 85.99*new*

The housing stocks hit some profit taking today and the DJUSHB
index actually closed back below its 600 level.  This is not
exactly what we'd expect given the market's bullish overtones but
it's possible that there was some selling on today's existing
home sales numbers.  The report out this morning showed that
existing home sales dropped more than 4% but remained at a strong
annual pace.  We suspect that the data indirectly hit the home
sector even though it is "new" homes not "existing" homes that
matter for HOV.  The stock is still struggling with the $90.25
level and we're surprised that the sector didn't perform better
in Monday's big rally.  Currently, HOV's simple 50-dma is about
86.03.  We're going to adjust our stop loss UNDER the 50-dma to
85.99.  Aggressive traders might want to consider bounces from
the 50-dma as potential entry points but the rest of us are
probably better off waiting for a move above the $90.50 level.

Picked on December 16 at $87.49
Change since picked:     + 0.71
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =


---

Qualcomm, Inc. - QCOM - cls: 54.38 chng: -0.44 stop: 52.00

In the midst of anemic, light-volume holiday trading, our QCOM
play has been a breath of fresh air.  After breaking out over the
top of its rising channel last week, the stock followed through
yesterday with another strong performance, bringing the stock
within spitting distance of our initial $55 target at its $54.85
intraday high.  Clearly, that would have made for a great point
for conservative traders to harvest some gains, with a move of
nearly $5 from our picked price.  But with the stock remaining
strong and our stop high enough to keep us out of trouble, we're
willing to let it ride and see if there are indeed higher levels
in store.  Looking at the weekly chart, the $60 level is an
obvious target and that's where aggressive players should set
their sights.  While a breakout over $55 can be used for momentum
entries, we're more in favor of nabbing a bounce from support in
the $52.50-53.00 area, which is very near the top of that rising
channel.  Despite its strength recently, QCOM is unlikely to be
able to continue surging higher until more normal volume levels
are seen starting next week.

Picked on December 11th at   $50.14
Change since picked:          +4.24
Earnings Date               1/20/04 (unconfirmed)
Average Daily Volume =     9.18 mln
Chart =


---

Yahoo! - YHOO - close: 44.93 change: -0.04 stop: 42.00

The gains in Internet stocks have slowed this last week as
traders focused more on the holidays than on trading but that
hasn't left YHOO without a strong trend of higher lows.  Shares
traded up and through our trigger at 45.01 on Christmas Eve and
have managed to churn sideways ever since.  We still think the
stock looks tempting here and traders can buy a bounce from $44
or a breakout over $45.00 (maybe 45.25).  We'll leave our stop
loss at 42.00.  Keep your ears open next week as YHOO will be
making the rounds at the 14th annual Smith Barney Citigroup
Entertainment, Media and Telecommunications conference in Arizona
on Monday, January 5, 2004.

Picked on December 24 at $45.01
Change since picked:     - 0.07
Earnings Date          01/14/03 (unconfirmed)
Average Daily Volume:      12.3 million
Chart =



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

Quest Diagnostic - DGX - close: 72.95 chg: +1.24 stop: 69.00

Company Description:
Quest Diagnostics Incorporated is the nation's leading provider
of diagnostic testing, information and services, providing
insights that enable physicians, hospitals, managed care
organizations and other healthcare professionals to make
decisions to improve health. The company offers the broadest
access to diagnostic laboratory services through its national
network of laboratories and patient service centers. Quest
Diagnostics is the leading provider of esoteric testing,
including gene-based medical testing, and empowers healthcare
organizations and clinicians with state-of-the-art connectivity
solutions that improve practice management.
(source: company press release)

Why We Like It:
There are plenty of stocks to play if you're bullish but a number
of them are approaching resistance or look very extended with new
highs.  We like DGX because it is out performing the market this
week on top of breaking out of a bull-flag consolidation pattern.
The stock has already broken the mid-December highs and its MACD
should produce a new bullish buy signal tomorrow.  The recent
consolidation appears to have set the bottom of DGX's rising
channel.  If shares can break the $75 mark then bulls should be
able to target a move to $80.

Our preferred entry point would be a pull back to 71.50-72.00.
We're going to initiate the play with a stop loss at 69.00, the
recent low.

Suggested Options:
We like the January or February 70 strikes but the January call is
our favorite.

BUY CALL JAN 70*DGX-AN OI=1998 at $3.40 SL=1.70
BUY CALL JAN 75 DGX-AO OI= 726 at $0.65 SL= --
BUY CALL FEB 70 DGX-BN OI=1373 at $4.50 SL=2.25
BUY CALL FEB 75 DGX-BO OI= 536 at $1.60 SL=0.80

Annotated chart of DGX




Picked on December 30 at $72.95
Change since picked:     + 0.00
Earnings Date          01/22/03 (unconfirmed)
Average Daily Volume:      836  thousand
Chart =



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

Cognizant Tech. - CTSH - cls: 45.31 chng: -0.05 stop: 46.50

The bears are being pushed right to the wall in CTSH.  After what
appeared to be a very clean breakdown 2 weeks ago, the stock has
been clawing its way back on steadily declining volume.  Monday's
bullish session gave a lift to most stocks and CTSH was no
exception, as it managed to push through the $45 resistance level
and both the 50-dma ($44.86) and 20-dma ($44.96).  The stock
remains at or just below strong resistance, depending on how we
draw it, but that hasn't deterred the bulls from inching the
stock ever higher.  Aggressive traders can consider new entries
up here on the expectation of a rollover from resistance near
$46, while those with a more cautious approach will need to wait
for a break back under the $44 level before playing.  Maintain
stops at $46.50.

Picked on December 16th at    $42.70
Change since picked:           +2.61
Earnings Date                2/11/04 (unconfirmed)
Average Daily Volume =         993 K
Chart =


---

National Semiconductor - NSM - cls: 39.80 chng: -0.20 stop: 41.40

As the Semiconductor index (SOX.X) pushed back above the $500
level yesterday, NSM was notable for its lack of participation in
the rally.  While the stock did manage a slight gain on the day,
the advance was halted at the 20-dma (now at $39.93).  With the
daily Stochastics starting to weaken near overbought, NSM looks
like a good rollover candidate heading into the end of the year.
Aggressive traders can consider new positions on any weakness
below the 50-dma ($40.72), looking for a serious downdraft to
begin as early as next week.  More conservative traders will need
to wait for a break back under $38 before contemplating new
entries.  With volume likely to remain light (and get lighter)
between now and the end of the week, the best approach will be to
enter on failed rallies near resistance, rather than trying to
short a breakdown.  Maintain stops at $41.40.

Picked on December 9th at     $38.70
Change since picked:           +1.10
Earnings Date                3/04/04 (unconfirmed)
Average Daily Volume =      3.71 mln
Chart =



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

None


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

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


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

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Contact Support
The Option Investor Newsletter                  Tuesday 12-30-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - DGX
Traders Corner: Taxation Is A Four-Letter Word


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


Quest Diagnostic - DGX - close: 72.95 chg: +1.24 stop: 69.00

Company Description:
Quest Diagnostics Incorporated is the nation's leading provider
of diagnostic testing, information and services, providing
insights that enable physicians, hospitals, managed care
organizations and other healthcare professionals to make
decisions to improve health. The company offers the broadest
access to diagnostic laboratory services through its national
network of laboratories and patient service centers. Quest
Diagnostics is the leading provider of esoteric testing,
including gene-based medical testing, and empowers healthcare
organizations and clinicians with state-of-the-art connectivity
solutions that improve practice management.
(source: company press release)

Why We Like It:
There are plenty of stocks to play if you're bullish but a number
of them are approaching resistance or look very extended with new
highs.  We like DGX because it is out performing the market this
week on top of breaking out of a bull-flag consolidation pattern.
The stock has already broken the mid-December highs and its MACD
should produce a new bullish buy signal tomorrow.  The recent
consolidation appears to have set the bottom of DGX's rising
channel.  If shares can break the $75 mark then bulls should be
able to target a move to $80.

Our preferred entry point would be a pull back to 71.50-72.00.
We're going to initiate the play with a stop loss at 69.00, the
recent low.

Suggested Options:
We like the January or February 70 strikes but the January call is
our favorite.

BUY CALL JAN 70*DGX-AN OI=1998 at $3.40 SL=1.70
BUY CALL JAN 75 DGX-AO OI= 726 at $0.65 SL= --
BUY CALL FEB 70 DGX-BN OI=1373 at $4.50 SL=2.25
BUY CALL FEB 75 DGX-BO OI= 536 at $1.60 SL=0.80

Annotated chart of DGX




Picked on December 30 at $72.95
Change since picked:     + 0.00
Earnings Date          01/22/03 (unconfirmed)
Average Daily Volume:      836  thousand
Chart =



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

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OCO Stop & Profit Orders                        OneStopOption
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**************
TRADERS CORNER
**************

Taxation Is A Four-Letter Word
By Mike Parnos, Investing With Attitude

I'm not a big fan of paying taxes.  I may not like the rules, but
I typically play by them.   The thought that they're sending $87-
billion federal tax dollars (including mine) to Iraq to rebuild
sand castles doesn't enthrall me.  There are enough things broken
in America that need fixing that should get priority.   $87-
billion would feed and clothe more than a few of our own.

What should we do?  Give Iraq a few shovels, some super glue and
wish them well.  We don't need their oil that bad.  It's too bad
there's no tax on political gas, because that's all we get coming
out of Washington.

Recently, I've received a number of tax-related questions.  I find
that particularly encouraging.  If we weren't making money, we
wouldn't have to worry about taxes.  Now, we all know that
taxation is the gentle art of plucking a goose in such a way as to
secure the greatest number of feathers with the least amount of
squawking.   Where does the government learn to levy taxes?  At
Pluck U, of course.

Since we have very little say in how our tax dollars are spent, we
should focus on how to minimize our tax obligations.

Let me begin by saying that my area of expertise is teaching
option trading strategies – not taxes.  In today's column I'm
going to go a few tax topics.  Do not take this as gospel.  Double
check everything with your own tax professional.

I just received a course from TradersAccounting.com.  I'm going to
go over it and, hopefully, I'll become smarter about the tax
implications of trading.  In coming months, we'll discuss other
aspects of taxes and traders.  The reason for today's article is
that, with one trading day left in 2003, you may want (or need) to
take some action that would affect your 2003 taxes.
______________________________________________________________

If You Have Losses
Though this may not apply to CPTI students, there are those who
lost money in the stock market in 2003.  Now, at the same time,
you currently have some stock positions in which you're showing a
gain.  Are these profitable positions bumping up against
resistance?  Have they peaked?  You might consider taking your
profits (which is never a bad idea) and applying those profits
against the losses you've taken on other positions earlier in the
year.  If you have additional losses, you can use up to $3,000 of
your total capital losses (long or short term) as a deduction
against ordinary income in computing your adjusted gross income.

If you don't want to take your profits (and you have the sense to
protect your profits by other means), you can always carry forward
any losses that you have taken.
_____________________________________________________________


The Wash Rule
The "Wash Rule" does not mean you have to shower daily (though
it's recommended) and you don't have to wash everywhere.  It means
that you can't purposely sell a stock to establish a tax loss and
then buy it back the next day.  It means that the IRS will not
recognize a loss when substantially identical securities are
bought and sold within a 61-day period (30 days before or 30 days
after the date of sale).

This is for those investors who refuse to take a loss.  They're
emotionally attached to the stock even though they bought it
significantly higher.  They believe that some higher power will
grant their stock salvation.  They also believe in the Tooth
Fairy.  Regardless, they want to get the tax advantages of taking
a loss without actually taking a loss.

There are ways you can technically work within the system to
somewhat preserve your investment position.  You can:
a) Sell the original holding and then buy the same securities at
least 31 days later.
b) Sell the original holding and buy similar securities in
different companies in the same line of business.
c) For mutual funds, you can sell the original holdings and then
buy another fund that uses a similar investment strategy.
d) Buy more of the same security, then you can sell the original
shares at least 31 days later.
______________________________________________________________

JANUARY CPTI POSITIONS
Position #1 - NDX – (NASDAQ 100 Index) – Iron Condor – 1470.01
We sold 5 NDX January 1500 calls and bought 5 NDX January 1525
calls for a credit of $3.70 (x 5 = $1,850).  Then we sold 5 NDX
January 1325 puts and bought 5 NDX January 1300 puts for a credit
of $2.40 (x 5 = $1,200). The total credit was $6.10.  Maximum
profit range: 1325 – 1500.  Potential profit: $3,050.

Position #2 – SOX (Semiconductor Index) – Iron Condor – 509.81
We sold 10 SOX January 530 calls and bought 10 SOX January 540
calls for a credit of $1.40 (x 10 = $1,400).  Then we sold 7 SOX
January 440 puts and bought 7 SOX January 425 puts for a credit of
$1.35 (x 7 = $945).  Our total credit was $2,345.  Maximum profit
range: 440 – 530.  Potential profit: $2,345.

Position #3 – XAU (Gold/Silver Index) – Iron Condor – $109.73
We sold 10 XAU January $95 puts and bought 10 XAU January $90 puts
for a credit of $.60 ($600).  Then we sold 10 XAU January $110
calls and bought 10 XAU January $115 calls for a credit:  $.60
(600).  Our total credit was $1.20 ($1,200).  Maximum profit
range: $95 – 110.  Potential profit: $1,200.

Position #4 -- QQQ Diagonal Calendar Spread -- $36.56
I'm a glutton for punishment, but there's a little voice telling
me that we should be positioned to take advantage of a pullback in
the market.  We tried this in November – January and we ended up
losing a dime.  Sooner or later we're going to be right.  So,
let's give it another try.  We're going to start out risking a
buck and we have two additional months to sell against the March
long puts to reduce our cost basis while we wait.  It's a cheap
speculation. We'll consider this an ongoing position.
Buy 10 QQQ March $34 puts for $1.20
Sell 10 QQQ January $33 puts for $.20
Total debit: $1.00 ($1,000)
_________________________________________________________________

ONGOING POSITION
QQQ ITM Strangle – Ongoing Long Term -- $36.56
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We're
going to make money by selling near term puts and calls every
month.  Here's what we've done so far:
October: Oct. $33 puts and Oct. $34 calls – credit of $1,900.
November: Nov. $34 puts and calls – credit of $1,150.
December: Dec. $34 puts and calls – credit of $1,500.
January: Jan. $34 puts and calls – credit of $850.

Note:  We haven't included any of the proceeds from this long term
QQQ ITM Strangle in our profit calculations.  It's a bonus!  And
it's a great cash flow generating strategy.

OEX Credit Spread Boogie – 549.07
We sold 2 December OEX 520 calls @ $9.00 and bought 2 December OEX
545 calls @ $1.55.  Total credit of $7.45 ($1,490).  Exposure
$17.55 ($3,510).  Rolled out to five contracts of the January
535/505 bull put spread.  In the process we took in an additional
$280.   Total potential profit of $1,770.  Looking good.  We want
the OEX to finish above 535.
__________________________________________________________

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

____________________________________________________________

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

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

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


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