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Daily Newsletter, Wednesday, 12/31/2003

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The Option Investor Newsletter                   Wednesday 12-31-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: The Books Close on 2003
Futures Wrap: Dollar Transferred to ICU
Index Trader Wrap: See Note
Traders Corner: My Favorite Trade Screening Tool


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     12-31-2003            High     Low     Volume Advance/Decline
DJIA    10453.92 + 28.88 10462.44 10407.04 1.19 bln   1245/1575
NASDAQ   2003.37 -  6.51  2015.23  1996.62 1.54 bln   1285/1831
S&P 100   550.78 +  1.71   550.90   547.53   Totals   2530/3406
S&P 500  1111.92 +  2.28  1112.56  1106.21
RUS 2000  556.91 -  8.56   566.74   556.91
DJ TRANS 3007.05 - 31.10  3034.37  3004.65
VIX        18.31 +  0.63    18.86    17.41
VXO        17.51 +  0.54    17.81    16.93
VXN        24.49 +  1.13    24.76    23.43
Total Volume 3,280M
Total UpVol  1,662M
Total DnVol  1,525M
52wk Highs     819
52wk Lows       16
TRIN          0.76
PUT/CALL      1.25
*******************************************************************

The Books Close on 2003
by James Brown

It's not every day that the floor traders at the NYSE serenade
the TV audience with "Wait till the Sun Shines Nellie" so that
must mean one thing.  Happy New Year!  Wow!  It's hard to believe
2003 has come and gone so quickly.  The last session of the year
was a mild one with low volume and a negative advance-decline
line but the Dow managed yet another gain and the NASDAQ managed
to close above the 2000 mark.  For those market conspiracy
traders out there it was no coincidence that the NASDAQ ended the
year 2003 by closing at 2003 with a truly last minute spike
higher.

Today ends the best year for the markets since 1999.  The Dow
Jones Industrial Average climbed 25% in 2003.  The S&P 500 added
26% and the NASDAQ composite soared a massive 50%.  Gains like
these have certainly re-ignited interest in stocks but 2004 will
have a hard time keeping up with a pace that strong and most
analysts are looking for a slow down in the gains.  Fortunately,
the outlook for 2004 is generally positive.

Market internals were actually mixed.  The advance-decline
numbers were negative with almost 16 losers for every 12 winners
on the NYSE and 18 losers for every 12 winners on the NASDAQ.  Up
volume did manage to outpace down volume on both exchanges.
Total volume was light with just 1.19 billion on the NYSE and 1.5
billion on the NASDAQ.

Chart of the DJIA:



Chart of the NASDAQ:



The big news today was the initial jobless claims report,
released early due to the market holiday tomorrow.  Economists
had been expecting a number close to 350,000 but the markets were
surprised with a much-improved figure at 339,000.  This is a drop
of 15,000 claims from last week's figure (354K).  This is the
lowest level in jobless claims since January 20th, 2001.  More
importantly the four-week moving average, which tends to even out
any seasonal fluctuations, fell to 355,750, which is the lowest
level for the four-week moving average since February 2001.
Obviously, this is great news for Wall Street and Main Street as
the biggest concern next year is job growth and these declining
numbers show a steady improvement in the labor market.
Unfortunately, most investors had already packed up for the year
and there was no one to respond to the good news.

The decline in the U.S. dollar has been a constant headline for
the markets here and abroad and today was no different.  The euro
rose to an intraday high (and all-time high) of $1.2647 before
settling closer to 1.2605.  The dollar dropped 20% against the
euro in 2003 making it the worst year for the dollar since the
euro began trading in 1999.  It also happens to be the worst
decline in five years for the dollar against the Japanese yen.

The dropping dollar continues to prop up gold prices although
gold futures slipped more than $1 to $416 an ounce in Wednesday's
session.  A declining dollar and geopolitical unrest have pushed
gold to a 20% gain in 2003.  Some of the more enthusiastic gold
bugs are speculating that gold will reach the $500 level by the
end of 2004.  While that may sound like a wild claim not many
would have predicted gold at $415 a year ago.  Whatever your
stance on the shiny metal it will be a sector to watch next year.

One of today's big news stories was the drop in AmerisourceBergen
(ABC).  Shares were actually halted midday but not before the
stock plummeted below the $60 level and its 200-dma.  ABC,
America's biggest drug wholesaler, just got a little bit smaller
after announcing the loss of a major contract.  The $3 billion a
year contract with the Department of Veteran Affairs will end
this coming March and ABC lowered its earnings guidance for the
year.  ABC lost the contract to rival distributor McKesson (MCK),
who just announced a two-year deal the government agency.

It will be interesting to see where the markets take us on Friday
and next week.  As Jim has pointed out the historical trends are
bullish.  Funds usually begin putting their fresh 401K/IRA money
to work.  The wild card is always a terrorist event.  It's become
rather surreal to think of the millions of New Year's Eve and New
Year's Day partiers celebrating while government helicopters and
F16's circle the major events to protect the no-fly zones.

From everyone at our family at OptionInvestor.com to yours we
wish you a happy New Year!  We're looking forward to a great
2004.


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FUTURES WRAP
************

Dollar Transferred to ICU
Jonathan Levinson

The Dollar got dropped like a bad habit, drilling the euro to new
record highs, silver above 6 and gold to 419.  An early morning
bounce brought some relief, but the dollar finished below
yesterday’s closing levels.  Treasuries advanced slightly, as did
equities with the exception of the NQ.

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 got sold aggressively all night long,
reaching a new bear market low at 86.35 before rebounding on the
initial claims data released at 8:30AM.  There was nothing
special about a seasonal decline of initial claims, but whoever’s
money it was got put to work supporting the oversold USD Index.
The bounce failed at 87.20. Gold hit a new multiyear high at
4.19, silver on an overnight spike at 6.45 in what must have been
a bad tick or bad (very bad) fill, spending most of the session
trading both sides of 6.  The CRB was down fractionally on
weakness in natural gas and live cattle futures.


Weekly chart of February gold


Gold was traded a new high on the dollar disaster, touching 419
before pulling back on the dollar bounce.  The day low was 415,
and nothing occurred to alter our technical picture of either the
metal or the dollar.  Support is in the 412-13 area, resistance
at 420.  The cycles are extended on the weekly and daily
timeframes, and risk to new longs here is very high.  That said,
it’s been a stunning year for metals, and I expect the bottom of
the next correction to be an excellent buying opportunity.


Daily chart of the ten year note yield


Treasuries corrected some of their recent declines today, with
the ten year note yield dropping 2.2 bps to 4.257%, a .51%
decline.  Support came at the 50 day EMA, and no damage was done
to the ten year yield upphase currently in progress.  Resistance
above is at 4.39%.


Daily NQ candles


The NQ printed an outside reversal candle on the daily, with doji
spikes both to the upside and the downside but finishing lightly
in the red.  The move didn’t take anything away from the ongoing
daily cycle upphase, and the NQ is still pinned to the upper
rising Bollinger band. Support at the low of 1460 was just below
trendline support on the 30 minute chart, and breaking that level
is the first hurdle for bears.  With event risk close to the
front of everyone’s consciousness, front-running  a relief rally
amid manic put buying, I’m keeping my mind open for Friday’s
session.  The oscillators are mixed across different timeframes,
volume is on the light side, and externalities are being watched
more closely than usual.


30 minute 20 day chart of the NQ


The upphase on the 30 minute NQ aborted early in its run this
morning, leaving a bearish divergence that delivered a pleasant
drop in the morning.  The NQ attempted unsuccessfully to dust
itself off throughout the session, and finished in the red
despite the young upphase that kicked off with a series of buy
programs at 3PM.  Trendline support remains in play, with 1460-61
the support level to watch here.  1477 proved far more tenacious
than I expected, with 1479 the high.  Resistance to the upside is
at 1477-79, with the possibility of a sloppy h&s top printing
above the 1460 neckline.


Daily ES candles


The ES added 1.25 today to close at 1109, straggling slightly
behind the YM’s .14% or 15 point gain.  The strength of US
equities in the face of the sinking dollar is a sight to behold,
as pension funds and foreign holders presumably chase performance
in a greater-fool frenzy to try to outpace the sinking value of
their holdings in real US-denominated terms.  On this basis, the
recent weakness in US treasuries makes sense, and today’s small
bounce in that market can be attributed to anticipated event
risk.

That said, the ES again held above the rising daily channel
trendline and extended its daily cycle upphase another notch.
Bollinger resistance at 1113 fits well with the day high of
1111.50.  I expected support at 1105 last night, and it held well
today, confirming the 1104-5 support range.  Obviously, any
amount of selling should take out that level with ease, but so
far there’s been none for the past two weeks.


20 day 30 minute chart of the ES


The 30 minute ES broke back within the rising wedge, but bounced
back above it on the 3PM ramp job.  I neglected to mention that
the Fed added 2.75B net in repos today, and I have no doubt that
we saw it put to work in equities again today.  Whatever the
cause, that ramp broke the 30 minute cycle downphase and left the
ES on a new buy signal.  Any selling below 1105 should negate it,
but barring any bad news, I expect to see upside on Friday based
on the synchronous upphases on the 30 minute and daily cycle
oscillators.


100-tick ES


The 100-tick intraday ES shows a short cycle upphase grown long-
in-the-tooth and due to end anytime. The combination of the daily
and 30 minute cycle upphases should see this short cycle either
begin trending in overbought, or put in a shallow, brief
downphase if the ES doesn’t begin selling off immediately.
Again, Friday’s open is completely depended on the presence or
absence of bad news during the holiday, and I’m personally that
the markets open strong, my own trading positions
notwithstanding.


Daily YM candles


Nothing to add on the YM, which added slightly but did not
disturb the technical picture discussed last night and is
cyclically identical to the ES here.  Support is at 10380,
resistance 10430.


20 day 30 minute chart of the YM


I won’t attempt to recap the year here, and instead refer you to
my magnum opus on the Year End Renewal CD.  As the market loves
to do, it leaves us older, wiser, and holding a handful of
fascinating question marks.


Be well and celebrate safely, and please accept my best wishes
for a happy, healthy and prosperous 2004.  See you Friday in the
Futures Monitor.


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_123103_1.asp


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

My Favorite Trade Screening Tool
by Mark Phillips
mphillips@OptionInvestor.com

Alright, I admit it.  I'm a technical analysis junkie and like
many others that fit that description, I have spent countless
hours in pursuit of that magic, faultless indicator that will
deliver winning trade after winning trade.  I don't like to be the
bearer of bad news, but in my experience, that animal doesn't
exist.  And believe me, I don't make that statement lightly. I've
tested (and in many cases traded) most of the widely used
indicators, from moving averages and Bollinger bands to various
oscillators and volume-based indicators.  I've even created
several little indicators of my own.

Do you know what I've learned?  None of these indicators can be
used to generate consistently profitable trades without being
filtered through the most powerful trading tool we all possess,
that of our own judgment and critical decision-making process.
That isn't to say that technical analysis isn't a great tool -- I
use it as my primary tool in identifying high-odds trade
candidates.  I use a combination of different technical indicators
to run various scans of hundreds of securities on a daily and
weekly basis.  But that is the key distinction in my mind.  This
automated process just whittles down the universe of stocks at my
disposal, delivering a short list of stocks that look good for
bullish or bearish trades.

That's when the hard work starts, as I begin looking at each chart
individually.  I use many of the same indicators as in the
automated scans, but there is something different and extremely
valuable about actually looking at the chart with my own two eyes.
I see nuances in the appearance of the Stochastics oscillator or
price action relative to an important moving average that is
difficult (or impossible) to program into a custom stock scan.
Equally as important is the fact that through all my other
research I will have an almost intuitive feel for whether to
seriously consider trades that are in conflict with the direction
of the overall market or sector.  A stock may have what appears to
be a bullish chart, but if I know that the sector is in a bearish
trend, I am unlikely to give that stock serious consideration from
the long side.

Sector analysis and relative strength studies are an important
aspect of my investing strategy, and every trade that I consider
must be evaluated in terms of what the overall sector or market is
doing.  This is the kind of interactive evaluation that an
automated screening process (no matter how sophisticated) cannot
perform for me.  In a future article I want to delve into the
topics of sector analysis and relative strength, but I don't want
to do it today because it requires an article (possibly two) of
its own.

Despite all my cautionary statements above, what I really want to
talk about are some of the tools that are available for screening
potential trade candidates.  Then in the weeks ahead, we can talk
about how to apply our judgment to that list of candidates to
whittle it down to a short list of actionable trades.

I have used a charting program called Metastock since 1996 because
of the extensive customizability it provides.  I can define my own
technical indicators or use any of the standard indicators that
come with the software package.  Any of these can be applied to a
given chart in any combination and that alone is powerful.  But
then I can ask it to deliver a list of stocks to me that meet my
predefined criteria on Stochastics, any given moving average,
various candlestick patterns, or any other indication that I can
dream up.  This approach appeals to me because of my background as
an engineer.  I love to program software and then see the results
of my efforts.  This is clearly not a solution that will appeal to
everyone, especially those that don't have copious amounts of free
time to burn in programming, back-testing and then re-programming
based on those results.

Fortunately, there are some compelling resources on the Internet
for performing stock scans that in many ways rival the results of
my countless hours of programming.  The best part is that the hard
work of defining some very useful stock screens has already been
done, and we can simply take advantage of the work that has
already been done.  The best resource I have ever come across
online is at StockCharts.com, which should be familiar to all of
you that follow Jeff Bailey's commentary as it relates to Point
and Figure charts.

Just head on over to the StockCharts homepage
(http://stockcharts.com/index.html) and below the login
information there is a set of links on the left hand side.  Select
the Stock Scans link and up comes a list of scans, already
programmed, scanned and compartmentalized by exchange and by type
of indicator.  There is a whole section devoted to standard
technical chart pattern recognition, as well as a section devoted
to numerous candlestick patterns.  But my personal favorite is the
bottom section, which is devoted to a healthy dose of Point and
Figure chart patterns.

Looking for all the stocks that are giving fresh triple-bottom
sell signals?  Stockcharts has done the work for you and all you
have to do is click on the link to display the results of the
scan.  After clicking on the link (number in the desired column)
for the PnF chart pattern I am interested in, I get a list of all
the stocks that currently meet that criteria, which I can sort by
Open, High, Low, Close or Volume, by clicking on the column
header.  Then I print that list out and start looking at each of
the symbols on a standard price chart, looking for those that
appear close to providing a solid entry point.  I fall back on my
standard technical analysis tools to make that determination, but
here I find it is most useful to actually work with each chart.
This is where the lessons of experience help me to separate the
wheat from the chaff.

To recap, I don't think you can program a computer to go off and
find trades for you that can be entered blindly.  But using the
superior scanning abilities of the computer can whittle the list
of stocks down to a manageable list, eliminating much of the
tedium of identifying trade candidates.

Take some time tomorrow or over the weekend and put this scanning
tool to the test, looking at some of the candidates that it
delivers.  By next week, you should be familiar with what it can
do for us and then we can really have some fun.  For our next
visit, I'm going to run a PnF scan (I'm not sure which one right
now), and then walk you through the process I go through to
whittle that list down to a handful of prospective trade
candidates.  I'll list a few that I think look good, along with
how I arrived at my conclusions and the entry criteria and initial
stop I would then look for before taking each of the trades.  Then
we can follow it up in a future article and evaluate the results.
That ought to allow us all to see how useful a simple screening
tool can be in helping us along the path to profits.  Doesn't that
sound like fun?

As a side note for those of you that want to define your own
custom scans, StockCharts provides that ability as well.  It is
only for subscribed users, but for a mere $20 per month, they give
us the ability to write and save our own custom scans, along with
a host of other charting features ideally suited to the
experienced technical  analyst.  How's that for a shameless plug?
Don't worry, I have no relationship with the site other than to
tell you that I am one very happy customer.  Keep in mind that the
basic scans and charts that are available for free are likely all
that most of us will ever need.  But it sure is nice to know that
there's room for experimentation, now isn't it?

Have a Safe and Happy New Year!

Mark


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The Option Investor Newsletter                   Wednesday 12-31-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: HOV
Dropped Puts: CTSH
Play of the Day: Call - YHOO
Spreads, Combinations & Premium-Selling Plays: Ready, Set, Trade!
Watch List: See Note
Market Posture: Ending The Year With A Whimper


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STOP-LOSS UPDATES
*****************

None


*************
DROPPED CALLS
*************

Hovnanian - HOV - close: 87.06 change: -1.14 stop: 85.99

Unfortunately, the selling we saw yesterday continued into
Wednesday's session.  Shares of HOV dropped below its simple 50-
dma and stopped us out at 85.99.  We thought we heard something
on the T.V. about a drop in mortgage applications, which could be
the reason for the profit taking today but we've been unable to
verify that data.  The two-day decline has reversed HOV's recent
double-top breakout on its P&F chart into a column of O's.

Picked on December 16 at $87.49
Change since picked:     + 0.43
Earnings Date          12/08/03 (unconfirmed)
Average Daily Volume:      827  thousand
Chart =



************
DROPPED PUTS
************

Cognizant Tech. - CTSH - cls: 45.64 chng: +0.33 stop: 46.50

We're going to lick our wounds and call it a day with CTSH.
Monday's surge up and over its simple 50-dma and the $45.00 mark
was pretty discouraging if you're a bear.  Of course this has
been a tough market to play if you're a bear.  We have not yet
been stopped out in CTSH but the lack of profit taking today and
the stock's stubbornness in maintaining its gains over the $45
mark are enough to send us looking elsewhere.  Incidentally the
rebound has reversed CTSH's recent P&F breakdown into a "low pole
reversal" as well as producing a buy signal on its MACD.

Picked on December 16th at    $42.70
Change since picked:           +2.94
Earnings Date                2/11/04 (unconfirmed)
Average Daily Volume =         993 K
Chart =



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

Yahoo! - YHOO - close: 45.03 change: +0.10 stop: 42.00

-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)


- Most Recent Update (Tuesday, Dec. 23, 2003) -
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.


- Play of the Day Comments -
Even though the NASDAQ managed to close 2003 above the 2000 mark
(actually 2003.37) tech stocks were not stand out gainers for the
last session of the year.  However, the trend of higher lows in
YHOO looks tempting and traders can prepare for any early January
bullishness now.  A dip to $44 or a move above today's highs at
45.50 look like entry points.

- 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=11162 at $5.60 SL=3.00
BUY CALL JAN 42.50 YHQ-AV OI=10734 at $3.40 SL=1.70
BUY CALL JAN 45.00 YHQ-AI OI=21967 at $1.75 SL=0.85
BUY CALL FEB 40.00 YHQ-BH OI=  562 at $6.20 SL=3.50
BUY CALL FEB 42.50 YHQ-BV OI=  562 at $4.30 SL=2.15
BUY CALL FEB 45.00 YHQ-BI OI= 1238 at $2.85 SL=1.45


Annotated Chart:




Picked on December 24 at $45.01
Change since picked:     + 0.02
Earnings Date          01/14/03 (unconfirmed)
Average Daily Volume:      12.3 million
Chart =



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all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

Ready, Set, Trade!
By Ray Cummins

A new year begins tomorrow and investors are hoping it will be
as successful for the stock market as 2003.

The Dow Jones Industrial Average added 28 points to 10,453, with
Merck & Co. (NYSE:MRK) helping bolster the blue-chip group after
the company said it has submitted its new arthritis drug, Arcoxia,
to the FDA for U.S. marketing approval.  In contrast, the NASDAQ
Composite fell 6 points to 2,003 as traders took profits from the
recent run to yearly highs.  The S&P 500 gained 2 points to 1,111
despite losses in oil service, transportation, and gold shares.
Volume was a light 986 million on the New York Stock Exchange but
a moderate 1.8 billion shares crossed on the technology exchange.
Breadth in broader-market issues was mixed with gainers slightly
ahead of losers on the Big Board while decliners clipped advancers
on the NASDAQ.  In the bond market, there was little change for
most of the session and trading closed early with the 10-year note
up 3/32, bringing its yield down to 4.25%.

Happy New Year!

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

SUMMARY OF CURRENT POSITIONS - AS OF 12/30/03

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

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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


Naked Puts
**********

Stock   Strike Strike Cost  Current   Gain    Max    Simple
Symbol  Month  Price  Basis  Price   (Loss)  Yield   Yield

ONXX     JAN    22    22.00  29.35    0.50   5.66%   2.27%
QCOM     JAN    45    44.25  54.38    0.75   3.64%   1.69%
RMBS     JAN    20    19.50  29.77    0.50   6.56%   2.56%
FARO     JAN    17    17.05  25.48    0.45   9.13%   2.64%
FLML     JAN    20    19.70  27.25    0.30   5.33%   1.52%
FRX      JAN    55    54.25  61.99    0.75   3.73%   1.38%
MGAM     JAN    35    34.25  41.41    0.75   6.50%   2.19%
MSTR     JAN    45    43.85  52.68    1.15   7.00%   2.62%
NCEN     JAN    32    32.88  39.92    0.50   4.42%   1.52%
NFLX     JAN    40    39.40  56.79    0.60   5.50%   1.52%
PLMD     JAN    20    19.75  26.39    0.25   4.61%   1.27%


Naked Calls
***********

Stock  Strike Strike Cost  Current   Gain    Max     Simple
Symbol Month  Price  Basis  Price   (Loss)  Yield    Yield

CECO     JAN    45   45.60  39.91    0.60   6.85%    1.32%
CRDN     JAN    45   45.40  34.86    0.40   5.27%    0.88%
PPDI     JAN    27   27.85  27.26    0.35   4.26%    1.08%


Put-Credit Spreads
******************

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L   Status

NBIX    53.83  55.17   JAN  45  50   0.70  49.30   0.70   Open
NE      37.01  36.13   JAN  32  35   0.30  34.70   0.30   Open
WGO     60.60  69.70   JAN  50  55   0.50  54.50   0.50   Open
DNA     91.20  94.40   JAN  80  85   0.60  84.40   0.60   Open
DIGE    38.47  40.23   JAN  30  35   0.70  34.30   0.70   Open
MRO     31.06  33.37   JAN  27  30   0.35  29.65   0.35   Open


Call-Credit Spreads
*******************

Symbol  Pick   Last   Month L/C S/C Credit  C/B    G/L   Status

COF     55.30  61.08   JAN  65  60   0.65  60.65  (0.43) Closed
POWI    31.41  33.75   JAN  40  35   0.75  35.75   0.75   Open
CTSH    41.02  45.31   JAN  50  45   0.60  45.60   0.29   Open
MERQ    46.03  48.03   JAN  55  50   0.80  50.80   0.80   Open
MXIM    47.10  49.40   JAN  55  50   0.75  50.75   0.75   Open

Conservative traders should consider closing the bearish spread
in Capital One Finance (NYSE:COF) for a small loss.


Synthetic Positions
*******************

No Open Positions


Debit Straddles
***************

No Open Positions


Questions & comments on spreads/combos to Contact Support
*************

NEW POSITIONS

The relatives went home a day early so I decided to publish a
small group of plays for those people who want to get started
right away on their 2004 portfolios.

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

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

BULLISH PLAYS - NAKED PUTS

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


**************
AAPL - Apple Computer  $21.37  *** Bottom Fishing Only! ***

Apple Computer (NASDAQ:AAPL) designs, manufactures and markets
personal computers and related personal-computing solutions for
sale primarily to education, creative, consumer and business
customers.  The company's personal-computing products include
desktop and notebook PCs, related devices and peripherals,
networking and connectivity products, as well as third-party
hardware products.  Apple's software products and computer
technologies include operating systems; professional application
software; consumer-, education- and business-oriented application
software; Internet products and technologies, and also wireless
connectivity and networking products.

AAPL - Apple Computer  $21.37

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 20    AAQ MD    21704  0.35  19.65   8.3%   1.8% *
SELL PUT  FEB 20    AAQ ND      871  0.65  19.35   4.3%   3.4%


**************
FARO - FARO Technologies  $24.98  *** Entry Point? ***

FARO Technologies (NASDAQ:FARO) designs, develops, markets and
supports portable, software-driven, 3-D measurement systems used
in a broad range of manufacturing and industrial applications.
The firm's principal products are the Faro-Arm Control Station
and Control Station Pro (articulated measuring devices), the Faro
Laser Tracker and Laser Control Station and their companion Soft
Check Tool and CAM2 software, respectively, which provide for
computer-aided design (CAD)-based inspection and factory-level
statistical process control.  Faro's products bring precision
measurement, quality inspection and specification conformance
capabilities, integrated with CAD software, to the factory floor.

FARO - FARO Technologies  $24.98

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 20    QEJ MD      49   0.20  19.80   6.9%   1.0% TS
SELL PUT  JAN 22.50 QEJ MX     102   0.40  22.10   9.0%   1.8% *
SELL PUT  JAN 25    QEJ ME      38   1.45  23.55  22.6%   6.2%


**************
FCS - Fairchild Semiconductor  $24.97  *** Next Leg Up? ***

Fairchild Semiconductor (NYSE:FCS) is a leading global supplier
of high performance products for multiple end markets.  With a
focus on developing leading edge power and interface solutions
to enable the electronics of today and tomorrow, Fairchild's
components are used in computing, communications, consumer,
industrial and automotive applications.  Fairchild's employees
design, manufacture and market power, analog & mixed signal,
interface, logic, and optoelectronics products from its company
headquarters in South Portland, Maine, USA and various locations
around the world.

FCS - Fairchild Semiconductor  $24.97

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 22.50 FCS MX     140   0.20  22.30   4.6%   0.9% TS
SELL PUT  JAN 25    FCS ME     115   0.95  24.05  15.5%   4.0%


**************
IMDC - Inamed  $48.05  *** Premium-Selling Only! ***

Inamed (NASDAQ:IMDC) is a global medical device company that
develops, manufactures and markets a diverse line of products
that enhance the quality of people's lives.  The company has
three principal product lines: breast aesthetics, consisting
primarily of breast implants and tissue expanders sold largely
for use in plastic and reconstructive surgery; facial aesthetics,
consisting primarily of collagen and other dermal fillers sold
largely to dermatologists and plastic surgeons, and obesity
intervention, consisting of products for use in treating severe
and morbid obesity.  The company also offers collagen products
for use by medical manufacturers.

IMDC - Inamed  $48.05

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 40    HCZ MH     275   0.25  39.75   3.9%   0.6% TS
SELL PUT  JAN 43.37 HCZ MW    1974   0.95  42.42  11.0%   2.2% *
SELL PUT  JAN 45    UZI MI      42   1.55  43.45  15.7%   3.6%


**************
JCP - J. C. Penney  $26.28  *** Multi-Year High! ***

J. C. Penney (NYSE:JCP) is a major retailer, operating 1,049 J.C.
Penney department stores in 49 states, Puerto Rico, and Mexico.
In addition, it operates 54 Renner department stores in Brazil.
A major portion of J.C. Penney's business consists of providing
merchandise and services to consumers through department stores,
catalog departments and the Internet.  The stores market family
apparel, jewelry, shoes, accessories and home furnishings.  In
addition, JCP operates a chain of 2,686 drugstores, primarily
through the Eckerd name, located in the southwest, southeast,
Sunbelt, and northeast regions of the United States.

JCP - J. C. Penney  $26.28

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 25    JCP ME    1142   0.30  24.70   5.6%   1.2% *
SELL PUT  FEB 25    JCP NE    9607   0.95  24.05   4.8%   4.0%


**************
OSTK - Overstock.com  $19.87  *** New Trading Range? ***

Overstock.com (NASDAQ:OSTK) is an online "closeout" retailer
offering discount, brand-name merchandise for sale primarily
over the Internet.  The company's merchandise offerings include
bed-and-bath goods, kitchenware, watches, jewelry, electronics,
sporting goods and designer accessories.  Overstock offers its
customers an opportunity to shop for bargains conveniently,
while offering an alternative inventory liquidation distribution
channel to its suppliers.  The company typically offers around
5,000 non-media products and over 100,000 media products (books,
CDs, DVDs, video cassettes and video games) in seven departments
on its Websites, www.overstock.com, www.overstockb2b.com and
www.worldstock.com.

OSTK - Overstock.com  $19.87

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 17.50 QKT MW     105   0.35  17.15  10.6%   2.0% *
SELL PUT  JAN 20    QKT MD     115   1.40  18.60  26.4%   7.5%


**************
YHOO - Yahoo!  $45.03  *** Internet Sector Rally! ***

Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.

YHOO - Yahoo!  $45.03

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  JAN 40    YHQ MH   16599   0.25  39.75   3.4%   0.6% TS
SELL PUT  JAN 42.50 YHQ MV   12470   0.65  41.85   7.2%   1.6% *
SELL PUT  JAN 45    YHQ MI    7509   1.55  43.45  14.2%   3.6%


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

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

***************
GPRO - Gen Probe  $36.47  *** New "All-Time" High! ***

Gen Probe (NASDAQ:GPRO) is engaged in the development, manufacture
and marketing of rapid, accurate and cost-effective nucleic acid
probe-based products used for the clinical diagnosis of human
diseases and for screening donated human blood.  The company has
received FDA approvals for more than 50 products that detect
various infectious microorganisms.  In February 2002, the FDA
approved the Biologics License Application for the biochemical
test used to screen donated blood for human immunodeficiency
virus and hepatitis C virus.  This assay is utilized to screen
approximately 72% of the United States donated blood supply for
HIV-1 and HCV.

GPRO - Gen Probe  $36.47

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  JAN-30.00  PSU-MF  OI=246  ASK=$0.25
SELL PUT  JAN-35.00  PSU-MG  OI=112  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.75-$0.80
POTENTIAL PROFIT(max)=17% B/E=$34.25


**************
LRCX - Lam Research  $32.30  *** Chip-Equipment Sector ***

Lam Research Corporation (NASDAQ:LRCX) designs, manufactures,
markets and services semiconductor processing equipment used in
the fabrication of integrated circuits.  The company's products
are currently used in the front-end of the wafer processing
manufacturing cycle: etch, CMP, and post-CMP clean.  Lam's unique
family of etch systems incorporates plasma technologies designed
to meet both current and future needs.  The company offers both
200-milimeter and 300-milimeter Teres CMP integrated polishing
and cleaning systems with Linear Planarization Technology (LPT),
which uses a high-speed belt instead of the rotating table used
in conventional polishers.  The company also provides the Synergy
Integra, which incorporates advanced cleaning technology with a
platform that integrates polisher and cleaner.

LRCX - Lam Research  $32.30

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-25.00  LMQ-ME  OI=1957  ASK=$0.15
SELL PUT  JAN-30.00  LMQ-MF  OI=7060  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$29.55


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

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

***************
CRDN - Ceradyne  $34.06  *** Recent Slump! ***

Ceradyne (NASDAQ:CRDN) develops, manufactures and markets advanced
technical ceramic products and components for industrial, defense,
consumer, microwave communications and automotive applications.
The company derives a portion of its revenues from its traditional
products, which include lightweight-ceramic armor for military
helicopters and microwave tube products.  However, newer products
developed or being developed by Ceradyne for defense, industrial
and consumer applications represent an increasing share of its
business.

CRDN - Ceradyne  $34.06

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 35    AUE AG     479   1.40  36.40  17.8%   3.8%
SELL CALL  JAN 40    AUE AH     557   0.30  40.30   6.7%   0.7% *


**************
QLGC - QLogic  $51.57  *** In A Trading Range? ***

QLogic Corporation (NASDAQ:QLGC) designs and supplies storage
network infrastructure components and software for server and
storage subsystem manufacturers.  The company's products are
based on SCSI, iSCSI, Fibre Channel and Infiniband standards.
The company is the only end-to-end supplier of Fibre Channel
network infrastructure components that aid in the transfer and
acquisition of data within the SAN.  Their products include its
SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool
Kit management software.  QLogic is the only HBA vendor that
supports SCSI, Internet Protocol, Virtual Interface and FICON
protocols with the same Fibre Channel HBA.  In addition, the
company designs and supplies controller chips used in a variety
of hard drives and tape drives as well as enclosure management
and baseboard management chip solutions that monitor the health
of the physical environment within a server or storage enclosure.

QLGC - QLogic  $51.57

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 50    QLC AJ   11654   2.65  52.65  19.1%   5.0%
SELL CALL  JAN 55    QLC AK    5215   0.55  55.55   5.5%   1.0% *


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

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

**************
CERN - Cerner  $37.85  *** A New Downtrend? ***

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

CERN - Cerner  $37.85

PLAY (slightly aggressive - bearish/credit spread):

BUY  CALL  JAN-45.00  CQN-AI  OI=2507  ASK=$0.20
SELL CALL  JAN-40.00  CQN-AH  OI=1739  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$40.55


**************
OSIP - OSI Pharmaceuticals  $32.25  *** Premium-Selling Only! ***

OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on
the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life
for cancer patients worldwide.  The company has established a
balanced pipeline of oncology drug candidates that includes both
next-generation cytotoxic chemotherapy agents and novel mechanism
based, gene-targeted therapies.  The company's most advanced drug
candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor
of the epidermal growth factor receptor (HER1/EGFR).  The protein
product of the HER1/EGFR gene is a receptor tyrosine kinase that
is over-expressed or mutated in many major solid tumors.

OSIP - OSI Pharmaceuticals  $32.25

PLAY (slightly aggressive - bearish/credit spread):

BUY  CALL  JAN-40.00  GHU-AH  OI=2913  ASK=$0.25
SELL CALL  JAN-35.00  GHU-AG  OI=3018  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=11% B/E=$35.55


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

SEE DISCLAIMER - SECTION 1

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


**********
Watch List
**********

*No OptionInvestor.com Watch List Today*

We're sorry the OI watch list is unavailable today.  Please look
for it again in this weekend's newsletter.  Thank you!


**************
MARKET POSTURE
**************

Ending The Year With A Whimper
by - Nich Sheldon

No matter how you slice it the last trading session for 2003 was
nothing shy of bland.  The INDU Dow Jones Industrial Average, SPX
S&P 500, and the OEX S&P 100 all staged late day comebacks, if you
can call their fractional gains a comeback.  General bullish
sentiment and overall holiday cheer helped lift many indices
into the close, not the least of which was the NASDAQ.  Is it a
coincidence that the NASDAQ closed at 2003 to end the year 2003?

The various sectors were mixed with many slipping lower in some
last minute end-of-the-year profit taking.  About 17 of the 27
sector indices we track ended lower on the session.  Of the
winners, only the DRG drug index managed to gain more than half a
percentage point (+0.62%).

While the bears claimed more indexes than the bulls, they hardly
put a dent in the recent rally.  The hardest hit was seen in the
DJUSHB DJ US Home Construction Index, which dropped -2.84 percent,
or -17.33 points.  After an incredible year in 2003 today's sell
off is easily attributed to profit taking.  However, traders
should note that the index closed below 600 again and this level
could become resistance.  Today's decline in price for the DJUSHB
caused further consolidation on the MACD.

The OSX Oil Service Sector slipped -1.49 percent lower.  Traders
should note that the index closed below its simple 10-DMA for the
first time since November.  If a pop higher isn't seen in the next
session, we might be looking into the eyes of a trend reversal.

Rounding out the session's losers is the TRAN Dow Jones
Transportation Index, which dropped -1.02 percent.


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

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

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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