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Daily Newsletter, Wednesday, 01/14/2004

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The Option Investor Newsletter                Wednesday 01-14-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Let the Fireworks Begin
Futures Wrap: Dollar and Equities Advance
Index Trader Wrap: Dynamic!
Traders Corner: The Final Selection Process


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     01-14-2004            High     Low     Volume Advance/Decline
DJIA    10538.37 + 53.19 10548.51 10428.67 1.94 bln   1905/ 942
NASDAQ   2111.13 + 14.69  2111.73  2094.32 2.08 bln   1854/1206
S&P 100   559.77 +  4.02   559.90   555.75   Totals   3759/2148
S&P 500  1140.52 +  9.30  1140.75  1121.22
RUS 2000  586.12 +  4.96   586.12   581.16
DJ TRANS 3031.61 + 12.33  3044.47  3017.99
VIX        16.75 -  1.29    17.30    16.40
VXO        16.70 -  0.17    17.10    16.26
VXN        23.17 +  0.12    23.44    22.77
Total Volume 4,434M
Total UpVol  2,860M
Total DnVol  1,480M
52wk Highs     906
52wk Lows       14
TRIN          0.71
PUT/CALL      0.66
*******************************************************************

Let the Fireworks Begin
by James Brown

Today was a big day in the U.S. stock markets.  Investors
translated yesterday's weakness as a buying opportunity and
stocks soared at the open.  Boosting the indices was plenty of
economic news with the trade deficit numbers, the PPI, and the
Fed's Beige book report.  There was a midday lull as traders
began to take some money off the table but by the afternoon
buyers were back and stocks closed near their highs for the
session.  After the bell is when the real fireworks began and the
show should continue tomorrow.

Overseas markets were mixed.  Asian stocks were generally weak
with the NIKKEI up 13 points to 10,863 and the Hang Seng down 75
to 13,320.  European bourses did better with the FTSE up 21 to
4461 and the DAX up almost 59 to 4055.  Strength across the
Atlantic didn't hurt U.S. stocks and the Dow Jones Industrials
managed an 111-point gain to close at 10538.  The NASDAQ managed
a 14-point jump amid weakness in the semiconductors ahead of
Intel's post-market earnings.  The S&P 500 added 9 points to
close at 1130.

Selling was strongest in the XAU gold & silver index, down more
than 4% as gold lost $3.50 to close at $420.50 an ounce.  Oil
service stocks also fell behind with a 1.6% drop in the OSX index
as crude oil prices dropped 23 cents to $33.78 a barrel.
Meanwhile investors were busy elsewhere buying the dip from
yesterday.  Homebuilders and healthcare stocks saw the strongest
gains with defense, airlines and broker-dealers outpacing the
broader indices.  Overall market internals were pretty positive.
The NYSE saw advancers crush declining stocks 19 to 9 and the
NASDAQ reported winners outpacing losers 3 to 2.   Up volume was
almost three times down volume on the NYSE.  It was a much closer
race on the NASDAQ with up volume hitting 1158 million shares
versus 865 million in down volume.

Chart of the DJIA:



Chart of the NASAQ:




One benefit to the dollar's decline has been a rise in U.S.
exports.  The month of November showed a 59 percent jump in
civilian aircraft sales.  These sales combined with a strong
increase in consumer goods and food translated into a 2.9 percent
jump in monthly exports to $90.6 billion.  This marked the
highest level of exports in three years and helped narrow the
trade gap to just $38.0 billion in November, an 8.6 percent
decrease, which completely caught economists by surprise.  The
U.S. trade gap has been a growing concern among economists and
politicians alike.  The first 11 months of 2003 have already hit
a new record at $446.8 billion, surpassing 2002 levels.  However,
the unexpected improvement in November combined with Alan
Greenspan's comments yesterday that it could be managed set
investors in a good mood this morning.

This morning's Producer Price Index (PPI) also underpinned
today's stock market action.  The Labor Department reported that
December's PPI index rose 0.3 percent while the core PPI,
excluding food and energy, dropped 0.1 percent.  Economists had
been expecting a rise in the PPI and the core PPI after
November's big decline but were surprised to see the core rate of
inflation drop again.  Overall 2003 witnessed the fastest rise
for inflation in several years but most experts feel the climb
has been mild and Wall Street believes the FOMC has it under
control.

About midday the Federal Reserved released their Beige Book
report, which showed optimistic trends across the nation's twelve
districts and "modest improvements" in the labor markets.  Retail
sales were strong and factory utilization was improving but loan
demand appeared flat.  This coincides with recent earnings
reports from some regional banks who warned that 2004 might be
soft until loan demand improves.  The Beige book also reported
that travel and tourism was up and that housing numbers were
strong.

An hour after the Beige book report the afternoon rally began as
investors started to repositions themselves in eager anticipation
for this evening's earnings bonanza.  The biggest announcement
came from chip behemoth Intel Corp (INTC).  Wall Street was
estimating that Intel would turn in profits of 25 cents a share
on revenues of $8.64 billion for the quarter.  The headline
number was 33 cents a share on revenues of $8.74 billion.  By
first accounts this was a blow out number and some of the
financial media is reporting that this is Intel's best quarterly
profit since Q3 of 2000.  However, drilling down into the details
reveals why the stock was trading lower after hours.  The real
earnings number may be closer to 27 cents.  Intel had already
told analysts that earnings would reflect a $200 million tax
benefit but that benefit turned about to be about $620 million or
about 9 cents a share.  The $420 million difference is worth
about 6 cents a share so that 33 cents becomes 27 cents.  Yet if
we remove the tax benefit completely Intel's profits were just 24
cents a share and below the 25 cent estimates.  Even so the 24-
cent number would be an improvement over Q4 last year where Intel
reported profits of 16 cents on revenues of $7.16 Billion.
Looking ahead Intel is guiding first quarter revenues in the $7.9
billion to 8.5 billion range but analysts were already expecting
$8.24 billion.  This isn't the glowing report that investors were
hoping for and Intel's expectations that gross margins might dip
to 60% from its current 63.6% is far from inspiring.  Overall
Intel tried to put a positive spin on the quarter saying that
business is beginning to see early signs of an I.T. turnaround
and stronger spending patterns by corporations.  Commenting on
the fourth quarter Intel's CFO Andy Bryant said growth was
worldwide with strength in emerging markets and steady demand
from mature markets like N. America and Western Europe.

Investors were also eager to hear from Yahoo! (YHOO).  Analysts
were expecting YHOO to turn in profits of 11 cents a share on
revenues of $495 million.  What YHOO reported was a net profit of
11 cents a share on revenues of $663.9 million.  However, if you
remove the traffic acquisition costs (paid by its Overture
division) revenues are reduced to $511.3 million for the fourth
quarter.  This is still above analyst estimates and well above
2002's Q4 revenues of $285 million.  Looking ahead YHOO is
forecasting Q1 revenues of $475 to $505 million compared to
consensus estimates of $492 million with earnings at 11 cents per
share again.  While this is positive news it wasn't enough to
excite any buyers and shares fell strongly after hours.  In other
news YHOO announced an agreement with Chinese Internet portal
Sina.com (SINA) to join forces for an online auction service for
Chinese users.

Earnings news from Apple (AAPL) was also taking a bite out of
this evening's headlines.  Wall Street was looking for AAPL to
beat estimates of 14 cents a share.  Apple reported profits of 17
cents a share ($63 million) on revenues of $2.01 billion.
However, if you back out a $3 million after-tax investment, that
number becomes just 16 cents a share.  Overall it was a strong
quarter compared with last year's Q4 $8 million loss (-2
cents/share).  It also proves the success of Apple's iPod and
iTunes products.  Apple's CEO Steve Jobs said the company shipped
829,000 Macintosh computers, 733,000 iPod's in the quarter and
that their iTunes online music store accounts for 70 percent of
the legal music-download market.  Apple guided higher for the
first quarter predicting 8 to 10 cents a share on revenues of
$1.8 billion, which is better than analyst estimates of 7 cents
on $1.7 billion but it wasn't enough to stop some after market
profit taking.

There were of course dozens of other companies reporting earnings
after the bell tonight but overshadowing their announcements was
news that J.P.Morgan Chase & Co (JPM) would acquire Bank One
(ONE) for nearly $60 billion.  Rumors had been circling that the
two were in merger talks and the Wall Street Journal broke the
story right after the close of trading today.  The new entity
would become the nation's second largest bank, based on assets,
behind Citigroup.  Shares of ONE rose 10 percent after hours
while JPM slipped 4 percent.  As a Dow component, JPM will be a
negative impact on the index tomorrow.

There was also merger news circling around the on again off again
relationship between AT&T Wireless (AWE) and Cingular Wireless.
The two companies had discussed a merger over a year ago and
never reached a conclusion.  Speculation that they two will be
more agreeable among today's more competitive marketplace pushed
shares of AWE up 17 percent to $9.99.

In other business news Andrew Fastow, the former CFO for Enron
Corp, has pleaded guilty to accounting fraud.  Reports have been
circling around Andrew and his wife Lea Fastow who have been
trying to arrange a plea bargain so that one of them would be
free to watch over their two children.  It appears they finally
came to an agreement with prosecutors.  Lea will plead guilty to
a single count of filing a false tax return and serve five months
in jail and an additional five months under house arrest.  In
exchange for Andrew's guilty plea the government has agreed to
drop 96 of the 98 charges against him on the condition that he
cooperate in their other investigations (namely against Ken Lay
and Jeff Skilling).  Mr. Fastow will also forfeit $23.8 million
in assets and spent the next 10 years in jail.  It's hard to
estimate what kind of affect this type of news will have on the
marekts, if any, but the fact that the government is making
progress in the case and that some of the key people will spend
time behind bars could be a positive for investor sentiment.

Tomorrow is going to be another crazy day.  As I have been
suggesting for days now investor reaction to these much-
anticipated earnings announcements has been to "sell the news".
Standouts in tomorrow's earnings parade will be Bank of America
(BAC) and Sun Microsystems (SUNW).  Yet dwarfing them both will
be a surprise announcement from IBM.  IBM had been expected to
announce earnings on January 20th but the company changed their
mind and said they'd be ready tomorrow.  Big Blue is now expected
to report at 7:30 AM ET on Thursday.  Analysts are estimating
earnings to be $1.50 a share on revenues of $25.02 billion.
Rumors have been circling for several days now that the company
might miss based on poor performance from its services division
and SAP's recent sales miss and Accenture's earnings miss don't
inspire a lot of confidence (unless IBM is just stealing
customers from them).

IBM's earnings report is such a market event it will most likely
dwarf Thursday's economic events with the weekly jobless claims,
the CPI report, the Empire manufacturing survey and the monthly
retail sales numbers.  A few traders have suggested that IBM's
eagerness to report might be hiding a positive earnings surprise
but that could just be wishful thinking.  Buckle your seat belts.
Tomorrow could be volatile.


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

Dollar and Equities Advance
Jonathan Levinson

The US Dollar Index climbed today, and bonds and equities climbed
with it.  Precious metals and the CRB declined, as did foreign
currency pairs.

A quiet session

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.

Daily chart of the US Dollar Index


The US Dollar Index advanced today, trading both sides of the 86
level throughout the session.  The gain was enough to print the
first buy signals seen in many weeks on the daily cycle
oscillators.  A strong dip tomorrow could cancel the signal, but
from here it looks like the real deal.  Silver, gold and the CRB
all pulled back, with silver, heating oil and sugar leading to
the downside, with the CRB dropping .39 to close at 268.02.


Daily chart of February gold


February gold got clocked in the early morning, spiking to 415 on
my datafeed despite the sub-413 print on Prophetcharts.  That
spike low was just that, and the contract corrected almost
immediately to the 420 level, above which it spent the remainder
of the session.  That said, the bounce never recovered the broken
lower wedge trendline, and today's move looks like the start of
the correction about which I've been warning but hoped not to
see.  Sell signals have printed on the daily cycle oscillators,
and below 420, 412 and then 400 are the next significant
supports.  XAU dropped 4.12% to 101.43, HUI -4.79% to close at
228.25.


Daily chart of the ten year note yield


Bonds started out weak but reversed around the same time that
Governor Bernanke was speaking, finishing the session deep in the
green with ten year note yields dropping 4.2 bps to close at
3.986%, a 1.04% move on the day.  3.92% is the next support on
this strong downphase in the yield.


Daily NQ candles


Perhaps it was merely uncertainty over INTC's earnings scheduled
for release after the close, or something more significant, but
NQ was the laggard today, rising less than its non-tech peers and
adding .62% or 9.50 to close at 1538.  Nevertheless, the sell
signals on the daily cycle oscillator were "undrawn", as the
lower rising channel trendline held as support again, with the NQ
printing a bullish hammer for the day.  It stopped right at
resistance below 1540, with resistance at the rally highs up to
1545-50.  A break above this triple top resistance would likely
ignite a short covering stamped.


30 minute 20 day chart of the NQ


NQ burned most of its 30 minute cycle upphase in the morning, and
failed from a lower oscillator high.  Once again, it got weak
upside traction and then an equally weak downphase which aborted
in the last hour, just like yesterday, ramping higher into the
close.  Resistance is at 1540, and then up 1550 following which
the bulls could begin to sprint.  The daily cycles don't favor
such a move, but that's no comfort for those betting against it
if price doesn't comply.


Daily ES candles


ES gained .87% or 9.75 points to close at 1141.  It never tested
the lower rising channel trendline, and closed just below the
range of its rally highs.  The sell signals on the daily cycle
oscillators aborted, leaving the oscillators in trending
territory deep in overbought.  1118-1120 remain key support, with
resistance up to 1142, exceeded after the cash close but
corrected as of this writing following the 4:30PM open.


20 day 30 minute chart of the ES


The 30 minute ES is an excellent summary of the current battle
between bulls and bears.  The steeply rising trend (bullish)
broke this week (bearish) but bounced from head and shoulders
support (bullish, with bearish implications), and tested the
rally highs, printing a nominal new high (bullish) but failed to
hold it as of this writing (bearish).  The 30 minute cycle
oscillators have been tracking poorly recently, or at least the
extended lulls lasting into the closing hour of the session have
been resulting in fruitless up- and downphases waiting for the
"real" move in the last hour.  If the ES heads down from here, it
will result in a solid bearish oscillator divergence, with the
300 minute stochastic weak against a new rally high.


150-tick ES


The short cycle oscillators were maxxed out and commencing
downphases as of this writing, and, being lined up in a
synchronous downphase with the 30 minute cycle, the bears now
have the ball.  This fits perfectly with my comment at 15:03 in
the Futures Monitor: "The uptick in the 30 min cycle and the
upsloping Keltner channels gives us synchronous short cycle and
30 min upphases.  The short cycle oscillators are close to
entering overbought territory but are pointed north.  This gives
us a narrow but still significant window for a blast higher right
here, and it should be good heading into the close.  A failure to
capitalize on it would be a bad sign for bulls, but I'd be
surprised to see that.  For the moment, the path of least
resistance looks higher."

This window is now closed, and the intraday cycles are lined up
to the downside for the time being.


Daily YM candles


YM led to the upside, gaining .99% or 102 points, closing at
10515.  Rising support was regained, but the daily cycle sell
signals were not reversed as they were on the ES and NQ.


20 day 30 minute chart of the YM


The most bullish action of the day was the persistence of the
bids for equity futures despite the rally in the dollar.  Where a
falling dollar amid constant central bank intervention saw
equities rally through 2003, a continuation of the buying on an
uptick in the dollar, presumably as foreign buyers pile in, has
extremely bullish implications.  With the put to call ratio
hanging below .60 for most of the session, I have great
difficulty imagining the market rewarding the majority for a long
time, but the lack of serious correction against the rising
dollar was a definite victory for bulls.  We'll see how they do
against the synchronous daily (imminent but not confirmed, except
on YM), 30 minute and short cycle downphases tomorrow.  See you
there.


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

Dynamic!

If the first two weeks of 2004 are going to be any indication of
what lies ahead the remaining 50-week of this year, the word that
will best describe 2004 is "dynamic!"

Tonight's after the bell news and also sent traders scurrying and
wondering what's next.

In a blockbuster banking merger announcement, Dow component JP
Morgan (NYSE:JPM) $39.25, the nations 2nd largest bank by assets
($792 billion), said it was buying Bank One (NYSE:ONE) $45.22
+1.36% in a deal valued at $60 billion.  Bank One is the nations
7th largest bank if measured by assets ($290 billion).  Shares of
Bank One (ONE) jumped to $49.74 in after-hours trade, while JP
Morgan (JPM) traded lower at $37.82.

Bank One (ONE) is a component of both the more money center KBW
Bank Index (BKX.X) 977.57 +0.81% and more regional S&P Banks
Index (BIX.X) 336.71 +0.81%, while JP Morgan (JPM) is a component
of the KBW Bank Index.

The news may well fuel further bullish speculation in the group
after last year's announced deal with Citigroup (NYSE:C) $50.00
+0.80% buying FleetBoston (NYSE:FBF) $43.08 +1.19%.

"It's a huge deal that's going to create a lot of rumors in bank
land tomorrow," said Mark Fitzgibbon, an analyst at Sandler
O'Neill & Partners. "If it's priced at that level, both stocks
will go down.  If it's a merger of equal type deal it will be
better received."

The deal is the biggest for J.P. Morgan since Chase acquired
J.P.Morgan in December 2000 for $33 billion. It would be the
biggest financial services deal since the $70 billion deal
combining Citicorp and Travelers Group in 1998.

From commentary that I've heard and read tonight, the deal is
being received much more favorably by Wall Street banking
analysts than the Citigroup/FleetBoston deal, where many analysts
felt Citigroup paid too much for fewer synergies.

While JPM is a component of the price-weighted Dow Industrials,
there was also a rather dynamic event that took place after the
bell with IBM (NYSE:IBM) $90.31 +0.68 announced it was moving up
it quarterly earnings announcement.  IBM said it would announce
quarterly earnings after tomorrow's close, instead of Tuesday,
January 20th.

CNBC co-host of Kudlow & Cramer, James Cramer said his research
shows there's been a lot of January $90 call writers in the stock
of late, and that tonight's news out of IBM most likely portends
positive news of some sort, and that heavy seller of $90 calls,
which thought that quarterly earnings took the stock out of play
for gains much above $90 ahead of Friday's expiration may bring
bulls back to the table to either save heavy losses in naked call
writing, but also, institutional bulls in the stock that may want
to save underlying positions in the stock, rather than risking
upside gains should IBM have overly positive news to deliver in
their quarterly earnings.  Shares of IBM jumped to $91.61 over
the New York ECNs.

But there's always some negative news to be delivered, which
makes these markets so dynamic.

Shares of Intel (NASDAQ:INTC) $33.90 -0.59% fell to $32.45 in
after-hours trade after the company reported quarterly EPS of
$0.27 per share (ex-items), which was 2-cents better than
consensus estimates, on revenues that rose 22.1% year-over-year
(+12% from last quarter) to 8.74 billion (consensus $8.64
billion).  The negative after-hours reaction seems to be coming
from INTC's comments regarding forward looking gross margins of
60%, which fundamental analysts say is at historical peak levels.
What I'm (Jeff Bailey) getting from these fundamental comments
and some downside reaction, is that INTC has squeezed just about
all costs it can from the system, and further growth now become
more dependent on sales, where some fundamental analysts see the
stock fairly priced at current levels.

Internet conglomerate Yahoo! Inc. (NASDAQ:YHOO) $48.39 -0.84%
fell to $46.55 in after-hours trade when the company reported Q4
(December) earnings of $0.11 per share, which was in line with
consensus of $0.11.  YHOO said revenues jumped 78.9% year-over-
year to $511.3 million versus the $495.5 million.  Forward
guidance has YHOO seeing Q1 (March) revenues of $475-$505
million, which surrounds consensus of $495 million and fiscal
2004 (December) revenues of $2.12-2.25 billion, also surrounding
current consensus of $2.18 billion.

Positive and negatives I'm hearing from the fundamental side is
that they are impressed with the revenue side of things, but
disappointed that YHOO wasn't able to send more money to the
bottom line.

The NASDAQ-100 Tracking Stock (AMEX:QQQ) $38.08, which gained 13-
cents during its regular session fell to $37.77 in extended
hours.

The S&P Depository Receipts (AMEX:SPY) $113.50 +0.83% gained
$0.94 during its regular session and saw trade at its WEEKLY R1
of $113.40, but has slipped to $113.09 in extended hours.

Meanwhile, the Dow Diamonds (AMEX:DIA) $105.67 +1.12% gained
$1.17 by the close and also saw trade at its WEEKLY R1 of
$105.63, but has slipped fractionally lower at $105.51 in
extended hours.

I make note of the SPY and DIA trades at WEEKLY R1s, as they are
the first index-related securities in our pivot matrix to trade
these levels, and may once again be viewed as "leadership" type
indices.

Market Snapshot / Internals - 01/14/04



Market internals at the A/D lines snapped back strong today and
NH/NL indications continue to show bullish leadership at both the
NYSE and NASDAQ.  One thing I do see is rather steady volume at
the NYSE in recent session, but today's 2.07 billion shares
traded at the NASDAQ, while brisk, is the lowest volume levels
seen since traders returned from an extended Christmas-New Years
holiday.

I may well be seeing this NASDAQ volume only because I've sensed
some "lack of interest" in trading the QQQ this week, but here
too, with NASDAQ volumes edging lower to the 2.0 billion mark, it
may well be that other market participants aren't as interested
in 4-lettered stocks as they are the 1, 2 and 3-lettered variety
at the NYSE.

One thing I made a note of late, just prior to the closing bell,
was that while today's 111.19-point gain in the Dow Industrials
(INDU) is an impressive snap back after a 3-box reversal on its
point and figure chart, the INDU's point and figure chart, which
is designed to chart more meaningful fluctuations of 150-point
moves, did not quite get a trade at 10,550, as its session high
of 10,548.51.

All I (Jeff Bailey) do at this point is make the observation, and
simply understand that as of tonight's close, there just wasn't
enough demand to get the reversal back higher, and only makes me
(Jeff Bailey) a cautious bull.

For traders to get a feel for selling and buying, in combination
with the point and figure charts, I like to use the analogy of a
thinking about trying to shove a carrot into a blender/juicing
machine.

Yesterday's observation was that the INDU showed a 3-box
reversal, which indicated meaningful selling.  Try to sense that
as the blener/juicer blade has been at HIGH revolution in recent
weeks, but the 3-box reversal lower was SELLERS shoving a carrot
has hard as they could into the blender.

Now think about today's gains in the context of that SELLING
pressure being eases, the blender/juicer now lets the motor and
the blade come back up to HIGH revolution.

The question now is.... are there any more carrots?

I'm very proud of one e-mail I received from a trader, that
picked up on EXACTLY the point I wanted to try and get across
last night.

He wrote... Now that the DOW has a 3 box reversal, is it
probable(?) that the other indexes will follow?
My thinking is that by creating a column of O's and then
turning up into a new column of X's, there would be some
rational relative point that each would give a sell signal.
If the DOW were turn up into a column of X's without the
others forming a column of O's, a downturn would have the
DOW's sell signal coming at a much higher (relatively)
level.Is this thinking plausible or are things more
independent than I
think?

This trader now begins to sense the supply/demand relationship of
what drives market prices!  He's got the "inchworm" thought
process down exactly as it should be.  He's building a test for
early signs of any type of observable near-term shift from STRONG
demand, turning toward SUPPLY beginning to outstrip the recent
STRONG DEMAND build.

This trader is "on alert" and looking for signs that recent gains
are at risk.

It is ENTIRELY probable and plausible that we begin seeing, what
the trader above is sensing.  That's one of the things I LOVE
about point and figure charts.

I DARE any trader to hand chart a few favorite stocks or indices
that you follow more closely, and after HAND charting them for a
week or two, tell me, or any of your trading buddies, that you
don't have a MUCH BETTER FEEL for how that security is trading
than you do right now.

It's so darned fast and easy, it's ridiculous!  Look at today's
high and today's low, check the direction (X's or O's) the chart
was in at the prior day's close, and make your chart entry.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - $0.25 box



Last night I showed the NDX point and figure chart.  Here... if I
change the box size (scale) on the QQQ to $0.25, it looks pretty
darned similar to the NDX chart.

One e-mail I got today was from a trader that said he's had a
$20,000 lesson while trading the QQQ.

Don't laugh!  I know traders that learned with $50,000 before
they stopped what they were doing, back tested "what went wrong"
on a point and figure chart, made the adjustments, and then got
back on the right track.

I DARE any trader to go buy some graph paper like Charles Dow
used, set it up at $0.25 box increments, and start hand charting
the QQQ.

I profiled February $36 QQQ PUTS just below QQQ $36, as I thought
I observed resistance.  But when resistance was broken to the
upside, I have since profiled two swing trade longs in the QQQ,
and amazingly, both of them would have been profitable if taken.

On the above chart, the first sign of any weakness would be a 3-
box reversal to $37.50.  If a supply/demand trader where to SHORT
the QQQ, the first sign of renewed strength would be $38.50.

This gives the trader/investor an observation of supply/demand in
the QQQ right now.  Where's resistance?  I don't know, I'm left
to guess.  Where's support?  Boy... I'd have to say $36-$36.25
where the QQQ launched like a Jack-in-the-box.

Let's move onto the Pivot Matrix where we try and figure out
where institutional computer SHOULD be selling, and where they
SHOULD be buying.

If you're a QQQ trader, what's your impression of supply/demand
at tonight's close.  Who, or what is currently in control?  I
(Jeff Bailey) have to say DEMAND (X).  If you disagree, then you
must also believe that SUPPLY (selling) was in control at $36.25,
$36.50, $36.75, $37.00, $37.25, $37.50, $37.75, $38.00 and
$38.25.

Pivot Analysis Matrix



Boom!  Just like that, after the S&P Banks Index (BIX.X) traded
WEEKLY S2 and began to look like it might be leading a decline in
the pivot matrix for the SPX/OEX a potential catalyst appears
with JPM buying ONE.

I don't KNOW if this provides a new upside catalyst for the
BIX.X, which could now lift the SPX/OEX to new highs, and
correlative 1,133 SPX resistance, but its the place to be
looking.  I see BIX.X resistance lined up at 337-338 and the only
way to get the BIX.X above those levels is with buying in banks,
where roughly 25% of the SPX/OEX weighting comes from financials.

While after-hours indications aren't necessarily a "true" market
response, as all market participants aren't around to trade, I
see NDX MONTHLY R2 and DAILY R1 as correlative resistance.  Does
everyone remember Friday's intra-day trade and recent session's
trade?  We KNOW there's some type of selling at/around this
NDX/QQQ MONTHLY R2 don't we?  That's the near-term level of
resistance.

IBM is not a component of the NDX/QQQ, but there may well be
technology stock implications come tomorrow afternoon.  Still,
from tonight's after-hours trade, the NDX/QQQ doesn't appear to
be getting any help out of INTC and YHOO.

Also trading lower in after-hours is QLGC $50.36 (unch) at $46.07
and AAPL $24.20 +0.33% at $22.85.  Both are NDX/QQQ components.
Understand, that current after-hours trade may have quite a bit
of the "near-term" downside being taken out of the stock already,
so if looking short, don't get overly excited.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals



With INTC and YHOO earnings out of the way, we might now begin
viewing a range trade on the QQQ from $38.25-$37.55.  I'm a
tempted short, but stop has to go just above the highs.  Biggest
fear of the QQQ short has to be what IBM is going to day, and
implications should the banks catch fire, send the SPX/OEX to new
highs, and pulls Q's along for the ride.

Using the QQQ PnF chart I showed earlier, I also point to the
$36.33-$36.44 "zone" on the above chart, which is currently
derived from the WEEKLY (blue) and MONTHLY (red) pivot
retracement.  Q's look kind of "neutral" don't they, but holding
at the upward end of an incredibly bullish trend.

S&P 500 Index (SPX.X) - Daily Intervals



The focal point in the MATRIX as well as the SPX itself is the
1,131-1,133 level of near-term resistance.  The SPX traded strong
above its WEEKLY Pivot today, and the intra-day reverse
head/shoulder pattern we discussed in our intra-day commentary
saw the SPX not want to come back to 1,120.75 to develop the
symmetrical reverse h/s pattern, as if buyers were too
aggressive.

The red downward trend was a trend I had placed on an intra-day
basis from the January 8 highs, which was broken to the upside
today.  Again... sign that the overriding trend must still be
more bullish than bearish.

Dow Industrials (INDU) Chart - Daily Intervals



Oscillators are "mixed" with Stochastics saying look for a
bounce, while MACD is saying time for a rest.  More heavily price
weighted IBM trades up in after-hours, while smaller price
weighted JPM and INTC trade lower.

Bulls may let bears have it here with a strong round of buying,
where yesterday's lows are now viewed as support, from which
aggressive, but disciplines bulls will leverage from.

Jeff Bailey


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The Final Selection Process
by Mark Phillips
mphillips@OptionInvestor.com

Over the past couple weeks, we've spent some time detailing an
organized and methodical approach to selecting plays, beginning
with a convenient screening tool.  I'm not going to retrace my
steps over the ground already covered, so if you're just joining
us, please catch up at the links below before proceeding.

My Favorite Trade Screening Tool
http://www.OptionInvestor.com/traderscorner/tc_123103_1.asp

An Organized Approach To Trade Selection
http://www.OptionInvestor.com/traderscorner/tc_010704_1.asp

Now that everyone is up to speed, let's pick up right where we
left off last week.  Recall that we had found a handful of what
looked like strong stocks, each of which were within sectors that
were trading well.  Combine that with an upwardly trending market
and we've got the trifecta of desirable factors in our favor --
Market, Sector and Stock.  Due to the fact that I just couldn't
get everything crammed into last week's article, we have to make a
compromise this week.  Since a week has passed since we ran that
screening tool, a week's worth of price action has also
transpired.  Without even looking at any charts, I know that some
of those plays may have performed well, some may have gone nowhere
and some may have performed poorly.  But it is a given that the
chart setup that looked good last week may not be attractive for a
trade tonight.

There are two ways to deal with it -- one would be to start the
process all over again and come up with new candidates, but I
don't think that will really serve our purposes here.  The other
choice is to drag the charts back one week for our analysis here -
- in essence pretending that it is still January 7th.  Some may
say I'm cheating by doing the evaluation in hindsight with the
results already known.  And they'd be right.  But we're not trying
to establish that I'm a great play picker -- I have my share of
winners AND losers.  What we're trying to establish is an
organized process for play selection.  That said, let's drag those
charts back a week and get to it!

The stocks that percolated to the top of our list last week were
CEPH (Biotechnology), YHOO (Internet) BBOX, CSCO and UTSI
(Networking) and NVDA (Semiconductors).  All of these potential
plays are found in the Technology sector, which conveniently makes
our job a bit easier.  Both currently and at this time last week,
it could be accurately said that the NASDAQ market is/was strong,
so that gives us the first piece of the puzzle - a bullish market.
Next up, we need to look at each of the sectors, comparing them to
see where the best strength exists.  Relative strength analysis is
the best way to approach this phase of the process, and Qcharts
gives us a great ability by letting us ratio one security (or
index) against another.  If the chart is rising, than the first
symbol is stronger.  If it is falling, the second symbol is
stronger.  Pretty simple, eh?

Relative Strength Chart of the BTK index vs. NASDAQ Composite



I hope you don't need a great deal of convincing to see that we
should immediately discard our Biotech play from consideration.
No matter how good the chart of CEPH might look, that RS chart
above shows the BTK index has been underperforming the overall
NASDAQ for months and is continuing to do so.

Relative Strength Chart of the INX index vs. NASDAQ Composite



Now this looks a bit more tempting.  Relative to the COMPX, the
INX index has been in a broad trading range for the past several
months and we just got a near-term breakout from a small bullish
wedge.  There's still significant resistance to deal with, but the
trend is up.

Relative Strength Chart of the NWX index vs. NASDAQ Composite



Whoa Nellie!!  The RS chart of the NWX index relative to the COMPX
has been building a bullish wedge for the past 14 months and it
broke out in a big way last Tuesday, continuing higher on
Wednesday.  This is clear, unambiguous strength!  At this point,
I'm heavily leaning towards a bullish play in the Networking
sector, but we need to finish out the evaluation first.

Relative Strength Chart of the SOX index vs. NASDAQ Composite



It's hard to argue with the strength we see here.  The SOX has
been in a steady ascending trend relative to the COMPX since the
late July.  The recent bounce from the ascending trendline looks a
bit anemic, but perhaps it is getting set for another strong
upward surge like we saw back in late November.  The SOX is a
definite contender.

At this point, it looks like it comes down to either a play on one
of our Networking stocks or on our lone Semiconductor play, NVDA.
One final comparison ought to narrow the choices just a bit
further.  We've been comparing everything back to a known
constant, the COMPX.  But now we need a head-to-head competition
between the SOX and NWX to tell us right now, which one is the
strongest.

Relative Strength Chart of the NWX index vs. the SOX index



Well, that's a no-brainer, don't you think?  Clearly the recent
strength in some of the more prominent Networking names is having
a pronounced effect on the overall sector!  Or is it the other way
around?  No matter.  What is key to our discussion is that with
the breakout in the NWX relative strength charts (vs. both the
COMPX and the SOX), we need to be focusing our efforts in that
area of strength.

Recall that we had 3 Networking candidates to choose from - BBOX,
CSCO and UTSI.  Normally, we'd start this process by comparing
each of those stocks back to the NWX index to see which one has
the best relative strength.  But we need to remember that it is
the more speculative names like NT and LU that had seen the BIG
moves just before we began our analysis.  So the better approach
will be to compare each of these plays to each other.  That
removes the spurious impact of the 20% gains in those more
speculative stocks from our RS comparison.  This is part of the
process that is more subjective and is why we must remain
cognizant of what else is happening in the market as we do our
analysis.  To further streamline our analysis, I'm going to cheat
a bit and use the big boy on the block - CSCO - as our reference
point, based on my intuition/belief/bias that it will turn out to
be the strongest of the group.

Relative Strength Chart of BBOX vs. CSCO



Relative Strength Chart of UTSI vs. CSCO



To me, that makes for a no-contest vote.  CSCO clearly is showing
strength relative to both of the other candidates.  We've shown
the charts a bit differently here, demonstrating that both BBOX
and UTSI are weak compared to CSCO, but you get the picture.  So
now that we've made our decision, let's see how each of the stocks
from our original list would have fared over the past 5 trading
sessions.

BBOX - Gain = $0.00 or 0.0%
CEPH - Gain = $2.72 or 5.3%
CSCO - Gain = $1.84 or 7.2%
NVDA - Loss = $0.77 or 3.1%
UTSI - Loss = $3.71 or 9.0%  OUCH!!!
YHOO - Gain = $0.72 or 1.5%

Yowza!  What do you know, there actually is something to this
relative strength mumbo jumbo!  On a pure dollar basis, CEPH
turned out to be the best performer over the past week, but CSCO
wasn't too far behind.  But on a percentage basis, CSCO definitely
takes the cake with a 7.2% gain.  What I think is particularly
instructive is the way the other two Networking stocks performed.
BBOX ended right where it was a week ago and UTSI got pummeled for
a 9% loss!  Just like any other tool, from time to time, RS will
let us down.  But over the long haul, when combined with other
reliable tools, relative strength studies will help to ferret out
the higher odds places to be focusing our trading capital.

I'm out of time to get this in for publication tonight, but
hopefully, this has helped to give you an idea of how we can use a
simple screening tool and then some relative strength studies to
ferret out a winning trade here and there.

Have a great week!

Mark


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The Option Investor Newsletter                Wednesday 01-14-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: AMZN, DGX, GD
Dropped Calls: None
Dropped Puts: None
Spreads, Combinations & Premium-Selling Plays: Another Strong
    Rebound!
Watch List: Biotech, Healthcare, Memory & Financials.


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

AMZN (call)
 raise stop from 49.99 to 50.75

DGX (call)
 raise stop from 69.99 to 72.00

GD (call)
 raise stop from $88.50 to 89.50


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

None


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

None


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

Another Strong Rebound!
By Ray Cummins

Blue-chip stocks led the equity markets higher Wednesday amid a
surge in "old economy" issues.

A brief rotation from technology shares was apparent as investors
awaited Intel's (NASDAQ:INTC) earnings, while Honeywell (NYSE:HON)
led a broad advance among industrial issues.  The Dow industrial
average ended up 111 points at 10,538 with Boeing (NYSE:BA), Alcoa
(NYSE:AA) and American Express (NYSE:AXP) contributing much of the
bullish momentum.  The NASDAQ Composite climbed 14 points to 2,111
on strength in wireless services and Internet shares.  The S&P 500
added 9 points to 1,130 as transportation, brokerage, homebuilding,
retail apparel and restaurant shares moved higher.  In the broader
market, advancers outpaced decliners more than 2 to 1 on the NYSE
and 3 to 2 on the NASDAQ.  Total volume was 1.5 billion on the Big
Board while 2.1 billion shares crossed on the technology exchange.
Treasury yields drifted at three-month lows on the mixed batch of
economic data.  The benchmark 10-year note was up 8/32 at 102 5/32.
Its yield rose to 3.98% compared to 4.01% at Tuesday's close.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/13/03
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  32.03    0.50   5.66%   2.27%
QCOM     JAN    45    44.25  59.44    0.75   3.64%   1.69%
RMBS     JAN    20    19.50  34.29    0.50   6.56%   2.56%
FARO     JAN    17    17.05  32.33    0.45   9.13%   2.64%
FLML     JAN    20    19.70  30.82    0.30   5.33%   1.52%
FRX      JAN    55    54.25  69.54    0.75   3.73%   1.38%
MGAM     JAN    35    34.25  47.05    0.75   6.50%   2.19%
MSTR     JAN    45    43.85  55.55    1.15   7.00%   2.62%
NCEN     JAN    33    32.88  42.57    0.50   4.42%   1.52%
NFLX     JAN    40    39.40  65.31    0.60   5.50%   1.52%
PLMD     JAN    20    19.75  27.83    0.25   4.61%   1.27%
AAPL     JAN    20    19.65  24.12    0.35   8.32%   1.78%
FARO     JAN    22    22.10  32.33    0.40   9.05%   1.81%
FCS      JAN    22    22.25  25.54    0.25   5.76%   1.12%
IMDC     JAN    42    42.42  45.50    0.95  10.97%   2.24%
OSTK     JAN    17    17.15  16.32   (0.83)  0.00%   2.04%
YHOO     JAN    42    41.85  48.80    0.65   7.21%   1.55%
JCP      JAN    25    24.70  25.95    0.30   5.63%   1.21%
ASKJ     JAN    20    19.75  24.06    0.25   10.83%  1.27%
CECO     JAN    40    39.75  49.01    0.25   6.18%   0.63%
IMDC     JAN    42    42.88  45.50    0.50  10.87%   1.17%
NFLX     JAN    55    54.65  65.31    0.35   5.91%   0.64%
NTES     JAN    40    39.70  47.07    0.30   6.88%   0.76%
OVTI     JAN    55    54.60  59.53    0.40   6.38%   0.73%
SEPR     FEB    20    19.60  26.39    0.40  21.62%   2.04%


NAKED CALLS

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

CRDN     JAN    45   45.40  40.11    0.40    5.27%   0.88%
CRDN     JAN    40   40.30  40.11    0.19    4.26%   0.74% *
QLGC     JAN    55   55.55  50.36    0.75    7.56%   1.35%
CFC      JAN    75   75.80  70.30    0.80    8.69%   1.06%
HOV      JAN    85   85.45  73.82    0.45    4.91%   0.53%

Career Education (NASDAQ:CECO) and Pharmaceutical Product
Development (NASDAQ:PPDI) have previously been closed for
losses.  Ceradyne (NASDAQ:CRDN), at the $40 strike, should
also have been closed by conservative traders.


PUT-CREDIT SPREADS

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

NBIX    53.83  52.95   JAN  45  50   0.70  49.30   0.70   Open
NE      37.01  37.75   JAN  32  35   0.30  34.70   0.30   Open
WGO     60.60  69.50   JAN  50  55   0.50  54.50   0.50   Open
DNA     91.20  90.25   JAN  80  85   0.60  84.40   0.60   Open
DIGE    38.47  43.19   JAN  30  35   0.70  34.30   0.70   Open
MRO     31.06  34.23   JAN  27  30   0.35  29.65   0.35   Open
LRCX    32.30  34.30   JAN  25  30   0.45  29.55   0.45   Open
COCO    60.73  62.54   FEB  55  55   0.65  54.35   0.65   Open
KOSP    45.30  48.01   FEB  35  40   0.60  39.40   0.60   Open

The bullish position in Gen Probe (NASDAQ:GPRO), although now
profitable, has previously been closed to limit losses.


CALL-CREDIT SPREADS

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

POWI    31.41  32.02   JAN  40  35   0.75  35.75   0.75   Open
MERQ    46.03  49.63   JAN  55  50   0.80  50.80   0.80   Open?
CERN    37.85  37.51   JAN  45  40   0.55  40.55   0.55   Open
OSIP    32.25  32.04   JAN  40  35   0.55  35.55   0.55   Open
ANF     24.90  25.59   FEB  30  27   0.30  27.80   0.30   Open
MANH    27.00  27.68   FEB  35  30   0.50  30.50   0.50   Open

Bearish positions in Maxim Integrated Products (NASDAQ:MXIM),
Capital One Finance (NYSE:COF) and Cognizant Technologies
(NASDAQ:CTSH) have previously been closed for losses.

Questions & comments on spreads/combos to Contact Support

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CECO - Career Education  $48.49  *** On The Rebound! ***

Career Education Corporation (NASDAQ:CECO)) is the world's largest
on-campus provider of private, for-profit postsecondary education
and has a rapidly growing presence in online education.  CEC's
Colleges, Schools and Universities Group operates 51 campuses in
the U.S., Canada, France, the United Kingdom and the United Arab
Emirates and offers master's degree, bachelor's degree, associate
degree and diploma programs in the career-oriented disciplines of
visual communication & design technologies, information technology,
business studies, culinary arts and health education.  The Online
Education Group's AIU Online Division offers master's degree,
bachelor's degree and associate degree programs in information
technology, business administration, visual communication and
education.

CECO - Career Education  $48.49

PLAY (sell naked put):

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

SELL PUT  FEB 40    CUY NH    1173   0.70  39.30   5.0%   1.8% *
SELL PUT  FEB 45    CUY NI     585   1.80  43.20   8.4%   4.2%


__________________________________________________________________

ERES - eResearch Technology  $33.16  *** Uptrend Resumes! ***

eResearch Technology (NASDAQ:ERES) is a provider of technology and
services that enable the pharmaceutical, biotechnology and medical
device industries to collect, interpret and distribute cardiac
safety and clinical data more efficiently.  The company offers a
range of products and services, including Diagnostics Technology
and Services and Clinical Research Technology.  Their Diagnostics
Technology and Services include centralized diagnostic services
and clinical research operations, including clinical trial and
data management services.  Their Clinical Research Technology and
Services include the developing, marketing and support of clinical
research technology and services.

ERES - eResearch Technology  $33.16

PLAY (sell naked put):

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

SELL PUT  FEB 27.5  UDB NY      19   0.50  27.00   5.1%   1.9% *
SELL PUT  FEB 30    UDB NF      82   1.10  28.90   8.1%   3.8%


__________________________________________________________________

MICC - Millicom Cellular  $78.20  *** Wireless Telecom Giant ***

Millicom International Cellular S.A. (NASDAQ:MICC) is a global
telecommunications investor with cellular operations in Asia,
Latin America and Africa.  The company has a number of cellular
operations and licenses in countries around the world and the
group's cellular operations have a combined population under
license of over 500 million people.  In addition, MIC operates
a GSM clearing house, provides high-speed wireless data services
in various countries and has a licenses to develop high speed
wireless data services in other areas.  MIC also has a major
interest in Tele2 AB, an alternative pan-European telecom firm
offering fixed and mobile telephony, data network and Internet
services.

MICC - Millicom Cellular  $78.20

PLAY (sell naked put):

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

SELL PUT  FEB 65    CQD NM      12   0.90  64.10   3.9%   1.4% TS
SELL PUT  FEB 70    CQD NN     263   1.90  68.10   6.3%   2.8%


__________________________________________________________________

NTES - NetEase.com  $48.11  *** Recovery In Progress! ***

NetEase.com (NASDAQ:NTES) is a China-based Internet technology
company that pioneered the development of applications, services
and other technologies for the Internet in China.  The NetEase Web
sites, operated by a company affiliate, organize and provide access
to 18 content channels through distribution arrangements with more
than one hundred international and domestic content providers.  In
addition, the NetEase Internet sites offer a variety of products
and services, including Instant Messaging (Popo), Dating, Love,
Alumni and Personal Home Page.  These products and services enable
users to communicate about interests and areas of expertise.

NTES - NetEase.com  $48.11

PLAY (sell naked put):

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

SELL PUT  FEB 35    NQG NG     480   0.30  34.70   2.5%   0.9% TS
SELL PUT  FEB 40    NQG NH    1037   1.10  38.90   7.4%   2.8% *
SELL PUT  FEB 45    NQG NI     529   2.60  42.40  11.4%   6.1%


__________________________________________________________________

RMBS - Rambus  $34.18  *** Pure Premium-Selling! ***

Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products.  These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces.  Rambus'
memory interface products provide an interface between memory chips
and logic chips.  In addition, the firm's logic interface products
provide an interface between two logic chips.  Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone.  Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.

RMBS - Rambus  $34.18

PLAY (sell naked put):

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

SELL PUT  FEB 25    BNQ NE    5962   0.50  24.50   5.6%   2.0% *
SELL PUT  FEB 30    BNQ NF    4678   1.75  28.25  12.8%   6.2%


__________________________________________________________________

SEPR - Sepracor  $26.79  *** Drug Sector Favorite ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products.

SEPR - Sepracor  $26.79

PLAY (sell naked put):

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

SELL PUT  FEB 20    ERQ ND     444   0.25  19.75   3.7%   1.3% TS
SELL PUT  FEB 22.5  ERQ NX     851   0.60  21.90   7.0%   2.7% *
SELL PUT  FEB 25    ERQ NE     475   1.25  23.75  10.1%   5.3%


__________________________________________________________________

SINA - SINA Corporation  $47.05  *** YHOO/SINA Auction Deal! ***

SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an
online media company and value-added information service provider
for China and the global Chinese communities.  With a branded
network of localized Websites targeting China and overseas Chinese,
the company provides an array of services to its users including
region-focused online portals, search, directory, interest-based
and community-building channels, free and premium e-mail, wireless
short messaging, online games, virtual Internet service provider,
classified listings, e-commerce, e-learning, and enterprise
e-solutions.  In turn, SINA generates revenue through advertising,
fee-based services, e-commerce and enterprise services.

SINA - SINA Corporation  $47.05

PLAY (sell naked put):

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

SELL PUT  FEB 35    NOQ NG    1488   0.40  34.60   3.4%   1.2% TS
SELL PUT  FEB 40    NOQ NH    1588   1.25  38.75   7.9%   3.2% *
SELL PUT  FEB 45    NOQ NI     563   2.90  42.10  12.1%   6.9%


__________________________________________________________________

SOHU - Sohu.com  $36.90  *** China Internet Rally! ***

Sohu.com (NASDAQ:SOHU) is an Internet portal in China.  The firm's
portal consists of sophisticated Chinese language Web navigational
and search capabilities, 15 main content channels, Internet-based
communications and community services, and a unique platform for
e-commerce and short messaging services.  Each of the company's
interest-specific main channels contains multi-level sub-channels
that cover a range of topics; news, business, entertainment, sports
and careers.  The firm also offers free Web-based e-mail.  Sohu.com
offers a universal registration system, and the company's portal
attracts consumers and merchants alike.  One of the key features is
a proprietary Web navigational and search capabilities that reflects
the cultural characteristics and thinking and viewing habits of the
People's Republic of China Internet users.

SOHU - Sohu.com  $36.90

PLAY (sell naked put):

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

SELL PUT  FEB 30    UZK NF     946   0.70  29.30   6.7%   2.4% *
SELL PUT  FEB 35    UZK NG     406   2.25  32.75  12.2%   6.9%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CEPH - Cephalon  $54.65  *** A New Trading Range? ***

Cephalon (NASDAQ:CEPH) is an international biopharmaceutical firm
dedicated to the discovery, development and marketing of products
to treat sleep disorders, neurological disorders, cancer and pain.
In addition to conducting a very active research and development
program, the company markets three products in the United States
and a number of products in various countries throughout Europe.
Cephalon's United States products are comprised of Provigil, for
the treatment of excessive daytime sleepiness associated with
narcolepsy, Actiq for cancer pain management, and Gabitril for
the treatment of partial seizures associated with epilepsy.

CEPH - Cephalon  $54.65

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-45.00  CQE-NI  OI=1736  ASK=$0.45
SELL PUT  FEB-50.00  CQE-NJ  OI=3893  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$49.35


__________________________________________________________________

NFLX - Netflix  $65.10  *** New All-Time High! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.

NFLX - Netflix  $65.10

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-47.50  QNQ-NS  OI=398   ASK=$0.55
SELL PUT  FEB-50.00  QNQ-NJ  OI=2566  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$49.75



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CYD - China Yuchai  $26.85  *** No Rally Here! ***

China Yuchai International (NYSE:CYD) is a medium-duty diesel
engine manufacturer in China that also produces diesel power
generators and diesel engine parts.  The company owns a major
interest in Guangxi Yuchai Machinery and owns, through various
subsidiaries, 76.4% of the outstanding common shares of Yuchai.
Yuchai primarily makes and sells diesel engines for medium-duty
trucks in China.  Yuchai's primary products are its 6105QC and
6108 medium-duty engines, which are used in medium-duty trucks.
In addition, Yuchai also offers the 4-Series light-duty engines
and the 6112 heavy-duty engines.  Besides diesel engines, Yuchai
produces a limited number of diesel power generators and diesel
engine parts.

CYD - China Yuchai  $26.85

PLAY (sell naked call):

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

SELL CALL  FEB 35    CYD BG    3138   0.45  35.45   6.4%   1.3% *
SELL CALL  FEB 30    CYD BF    4666   1.30  31.30  12.0%   4.2%


__________________________________________________________________

SNDK - SanDisk  $65.25  *** Premium-Selling Only! ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of
electronic systems.  The company has designed its flash memory
storage solutions for applications in the consumer electronics
and industrial/communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications, such as digital cameras, PDAs, portable digital
music players, digital video recorders and smart phones, as well
as in industrial and communications applications.  The company's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards and Secure Digital Cards and embedded FlashDrives
and Flash ChipSets.

SNDK - Sandisk  $65.25

PLAY (sell naked call):

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

SELL CALL  FEB 80    SWQ BP    1609   1.10  81.10   6.4%   1.4% *
SELL CALL  FEB 75    SWQ BO    3650   2.00  77.00   9.0%   2.6%
SELL CALL  FEB 70    SWQ BN    4610   3.30  73.30  11.0%   4.5%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CKFR - Checkfree  $27.60 *** Consolidation Underway? ***

Checkfree (NASDAQ:CKFR) is a provider of electronic billing and
payment services.  The company operates its business through 3
independent but inter-related divisions including Electronic
Commerce, Investment Services and Software.  CKFR's electronic
commerce services are primarily targeted to consumers through
financial institutions and Internet portals.  Checkfree is also
a provider of electronic commerce and financial applications
software and services for businesses and financial institutions.

CKFR - Checkfree  $27.60

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-35.00  FCQ-BG  OI=510   ASK=$0.15
SELL CALL  FEB-30.00  FCQ-BF  OI=1085  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$30.50


__________________________________________________________________

ESV - Ensco International  $27.45  *** Stuck In A Range? ***

Ensco International (NYSE:ESV) is a global offshore contract
drilling company that also provides marine transportation
services in the Gulf of Mexico.  The firm offshore contract
drilling and marine transportation operations are integral to
the exploration, development and production of oil and natural
gas.  The company is one of the leading international providers
of offshore drilling and marine transportation services to the
oil and gas industry.  Ensco's business is segregated into two
parts: Contract Drilling Operations and Marine Transportation
Operations and its operations are concentrated in the geographic
regions of North America, Europe/West Africa, Asia Pacific and
South America/Caribbean.

ESV - Ensco International  $27.45

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-35.00  ESV-BG  OI=0      ASK=$0.15
SELL CALL  FEB-30.00  ESV-BF  OI=10389  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$30.45


__________________________________________________________________

NVLS - Novellus Systems  $41.68  *** Trading Range Top? ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous
solution.

NVLS - Novellus Systems  $41.68

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-47.50  NLQ-BT  OI=1145  ASK=$0.50
SELL CALL  FEB-45.00  NLQ-BI  OI=2482  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.40-$0.45
POTENTIAL PROFIT(max)=19% B/E=$45.40



SEE DISCLAIMER - SECTION 1


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

Biotech, Healthcare, Memory & Financials.

___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


Amgen - AMGN - close: 64.05 change: +0.30

WHAT TO WATCH:  Biotech giant AMGN has been absent from the watch
list for a while now.  Shares have been consolidating under its
simple 200-dma but the stock finally broke above this technical
level today.  There is plenty of resistance in the $64-65 region
and more at $67.50 but DNA's positive earnings announcement today
could have traders looking for a pre-earnings run up in AMGN.
AMGN is due to report on Jan. 22nd.

Chart=


---

SanDisk Corp - SNDK - close: 65.25 change: -4.19

WHAT TO WATCH:  Shares of flash-memory supplier SNDK were
hammered for a 6% loss today after Morgan Stanley warned that
competition in the memory markets was about to heat up.  We made
a note about SNDK's failed rally and reversal in the
MarketMonitor and traders looking for a bearish play might want
to use a trigger under the $65.00 level.  An easy target would be
the $60 mark.

Chart=


---

Pacificare Health - PHS - close: 63.27 +2.92

WHAT TO WATCH:  A number of healthcare stocks out performed the
markets today and PHS is one of them.  Shares peaked near $70 at
the first of the year and have drifted back toward support
(previous resistance of $60).  Investors stepped in to buy the
dip and drove the stock up off the $60 level to close above its
50-dma.  The company is expected to announce earnings on Jan.
21st and we could see a pre-earnings run up.  Watch out for
potential resistance at $64.00.  MarketMonitor subscribers were
alerted to the move earlier today.

Chart=


---


T C F Financial - TCB - close: 49.79 change: -0.00

WHAT TO WATCH:  Shares of TCB closed unchanged today after
breaking support at $50.00 yesterday.  Regional banks have been
under selling pressure after two of them announced earnings
earlier this week and warned that 2004 may be challenging due to
commercial loan growth.  TCB is expected to announce earnings
tomorrow.  Should they disappoint or offer negative guidance
traders might be able to catch a ride toward its 200-dma near
$46.

Chart=



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

WFMI $70.85 +1.85 - Shares of Whole Foods soared to a new high
today with little news to explain the move.  This puts the stock
above its rising channel.


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