Option Investor

Daily Newsletter, Sunday, 01/18/2004

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The Option Investor Newsletter                   Sunday 01-18-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: One Down, Two To Go
Futures Market: Summit Trade
Index Trader Wrap: Higher Highs
Editor's Plays: When All Else Fails
Market Sentiment: Sentiment Rising
Ask the Analyst: 5-DRT retracement technique and January's First 5 Days
Coming Events: Earnings, Splits, Economic Events

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 01-16        WE 01-09        WE 01-02        WE 12-26
DOW    10600.51 +141.62 10458.9 + 49.04 10409.8 + 85.18 + 46.45
Nasdaq  2140.46 + 53.54 2086.92 + 80.24 2006.68 + 33.54 + 22.12
S&P-100  564.72 +  8.17  556.55 +  6.56  549.99 +  7.21 +  2.52
S&P-500 1139.83 + 17.97 1121.86 + 13.38 1108.48 + 12.21 +  7.61
W5000  11116.04 +187.04 10929.0 +151.14 10777.9 +115.48 + 82.96
RUT      590.41 + 15.21  575.20 + 14.35  560.85 +  5.75 +  8.22
TRAN    3036.28 + 47.34 2988.94 - 19.22 3008.16 +  8.49 + 12.24
VIX       15.00 -  1.75   16.75 -  1.47   18.22 +  0.83 +  0.97
VXO       15.27 -  0.67   15.94 -  2.00   17.94 +  1.36 +  0.53
VXN       20.24 -  2.77   23.01 -  1.50   24.51 +  0.56 -  0.94
TRIN       0.47            1.63            1.01            0.79
Put/Call   0.51            0.65            0.76            0.86

One Down, Two To Go
by Jim Brown

With January half over we have one significant earnings week
behind us and two monster weeks ahead. The majority of 4Q
earnings from U.S. companies will be released over the next
two weeks. Over 800 major companies and 75% of the S&P will
confess their sins, brag about their successes and try to
artfully craft a bullish outlook while avoiding blatant lies.
I love earnings season!

Consumers cheered the coming of January it appears with the
Michigan Consumer Sentiment coming in at a whopping 103.2
compared to the paltry 92.6 in December. Looks like the
holiday cheer is still flowing in many areas. The expectations
component rose from 89.8 to 99.5 and the present conditions
component soared to 108.9 from 97. Must have been a lot of
gift cards under the tree to generate that kind of euphoria.
The bounce completely erases memory of the December decline
and according to analysts was due to the rising stock market,
availability of bargains for holiday shopping and no holiday
terror event. Life is good in America. If this number
continues to rise we would expect consumers to part with more
money at the register and start looking at new homes again.
The perception is for positive jobs market despite the lack
of any proof.

Business Inventories rose +0.3% in November, which was inline
with consensus estimates. Because it was a November number it
was considered old news. The best part of the equation was the
inventory to sales ratio at 1.35 and the second month at a
record low. This continues to suggest there is an inventory
building period in our near future.

Industrial Production rose at a much slower rate in December
then expected. It rose +0.1% when consensus was for a +0.4%
gain. Many of the components actually declined with only
construction materials and supplies showing gains. If you
remember November showed a huge spike of +1.0% in productivity
and way out of context with the average gains of +0.4%. This
spike has now been negated and the steady progress continues.
Capacity Utilization remained low at 75.8 for the second
month. This lack of utilization should continue to prevent
any inflationary pressures for the near future.

The picture is clear for the 2004 economy. Despite various
weak components in the majority of the different economic
reports the overall trend is still an improving recovery.
The market continues to rise in anticipation of even stronger
gains ahead and interest rates are slowly falling again.
The job market is seeing very small signs of improvement
but at least it is heading in the right direction. There
are estimates starting to appear for a +7.0% GDP for the
4Q-2003. The initial GDP release is Jan-30th. Based on the
guidance from the companies already public there is an
outside chance the 1Q could be as high as +6%. This chain
of successes is nearly unheard of in modern times. This
suggests the economy is not only recovering but is about
to explode. The stock market is reacting to this news with
great enthusiasm. The outlook is not for a cooling off
period as expected after the +8.2% tax rebate spike in the
3Q but for continued expansion all the way into late 2005.
I personally think extending the forecast past the election
is asking for trouble but I am willing to let others take
the lead.

The big name on the earnings front on Friday was GE which
reported 45 cents per share and inline with estimates. GE
can do no wrong in the eyes of investors. They failed to
reach their stated goal and post double digit gains for
the second consecutive year. No problem for investors for
GE promised to hit that goal and do +10% in 2005. Hurray!
GE rose +1.35 on the news. Actually I am poking fun at them
and I do like them as a company. The reason GE was up had
more to do with stemming losses in a couple of its divisions
and some very positive guidance. Chairman Jeff Immelt said
industrial orders were at their strongest level since 2000.
This is a dramatic turnaround from somebody that did not
see a recovery in progress just three months ago.

That statement from Immelt is the story in a nutshell for
this earnings season. Almost every major company that has
reported has said they were seeing a pickup in economic
activity, industrial orders and IT spending. This expectation
is what investors have been buying for the last three months.
The JNPR guidance upgrade Thursday night was like a chain
reaction through the tech sector. Gains in chip, telecom
and computer stocks pushed the Nasdaq to new 30 month highs.
Investors were delirious despite CNBC running an interview
with the JNPR CEO expressing negative comments. He said
there was not a broad based recovery underway and the JNPR
gains were company specific. He said they were at the right
place at the right time with the right product mix. Nobody
seemed to care.

The JNPR earnings and guidance added tens of billions in
market cap to Nasdaq stocks despite a definite disconnect.
JNPR only had profits of $14 million for the quarter. This
is not a big deal. Their closest competitor Cisco, will
report earnings of more than $1 billion for the same period.
CSCO has a PE of 47 on a trailing twelve month basis and
JNPR has a TTM PE of 236. It drops to 115 using estimated
2005 earnings if you are into forecasting the future.
Obviously the roughly +$50 billion in market cap the Nasdaq
gained on Friday as a result of JNPR earnings is a complete
disconnect from reality. It is a result of investors hearing
what they wanted to hear to justify their bullish view. Is
that wrong?

If the economy is really growing as fast as the earnings
guidance from everyone including JNPR has indicated then
the gains are ok. My only question is what changed from the
Intel, YHOO, QLGC, AAPL, SUNW earnings earlier this week?
They said business was good, but not great. Guidance was
positive just not overly optimistic. Those companies with
the exception of QLGC are bigger than JNPR with a broader
customer base. Why did their guidance not matter and
Juniper's is so critical. It is simple. Investors were
looking for a white knight to carry their flag forward.
JNPR was the hero of the day and was rewarded with a +$7.00
jump in the stock price on volume of 76 million shares. The
Nasdaq traded 2.6 billion shares with the average share
gain of +0.81%.

In the rest of the world WCOM announced it was cutting
another -1700 jobs on top of the -22,000 they have already
cut. Home Depot restated its 2003 guidance to suggest the
4Q was a drag and that same store sales would be lower than
expected. They raised earnings estimates slightly based on
cost cuts and technology upgrades. They warned that growth
in 2004 would be slower than previously expected and HD
was going to cut its pace of new store openings.

Abbot Labs (NYSE:ABT) posted solid profits for the 4Q but
warned that profits for 2004 would fall below estimates.
JNJ dropped on Friday after several brokers issued reports
predicting a dramatic drop in revenue. QCOM was downgraded
by Morgan Stanley on fears the most optimistic of conditions
were already priced into the stock. There were plenty of
those Friday. Downgrades and warnings got very little air
time with all press going to GE, we will grow in a couple
years, and JNPR, no broad based recovery in sight, leading
the charge upward. Cynical? No, but I find it strange how
the market chooses what it wants to focus on based on the
bias of the herd.

That herd trampled resistance on all but the Dow. The Dow
managed to close .51 over 10600 and it did it after the close
as final orders were settled. The Dow has now stretched its
string of winning weeks to eight and a feat not seen since
the rebound out of the October dip in 2002. The S&P also
stretched its string to eight weeks and a streak not seen
since 1998. The Nasdaq only completed six positive weeks
but set a new 30 month high. The volume was very strong
across the board with up volume 4:1 over down. Over 1000
stocks set new 52-week highs.

Was all this bullishness related to JNPR and GE? Not
entirely. Friday was options expiration for January and
much of the volume, like in December, was option related.
Like I speculated on Thursday night it appeared that many
option sellers who were trapped in December either rolled
those positions over into January or reinstated new ones
to recover December losses. The lack of the expected
January dip buried those seller once again and the race
was on to cover those shorts. After the initial opening
dip on Friday there was a bid under the market all day and
volume was very strong. Market on close orders were very
large. The one thing I was watching was the lack of real
movement. We watched the heavy volume flow through during
the day but there was not any real price movement until
after 2:PM. I have mentioned this before but it sure looked
like there were a lot of sellers feeding stock to those that
were short. I keep thinking we are seeing distribution on
every bounce near the 10600 level.

We are at a critical point in this process. The Nasdaq has
blown through the roof and is dragging the Wilshire with it.
Both are over all critical resistance with plenty of room
to run. The Russell is rocking and at 590 is only 24 points
away from its all time high at 614. The retail investor is
alive and well and they are buying small caps and techs
like there is no tomorrow.

Nasdaq Chart- Daily

Russell 2000 Daily

Wilshire 5000 Weekly

That was the good news. The bad news comes from the Dow,
S&P and SOX. Just like the little train that thought it
could the Dow inched up to close .51 over 10600 after
struggling since Jan-8th to move over 10590. By settling
over 10600 after the close the Dow managed to avoid any
sell programs trigging on that level and set up a potential
gap open on Tuesday. Regardless of the open or any programs
that appear the Dow is finally entering the critical
resistance band from 10600-10650. This is the highs for
2002. The Nasdaq finally broke that same level at 2100
this week and is forging higher. Can the Dow equal this
feat? That remains to be seen but investors have been
eagerly buying every minor dip.

Dow Weekly Chart

The more critical index is the S&P because it is the favorite
target of program traders. The S&P is rapidly approaching its
2001-2002 resistance highs at 1175. The S&P failed in the
1170-1175 range four separate times in 2001-2002. This is
very strong support and it is looming in our path. Adding
to this resistance is the 50% retracement level at 1161.
Together this is going to be very tough to break. Timing
is also going to be key. At an average of +7 points a day
the S&P could hit 1161 in three days, 1175 in five. With
the Nasdaq in breakout mode the techs in the S&P are helping
this process. The wildcard is the Dow at 10600. Can it plow
through those next 50 points of resistance with the S&P
moving up even faster? Either way both should reach what I
am going to call terminal resistance sometime near the end
of next week if the trend continues. Earnings will be half
done with most of the large companies already reported. The
breakout over this resistance will have to come on the
earnings from next week.

S&P Weekly Chart

The SOX is nearing the spot where it could become the Nasdaq
anchor. It is nearing the highs from last week at 560 but
still below the 2002 resistance from 618-642. The chip sector
is up +166% from the 209 SOX low in Oct-2002, +116% from the
Feb-2003 lows. Using any investing metric this is a very
strong run. Analysts are increasing their caution about too
much good news already priced into this sector. This is
especially critical with news that Intel is going to spend
less on CapEx in 2004 than previously expected. If this
trend is system wide then chips could be in for a slowdown.
Intel also said flash memory sales were flat. All cracks
in the SOX foundation supporting an ever growing high. I am
not saying it is going to crash but just suggesting the 600+
level could be tough to crack.

SOX Weekly Chart

So where do we go from here? Monday is a holiday and provides
a shortened week where more than 35% of the S&P will post
earnings. There is no way to list the hundreds of companies
but the most notable for Tuesday are MMM, AMD, ACS, C, MOT
and a dozen chip and networkers. Wednesday has EBAY, QCOM,
SYMC and nearly 200 others. Thursday AMGN, ADP, EMC, TLAB,
MSFT, T, EK, F, FER, NOK, PFE and over 200 more. Needless
to say it will be a busy week. Will they tell us anything
we do not already know? Probably not. The economic schedule
is light with many filler reports but nothing earth shaking.
That leaves us to trade on sentiment and stock news.

If the end of week rally was really option related again
then Tuesday could be crazy as those expired option trades
are settled. Traders waking up Tuesday with stock in their
accounts that they did not expect or missing some they did
not think would be called away will be scrambling to make
adjustments. This is both a positive and negative impact
to the markets and could provide heavy volume and heavy
volatility without much actual movement by the close. We
will also get to see if there are any program trades as
a result of the Dow moving over 10600. The eight consecutive
weeks of Dow gains will eventually end. The only question
is when. For nine months the 50 dma has provided strong
support as each streak came to an end and I suspect it
will again.

Dow Chart - Daily

The keys to watch are the 10600-10650 level on the Dow
and the 1160-1175 level on the S&P. Until those levels
are broken any upside on non tech stocks could be limited.
The bulls are in control and there are plenty of buyers
waiting in the wings. Worry over the January-27th Fed
meeting should not begin until late in the week and bonds
are showing no fear. Enjoy the holiday because the rest
of the week could be very hectic.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


Summit Trade
Jonathan Levinson

Equities reached new highs and struggled to hold them, as the
dollar capped off the first positive week in recent memory.  Gold
cracked on Thursday and drifted lower Friday, despite a strong
retracement off the lows for silver.  Treasuries declined,
retracing part of Thursday's and Wednesday's advance but
nevertheless completing a strongly positive week.

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 administration has been paying lip service to its alleged
support of an ostensible "strong dollar policy" for many months,
and this week was no different.  What was different was that the
dollar did not fall precipitously to new hand-wringing, eye-
popping lows.  Sunday night saw the US Dollar Index break to
84.80, and the bounce started from there, picking up strength as
the week progressed.  Friday saw a move to the high 87's, and
while the daily cycle oscillators are in a steep upphase, price
confluence and descending channel resistance line up between 88
and 89. Predictably, precious metals had a bad week in US Dollar
terms, as did most foreign currency pairs.  Friday saw the CRB
advance, however, closing higher by 3.47 at 267.88 on strength in
heating oil, crude oil and wheat futures.

Daily chart of December gold

The flip side of a plunging dollar was soaring precious metals,
albeit "soaring" from and at relatively low levels, and the spike
in the USD hurt gold and silver valued in that currency.  In
foreign currencies, the gold rally had been much more muted, and
so was this week's decline, but for US Dollar-denominated holders
of gold, the week was no fun at all.  The bear wedge finally
delivered the anticipated break, and the daily cycle decisively
commenced an overdue downphase.  Support at 420 and 412 broke,
and the low for the move was 405.80 on Friday.  Support at 400,
followed by 392, 388, 375-8, and 368 are the levels to watch.
For the day, February gold dropped 3 points to close at 406.20.

Daily chart of the ten year note yield

Ten year notes reversed Thursday's gains and retraced part of
Wednesday as well, with the yield adding 4.3 basis points or
1.08% to close at 4.014%.  The steep decline in the yield lined
kicked off prior to the start of the dollar rally and continued
for most of the move, and Friday's reversal is frankly puzzling,
having moved countertrend to both the oscillator downphase and
the prevailing intermarket relationship seen this week.  One can
argue either for or against a continued treasury rally at this
point, and so I'm merely following the charts.  For the time
being, 3.9% appears to be key support under the yield, which
remains in a daily cycle downphase.

Daily NQ candles

The NQ broke the top of its 1515-1550 range on Friday, giving the
first indication that the week's ambiguous sideways move within
the rising daily channel was in fact a bull flag.  On Thursday, I
discussed the uncertainty of a dollar bounce for equities, which
had rallied strongly on the dollar's decline through most of
2003.  The upside break of the range was expect to spark a
furious short covering / momentum breakout, but the move failed
at 1554, and traded both sides of 1550 for the remainder of the
session.  The put to call ratio dove below .60, and those of us
who still wonder about such things couldn't decide whether the
move was a fakeout / throwover, destined to fail when trading
resumes Tuesday, or whether it was merely contained for op-ex
week purposes.  Unfortunately, we won't know the answer until
Tuesday.  For the day, NQ added 16 points to close at 1553.50, up
1.04%.  The daily cycle downphase that had been in the process of
commencing on Thursday aborted with the break to new highs.

30 minute 20 day chart of the NQ

Prophetcharts was not providing intraday Globex data today, and
so I've jury-rigged 30 minute charts from Quote.com.  Hopefully
Prophet will have its act back together on Tuesday.  The break
above the 1550 range limit on Friday took the shape of a bearish
rising wedge projecting to the lower range support at 1515.  This
would be far more important a year ago, but we've seen so many
bear wedges fail during recent months that I hesitate to mention
this one.  Nevetheless, it could account for the uncertainty at
the 52 week high above 1550.   The cycle oscillators on the 30
minute chart are obviously maxxed out and trending, as are those
on the daily chart.  If 1550 does not get broken immediately on
Monday night or Tuesday morning, the next leg up within the daily
rising channel will be underway.

Daily ES candles

The ES made a new intraday high, but it couldn't break 1340
resistance, stopping at a high of 1139 before commencing a light
pullback.  That said, the move looks like the start of a flag
breakout on the daily candles, and the daily cycle downphase
reversed back up, as it did on the NQ.  Any upside followthrough
on Tuesday should close the deal.   Downside support, which
barely feels worth mentioning, is 1130, 1124 and, most
significantly, 1115.  ES closed higher by 5.5 points at 1138.75,

20 day 30 minute chart of the ES

The 30 minute ES shows the same bear wedge, with an apex
projected approximately to the 1140 area.  As with the NQ, the ES
wedge projects clear down to range support at 1115, although 1130
is looking pretty strong from here.  The 300 minute stochastic
isn't as toppy on ES as it is on NQ, but just as this upper end
of the price range has been compressing the price moves, so has
it been causing the oscillators to trend higher within their
range.  A break of 1140 is less likely with the oscillators
overbought, but the fact of steadily rising oscillator lows
increases the likelihood of a breakout.  Tuesday will tell the

Daily YM candles

YM spent most of the week in a daily cycle downphase, but
Friday's failed run to the rally highs were sufficient to abort
it after all of 3 days.  10600 has been a brick wall above the
YM, and overhead supply from early 2002 is no doubt in play.
Whether those sellers decide to hold out for higher prices or
press it lower will have to be seen, but the fact remains that
YM, which led its peers in December and early January, was the
weakest equity contract on Friday. Support at 10340 is the lower
end of the range.  For the day, YM gained 27 points to close at

20 day 30 minute chart of the YM

YM's weakness is most pronounced on the 30 minute chart, with the
300 minute stochastic showing a bearish divergence through the
duration of Friday afternoon.

All week, we've been following the US Dollar Index' advance and
attempting to correlate it with the different markets we follow.
The decline in metals is a pure currency trade, while the advance
in bonds can be explained on the basis of increased foreign
demand for bonds, particularly in light of the outrageously large
Bank of Japan intervention in support of the USD.  Equities have
and continue to be the wildcard, and if they continue to advance
alongside bonds on an upleg in the dollar, we could see
significantly more of this equity rally than logic would
otherwise suggest or tolerate.  With all of the old mania stocks
rallying like it were not just 1999 but in fact 2000, volatility
plunging, we'll be wondering how much of this week's strength was
to butter the bread of option writers, and how much was
indicative a sustainable new wave of demand.  Fortunately, next
week should enlighten us.  Have a great weekend.


Higher Highs
Jonathan Levinson

Another day of heavy volume capped off a strong week for the
indices, with the Dow closing higher by 46.66 points at
10,600.51, the S&P 500 by 7.78 points at 1139.83, and the Nasdaq
by 31 points at 2,140.46 on volume of 2.65B shares.  NYSE volume
was 1.72B for the day, very heavy volume ahead of a 3 day weekend
lining up with op-ex Friday.

For the week, the Dow gained 1.4%, bringing its 52-week gain to
21.5%.  The SPX was up 1.6% for the week, 6.7% for the month, and
24.1% for the past 52 weeks, while the Naz was up 2.6% for the
week, 11.6% for the month and 48.8% for the past 52 weeks.

Volatility remained in extremely low territory throughout the
week, with the OEX volatility index (VXO, the old VIX) breaking
below 15 again on Friday afternoon as the put to call ratio fell
back below .60 and closed at its session low at .52, an extremely
unbalanced reading on the call side.  These numbers are best
taken with a grain of salt at the tail end of option expiration
week, but on the other hand, the Friday-afternoon breaks
coincided with upside resistance breaks on the indices.

Huge gains were seen in the speculative darlings of bubbles past,
with JNPR up 28.3% on Friday (not a typo), CIEN +19.2%, NT and
GLW up nearly 8%, JDSU up nearly 16%, Novell up 7.07%, Tellabs up
12%+... you get the idea.  CSCO and GE also posted breakout
moves, and so there's ample evidence on which to argue for either
a manic, speculative blowoff or the beginning of the next wave up
in the Rally of 2003.

Weekly COMPX candles

The 2.6% move higher in the Naz leaves the 2000 level in the dust
with a close at 2140.  The lower wedge trendline break was a
throwunder in retrospect, as were the sell signals on the
overbought weekly cycle oscillators.  The new closing high above
the March lows is slightly above the upper wedge trendline,
either in breakout territory or not, as trendline drawing is
anything but an exact science.  I personally am watching Tuesday
before making up my mind.  A positive close on Tuesday should
seal this week's breakout, and lend credence to the buy signals
printed on the weekly oscillators.  That said, a negative close
for Tuesday and next week could be bad news, as the weekly cycle
oscillators are still at lower highs against the higher price
highs, setting up a potential bearish oscillator divergence.
Combined with the echoes of the Y2K blowoff, with stuff like JDSU
leading the way, there's plenty of evidence in both directions.
But, until we see a decisive break to this iron-clad price trend,
the burden of proof is not on the bulls.

Weeky INDU candles

The INDU whipsawed this week, printing a spike low that resolved
itself into a doji hammer for the weekly print.  The weekly
cycles continued to trend higher, and the Dow closed right at the
critical 10600 level.  The transports held 3000 support and close
at 3036.28 on Friday.  Again, as with the Nasdaq, there are
compelling arguments on both sides of the trade, but those with a
bullish bias have been winning with particular panache for the
past two months.  I count 8 up weeks in a row just completed,
with the Dow rising when the dollar collapsed, then rising when
it bounced.  Bull or bear, you have to respect the price action,
and until it corrects for longer than an hour or a day, this
remains a market that can only be shorted on an aggressive scalp
basis, preferably with very strong coffee and a few tabs of
Immodium close at hand.

Daily OEX candles

Turning to our trading vehicles, the snarling mug of The Teflon
Market can be inspected more closely. The OEX closed at 564.72,
up 4.3 or .77%.  The daily cycle downphase aborted after all of 3
days after 2 months of upside, with the lower rising channel
trendline never seriously challenged.  Upside resistance, if such
a word is even still applicable, should be at the top of the
channel, currently just north of 570.

20 day 30 minute chart of the OEX

Whether the break above 563 was just an op-ex related short-
covering throwover or the start of another bear purge will be
seen in short order when the markets open on Tuesday.  I can't
add much, as the 30 minute cycle has been almost useless all
week, aborting each downphase in the very early going as the
price squeezed higher.  Please note the failure of yet another
head and shoulders formation off Tuesday's low, and I suspect
that traders ten or even 2 years hence will shake their heads in
disbelief at the thought that we ever made money following "chart
patterns".  Bulkowski's "Encyclopedia of Chart Patterns" for
which I paid north of $70 will be used for party laughs or
possibly coloring practice by the kids.  I digress.  Support is
currently at 563, followed by 560, 556 and 553.

Daily QQQ candles

QQQ closed 7 cents below its new 52 week high at 38.63, atop what
may or may not be a bull flag.  So long as 38.40 holds as
support, I vote for the bullish interpretation.  Forget the daily
cycle downphase, which aborted hours after it issued its first
sell signal, and ressitance above is next at 39, with upper
channel resistance another 50 cents north of that.  Support is at
38.40, 37.70, 37.20 and 36.

20 day 30 minute chart of the QQQ

Nothing to add on the 30 minute chart of QQQ, with the flag
breakout clearly depicted with a move above 38.40. The upper
break was not as explosive as one might have expected, but with
op-ex complicating the picture, Tuesday's trading will provide us
with either positive or negative confirmation quickly enough.

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Editor's Plays

When All Else Fails

Sometimes the best laid plans of mice and men simply go
astray. The DJX put play has gone astray. The Dow (DJX)
has managed to stretch its consecutive weekly winning
streak to eight weeks. The January dip is rapidly running
out of time and so are we.

When I started this play a month ago the Dow was 10250
and the weekly winning streak was at four weeks and leading
up to the historically risky month of January. Well as of
today the six year streak for the January dip failed instead
of the eight week streak on the Dow. As Mike Parnos so
aptly puts it "things happen".

I received numerous emails this week asking if I had
capitulated. Did I still own my puts? Did I still think
we were going to have a dip? If we are going to have a
dip where will it stop? I will try to cover all of them.

Yes, I still have my puts. I told everyone last week I
was in it until the bitter end. Yes I still think we will
have a dip. It is only a matter of time. No streak runs
forever but time is running out for us.

It is not a question of will we have a dip. It is a question
of when and from how high. If we were to dip on Monday then
the "average" dip of -550 points would take us back to exactly
the 50 dma at 10050 or so. While that looks and sounds good
I would be even more surprised if it happens.

The bullishness is so extreme that I cannot conceive of a
drop that far. While it is historical, technical and well
over due there are far too many buyers who have been
expecting it. They are chomping at the bit to get in this
bull market and I do not blame them. I am one of them. I
have a couple dozen stocks/options I want to buy but
refuse to do it at these exorbitant prices. (They are always
exorbitant when you are not an owner. If you owned them then
they would have plenty of room to run.)

Current support is 10400, 10300 and 10100. I could easily
see 10400 being tested. That is only -200 points. That makes
10300 the key. That is Christmas week support. If that breaks
then 10100 should be the target and I would gladly bail at
that level. If 10300 is tested and we move back over 10400
I would also bail for scrap value. The next dip is going to
be the one that counts. If it only hits 10400 and rebounds
back over 10500 then it is all over.

The Dow has serious resistance beginning at 10600 through
10650. We closed at 10600 on Friday and only after the bell.
Sell programs were prohibited from executing because of the
lateness of the day. I would not be surprised to see an
attempt to take it down on Tuesday when the market opens.
Anywhere between 10600-10650 we could stall and the profit
taking could begin.

We have a lot of earnings next week with Microsoft on
Thursday. MSFT actually traded flat for the entire year.
There is a concentrated effort to replace Microsoft software
at the enterprise level with several different operating
systems and desktop suites. They are not in any danger but
they are seeing increased competition. They could soften
their guidance next week and it could be ugly.

I would give this play one more week. If we have not had
a significant dip or at least a declining trend by close
of business on Monday the 26th I will probably exit. The
Fed meeting is a two-day affair starting on the 27th. If
they change the bias statement to cool off the current
irrational exuberance then the market could drop like a
rock on interest rate worries. If they leave the statement
alone then the sky's the limit and the April earnings run
will begin early. I will decide on Monday if I want to
roll the dice.

I am not any happier about this play than you are but we
have to play the cards we are dealt. Sometimes you get a
full house, sometimes you get nothing. Right now we have
a four card straight. Our bets have been placed and we are
not going to fold without seeing the last card.

I am exiting with a Dow close over 10650. My current
(optimistic) target is 10100. Monday the 26th is my drop
dead date. Feel free to exit at any time. You are not
required to remain in the play just because I am.

DJX Chart - Daily

Initial play description December 21st


Play Recaps

Priceline.com (PCLN) Put play $19.20

Priceline has not taken part in the Nasdaq rally and is only
slightly above the price when the play started. Once the
Nasdaq cools I am confident PCLN will cool more. Earnings
could be a problem for them but they are not until the
first week in February. The terror alert in December may
have hurt them significantly. This is an April play so we
have plenty of time. Here is a recent news story on them.




I Am Really Crying Now

Having the Nasdaq set a new 30-month high on expiration Friday
is enough to make me cry. I closed the Powerball portfolio two
weeks ago for a fraction of the current value. When I saw the
update this week I had to post it. +152%, $1910 profit. Who
knew the Nasdaq would go this high in January? Obviously not me.

Powerball Chart


Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown


Sentiment Rising
- J. Brown

Call it the energizer bunny.  Call it a Teflon market (nothing
sticks to it).  Call it a runaway train.  Whatever adjective best
suits your market bias it's hard to ignore that the path of least
resistance is still up.  The Dow Jones Industrials and the S&P
500 have turned in eight consecutive weeks of gains.  That's
quite a feat.  I thought I heard one TV commentator say the
markets have not done that in more than 10 years.  Investors seem
anything but cautious and the plummeting volatility indices
continue to reinforce a lack of fear.  Normally when everyone is
running the same direction it is a sign to start looking for the
exits but until the trend changes all we can do is play what the
market gives us.

Driving these exceptional moves are strong corporate earnings and
encouraging economic data.  Friday revealed that consumers were
very confident.  The Michigan sentiment index soared to a
surprising 103.2 in January when estimates were only pointing to
a small rise to 94.0.  The last reading was 92.6 in December
making this the biggest jump since November 1992.  So what's
making the consumer feel so secure?  A stock market with its
first gain in three years doesn't hurt.  Nor does rising home
prices and low mortgage rates (which dropped again last week).
Signs, albeit slow ones, that the job market is improving is
probably the biggest reason that consumers are feeling upbeat.  A
confident consumer spends more money and that will keep this
economy on the road to recovery.

Meanwhile investors are feeling pretty confident themselves.  The
latest round of earnings reports were generally to the upside.
Junpier Network's (JNPR) positive earnings report on Friday
morning set the networking/telecom sectors spinning higher again
and JNPR's stock exploded for a 30% gain.  Overall market
internals were very bullish.  The NYSE reported advancers pushing
past decliners 4 to 3.  Winners overwhelmed losers 19 to 11 on
the NASDAQ.  Up volume was more than 3 times down volume on the
NYSE and more than four times down volume on the NASDAQ.

Monday is a market holiday and the earnings parade gets started
bright and early on Tuesday morning.  Several Dow components are
scheduled to announce (MMM, C, GM, JNJ, and UTX).  These earnings
reports will heavily influence market direction.


Market Averages


52-week High: 10600
52-week Low :  7416
Current     : 10600

Moving Averages:

 10-dma: 10115
 50-dma: 10084
200-dma:  9365

S&P 500 ($SPX)

52-week High: 1139
52-week Low :  788
Current     : 1139

Moving Averages:

 10-dma: 1127
 50-dma: 1079
200-dma: 1006

Nasdaq-100 ($NDX)

52-week High: 1553
52-week Low :  795
Current     : 1553

Moving Averages:

 10-dma: 1524
 50-dma: 1441
200-dma: 1300


Once again enthusiastic traders have pushed the market higher and
volatility lower.  Definitely no fear in the markets yet.

CBOE Market Volatility Index (VIX) = 15.00 -0.56
CBOE Mkt Volatility old VIX  (VXO) = 14.88 -1.35
Nasdaq Volatility Index (VXN)      = 20.24 -2.40


          Put/Call Ratio  Call Volume   Put Volume

Total          0.66      1,083,341       715,875
Equity Only    0.52        843,879       442,894
OEX            0.93         50,558        46,803
QQQ            2.20         42,812        93,989


Bullish Percent Data

           Current   Change   Status
NYSE          77.5    + 0     Bull Confirmed
NASDAQ-100    81.0    + 0     Bull Confirmed
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       87.6    + 1     Bull Confirmed
S&P 100       85.0    + 0     Bull Confirmed

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

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


 5-dma: 0.92
10-dma: 0.95
21-dma: 0.92
55-dma: 1.04

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1616      1907
Decliners    1235      1160

New Highs     384       407
New Lows        8         5

Up Volume   1726M     2066M
Down Vol.    526M      469M

Total Vol.  2282M     2577M
M = millions


Commitments Of Traders Report: 01/13/04

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

We don't have much more to report on for commercial traders this
week other than slightly increased positions on both sides of the
fence.  Small traders followed suit.

Commercials   Long      Short      Net     % Of OI
12/16/03      448,103   460,670    12,567     1.4%
12/22/03      400,066   405,240    (5,174)   (0.6%)
01/06/04      403,721   408,729    (5,008)   (0.6%)
01/13/04      405,558   411,361    (5,803)   (0.7%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   23,977  - 12/09/03

Small Traders Long      Short      Net     % of OI
12/16/03      172,947   113,704    59,243    20.7%
12/22/03      147,537    81,596    65,941    28.8%
01/06/04      142,844    83,518    59,326    26.2
01/13/04      149,057    90,571    58,486    24.4%

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

E-MINI S&P 500

The e-minis are seeing more action than the full contracts
represented above.  Commercial traders added more than 20K
contracts to both longs and shorts but they remain net bearish.
Small traders were more enthusiastic with a large increase in
long positions, outpacing the increase in short positions.
Contrarians might view this as a bearish development.

Commercials   Long      Short      Net     % Of OI
12/16/03      330,273   361,316    (31,043)   (4.5%)
12/22/03      128,801   213,021    (84,220)  (24.6%)
01/06/04      175,489   240,865    (65,376)  (15.7%)
01/13/04      196,858   263,845    (66,987)  (14.5%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
12/16/03     177,193     73,694   103,499    41.3%
12/22/03     125,248     43,482    81,766    48.5%
01/06/04     139,433     51,909    87,524    45.7%
01/13/04     191,241     62,711   128,530    50.6%

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


Ho-hum...commercial traders are still asleep at the wheel
in the NDX futures.  Meanwhile small traders have reduced
their outstanding shorts.

Commercials   Long      Short      Net     % of OI
12/16/03       61,343     73,153   (11,810) ( 8.8%
12/22/03       40,277     36,452     3,825    5.0%
01/06/04       42,892     37,801     5,091    6.3%
01/13/04       41,829     38,547     3,282    4.1%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
12/16/03       28,676    15,197    13,479    30.7%
12/22/03       22,656    14,544     8,112    21.8%
01/06/04        8,035    17,911   ( 9,876)  (38.1%)
01/13/04        9,705    12,539   ( 2,834)  (12.7%)

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02


There isn't much to report in the DJ futures either.
It looks like commercials are just shuffling money around but
the net result was a slightly more bullish stance on the Dow.
In mirror-like precision small traders have slowly become more

Commercials   Long      Short      Net     % of OI
12/16/03       23,509    13,880    9,629      25.8%
12/22/03       14,088     9,998    4,090      17.0%
01/06/04       15,697     9,497    6,200      24.6%
01/13/04       16,501     8,724    7,777      30.8%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
12/16/03        9,497    19,633  (10,136)   (34.8%)
12/22/03        6,915     8,983  ( 2,068)   (13.0%)
01/06/04        5,713     8,105  ( 2,392)   (17.3%)
01/13/04        6,496     9,970  ( 3,474)   (21.1%)

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


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5-DRT retracement technique and January's First 5 Days

Hi Jeff,

The Stock Trader's Almanac notes the importance of the first 5
days in predicting the direction of the markets for the coming
year.  And that reminds me of your 5-MRT technique.  Think a "5-
DRT" would be applicable, and if so, would you start it last
Friday (01/02/04) or use the first full week -- this one ending


That's it.  Matt has lost his mind.  How could anyone possibly
think that a trader or investor could possibly take the range of
the first 5 trading days of the year, and actually think that the
market would trade those levels?

Please Matt.  Get some type of help from a head Doctor as you
have lost your mind.

Or has he?

All he's trying to do is establish some levels, which allows a
trader/investor to incorporate some type of discipline in their
account management, and let the market tell him if it is bullish
or bearish.

According to the Stock Trader's Almanac the market action during
the first five trading days of the month often serves as an
excellent "early warning" system for the year as a whole.  Early
January gains since 1950 (excluding 1994) were matched by whole-
year gains with just three war-related exceptions: Vietnam
military spending delayed the start of 1966 bear market;
ceasefire imminence in early 1973 raised stocks temporarily; and
Saddam Hussein turned 1990 into a bear when Iraq invaded Kuwait.

Even though Matt has lost his mind, and there's no way this would
work, I thought I'd show Matt how far off base he was, so he
could go to the head Doctor as soon as possible.

For those not familiar with what we've started calling the "5-
MRT," this was an intra-day trading technique, where we used a
Fibonacci Retracement tool, to simply measure the range of the
first 5-minutes of trade, to derive some intra-day levels from.

The 5-MRT technique and explanation can be found in the Ask the
Analyst column dated 09/21/2003 "Day trader's 5-minute bar

What Matt is asking is if it would be plausible to think that we
could use the first 5-days of the year as a pulse for the year,
but then use retracement to measure that pulse and define levels,
where we could apply systematic rules to let the market tell us
what to do.

I wanted to at least back test Matt's idea and to try and answer
his question of whether we should use the first 5 days of trade
or the first full week of trade, I tested both.  I'm kind of old
fashioned when it comes to using market history, so I would have
preferred to use the first 5-days as noted in the Stock Trader's

I tested both the first 5-days and first full week, and just
about fell out of my chair, or into Freud's couch when I looked
at how the Dow Industrials traded in 2003 using the
unconventional "5-DRT" fitted to the first 5-days of trade.

Here's a chart of the Dow Industrials (INDU) with WEEKLY
intervals using a "5-DRT."  All I did was "fit" a blue
retracement from 0% to 19.1% from the first 5-day's low/high, and
then "fit" a lower red retracement from its 100% to 80.9% from
the same first 5-day's low/high.

Dow Industrials (INDU) - Weekly Intervals (2003 5-DRT)

The first 5-days of 2003 saw the Dow Industrials trade a low/high
of 8,342.38-8,802.64.  The Dow opened for trading at 8,342.38 on
January 2nd, and closed at 8,595.31 on the 5th day of trade.

The comparison of the open and close suggested a bullish year for

Now I couldn't get my inner retracement to the exact fraction of
the first 5-day's of trade in the INDU, but got as close as I
could.  What I then did is established a "bias" based on a WEEKLY
close.  If I start out as "neutral" (8,342-8,802.64) and then let
the weekly close tell me if I should have been bullish or
bearish, we would see that our first bias in 2003 would have been
BEARISH when the INDU closed below 8,342.38 and assessed further
downside to the next level lower of 7,886.79 and I would NOT be
bullish unless the INDU showed a WEEKLY close back above the next
level higher 8,800.

I thought to myself... "Wow!  Look at how the INDU wanted to
hover around the 7,886.79 level several weeks later."

It's tough to see on the above chart, but the INDU did see a
weekly close below that 7,886.79 level, which may have had the
investor/trader developing a further bearish bias, with downside
risk assessed to 7,604.65.  A bullish bias would now not be
established until the INDU closed above the next level higher of
8,343.47 (8,345 for round number).

The INDU did fall to 7,604.65, but never saw a weekly close below
that level, which I've labeled #3 in red.

Suddenly... the INDU whips back higher and sees a weekly close
above 8,343.47!  Maybe I should be BULLISH!.  Something has
changed.  Buy some INDU the next day (March 24, 2003) at 8,514.82
opening bell, and keep a BULLISH bias until the INDU closes below
the next level lower (7,886.79).

Weeks later, in late May, the INDU sees a weekly close above
8,800 and further BULLISH bias is built by the trader investor
(check out the point and figure chart!!!!)

Do you see how bulls have been "walking the dog" higher?  The
pattern has been, when the Dow sees a weekly close above the next
level higher, it hasn't closed below the next level lower.  Only
when it does, would a BEARISH bias be taken.

INDU 9,255 seemed to find some resistance, but once that level
was broken to the upside, it quickly became support didn't it?

While Matt is thinking outside the box, it may have some merit.

Look at how the INDU has really packed on some weight since it
showed a weekly close above 9,820.

OK, that was then, this is now.  I'm going to slap a "5-DRT" on
the INDU.  Hey!  2004 might be a bullish year as the first 5-days
of the year have been BULLISH.

Dow Industrials (INDU) Chart - Weekly Intervals (2004 5-DRT)

Here's a INDU chart with a "5-DRT" and should have traders and
investors holding out a bullish bias until it sees a WEEKLY close
below 10,384.44, where downside risk becomes 10,176.26.

Last year, the INDU traded to RED #3 and surpassed BLUE #5.

Just for grins, I back tested a 5-DRT on the NASDAQ-100 Tracking
Stock (AMEX:QQQ) based on its first 5-day's trade for 2003.  In
the early part of the year, it did see a weekly close above BLUE
#1 and then turned lower to see a weekly close below RED #1, then
whipped back higher to see a weekly close above BLUE #1, and just
like the INDU, each time it saw a WEEKLY close above the next
level higher, it hasn't seen a WEEKLY close below the next lower
level.  The QQQ closed at $36.46 on December 31, 2003, which was
between its 5-DRT BLUE #5 ($34.95) and BLUE #6 ($37.44).

Hmmmmm...... Here's a 5-DRT on the QQQ for 2004.

NASDAQ-100 Tracker (AMEX:QQQ) - Daily Intervals (2004 5-DRT)

Here's a 5-DRT on the QQQ.  Friday's close, the weekly close was
above BLUE #1.  "Hook'em horns" as they say in Austin, TX.  As
long as the QQQ holds a WEEKLY close above $36.20.

Ooops!  I know we've got some subscriber's that might not be all
that fond of the University of Texas.  How about... Go Colorado
Buffalos!  Actually, I'm a CSU Ram fan, but a "ram market?"  That
doesn't sound right.

Enjoy your 3-day weekend.  Remember that Monday is Martin Luther
King Jr. Day and markets are closed here in the U.S.

Jeff Bailey


Earnings Calendar

Symbol  Co               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

CXP    Centex Const Prod     Mon, Jan 19  After the Bell      0.98
IFX    Infineon Tech AG      Mon, Jan 19  Before the Bell     0.04
KEM    Kemet                 Mon, Jan 19  After the Bell     -0.11
LEE    Lee Enter, Incorp     Mon, Jan 19  Before the Bell     0.55
LOGI   Logitech Intl         Mon, Jan 19  After the Bell      0.81
OCENY  Oci N.V.              Mon, Jan 19  -----N/A-----        N/A
SWBT   Southwest Bank Texas  Mon, Jan 19  After the Bell      0.47

------------------------- TUESDAY ------------------------------

MMM    3M Co                 Tue, Jan 20  Before the Bell     0.76
AMD    Advanced Micro DevicesTue, Jan 20  After the Bell      0.04
ACS    Affiliated Comp Serv  Tue, Jan 20  -----N/A-----       0.63
AMTD   Ameritrade Hldng Corp.Tue, Jan 20  Before the Bell     0.16
AMCC   App Micro Circuits CrpTue, Jan 20  After the Bell     -0.02
ONE    Bank One              Tue, Jan 20  Before the Bell     0.80
BNK    Banknorth Grp Inc.    Tue, Jan 20  Before the Bell     0.56
BJS    BJ SVCS CO            Tue, Jan 20  Before the Bell     0.38
BRE    BRE PROPERTIES INC    Tue, Jan 20  After the Bell      0.51
EAT    Brinker Intl          Tue, Jan 20  Before the Bell     0.44
CX     CEMEX S.A.            Tue, Jan 20  Before the Bell     0.53
CTX    Centex Corp           Tue, Jan 20  After the Bell      2.83
CF     Charter One Finl      Tue, Jan 20  After the Bell      0.69
CKFR   CheckFree             Tue, Jan 20  After the Bell      0.23
C      CitiGrp Inc.          Tue, Jan 20  Before the Bell     0.90
CBSS   Compass Bancshares    Tue, Jan 20  -----N/A-----       0.68
CAL    Continental Airlines  Tue, Jan 20  Before the Bell    -0.81
DPH    Delphi                Tue, Jan 20  Before the Bell     0.21
ETH    Ethan Allen Interiors Tue, Jan 20  Before the Bell     0.60
FBC    Flagstar Bancorp      Tue, Jan 20  Before the Bell     0.56
FRX    Forest Laboratories   Tue, Jan 20  Before the Bell     0.58
FCX    Frprt-McMRn Cppr Gld  Tue, Jan 20  Before the Bell     0.10
FULT   Fulton Finl           Tue, Jan 20  -----N/A-----       0.32
GM     General Motors Corp.  Tue, Jan 20  Before the Bell     1.22
HE     Hawaiian Electric     Tue, Jan 20  Before the Bell     0.75
HMA    Health Mgmt Assoc, IncTue, Jan 20  Before the Bell     0.29
HUBb   Hubbell Incorporated  Tue, Jan 20  During the Market   0.54
HU     Hudson United Bancorp Tue, Jan 20  After the Bell      0.66
ICBC   Independence Comm BankTue, Jan 20  After the Bell      0.64
JKHY   Jack Henry & Assoc    Tue, Jan 20  Before the Bell     0.16
JNJ    Johnson & Johnson     Tue, Jan 20  Before the Bell     0.56
MATW   Matthews Intl         Tue, Jan 20  -----N/A-----       0.33
MEL    Mellon Finl Corp      Tue, Jan 20  During the Market   0.43
MOT    Motorola Inc.         Tue, Jan 20  After the Bell      0.13
PRK    Park Natl             Tue, Jan 20  -----N/A-----       1.75
PH     Parker Hannifin Corp. Tue, Jan 20  Before the Bell     0.45
PMCS   PMC-Sierra, Inc.      Tue, Jan 20  After the Bell      0.02
BPOP   POPULAR INC           Tue, Jan 20  -----N/A-----       0.83
PTZ    Pulitzer Inc.         Tue, Jan 20  Before the Bell     0.64
RFMD   RF Micro Devices, Inc.Tue, Jan 20  After the Bell      0.10
SANM   Sanmina-SCI Corp.     Tue, Jan 20  After the Bell      0.04
STX    Seagate Tech          Tue, Jan 20  After the Bell      0.45
SONS   Sonus Networks        Tue, Jan 20  After the Bell      0.02
SOV    Sovereign Bancorp     Tue, Jan 20  After the Bell      0.37
TRBS   Texas Regional        Tue, Jan 20  Before the Bell     0.51
TDW    Tidewater             Tue, Jan 20  Before the Bell     0.25
TSCO   Tractor Supply Co     Tue, Jan 20  -----N/A-----       0.37
TRST   Trustco Bank          Tue, Jan 20  -----N/A-----       0.19
TRMK   Trustmark Corp        Tue, Jan 20  -----N/A-----       0.50
TSS    TSYS                  Tue, Jan 20  -----N/A-----       0.20
USB    U.S. Bancorp          Tue, Jan 20  Before the Bell     0.51
UIS    Unisys                Tue, Jan 20  Before the Bell     0.31
UTX    United Tech           Tue, Jan 20  Before the Bell     1.13
WM     Washington Mutual     Tue, Jan 20  After the Bell      0.89
WFC    Wells Fargo & Co      Tue, Jan 20  Before the Bell     0.95
WABC   Westamerica BanCorp   Tue, Jan 20  During the Market   0.73

------------------------ WEDNESDAY -----------------------------

ACXM   Acxiom                Wed, Jan 21  After the Bell      0.19
ADTN   ADTRAN, Inc.          Wed, Jan 21  Before the Bell     0.24
APD    Air Prod and Chem Inc Wed, Jan 21  Before the Bell     0.56
DOX    Amdocs Limited        Wed, Jan 21  -----N/A-----       0.24
APH    Amphenol              Wed, Jan 21  Before the Bell     0.67
AMR    AMR Corp              Wed, Jan 21  -----N/A-----      -1.01
AOT    Apogent Tech          Wed, Jan 21  After the Bell      0.34
AVB    Avalonbay Communities Wed, Jan 21  After the Bell      0.80
BXS    BancorpSouth, Inc.    Wed, Jan 21  After the Bell      0.39
BSG    BISYS Grp INC         Wed, Jan 21  After the Bell      0.18
BLK    BlackRock, Inc.       Wed, Jan 21  Before the Bell     0.63
BOKF   BOK Finl              Wed, Jan 21  -----N/A-----       0.65
BR     Burlington Resources  Wed, Jan 21  After the Bell      1.06
CAI    CACI Intl             Wed, Jan 21  After the Bell      0.46
CWG    CanWest Global Commu  Wed, Jan 21  -----N/A-----        N/A
COF    Capital One Finl Corp Wed, Jan 21  After the Bell      1.00
CDWC   CDW Comp Centers, Inc Wed, Jan 21  Before the Bell     0.58
CHZ    Chittenden            Wed, Jan 21  After the Bell      0.53
CTXS   Citrix Sys            Wed, Jan 21  After the Bell      0.19
COH    Coach, Inc.           Wed, Jan 21  Before the Bell     0.49
CA     Comp Assoc Intl       Wed, Jan 21  After the Bell      0.15
CVG    Convergys Corp        Wed, Jan 21  -----N/A-----       0.32
DHI    D.R. Horton           Wed, Jan 21  After the Bell      0.62
DV     DeVry                 Wed, Jan 21  After the Bell      0.22
DNEX   Dionex                Wed, Jan 21  After the Bell      0.45
ET     E*TRADE Grp, Inc.     Wed, Jan 21  Before the Bell     0.17
ETN    Eaton                 Wed, Jan 21  Before the Bell     1.37
EBAY   eBay                  Wed, Jan 21  -----N/A-----       0.22
FNM    Fannie Mae            Wed, Jan 21  Before the Bell     1.75
FMBI   First Midwest Bancorp Wed, Jan 21  Before the Bell     0.51
FTN    First Tennessee Natl  Wed, Jan 21  Before the Bell     0.90
GD     General Dynamics      Wed, Jan 21  Before the Bell     1.37
GBBK   Greater Bay Bancorp   Wed, Jan 21  Before the Bell     0.37
GPT    GreenPoint Finl       Wed, Jan 21  Before the Bell     0.86
HDI    Harley-Davidson       Wed, Jan 21  Before the Bell     0.58
JPM    J.P. Morgan Chase & CoWed, Jan 21  Before the Bell     0.77
JEF    Jefferies Grp         Wed, Jan 21  Before the Bell     0.39
JCI    Johnson Controls      Wed, Jan 21  Before the Bell     0.84
KELYA  Kelly Serv, Inc.      Wed, Jan 21  Before the Bell     0.04
KMI    Kinder Morgan         Wed, Jan 21  After the Bell      0.86
KRI    Knight Ridder         Wed, Jan 21  Before the Bell     1.21
LRCX   Lam Research          Wed, Jan 21  -----N/A-----       0.05
LM     Legg Mason            Wed, Jan 21  Before the Bell     0.99
LU     Lucent Tech Inc.      Wed, Jan 21  Before the Bell    -0.01
MACR   Macromedia            Wed, Jan 21  After the Bell      0.14
MXO    Maxtor Corp           Wed, Jan 21  After the Bell      0.23
MERQ   Mercury Interactive   Wed, Jan 21  -----N/A-----       0.26
MER    Merrill Lynch         Wed, Jan 21  Before the Bell     1.00
MODI   Modine Manu Co        Wed, Jan 21  After the Bell      0.31
NATI   Natl Instruments      Wed, Jan 21  After the Bell      0.23
NFLX   NetFlix.com           Wed, Jan 21  After the Bell      0.16
NSCN   NetScreen Tech        Wed, Jan 21  After the Bell      0.12
NCEN   New Century Finl Corp Wed, Jan 21  After the Bell      1.74
NTRS   Northern Trust        Wed, Jan 21  Before the Bell     0.54
JNC    Nuveen Investments    Wed, Jan 21  Before the Bell     0.41
PKG    Packaging Corp of Am  Wed, Jan 21  After the Bell      0.07
PMTC   PARAMETRIC Tech CORP  Wed, Jan 21  Before the Bell    -0.13
PNC    PNC Finl Serv Grp     Wed, Jan 21  Before the Bell     0.99
PGN    Progress Energy       Wed, Jan 21  Before the Bell     0.76
PFGI   Provident Finl Grp    Wed, Jan 21  Before the Bell     0.57
QCOM   QUALCOMM Inc.         Wed, Jan 21  After the Bell      0.47
RDN    Radian Grp            Wed, Jan 21  After the Bell      1.14
RGS    Regis Corp            Wed, Jan 21  Before the Bell     0.57
SNDK   SanDisk Corp.         Wed, Jan 21  After the Bell      0.78
SEBL   Siebel Sys            Wed, Jan 21  After the Bell      0.08
SSTI   Silicon Storage Tech  Wed, Jan 21  After the Bell      0.06
SBUX   Starbucks             Wed, Jan 21  After the Bell      0.26
SYMC   Symantec              Wed, Jan 21  After the Bell      0.29
SNV   Synovus Finl Corp.     Wed, Jan 21  After the Bell      0.34
TTEK   Tetra Tech            Wed, Jan 21  After the Bell      0.23
BK     The Bank of New York  Wed, Jan 21  Before the Bell     0.44
PGR    The Progressive Corp  Wed, Jan 21  After the Bell      1.52
REY    Reynolds & Reynolds CoWed, Jan 21  Before the Bell     0.30
UNP    Union Pacific         Wed, Jan 21  Before the Bell     1.18
UB     UnionBanCal           Wed, Jan 21  After the Bell      1.02
UBSI   United Bankshares     Wed, Jan 21  Before the Bell     0.50
WFSI   WFS Finl              Wed, Jan 21  -----N/A-----       0.67
WTNY   Whitney Holding Corp  Wed, Jan 21  -----N/A-----       0.61
WIT    Wipro Limited         Wed, Jan 21  -----N/A-----       0.23
XLNX   Xilinx, Inc.          Wed, Jan 21  Before the Bell     0.18

------------------------- THUSDAY -----------------------------

AAI    AirTran Hldg, Inc.    Thu, Jan 22  Before the Bell     0.17
ACV    Alberto-Culver Co.    Thu, Jan 22  -----N/A-----       0.67
ALEX   Alexander & Baldwin   Thu, Jan 22  After the Bell      0.53
ATK    Alliant TechSys Inc.  Thu, Jan 22  Before the Bell     0.88
AMX    America Movil         Thu, Jan 22  -----N/A-----       0.44
ACF    AmeriCredit Corp.     Thu, Jan 22  After the Bell      0.28
AMGN   Amgen                 Thu, Jan 22  -----N/A-----       0.48
ASBC   Associated Banc-Corp  Thu, Jan 22  -----N/A-----       0.74
AF     Astoria Finl Corp     Thu, Jan 22  Before the Bell     0.54
T      AT&T                  Thu, Jan 22  Before the Bell     0.41
ATML   Atmel Corp            Thu, Jan 22  After the Bell     -0.03
ALV    Autoliv               Thu, Jan 22  Before the Bell     0.64
ADP    Automatic Data Proc   Thu, Jan 22  Before the Bell     0.37
BLS    BellSouth Corp        Thu, Jan 22  Before the Bell     0.51
BMS    Bemis Co, Inc.        Thu, Jan 22  Before the Bell     0.76
BCC    Boise Cascade         Thu, Jan 22  Before the Bell     0.25
BGG    Briggs & Stratton CorpThu, Jan 22  Before the Bell     0.63
CBT    Cabot                 Thu, Jan 22  After the Bell      0.43
CCMP   Cabot MicroelectronicsThu, Jan 22  Before the Bell     0.43
ELY    Callaway Golf         Thu, Jan 22  After the Bell     -0.29
CAH    Cardinal Health, Inc. Thu, Jan 22  Before the Bell     0.86
CEN    Ceridian              Thu, Jan 22  -----N/A-----       0.29
CHKP   Check Pnt Sftwr Tech  Thu, Jan 22  Before the Bell     0.24
CPS    ChoicePoint, Inc.     Thu, Jan 22  Before the Bell     0.35
CIT    CIT Grp               Thu, Jan 22  -----N/A-----       0.72
CPWR   Compuware Corp        Thu, Jan 22  After the Bell      0.01
ED     Consolidated Edison   Thu, Jan 22  -----N/A-----       0.61
CBE    Cooper Industries Ltd.Thu, Jan 22  Before the Bell     0.76
GLW    Corning               Thu, Jan 22  After the Bell      0.04
CR     Crane                 Thu, Jan 22  After the Bell      0.53
CY     Cypress Semiconductor Thu, Jan 22  -----N/A-----       0.13
CYT    Cytec Industries Inc. Thu, Jan 22  After the Bell      0.41
EWBC   East West Bancorp     Thu, Jan 22  Before the Bell     0.63
EK     Eastman Kodak Co      Thu, Jan 22  Before the Bell     0.52
EMC    EMC Corp              Thu, Jan 22  Before the Bell     0.07
EEP    Enbridge Energy Part  Thu, Jan 22  After the Bell      0.56
ENH    Endurance Spec Hldg   Thu, Jan 22  After the Bell      0.86
EFX    Equifax Inc.          Thu, Jan 22  Before the Bell     0.40
FILE   FileNet               Thu, Jan 22  Before the Bell     0.12
F      Ford Motor Co         Thu, Jan 22  Before the Bell     0.28
BEN    Franklin Resources    Thu, Jan 22  -----N/A-----       0.64
GDW    Golden West Finl      Thu, Jan 22  -----N/A-----       1.84
GGG    Graco                 Thu, Jan 22  After the Bell      0.46
HP     Helmerich & Payne, IncThu, Jan 22  Before the Bell     0.08
HCBK   Hudson City Bancorp   Thu, Jan 22  After the Bell      0.28
HYSL   Hyperion              Thu, Jan 22  After the Bell      0.21
IEX    Idex                  Thu, Jan 22  Before the Bell     0.47
INGP   Instinet Grp Incorp   Thu, Jan 22  Before the Bell     0.01
ICST   Integrated Circuit SysThu, Jan 22  Before the Bell     0.26
IDTI   Integrated Device TechThu, Jan 22  After the Bell      0.02
ISCA   Intl Speedway         Thu, Jan 22  Before the Bell     0.61
IGT    Intl Game Tech        Thu, Jan 22  Before the Bell     0.29
IVC    Invacare              Thu, Jan 22  -----N/A-----       0.69
IFIN   Investors Finl Serv   Thu, Jan 22  Before the Bell     0.41
ESI    ITT Educational Serv  Thu, Jan 22  -----N/A-----       0.49
JEC    Jacobs Engineering GrpThu, Jan 22  Before the Bell     0.58
KLAC   KLA-Tencor            Thu, Jan 22  After the Bell      0.19
NITE  Knight Trading Grp     Thu, Jan 22  Before the Bell     0.20
KRB    MBNA                  Thu, Jan 22  After the Bell      0.53
MCK    McKesson Corp         Thu, Jan 22  After the Bell      0.50
MDU    MDU Resources         Thu, Jan 22  -----N/A-----       0.40
MCHP   Microchip Tech        Thu, Jan 22  After the Bell      0.19
MSFT   Microsoft             Thu, Jan 22  After the Bell      0.30
MTX    MINERALS TECH INC     Thu, Jan 22  After the Bell      0.66
NOK    Nokia                 Thu, Jan 22  Before the Bell     0.31
NVS    Novartis Corp         Thu, Jan 22  Before the Bell     0.54
OXY    Occidental Petroleum  Thu, Jan 22  -----N/A-----       1.02
ONB    Old Natl Bancorp      Thu, Jan 22  Before the Bell     0.32
OSK    Oshkosh Truck         Thu, Jan 22  Before the Bell     0.49
PTV    Pactiv                Thu, Jan 22  After the Bell      0.41
PCL    Plum Creek Timber     Thu, Jan 22  After the Bell      0.28
PFS    Provident Finl Serv   Thu, Jan 22  After the Bell      0.15
RESP   Respironics, Inc.     Thu, Jan 22  Before the Bell     0.48
RYL    Ryland Grp            Thu, Jan 22  Before the Bell     2.90
TSG    Sabre Hldg Corp.      Thu, Jan 22  Before the Bell     0.08
SAP    SAP AG                Thu, Jan 22  Before the Bell     0.44
SLE    Sara Lee              Thu, Jan 22  Before the Bell     0.39
SAY    Satyam Comp Serv Lmtd Thu, Jan 22  -----N/A-----       0.18
SFA    Scientific-Atlanta IncThu, Jan 22  After the Bell      0.28
SEPR   Sepracor              Thu, Jan 22  Before the Bell    -0.73
SI     Siemens AG            Thu, Jan 22  -----N/A-----        N/A
SKYF   Sky Finl Grp          Thu, Jan 22  Before the Bell     0.45
SWKS   Skyworks              Thu, Jan 22  After the Bell      0.01
SOTR   SouthTrust            Thu, Jan 22  -----N/A-----       0.54
LUV    Southwest Airlines    Thu, Jan 22  Before the Bell     0.08
STE    Steris                Thu, Jan 22  Before the Bell     0.35
STK    Storage Tech          Thu, Jan 22  Before the Bell     0.54
SUN    Sunoco                Thu, Jan 22  Before the Bell     0.75
TLAB   Tellabs               Thu, Jan 22  Before the Bell    -0.03
SSP    The E.W. Scripps Co   Thu, Jan 22  Before the Bell     0.93
TKR    The Timken Co         Thu, Jan 22  Before the Bell     0.12
THER   Therasense, Inc.      Thu, Jan 22  -----N/A-----       0.08
TMA    Thornburg Mortgage    Thu, Jan 22  After the Bell       N/A
UNH    UnitedHealth Grp Inc. Thu, Jan 22  Before the Bell     0.79
UTSI   UTStarcom             Thu, Jan 22  After the Bell      0.51
VTSS   Vitesse Semiconductor Thu, Jan 22  After the Bell     -0.01
WBS    Webster Finl Corp.    Thu, Jan 22  Before the Bell     0.89
WDC    Western Digital Corp. Thu, Jan 22  -----N/A-----       0.29
WY     Weyerhaeuser Co.      Thu, Jan 22  Before the Bell     0.51
WYE    WYETH                 Thu, Jan 22  Before the Bell     0.66

------------------------- FRIDAY -------------------------------

AT     ALLTEL Corp.          Fri, Jan 23  Before the Bell     0.77
CIN    Cinergy Corp.         Fri, Jan 23  -----N/A-----       0.65
D      Dominion Resources IncFri, Jan 23  Before the Bell     1.02
FO     Fortune Brands        Fri, Jan 23  Before the Bell     1.03
FPL    FPL Grp               Fri, Jan 23  Before the Bell     0.74
ITT    ITT Industries        Fri, Jan 23  Before the Bell     1.04
NE     Noble Corp            Fri, Jan 23  -----N/A-----       0.31
NWAC   Northwest Airlines CrpFri, Jan 23  Before the Bell    -1.59
PGL    Peoples Energy Corp.  Fri, Jan 23  Before the Bell     0.87
SLB    Schlumberger          Fri, Jan 23  Before the Bell     0.43
UST    UST Inc.              Fri, Jan 23  Before the Bell     0.76
VC     Visteon Corp          Fri, Jan 23  Before the Bell    -0.53

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Co Name              Ratio    Payable     Executable

FRK     Florida Rock Industries   3:2      Jan  16th   Jan  19th
SWWC    Southwest Water Company   2:1      Jan  20th   Jan  21st
PHS     PacifiCare Health Systems 5:4      Jan  20th   Jan  21st
MRX     Medicis Pharmaceutical    3:2      Jan  23rd   Jan  26th
THO     Thor Industries Inc       2:1      Jan  26th   Jan  27th
CHDX    Chindex International Inc 2:1      Jan  26th   Jan  27th
MSA     Mine Safety Appliances Co 3:1      Jan  28th   Jan  29th
YAJC    YAK Communications, Inc   2:1      Jan  29th   Jan  30th
HOFT    Hooker Furniture Corp, Inc2:1      Jan  30th   Feb   2nd

Economic Reports This Week

This week it's all about the earnings!  The Q4 earnings season
is in full swing and announcements and guidance will dominate
the headlines and market direction.


Monday, 01/19/04

Tuesday, 01/20/04

Wednesday, 01/21/04
Housing Starts (BB)        Dec  Forecast:  1.983M  Previous:   2.070M
Building Permits (BB)      Dec  Forecast:  1.860M  Previous:   1.863M

Thursday, 01/22/04
Initial Claims (BB)      01/16  Forecast:     N/A  Previous:     343K
Leading Indicators (DM)    Dec  Forecast:    0.2%  Previous:     0.3%

Friday, 01/23/04

DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 01-18-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Watch Those Earnings Dates
Dropped Calls: None
Dropped Puts: None


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Watch List

Watch Those Earnings Dates


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.

3M Co - MMM - close: 85.48 change: +1.18

WHAT TO WATCH:  One of the strongest components in the Dow Jones
Industrials is MMM.  This last week has seen a ramp up in price
ahead of its Tuesday, Jan. 20th earnings announcement.  The
breakout over $85 looks good but wait to hear what MMM has to say
about next quarter's guidance.  Estimates are for 76 cents a



Tech Data Corp - TECD - close: 41.82 change: +1.25

WHAT TO WATCH:  Poised to breakout to new highs again is TECD.
The computer hardware-related issue has been consolidating
sideways for a couple of weeks but sprang higher on Friday after
Morgan Stanley initiated coverage with an "over weight".
Earnings are not until late February so there's plenty of time to
follow it for a potential breakout. A trigger over $42.00 might
work with a target near $46-47.



Northrop Grumman - NOC - close: 100.29 change: +1.56

WHAT TO WATCH:  There has been some excitement building in the
defense stocks for a potentially very strong December quarter and
NOC has run from $95 to breakout over the $100 mark.  There is
going to be several major earnings announcements for the sector
this week.  That means volatility and potential opportunities
abound.  NOC doesn't report until Feb. 4th so we'll be looking
for a dip to the $97.50 level.



Fedex Corp - FDX - close: 69.94 change: +0.62

WHAT TO WATCH:  Shares of FDX are back!  A week ago they looked
poised for a massive breakdown under the $65 level but an upgrade
from Bear Stearns reversed the stock's direction.  Now FDX is
poised to breakout over the $70 mark.  Look for strong volume on
the move because FDX is going to need some momentum to get past
its 50-dma still overhead.


RADAR SCREEN - more stocks to watch

EL $40.67 +1.99 - Earnings for Estee Lauder aren't till Jan. 29th
but the stock is breaking out over the $40 level of resistance on
decent volume due to an upgrade from Deutsche to a "buy".

SLAB $49.30 -0.22 - Earnings for SLAB are expected on Jan. 26th
and that only leaves four trading days for any sort of pre-
earnings ramp up.  Look for a move over $50.00.

CAT $84.14 +0.76 - CAT is a Dow component and will probably be
influenced by the numerous earnings announcements expected on
Tuesday.  We'll be watching for a breakout over the $85 mark.


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Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.






SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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Contact Support
The Option Investor Newsletter                   Sunday 01-18-2004
Sunday                                                      3 of 5

In Section Three:

New Calls: ESRX, MBI
Current Put Plays: ADBE, DIA
New Puts: None



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Amazon.com - AMZN - close: 55.72 chg: -0.46 stop: 51.25

Company Description:
Amazon.com, a Fortune 500 company based in Seattle, opened its
virtual doors on the World Wide Web in July 1995 and today offers
Earth's Biggest Selection. Amazon.com seeks to be Earth's most
customer-centric company, where customers can find and discover
anything they might want to buy online, and endeavors to offer
its customers the lowest possible prices. Amazon.com and sellers
list millions of unique new and used items in categories such as
apparel and accessories, sporting goods, gourmet food,
electronics, computers, kitchenware and housewares, books, music,
DVDs, videos, cameras and photo items, toys, baby items and baby
registry, software, computer and video games, cell phones and
service, tools and hardware, travel services, magazine
subscriptions and outdoor living items.
(source: company press release)

Why We Like It:
It has been a busy week for shares of AMZN.  The stock soared
from the $49 level on Jan. 9th as investors hungrily bid up
shares of internet stocks in front of YHOO's earnings
announcement last Wednesday.  Despite a sell the news effect for
shares of YHOO after its announcement its strong revenues renewed
hopes that AMZN would do the same.  Considering that 2003 online
sales during the holiday shopping were well above general
estimates AMZN really does have an opportunity to deliver.

The ramp up in AMZN shares has not only broken through price
resistance at $55.00 but has also produced a fresh double-top
breakout on its point-and-figure chart.  We like the stock at
current levels but if the major indices pull back traders can
look for a dip to the $54 region.  Keep in mind that AMZN is due
to announce earnings on January 27th and we do not plan to hold
over the event.  This short time span (five more trading days)
may be inappropriate for some investors.  We're going to keep our
stop loss at 51.25.

Suggested Options:
We really don't plan to hold over AMZN's earnings report on Jan.
27th so our preference is the February strikes.  The February
55's are probably the best bet.

BUY CALL FEB 50 ZQN-BJ OI=2668 at $6.90 SL=4.50
BUY CALL FEB 55 ZQN-BK OI=8817 at $3.60 SL=1.85
BUY CALL APR 55 ZQN-DK OI=5288 at $5.30 SL=3.25

Annotated chart:

Picked on January 14 at $55.01
Change since picked:    + 0.71
Earnings Date         01/27/04 (confirmed)
Average Daily Volume:       10 million
Chart =


Apollo Group - APOL - close: 74.14 change: +0.17 stop: 70.00

Company Description:
The Apollo Group provides higher education to working adults.
The company operates through its subsidiaries, The University of
Phoenix, Inc., Institute for Professional Development, The
College for Financial Planning Institutes Corporation and Western
International University, Inc.  APOL offers its programs and
services at 58 campuses and 102 learning centers in 36 states,
Puerto Rico, and Vancouver, British Columbia.

Why we like it:
APOL didn't waste any time after we began coverage on Tuesday,
probing through our $73.25 trigger the very next day.  It took
until Thursday for a close over that level and then on Friday we
were handed a close over $74.  APOL is once again setting new
highs on a daily basis and we can only wonder how long this trend
can continue.  Until some contrary evidence appears, we'll go
with the assumption that there is more upside in store.  Momentum
traders got their opportunity to go long on the break above
resistance last week and dip buyers will get their chance on a
pullback to confirm support near $72, reinforced by the 10-dma
($72.19).  The overall market is still acting quite bullish and
the Education stocks are all looking strong, with APOL leading
the pack.  What more can we ask for?  We'll ride the trend as
long as it lasts, using the 20-dma ($70.31) as last ditch support
on a more substantial pullback.  Maintain stops at $70.

Suggested Options:
Shorter Term: The February $75 Call will offer short-term traders
the best return on an immediate move, as it is just slightly out
of the money.  Short term traders with a less aggressive stance
will want to use the ITM February $70 call.

Longer Term: Aggressive longer-term traders can use the May $80
Call, while the more conservative approach will be to use the May
$75 strike.  Our preferred option is the February $75 strike,
which is at the money and should provide sufficient time for the
play to move in our favor.

BUY CALL FEB-70 QAQ-BN OI=4399 at $5.60 SL=2.75
BUY CALL FEB-75*QAQ-BO OI=1016 at $2.15 SL=0.75
BUY CALL MAY-75 QAQ-EO OI=1553 at $4.90 SL=3.00
BUY CALL MAY-80 QAQ-EP OI= 296 at $2.90 SL=1.50

Annotated Chart of APOL:

Picked on January 13th at    $72.63
Change since picked:          +1.51
Earnings Date               3/18/04 (unconfirmed)
Average Daily Volume =     2.05 mln
Chart =


Quest Diagnostic - DGX - close: 76.81 chg: +0.03 stop: 72.95 *new*

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

Why We Like It:
We've also seen a strong week for shares of DGX.  The stock
finally finished its consolidation and produced the upside
breakout we've been looking for.  Now that DGX has broken
resistance at $75 is should become our first line of new support.
The lack of profit taking from the Wednesday-Thursday rally is
very encouraging.  Unfortunately, this does create a short-term
overbought condition and may not be productive for new positions.
This is especially true considering our short time frame.  DGX is
due to announce earnings on Jan. 27th and we do not plan to hold
over the event.

Aggressive traders nimble enough to jump in and out might want to
consider buying dips to $75 but do so carefully.  We are going to
raise our stop loss to break even at $72.95.  Fortunately, there
is no resistance between here and the $80 mark for DGX.

Suggested Options:
We're cautious on new plays but bullish traders can probably best
play DGX with February strikes.

BUY CALL FEB 70 DGX-BN OI=1792 at $6.90 SL=4.50
BUY CALL FEB 75 DGX-BO OI= 808 at $3.60 SL=1.75
BUY CALL MAY 75 DGX-EO OI=2023 at $5.30 SL=3.25

Annotated chart of DGX

Picked on December 30 at $72.95
Change since picked:     + 3.86
Earnings Date          01/27/03 (confirmed)
Average Daily Volume:      836  thousand
Chart =


General Dynamics - GD - close: 93.78 chg: +1.45 stop: 91.75 *new*

Company Description:
General Dynamics, headquartered in Falls Church, Va., employs
approximately 66,900 people worldwide and anticipates 2003
revenues of $16.1 billion. The company has leading market
positions in mission-critical information systems and
technologies, land and amphibious combat systems, shipbuilding
and marine systems, and business aviation.
(source: company press release)

Why We Like It:
Investors might want to consider GD the little engine that could.
Or maybe the little submarine or tank that could is a better
analogy.  Shares of GD have been climbing a narrow channel for
weeks now and this past week was no different.  At $93.78 we're up
$5.00 from our picked price and approaching our initial target at
$96.00.  Driving the defense stocks is a strong expectation for
outstanding fourth quarter earnings.  A Reuters article recently
stated that military investment had climbed to $12.6 billion in
December, the highest level in years.

The same article reported that Bank of America had named GD as its
top defense pick based on the company's strong cash flow.  We
reported a week ago that BAC has reiterated its "buy" rating on
GD.  We are very encouraged by the rising channel but our time is
short for this play in GD.  The company announces earnings on
Wednesday, Jan. 21st and we do not plan to hold over the event.
This means we will be closing the play at Tuesday's closing bell.

In order to protect some of our current gains we're going to raise
our stop loss to 91.75.  On the chance that GD should spike higher
on Tuesday we're going to set an official exit price at $96.00.
If GD trades there intraday we're out.  Due to the short time left
in this strategy we are not going to suggest new positions.  An
alternative for traders looking to play the defense sector is
Northrop Gruman (NOC).  However, we would probably look for a dip
in shares of NOC before initiating any new positions.  Earnings
for NOC should be Feb. 4th.  Actually, this coming week we'll hear
from several major defense companies.  It will be interesting to
see what kind of guidance they offer for the next quarter.

Suggested Options:
There is no time left before GD's Wednesday earnings report and we
are not suggesting new positions.

Annotated Chart:

Picked on December 21 at $88.78
Change since picked:     + 5.00
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:      1.0  million
Chart =


Gilead Sciences - GILD - cls: 63.39 chng: +1.44 stop: 60.00*new*

Company Description:
Gilead Sciences, Inc. is a biopharmaceutical company that
discovers, develops and commercializes therapeutics to advance
the care of patients suffering from life-threatening diseases
worldwide.  The company has seven commercially available
products. Its research and clinical programs are focused on anti-
infectives, including anti-virals and anti-fungals.  GILD
endeavors to grow its existing portfolio of products through
proprietary clinical development programs, internal discovery
programs and an active product acquisition and in-licensing
strategy.  Products include Viread, Emtriva, AmBisome, Hepsera,
Tamiflu, DaunoXome and Vistide.

Why we like it:
After its strong breakout on January 7th, GILD has just been
marking time in a consolidation pattern from $60.50-63.00 with a
couple brief forays over the top of that zone.  We've stated that
it had the look of a bullish continuation flag, and if Friday's
price action is to be believed, then it looks like we were right.
GILD rebounded from the 10-dma on Thursday and continued that
strength with a push through and close above $63 for the first
time since the September gap.  Note however, that the stock was
unable to push through the $64 level, which will be necessary if
GILD is going to move into that gap and reach our first target at
$66.  Traders looking to enter on strength will want to wait for
a move through $64 before playing.  The best dip-buying entries
are likely behind us on this play, but another pullback near the
10-dma ($61.28) is a viable entry point.  We are starting to run
short on time for this play, as the company is set to report
earnings on January 29th, so hopefully we'll get that follow-
through into the gap early next week.  Raise stops slightly to
$60 this weekend, which is just below the 20-dma ($60.06).

Suggested Options:
Shorter Term: The February 65 Call will offer short-term traders
the best return on an immediate move, as it is just slightly out
of the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the May 65 Call.  This option
is currently slightly out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  Our preferred
option is the February $65 strike.

BUY CALL FEB-60 GDQ-BL OI=8758 at $5.00 SL=3.00
BUY CALL FEB-65*GDQ-BM OI=6412 at $2.35 SL=1.25
BUY CALL MAY-65 GDQ-EM OI= 949 at $4.60 SL=2.75

Annotated Chart of GILD:

Picked on December 21st at   $59.40
Change since picked:          +3.99
Earnings Date               1/29/04 (confirmed)
Average Daily Volume =     3.73 mln
Chart =


Morgan Stanley - MWD - close: 60.43 chg: +0.62 stop: 56.75

Company Description:
Morgan Stanley is a global financial services firm and a market
leader in securities, investment management and credit services.
With more than 600 offices in 28 countries, Morgan Stanley
connects people, ideas and capital to help clients achieve their
financial aspirations. (source: company press release)

Why We Like It: (Original Update from Thursday below)
The JPMorgan (JPM) and Bank One (ONE) merger has set the
financial and broker-dealer sectors on fire.  Okay, "on fire" may
be melodramatic but there were a large number of new highs and
breakouts today after last night's announcement.  As a matter of
fact the XBD broker-dealer index closed near its all-time highs.
Pacing the leaders is MWD who broke out of its recent
consolidation.  The revival of M&A activity has been a cash cow
for the major Wall Street firms like MWD and the momentum appears
to be picking up steam.  Case in point, China plans to have 9
IPOs this year worth upwards of $13 billion and MWD is considered
a front runner for the underwriting.

Plus, investors might be feeling a bit "safer" with MWD after the
company's $50 million settlement last November with the SEC over
some fraud charges.  Those familiar with the case will remember
that MWD failed to disclose some promotional "arrangements" with
16 funds in its Partners plan.  We like the breakout today on
strong volume and believe MWD can trade to the $65 level before
hitting any major resistance.  We'll start the play with a stop
loss at $56.75.

Weekend Update: So far so good.  Shares of MWD are seeing some
follow through by investors on the Thursday breakout and the
close above the $60 level is very encouraging.  Following along
with the thought process above with M&A activity and new IPOs as
a source of income for MWD, recent headlines report that a
Japanese bank plans to IPO in February and MWD is one of the

Suggested Options:
We like the February and April 55 and 60 calls but our favorite
is the February 55's.

BUY CALL FEB 55*MWD-BK OI=  769 at $5.90 SL=3.55
BUY CALL FEB 60 MWD-BL OI= 5299 at $2.00 SL=1.00
BUY CALL FEB 65 MWD-BM OI= 1621 at $0.35 SL= --
BUY CALL APR 60 MWD-DL OI=19515 at $3.20 SL=1.60
BUY CALL APR 65 MWD-DM OI= 9336 at $1.05 SL=0.55

Annotated Chart:

Picked on January 15 at $59.81
Change since picked:    + 0.62
Earnings Date         03/18/04 (unconfirmed)
Average Daily Volume:      3.8 million
Chart =


Maxim Integrated - MXIM - cls: 55.38 chg: -0.14 stop: 51.45

Company Description:
Maxim Integrated Products is a leading international supplier of
quality analog and mixed-signal products for applications that
require real world signal processing. (source: company press

Why We Like It:
The semiconductor sector just keeps going and going and going.
There was a strong push higher ahead of Intel's earnings
announcement last week followed by some minor profit taking but
the SOX looks poised to charge higher yet again.  Hopefully, MXIM
will also continue to follow the sector index higher.  Shares of
MXIM enjoyed a strong, volume powered surged to new highs but has
spent the last four sessions digesting its gains in a sideways

You've no doubt heard it a dozen times already but expectations
for chip sales in 2004 are very high.  In the next two weeks
we'll hear earnings announcements from a number of chip
companies.  How they guide for the next quarter should confirm or
undermine those 2004 expectations and influence the direction of
the SOX. Traders might want to be patient for new entries in MXIM
and look for dips to the $53.50-54.00 range.  We're going to keep
our stop at 51.45 for the moment.

Suggested Options:
Our preference is the February or May strikes.  Our favorite is
the February 50's, especially on a dip.

BUY CALL FEB 50*XIQ-BJ OI=2320 at $6.20 SL=3.75
BUY CALL FEB 55 XIQ-BK OI=2643 at $2.70 SL=1.35
BUY CALL MAY 55 XIQ-EK OI=1321 at $4.80 SL=2.50

Annotated Chart:

Picked on January 06 at $51.89
Change since picked:    + 3.49
Earnings Date         02/05/04 (unconfirmed)
Average Daily Volume:      5.4 million
Chart =


Saint Jude Medical - STJ - cls: 64.62 chg: +0.99 stop: 61.00*new*

Company Description:
St. Jude Medical, Inc. (www.sjm.com) is dedicated to the design,
manufacture and distribution of innovative medical devices of the
highest quality, offering physicians, patients and payers
unmatched clinical performance and demonstrated economic value.
(source: company press release)

Why We Like It:
Finally!  STJ has finally produced a breakout over $64.00 that
has stuck.  Volume was only a little better than average but we
won't complain.  If you remember last week we added STJ as a
technical play with a good fundamental story.  Medical device
stocks have been very strong performers this last year and the
same is expected for this year.  STJ is expecting the FDA to
offer an approval for their Epic HF implantable heart-failure
device in May.  As soon as it is approved it will be competing
with Medtronic and Guidant in a very lucrative industry.  At
least one Wall Street firm is positive on the company as a
J.P.Morgan analyst picked STJ as one of its two top stocks for
2004 in the medical device field.  On top of a potential new
product launch in May a Reuters article also revealed that the
JPM analyst believes STJ is a takeover candidate in 2004 and
Boston Scientific and Johnson & Johnson are top contenders to
acquire the company.

Now that STJ has finally closed over the $64 mark we can look for
some follow through on the cup-and-handle formation.
Unfortunately, we don't have too much time left before STJ's Jan.
28th earnings announcement.  We're going to raise our stop loss
to $61.00, under what should be support at 61.50.

Suggested Options:
We like the February and April 60s and 65s.  Our favorite is the
February 60s.

BUY CALL FEB 60*STJ-BL OI= 155 at $5.60 SL=3.25
BUY CALL FEB 65 STJ-BM OI=1128 at $2.35 SL=1.15
BUY CALL APR 65 STJ-DM OI= 459 at $3.70 SL=1.95

Annotated chart:

Picked on January 12 at $64.01
Change since picked:    + 0.61
Earnings Date         01/28/04 (confirmed)
Average Daily Volume:      1.4 million
Chart =


Express Scripts - ESRX - close: 68.32 change: +1.62 stop: 63.00

Company Description:
Express Scripts provides health care management and
administration services on behalf of clients that include health
maintenance organizations, health insurers, third-party
administrators, employers and union-sponsored benefit plans.  The
company's fully integrated pharmacy benefit management services
include network claims processing, mail pharmacy services,
benefit design consultation, drug utilization review, formulary
management, disease management, medical information management
services and informed decision counseling services through its
Express Health Line division.

Why we like it:
Following a double top last summer, shares of ESRX fell into a
persistent downtrend that lasted all the way into the end of
October, with a low for the move near $52.  The stock quickly
bounced back to strong support at $55 and after basing just above
that level for a couple weeks, the stock began to see renewed
buying interest.  There didn't seem to be any company-specific
news to explain it but ESRX blasted higher in mid-November, most
likely as investors expected the Bush administration's Medicare
prescription drug plan to be a positive.  The initial surge took
the stock up to the $64 level and price then spent the next 2
months building a new base from which to advance to higher
levels.  The pattern has been bullish with price finding support
near the 200-dma ($63.07).  The past week has seen ESRX on the
move again after Monday's rebound from just above the 200-dma.
Friday's session was the clincher, as the stock broke above its
recent highs and topped the $68 level on a closing basis for the
first time since the big gap down in July.

Based just on the price action, ESRX looks poised to at least
fill that gap up to the $71.50 area and most likely test its
summer highs near $75.  The PnF chart paints an even more bullish
picture, with the November Buy signal giving a bullish price
target of $93!  Obviously we're not going to shoot for those
lofty heights in this play, but it does show the upside
potential.  Friday's Ascending Triple Top breakout just
reinforces the bullish picture.  We'll set the $75 level as our
initial target on the play and see how much more upside looks
reasonable once that target has been reached.  The ideal entry
point would now come on a pullback to confirm support at former
resistance near $66, while momentum entries are possible on a
breakout over Friday's high.  ESRX does have the potential to be
a bit volatile, so we're going to start with a rather broad stop
at $63.  That is just below the 50-dma ($63.30), which is just
crossing over the 200-dma.  Additionally, it would take a trade
of $63 to turn the PnF chart bearish.

Suggested Options:
Shorter Term: The February $70 Call will offer short-term traders
the best return on an immediate move, as it is just slightly out
of the money.  Short term traders with a less aggressive stance
will want to use the ITM February $65 call.

Longer Term: Aggressive longer-term traders can use the May $75
Call, while the more conservative approach will be to use the May
$70 strike.  Our preferred option is the February $70 strike,
which is just slightly out of the money and should provide
sufficient time for the play to move in our favor.

BUY CALL FEB-65 XTQ-BM OI=2123 at $5.00 SL=3.00
BUY CALL FEB-70*XTQ-BN OI=2556 at $1.75 SL=0.75
BUY CALL MAY-70 XTQ-EN OI= 257 at $4.30 SL=2.75
BUY CALL MAY-75 XTQ-EO OI=  34 at $2.40 SL=1.25

Annotated Chart of ESRX:

Picked on January 13th at    $68.32
Change since picked:          +0.00
Earnings Date               2/24/04 (confirmed)
Average Daily Volume =     1.29 mln
Chart =


MBIA Inc. - MBI - close: 62.92 chg: +0.51 stop: 59.00

Company Description:
MBIA Inc., through its subsidiaries, is a leading financial
guarantor and provider of specialized financial services. MBIA's
innovative and cost-effective products and services meet the
credit enhancement, financial and investment needs of its public
and private sector clients, domestically and internationally.
MBIA Inc.'s principal operating subsidiary, MBIA Insurance
Corporation, has a financial strength rating of Triple-A from
Moody's Investors Service, Standard & Poor's Ratings Services,
Fitch Ratings, and Rating and Investment Information, Inc.
(source: company press release)

Why We Like It:
We realize the insurance sector looks a little extended as seen
by the steady trend in the IUX insurance index, but the sector's
breakout over the 300 level is a major turning point for the
group.  We like MBI because the stock could be poised to play
"catch up" with its peers.  MBI has been consolidating sideways
in the $55 to $60 range for four months.  This last week it has
broken out above resistance at $60 to hit new all-time highs.  We
tried to find the catalyst for the high-volume breakout but the
only news on Jan. 12th was a press release that MBIA's Vice
Chairman Richard Weill would retire and Mitchel Sonkin would be
named the head of its portfolio management unit.

It's very common for stocks to pull back and retest a broken
resistance level as support.  MBI did just that the day after its
breakout and investors bought the dip.  We like the stock at
current levels and any dips above $61 sound like entry points to
us.  MBI is due to announce earnings on Feb. 3rd and we're not
currently planning to hold over the event.  We'll start the play
with a stop loss at $59.00.

Suggested Options:
We have a short time frame for this play with earnings on Feb.
3rd so our preference is for the February strikes. Our favorite
is the Feb. 60.

BUY CALL FEB 60 MBI-BL OI=877 at $4.00 SL=2.25
BUY CALL FEB 65 MBI-BM OI=950 at $1.15 SL=0.60
BUY CALL MAY 65 MBI-EM OI=732 at $2.95 SL=1.50

Annotated Chart:

Picked on January 20 at $62.93
Change since picked:    + 0.00
Earnings Date         02/03/04 (confirmed)
Average Daily Volume:      572 thousand
Chart =

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Adobe Systems - ADBE - close: 38.30 change: -0.15 stop: 40.00

Company Description:
A long-time leader in desktop publishing software, ADBE provides
graphic design, publishing, and imaging software for Web and
print production.  Offering a line of application software
products for creating, distributing, and managing information of
all types, the company generates nearly 75% of sales through
publishing software products such as Photoshop, Illustrator, and
PageMaker.  Its Acrobat Reader, which uses portable document
format (PDF) is popping up all over the Internet, as businesses
shift from print to digital communications.  In addition, ADBE
licenses its industry standard technologies to major hardware
manufacturers, software developers, and service providers, as
well as offering integrated software solutions to businesses of
all sizes.

Why we like it:
Defying the odds, shares of ADBE did not follow through on their
break below the 200-dma ($37.41) a week ago and instead were
magnetized to that average for most of the week before Thursday's
strong rebound.  Fortunately for us, ADBE once again
underperformed on Friday, rolling over at the converged 20-dma
($38.97) and 30-dma ($39.03) and falling back near $38 in the
afternoon.  ADBE still looks weak, but it is rather puzzling that
there wasn't any follow-through from the break of the 200-dma.
Aggressive traders could have taken advantage of Friday's
rollover, but we'd feel a lot better about such a strategy if
price would have dropped back under $38 support.  Since that
didn't happen, caution is the watchword.  Traders looking to
enter on further weakness will need to wait for last week's
intraday low ($36.36 to be broken before playing).  Maintain
stops at $40, a resistance level that will soon be reinforced by
the falling 50-dma ($40.15).

Suggested Options:
Aggressive short-term traders can use the February 35 Put, while
those with a more conservative approach will want to use the
February 40 put.  Trader looking for greater insulation against
time decay will want to consider the April 35 Put.  The February
$40 strike is our preferred option.

BUY PUT FEB-40*AEQ-NH OI=1179 at $2.75 SL=1.25
BUY PUT FEB-35 AEQ-NG OI=1611 at $0.60 SL=0.30
BUY PUT APR-35 AEQ-PG OI=2702 at $1.50 SL=0.75

Annotated Chart of ADBE:

Picked on January 11th at     $37.12
Change since picked:           +1.18
Earnings Date                3/11/04 (unconfirmed)
Average Daily Volume =      3.24 mln


Diamonds Trust - DIA - cls: 106.12 chng: +0.16 stop: 106.25

Company Description:
DIAMONDS represent ownership in the DIAMONDS, Trust Series 1, a
unit investment trust established to accumulate and hold a
portfolio of the equity securities that comprise the Dow Jones
Industrial Average. DIAMONDS seek investment results that, before
expenses, generally correspond to the price and yield performance
of the DJIA. There is no assurance that the price and yield
performance of the DJIA can be fully matched.

Why we like it:
Going out at new recent highs is not a good sign for our bearish
DIA play.  We got one mild downward move early in the week, and
the dip buyers showed up in sufficient numbers to drive price
right back to resistance.  While an argument could be made that a
part of the strength is attributable to options expiration, that
doesn't change the fact that technically DIA is looking much
stronger than it was a week ago.  Barring early weakness on
Tuesday, it seems inevitable that our $106.25 stop will be hit
early next week.  When we initiated the play, we did so knowing
that it was high time for some significant profit taking in the
DIA, but so far it really hasn't come to pass.  New positions are
not really advisable at this point, as we need to see some
tangible weakness first.  Even aggressive traders will want to
see a break back under the $105.50 level and preferably $105
before playing.  Of course, the problem with that strategy is the
potential for the 20-dma ($104.59) to once again provide support
as it did last Tuesday.  So more conservative traders will want
to wait for the 20-dma to break before playing.  If our stop is
hit, we'll move to the sidelines and wait for a better
opportunity to play the downside.

Suggested Options:
With strikes at one point intervals, the DIA gives us plenty of
choices, from in the money to out of the money.  Aggressive
traders can consider the $103 or even the $102 strike, while
those with a more cautious approach can select either the $104 or
$105 strikes.  Our preferred option is the $104 strike.

BUY PUT FEB-105 DIA-NA OI=6192 at $1.40 SL=0.75
BUY PUT FEB-104*DIA-NZ OI=6729 at $1.10 SL=0.50
BUY PUT FEB-103 DIA-NY OI=7930 at $0.85 SL=0.40
BUY PUT FEB-102 DIA-NX OI=2093 at $0.65 SL=0.30

Annotated Chart of DIA:

Picked on January 8th at     $104.69
Change since picked:           +1.43
Earnings Date                    N/A
Average Daily Volume =      5.67 mln
Chart =



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The Option Investor Newsletter                   Sunday 01-18-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Expiration At The Highs
Traders Corner: Sometimes You Get The Bull - Sometimes The Bull
    Gets You


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Expiration At The Highs
By Mark Phillips

Once again, the bulls dashed any hopes the bears had of any broad
market weakness, bringing to 8 the number of consecutive positive
weeks for the DOW.  All of the major indices ended the week at new
correction highs and it seems there is no resistance level strong
enough to hold back the market's advance.

The DOW ended right at 10,600 on expiration Friday, but it was the
laggard, as the SPX pushed through its 200-week moving average to
close just below 1140.  The real strength once again was found in
the Technology sector, with the NASDAQ Composite tacking on 1.48%
to end at 2140, a level last seen in July of 2001.  The COMPX also
moved through its 200-week moving average on Friday.

The market was overdue for a pullback as the calendar rolled over
2004 and with all of the major indices substantially higher, that
pullback is just that much more overdue.  Last week's dip was
almost negligible, particularly in the COMPX and the SPX and we
really have to wonder how much higher it can go.  That said, it
obviously isn't working to try to pick a top in the market, as
I've proven quite well with our attempted bearish plays on the

Defying the odds, the VIX closed at yet another multi-year low of
15.00 on Friday and the NASDAQ-100 Volatility Index dropped to
20.24, losing more than 10% on Friday alone!  Bullish sentiment is
clearly over the top, with sentiment indicators showing bullish
extremes that haven't been witnessed in many years.  How much
longer can it go on?  When confronted by this question, I always
hearken back to the adage that "the market can remain irrational
longer than I can remain solvent."  Or put another way, if at
first you don't succeed, try, try again.  Then give up -- there's
no sense being a damn fool about it.  That is once again the
position I find myself in with respect to trying to pick a top in
this market.  Numerous attempts have all failed and the only
explanation is that there is just no inclination to sell.

My failed bearish trade attempts aside, this continued
(irrational) rally causes me deep concern because we are once
again building up the kinds of excesses witnessed in early 2000.
I've run down the whole punch list of problems before -- excessive
debt at all levels from consumer up to the Federal Government, a
very inflationary monetary policy, a complete dearth of domestic
job creation, equity valuations once again reaching nosebleed
levels and investor complacency reaching historic highs -- so
there is no need to belabor the point here.

I really am NOT a dyed in the wool bear.  I like to go long as
much as the next guy, but it is becoming increasingly difficult to
do so for any reason other than the expectation that some other
fool will later pay more for the same stock.  In the mania leading
up to the top in late 1999/early 2000, equities ceased being
treated as pieces of an underlying business and began trading as
little more than speculative pieces of paper.  The "Greater Fool"
theory reigned supreme.  The bear market that began in early 2000
was inevitable, but the unprecedented stimulus from both the Bush
administration and the Federal Reserve have kept the necessary
purging from running its course.  Stocks continue to be valued as
speculative pieces of paper a fact borne out by Warren Buffett's
statements that he can no longer find any values in the U.S.
markets, either in stocks or bonds.

Few (if any) investors can go toe-to-toe with the Oracle of Omaha,
and I'd be the last one to line up for the attempt.  But I like to
think I'm smart enough to pay attention to what he has to say.
Why is it after these many decades of successful investing, that
Mr. Buffett has begun investing in foreign currencies?  The answer
is simple -- because he sees the monetary creation here in the
U.S. as being long-term very detrimental to the dollar and to the
value of his many domestic investments.  He's trying to mitigate
his risk.  I think it would be very interesting indeed to find out
Mr. Buffett's stance on precious metals and mining stocks.

To me, there are two pivotal issues upon which the direction of
the market's hinge in the long term.  The first is the health of
the dollar and the second is the trend of employment in the U.S.
The trend of the dollar is clearly down and the bounce last week
in the US Dollar index (DX00Y) is little more than an oversold
rebound.  It will be nigh impossible to reverse the bearish trend
of the dollar so long as the Fed prints money like it is Monopoly
money and the Bush administration continues to spend money like a
bunch of drunken sailors.  Those trends are not sustainable
without a major drop in the value of the dollar.  I know, you're
wondering what we just witnessed over the past 2 years.  The
opening act.  From here on out it has the potential to get very
ugly, as all this stimulus has been injected under the premise
that once the economy begins growing in a robust manner, it will
bolster the government's tax receipts and we'll move back into an
expansionary phase.

That's a nice story, but somehow I don't think it is going to play
out that way.  The "Salvation Through Economic Growth" hinges on
one very important factor, domestic job growth.  In short, it
isn't happening, and I think the recent employment statistics
really bear that out.  Forget about the headline number from the
recently disappointing Jobs report (which was abysmal) and look
under the surface of the jobs being created.  That's where the
picture turns truly ugly.  From August through November, payrolls
have increased by only 328,000 workers, a mere 82,000 per month.
That's not even close to the 250,000 per month that we should be
seeing if economic recovery were progressing at a normal rate.
But it is the mix of jobs being created that should really cause
us concern.  More than 80% of the total are being added in four of
the least productive areas -- Temporary Staffing, Healthcare,
Education and Government.  Where are the new jobs in Technology,
Manufacturing or even Retail sectors?

With consumers counting for the lion's share of money spent in the
economy and debt levels running at all-time highs, we are forced
to ask the question, "If jobs are not being created, what happens
to the economy when the current round of stimulus has run its
course?"  Sadly, I fear it is going to end quite badly.  For all
those that point at rally in the equity market as signs of
economic recovery, I will point them towards our neighbors to the
West, Japan.  There were numerous stupendous rallies in the Nikkei
on its way to the lows of last year and each one was only a
precursor to lower lows ahead.  What became painfully clear was
that no amount of stimulus was sufficient to stay the normal
market forces.  I won't make the argument that the US market will
follow the course of Japan's market, because there are numerous
internal differences.  But I feel we must continue to be aware
that Japan's course over the past decade is perfectly capable of
being repeated here at home.

This is all very interesting and quite possibly a reality we must
consider in the distant (or maybe not-so-distant) future, but for
now, it is not something with which the majority of investors are
particularly concerned.  As long as the stimulative monetary
environment persists and selling pressure remains low to
nonexistent, we can look for the market to churn higher or at
worst consolidate in a healthy manner.  That means we can look for
bullish plays to be in favor.  The troublesome task we have is in
identifying where significant upside exists and then getting an
entry point early in that trend.


WMT - The more I watch the price action in WMT, the more convinced
I become that the stock is building a new base and getting ready
to move higher.  Since the play has never really worked in our
favor - at least in terms of the LEAPS prices - I'm pulling the
plug this weekend.  Better a near-breakeven trade than a loser if
the stock breaks out next week.

SBUX - In defiance of the recent valuation downgrade, SBUX built a
new base near $33 and launched higher last week, closing at a new
all-time high of $34.56.  We don't know how high this run can go,
but certainly it shows no signs of slowing right now.  The stock
has been trading consistently within its aggressive rising channel
that began back in June and has now consolidated its breakout over
the top of the longer-term rising channel, the top of which is at
that $33 level.  With lots of support at $32 and then $30, it no
longer seems necessary to hold such a wide stop, so we'll raise it
to $29.50 this weekend.  More conservative trader can even raise
their stop to ensure a break even trade at worst, perhaps setting
the stop at $32, just under the 50-dma.  A break below the 50-dma
would also violate the bottom of the current channel and would be
the first tangible sign of weakness.  With weekly Stochastics once
again turning solidly higher and completing yet another short-
cycle reversal, it certainly looks like higher levels are in
store.  Our initial target is $37 and our optimistic target is up
at $40.  If that higher level is reached, then we'll have to give
serious consideration to just exiting on strength.

QQQ - Sigh...Well, another bearish play bites the dust, as the QQQ
rose through our stop on Friday.  This play rose further than I
thought possible, but that doesn't invalidate the move.  We have
no choice but to drop the play this weekend.

DJX - Last Friday's drop was indeed a sign of things to come and
we got some real weakness on Tuesday, that dropped the DJX all the
way to its 20-dma (then $103.72) before the buyers appeared.  And
the didn't let up from that point all the way to the closing bell
on Friday.  The DJX ended at $106.01 and is now just a stone's
throw away from taking out the 2002 highs in the $106.50-106.75
area.  As unbelievable as it seems, the DJX looks destined to take
out that resistance, quite possibly next week, despite the fact
that the VIX ended the week at yet another new closing low of
15.00.  At this point, I expect our stop to be taken out and
putting us on the sidelines just about the time the real decline
gets underway.  That said, I do NOT advise holding this position
if our stop is hit.  Capital preservation is the key and if this
play is stopped out, then we'll just have to wait for the market
to demonstrate some real weakness before attempting to play the
downside again.

SMH - The theme remains the same and that is that any no bearish
position trades are working right now.  After breaking out the
week before last, the SMH dipped back to $44 on very mild profit
taking and is once again surging higher.  As was the case last
week with our QQQ play, I expect the SMH to take out our $46 stop
next week and we could be looking at a rally that continues right
up to $50 or higher.  Fundamentally justified?  Not in my opinion.
But it really doesn't matter what I think.  The only important
measure is price action and so far the SMH continues to act in a
bullish manner.  Honor your stops and if stopped out, we'll leave
this one alone until we see weakness proven with a break below the
100-dma.  Should our stop survive by some miracle, we'll need to
see the SMH break the 50-dma (at a minimum) before we can have any
confidence of sustained weakness.

NEM - The profit taking we've been waiting for in the Gold stocks
arrived with a vengeance last week, driving shares of NEM right
down to the top of our targeted entry zone.  Finally, we get to
move this play onto the Portfolio and I couldn't be happier.  Full
details below.

Watch List:

QCOM - Since reaching the $60 level, shares of QCOM have been
consolidating their recent rise, and given the complete lack of
price weakness, I have to say this looks like a healthy
consolidation.  That said, there are some important things that
need to take place before we consider taking an entry, not the
least of which is filling in the early January gap down to the
$55.75 level.  Until we see some real profit taking we must leave
this play on HOLD.  There's simply too much potential downside
risk with banging into strong resistance near the highs from late
2001 and weekly Stochastics buried deep in overbought.

EK - We shouldn't have any illusions about the expected decline in
EK to unfold rapidly or dramatically.  The stock just finished a
very healthy and necessary oversold rebound, which fortunately
took the stock right to our $27 entry target.  Since that was also
the site of the 200-dma, the price weakness over the past week is
entirely normal.  But that doesn't mean the bulls are done with
the stock just yet.  Weekly Stochastics are starting to weaken
near overbought territory and that is a good sign.  We'll feel
much better though when they give that bearish cross and begin
their downward trek, as that will leave behind a very clear
bearish divergence, caused by higher Stochastics highs and lower
price highs, as compared to the peak in early September.  There
are no adjustments to be made here, as our stop is in the right
location and now we just wait for gravity to take its effect.

HD - With the Home Builders index ($DJUSHB) continuing to suffer
mild weakness despite the fall in interest rates last week, HD
actually held up fairly well, continuing its consolidation between
$34.50-36.00.  But with the continued strength in the overall
market and the DOW threatening to challenge its 2002 highs, I'm
still expecting HD to make a run at the top of its long-term
descending channel.  We've got our entry target set just above the
current consolidation at $37-38 and a failed rally near that area
still looks quite good for new positions.

SNDK - Helped by the remarkable strength in the rest of the
Technology sector, SNDK hasn't come anywhere close to giving us
our desired entry point.  The 50% retracement of the decline off
the November highs is $69.75 and it is notable that the stock
pushed through that level briefly on Tuesday only to spend the
remainder of the week below that level.  The other important
technical measure is the 50-dma, and it helped to turn the stock
back on Tuesday.  I'm still expecting a significant pullback
before the stock can manage a sustained rally back to its 2003
highs, but waiting for the December lows to be revisited is
probably too aggressive.  Let's go ahead and get more aggressive
with our entry, targeting a dip and rebound from the $59-60 area.
There's definitely the possibility for SNDK to challenge its highs
from last year over the next 12 months, so we'll start with a stop
at $53, just below both the December low ($53.20) and the 200-dma

Radar Screen:

GENZ - Last week's rally in GENZ gave us the answer we've been
waiting for, as the stock decisively broke out over the $52
resistance level and continued soaring from there.  The stock is
looking very strong, and buying volume is running well above the
ADV.  Clearly we no longer have a bearish case to make for GENZ,
especially with the BTK index moving up to its best levels since
early 2002.  Let's consider ourselves lucky to have dodged this

MLNM - I've had my eye on the Biotechnology stock for several
months now and I think it is high time that we add it to our Radar
Screen.  Following the low posted last Spring, the stock has been
trending higher in a methodical fashion.  There are some very
basic fundamental drivers that could send the stock up into the
mid-$20s to as high as the mid-$30s in the year ahead.  Our
approach will be to nab an entry point on a pullback near the
trendline connecting the lows (currently just below $16) in the
weeks ahead and then let the trend be our friend.

CHK - I've been searching for a viable way to play the very
bullish trend in the price of Natural Gas for some time now and
the challenge has been in finding a stock tied to that sector that
has both a bullish trend, but also has not become too extended.
CHK fits that bill quite nicely, as it has been working its way
higher in a steady rising channel since August.  With the price of
Natural Gas taking a hit last week, so did the stock, but that has
only dropped it back to its 50-dma and price action is still well
within the rising channel.  I plan on capitalizing on the current
weakness and riding the stock up towards the $20 level as the very
bullish trend in this sector plays out throughout the year.

WMB - This is another gas tied to the Natural Gas market that I
think has great upside prospects.  After being sold into oblivion
in 2002, the stock has been building a very nice rising trend.
Currently stalled near $11, I really like the prospects for a
rally to at least $15 and quite possibly $20 over the course of
the next year.  We'll look for a pullback near the $9-10 area to
provide an attractive entry point.

Closing Thoughts:
I must admit, writing this column this weekend was a struggle,
primarily because of a nasty head cold that has sapped my
strength.  But it is also difficult to discern where the market
might go next.  It SHOULD reverse in the near term and I still
expect to see a substantial pullback across the market.  But that
doesn't mean it will come to pass.  If it fits your risk profile,
I still like the odds for bearish plays on the major indices from
current levels.  But I'm having a harder time making a technical
case for such a move.

Given the very bullish action we've seen for the first two weeks
of the year, it seems likely that the balance of the year will
have a bullish resolution.  Technically and fundamentally, I
cannot justify such a development, but it is hard to argue with
the historical precedent of the year following the trend of the
first 5 days of January.  Barring a substantial change in market
sentiment, the best course of action will be to seek out bullish
trends that we can enter on measured pullbacks to support.

Have a great week!


LEAPS Portfolio

Current Open Plays


SBUX  11/24/03  '05 $ 30  ZOS-AF  $ 4.30  $ 6.40  +48.84%  $ 29.50
                '06 $ 30  WSP-AF  $ 6.40  $ 8.30  +29.69%  $ 29.50
NEM   01/18/04  '05 $ 40  ZIE-AH  $ 8.20  $ 8.60  + 4.88%  $ 37.00
                '06 $ 40  WIE-AH  $10.20  $11.20  + 9.80%  $ 37.00

SMH   12/30/03  '05 $ 40  ZTO-MH  $ 4.90  $ 3.50  -28.57%  $ 46.00
                '06 $ 40  YRH-MH  $ 6.60  $ 5.30  -19.70%  $ 46.00
DJX   01/05/03  '04 $100  DJV-XV  $ 4.50  $ 4.00  -11.11%  $107.00
                '05 $100  YDK-XV  $ 6.80  $ 6.20  - 8.82%  $107.00
EK    01/09/03  '05 $ 25  ZEK-ME  $ 2.60  $ 2.95  +13.46%  $ 31.00
                '06 $ 25  WEK-ME  $ 3.70  $ 4.10  +10.81%  $ 31.00

LEAPS Watchlist

Current Possibles


QCOM   11/16/03   HOLD         JAN-2005 $ 50  ZLU-AJ
                            CC JAN-2005 $ 45  ZLU-AI
                               JAN-2006 $ 50  WLU-AJ
                            CC JAN-2006 $ 45  WLU-AI
SNDK   12/21/03   $54-55       JAN-2005 $ 45  XWS-AK
                            CC JAN-2005 $ 40  XWS-AJ
                               JAN-2006 $ 45  YSD-AK
                            CC JAN-2006 $ 40  YSD-AJ

HD     12/21/03  $37-38        JAN-2005 $ 35  ZHD-MG
                               JAN-2006 $ 35  WHD-MG

New Portfolio Plays

NEM - Newmont Mining $42.59  **Call Play**

It was bound to happen eventually and last week, the bullish trend
in gold and the bearish trend in the US Dollar finally gave us the
reversals we were waiting for.  The root cause of the reversals is
really unimportant, as the overall fundamental picture remains
unchanged.  The dollar will continue to be weak and gold will
remain strong so long as the Fed continues its stimulative policy.
We didn't want to chase NEM higher due to the strong rally it had
enjoyed these past many months.  The sharp selloff last week gave
us the entry point we were looking for, as NEM fell to tap the top
of our $40-42 entry zone on Thursday ahead of Friday's slight
rebound.  With weekly Stochastics early in their rollover from
overbought territory, there is the distinct possibility that we'll
see lower levels in NEM before the inevitable rebound begins.
There is definitely support near $42, as demonstrated by the
initial rebound in the stock, but stronger support doesn't come in
until the $40 level, extending down to $38.  So traders with
greater patience may want to wait for a decline near that area
before entering the play.  Another approach would be to enter
partial positions near current levels and then round out to a full
position if/when we see a decline to that stronger support in the
$38-40 area.  I'm actually going to recommend a different
approach, which I will expound on at greater length in an article
next week.  To protect ourselves from further downside, in
addition to the purchase of the LEAP call, let's buy an insurance
put to protect against negative price action.  My recommendation
would be to purchase the March $37 put NEM-OU (currently priced at
$0.95).  In this manner, we mitigate the potential downside of a
substantial fall in NEM from the point of entry, as while the LEAP
Call loses value, the insurance put will appreciate in value.
Once NEM stabilizes and builds a new base, the first upside target
will be for a run back to recent resistance at $50 and then a
breakout to new multi-year highs from there.  Next resistance
comes in near $54 and then at $60, the site of the 1996 highs.  We
can use both the price of gold and the action in the XAU index as
confirmation before entry.  Gold should find strong support near
$390 at the site of the long-term rising trendline and the XAU
should find strong support first at $95 and then again near $90.
We'll initially place our stop at $37, just below that strong $38
support, as well as the 200-dma, which is currently at $37.42.

BUY LEAP JAN-2005 $40 ZIE-AH $ 8.20
BUY LEAP JAN-2006 $40 WIE-AH $11.20

New Watchlist Plays



QQQ - $38.57 Forget about the overextension of the market,
plunging volatility and the need for a serious correction, because
the bulk of market participants certainly have.  Following just
enough weakness to trip our lower entry trigger in early December,
the trajectory for the QQQ has been straight up.  Resistance at
2000 for the NASDAQ and then 2100 were little more than speedbumps
and on Friday the QQQ pushed through the $38.50 level to hit our
revised stop.  There's no way for me to build a bearish case for
the NASDAQ, and it seems this rally will power right through the
March 2002 highs near $39 and we could be headed for next major
resistance near $42.  Friday's close marks a 65% advance since the
March 2003 lows and a more than 90% gain since the bear market
lows.  Make no mistake, with the NASDAQ volatility index (VXN.X)
dropping to new all-time lows again and no major corrections in
the QQQ since March, this market is due for a serious pullback.
But I'm done searching for it until we see the trend of higher
lows AND the 100-dma broken on a closing basis.  Until that point,
long is the only way to play except on a very short-term basis.

WMT - $53.48 While WMT has not violated our stop yet, I just can't
see the merit in continuing to keep the play open.  After one
brief foray down below $51, the stock has been building a solid
base near $52 and price action is beginning to look stronger.
Note that the 50-dma has now crept below $54 and it "should"
provide a solid barrier.  But the way this market has been
ignoring what it should do, my expectations are that we will see a
breakout above that line of resistance, perhaps as soon as next
week.  Take note of the fact that weekly Stochastics have now
emerged from oversold and look headed back towards the top of
their range, a bullish development.  As noted on several occasions
throughout the duration of this play, I've been exceedingly
frustrated by the fact that price action has worked in our favor,
but the options have not followed suit.  Collapsing volatility
certainly has played a part in that equation, but I can't escape
the thought that perhaps there is something more at work.  For
several weeks now, our listed options have been stalled near break
even and I believe the prudent move is to take an exit from the
play while that is still the case.  A breakout through resistance
could have a significantly negative impact on those options.


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Sometimes You Get The Bull - Sometimes The Bull Gets You
By Mike Parnos, Investing With Attitude

Are we in a new bull market?  Maybe.  Maybe not.  Maybe it's just
a baby bull, but we got gored a little.  Nothing major.  It was
just a flesh wound.  Let's not be like the idiots who run with the
bulls in Barcelona.  We should either get on their back or step
out of the way.

As neutral strategy traders, "caution" is the word of the day in
this trending market.  Make sure your risk is defined.  If you
want to take a chance, let your kid pick the flavors at Baskin

Countin' The Cash
The January option cycle was the third cycle in the second year of
tracking our Couch Potato Trading Institute portfolio.  This month
we took a small step backwards, taking a loss of  $2,035.  We now
have a three-month total of $4,395.

It could have been a lot worse.  We got out of our two losing
positions early enough to avoid serious losses.  Our decision to
trade only five contracts of the NDX proved to be a wise one.  Not
bad considering we've been fighting a trending market with neutral

I know it's tough to pull the trigger and take the losses, but
those good money management skills are a must if you want to
become a successful, well-rounded trader.  I've said it before,
and I'll say it again -- delayed gratification is the definition
of maturity.

Summary Of Closed Trades for January
NDX Iron Condor - $1,700 Loss
SOX Iron Condor - $3,255 Loss
XAU Iron Condor - $1,200 Profit
OEX Credit Spread Boogie - $1,720 Profit
Total:  $2,035 Loss

After our review January's trades, you'll see some "hypothetical"
trades for the February (five-month) cycle.  The market is
trending.  This is not an ideal environment for neutral trading
strategies.   Just because I've come up with trades for you to
study, make sure you're comfortable with the strategies you're
trading.  There's nothing wrong with taking a month off.  The
market will always be there.  Let your risk tolerance be your

You Can't Please Everybody!
There was an old man, a boy, and a donkey. They were going to town
and it was decided that the boy should ride. As they went along
they passed some people who thought that it was a shame for the
boy to ride and the old man to walk. The old man and boy decided
that maybe the critics were right, so they changed positions.

Later, they passed some more people who thought that it was a real
shame for that man to make such a small boy walk. The two decided
that maybe they both should walk.

Soon they passed some more people who thought that it was stupid
to walk when they had a donkey to ride. The man and the boy
decided maybe the critics were right so, they decided that they
both should ride.

They soon passed other people who thought that it was a shame to
put such a load on a poor little animal. The old man and the boy
decided that maybe the critics were right, so they decided to
carry the donkey.

As they crossed a bridge they lost their grip on the animal and he
fell into the river and drowned.

The moral of the story: If you try to please everyone, you will
eventually lose your ass.

Position #1 - NDX – (NASDAQ 100 Index) – Iron Condor – 1532.00
We sold 5 NDX January 1500 calls and bought 5 NDX January 1525
calls for a credit of $3.70 (x 5 = $1,850).  Then we sold 5 NDX
January 1325 puts and bought 5 NDX January 1300 puts for a credit
of $2.40 (x 5 = $1,200). The total credit was $6.10.  Maximum
profit range: 1325 – 1500.  Potential profit: $3,050.  Closed for
$1,700 loss.

Position #2 – SOX (Semiconductor Index) – Iron Condor – 550.65
We sold 10 SOX January 530 calls and bought 10 SOX January 540
calls for a credit of $1.40 (x 10 = $1,400).  Then we sold 7 SOX
January 440 puts and bought 7 SOX January 425 puts for a credit of
$1.35 (x 7 = $945).  Our total credit was $2,345.  Maximum profit
range: 440 – 530.  Potential profit: $2,345. Closed for $3,255

Position #3 – XAU (Gold/Silver Index) – Iron Condor – $97.34
We sold 10 XAU January $95 puts and bought 10 XAU January $90 puts
for a credit of $.60 ($600).  Then we sold 10 XAU January $110
calls and bought 10 XAU January $115 calls for a credit:  $.60
(600).  Our total credit was $1.20 ($1,200).  Maximum profit
range: $95 – 110.  Potential profit: $1,200.   Expired for $1,200

Position #4 -- OEX Credit Spread Boogie – 560.42
We sold 2 December OEX 520 calls @ $9.00 and bought 2 December OEX
545 calls @ $1.55.  Total credit of $7.45 ($1,490).  Exposure
$17.55 ($3,510).  Rolled out to five contracts of the January
535/505 bull put spread.  In the process we took in an additional
$280.   Maximum potential profit of $1,770.  We wanted the OEX to
finish above 535.  Expired for $1,770 profit.

QQQ ITM Strangle – Ongoing Long Term -- $38.14
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We're
going to make money by selling near term puts and calls every
month.  Here's what we've done so far:
October: Oct. $33 puts and Oct. $34 calls – credit of $1,900.
November: Nov. $34 puts and calls – credit of $1,150.
December: Dec. $34 puts and calls – credit of $1,500.
January: Jan. $34 puts and calls – credit of $850.
February: Feb. $34 calls and $36 puts – credit of $750.

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

Position #4 -- QQQ Diagonal Calendar Spread -- $38.14
I'm a glutton for punishment, but there's a little voice telling
me that we should be positioned to take advantage of a pullback in
the market.  We're going to start out risking a buck and we have
two additional months to sell against the March long puts to
reduce our cost basis while we wait.  It's a cheap speculation.
We'll consider this an ongoing position.
We bought 10 QQQ March $34 puts for $1.20 and sold 10 QQQ January
$33 puts for $.20.  We rolled out to the February $34 puts and our
total debit is now only $.70.


Position #1 -- OEX – Credit Spread Boogie – 564.72
Our last CS Boogie worked out quite well.  So, with the market
trending, let's not fight the tape.  We'll make the market prove
us wrong.  We're going to establish a bull put spread, take in
some premium, and ride the wave into shore.
Sell 3 OEX February 565 puts, and
Buy 3 OEX February 540 puts
Total credit: About $6.80 (x 3 contracts = $2,040)
This strategy will require $25 x 3 contracts = $7,500.  We're only
trading three contracts because, if the market reverses
significantly, it might become necessary to close the bull put
spread and establish a bear call spread that may be wider and
would require more contracts.  We need to preserve our money for a
potential maintenance requirement.

In mid-2003 we went over this strategy at length.  Review the old
columns and go back over the risks and rewards.  It's a good
strategy that can be very profitable if you have the necessary
patience and the maintenance.

Position #2 – MNX (mini NDX index) – Iron Condor -- 155.36
This is the index I stumbled across recently that seems
substantially safer than the highly volatile NDX.  We're going to
put on an Iron Condor with limited exposure.  Because the market
is trending, we're going to skew the strike prices slightly so
that we have a little more cushion on the upside.
Sell 10 MNX February 165 calls
Buy 10 MNX February 170 calls
Net credit of about $.40 x 10 contracts = $400

Sell 10 MNX February 150 puts
Buy 20 MNX February 147.50 puts
Net credit of about $.50 x 20 contracts = $1,000
Total credit of about $1,400
Our maximum profit range is 150 to 165.  Our exposure is only
$3,600 ($5,000 less $1,400).  Maximum profit: $1,400.

Position #3 – XAU (Gold/Silver Index) – Iron Condor -- $98.52
The XAU has been tempermental of late.  This is a low risk and
relatively safe play with a wide range.  Maybe we can make a
couple of bucks.
Sell 10 XAU February 90 puts
Buy 10 XAU February 85 puts
Net credit of about $.70 (x 10 contracts = $700)

Sell 10 XAU February 110 calls
Buy 10 XAU February 115 calls
Net credit of about $.45 (x 10 contracts = $450)
Our maximum profit range is $90 to $110 – a 20-point range.  Our
exposure is $3,850 ($5,000 less $1,150).  Maximum profit: $1,150.

Position #4 – OSX (Oil Service Sector Index) - $95.78
We're being cautious again here.  We're reducing our potential
income by expanding our safety range.
Sell 10 OSX February 105 calls
Buy 10 OSX February 110 calls
Net credit of about $.45

Sell 10 OSX February 90 puts
Buy 10 OSX February 85 puts
Net credit of about $.75
Total net credit of about $1.20 (x 10 = $1,200)
Maximum profit range is 90 to 105 – a 15-point range.  Our
exposure is $3,800 ($5,000 less $1,200).  Maximum profit: $1,200.

Fools Rush In Where Traders Should Fear To Tread
You'll notice how I've stayed away from trading the larger
indexes.  Those are the ones that have, in the past, generated the
most rewards.  However, they're also the riskiest.  It's nice to
get big returns, but let's not put the family jewels out there.

Those Friendly Reminders
February is a five-week option cycle.  The premiums quoted on the
above educational trades are based on Friday's closing bid/ask
prices.  On Tuesday the premiums will likely be different due to
market movement and/or the additional three days of time erosion.
In a few instances, when the bid/ask spread is wide, we figure you
may be able to shave off a nickel here and there.  Be careful.  If
a stock gaps up or down, it may change the entire dynamic of the
trade.  Don't skydive without a parachute.  Just because you have
a pulse and evidence of brain activity doesn't mean you a trader.
And make sure you thoroughly know the intricacies of a strategy
before you trade.  The money you save may be your own.

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

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

Mike Parnos
CPTI Master Strategist and HCP

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


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The Option Investor Newsletter                   Sunday 01-18-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Our Approach To Covered-Calls
Naked Puts: Position Adjustment With Naked Puts
Spreads/Straddles/Combos: Another Great Week!


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Stock Option Principals




Trading Basics: Our Approach To Covered-Calls
By Mark Wnetrzak

The ideal investment offers limited risk and a good probability
of making a profit.

Our goal in this section of the newsletter is to provide plays
that achieve acceptable returns while affording an above-average
amount of downside protection.  The technique we use to achieve
this conservative outlook is the "in-the-money" covered call.

All covered-calls involve selling a call against stock that is
owned.  The buyer of the call option has right to "call" the stock
at a specific price because he pays the writer of the option a
premium for agreeing to provide the underlying shares, when and
if the option is exercised.  Because the call writer delivers the
shares from his or her portfolio holdings, he or she is "covered."
This means there is no risk to the call writer of being forced to
buy (and subsequently sell) shares of a stock at a premium, after
it has experienced a substantial increase in value.

While the covered-call writer has no risk of losing money if the
stock increases in value, there is a risk of missing out on large
gains.  The reason is obvious: if a stock moves above the strike
price of the sold options and remains there until the expiration
date, the calls will be exercised and the covered-call writer will
be forced to deliver the underlying shares.  The difference between
the value of the stock at expiration and the sold option's strike
price is the amount of upside potential lost in the strategy.  At
the same time, when stock declines, the covered writer will offset
part of his loss by the amount of the premium received in the sale
of the options.

The most common approaches to the strategy are the "in-the-money"
(ITM) covered-call and the "out-of-the-money" (OTM) covered-call.
Many investors prefer to strive for higher potential returns with
an aggressive outlook, writing out-of-the-money calls on stocks in
their portfolios.  These positions offer greater rewards but also
have less downside protection.  The maximum potential profit of an
OTM position, while generally greater than that of an ITM position,
will always require an increase in price by the underlying stock.
Thus, by using an OTM option, the success of the overall position
depends more on the movement of the stock price and less on the
benefits of writing the call.  In addition, the premium generated
from the sale of the call is also much smaller, so the combined
position will be more susceptible to loss if the stock declines.

Covered-writes using ITM options are more defensive, offering less
risk with a smaller reward potential.  This conservative approach
appeals to those investors who are attempting to earn a relatively
consistent return while striving for preservation of capital.  In
spite of having a smaller profit potential, the ITM approach can
be very attractive on a percentage return basis, especially when
the stock is held in a margin account.  The cost of the underlying
issue is substantially reduced and even if the stock declines, the
position can still return a profit.  Traders who use the strategy
in this manner consider both downside protection and potential
profit.  The combined position (both stock and options) is viewed
as a single entity and the investor is not overly concerned with
long-term ownership of the underlying issue.  This "total return
concept" represents the true focus of most successful covered call

Regardless of the approach you favor, a comparison should always
be made with regard to the various option strikes and premiums.
Investors who plan to sell OTM calls should concentrate on the
"return not called."  This is the return on investment that one
would achieve even if the stock price were unchanged when the sold
option expires.  One can compare potential plays more fairly using
this method, since no assumption is made about price appreciation
in the underlying issue.  In our conservative portfolio, we search
for positions that offer a minimum return on investment of 3-5%
per month with downside protection of at least 10% of the current
stock price.  Any position constructed using these guidelines will
have comparatively low risk, regardless of the volatility of the
underlying stock, since the levels of protection are substantial
and there is still the expectation of a reasonable return.

Since the primary objective of covered-call writing is increased
income though stock ownership, the amount of downside protection
and the return on investment are both important considerations in
determining which approach to use.  Considering the potential for
volatility during the earnings season, any strategy that offers
moderate profit potential and relatively low risk is appealing.
While deciding what constitutes a minimally acceptable return is
a matter of personal preference, the advantages of the "Total
Return Concept" can be very attractive to many investors.

Trade Wisely!



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.

Note: Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

NGEN     7.50   11.80  JAN  7.50  0.90    0.90*  19.8%
PLUG     7.48    9.55  JAN  7.50  0.30    0.32*   9.7%
ARRS     7.52   10.14  JAN  7.50  0.30    0.28*   8.4%
NEOL    17.71   18.26  JAN 17.50  1.00    0.79*   6.8%
CHU     10.05   11.23  JAN 10.00  0.35    0.30*   6.7%
WIND     7.48    9.18  JAN  7.50  0.50    0.52*   6.5%
FMKT     7.74    8.54  JAN  7.50  0.45    0.21*   6.3%
DGIN    25.08   27.07  JAN 25.00  1.10    1.02*   6.2%
CE      13.50   14.31  JAN 12.50  1.80    0.80*   5.9%
SANM    12.56   14.99  JAN 12.50  0.70    0.64*   5.9%
NGEN    11.69   11.80  JAN 10.00  1.95    0.26*   5.8%
ACF     15.58   17.94  JAN 15.00  1.15    0.57*   5.7%
HPC     12.58   12.85  JAN 12.50  0.40    0.32*   5.7%
ELNK    10.33   10.98  JAN 10.00  0.70    0.37*   5.6%
PCS      5.06    7.51  JAN  5.00  0.30    0.24*   5.5%
SKX      7.54    7.91  JAN  7.50  0.40    0.36*   5.5%
XING    10.66   14.26  JAN 10.00  1.35    0.69*   5.4%
UTHR    23.20   22.80  JAN 22.50  1.75    1.05*   5.3%
NTIQ    12.53   13.80  JAN 12.50  0.85    0.82*   5.1%
VTS     10.05   12.10  JAN 10.00  0.55    0.50*   4.6%
RHAT    18.88   20.49  JAN 17.50  1.90    0.52*   4.4%
MYGN    12.75   15.67  JAN 12.50  0.85    0.60*   4.4%
MYGN    12.76   15.67  JAN 12.50  0.95    0.69*   4.2%
CNH     15.27   17.13  JAN 15.00  0.95    0.68*   4.1%
CHTT    18.06   19.00  JAN 17.50  1.20    0.64*   4.1%
EMBT    15.98   15.41  JAN 15.00  1.65    0.67*   4.1%
RHAT    17.49   20.49  JAN 15.00  3.00    0.51*   3.8%
OSTK    20.90   18.12  JAN 17.50  3.80    0.40*   3.4%
UAIR     6.20    4.91  JAN  5.00  1.40    0.11    2.5%
TKTX    15.35   13.32  JAN 15.00  1.25   -0.78    0.0%

ZIXI    10.93   12.57  FEB 10.00  1.80    0.87*   6.9%
ALVR    13.09   13.98  FEB 12.50  1.45    0.86*   5.4%
CREE    20.49   25.85  FEB 20.00  1.65    1.16*   4.5%
PAAS    16.10   15.05  FEB 15.00  1.95    0.85*   4.4%
CHINA   11.05   11.43  FEB 10.00  1.60    0.55*   4.2%
NANX    12.39   13.60  FEB 10.00  2.90    0.51*   3.9%
SEAC    18.40   17.72  FEB 17.50  1.75    0.85*   3.7%

* Stock price is above the sold strike price.

Editor's Comments:

NASDAQ Bulls Lead The Stampede!

What an exciting end for the January options expiration!  But will
the NASDAQ continue to lead the major averages higher?  So far,
anyone who has doubted the Bulls resolve has been trampled.  As
always, time will tell.  Trying to remained disciplined will be
the biggest challenge as the bullish exuberance increases!

Positions Previously Closed: None



Sequenced by Target Yield (monthly basis)

Stock   Last   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

SIRI    3.15  FEB  2.50  QXO BZ  0.80  6445   2.35  34   5.7%
ADPT   10.50  FEB 10.00  APQ BB  1.10  634    9.40  34   5.7%
CIEN    7.97  FEB  7.50  EUQ BU  0.85  6593   7.12  34   4.8%
LTXX   19.12  FEB 17.50  UXT BW  2.45  521   16.67  34   4.5%
PSEM   12.77  FEB 12.50  PSQ BV  0.80  34    11.97  34   4.0%
CLTK    8.54  FEB  7.50  UCK BU  1.35  60     7.19  34   3.9%
ATSN   10.90  FEB 10.00  UAT BB  1.30  126    9.60  34   3.7%

Legend (for play description below)

LB-Last Bid price,
OI-Open Interest,
CB-Cost Basis or break-even point,
DE-Days to Expiry,
TY-Target Yield (monthly basis).


SIRI - Sirius  $3.15  *** Cheap Speculation ***

Sirius Satellite Radio (NASDAQ:SIRI) broadcasts digital-quality
audio from 3 orbiting satellites throughout the continental U.S.
The company delivers 60 streams of 100% commercial-free music
in virtually every genre and over 40 streams of news, sports,
weather, talk, comedy, public radio and children's programming.
Sirius' broad range of music, as well as its news, sports and
entertainment programming, is not available on conventional
radio in any market in the United States.  The company holds
one of only 2 licenses issued by the FCC to operate a national
satellite radio system.  Its satellite radio system consists of
its FCC license, satellite system, national broadcast studio,
terrestrial repeater network and satellite telemetry, tracking
and control facilities.  Traders can speculate on whether there
is room for 2 satellite radio companies (XMSR being the other)
with this position.

FEB-2.50 QXO BZ LB=0.80 OI=6445 CB=2.35 DE=34 TY=5.7%


ADPT - Adaptec  $10.50  *** Next Leg Up? ***

Adaptec (NASDAQ:ADPT) designs, manufactures and sells end-to-end
storage infrastructure solutions that reliably move, manage and
protect critical data and digital content.  Their software and
hardware solutions for storage connectivity and data protection,
storage networking and networked storage subsystems are sold
through OEMs and distribution channel partners to a variety of
end users.  Adaptec operates 3 segments: Storage Solutions Group
(SSG), which provides interface products that enable the movement,
storage and protection of data; Desktop Solutions Group (DSG),
which provides high-performance I/O connectivity and digital
media solutions, and Storage Networking Group (SNG), which
provides storage connectivity solutions for servers, storage
devices, fabric switches and NAS devices.  Adaptec recently
took out the resistance level near $9 and now appears ready to
move higher.  Investors who agree can speculate conservatively
on that outcome with this position.

FEB-10.00 APQ BB LB=1.10 OI=634 CB=9.40 DE=34 TY=5.7%


CIEN - Ciena  $7.97  *** On The Move! ***

Ciena (NASDAQ:CIEN) is a global provider of network solutions to
telecommunications service providers and enterprises worldwide.
The company's networking product portfolio, which is targeted at
the critical areas of its customers' networks, includes: core
networking systems, metropolitan networking systems, multiservice
networking systems and the LightWorks ON-Center Management Suite.
These intelligent networking solutions are designed to enable
service providers to transition from inefficient, legacy,
voice-centric networks to more efficient, data-friendly networks.
Ciena's systems and their intelligent networking software address
the network scalability and capital spending challenges and the
escalating operational costs faced by service providers.  Ciena
also markets third-party products and provides a comprehensive
portfolio of service and support offerings for its products.
Juniper's (NASDAQ:JNPR) earnings has spurred the telecom sector
higher and investors who believe Ciena will also report strong
earnings can use this position to "target-shoot" an entry point
in the issue.

FEB-7.50 EUQ BU LB=0.85 OI=6593 CB=7.12 DE=34 TY=4.8%


LTXX - LTX Corp.  $19.12  *** Break-Out! ***

LTX (NASDAQ:LTXX) designs, manufactures, markets and services
semiconductor test solutions.  The company offers its customers
the LTX Fusion platform, a solution for testing the full
spectrum of non-memory devices, consisting of system-on-a-chip,
mixed signal and digital devices.  The Fusion test platform is
designed to provide customers with reliable test performance
and cost-efficiency in their efforts to accelerate their time
to market for these devices.  The Fusion test platform combines
LTX's test station hardware with its enVision++ software, and is
available in Fusion HFi, Fusion HF and Fusion CX configurations.
These configurations depend primarily on the digital complexity
of the device to be tested.  The company also provides global
applications consulting, repair services and operational support
to over 100 customers in more than 15 countries.  LTXX has moved
above the resistance area near $17 on heavy volume and appears
destined to advance further.  Reasonable speculation with a cost
basis closer to near-term technical support.

FEB-17.50 UXT BW LB=2.45 OI=521 CB=16.67 DE=34 TY=4.5%


PSEM - Pericom   $12.77  *** Rally Mode! ***

Pericom Semiconductor (NASDAQ:PSEM) designs, manufactures and
markets high-performance interface integrated circuits used for
the transfer, routing and timing of digital and analog signals
within and between computer, networking, datacom and telecom
systems.  Its interface products increase system bandwidth in
applications such as notebook computers, servers, network
switches and routers, storage area networks and wireless base
stations.  The company has evolved from one product line in
fiscal 1992 to four developed and growing product lines:
SiliconSwitch, SiliconInterface Logic, SiliconClock and
SiliconConnect, aimed at providing an increasing breadth of
interface IC solutions to the company's customers.  Pericom
has a portfolio of products, including 77 new products that
were introduced during the fiscal year ended June 28, 2003.
Its worldwide customers include OEMs, contract manufacturers
and distributors.  Pericom moved up sharply this week on heavy
volume and has achieved another 52-week high.  Investors can
speculate on the company's future share value with this play.

FEB-12.50 PSQ BV LB=0.80 OI=34 CB=11.97 DE=34 TY=4.0%


CLTK - Celeritek  $8.54  *** Dividend Rally! ***

Celeritek (NASDAQ:CLTK) designs and manufactures gallium arsenide
GaAs) semiconductor components and GaAs-based subsystems used in
the transmission of voice, video and data over wireless networks
and systems.  The company's semiconductor products are designed
to facilitate broadband voice and data transmission in mobile
handsets and wireless communications network infrastructure.  The
focus of the GaAs semiconductor components has been mainly on
power amplifier modules for mobile handsets, which employ CDMA
wireless technology.  The GaAs-based subsystems are used in a
variety of defense applications, including tactical aircraft,
ground-based and shipboard radar, electronic countermeasures
and satellite communications systems.  Celeritek rallied sharply
this week after the company declared an extraordinary dividend.
We simply favor the bullish move that suggests the stock is
completing a Stage I base.

FEB-7.50 UCK BU LB=1.35 OI=60 CB=7.19 DE=34 TY=3.9%


ATSN - Artesyn  $10.90  *** New 2-Year High!  ***

Artesyn Technologies (NASDAQ:ATSN) provides power conversion
equipment and real-time subsystems to the computing, storage
and communications industries.  The firm is primarily engaged
in the design, development, manufacture and sale of electronic
products, power supplies, power conversion products and power
subsystems.  It operates in two segments, Power Conversion and
Communications Products.  The Power Conversion business offers
customers AC/DC power supplies, as well as advanced DC/DC and
isolated and non-isolated point-of-load (POL) converters for
distributed power architectures.  The Communications Products
business offers its customers central processing unit (CPU)
boards, wide area network interfaces and protocol software
solutions.  ATSN is another bullish stock displaying strong
technical indications, which suggests higher future prices.

FEB-10.00 UAT BB LB=1.30 OI=126 CB=9.60 DE=34 TY=3.7%


The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)

Stock   Last   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

DCGN   10.35  FEB 10.00  QDB BB  1.30  663    9.05  34   9.4%
TRPH    8.14  FEB  7.50  TQV BU  1.25  2113   6.89  34   7.9%
PWER   12.89  FEB 12.50  OGU BV  1.15  90    11.74  34   5.8%
XING   14.26  FEB 12.50  QAE BV  2.50  1556  11.76  34   5.6%
SPRT   16.40  FEB 15.00  RQJ BC  2.25  250   14.15  34   5.4%
PMCS   23.80  FEB 22.50  SQL BX  2.55  3328  21.25  34   5.3%
CRY     7.99  FEB  7.50  CRY BU  0.90  249    7.09  34   5.2%
DITC   22.62  FEB 20.00  QZD BD  3.70  471   18.92  34   5.1%
ATYT   17.55  FEB 17.50  QFY BW  0.95  5230  16.60  34   4.9%
RDWR   30.73  FEB 30.00  AUD BF  2.25  56    28.48  34   4.8%
SEPR   27.99  FEB 25.00  ERQ BE  4.20  8574  23.79  34   4.6%
IBIS   14.32  FEB 12.50  UIB BV  2.35  441   11.97  34   4.0%
CMOS   15.96  FEB 15.00  CQS BC  1.60  1037  14.36  34   4.0%
NWAC   13.31  FEB 12.50  NAQ BV  1.35  1173  11.96  34   4.0%


Options 101: Position Adjustment With Naked Puts
By Ray Cummins

One of the most common questions among new readers concerns exit
and adjustment strategies.

First, before I elaborate on some common techniques for closing
or adjusting naked put positions, let me say that in all cases,
you should never sell puts on stocks you don't want to own.  That
may sound like an extreme statement (and it is!), but the truth
is that most of the stocks I have been assigned in the past were
not the best choices for a long-term portfolio.  I did not follow
the #1 rule in this strategy because the idea of selling "premium"
simply overcame my good judgment during the initial decision-making
process.  Please don't make the same mistake -- it can be costly!

Most questions about exit techniques or position adjustments come
after the stock price has dropped significantly on unexpected news.
Unfortunately, at this point, there are no magic answers to solve
the situation.  Any action relative to a closing or "roll-out"
strategy is best initiated before the issue moves below the sold
strike price.  Obviously, this is not always possible, especially
in the case of a sudden (sharp) decline.  If this situation occurs,
the alternatives are based simply on your outlook for the stock.
The most obvious choices options are: close the play for a loss,
roll down to a lower strike and/or forward to a future expiration
date, or plan to accept assignment of the underlying shares in
anticipation of future upside potential (which may also include
writing covered-calls).  Of course there are other, more complex
adjustment strategies but they usually include too much downside
risk to warrant their use.

As far as simple roll-outs (forward/downward adjustments) in a
bullish (short) put position, it is probably best to transition
to the closest available month, so that you can sell the highest
relative premium and not commit to a long-term position.  If you
do not want to take a loss in the near term, roll-out as far as
necessary to achieve a credit in the trade.  However, I caution
against using this technique on issues that are not high quality
(long-term) portfolio companies, as you can quickly run out of
downside margin if the stock declines further.  When the issue
has moved well below the sold strike, this technique is not viable
(you have waited too long to act) and another form of loss control
is necessary.  Most importantly, you should understand that the
success of a limited-risk strategy such as selling naked puts is
based (in the long run) on limiting losses to a minimum.  As I
have said many times before, "There are never any big winners to
offset the big losers, so there simply can't be any big losers.
Occasionally, a losing trade will wipe out a large portion of
your gains and there is nothing you can do about it.  But, at the
same time, you must attempt to manage every other play in your
portfolio effectively or there will be no profits to offset the
rare (catastrophic) losers."

Some readers worry about the possibility of "early" assignment
and while it is a concern, only in rare cases will the stock be
"put" to you prior to expiration.  Beyond the occasional random
assignment, the underlying issue for a sold put would have to be
deep in-the-money before there was a significant probability of
early exercise.  By that time, adept position management would
have forced you to exit or cover the play to avoid large losses.
Of course, there is always the occasional "gap-down" issue which
simply can't be avoided, and that is why you are required to have
a specific amount of money in your account; for the obligation of
purchasing the stock if it becomes necessary.  However, you are
more likely to use the funds to close the position under adverse
circumstances.  In addition, there are other ways of offsetting a
"short" stock position if you are assigned and a personal broker
can often help you resolve a condition that requires additional
funds to close a particular "play gone bad."  Regardless of the
approach you favor, make sure you completely understand the manner
in which your broker handles early exercise and assignment.  This
will allow you to make timely decisions, before the price of the
underlying issue changes for the worse.

Good Luck!



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.

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

JNPR    19.68   29.93  JAN 19.00  0.40    0.40*   4.7%  11.4%
PDLI    18.42   19.36  JAN 17.50  0.35    0.35*   4.4%  11.2%
MERX    24.75   28.04  JAN 22.50  0.60    0.60*   4.0%  10.5%
THER    18.77   26.57  JAN 17.50  0.45    0.45*   3.8%   9.5%
PDLI    16.65   19.36  JAN 15.00  0.45    0.45*   3.4%   9.0%
SIL     21.10   20.85  JAN 20.00  0.30    0.30*   3.3%   8.5%
SOV     23.70   24.51  JAN 22.50  0.90    0.90*   3.6%   8.5%
PLMD    26.45   25.90  JAN 22.50  0.50    0.50*   2.5%   7.6%
MERX    24.45   28.04  JAN 20.00  0.40    0.40*   2.2%   7.6%
BLTI    17.19   20.30  JAN 15.00  0.25    0.25*   2.5%   7.3%
SMMX    21.15   26.01  JAN 20.00  0.25    0.25*   2.8%   7.2%
SHRP    32.39   31.68  JAN 30.00  0.55    0.55*   2.7%   7.2%
IPG     15.45   16.98  JAN 15.00  0.40    0.40*   3.0%   7.1%
IMCL    40.01   42.89  JAN 35.00  0.55    0.55*   2.3%   6.9%
SLXP    21.50   23.00  JAN 20.00  0.60    0.60*   2.7%   6.8%
ATVI    18.65   18.59  JAN 17.50  0.30    0.30*   2.5%   6.6%
JNS     15.91   16.68  JAN 15.00  0.35    0.35*   2.6%   6.6%
NPSP    32.64   34.96  JAN 30.00  0.80    0.80*   2.4%   6.2%
BLTI    14.01   20.30  JAN 12.50  0.30    0.30*   2.1%   5.9%
WEBX    20.18   21.99  JAN 17.50  0.30    0.30*   1.9%   5.7%
AAII    25.00   29.47  JAN 22.50  0.30    0.30*   2.0%   5.6%
RMBS    30.66   34.60  JAN 20.00  0.40    0.40*   1.8%   5.3%
AAII    25.01   29.47  JAN 22.50  0.45    0.45*   1.8%   4.9%
EMMS    27.17   26.64  JAN 25.00  0.50    0.50*   1.8%   4.7%
BDY     26.72   23.49  JAN 25.00  0.35   -1.16    0.0%   0.0%

XING    12.80   14.26  FEB 10.00  0.35    0.35*   2.6%   8.7%
OPWV    15.18   15.23  FEB 12.50  0.40    0.40*   2.4%   7.6%
SEPR    27.25   27.99  FEB 22.50  0.65    0.65*   2.2%   6.9%
ASKJ    23.83   23.48  FEB 20.00  0.60    0.60*   2.2%   6.9%
NKTR    17.12   19.31  FEB 15.00  0.45    0.45*   2.2%   6.3%
IDCC    24.46   24.80  FEB 20.00  0.50    0.50*   1.9%   6.2%
WFII    17.80   16.51  FEB 15.00  0.40    0.40*   2.0%   6.1%
JNPR    22.00   29.93  FEB 20.00  0.55    0.55*   2.0%   5.4%

* Stock price is above the sold strike price.

Editor's Comments:

The Bulls Run Again!

Every year, thousands of visitors from around the world arrive
in Pamplona, Spain, to join in the annual spectacle known as the
"running of the bulls."  But there is no need to pack your bags
this year because you can witness a similar event (in name only)
right here in America.  Indeed, the recent bullish activity has
boosted equity values to two-year highs with the Dow and S&P 500
advancing for the eighth straight week.  With that fact in mind,
traders should be wary of a necessary consolidation and initiate
new naked-put plays only in the strongest (technically) issues.
The "watch" list position in Brady Pharmaceuticals (NYSE:BDY) was
closed early in the week for a smaller-than-published loss.

Positions Previously Closed: China Yuchai (NYSE:CYD)



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.


The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:



The Maximum Monthly Yield (listed in the summary and with each
new candidate) 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 Monthly 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 position.


Sequenced by Maximum Yield (monthly basis - margin)

Stock  Last    Option    Option Last Open  Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int.  Basis Exp. Yield  Yield

ADAT   16.95  FEB 12.50  HAU NV 0.40 220   12.10  34   3.0%   9.4%
SEPR   27.99  FEB 22.50  ERQ NX 0.65 844   21.85  34   2.7%   9.1%
NEOL   18.26  FEB 15.00  UOE NC 0.40 497   14.60  34   2.5%   8.1%
PMCS   23.80  FEB 20.00  SQL ND 0.50 3850  19.50  34   2.3%   7.2%
SPRT   16.40  FEB 12.50  RQJ NV 0.25 46    12.25  34   1.8%   6.3%
RMBS   34.60  FEB 25.00  BNQ NE 0.50 6177  24.50  34   1.8%   6.0%
AFFX   28.29  FEB 25.00  FIQ NE 0.50 498   24.50  34   1.8%   5.2%
RDWR   30.73  FEB 25.00  AUD NE 0.35 26    24.65  34   1.3%   4.5%

Legend (for play descriptions below)

LB-Last Bid price,
OI-Open Interest,
CB-Cost Basis or break-even point,
DE-Days to Expiry,
SY-Simple Yield (monthly basis - without margin)
MY-Maximum Yield (monthly basis - using margin),


ADAT - Authentidate Holding  $16.95  *** New All-Time High! ***

Authentidate Holding (NASDAQ:ADAT) develops security software
technology, document imaging software products and systems
integration services and products.  The firm's products include
DocStar document imaging software products, the Authentidate
authentication and security software products and system
integration services and products through its DJS Marketing
Group subsidiary.  AHC also offers, through the Trac Medical
Solutions subsidiary, the CareCert Internet-based medical
forms processing service.  The company's subsidiary, DJS, is
also an authorized sales and support provider for software
products such as Microsoft Solutions and Lotus Notes.  DJS
sells computer hardware and provides software and integration
services to businesses to meet their data management needs.
Web security and digital document processing and certification
are necessary services for almost all Internet users and this
company has some unique solutions to those needs.  Traders who
agree with an optimistic outlook for the company can speculate
on its future share with this position.

FEB-12.50 HAU NV LB=0.40 OI=220 CB=12.10 DE=34 TY=3.0% MY=9.4%


SEPR - Sepracor  $27.99  *** Earnings Speculation! ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical firm
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.  Shares
of SEPR are "on the rebound" and traders say the catalyst may be
the company's upcoming earnings report.  SEPR will announce its
fourth quarter and full-year 2003 financial results next week and
traders who believe the outcome will be favorable should consider
this position.

FEB-22.50 ERQ NX LB=0.65 OI=844 CB=21.85 DE=34 TY=2.7% MY=9.1%


NEOL - NeoPharm  $18.26  *** Drug Speculation ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged
in the research, development and commercialization of drugs for
the treatment of various cancers.  The firm has built its drug
portfolio based on its novel proprietary technology platforms,
the proprietary NeoLipid liposomal drug delivery system and a
tumor-targeting toxin platform.  NeoPharm has several promising
compounds in various stages of development.  The company's lead
compound is IL13-PE38, a tumor-targeting toxin being developed
as a treatment for glioblastoma multiforme, a deadly form of
brain cancer.  NEOL shares have traded in a relatively stable
uptrend since early 2003 and the technical support near the cost
basis offers a viable risk/reward outlook in this speculative

FEB-15.00 UOE NC LB=0.40 OI=497 CB=14.60 DE=34 TY=2.5% MY=8.1%


PMCS - PMC-Sierra  23.80  *** Networking-Equipment Rally! ***

PMC-Sierra (NASDAQ:PMCS) designs, develops, sells and supports
a broad range of high-performance integrated circuits primarily
used in the telecommunications and data networking industries.
The company has more than 120 different semiconductor devices
that are sold to equipment manufacturers, who in turn supply
their equipment principally to communications network service
providers and enterprises.  The firm also provides semiconductor
solutions for customers by leveraging its intellectual property,
design expertise and systems knowledge across a broad range of
applications.  Stocks in the networking-equipment group have
been in "rally mode" since last week's strong earnings report
from Juniper Networks (NASDAQ:JNPR) and PMCS was also upgraded
by Merrill Lynch.  Investors who think the bullish trend will
continue can establish a low risk cost basis in the issue with
this position.

FEB-20.00 SQL ND LB=0.50 OI=3850 CB=19.50 DE=34 TY=2.3% MY=7.2%


SPRT - SupportSoft  $16.40  *** Up, Up, And Away! ***

SupportSoft (NASDAQ:SPRT) provides service and support automation
software solutions that are designed to help corporations automate,
manage and personalize the service and support they provide to
their employees, customers and partners.  The company's software
helps streamline the service and support process by solving and
managing problems associated with the use of various types of
computing endpoints and related technologies such as personal
computers, network servers, operating systems, software, hand-held
devices and wired/wireless networks.  The firm has comprehensive
software application suites to address the unique needs of various
market requirements.  Shares of SPRT are soaring ahead of the
upcoming earnings report and traders say its because the firm was
among only a handful of firms which consistently increased their
revenue growth during the recent slump in the IT industry.  Traders
who believe the quarterly numbers will reflect increasing profits
should consider this position.

FEB-12.50 RQJ NV LB=0.25 OI=46 CB=12.25 DE=34 TY=1.8% MY=6.3%


RMBS - Rambus  $34.60  *** 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.
Rambus has been a popular issue among "premium-sellers" in recent
weeks and the share-price volatility has inflated option premiums
in the near-term.  Traders who expect additional upside activity in
the issue should consider this position.

FEB-25.00 BNQ NE LB=0.50 OI=6177 CB=24.50 DE=34 TY=1.8% MY=6.0%


AFFX - Affymetrix  $28.29  *** A Big Day! ***

Affymetrix (NASDAQ:AFFX) is engaged in the development, sale
and service of systems for genetic analysis in life sciences.
The firm has developed and intends to establish its GeneChip
system and related microarray technology as the platform of
choice for acquiring, analyzing and managing complex genetic
information.  The company's integrated platform consists of
disposable DNA probe arrays containing gene sequences on a
chip, certain reagents for use with the probe arrays, a
scanner and other instruments to process the probe arrays, as
well as software to analyze and manage genetic information
from the probe arrays.  Shares of AFFX jumped almost 10% on
Friday with much of the activity attributed "short-covering"
after the company inadvertently disclosed some favorable
earnings data in a web-cast.  Traders who want a speculative
position in the biotech segment should consider this position.

FEB-25.00 FIQ NE LB=0.50 OI=498 CB=24.50 DE=34 TY=1.8% MY=5.2%


RDWR - Radware  $30.73  *** New Multi-Year High! ***

Radware (NASDAQ:RDWR) is dedicated to providing Intelligent
Application Switching, guaranteeing the best operation and
servicing of IP applications and enterprise traffic across the
Internet.  Radware aligns application needs with the network
infrastructure to seamlessly allocate resources, optimize
application operations and extend security, ensuring the
integrity of critical business processes.  Radware's unique
solutions address the needs of corporate enterprises, service
providers, and e-commerce business through one or more of their
award winning products including: Web Server Director (WSD),
Cache Server Director (CSD), Content Inspection Director (CID),
FireProof, LinkProof, Peer Director, CertainT 100.  The firm's
comprehensive suite of products service end-to-end application
operations, providing robust and scalable network traffic
assurance.  This week, RDWR climbed to a multi-year high with
much of the activity attributed to its upcoming earnings report.
Last quarter, the company reported record revenues and traders
who believe the company's fundamentals will continue to be
favorable should consider this position.

FEB-25.00 AUD NE LB=0.35 OI=26 CB=24.65 DE=34 TY=1.3% MY=4.5%


The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)

Stock  Last    Option    Option Last Open  Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int.  Basis Exp. Yield  Yield

ZIXI   12.57  FEB 10.00  HQU NB 0.50 479    9.50  34   4.7%  14.8%
CAMP   15.12  FEB 12.50  CQI NV 0.40 17    12.10  34   3.0%   9.3%
NTPA   18.62  FEB 15.00  NQD NC 0.40 192   14.60  34   2.5%   8.5%
TNOX   19.49  FEB 17.50  TMQ NW 0.60 10    16.90  34   3.2%   8.4%
NTGR   19.35  FEB 17.50  TUD NW 0.60 0     16.90  34   3.2%   8.3%
AMD    16.76  FEB 15.00  AMD NC 0.45 18631 14.55  34   2.8%   7.5%
NANX   13.60  FEB 10.00  NSY NB 0.25 117    9.75  34   2.3%   7.5%
RHAT   20.49  FEB 17.50  RCV NW 0.45 1677  17.05  34   2.4%   7.1%
NEWP   21.33  FEB 20.00  NZZ ND 0.60 106   19.40  34   2.8%   6.9%
DITC   22.62  FEB 17.50  QZD NW 0.35 259   17.15  34   1.8%   6.4%
SOHU   37.98  FEB 30.00  UZK NF 0.45 1204  29.55  34   1.4%   5.0%


This newsletter is a publication dedicated to the education
of stock & option traders. The newsletter is an information
service only. The information provided herein is not to be
construed as an offer to buy or sell securities of any kind.
The newsletter picks are not to be considered a recommendation
of any stock, but an information resource to aid the investor
in making an informed decision regarding trading in stocks. It
is possible at this or some subsequent date, the editors and
staff of OptionWriters.com may own, buy or sell securities
presented. All investors should consult a qualified professional
before trading in any security. The information provided has
been obtained from sources deemed reliable but is not
guaranteed as to accuracy or completeness. OptionWriters.com
staff makes every effort to provide timely information to its
subscribers but cannot guarantee specific delivery times due to
factors beyond our control.


Another Great Week!
By Ray Cummins

Stocks closed higher Friday as favorable earnings from a number
of bellwether issues prompted investors to add new holdings to
their portfolios.

The NASDAQ Composite led the way, up 31 points at 2,140 amid a
surge in networking and semiconductor shares.  The Dow industrial
average added 46 points to end at 10,600 on strength in General
Electric (NYSE:GE).  The S&P 500 rose 7 points to 1,139, its best
close since April, 2002, on widespread buying pressure.  Trading
volume was heavy at 1.7 billion shares on the Big Board and 2.6
billion shares on the technology exchange.  Winners ousted losers
by roughly 3 to 2 on both the NASDAQ and the NYSE.  In the bond
market, the benchmark 10-yr note was off 16/32 with its yield up
to 4.03%.

The stock market will be closed on Monday in observance of the
late civil rights leader Martin Luther King Jr.'s birthday.


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 or 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.



Symbol  Pick    Last   Month  LP  SP  Credit  CB     G/L   Status

CME     70.63   79.70   JAN   60  65   0.50  64.50   0.50  Closed
NCEN    39.62   44.24   JAN   30  33   0.45  32.93   0.45  Closed
SII     40.22   42.50   JAN   35  38   0.25  37.25   0.25  Closed
CYBX    32.70   37.92   JAN   25  30   0.50  29.50   0.50  Closed
INTU    52.16   49.92   JAN   45  48   0.25  47.25   0.25  Closed
TRN     31.36   33.82   JAN   25  30   0.75  29.25   0.75  Closed
AA      37.30   35.04   JAN   33  35   0.30  34.70   0.30  Closed
MTH     65.37   62.06   JAN   55  60   0.45  59.55   0.45  Closed
NFLX    51.07   65.56   JAN   40  43   0.25  42.25   0.25  Closed
SCHN    59.28   45.90   JAN   45  50   0.55  49.45  (3.55) Closed
SINA    37.90   47.69   JAN   30  35   0.60  34.40   0.60  Closed
SOHU    32.70   37.98   JAN   25  30   0.65  29.35   0.65  Closed
YHOO    45.40   48.11   JAN   40  43   0.25  42.25   0.25  Closed
LRCX    34.59   34.24   FEB   25  30   0.55  29.45   0.55   Open
OHP     46.69   49.12   FEB   40  43   0.30  42.20   0.30   Open
NBR     44.11   41.80   FEB   38  40   0.30  39.70   0.30   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

The "watch" list position in Schnitzer Steel (NASDAQ:SCHN) should
have been closed Thursday, for a much smaller than published loss,
when the issue dropped sharply to the sold (put) strike at $50.


Symbol  Pick    Last   Month  LC  SC  Credit   CB     G/L   Status

CERN    39.22   38.50   JAN   50  45   0.55   45.55   0.55  Closed
MDC     64.06   62.75   JAN   70  65   0.60   65.60   0.60  Closed
CL      49.19   51.23   JAN   55  50   0.65   50.65  (0.58) Closed
CTX    104.40  101.40   JAN  115 110   0.50  110.50   0.50  Closed
IACI    33.26   34.88   JAN   38  35   0.25   35.25   0.25  Closed
RYL     85.08   74.62   JAN   95  90   0.45   90.45   0.45  Closed
ADBE    37.12   38.30   FEB   45  40   0.55   40.55   0.55   Open
TBL     51.13   49.82   FEB   60  55   0.65   55.65   0.65   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss

Clorox (NYSE:CL) moved from the "watch" list to the "early-exit"
category on Thursday's rally.  Bearish positions in Research in
Motion (NASDAQ:RIMM) and KLA-Tencor (NASDAQ:KLAC) have previously
been closed.


Symbol  Pick   Last   Month  LC  SC   Debit   B/E   G/L   Status

OSX     89.45  95.78   JAN   80  85   4.40   84.40  0.60  Closed
ACDO    31.77  34.28   JAN   25  30   4.40   29.40  0.60  Closed
IMCL    40.76  42.89   JAN   30  35   4.50   34.50  0.50  Closed
MCHP    32.90  33.87   JAN   25  30   4.40   29.40  0.60  Closed
ATRS    36.84  39.01   JAN   30  35   4.45   34.45  0.55  Closed
BRCM    36.78  41.97   FEB   30  32   2.20   32.30  0.30   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss

The bullish debit-spread in Digital River (NASDAQ:DRIV), which has
previously been closed, is now profitable.


Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

AMZN    51.90  55.72  JAN   60  55   4.45   55.45 (0.27) Closed
MIK     41.42  43.31  FEB   47  45   2.20   45.30  0.30   Open

The position in Symantec (NASDAQ:SYMC) has previously been closed
for a small loss.


Stock   Pick   Last   Expir.  Long  Short  Initial   Max.   Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

IDCC    19.00  24.80   JAN     25     15     0.20    0.40  Closed
NE      36.09  36.83   JAN     37     35     0.10    0.80  Closed
PTEN    31.34  33.21   JAN     32     30    (0.10)   1.75  Closed
UTHR    23.20  22.80   MAY     30     17    (0.10)   0.10   Open
CEPH    52.50  56.59   FEB     60     45     0.10    1.00   Open?
EYE     25.30  26.07   MAR     30     20     0.00    0.20   Open

The new position in Cephalon (NASDAQ:CEPH) was a big winner this
week, offering up to a $1.00 credit after only five days in the
play.  Patterson-UTI Energy (NASDAQ:PTEN) and Noble (NYSE:NE)
achieved favorable "early-exit" profits long before the January
options expiration.


No Open Positions


Stock   Pick   Last     Long     Short    Current   Max.   Play
Symbol  Price  Price   Option    Option    Debit   Value  Status

FISV    38.28  37.48   MAR-35P   FEB-35P   0.30    0.35    Open
XMSR    26.80  26.79   FEB-30C   JAN-30C   0.85    1.15   Closed

As noted previously, the bullish spread in Cephalon (NASDAQ:CEPH)
achieved maximum profit with the issue near the sold strike at $50
and the position was closed the first week in January to "lock-in"
gains.  The recent position in XM Satellite Radio (NASDAQ:XMSR)
offered a favorable "early-exit" profit after only three days in
the play.


Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

ATN     17.93  17.79   JAN    17    17     2.40    2.75   Closed
ACL     59.19  60.44   JAN    60    60     3.00    2.80   Closed
MATK    65.74  67.20   MAR    65    65     9.40    9.00    Open
PTR     54.08  47.53   FEB    55    55     0.00    0.00   No Play

The new straddle in Petrochina (NYSE:PTR) was not available due
to the "gap-down" opening on Monday.  Traders who initiated the
play at the $50 strike also have a favorable risk/reward outlook
but we will not track that position.  The straddle on Mylan Labs
(NYSE:MYL) has been previously closed for a small loss.


No Open Positions

Questions & comments on spreads/combos to Contact Support


This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance, and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.


These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.


BIIB - Biogen Idec  $43.19  *** Rally Mode! ***

Biogen Idec (NASDAQ:BIIB) is a biopharmaceutical company engaged
in the research, development, manufacture and commercialization
of targeted therapies for the treatment of cancer and autoimmune
and inflammatory diseases.  The firm's lead products are Avonex
and Rituxan.  Its pipeline of products in development includes
Antegren (natalizumab), which, in partnership with Elan Corp. plc,
is in Phase III clinical studies for the treatment of multiple
sclerosis and Crohn's disease; Rituxan is in Phase III trials for
rheumatoid arthritis and other cancer indications; the company's
second-generation oral fumarate, which is in Phase III clinical
trials in Europe, and an anti-CD23 antibody, which will enter
Phase II trials for chronic lymphocytic leukemia (CLL).

BIIB - Biogen Idec  $43.19

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-35.00  IDK-NG  OI=379   ASK=$0.15
SELL PUT  FEB-40.00  IDK-NH  OI=1753  BID=$0.65
POTENTIAL PROFIT(max)=12% B/E=$39.45


CCMP - Cabot Microelectronics  $56.24  *** Break-Out? ***

Cabot Microelectronics is a supplier of high performance polishing
slurries used in the manufacture of advanced integrated circuit
devices, within a process called chemical mechanical planarization.
CMP is a polishing process used by integrated circuit (IC) device
manufacturers to planarize or flatten many of the multiple layers
of material that are built upon silicon wafers and necessary in
the production of advanced ICs.  Planarization is the polishing
process that levels and smooths, and removes the excess material
from the surfaces of these layers.  CMP slurries are unique liquid
formulations that facilitate and enhance this polishing process
and usually contain engineered abrasives and proprietary chemicals.
CMP enables IC device manufacturers to produce smaller, faster and
more complex IC devices with fewer defects.

CCMP - Cabot Microelectronics  $56.24

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-45.00  UKR-NI  OI=559   ASK=$0.55
SELL PUT  FEB-50.00  UKR-NJ  OI=1232  BID=$1.25
POTENTIAL PROFIT(max)=18% B/E=$49.25


GENZ - Genzyme General  $54.26  *** On The Move! ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for unmet medical needs.
Genzyme General develops and markets therapeutic products and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  The company is organized into two segments,
Therapeutics, which focuses on developing and marketing products
for genetic diseases and other chronic debilitating diseases,
including a family of diseases known as lysosomal storage
disorders, and specialty therapeutics, and Diagnostic Products,
which develops, markets and distributes in vitro diagnostic
products.  The company also operates a wholly owned subsidiary,
GelTex Pharmaceuticals.

GENZ - Genzyme General  $54.26

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-47.50  GZQ-NS  OI=309  ASK=$0.40
SELL PUT  FEB-50.00  GZQ-NJ  OI=433  BID=$0.70
POTENTIAL PROFIT(max)=14% B/E=$49.70


ABT - Abbott Laboratories  $43.25  *** Mediocre Outlook! ***

Abbott Laboratories (NYSE:ABT) is mainly engaged in the discovery,
development, manufacture and sale of a broad and diversified line
of healthcare products.  Abbott has five primary revenue segments:
Pharmaceutical Products, Diagnostic Products, Hospital Products,
Ross Products and International.  The Pharmaceutical Products
segment offers a line of adult and pediatric pharmaceuticals.  The
company's Diagnostic Products markets diagnostic systems and tests.
The Hospital Products segment offers drugs and delivery systems,
perioperative and intensive care products, cardiovascular products,
products for treating pain, renal products, oncology products, as
well as intravenous and irrigation solutions and related manual and
electronic administration equipment.

ABT - Abbott Laboratories  $43.25

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-47.50  ABT-BW  OI=5203  ASK=$0.15
SELL CALL  FEB-45.00  ABT-BI  OI=9598  BID=$0.40
POTENTIAL PROFIT(max)=11% B/E=$45.25


POWI - Power Integrations  $32.05  *** A Key Moment! (150-DMA) ***

Power Integrations (NASDAQ:POWI) designs, develops, manufactures
and markets proprietary, high-voltage, analog integrated circuits
for use primarily in alternating current to direct current power
conversion.  The firm's products address market segments including
communications, consumer, computer and industrial electronics.
The company's high-voltage power conversion ICs include TOPSwitch,
TinySwitch, LinkSwitch and DPA-Switch.  Since introducing its
TOPSwitch family of products in 1994, the company has shipped into
the market approximately 890 million ICs.  These ICs achieve a high
level of system integration by combining a number of electronic
components into a single IC.

POWI - Power Integrations  $32.05

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-40.00  QPW-BH  OI=79   ASK=$0.30
SELL CALL  FEB-35.00  QPW-BG  OI=216  BID=$1.05
POTENTIAL PROFIT(max)=18% B/E=$35.75


SCHN - Schnitzer Steel  $45.90  *** Sell-Off In Progress! ***

Schnitzer Steel Industries (NASDAQ:SCHN) collects, processes and
recycles metals by operating a metals recycling business in the
United States.  The company also owns a chain of self-service
auto parts stores in the United States, operating under the name
of Pick-N-Pull, and is also a maker of finished steel products at
its technologically advanced steel mini-mill.  As a result of its
vertically integrated business, Schnitzer is able to transform
obsolete or wrecked auto bodies and other unprocessed metals into
finished steel products.  In addition, it is a partner in joint
ventures that are either in the metals recycling business or are
suppliers of unprocessed metals.  The company owns interests in
five joint ventures that are engaged in buying, processing and
selling primarily ferrous metal.  Another joint venture is an
industrial plant demolition contractor that dismantles industrial
plants, performs environmental remediation and sells recovered
metals and machinery.

SCHN - Schnitzer Steel  $45.90

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-60.00  SQQ-BL  OI=1096  ASK=$0.35
SELL CALL  FEB-55.00  SQQ-BK  OI=1307  BID=$0.85
POTENTIAL PROFIT(max)=11% B/E=$55.50


These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the


CREE - Cree Incorporated  $25.85  *** Choice Chip Stock! ***

Cree (NASDAQ:CREE) is engaged in the development and manufacture
of compound semiconductor materials and electronic devices made
from silicon carbide (SiC), and a developer and manufacturer of
optoelectronic and electronic devices made from gallium nitride
and related materials.  The company also produces radio frequency
power transistor components and modules for wireless infrastructure
applications using silicon-based bipolar and laterally diffused
metal oxide semiconductor process technologies.  Cree operates its
business in two segments, the Cree segment, which consists of its
SiC-based products and research contracts, and the Cree Microwave
segment that consists of RF transistors and RF transistor modules
based on a silicon platform.

CREE - Cree Incorporated  $25.85

PLAY (conservative - bullish/debit spread):

BUY  CALL  FEB-20.00  CQR-BD  OI=3603  ASK=$6.00
SELL CALL  FEB-22.50  CQR-BX  OI=3244  BID=$3.80
POTENTIAL PROFIT(max)=14% B/E=$22.20


QLGC - QLogic  $47.16  *** New Downtrend Underway? ***

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  $47.16

PLAY (less conservative - bearish/debit spread):

BUY  PUT  FEB-55.00  QLC-NK  OI=2425  ASK=$8.20
SELL PUT  FEB-50.00  QLC-NJ  OI=3904  BID=$4.00
POTENTIAL PROFIT(max)=19% B/E=$50.80


A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.


AMHC - American Healthways  $27.08  *** Near All-Time Highs! ***

American Healthways (NASDAQ:AMHC) is the nation's leading and
largest provider of specialized, comprehensive care enhancement
services to hospitals, physicians and health plans.  In addition,
American Healthways is the only company in its industry whose
programs are designed to meaningfully address the needs of 100%
of its customer populations.  The clinical excellence of the
firm's programs have been reviewed and approved by Johns Hopkins,
and their quality has been recognized by the National Committee on
Quality Assurance, the Joint Commission on Accreditation of Health
Care Organizations, and the American Accreditation Health Care
Commission, making American Healthways the first and only care
enhancement provider in the nation to be accredited or certified
by all three organizations.  American Healthways contracts to
provide disease and care management programs to health plans with
members in all 50 states, the District of Columbia and Puerto Rico.
The firm also operates diabetes management programs in hospitals

AMHC - American Healthways  $27.08

PLAY (speculative - bullish/calendar spread):

BUY  CALL  MAY-30.00  QMH-EF  OI=68  ASK=$1.65
SELL CALL  FEB-30.00  QMH-BF  OI=18  BID=$0.40


Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.


NTE - Nam Tai Electronics  $30.44  *** Earnings Speculation! ***

Nam Tai Electronics (NYSE:NTE) is a electronics manufacturing and
design services provider to original equipment manufacturers of
telecommunication and consumer electronic products.  Through its
electronics manufacturing services operations, the company makes
electronic components and subassemblies, including liquid crystal
display panels, transformers, LCD modules, and radio frequency
modules.  The firm also manufactures finished products, including
cordless phones, palm-sized personal computers, personal digital
assistants, electronic dictionaries, calculators & digital camera
accessories for use with cellular phones.  In addition, the firm
assists its OEM customers in the design and development of their
products and furnishes full turnkey manufacturing services.  The
company's services include hardware/software design, component
purchasing, assembly into finished products or subassemblies and
post-assembly testing.  The company's quarterly earnings report
is due on or about 2/6/04.

NTE - Nam Tai Electronics  $30.44

PLAY (speculative - neutral/debit straddle):

BUY CALL  FEB-30.00  NTE-BF  OI=1912  ASK=$2.70
BUY PUT   FEB-30.00  NTE-NF  OI=307   ASK=$2.20



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