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Daily Newsletter, Tuesday, 01/20/2004

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The Option Investor Newsletter                 Tuesday 01-20-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Guidance?
Futures Markets: Dollar Stalls
Index Trader Wrap: A little bit of this and that
Market Sentiment: Stronger Than Expected


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
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      01-20-2004           High     Low     Volume Advance/Decline
DJIA    10528.66 - 71.90 10616.96 10519.49 2.28 bln   2026/1240
NASDAQ   2147.98 +  7.50  2149.85  2130.20 2.62 bln   2158/1144
S&P 100   563.75 -  0.97   565.95   562.55   Totals   4184/2384
S&P 500  1138.77 -  1.06  1142.93  1135.40
W5000   11131.32 + 15.30 11151.60 11082.78
RUS 2000  597.98 +  7.57   597.98   590.16
DJ TRANS 3020.00 - 16.30  3036.46  3006.03
VIX        15.21 +  0.21    16.13    15.09
VXO (VIX-O)14.91 -  0.36    15.83    14.91
VXN        20.49 +  0.25    22.13    20.26
Total Volume 5,234M
Total UpVol  3,384M
Total DnVol  1,802M
52wk Highs 1341
52wk Lows    12
TRIN       0.98
NAZTRIN    1.21
PUT/CALL   0.60
************************************************************

Guidance?

It was all about guidance as the bluest of blue chips began
presenting their earnings. However, good news did not buy
much in the way of investor appreciation as strong earners
were pounded when good results fell short of overly
optimistic expectations.

Dow Chart


Nasdaq Chart



It was a slow day economically with the NAHB Housing Market
Index the only regular hours report. The headline number at
68 was less than consensus at 69 and less than the 70 from
both December and November. Slower sales continue to depress
the market despite the optimistic outlooks by the builders.
With the economy recovering, interest rates low and inventory
levels still light the conditions are ripe for a spring sales
explosion but the winter weather has put sales in the deep
freeze. This would suggest a continued neutral rate decision
by the Fed next week could be the green light for another
run for the builders as investors buy the dip in advance of
the spring thaw. The worst thing that could happen for the
home builders would not be what you would expect. A surge
in the 4Q GDP, due out next week, that would suggest the
recovery is really catching fire could actually push real
interest rates up despite a Fed on hold. Rising economies
can support higher rates but those same rates could slow
home sales. Seems contrary to common sense but that is
real life. More buyers can afford homes in a roaring
economy but they have to pay more for the privilege.

MMM reported earnings with sales that reached an all time
high. They beat estimates by a penny and the shares soared
to an all time high of $86.20 before taking a significant
hit of over -$5.00 for the day. Analysts found no fault
with the earnings with margins at 20% and sales up +14%
from last year. MMM also raised its guidance for the quarter
and the year. Unfortunately that raised guidance was still
at the low end of the consensus range. Expectations for an
earnings blowout and improved guidance were just too high
it appears.

Dow component UTX reported earnings that beat the street
by +3 cents on a +19% increase in 4Q sales and guided
inline with prior estimates for 2004. UTX lost -2.70 in
early trading. Several analysts suggested UTX was over
valued at its current PE of 18 based on the lack of an
upgrade in guidance. UTX is expected to earn between $5.00
to $5.30 for 2004. Analysts were disappointed UTX only
beat by +3 cents given the weakness of the dollar. Guess
they were looking for something more in the IBM/GE range
of currency translation gains.

Another Dow component, GM, posted very strong earnings of
+$2.13 per share and profits of $1.01 billion. A strong
performance by GMAC helped the automaker. They also posted
a very strong outlook for 2004 and expects to take market
share from competitors with new models. GM spent an average
of $3,589 in incentives per car in December. GM also said
its -$18 billion pension fund problem had been completely
erased thanks to the market gains and a debt offering. This
takes a very big negative away from the GM stock. GM was
trading down on the news at the close.

Citigroup announced profits that nearly doubled last years
results and raised their dividend +14%. Citigroup posted
earnings of $4.76 billion or 91 cents per share. Analysts
had expected 90 cents. Strong growth in credit card revenue
came from 145 million card accounts. Citigroup said volume
was strong and they were looking to grow the business by
acquisitions where possible. Nothing wrong with this report
but C finished negative for the day.

INTC closed in on its lows for the month near $32 and
suggested investors were not excited about their record
earnings last week. We know it sold off on the less than
hoped for guidance and so far that selling has not slowed.

Five Dow components, excellent earnings from all on strong
sales improvements. Inline or better guidance for them all
yet all the stock prices tanked. This suggests what we all
feared that the buyers are saying great but not great enough.
Investors were quick to take profits when there was not a
short covering rush like we saw in Juniper last week.

The only stock not seeing a sell the earnings result was
IBM which three days after announcing mediocre results was
up another +1.78 on Tuesday. The reason was an announcement
they were adding +15,000 workers. While that sounds like a
prelude to a wave of new jobs when the Non Farm Payrolls
are released in two weeks it was not as positive as it
seemed on the surface. Only 4500 of those jobs will be in
the U.S. The remainder of those 15,000 jobs will be in India
and China. They did reiterate that they were bullish on the
IT market for 2004 and these hiring's would put IBM at the
highest employment level (330,000) since 1991 high of
340,000. IBM will save $168 million a year by hiring those
programmers overseas. IBM said a programmer with 3-5 years
of experience will cost them $12.50 an hour in China where
that same programmer in the states costs them $56 an hour
including benefits. If this outsourcing continues unabated
would you care to speculate on what a programmer in the
states will be making five years from now? Way less than
$56. I know programmers in Denver that were making enormous
amounts of money five years ago that are working in Taco
Bell now or have been unemployed for nearly a year because
the IT job market has collapsed.

IBM is using that cheap labor to mount an assault on MSFT.
They announced on Monday they were launching a new program
to help millions of customers migrate from Windows to Linux.
Linux is the fastest growing operating system for servers
in the world and IBM wants to keep it that way. Microsoft
is going to stop supporting Windows-NT by the end of 2004
and IBM is charging ahead with a plan to capture those
millions of users. Microsoft software has continued to get
more expensive and IBM sees this as an opportunity to take
market share. IBM will offer multiple upgrade paths and
offer classes on how to migrate. They are making these tools
available to their 90,000 partners worldwide as they begin
their push. MSFT was up +30 cents on the news despite the
announcement from the Justice Dept that MSFT had failed to
fulfill a key part of the antitrust settlement. MSFT will
announce earnings on Thursday and this could be a shift
out of those already announced and into a coming announcer.
Buy the rumor, sell the news.

The markets surged to new highs at the open once again but
the Dow was unable to hold those opening levels. The January
rally has been fueled by near record amounts of cash flowing
into the markets. According to TrimTabs $8.6 billion in
new cash came into equity funds for the fist nine days
of January. The small cap techs are by far the biggest
recipient of the cash. The Russell led the major indexes
all day as traders scrambled to find something worth
buying with hopes of big gains in 2004.

Goldman Sachs reported the results of a CIO survey just
completed where 32% of managers expected their IT spending
to rise in 2004. Of that 32% the expected rise in spending
was only estimated to be +1.5%. This is very low and does
not suggest the bullish investor sentiment has carried
through to the IT sector. Less than 1/3 expect gains and
those gains are expected to be very small. Still 58% of
those surveyed expected spending to be flat with the 4Q
and that is an implied increase since the 1Q is normally
weak. Not exactly a strong reason to invest in techs that
are up in many cases more than +100% from 2003 lows.
Merrill released a study late last week suggesting that
2004 would actually see a decline in IT services and
spending in consulting services.

After the close we saw earnings from AMD, MOT, PMCS, SAMN
and RFMD among others. Motorola beat estimates by +4 cents
with a +17 cent headline number. Cell phone sales fell -3%
because of delays in getting camera phones and other new
products to market in quantity. The did see a +64% jump
in orders during the quarter. Unfortunately the profit
margin on their phones is only 4% compared to 20% for
competitor Nokia. They raised guidance to 5-7 cents for
Q1 and analysts were expecting +5 cents. MOT traded down
slightly in after hours despite the good results.

AMD blew the doors off with its first profit in more than
two years on strong 4Q demand for memory and computer chips.
AMD said the gains were seasonal and the 1Q would be flat
to down. They still expect to post a profit for the 1Q
but after that it becomes dicey again. They said flash
memory had been strong in the 4Q but pricing pressure and
demand would make it flat in the 1Q. This was the same
guidance Intel gave on flash memory. AMD was up early on
the news but traded down as the after hours session ended.

RFMD took a hit in after hours after beating estimates by
+3 cents but then guiding down for Q1. The company was
still upbeat but a pause in demand will push estimated
Q1 earnings down to only +2 to +4 cents. Analysts had
been expecting +7 cents.

PMCS beat the street by a penny and said they were still
expecting a strong 2004. They did use the "if" word in
their guidance saying "if current trends continue" but
then that is always the implied scenario. PMCS traded
down slightly after the announcement.

SANM turned in a profit and reversed a prior loss but the
street was not happy with the results. Guidance was inline
with estimates but given the expectations for the sector
analysts were hoping for more. The consensus after the
guidance was that SANM was benefiting from a restocking
cycle and not new orders for an increase in IT spending.
David MacGregor, a research analyst for Longbow said he
surveys three dozen or so board companies each month and
he saw only a little evidence of inventory buildup from
companies like SANM.

Techs got a very late gift after the close. The Semi
Book-to-Bill came in at 1.20 and a high not seen in many
months. This would suggest a sharp increase in orders
and more confirmation that the 4Q was strong. This is a
December number but one that should negate any negatives
from some of the earning questions tonight. The futures
did not react to the B-t-B announcement but it does not
come out until the after hours stock session closes so
reaction is normally muted until the next day.

After the flurry of tech earnings after the close the
futures fell slightly. This could have been due to the
less than stellar guidance from some or just fear of the
president. The State of the Union speech tonight offers
numerous chances for a few misplaced comments to tank
various sectors depending on the initiatives mentioned.
The drug and health care sector are a favorite with
comments about lowering the cost of healthcare suggesting
profits for those companies will be lower. The energy
sector could be volatile should any sweeping suggestions
appear. Oil hit $36 a barrel today so I expect that to
be on the hit list somewhere. The speech tends to hit
every possible campaign target so nothing is sacred.
Getting out of the way in advance with your profits is
not a bad idea. This is also a very high profile event
where all the heads of government are gathered in one
place. This would be a terrorists dream target although
probably the toughest possible target considering the
security. This could have provided even more reasons
for taking some profits off the table.

The markets were far stronger today than the closing
indexes suggest. The Dow lost -71 based on drops in HON,
UTX, MMM, CAT, INTC and several others. Gains in IBM
failed to prevent the dip. The -$5 drop in MMM was a
major drag on the index. However, that Dow drop was
mostly based on those five stocks. It was not a broad
based decline. The Nasdaq closed at a new high near
2150 and the Russell gained a whopping +7.57. The S&P
was flat. However the internals tell the real story.
Volume ended strong at 5.23 billion across all exchanges.
Considering the almost complete lack of volume intraday
this is amazing and could have been option related. The
A/D line was nearly 2:1 in favor of advancers despite
the negative indexes. The new 52-week highs hit a three
month high at 1341. This was not a negative day.

The only qualifier was the strange volume, which was
very heavy at the open and the close and flat intraday.
This suggests that volume was squaring of exercised
option positions. The key will be the volume and direction
on Wednesday. Earnings are appearing faster than popped
corn in a hot skillet and there is plenty of reasons to
trade. If the volume continues tomorrow and displays
the same positive patterns then the outlook is good.
Lately volume has been increasing almost daily but we
are still stalled under 10600 on the Dow and 1161 on
the S&P. The Nasdaq and Russell are in breakout mode
and not looking back. Eventually the blue chips have
to join the party or the party is going to fade. This
is the week for it to happen and Microsoft's earnings
on Thursday could be the pivotal point. The speech is
about to start and the next 90 minutes will also be
critical for the week. Let's hope the market likes it!

Enter Passively, Exit Aggressively.

Jim Brown
Editor


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FUTURES MARKETS
***************

Dollar Stalls
Jonathan Levinson

A breakaway downside gap in the dollar coincided with an upside
breakaway gap in gold, and pushes to new highs for equities.
Equities reversed into negative territory while the CRB advanced,
crude oil reached 36, and bonds retreated.


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.

Chart of the US Dollar Index


The US Dollar Index made a significant reversal, failing from a
spike above 88 to trade below 87 as of this writing.  The upper
descending channel trendline was not tested on this bounce, and
while the daily cycle upphase remains intact, today’s large drop
bodes ill for dollar bulls.  The CRB broke to new highs, led by
natural gas, coffee, heating oil and crude oil futures, closing
up 2.85 at 270.73.  Gold rallied, silver advanced, and the HUI
and XAU gained better than 4% and 3% respectively.


Daily chart of February gold


February gold broke above and held 412 for most of the session,
closing +6.70 at 412.90.  Just as the USD Index gapped and failed
below the descending upper trendline, gold gapped and bounced
from above its rising support line.  The daily cycle downphase is
still intact, and this strong move remains corrective within the
daily cycle until the downphase aborts.


Daily chart of the ten year note yield


Bonds got sold modestly today, with the ten year note yield (TNX)
gaining 4.3 basis points to finish up at 4.057%, a 1.07% gain in
yield on the day.  The daily cycle downphase is still intact, but
I don’t expect it to survive another solid up day.  As noted this
morning in the Futures Monitor, the relationship we were tracking
last week, of strong dollar-strong bonds-strong equities-weak
metals played perfectly in reverse today.  Equities remain the
wildcard.


Daily NQ candles


The NQ managed to go net nowhere today, which was an awesome feat
given the persistent weakness on the YM.  Networkers were very
strong again today, and while the YM was dragged down by weakness
in MMM, the NQ had JNPR pulling it higher.  The 20.50 point range
left us with an almost perfect doji star, with equal indecision
both above and below unchanged.  The rising lower trendline was
tested but did not break, the daily cycle oscillators continued
to trend, and a 30 minute downphase ran its course and bounced on
cue.  1545 is looking like steeply rising trendline support here,
followed by 1515.  No point discussing resistance, with 1563
today’s high, but an upside break out of this steeply rising
channel would enter the realm of the surreal.  For the day, NQ
added
50 to close at 1553.50.


30 minute 20 day chart of the NQ


That’s well and good, but a look at the 30 minute chart paints a
picture of utter control and gruff, burly confidence.  The 30
minute chart looks like a rock, ram tough and ready when you are.
The 30 minute cycle downphase aborted early, never spending
anytime anywhere near oversold extreme, and the upphase delivered
nicely, complete with a small short covering tape-painting panic
in the final half hour of the cash session.  1545-47 is the top
of the consolidation zone and is now important support, with
rising trendline support around 1550.  To top it all off, Al
Green’s All-Rally-All-The-Time Fed jacked in an amazing 14B in 2-
day repos, and that huge an amount of money should be sufficient
to prevent any real selling of equities tomorrow.  Provided that
no significantexternalities intervene (ie unwelcome comments in
the State of the Union address tonight), the NQ looks like it
wants to go higher.


Daily ES candles


The ES also closed flat on a doji star.  The sideways 8 point
range does not avail itself of much incisive analytical insight.
Whether today’s lack of movement was due to the resetting of
option positions in the wake of last week’s expiry of January
options, we cannot know.  Volatility was low, and was the put to
call ratio, but in the end, little occurred.  Support is at 1130,
followed by 1118.  For the day, ES dropped .50 to close at
1137.50.


20 day 30 minute chart of the ES


ES broke out of a bear wedge this morning after a doji rejection
of a new rally high, and engulfed Friday’s even narrower range.
The close in unchanged territory averted the reversal signal
printed on YM, and the market can go either way from here.  The
30 minute cycle is pointed north, and a retest of 1542-3 looks
imminent from here.  The markets’ reaction to tonight’s speech is
the wildcard, but then, 14B of the Fed’s money should mute even
that.


150-tick ES with volume-by-price


The short cycle oscillators are mixed here, but with the Keltner
channels reflecting the upward bias implied by the 30 minute
cycle upphase currently in progress.

Daily YM candles


YM dropped 65 points or .61% to close at 10512.  It was the
weakest link today, perhaps because blue chips are most popular
with foreign investors and thus most sensitive to currency moves,
or perhaps because heatmappers and momo traders were bailing out
of the staid old YM and jumping onto the likes of JNPR, NT and
JDSU.  Either way, the YM renewed its commitment to the daily
cycle downphase aborted on Friday, and came to rest on the lower
rising trendline at the bottom of an ugly gravestone doji,
marking a key outside reversal day from the morning euphoria of a
new rally high.  These key outside reversals have been in the
habit of failing lately, and did so on a few occasions during
autumn 2003.  Nonetheless, the bullishness on the NQ today is
shockingly absent from the YM, which is holding onto its uptrend
by a thread here.  A break below 10470 would imply a retest of
10340 support.


20 day 30 minute chart of the YM


Whether the decline in the dollar was corrective or the start of
the next blast to new lows will not be known until we see the
84.80 level tested again.  At this rate, we could see that by
Thursday.  Until further notice, it appears that US-denominated
bonds and equities are trading in lockstep with the dollar and
inversely to hard commodities.  With opex week now behind us, I
am hoping to see an uptick in volatility and the return of wider
ranges.


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

A little bit of this and that

Traders returned from a 3-day weekend to see the major indices
trade mixed.

I can't argue that today's mixed trade was attributed to some
"sell the news" on stocks that had made nice bullish runs ahead
of earnings, and when earnings were released, bulls paid
themselves in the form of profit taking.

I thought the same thing as some traders and investors noted in
today's session.  Last night's Iowa caucus results showed
Democratic Senator John Kerry beating former Vermont governor
Howard Dean by a better than 2-to-1 margin.  An overwhelming
victory that may have some market participants thinking that
President Bush's run for a second term might not be the cakewalk
some have predicted if Mr. Dean were to win the Democratic
nomination.

Some market analysts and election watchers felt that should an
"unelectable" Howard Dean win the Democratic top spot to run for
President against incumbent George W. Bush, that a "more
certain," or predictable economic policy be in place for another
4 years, with President Bush winning.

John Kerry's Iowa caucus win now opens up what many see as a
three-man race between John Kerry, John Edwards, and Howard Dean,
where Howard Dean was viewed as the likely frontrunner to face
President Bush in this fall's election.

The most basic thought as it relates to this year's presidential
election was that Mr. Dean's platform and President Bush's
platform were about as different as oil and water.  However, more
similarities were found with Mr. Kerry's and Mr. Edward's
platforms regarding economic policy as with President Bush's.
Certainly there are differences, but Mr. Dean's platform is
vastly different.

If bulls were dealt any type of blow in the past 24-hours, I'd
have to say it was the Iowa caucus results.

Some fine tuning after last week's index and stock option
expiration may have also taken place in today's trade.  Late last
week we saw the INDU, SPX, OEX and NDX see what I considered to
be a rather "unnatural" trade, and despite some rather strong
market internals, these indices that will hold heavy option-
related interest traded lower, while the very broad NYSE
Composite ($NYA.X) 6,599.48 +0.48% and NASDAQ Composite (COMPX)
2,147.98 +0.35% seemed to reflect today's internals.

Considering the weighted nature of the INDU, SPX, OEX and
NDX/QQQ, which can be influenced by option-related action,
today's 1.28% gain in the smaller-cap Russell-2000 Index (RUT.X)
597.98, which tends to be less influenced by option-related
action hints of some near-term unwinding of options.

The Market Volatility Index (VIX.X) 15.21 +1.4% jumped to 16.13
intra-day, to then close at its lows the session, but up from
Friday's 52-week closing low of 14.98.

Some option traders said call buyers were abundant, and while
this may be true, I would have thought the VIX.X would have
fallen.  A cursory check of the SPX option chain shows the March
1,125 call (SPTCE) most active at 8,556 contracts (OI=62,216)
with the February 1,050 puts (SPQNJ) trading 6,875 (OI=34.579).

Market Snapshot / Internals - 01/20/04 Close



Large caps weighed on the major indices today as the INDU, SPX,
OEX and QQQ all finished lower, despite positive A/D breadth at
both the NYSE and NASDAQ.  NASDAQ's 571 new 52-week highs is the
largest number of new 52-weekers since I've been keeping nightly
hand counts (01/21/03), and surpasses the 505 new highs found on
September 3, 2003.  Current 10-day average NH/NL ratio at the
NYSE is 99.3% and 98.7% at the NASDAQ.

The Oil Service Index (OSX.X) 100.30 +4.71%, AMEX Gold Bugs Index
($HUI.X) 229.73 +3.9%, Natural Gas Index (XNG.X) 227.09 +3.03%,
North American Telecom (XTC.X) 642.74 +2.09% and Health Provider
Index (RXh.X) 390.21 +2% were sectors posting gains greater than
2%, while the S&P Retail Index (RLX.X) 373.58 -1.00
% was the only equity index/sector I show falling 1% or more.

Pivot Analysis Matrix -



Please note that today's U.S. Dollar Index (dx00y) 86.63 -1.17%
high/low/close was taken from my Qcharts daily snapshot bar.  I
was not able to see intra-day charts as many data feeds looked to
be non-existent, which sometimes happens with Monday being a
holiday.  Some currency traders also made mention that the dollar
was under selling pressure today as a result of "uncertainty"
regarding the Iowa caucus.

I've highlighted in PINK the INDU's daily low of 10,519.49 and
closely matching trade at its WEEKLY Pivot of 10,523.08 and also
the INDU's WEEKLY high last week of 10,600.74, which I would
point out did not see trade at its MONTHLY R1 of 10,682.46 this
month (January).  What these two simple observations do is have
us understanding/observing that the INDU is a lagging major index
right now as it relates to levels in our matrix.

The price-weighted INDU showed 4 of the 5 highest priced INDU
components (PG $98.67 -0.33%, IBM $97.10 +1.86%, UTX $94.80
-2.76%, CAT $82.15 -2.36% and MMM $80.41 -5.93%) trading lower in
today's trade, with MMM and UTX having reported quarterly
earnings in today's trade.  Both MMM and UTX traded 52-week highs
on Friday, and today's selling certainly suggests some "sell the
news" on a near-term basis.

I wanted to quickly check both stock's point and figure chart
bullish vertical counts to try and get a feel for "why" these
stocks saw a more notable round of selling today.  MMM's PnF
chart shows a bullish vertical count of $95, which is currently
in play unless the stock would generate a double-bottom sell
signal at $75, while UTX has exceeded its bullish vertical count
of $85, where first sign of weakness would be a double-bottom
sell signal at $92.00.

This cursory check of supply/demand for two of the more heavily
price-weighted Dow components does hint that stocks are running
into earnings, but seeing selling on profit taking once the
fundamental analysis is proved correct, and gives some near-term
focus to the INDU WEEKLY S1 and WEEKLY R1/MONTHLY R1 as
formidable near-term support/resistance levels, with resistance
looking more formidable at the 10,680 level.

Tomorrow, Dow component JP Morgan (NYSE:JPM) $39.09 -0.45% is
slated to report quarterly earnings with consensus of $0.77 per
share on revenues of $8.131 billion.

Dow Industrials (INDU) Chart - Daily Intervals



While the INDU showed intra-day support at its WEEKLY Pivot, even
a bull might want to see more of a pullback to give upside to a
10,680 target.  The shorter-term 21-day SMA is rising near the
WEEKLY S1 of 10,445, where MACD and Stochastic oscillators
suggest a pullback is likely.  I've tried to tie in MMM and
traded near $77-$78 from its point and figure chart, where one of
the INDU more heavily price-weighted components might pull back
to, where a rebound back higher in MMM has the Dow firming around
its WEEKLY S1 for a bounce back higher.

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



Based on work we've done to develop a bullish or bearish bias for
the markets, if not the S&P 500 with the e-mini futures (es04h)
in recent months, I (Jeff Bailey) can't really be skewed from a
bullish bias in the SPX unless we were to see a break below the
1,129 level in the SPX itself.

Some of today's buy/sell program premium alerts, most of which
were sell program premium alerts, came before the lunchtime hour,
and this observation is what has me thinking that we saw some
"unwinding" of short-term option expiration activity today.  Just
as we saw a lot of program trading late last week into index
expiration eventually develop further gains from the SPX from the
1,125 level, I think today's sell program premiums found, had
institutions unwinding some near-term hedges and selling back
futures as index values and individual stocks may now have been
delivered against prior-written calls that institutions had sold.

E-mini S&P Futures (es04h) - Daily Intervals



I showed this chart weeks ago, and it has been rather amazing how
the futures market has seemed to trade the levels of blue and
purple retracement we put together using the "fitted" retracement
technique.  I'm not trading futures, but use this chart to
develop an overall trading bias with the thought that
institutions will heavily use futures to hedge positions and
offset any call and put writing activity.

S&P 100 Index (OEX.X) Chart - Daily Intervals



I looked at the OEX's top 10 weighted market cap stocks all day
today, and they showed a very mixed trade by their close.

GE +0.02%, MSFT +1.04%, XOM +0.93%, PFE -1.34%, C -0.42%, WMT -
0.99%, INTC -0.85%, CSCO -0.92%, AIG -1.01% and IBM +1.86%.
(sorted by market cap)

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval



Today's trade at $39.00 wasn't a "bad tick."  I thought for sure
it was after reviewing the QQQ this morning.  NASDAQ hasn't
updated short interest on the QQQ, SPY or DIA for January 15
dates, but the QQQ trade at WEEKLY R1 suggests shorts are quite
jittery.  $36.25 begins to look like formidable near-term
support.

Jeff Bailey


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

Stronger Than Expected
- J. Brown

The major averages don't tell the whole story.  The Dow Jones was
strongly red on the session after components MMM and HON both
took some big hits.  Meanwhile the NASDAQ managed another new
high closing at levels not seen in 30 months.  The strong market
internals underline the strength not shown in the closing prices.
Advancers pushed past decliners 18 to 10 on the NYSE and 2 to 1
on the NASDAQ.  Up volume was twice down volume on both
exchanges.

The selling was heaviest in the retail sector as the RLX dropped
1 percent after failing at the 380 level twice in the last three
trading days.  More sector indices were positive than negative
and leading the way were the oil services stocks with the OSX up
4.7 percent.  It's probably not a coincidence that crude oil
futures rose 87 cents to $34.87 a barrel.

The XAU gold & silver index also posted a strong bounce, up 2.44
percent as gold futures soared nearly $6 towards $413 an ounce.
As expected many of the XAU components followed suit but it
remains to be seen if this is a buy the dip opportunity or just
an oversold bounce.

The XNG natural gas index also produced a decent session with a 3
percent gain following El Paso corp. who jumped 15% after
Barron's highlighted the stock over the weekend.

Oddly enough the NWX networking index saw no profit taking after
Friday's big surge due to Juniper Network's incredible earnings
report.  Of course we'll hear from Lucent tomorrow and Nortel
Networks in a few days and investors are probably just waiting to
hear what these to networking giants have to say about their Q1
guidance.

Keep an eye on the DFI and DFX defense indices.  General Dynamics
leads off the defense sector's parade of earnings tomorrow and
we'll continue to hear from the group over the next several
sessions.


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

Market Averages

DJIA ($INDU)

52-week High: 10616
52-week Low :  7416
Current     : 10528

Moving Averages:
(Simple)

 10-dma: 10536
 50-dma: 10086
200-dma:  9365



S&P 500 ($SPX)

52-week High: 1142
52-week Low :  788
Current     : 1138

Moving Averages:
(Simple)

 10-dma: 1129
 50-dma: 1081
200-dma: 1008



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  795
Current     : 1552

Moving Averages:
(Simple)

 10-dma: 1530
 50-dma: 1444
200-dma: 1302


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

In spite of some market weakness earlier today the volatility
indices remain near their lows.

CBOE Market Volatility Index (VIX) = 15.21 +0.21
CBOE Mkt Volatility old VIX  (VXO) = 14.95 -0.32
Nasdaq Volatility Index (VXN)      = 20.49 +0.25


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.60      1,126,135       673,994
Equity Only    0.52        994,208       513,167
OEX            1.32         14,469        19,115
QQQ            4.75         24,131       114,718


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

Bullish Percent Data

           Current   Change   Status
NYSE          77.9    + 0     Bull Confirmed
NASDAQ-100    81.0    + 0     Bull Confirmed
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       87.8    + 0     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: 0.89
10-dma: 0.97
21-dma: 0.91
55-dma: 1.03


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1804      2082
Decliners    1078      1042

New Highs     344       442
New Lows        6         3

Up Volume   1475M     1684M
Down Vol.    710M      859M

Total Vol.  2197M     2561M
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


NASDAQ-100

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

DOW JONES INDUSTRIAL

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
bearihs.


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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The Option Investor Newsletter                  Tuesday 01-20-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: GD
Dropped Puts: DIA
Call Play Updates: AMZN, APOL, DGX, ESRX, GILD, MBI, MWD, MXIM, STJ
New Calls Plays: GENZ
Put Play Updates: ADBE
New Put Plays: None


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

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


CALLS:
*****

General Dynamics - GD - close: 93.83 chg: +0.05 stop: 91.75

That's it!  As previously discussed this play is closed.  Traders
bought the dip again as GD slipped toward the 92.65 mark intraday
before a mild afternoon rally.  That's fine with us as we get to
close the play with a decent run ($5.05).  GD announces earnings
before the bell tomorrow and estimates are for $1.37 a share.
Keep your ears open for their guidance.  There are a number of
defense-related stocks announcing this week and GD will set the
tone for the industry.

Picked on December 21 at $88.78
Change since picked:     + 5.05
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:      1.0  million
Chart =



PUTS:
*****

Diamonds Trust - DIA - cls: 105.46 chng: -0.66 stop: 106.25

As if the only goal was to thwart our bearish play, DIA surged
higher this morning, taking out our stop with an early high of
$106.40.  That strength quickly faded, with the stock falling to
close just off its low of the day and this could be the rollover
we were anticipating.  Unfortunately, with our stop tripped early
this morning, we must watch from the sidelines.  Aggressive
traders willing to hold open positions still may see the play
turn into a winner, but the $105 level will need to fail as
support first and then more importantly we'll need to see a break
of the 20-dma (currently $104.72) on a closing basis.  If holding
open positions, we'd suggest a revised stop at $106.50, just over
this morning's high print.  DIA still looks ripe for a
significant fall, and if price action confirms that view, it is
conceivable that the stock will find its way back onto our
bearish play list in the very near future.

Picked on January 8th at     $104.69
Change since picked:           +0.77
Earnings Date                    N/A
Average Daily Volume =      5.90 mln
Chart =



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

Amazon.com - AMZN - close: 56.61 chg: +0.89 stop: 51.25

A 1.59% gain is certainly not a bad start to this holiday
shortened-trading week.  AMZN outpaced the NASDAQ and the INX
Internet index and looks poised to tackle resistance at the 57.50
level soon.  As we mentioned over the weekend time is running
short for this particular AMZN play because earnings are fast
approaching on Jan. 27th and we don't plan to hold over the
event.  Odds are too good that we'll see a "sell the news"
reaction, which is exactly what happened to YHOO last week.
There are no new significant news items and no change in our stop
loss.

Picked on January 14 at $55.01
Change since picked:    + 1.60
Earnings Date         01/27/04 (confirmed)
Average Daily Volume:       10 million
Chart =


---

Apollo Group - APOL - close: 75.10 change: +0.96 stop: 71.00*new*

Education stocks refused to play the game of weakness found in
most of the broad market on Tuesday and our APOL play surged to
new all-time highs above $75.  Volume wasn't anything to get
excited about at roughly half the ADV, but we'll take this sort
of price action any day of the week.  With another breakout to
new highs, the stock is definitely exhibiting strength and we'll
play the trend as long as it lasts.  APOL is up strongly over the
past week, so momentum entries don't appear to be the best choice
at this point.  Instead, look for a pullback near former
resistance in the $72.50-73.00 area - reinforced by the 10-dma
($72.65) - to provide entry opportunities.  Raise stops to $71,
which will be below the 20-dma ($70.69) by tomorrow.

Picked on January 13th at    $72.63
Change since picked:          +2.47
Earnings Date               3/18/04 (unconfirmed)
Average Daily Volume =     2.06 mln
Chart =


---

Quest Diagnostic - DGX - close: 77.55 chg: +0.74 stop: 74.50 *new*

Wall Street appears willing to chase the recent strength in DGX as
the stock added another 74 cents on top of last week's gains.
There are no new headlines for the company but we do notice a
1.61% gain in the HMO healthcare index.  At $77.50 this is not a
bad level to consider taking some profits off the table.  DGX
could easily dip back toward the $75 mark before bouncing again
and we only have a few days left before its earnings announcement
on Jan. 27th.  We are going to raise our stop loss to $74.50,
which is just under the simple 10-dma (where DGX found support
last week).  Should DGX surprise us with a spike higher we will
exit if shares hit the $79.95 mark.

Picked on December 30 at $72.95
Change since picked:     + 4.60
Earnings Date          01/27/03 (confirmed)
Average Daily Volume:      836  thousand
Chart =


---

Express Scripts - ESRX - close: 67.94 change: -0.36 stop: 63.00

The first day out of the gate for our ESRX play was rather dull,
with the stock pulling back fractionally, most likely pressured
by the weakness in the rest of the market.  Remember our ideal
entry point is on a pullback near the $66 support level, so
today's slight drop is a good start.  The stock has been moving
to new highs, then retracing to confirm slightly higher support
and then repeating the process.  So if the pattern continues, we
should see a bit more pullback from Friday's new recent high and
then a solid rebound from support.  Both the 10-dma ($65.67) and
the 20-dma ($65.65) are rising to reinforce support at $66, so
that looks like a good place to enter on a rebound.  Traders that
would prefer to enter on strength will need to see a push through
today's intraday high and break above $69 before playing.  Such a
move will have ESRX solidly into the July gap and bring the $72
level into play as the next logical target.  Maintain stops at
$63, which is below both the 50-dma ($63.53) and 200-dma
($63.14), with the former having just crossed above the latter.

Picked on January 13th at    $68.32
Change since picked:          -0.38
Earnings Date               2/24/04 (confirmed)
Average Daily Volume =     1.28 mln
Chart =


---

Gilead Sciences - GILD - cls: 63.55 chng: +0.16 stop: 60.50*new*

Despite weakness in the broad market, the Biotechnology index
(BTK.X) held firm on Tuesday and our GILD play eked out a
fractional gain, inching closer to our expected breakout over
$64.  It looks like the stock is moving above the consolidation
of the past couple weeks, but we'll need to see that breakout to
be sure.  In the meantime, intraday dips near the $62 level look
good for continuation entries, with that support being reinforced
by the 10-dma at $61.82.  Traders wishing to enter on strength
will want to wait for the breakout over $64 before playing, as
that breakout should be the prelude to a run towards the $66
level (top of the September gap) and then perhaps a rise towards
$68.  Time is growing short on this successful Biotech play, as
the company is set to report earnings on January 29th, giving us
just a week until we'll need to exit.  Note that we've slightly
raised our stop to $60.50 tonight, which will be below the 20-dma
($60.30) by tomorrow and is right at solid support from the past
couple weeks.

Picked on December 21st at   $59.40
Change since picked:          +4.15
Earnings Date               1/29/04 (confirmed)
Average Daily Volume =     3.74 mln
Chart =


---

MBIA Inc. - MBI - close: 63.07 chg: +0.15 stop: 59.00

Our new play in the insurance sector, MBI, is holding up pretty
well.  We had suggested a dip to the $61 level as a potential
entry point but traders stepped in and bought today's low at
62.40 instead.  If you're patient the 10-dma near $61 still looks
like a good entry.  The IUX insurance index lost ground today so
we're encouraged by MBI's relative strength.  No change to our
stop loss.

Picked on January 20 at $62.93
Change since picked:    + 0.15
Earnings Date         02/03/04 (confirmed)
Average Daily Volume:      572 thousand
Chart =


---

Morgan Stanley - MWD - close: 59.88 chg: -0.55 stop: 56.75

After the long weekend shares of MWD pulled back today in some
mild profit taking.  We're not happy to see it under perform the
XBD broker-dealer index but this dip might offer another entry
point for traders.  There were a few headlines for MWD as well.
One offered positive news that MWD made a profit of 760,000 euros
in the sales of its 4.99 percent stake in Spanish power company
Union Fenosa.  Another news story reported that Federal
regulators okayed a deal for MWD to buy 241 electricity contracts
from Duke Energy Corp (DUK).

Picked on January 15 at $59.81
Change since picked:    + 0.07
Earnings Date         03/18/04 (unconfirmed)
Average Daily Volume:      3.8 million
Chart =


---

Maxim Integrated - MXIM - cls: 54.74 chg: -0.64 stop: 51.45

The profit taking was a bit stronger in MXIM today, which dropped
1.15% but bounced from its lows of the session.  Traders stepped
in to buy the dip to the $54.00 region (53.81 was the low).
That's exactly where we have been suggesting traders look to buy
the dip (53.50 to 54.00).  Hopefully we'll see some follow
through tomorrow and MXIM can run back toward its highs near $56.
Keep an ear or two open to listen for KLAC's earnings results
tomorrow after the closing bell.  Positive news from KLAC could
lift the chip sector and MXIM with it.  We are not going to raise
our stop loss just yet but conservative traders might want to
consider a stop in the 53.00-53.50 range.

Picked on January 06 at $51.89
Change since picked:    + 2.85
Earnings Date         02/05/04 (unconfirmed)
Average Daily Volume:      5.4 million
Chart =


---

Saint Jude Medical - STJ - cls: 65.15 chg: +0.56 stop: 61.00

STJ offered investors more good news today with an announcement
that they've introduced their Atlas+ HF implantable cardioverter
defibrillator, the ICD that provides the highest energy output of
any ICD on the market.  This inspired shares of STJ to a new all-
time high early in the session and its first close over the $65
mark, a potential round-number resistance point.  It's a little
interesting to note the trading pattern in STJ over the past two
days.  The stock shoots higher in the morning, slowly fades back
most of the session and then surges higher again very late in the
session (last 5 to 20 minutes).  We've only got about five
trading days left before STJ's earnings announcement, adjust your
strategy accordingly.

Picked on January 12 at $64.01
Change since picked:    + 1.14
Earnings Date         01/28/04 (confirmed)
Average Daily Volume:      1.4 million
Chart =



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

Genzyme Corp. - GENZ - close: 53.00 change: -1.26 stop: 49.50

Company Description:
Genzyme General, a division of Genzyme Corporation, is focused on
developing innovative products and services to solve major unmet
medical needs.  GENZ has nearly 600 products and services on the
market and a strong pipeline of therapeutic products for the
treatment of rare genetic diseases.  The Diagnostics business
unit develops, markets and distributes in vitro diagnostic
products and genetic testing services. With a solid, profitable
revenue base, this research is intended to maintain the company’s
high rate of earnings growth.

Why we like it:
Ever since being turned back from the $515 level in June, the
Biotechnology index (BTK.X) has been struggling to get back over
$500, significantly underperforming the rest of the Technology
market.  Last Friday, the BTK finally showed some signs of
strength though, managing a close over $500, its first since
April of 2002.  Price action was nothing to get excited about on
Tuesday, but it was encouraging to see the index hold its gains
from last week.  GENZ has been in a similar consolidation mode
over the past several months, with critical support at the 200-
dma being tested on several occasions in November and December.
But things took a definite turn for the better last week, with
the stock breaking out over $50 and then following that up with a
breakout over $52 on Thursday, representing its best levels since
January 2002.  Continuing with the breakout, GENZ surged within
spitting distance of the $55 resistance level on Friday before
today's mild pullback.  The recent breakout has been very
constructive for the picture shown on the PnF chart, with the
November Buy signal giving a vertical count of $64 and this
latest rally leg giving a breakout over the descending bearish
resistance line.

It is interesting that $64 is exactly the site of the stock's
all-time high from June of 2001 and that may indeed be a viable
target.  But it's a bit aggressive for the timeframe of our play
and we'll set our sights a bit lower, looking for a rally up to
major resistance at $60-61  Following the breakout over $52, it
would make sense that GENZ would pull back to confirm that broken
resistance as new support, so a dip and rebound from the $51-52
area would be the preferred entry.  Strong support should be
found near $50, with the 10-dma ($50.45) and 20-dma ($49.57)
rising to reinforce that support.  A dip near $50 would be a much
more aggressive strategy but one that just might make sense,
especially with risk so easy to control using our initial stop at
$49.  Momentum entries will need to wait for a breakout over $55
before playing, and should be confirmed by the BTK index taking
out $515 resistance.

Suggested Options:
Shorter Term: The February $50 Call will offer short-term traders
the best return on an immediate move, as it is in the money.
Short term traders with a more aggressive stance will want to use
the OTM February $55 call.

Longer Term: Aggressive longer-term traders can use the April $55
Call, while the more conservative approach will be to use the May
$50 strike.  Our preferred option is the April $55 strike, which
is just slightly out of the money and should provide sufficient
time for the play to move in our favor.  There are March strikes
available, but since there is currently no open interest, our
preference is for the April strikes.

BUY CALL FEB-50 GZQ-BJ OI=1007 at $4.00 SL=2.50
BUY CALL FEB-55*GZQ-BK OI=1139 at $1.25 SL=0.60
BUY CALL APR-50 GZQ-DJ OI=1110 at $5.30 SL=3.25
BUY CALL APR-55 GZQ-DK OI=3510 at $2.55 SL=1.25

Annotated Chart of GENZ:



Picked on January 20th at    $53.00
Change since picked:          +0.00
Earnings Date               2/19/04 (unconfirmed)
Average Daily Volume =     2.85 mln
Chart =



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Adobe Systems - ADBE - close: 38.50 change: +0.20 stop: 40.00

Bulls and bears alike are wondering what ADBE has up its sleeve,
as the price action over the past couple weeks has been a bit on
the inscrutable side.  After recovering from the apparent
breakdown under the 200-dma (now $37.44), the stock held its
ground and then popped higher towards the end of last week.  The
past 2 days have seen price action thwarted near the confluence
of the 20-dma ($38.89) and 30-dma ($38.93).  This looks like a
rollover getting started and it will be reassuring to have the
50-dma ($40.01) breaking below $40 tomorrow, helping to protect
our stop.  Right now, price is in the middle of its recent range,
so it is tough to pick an entry here.  Aggressive traders can
consider entries on a failed bullish move below the 50-dma, but
the more conservative (and we think prudent) strategy will be to
wait for ADBE to break back under $38 and preferably back under
the 200-dma.  Once back under the 200-dma, we can look for
potential support near $36 again and then a drop to the $34 area.
Maintain stops at $40.

Picked on January 11th at     $37.12
Change since picked:           +1.38
Earnings Date                3/11/04 (unconfirmed)
Average Daily Volume =      3.24 mln
Chart =



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

None


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The Option Investor Newsletter                  Tuesday 01-20-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Earnings & State of the Union


**********
WATCH LIST
**********

Earnings & State of the Union
___________________________________________________________________

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.
___________________________________________________________________


Aetna Inc - AET - close: 71.97 change: +2.07

WHAT TO WATCH:  Healthcare stocks have been strong lately and the
HMO index has hit new all time highs.  Following the sector
higher is AET.  The government recently (last Friday) bumped up
its Medicare rates by 10.6%, much higher than expected.  Medicare
affects 41 million elderly or disabled Americans and the current
administration would like more of them to use private care HMO's.
Tonight's State of the Union address might have some comments
regarding healthcare and Medicare, which could influence AET's
recent gains.

Chart=


---

KLA-Tencor - KLAC - close: 62.52 change: +0.42

WHAT TO WATCH:  Unhampered by the mild weakness in the SOX today,
shares of KLAC continued to drift higher.  The breakout above $60
has taken some time to finally settle in just as KLAC approaches
its earnings announcement on Jan. 22nd.  Estimates are for 19
cents a share and from the looks of its relative strength
investors are optimistic.

Chart=


---

Illinois Tool Works - ITW - close: 81.05 change: -3.48

WHAT TO WATCH:  Ouch!  ITW was sliced today with a 4% haircut on
no news, at least not any company specific news.  The pull back
stopped short of its simple 50-dma, just north of the $80 mark.
Volume was very heavy at 2.1 million shares.  Bears can look for
a breakdown under the $80 mark but watch for earnings near Jan.
29th.  Estimates should be 91 cents a share.

Chart=


---

American Intl Group - AIG - close: 69.10 change: -0.71

WHAT TO WATCH: AIG may be tempting bears to short it with a
little weakness and another failed rally at the $70 mark but
traders should do so cautiously.  The entire sector has been
strong and AIG has earnings near Feb. 11th.  We will note that
AIG's overbought MACD indicator did produce a fresh sell signal
today and bears might want to consider shorts under today's low
of 68.64 with a short-term target of $65.00.

Chart=



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

MMM $80.41 -5.07 - Ouch!  Sell the news is what is hitting MMM
today.  Shares plummeted after its early morning earnings report
but stopped at support of $80.

BAC $80.07 +1.05 - The banking sectors were up today and BAC
enjoyed the move with a 1.32% gain of its own.  A move over 80.50
and BAC may be a bullish play candidate, breaking its downtrend
of lower highs.

BEC $52.56 +1.00 - BEC has broken out to new highs with its 1.93%
gain today but is approaching resistance from the Spring of 2002.


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

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