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Daily Newsletter, Wednesday, 01/21/2004

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The Option Investor Newsletter                Wednesday 01-21-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Adrift in an Eddy of Earnings.
Futures Wrap: New Rally Highs
Index Trader Wrap: Two DOWn and one to go?


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     01-21-2004            High     Low     Volume Advance/Decline
DJIA    10623.62 + 94.96 10643.55 10490.96 2.31 bln   1759/1073
NASDAQ   2142.45 -  5.53  2150.11  2120.20 2.40 bln   1455/1636
S&P 100   568.64 +  4.89   569.47   562.02   Totals   3214/2709
S&P 500  1147.62 +  8.85  1149.21  1134.62
RUS 2000  597.48 -  0.50   598.75   591.51
DJ TRANS 3063.60 + 43.60  3063.77  3008.12
VIX        14.34 -  0.87    36.55    14.24
VXO        14.43 -  0.48    15.64    14.37
VXN        20.71 +  0.22    21.72    20.58
Total Volume 5,182M
Total UpVol  2,341M
Total DnVol  2,759M
52wk Highs    1120
52wk Lows        7
TRIN          1.18
PUT/CALL      0.67
*******************************************************************

Adrift in an Eddy of Earnings.
by James Brown

Earnings, earnings, earnings.  The markets ran higher for weeks
in anticipation of strong Q4 earnings numbers and now that
they're finally here we're getting good news.  There are
exceptions to the rule and we are still seeing investors exercise
their tendency to "sell the news" but investors are still in a
buying mood.  Traders took advantage of the recent weakness and
bought the dip.  Yesterday's worst performers in the Dow are now
some of today's best performers as MMM, UTX, HD, BA, WMT, CAT and
more all bounce higher.  Together the DJIA and the S&P 500
managed another positive session and reached new 22-month highs.

The second theme today, in addition to buy the dip, was a
rotation of money out of tech stocks and into financials and
energy issues.  JPMorgan and Citigroup were two of the top three
performers in the Dow today and I noticed several electric
utilities and natural gas stocks breaking out to new highs.  Of
course it's probably not a surprise to see some profit taking in
technology.  The NASDAQ has been hitting 30-month highs and it
took an earnings warning from the biggest hard drive maker on the
planet to finally convince investors to take some money off the
table.

Market internals were mixed, which would be expected considering
the closing numbers on the major indices.  Advancing stocks
outpaced decliners almost 18 to 11 on the NYSE.  The view wasn't
so rosy on the NASDAQ where decliners edged past advancing stocks
8 to 7.  Up volume did outrun down volume on the NYSE but up
volume was only half down volume on the NASDAQ.  Overall it was a
very heavy volume day with 2.3 billion on the NYSE and almost 2.4
billion on the NASDAQ.  Today also marked another new record on
the NASDAQ as volume traded over 2 billion for the 12th day in a
row.  The strength in the S&P 500 helped push the volatility
indices back towards their lows, which indicates extremely little
fear by investors.

As mentioned earlier, earnings news from the major player in the
computer hard drive industry last night set off a round of profit
taking across the technology sectors.  The culprit was Seagate
Technology (STX).  Not only did STX miss analyst estimates for
its December quarter numbers but it warned for the next quarter.
Estimates for last quarter were 45 cents and STX only hit 41
cents on revenues of $1.76 billion, also below consensus
estimates.  Current analyst projections for the current quarter
were 39 cents a share but STX warned that the March quarter would
probably fall in the 20 to 30 cent range.  STX gapped
significantly lower this morning and closed with a loss of more
than 20 percent.  Its news took the DDX disk drive index (-5%)
with it and fellow hard drive makers MXO and WDC both lost more
than 12%.

Not surprisingly STX wasn't the only one to blame for the tech
sell-off today.  Lackluster results from Motorola and another
warning, this time from RF Micro Devices, sent the semiconductor
sector slipping to a 2.6% loss on the session.  Networking issues
didn't fare any better.  The NWX lost 3.3% after Lucent
Technologies (LU) slipped 6.9% after reporting its Q4 numbers.
Fortunately, LU's decline wasn't related to bad news.  The
company actually beat estimates this morning on better than
expected revenues.  LU's decline was more of a "sell the news"
variety and it help up pretty well considering a 65% gain for
2004 already under its belt.

Investors now had to decide what to do with this money they were
taking out of tech.  Biotechs and airlines stocks saw a strong
surge in buying interest today but one of the real winners were
the financials.  Dow component J.P.Morgan Chase (JPM) added 2.6%
after turning in a very strong fourth quarter performance.
Analysts had been estimating 77 cents a share but JPM turned in a
net income of 89 cents.  Making this more dramatic was the year
ago comparisons against a 20 cent loss in Q4 2002.  Another Wall
Street blue chip to announce earnings was Merrill Lynch (MER).
Our nation's largest brokerage house reported net income of $1.18
per share, well above estimates at $1.01.  Unfortunately,
revenues were just $4.92 billion and below consensus estimates.
This sent shares of MER lower on concerns that the profit numbers
were achieved on cost cutting and not an increase in business.

Another big story today was the housing market and the December
housing starts.  Considering the snow, the cold and the previous
red-hot pace for homebuilders economists were expected a mild
slow down to a seasonally adjusted rate of 1.95 million homes.
This morning the Commerce Department reported an increase to 2.09
million for new home construction.  The U.S. hasn't seen monthly
housing starts that high since February 1984.  This set the
homebuilders on fire again and the DJUSHB home construction index
roared to a 4.97% gain.  It was the perfect news to frighten
shorts and inspire new buying in the sector.  Of course this data
is nothing new for the builders.  Most of the builders have been
projecting strong growth for the next two years and a few have
disclosed record-high backlog for orders.  In related news Fannie
Mae (FNM), the nation's biggest source for residential financing,
announced Q4 earnings that beat analyst estimates by 2 cents.
FNM began to rebound a week ago after the index of mortgage
applications reported its biggest increase in three years sparked
by a drop in mortgage rates this January.

The earnings parade picked up the pace again after the close and
topping the list was EBAY.  The world's largest online auctioneer
reported net income of 24 cents a share, 2 cents better than
estimates.  Revenues soared more than 57% to $648 million, well
above the consensus estimates.  Furthermore the company guided
higher for its 2004 full year estimates by 8 cents.  EBAY was
trading higher after hours, up $2.65 to $67.03.

San Diego-based QUALCOMM also reported after the bell tonight.
Reuters was reporting consensus estimates at 48 cents a share and
QCOM beat those numbers with 51 cents.  Revenues rose 13% to
$1.24 billion, passing revenue estimates.  Strong royalty and
licensing income help boost its Q4 profits but the company was
cautious about the first quarter and told investors that revenues
would actually decline.

Probably the most encouraging earnings announcement this evening
was from Symantec (SYMC), the computer-virus software maker.
Analysts had been looking for 29 cents and SYMC beat that number
by a nickel.  Revenues soared more than 30% to $493.9 million,
well above estimates for $460 million.  Making the report even
sweeter was SYMC's positive guidance for the current quarter.
Analysts had been looking for 29 cents a share on revenues of
$471 million.  Now SYMC expects earnings closer to 32 cents on
revenues between $500 and $520 million.  Given the current market
environment for investors to only hear what they want to hear
this is a strong catalyst for traders to buy the technology dip
tomorrow, at least in the software sector.

Chart of the DJIA:



Chart of the NASDAQ:



Viewing the action in the major averages it's tough to imagine
that the bears will be able to mount a solid offense tomorrow.
The NASDAQ looks poised to break the 2150 mark and if not there
will probably be traders waiting to buy the dip to 2115-2100 near
its simple 10-dma.  The DJIA looks even stronger with a bullish
engulfing candlestick pattern on top of another bounce from its
rising 21-dma as well as a close above the 10600 level.  Now
cross your fingers and hope that AT&T (T), BellSouth (BLS),
Eastman Kodak (EK), Ford (F), Nokia (NOK) or Pfizer (PFE) don't
blow it for us.  This list of companies represent the major
earnings announcements before Thursday's opening bell.

Aside from the earnings buffet Wall Street will also be digesting
the weekly jobless claims numbers, which are expected to come in
flat, and the December leading indicators.


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

New Rally Highs
Jonathan Levinson

Dollar up or down, equities go up.  That trend reasserted itself
today as the ES and YM sprinted to new rally highs, the NQ
lagging, while gold, silver and the CRB corrected part of
yesterday's advance and bonds gained slightly.


Daily Pivots (generated with a pivot algorithm and unverified):


Note regarding pivot matrix:  The support, pivot and resistance
levels above are derived from the high, low and closing price
levels by a simple mathematical formula.  They are not intended
to be predictive of market turning points or to serve as targets,
but rather represent the range retracement levels as generated by
the pivot algorithm.  Do not think of them as market "calls"
or predictions.  Like any technically-derived indicator or price
level, the pivot matrix values should be regarded as decision
points at which to evaluate current market conditions.  Visit us
in the Futures Monitor for our realtime views of the various
markets covered here.

Chart of the US Dollar Index


The US Dollar Index sunk lower overnight and spent the day trying
unsuccessfully to regain 86.40 (cash index).  The steep daily
cycle upphase hesitated but remains pointed higher.  The dollar
weakness coincided with weakness in the CRB as well as precious
metals, with the CRB dropping 1.54 to 269.23 on weakness in FCOJ,
Natural gas and silver futures.


Daily chart of February gold


There was a story that circulated in the early morning about the
Bundesbank's intention to sell 600 tons of silver over the next 5
years.  Silver led gold lower, but both traded weakly throughout
the session, with gold bouncing from 407.60 and silver from 6.10.
February gold failed at 413.70, spending most of the afternoon in
the 412 area.  The HUI and XAU traded both sides of unchanged.
Support at 407 on gold remains key and began to resemble a
potential head and shoulders neckline.  If it is, then a break
implies a downside target around 385.  While I doubt if that
level will be reached, these corrections can be fast, and little
would surprise me.  Gold closed at 410.70, a .58% decline.


Daily chart of the ten year note yield


Bonds corrected part of yesterday's losses, with the TNX dropping
1.8 basis points to finish at 4.039%, a .44% move for the
session.  Despite this correction of yesterday's move, the
support line under the ten year yield looks far away near 3.9%,
and the daily cycle oscillators are looking bottomy here.  If
bond bears can hold the yield above 4%, the current downphase
should abort and a new yield upphase will commence, targeting
first resistance at 4.1%, followed by descending trendline
resistance in the 4.3% area.


Daily NQ candles


The NQ was the weaker equity index by a comfortable margin today,
making a valiant effort to scrap itself off the lows even as the
ES and YM made new rally highs.  The wide 27 point range took
place almost entirely below the broken rising channel support
line, and could have been a bullish hammer had the index been
able to stay above unchanged.  But it couldn't, and the deep
spike was sufficient to print a sell signal on the 10-day
stochastic.   Bears should take it with a grain of salt until the
Macd gives a confirming cross.  The price trend remains up, and
the secondary rising channel provided the bounce point at 1530 on
the upper channel resistance line.  The uptrend is intact, but it
weakened today on the NQ.  For the day, the NQ dropped 6.5 to
close at 1546.50.


30 minute 20 day chart of the NQ


The 30 minute NQ shows the lower high printed against yesterday's
range, despite the nice rise off the 30 minute cycle bottom this
morning.  Note that the Macd was deeply oversold, moreso than it
was a week ago from which the last run to new rally highs had
kicked off.  Whether we get a fresh run to higher highs from this
signal or not remains to be seen, but the failure this afternoon
and reversal back to negative territory was not bullish.
Resistance is at 1558, followed by 1561, while support is at
1542, 1530, and 1515.


Daily ES candles


The ES cruised to a new rally high of 1148.75, finishing close
below at 1145.50, an 8 point gain on the day.  Only the rising
upper channel resistance line and upper Bollinger band contained
the rally, and 1150 looks like the next likely level at which to
expect a pause.  The trending daily cycle oscillators squeezed
higher, and support at 1130 was never tested.  Volatility
collapsed, with the VXO dropping 3.22% from admittedly low levels
to finish at 14.43, while the SPX volatility index, the VIX,
closed at 14.37.  The put to call ratio was low throughout the
day, indicating that calls were being aggressively sold, but
bullish speculation will continue to be rewarded right up until
the moment at which it does not.  With futures and options,
timing is critical and the trend is your friend.  The trend here
is clearly up, even as evidence of risk of a correction continues
to accumulate.


20 day 30 minute chart of the ES


The ES blew the roof off today, and yesterday's bear wedge
breakdown was reversed to the upside, yet another of those wedge
whipsaws that were such a hit in 2003.  ES was below yesterday's
low for part of the morning and then engulfed the highs, for an
upside key reversal after Tuesday's downside key reversal.  Don't
try this at home...  The 30 minute cycle upphase was approaching
the top of its range at the close, and upside should be limited
on the basis of toppy 30 minute and daily cycles, but bulls
clearly get the benefit of the doubt until the price trend ceases
to be so unequivocally up.  Support is now 1141, 1134, 1141 and
1128.


150-tick ES


I've left yesterday's intraday prints up to show the breakout to
new rally highs here.  The short cycle oscillators favor a
downside correction here, and the Keltner channel eased off its
steep upslope.  With the 30 minute cycles still pointed north, we
can expect a blowoff at the open tomorrow to the upside, unless
the 3PM spike high was it.


Daily YM candles


The YM added 91 points to close at 10600 after busting to a new
high of 10629.  The daily cycle downphase is obviously not doing
much here, but another positive day for the index could turn the
cycle back to an upphase, with extremely bullish implications.


20 day 30 minute chart of the YM


According to the trend of this and last week, weakness in the
dollar should have coincided with weakness in bonds, weakness in
equities, strength in metals and the broad CRB.  Instead, we got
dollar weakness, equity strength, bond strength and commodity
weakness.  Interestingly, the XAU added fractionally while the
HUI declined by a few pennies.  Whether this is a merely
corrective aberration, possibly caused by the massive amounts of
intervention money in the market (35B in fed repos expire
tomorrow), we cannot yet know.  But for the moment, the trend in
the dollar remains lower, and for equities it is higher, with the
NQ's weakness possibly giving bulls the first indication of
trouble in paradise.


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

Two DOWn and one to go?

The Dow Industrials (INDU) 10,623.62 +0.9% closed at new 52-week
highs with 24 of its 30 components showing gains by the close and
still looks capable of challenging its March 2002 relative high
of 10,673.

The Dow Transportation Average (TRAN) 3,063.60 +1.44% also broke
to new 52-week highs, breaking above it March 2002 relative high
of 3,051, which for market theorists that believe the transports
lead an advance, bodes well for broader market bulls.

Dow Transportation Average (TRAN) - Daily Intervals



It makes no sense that the TRAN can be breaking to new highs and
what has been near-term resistance of 3,051, while crude oil
futures are at contract highs of $35.00.  Unless of course, the
MARKET believes the economy is heating up, where transports would
benefit from rising demand for transportation services.

The above daily interval chart of the TRAN is the same chart we
looked at in prior Index Trader Wraps, including the November 6,
2003 wrap at this
http://members.OptionInvestor.com/Itrader/marketwrap/iw_110603_1.ASP

Stronger than expected December housing starts and building
permits, combined with a 30.4% jump in the Mortgage Bankers
Association weekly Market Composite Index of mortgage loan
application helped fuel a bullish round of buying in the
homebuilders, with the Dow Jones Home Construction Index (DJUSHB)
579.75 +4.97% closing back at its rounding lower 50-day SMA of
580.78, but still off its all-time highs of 622.40 set on
December 1, 2003.

After-hours earnings from homebuilder Ryland Group (NYSE:RYL)
$79.43 +6.61% and bullish forward guidance may well have bulls
saying, "Two DOWn and one to go" for three Dow-related indices to
be trading new 52-week highs in the days to come.

After the close, Ryland's (RYL) shares rose to $81.37 after the
company reported Q4 (December) EPS of $3.29 per share, which was
$0.39 better than consensus.  Revenues rose 15.3% year-over-year
to $1.07 billion versus the $1.03 billion consensus.  RYL said
fiscal 2004 EPS will "exceed $10.00 per share," which would be
above consensus of $9.54.

Ryland was just one of many companies reporting quarterly
earnings after the bell.  Jim Brown made some notes in the
OptionInvestor.com market monitor on quarterly earnings, guidance
and after-hours movers.

Market Monitor - After hours (01/21/04)



Dow component AT&T (NYSE:T) $21.25 -1.84% looks to be following
last week's lead from IBM (NYSE:IBM) $97.70 +0.61% and moving its
quarterly earnings announcement date sooner than expected.

The plethora of earnings announcements and after-hour action saw
the S&P Depository Receipts (AMEX:SPY) $115.10 +0.78% edge up 3
cents to 115.13, the Dow Diamonds (AMEX:DIA) $106.30 +0.79% rise
25 cents to $106.54 and the NASDAQ-100 Tracker (AMEX:QQQ) $38.38
-0.41% gain 13 cents to $38.51.

Market Snapshot / Internals - 01/21/04 Close



It was a potluck session with the NYSE Composite ($NYA.X)
6,658.32 +0.89% and its 12:00 A/D line turning positive that
seemed to fuel a recovery.  The INDU turned positive just ahead
of the 12:00 mark and may have bolstered bullish psychology.
Trade volumes at both the NYSE and NASDAQ were brisk, nearly an
exact match to Tuesday's trade.

Pivot Analysis Matrix -



I've marked today's highs in the SPX, SPY, OEX and BIX.X to draw
attention to trades at WEEKLY R1s for the SPX, SPY, OEX and
BIX.X, where the BIX.X also traded its MONTHLY R1 for the first
time this month.  The S&P Banks Index (BIX.X) 349.48 +1.56%, KBW
Bank Index (BKX.X) 1,003.04 +1.63%, Broker Dealer (XBD.X) 734.28
+1.63% and S&P Insurance (IUX.X) 316.13 +1.47% all rounded out a
bullish session for financials.

Ahead of tomorrow's economic data, its may well be the stacked
pivot resistance at INDU MONTHLY R1, WEEKLY R1 and DAILY R1,
which is the key level of resistance in the indices, and if
today's fractional gains for the INDU, which built stronger
toward the close gave a lift to market psychology and helped lift
the NASDAQ Composite and NDX/QQQ back to finish just fractionally
red, a break above INDU 10,700 could further fuel gains in the
major indices.

Dow Industrials (INDU) Chart - Daily Intervals



One thing I saw on an intra-day basis and commented on in today's
01:00 PM EST update was in regards to market psychology getting a
bullish lift should the INDU make a move back above the 10,578
(10,588 to add 10-points).  I've marked some benchmark levels of
where the SPX/OEX and QQQ were trading when the INDU made its
break.

Now... the reason I discuss the TRAN tonight is to try and make
note of how the TRAN has broken above its March 2002 relative
highs, and if we believe that the transports are an indicator for
leadership, we can further tie that sign of leadership from the
TRAN to the INDU, where the INDU March 2002 relative high was
10,673.

From a purely psychological standpoint, should the INDU break
above its MONTHLY R1, then next bullish level higher would be its
WEEKLY R2.

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



This morning, if it not for some strength in the homebuilders and
financials holding tough, I thought for sure we would see a test
of correlative 1,132 support in the SPX.  While we saw some
buy/sell program premium alerts in today's trade, we never got a
chance to see what might take place at the 1,132 level as buyers
were evidently too aggressive.

As a side note, the March 2002 relative highs on the SPX was
1,173.94, which would be well above our current WEEKLY R2.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Intervals



There were definitely some technology stocks that got hit lower
in today's trade, but for some reason, the QQQ stopped dead in
its tracks at $38.00.

Just after the QQQ printed the $38.00 level I made some notes in
the Market Monitor regarding a check of the QQQ option chain.
Most active options were Feb. $41 calls, but I made special note
of the Feb. $38 puts and April $36 puts as the then #2 and #3
most active options.  I thought this $38 and $36 trade, where
both options were priced at about $0.90 each might have
institutions buying the Feb. $38 puts, but selling the $36 puts.
Thought would be, a "no risk" trade, with determination to buy
$36 into April expiration.

Late in the session, a subscriber noted that the $38.00 low on
the QQQ was also the "5-DRT" support from this weekend's Ask the
Analyst exercise.

I profiled a bearish trade for a loss today, then got back on the
bullish side with a day trade long and managed to end the session
break-even.  However, in after-hours, I did profile the QQQ as a
swing trade long/bullish at $38.51, stop $37.95 and target of
$39.20.

I think there may have been some shorts added today, and today's
BIG volume might give a good squeeze to the upside near-term, if
Tuesday's highs are taken out.

Jeff Bailey.


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The Option Investor Newsletter                Wednesday 01-21-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: GENZ, GILD, STJ
Dropped Calls: None
Dropped Puts: None
Spreads, Combinations & Premium-Selling Plays: Blue-Chips
    Jump...Techs Slump!
Watch List: More Breakouts and Earnings


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

GENZ - call
Adjust from $49.50 up to $51.00

GILD - call
Adjust from $60.50 up to $62.50

STJ - call
Adjust from $61.00 up to $62.50


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

None


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

None


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

Blue-Chips Jump...Techs Slump!
By Ray Cummins

A rotation to "old economy" issues helped the broader market
move higher Wednesday while the NASDAQ suffered from another
round of profit-taking in computer hardware shares.

The Dow Jones Industrial Average climbed 94 points to 10,623
as Citigroup (NYSE:C), JP Morgan (NYSE:JPM) and 3M (NYSE:MMM)
led the blue-chip group higher.  The NASDAQ Composite closed
down 5 points at 2,142, with electronic manufacturing, disk
drive, semiconductor, communications equipment, internet and
networking issues among the laggards.  The S&P 500 finished
up 8 points at 1,147 as gaming, healthcare, and homebuilding
shares rallied.  Volume was heavy at 1.76 billion on the NYSE
and 2.4 billion on the NASDAQ.  Advancers beat decliners by a
ratio of 2 to 1 on the Big Board, while losers narrowly edged
winners on the technology exchange.  Treasurys were higher in
in the wake of the upbeat housing data, with the 10-year note
closing 9/32 higher at 4.02%.


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/20/03
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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

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

NAKED PUTS

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

SEPR     FEB    20    19.60  28.17    0.40   21.62%   2.04%
CECO     FEB    40    39.30  50.93    0.70    5.04%   1.78%
ERES     FEB    27    27.00  36.36    0.50    5.07%   1.85%
MICC     FEB    65    64.05  80.47    0.95    4.10%   1.48%
NTES     FEB    40    38.90  48.88    1.10    7.39%   2.83%
RMBS     FEB    25    24.50  34.54    0.50    5.60%   2.04%
SEPR     FEB    22    21.90  28.17    0.60    7.02%   2.74%
SINA     FEB    40    38.75  46.80    1.25    7.89%   3.23%
SOHU     FEB    30    29.30  37.88    0.70    6.72%   2.39%


NAKED CALLS

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

CYD      FEB    35   35.45  25.97    0.45   6.36%    1.27%
SNDK     FEB    80   81.10  72.45    1.10   5.97%    1.36%


PUT-CREDIT SPREADS

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

COCO    60.73  62.51   FEB  55  55   0.65  54.35   0.65   Open
KOSP    45.30  51.97   FEB  35  40   0.60  39.40   0.60   Open
CEPH    54.65  55.16   FEB  45  50   0.65  49.35   0.65   Open
NFLX    65.10  67.75   FEB  48  50   0.25  49.75   0.25   Open


CALL-CREDIT SPREADS

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

ANF     24.90  25.54   FEB  30  27   0.30  27.80   0.30   Open
MANH    27.00  29.15   FEB  35  30   0.50  30.50   0.50   Open
CKFR    27.60  30.12   FEB  35  30   0.55  30.55   0.43  Closed
ESV     27.45  28.37   FEB  35  30   0.45  30.45   0.45   Open
NVLS    41.68  43.24   FEB  47  45   0.40  45.40   0.40   Open

Conservative traders should have exited the bearish spread in
Checkfree (NASDAQ:CKFR) when the issue closed above the sold
(call) strike at $30 during Tuesday's "pre-earnings" rally.
Manhattan Associates (NASDAQ:MANH) is on the "watch" list with
the stock moving back to the top of a recent trading range.

Questions & comments on spreads/combos to Contact Support

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

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

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

BULLISH PLAYS - NAKED PUTS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

APPX - American Pharma Partners  $39.98  *** All-Time High! ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
drug company that develops, manufactures and markets injectable
pharmaceutical products, focusing on the oncology, anti-infective
and critical care markets.  The company is one of the largest
producers of injectables, with more than 130 generic products in
more than 350 dosages and formulations.

APPX - American Pharma Partners  $39.98

PLAY (sell naked put):

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

SELL PUT  FEB 35    AQO NG    1142   0.65  34.35   5.7%   1.9% *
SELL PUT  FEB 40    AQO NH     323   2.15  37.85  12.0%   5.7%


__________________________________________________________________

CRDN - Ceradyne  $45.80  *** Another All-Time High! ***

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

CRDN - Ceradyne  $45.80

PLAY (sell naked put):

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

SELL PUT  FEB 40    AUE NH     297   0.95  39.05   7.2%   2.4% *
SELL PUT  FEB 45    AUE NI     375   2.60  42.40  13.1%   6.1%


__________________________________________________________________

GPRO - Gen Probe  $38.63  *** Next Leg Up? ***

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

GPRO - Gen Probe  $38.63

PLAY (sell naked put):

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

SELL PUT  FEB 32.5  PSU NZ     149   0.40  32.10   4.2%   1.2% *
SELL PUT  FEB 35    PSU NG     677   0.95  34.05   7.5%   2.8%


__________________________________________________________________

KYPH - Kyphon  $29.00  *** Rally Mode! ***

Kyphon (NASDAQ:KYPH) develops medical devices to restore spinal
anatomy using minimally invasive technology.  The firm's initial
marketing focus is on surgeons who repair spine fractures caused
by osteoporosis.  Kyphon's first commercial products, comprising
its KyphX instruments, utilize its proprietary balloon technology.
Surgeons use those tools to help repair fractures during minimally
invasive spine surgeries.  Its instruments have also been used in
open surgical procedures.  The firm sells various instruments for
use in spine fracture procedures including: Bone Access Systems,
Inflatable Bone Tamps, Inflation Syringes, Bone Filler Devices and
Bone Biopsy Devices.

KYPH - Kyphon  $29.00

PLAY (sell naked put):

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

SELL PUT  FEB 25    QYQ NE     35    0.55  24.45   6.8%   2.2% *
SELL PUT  MAR 22.5  QYQ OX     22    0.55  21.95   4.5%   2.5%


__________________________________________________________________

IMCL - ImClone Systems  $43.66  *** Erbitux Speculation Only! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers. The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow. In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors. IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.

IMCL - ImClone Systems  $43.66

PLAY (sell naked put):

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

SELL PUT  FEB 30    QCI NF    4763   0.30  29.70   3.4%   1.0% TS
SELL PUT  FEB 35    QCI NG    2462   0.85  34.15   8.9%   2.5% *
SELL PUT  FEB 40    QCI NH    3525   1.95  38.05  12.5%   5.1%


__________________________________________________________________

OSIP - OSI Pharmaceuticals  $36.20  *** Tarceva NDA! ***

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

OSIP - OSI Pharmaceuticals  $36.20

PLAY (sell naked put):

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

SELL PUT  FEB 30    GHU NF     941   0.40  29.60   4.7%   1.4% *
SELL PUT  FEB 35    GHU NG     525   1.65  33.35  11.2%   4.9%


__________________________________________________________________

PCLN - Priceline.com  $21.22  *** Buy-Out/Merger Speculation! ***

Priceline.com (NASDAQ:PCLN) offers products for sale in two major
categories: a travel service that offers leisure airline tickets,
hotel rooms, rental cars, packaged vacations and cruises; and a
personal finance service that offers home mortgages, refinancing
and home equity loans through an independent licensee.  PCLN also
owns travel Web sites Lowestfare.com and Rentalcars.com.  The firm
is part-owner of Internet travel service Travelweb.  Priceline.com
licenses its business model to independent licensees, including
pricelinemortgage and certain international licensees.

PCLN - Priceline.com  $21.22

PLAY (sell naked put):

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

SELL PUT  FEB 17.5  PUZ NW     536   0.35  17.15   6.9%   2.0% *
SELL PUT  FEB 20    PUZ ND    1172   1.15  18.85  13.9%   6.1%


__________________________________________________________________

SEPR - Sepracor  $27.38  *** Drug Sector Favorite ***

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

SEPR - Sepracor  $27.38

PLAY (sell naked put):

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

SELL PUT  FEB 22.5  ERQ NX    1241   0.45  22.05   7.0%   2.0% *
SELL PUT  FEB 25    ERQ NE    1340   0.95  24.05  10.1%   4.0%



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

BULLISH PLAYS - CREDIT SPREADS

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

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

CFC - Countrywide Financial  $80.32  *** On The Rebound! ***

Countrywide Financial (NYSE:CFC), formerly Countrywide Credit
Industries, is a holding company that originates, purchases,
sells and services mortgage loans through its major subsidiary,
Countrywide Home Loans.  The company's mortgages are principally
prime credit first-lien mortgage loans secured by single one- to
four-family residences (prime credit first mortgages).  The firm
also offers home equity loans and sub-prime credit loans.  CFC,
through its other wholly owned subsidiaries, offers products and
services that are largely complementary to its mortgage banking
business, including lender-placed mortgage insurance, insurance
brokerage, mortgage-backed securities brokerage and underwriting,
brokerage of bulk servicing transactions, loan processing and
servicing in foreign countries, and retail banking.  The company
conducts its business through four segments: Insurance Segment,
Capital Markets Segment, Global Segment and Banking Segment.

CFC - Countrywide Financial  $80.32

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-70.00  CFC-NN  OI=3635  ASK=$0.40
SELL PUT  FEB-75.00  CFC-NO  OI=1894  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$74.35


__________________________________________________________________

MDC - MDC Holdings  $66.31  *** Homebuilding Sector Rebound! ***

MDC Holdings (NYSE:MDC), whose subsidiaries build homes under the
name "Richmond American Homes," is one of the largest homebuilders
in the United States.  The firmy also provides mortgage financing,
primarily for MDC's homebuyers, through its wholly owned subsidiary
HomeAmerican Mortgage.  MDC is a major regional homebuilder with a
significant presence in some of the country's best housing markets.
The firm is the largest homebuilder in Colorado; among the top five
homebuilders in Northern Virginia, Phoenix, Tucson and Las Vegas;
among the top ten homebuilders in suburban Maryland, Northern
California, Southern California and Salt Lake City; and has also
recently entered the Dallas/Fort Worth and Houston markets.

MDC - MDC Holdings  $66.31

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-55.00  MDC-NK  OI=167  ASK=$0.35
SELL PUT  FEB-60.00  MDC-NL  OI=124  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$59.50


__________________________________________________________________

GILD - Gilead Sciences  $65.37  *** Consolidation Complete! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a new
drug for treating and preventing influenza; Vistide, a drug for
treating cytomegalovirus (or CMV) retinitis in AIDS patients, and
DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma.

GILD - Gilead Sciences  $65.37

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-55.00  GDQ-NK  OI=3339  ASK=$0.35
SELL PUT  FEB-60.00  GDQ-NL  OI=3694  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=14%  B/E=$59.45



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

ISIL - Intersil  $27.11  *** Earnings Speculation Only! ***

Intersil Corporation (NASDAQ:ISIL), a world leader in the design
and manufacture of high performance analog and wireless networking
solutions.  Intersil's product portfolios address fast growing
markets such as flat panel displays, optical storage (CD and DVD
recordable), power management and wireless networking.  Intersil
brings added customer value in providing silicon, software and
reference design solutions to unique products that enhance the
computing experience for people wherever they live, work or
travel.

ISIL - Intersil  $27.11

PLAY (sell naked call):

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

SELL CALL  FEB 30    UFH BF    1494   0.50  30.50   6.0%   1.6% *
SELL CALL  FEB 25    UFH BE     329   2.80  27.80  18.0%  10.1%


__________________________________________________________________

MCHP - Microchip Tech.  $31.81  *** More Earnings Speculation ***

Microchip Technology (NASDAQ:MCHP) develops and manufactures
specialized semiconductor products used by its customers for a
wide variety of embedded control applications.  The company's
product portfolio comprises field-programmable RISC-based
microcontrollers that serve 8- and 16-bit embedded control
applications, and a broad spectrum of high-performance linear
and mixed-signal, power and thermal management devices.  The
company also offers complementary microperipheral products,
including interface devices, serial EEPROMS, and its patented
KEELOQ security devices.  The firm markets its products to the
automotive, communications, computing, consumer and industrial
control markets.

MCHP - Microchip Tech.  $31.81

PLAY (sell naked call):

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

SELL CALL  FEB 35    QMT BG    1236   0.45  35.45   4.6%   1.3% *
SELL CALL  FEB 30    QMT BF     409   2.65  32.65  15.6%   8.1%


__________________________________________________________________

UTSI - UTStarcom  $36.26  *** Earnings Due Thursday! ***

UTStarcom (NASDAQ:UTSI) is a global provider of wireless and
wireline access and Internet protocol switching solutions.  The
company designs, manufactures, sells and installs an integrated
suite of future-ready access network and next-generation switching
solutions.  It enables wireless and wireline operators in growth
markets worldwide to offer voice, data and Internet access services
rapidly and effectively by utilizing their existing infrastructure.
UTStarcom's products provide a seamless migration from wireline to
wireless, from narrowband to broadband and from circuit to packet
based networks by employing next-generation network technology.

UTSI - UTStarcom  $36.26

PLAY (sell naked call):

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

SELL CALL  FEB 45    UON BI    3555   0.25  45.25   3.4%   0.6% TS
SELL CALL  FEB 40    UON BH   14012   0.95  40.95   8.2%   2.3% *



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

BEARISH PLAYS - CREDIT SPREADS

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

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

HTCH - Hutchinson Technology  $32.45  *** A Big Down Day! ***

Hutchinson Technology (NASDAQ:HTCH) is a supplier of suspension
assemblies for hard disk drives.  The company categorizes its
products as either suspension assemblies or other products,
which consist primarily of etched and stamped components used in
connection with or related to suspension assemblies.  The firm
makes its suspension assemblies with proprietary technology and
processes to precise specifications with very-low, part-to-part
variation.  These specifications are critical to maintaining the
necessary microscopic clearance between the head and disk and the
electrical connectivity between the head and the drive circuitry.

HTCH - Hutchinson Technology  $32.45

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-40.00  UTQ-BH  OI=246  ASK=$0.15
SELL CALL  FEB-35.00  UTQ-BG  OI=295  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$35.60


__________________________________________________________________

ICST - Integrated Circuit Sys.  $27.60  *** New Trading Range? ***

Integrated Circuit Systems (NASDAQ:ICST) supplies a broad line
of timing products for use in personal computer motherboards and
peripheral applications.  These silicon timing devices control
multiple processes by providing and synchronizing the timing of
the computer system, including signals from the video screen,
graphics controller, memory, keyboard, microprocessor, drives
and communication ports.  The company also designs, develops and
sells silicon-timing devices for non-PC motherboard applications,
such as digital videodisk players, digital set-top boxes, digital
cameras, laser printers, flat panel displays and digital TVs.  In
addition, it offers surface acoustic wave technology to develop
high-performance products for optical networking and wireless
infrastructure markets.

ICST - Integrated Circuit Sys.  $27.60

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-35.00  IUY-BG  OI=370  ASK=$0.15
SELL CALL  FEB-30.00  IUY-BF  OI=309  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$30.50



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

SEE DISCLAIMER - SECTION 1

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


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

More Breakouts and Earnings
___________________________________________________________________

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.
___________________________________________________________________


Everest Re Group - RE - close: 87.40 change: +1.15

WHAT TO WATCH:  Insurance stocks have been a strong sector lately
and RE is one of its current leaders.  Shares have broken out
above resistance at $85 on its daily chart and produced a bullish
triangle breakout on its P&F chart (one of the more profitable
patterns to follow). RE looks good at current levels and we'd
consider bullish entries anywhere above $85 with a plan to exit
before its Feb. 2nd earnings report.

Chart=


---

Toll Brothers - TOL - close: 41.63 change: +2.31

WHAT TO WATCH:  Strong housing numbers set the homebuilders on
fire again and the DJUSHB index added 4.97%.  TOL out performed
its peers with a 5.87% gain today and a strong move above
resistance at $40 and the 41.50 region.  Normally, we don't like
to chase stocks but this one might be worth bending the rules or
at least keeping a close eye on.  Earnings for TOL are in
February.

Chart=


---

Legg Mason - LM - close: 89.95 change: +4.70

WHAT TO WATCH:  Up, up and away!  Shares of LM soared today on a
very strong earnings report.  The company beat estimates by 8
cents with net income of $1.07/share.  Revenues rocketed 40% for
the year.  LM might be worth watching for a pull back toward the
86.00-85.00 region.  We're not saying it will ever get there but
the stock looks extended and we wouldn't want to chase it.

Chart=


---

Cabot MicroElectronics - CCMP - close: 57.50 change: -0.04

WHAT TO WATCH:  Investors have been very bullish on CCMP the last
few days as the stock rallied from $50 to $57.50, breaking out
above resistance at $55 and its simple 200-dma.  The bullish move
also broke CCMP's four-month trend of lower highs.  Tomorrow
morning is the big event as CCMP releases earnings before the
opening bell.  Estimates are for 43 cents a share.  Will CCMP
deliver? Will investors sell the news?  If the results are
positive and guidance is good we'd be looking for a dip toward
the $55.00 region as a potential entry point.

Chart=



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

DHI $28.51 +1.79 - The strong housing permits number this morning
really launched the entire homebuilding sector and DHI is due to
announce earnings on top of this news.  The breakout today over
27.50 and its 50-dma looks tempting.

ORI $26.93 +1.14 - ORI is another insurance stock breaking out to
new highs today.  We consider a bullish play on ORI now that it's
above the $26 mark but earnings should be Jan. 29th.

LEA $67.30 +1.00 - LEA has been a good performer over the last
few weeks as investors ramp up the stock ahead of its Jan. 26th
earnings report. The recent dip to $65 appears to be attracting
buyers.

PIXR $67.96 -0.45 - We're pretty early on any sort of directional
play for PIXR.  Bulls can wait for a breakout over $70 or get
aggressive and try and buy a dip from $65 and its 200-dma.  Bears
can wait for the breakdown under $65 or get aggressive and short
the recent failed rally.  Earnings are early February.


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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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