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Daily Newsletter, Monday, 01/26/2004

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The Option Investor Newsletter                   Monday 01-26-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Momentum is positive
Futures Wrap: Dollar and Equities Advance
Index Trader Wrap: Super Bowl and major indices look sold out


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     01-26-2004            High     Low     Volume Advance/Decline
DJIA    10702.51 +134.22 10705.18 10702.51 1.82 bln   1668/1199
NASDAQ   2153.83 + 29.96  2153.83  2115.34 1.93 bln   2000/1094
S&P 100   573.44 +  8.03   573.44   565.29   Totals   3668/2293
S&P 500  1155.37 + 13.82  1155.38  1141.00
RUS 2000  601.50 +  5.36   601.50   592.46
DJ TRANS 3066.71 -  6.23  3074.45  3037.70
VIX        14.55 -  0.29    15.78    14.52
VXO        14.32 -  0.55    15.28    14.21
VXN        20399 -  0.28    22.77    20.99
Total Volume 4,160M
Total UpVol  3,012M
Total DnVol  1,088M
52wk Highs     934
52wk Lows        6
TRIN          0.51
PUT/CALL      0.58
*******************************************************************

Momentum is positive
by James Brown

Overheard in a conversation between to bearish traders about the
current rally, "It can't be bargained with!  It can't be reasoned
with!  It doesn't feel pity, or remorse, or fear.  And it
absolutely will not stop, ever!"  Okay, I'm joking.  I didn't
actually hear that but anyone short this market might feel that
way (and my apologies to any Terminator fans).  Investors
definitely appear fearless as they quickly stepped in to buy
Friday's and last week's dip.  The Dow Jones Industrials added
134 points to breakthrough resistance and close at 10,702.  Only
one Dow component closed in the red and that was Alcoa, which
lost 5 cents on the session.  The strongest performers in the Dow
were HPQ +3.24%, MRK +3.1% and GE +2.8%.

The NASDAQ posted a strong rally as well, up nearly 30 points or
1.4%.  This puts both the DJIA and the NASDAQ at 2 1/2 year highs
while the S&P 500's rally leaves it at 22-month highs.  Positive
earnings news and a better than expected existing home sales
numbers helped fuel a widespread rally today.  Only a handful of
sectors closed negative.  Under performing were gold and silver
stocks, airlines, utilities and transports.  Investors focused
their buying power on networkers, hardware (think LXK, HPQ &
IBM), semiconductors and tech stocks in general.  Even the dollar
managed a bounce against the euro after Friday's rumors that the
G7 summit next week might finally address the soaring euro.  This
put more pressure on gold, which fell $1.30 to $406.70 an ounce.

The U.S. stock markets had to power today's rally on their own.
Overseas markets weren't much help.  Asian stocks traded mostly
lower with the Japanese NIKKEI down 96 points to 10,972 and the
Chinese Hang Seng down 23 points to 13,727.  European stocks
lagged as well.  The British FTSE fell 15 points to 4445 and the
German DAX dropped 23 points to 4128.  The ramp higher today in
the DJIA and the NASDAQ really began to pick up speed in the
afternoon and by the close market internals had turned strongly
positive.  The NYSE reported nearly 17 winners for every 12
losing stocks.  Meanwhile advancers out numbered winners almost
20 to 11 on the NASDAQ.  Up volume was about 2.7 times stronger
than down volume on both exchanges.

Chart of the Dow Jones Industrials:



Chart of the NASDAQ:



The only economic data out this morning was the December Existing
Home Sales report.  Economists were looking for a small jump of
0.3 percent to 6.08 million but were surprised with a 6.9% jump
to 6.47 million (at an annualized rate).  The historically low
interest rates continue to fuel a strong increase in home
ownership and that's great news for the economy.  Home sales tend
to generate additional consumption with new furniture, new
appliances, etc.  This was the largest one-month jump in existing
home sales since January 2001.  Later this week we'll get to hear
the December new home sales figures due out on Wednesday.
Estimates are looking for a small rise to 1.1 million, up from
1.082 million in November.  This mid-week report should have an
affect on the homebuilders.

Not quite an economic "event" but any time Alan Greenspan talks
Wall Street is going to want to listen.  Today he spoke to a
conference in London via satellite.  He didn't say much about the
Fed's monetary policy but strongly suggested that the various
free-market governments should avoid the recent signs of
protectionism (hint, hint to the U.S. government).  He also
discussed the "creative destruction" of capitalism as we rotate
from old technology to new technology. Jobs will also have to
follow this process.  He was confident that the U.S. can generate
new job growth but not "without a high degree of pain" for those
in the job-losing segment in this technology creation job-
shifting turnover process.  We'll hear from Alan again this week
as the Federal Reserve begins its two-day FOMC meeting tomorrow.
The decision on interest rates will be announced on Wednesday
afternoon and no one really expects any change.  Of course there
is a lot of conjecture over the Fed making any changes in their
bias and if they will continue to use the "considerable period"
wordage.

The Fed meeting this week is expected to take center stage but it
is going to have to share it with a parade of earnings
announcements.  This week alone some 30% of the S&P 500 companies
are expected to report.  American Express (AXP), a Dow component,
reported today and beat estimates by a penny with 60 cents a
share.  Revenues were up 14% to $7.07 billion and above consensus
estimates.  AXP cited strong fee growth for its financial
advisory unit and its credit card business for its performance.

Also announcing earnings today was drug giant Schering-Plough
(SGP).  SGP reported net loss of 12 cents per share, which was
worse than expected.  Revenues dropped almost 18% to $1.95
billion, below analysts' forecasts.  The company also guided
lower for 2004 but this was old news and shares actually turned
higher painting a bullish engulfing candlestick pattern with a
bounce off its simple 50 & 200-dma's.

Another drug giant making headlines today was Merck & Co (MRK), a
Dow component.  MRK was up more than 3% after Barron's published
a positive story over the weekend suggesting the stock was
undervalued to its peers.  Some investors also see MRK as a
potential takeover or merger target and news of Sanofi-
Synthelaob's hostile bid for Aventis (AVE) might be contributing
to MRK's strength.  Sanofi (SNY) is a French drug company who
announced a $60 billion hostile takeover offer for fellow French-
based Aventis.  AVE's board of directors rejected the bid
claiming it doesn't accurately reflect their company's value.
The AVE website stated SNY's bid only represents a 3.6% premium
from their recent closing price.  The merger news and MRK's
performance today pushed the DRG drug index to a new relative
high and levels not seen since last June.

One of the biggest earnings reports out today was released very
early this morning.  I'm referring to Lexmark Intl (LXK).  The
printer manufacturer reported earnings of  $1.05 a share, which
were 13 cents better than expected.  Revenues were also above
estimates at a record setting $1.37 billion for the quarter.  LXK
said its December quarter showed the fastest growth since first
quarter 2000.  "Our fourth-quarter revenue growth was
significantly over our guidance, driven by strong printer sales,"
said Paul J. Curlander, Lexmark chairman and chief executive
officer. "Lexmark's earnings for the quarter exceeded our
expectations as we achieved higher revenue and were able to hold
gross profit margins fairly stable both sequentially and year-to-
year." (source: LXK's press release).  "While we do see some
indications of market improvement, we continue to remain cautious
due to the uncertain economic environment and the potential for
aggressive price competition."  LXK's caution did not rub off on
investors and shares soared more than 7% to $84.50, breaking out
over major resistance at $80.  Their strong earnings news also
lifted shares of rival Hewlett-Packard (HPQ) boosting shares
3.24%.

The closing bell brought even more earnings news and making
headlines were NVLS, TXN and MCD.  Novellus Systems (NVLS), a
manufacturer of semiconductor production equipment, announced
earnings of 7 cents a share, which was significantly better than
last year's 2 cents a share and above current estimates by a
penny.  Revenues came in at $226.5 million and beat analysts'
estimates but the company warned that the current quarter could
turn soft.  The stock fell 7.6% after hours as it issued earnings
guidance at 8 cents a share versus analysts' current range of 7
to 11 cents for the first quarter.

Eclipsing NVLS' report was Texas Instruments (TXN).  Analysts
were looking for 19 cents a share on revenues of $2.72 billion.
When TXN's earnings report first hit the wires it sounded like
net income hit 22 cents, or 3 cents better than expected.
Unfortunately, the real number was closer to 20 cents.  TXN did
beat but only by a penny.  However, revenues were above estimates
at $2.77 billion and above their own guidance from December in
the 2.64-2.76 billion range.  Unfortunately, shares were lower in
after hours trading despite guiding higher for the current
quarter's net income and revenues.  It is notable that TXN plans
to raise its capex spending from $800 million to $1.1 billion in
2004.

McDonalds (MCD) served up its December quarter's earnings results
after the bell and met estimates at 35 cents a share.  The real
net income number was 10 cents a share due to a 25-cent charge
for its sale of Donatos Pizzeria back to its founder.  Q4 same-
store sales numbers were up 7.4% and revenues for the quarter
were up 16.8% to $4.56 billion, above estimates of 4.33 billion.
This is a definite improvement over last year's Q4 loss, its
first quarterly loss ever.  Sounds like the Mad Cow scare never
really hit MCD and their current "I'm loving it" ad campaign
might be working.  Its rival Burger King has seen two months of
slipping same-store sales, down 5.4% in November and down 6.9% in
December.

One of the biggest stories out this evening is Agilent
Technologies (A).  The company came out with an upside surprise
and raised its earnings guidance from 5-to-15 cents a share to
20-to-24 cents a share.  It now expects revenues to hit $1.63-
1.68 billion, above estimates of $1.61 billion.  Agilent is a
manufacturer of electronics and testing equipment and this
positive surprise may counterbalance the disappointing news we
got from NVLS tonight.  Agilent's press release unveiled these
comments, "We have not seen the normal seasonal decline in first
quarter activity," said Ned Barnholt, Agilent chairman, president
and chief executive officer. "Both semiconductors and
semiconductor capital equipment have been particularly strong. We
have also been successful bringing the benefits of lower
structural costs to Agilent's bottom line."  The stock closed at
$33.91 during the normal session but shot to $39.90 after the
news before settling near $37.98 in after hours trading.

It will be interesting to see how investors react to these
various earnings announcements out tonight but the markets will
also have to digest a handful of major reports out tomorrow
morning as well.  Announcing before the opening bell is
Caterpillar (CAT), Countrywide Financial (CFC), DuPoint (DD),
Lockheed Martin (LMT), Merck & Co (MRK), SBC Communications (SBC)
and Xerox (XRX) just to name a few.  Wall Street will also have
to interpret the Conference Board's consumer confidence index.
Estimates are for a jump from 91.3 in December to 95.1 in
January.  On top of it all the New Hampshire Democratic primary
will be held tomorrow night and will almost guarantee some
volatility on Wednesday.  Whoever wins will be the frontrunner
for the Democratic nomination and thus the major competitor to
the current President.  We already know it's going to be a close
race this November and merely having one democratic candidate to
focus on will create the one thing the stock markets hate -
uncertainty!

Let me finish with a quote from billionaire George Soros from an
interview on Bloomberg TV.  Whether you love him or hate him he
has accurately summed up what we and other market pundits have
been saying for a while.  "Whether stocks are overvalued or not
doesn't actually determine whether they go up or they go down...
so they may be overvalued, but they can get a lot more
overvalued, and I would say that right now the momentum is
positive."


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

Dollar and Equities Advance
Jonathan Levinson

Other than the US Dollar Index and the ES, YM and NQ, other major
assets declined today.  Gold futures tested key support as the YM
and ES blasted to new rally highs.  The CRB was lower on weakness
in natural gas, heating oil and FCOJ futures, and treasuries
dropped sharply, compounding Friday's losses.

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 rose overnight, slid sideways from the time
of Europe's open, and then took off for the next leg up on New
York's cash open.  The move left the USD Index trading 87.25 as
of this writing, and brought the price back to the lower
descending trendline on the daily channel.  Gold, silver, the
mining indices, foreign currencies and the CRB were all weaker
against the dollar.


Daily chart of February gold


February gold futures got hit, retesting the current support
levels and lower rising trendline support in the 404 area.  The
daily cycle downphase extended further, approaching but not yet
reaching oversold territory.  While the persistence of current
support remains encouraging for gold bulls, the 404-405 area is
increasingly looking like a possible head and shoulders neckline,
and with all of the long positions added recently in this area, a
break of support start a stop-running dip.  We've discussed the
fundamentals favoring gold and the numerous downside support
levels, but traders will want to attentively trade what they see
if this support level cracks.  For the day, gold dropped 3.80 to
close at 403.60, trading a low of 403.50 and a high of 409.10.
Interestingly, the XAU and HUI, both of which finished solidly
in the red, recovered a portion of their losses as gold and
silver traded to their closing lows-  this looked like a hedge
trade being worked out, selling the metals while buying the
miners.


Daily chart of the ten year note yield


We speculated last week as to a meaningful reversal in the ten
year note yield (TNX) last week at the 3.9% support line, and
today's action confirmed that bounce, giving us a new daily cycle
upphase on the stochastic and Macd oscillators, adding 7.5 bps to
close the yield at 4.141%, a hefty 1.84% gain on the day and a
two week high.  This selloff in treasuries occurred despite a net
4.75B liquidity injection from the fed via its open market desk.
Next resistance on the TNX is at 4.2%.


Daily NQ candles


The NQ had a stellar session, leading its peers to the upside and
engulfing Friday's losses, closing just off its session highs at
1554.50.  This move, fueled by an initially week 30 minute cycle
upphase (chart below) initiated on Friday's closing bounce,
served to pause the daily cycle downphase initiated last week.
Another day like today would likely abort the daily cycle
downphase and kick off a new up.  The move recovered the broken
upper channel trendline, leaving the NQ between support and
resistance.  1560-65 is the key level for bulls to regain, 1523-5
lower range support.


30 minute 20 day chart of the NQ


Whether it was an epic short squeeze, or central bank
intervention to support the dollar, the Fed's open market ops or
a combination of all three is of little consequence: the NQ went
higher, printing a higher low and higher high and testing
Thursday's high.  The 30 minute cycle upphase was quite
unimpressive for the first few hours, but gained strength and
velocity in the afternoon.  The session low at 1523.50 reaffirmed
the 1515-1520 support level and targets 1560-65 resistance.  The
pattern of lower highs that made the head and shoulders top
interpretation so compelling was violated, and a test of the
rally highs above 1560 appears imminent given the ongoing 30
minute cycle upphase.  1540-2 should serve as trendline support
on any retest.  While the bear case sustained a major hit on
today's strong run, a failure below 1560 would likely permit the
daily cycle downphase to remain uninterrupted, and so would fit
with the bearish interpretation based on the daily timeframe.  On
that basis, tomorrow's open will be critical to watch.  A failure
of 1560 should imply a retest of 1540, below which 1515-20 comes
into play.  If that critical support breaks, then the bears are
in business.  But if 1560 is violated to the upside, then the
daily downphase will fail and we should see higher highs.


Daily ES candles


The ES broke 1150 on a closing basis, testing the lower rising
channel trendline in the morning and nearly traversing the entire
range by the afternoon. The downward bias on the trending daily
cycle oscillators flipped to a bullish bias as the Teflon Market
made a new rally high.  1142 was initial resistance and is now
support on today's strong bullish engulfing candle.  Upper
Bollinger resistance is currently 1155, a tick above the day high
at 1154.75.  Below 1142 is 1130 support.


20 day 30 minute chart of the ES


Another day, another head and shoulders failure.  The break of
1144 was met with a solid, unrelenting wave of bids.  The 30
minute cycle upphase had achieved very weak price traction
through the morning as the right shoulder/bear wedge printed, and
then, once again, it broke to the upside unannounced, catching
the maximum number of participants flatfooted and ramping quickly
to new nosebleed highs.  It would be worth backtesting a system
of fading traditional chart patterns to see whether it would have
been profitably to buy every bear wedge and bear flag, for the
past 12 months, but unfortunately I'm not equipped to do that.  I
mention this only to urge traders to trust their eyes at the
expense of the pattern.  Either trailing stops or a very twitchy
trigger finger is necessary to cut off shorts when or before
these patterns fail.  I see weak support at 1142-4, 1136, and
then strong support in the 1130 area.


Daily YM candles


YM closed at its rally highs of 10685 atop a 1.31% gain for the
day.  While the Naz did nearly 2B shares' volume today, the NYSE
traded just 1.445, which seems light to me given the break to 2
year highs.  That said, it's all about price.  Price rose
sufficiently to abort the daily cycle downphase, which had been
good for only another fakeout bear wedge anyway, and left the 10
day stochastic on a buy signal with a bullish kiss on the Macd.
10500 is now strong support, and with Bollinger band resistance in
play right here, I see next Fibonacci resistance around 10710
based on the 30 minute chart below.

20 day 30 minute chart of the YM


With stories of massive Bank of Japan intervention making the
rounds, we've been seeing and increasing decoupling of
intermarket trends, particularly between the USD Index and
equities.  At least gold and silver declined against the dollar
today, as we have been seeing them decline with a falling dollar
last week.  Numerous readers have written me to express their
disbelief, disgust and disgruntlement at the current action in
equities, the gist of it being that "it doesn't feel right".  I
agree, and I don't trust these move either.  But our brokerage
accounts do, and I want our readers to survive these moves,
regardless of whether it's the Bank of Japan out to lose yet more
yen on bad interventionist trades, or Al Green, or the PPT or
whoever.  As leveraged speculators, the price is the only thing
that matters.  The 30 minute oscillators were saying "higher" all
day, and while I correctly observed that the upphase was weak
this morning, it was still an upphase.  Follow the signals,
bullish or bearish.


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

Super Bowl and major indices look sold out

This weekend's NFL Super Bowl match between the New England
Patriots and Carolina Panthers will be played in front of a sold
out crowd where demand for tickets has some of the worst seats in
the house fetching upwards of $1,750.00 if you want to view one
of the most widely watched spectacles in sport.

But when supply of tickets is limited, a sports enthusiast will
most likely pay whatever the seller wants, and sellers are said
to be few.

The NYSE Composite ($NYA.X) 6,672.04 +0.68%, NASDAQ Composite
(COMPX) 2,153.83 +1.41%, Dow Industrials (INDU) 10,702.51 +1.27%,
S&P 500 (SPX.X) 1,155.37 +1.21%, S&P 100 (OEX.X) 573.44 +1.42%,
Russell-2000 Index ($RUT.X) 601.50 +0.89% and NASDAQ-100 Index
(NDX.X) 1,553.66 +1.46% all closed at new 52-week highs.

While today's trade came on the lightest volume levels seen since
January 2nd when traders returned from extended holiday
vacations, today's new highs after Thursday and Friday's plethora
of sell program premium alerts looks to have bulls playing in
front of a sold out crowd.

What started out as a defensive battle with the major indices
showing mixed results early, turned into a route by the bulls as
earnings, mergers, and some bullish interpretations of comments
made by Fed Chairman Alan Greenspan giving a lift to the major
indices by session's end.

Printer maker Lexmark (NYSE:LXK) $84.50 +7.17% surged to levels
not seen in over 3.5 years after quarterly earnings showed the
company's printer business seeing pricing power.  The news fueled
gain in Lexmark's chief rival and Dow component Hewlett Packard
(NYSE:HPQ) $26.12 +3.24% to a 28-month high.

Another merger in the banking sector had Sovereign Bancorp
(NYSE:SOV) $22.93 -5.16% paying $1.1 billion for Seacoast
Financial Services (NASDAQ:SCFS) $34.71 +12.91%, further fueling
speculation that consolidation is likely in the financial sector.

Market Snapshot / Internals - 01/26/04 Close



The major indices seemed to begin percolating higher just after
01:00 PM EST.  In a speech beamed to a conference in London, Fed
Chairman Alan Greenspan made no remarks about the current U.S.
economic performance or the Fed's monetary policy, but he
repeated many themes he has developed over the years as a strong
supporter of capitalism.  Mr. Greenspan said, "We can thus be
confident that new jobs will displace old ones as they always
have, but not without a high degree of pain for those caught in
the job-losing segment of America's massive job-turnover
process."  He added that "the most significant lesson to be
learned from recent economic history is arguably the importance
of structural flexibility and the resilience to economic shocks
that it imparts," Greenspan said. "The more flexible an economy,
the greater its ability to self-correct in response to
inevitable, often unanticipated, disturbances and thus to contain
the size and consequences of cyclical imbalances."

Believe it or not, traders cited those comments on the labor
market as bullish comments from the Fed on the labor market,
where the interpretation by those that speak "Greenspaneese"
saying Mr. Greenspan may have tipped economists to stronger labor
data in coming weeks.

Tomorrow, the Federal Open Market Committee begins a 2-day
session to discuss the economy and make a decision on interest
rates.  Many economists believe the Fed will leave its fed funds
rate at 1.0%.

Treasuries saw a strong round of selling and reversing last
week's gains with the benchmark 10-year YIELD ($TNX.X) rising 7.4
basis points to 4.14%.

Pivot Analysis Matrix -



Another strong showing from the financials in the form of the S&P
Banks Index (BIX.X) 354.67 +1.41%, KBW Bank Index (BKX.X)
1,012.86 +1.43% and Broker/Dealer Index (XBD.X) 729.65 +1.29%
along with the Insurance Index ($IUX.X) 315.34 +0.78% helped the
S&P 500 Index (SPX.X) 1,155.37 +1.21% and S&P 100 Index (OEX.X)
573.44 +1.42% see trade at their respective MONTHLY R2s for the
first time this month.

I didn't mark the 1,145 level on the S&P 500 Index (SPX.X) and
tomorrow's DAILY S1 of 1,145.79, but this was a level on Thursday
and Friday of last week that seemed to find continual sell
program premium alerts, where those sell program premium alerts
just seemed to weigh on any type of rally and sloooowly pushed
the SPX and major indices lower.  With the SPX now 10-points
above this 1,145 level, any re-test may see strong buying after
today's rather impressive gains.

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



While today's volume at the NYSE and NASDAQ was light, today's
price action hints that sellers were few, and bears may have been
doing the bulk of the buying as they stare at the January and
March 2002 relative highs of 1,174.  Friday evening I saw that
NASDAQ had reported January 15, 2004 short interest data on the
S&P Depository Receipts (AMEX:SPY) $115.87 +1.25.  While short
interest fell to 114 million shares from a record 127 million,
average daily volume from 12/15/03-01/15/04 fell to an average
daily volume of 30.2 million shares from a heavier 35.9 million
shares (11/14/03-12/15/03), which has days to cover rising to
3.78 from 3.54.

While bears will warn that a light volume rally is meaningless
and lacks buying, recent history has depicted this price/volume
relationship representing few sellers.  This can be dangerous for
bears when overhead supply of stock is very limited.

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



An intra-day chart of the OEX found resistance at 567.69 (WEEKLY
38.2% retracement) but when the 568 level was trade, the OEX
checked 567.69 as support, and like a cat on a hot tin roof
jumped quickly to the MONTHLY S2 of 570.30, took a 20-minute
breather, then sprinted to close at its session highs.

Bears look to be going into hibernation in not a deep coma, where
a break above 575 and WEEKLY R2 has a March 2002 relative high of
595 in play.

Dow Industrials (INDU) Chart - Daily Intervals



IBM (NYSE:IBM) $99.85 +1.99% is flirting with round-number
resistance of $100.00, but has a point and figure chart bullish
vertical count of $122 currently in play, where a recent triple-
top buy signal at $95 has had the stock holding the INDU above
the 10,500 level.  Procter & Gamble (NYSE:PG) $99.83 +1.99%, the
second-most heavily weighted stock in the INDU has been battling
with $100.00 the past couple of weeks, but similar to IBM, its
point and figure chart shows a bullish vertical count of $121
currently in play.  The Dow Industrials (INDU) might just have
11,000 in them by month's end.

The NASDAQ reports that the Dow Diamonds (AMEX:DIA) $107.17
+1.23% short interest grew to a 12-month high of 28.3 million
shares short, up from their December 15, 2003 record high of 23.0
million shares short.  Higher volume rates from 12/15-01/15 have
days to cover falling to 3.98 from 4.18 the month prior.  Today's
volume in the DIA was 7.091 million shares.

NASDAQ-100 Tracking Stocks (QQQ) - Daily Intervals



After reporting in line quarterly earnings, but providing
cautious guidance, shares of programmable logic maker Altera
(NASDAQ:ALTR) $24.14 +1.13% trade lower at $23.01 in extended
hours, while chip-equipment maker Novellus (NASDAQ:NVLS) $40.25
+0.9% falls near its rising 200-day SMA at $37.20.  This has the
QQQ trading lower at $38.50.

I've marked the recent 12/15/03 short interest levels of 350
million shares and most recent 01/15/04 short interest of 320.4
million, which shows shorts have been covering.

Late last week, the Q's oscillated either side of the $38.25
level, and this would be the first level to look for what I would
consider "tentative" support, with more formidable support at
$37.50.  A lot of option-related activity I've been noting in the
Market Monitor suggests the selling of puts to have strong
support at the $37 level.

Jeff Bailey


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The Option Investor Newsletter                   Monday 01-26-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Watch List: Blast Off!


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DROPPED CALLS
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DROPPED PUTS
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**********
Watch List
**********

Blast Off!

Amgen Inc. - AMGN - close: 65.33 change: +1.40

WHAT TO WATCH: In the wake of disappointing earnings last week,
AMGN dropped sharply before catching a strong rebound from just
above the 50-dma.  That rebound continued on Monday, with the
stock breaking through $64.50 resistance and the 200-dma.  This
looks like a great entry for a run back to test last year's highs
near $72.

Chart=


---

International Bus. Machines - IBM - close: 99.85 change: +1.95

WHAT TO WATCH: Investors cheered Big Blue's earnings report and
since then have been driving the stock strongly upwards.  After
stalling late last week near $98 at the top of the early 2002 gap,
shares are on the move again today, nearing the $100 mark for the
first time in nearly 2 years.  A break above that level should
have the $110 level in play.  Use a trigger over the century mark
for entry.

Chart=


---

Northrup Grumman Corp. - NOC - close: 101.08 change: +1.46

WHAT TO WATCH: We've had our eye on NOC for a while now, as we've
been waiting for a push through the $100 level to confirm further
upside potential.  The bulls delivered on Monday, with the stock
actually reaching $101 before pulling back slightly.  Wait for a
break above today's high before entry and then target next
resistance at $110.  Note that earnings are due out on February
4th, so it will have to be a quick trade.

Chart=


---

Genentech - DNA - close: 97.97 change: +1.37

WHAT TO WATCH: Can nothing hold back shares of DNA?  Positive
earnings didn't slow it down and even a downgrade from Deutsche
Bank didn't seem to deter the bulls, as the stock is now closing
in on the $100 level for the first time since March of 2000.  A
pullback near $95 looks like a great entry ahead of a run at the
century mark, while momentum traders can enter on a push through
today's intraday high.

Chart=



===================
On the RADAR Screen
===================

XLNX $42.63 - After the initial post-earnings drop, XLNX is
looking like it wants to make another run higher and is bumping
against the $42.50 resistance level.  A continued rally above
$42.80 should result in a return to the $45 post-earnings high and
more than likely new recent highs soon to follow.

CDWC $69.37 - In the wake of positive reception of CDWC's earnings
last week, the stock appears on the verge of a breakout to new 3-
year highs.  Look for a breakout over $70 to trigger entry and
then play for a rally to $75 and possibly higher as the bulls
salivate over a return to the highs of early 2000.

ABT $43.88 - Looking for a low-risk entry?  Shares of ABT have
fallen back to major support near $43 after a less than stellar
earnings report, but the bulls are staunchly defending this
support, which is reinforced by the 200-dma.  Intraday dips that
find support above that level look good for an entry, anticipating
a rally up to the bottom of the early January gap.


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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