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Daily Newsletter, Wednesday, 02/04/2004

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The Option Investor Newsletter                Wednesday 02-04-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Investors React to CSCO's Earnings
Futures Wrap: Naz TASRed, enters CSCO skid
Index Trader Wrap: NASDAQ's pullback has been about average.  So far.
Traders Corner: A Tale Of Two Markets


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     02-04-2004            High     Low     Volume Advance/Decline
DJIA    10470.74 - 34.44 10524.22 10447.18 2.02 bln    705/2132
NASDAQ   2014.14 - 52.07  2044.68  2013.92 2.24 bln    689/2405
S&P 100   558.87 -  4.49   563.36   558.11   Totals   1394/4537
S&P 500  1126.52 -  9.51  1136.03  1124.74
RUS 2000  564.03 - 15.12   579.15   564.03
DJ TRANS 2822.11 - 29.28  2853.88  2815.66
VIX        17.87 +  0.53    18.06    17.46
VXO        17.58 +  0.52    18.10    17.25
VXN        26.65 +  0.35    26.89    25.99
Total Volume 4,772M
Total UpVol    859M
Total DnVol  3,858M
52wk Highs     270
52wk Lows       19
TRIN          1.06
PUT/CALL      0.81
*******************************************************************

Investors React to CSCO's Earnings
by James Brown

The NASDAQ has almost wiped out its 2004 gains after investors
used CSCO's earnings report last night as another excuse to take
profits.  What started out as a tech-specific decline quickly
widened into a market-wide sell-off.  Wall Street completely
ignored the two positive economic reports out this morning and
chose to rotate money out of tech and cyclicals and into more
defensive consumer staples and drug stocks.  The only two sector
indices that closed in the green today were the RLX retail index
and the DRG drug index.

The NASDAQ composite lost 52 points or 2.52% to close at 2014.
Today's close marks a 6.4% pull back from its high and a test of
the 2000 level is almost guaranteed.  Meanwhile the Dow
Industrials dropped 34 points to close at 10,470 after bouncing
twice intraday near the 10,450 level.  The S&P 500 index lost
almost 10 points to close at 1126.  Its short-term trend also
looks bearish and a breakdown under the 1120 level may portend a
move toward its 50-dma near 1100.

Foreign stock exchanges were generally negative, which didn't
inspire any investor confidence here.  Noteworthy was Japan's
NIKKEI index, which fell almost 200 points to 10,447.  Renewed
concerns over their banking system's bad loans may have been the
catalyst to sell and the constant drop in the dollar against the
yen doesn't help Japan's exporters.  Across the Atlantic rumors
surfaced that the Bank of England may actually raise interest
rates by 25 basis points while speculation continues for a
potential rate cut by the European Central Bank.

Here in the U.S. tech stocks took a beating after CSCO's CEO John
Chambers said many of their customers remain cautious on capex
spending and hiring.  Shares of CSCO gapped lower and closed down
8.8% on massive volume of 190 million shares.  This lead the NWX
networking index to a 5.18% loss.  Riding its coattails were the
semiconductors, software and hardware sectors.  Noteworthy was
the 3% drop in the SOX, which broke round-number price support at
the 500 level.  Shares of Intel reversed yesterday's decent gain
for a 4.27% loss.  Investors also took money out of homebuilders,
biotech, and broker-dealers.

Market internals were very bearish.  Declining stocks outnumbered
advancing stocks 3-to-1 on the NYSE and almost 4-to-1 on the
NASDAQ.  New highs were the lowest I've seen in a very long time
at 164 between both exchanges.  Down volume completely
overwhelmed up volume 3-to-1 on the NYSE and 6.5-to-1 on the
NASDAQ.  Overall volume was strong with more than 2 billion
shares trading on each exchange.

The charts below show the DJIA just above support at 10,400 but
in a very clear short-term down trend of lower highs.  Meanwhile
the NASDAQ has broken its 50-dma and is quickly approaching the
2000 mark.  I've also listed the SOX to show its long-term rising
trend and the breakdown today through the 500 level.

Chart of the DJIA:



Chart of the NASDAQ:



Chart of the SOX:



The big economic report released today was the ISM services
index.  Economists were looking for a jump to 60.0 from
December's 58.0 reading.  What we got was a spike to 65.7 in
January; a very strong report.  Compounding the good news was the
factory order numbers released by the Commerce Department.
Estimates were for a gain of 0.5% for December's factory orders.
The result was a much stronger 1.1% gain.  Making the report even
brighter was an upward revision for November's factory orders
from -1.5% to a -0.9%.

Unfortunately, no one was buying the economic news.  John
Chamber's comments were a great excuse to sell.  If that wasn't
enough CIENA issued an earnings warning last night that put
further pressure on tech and telecom stocks.  Shares of CIEN sank
nearly 18% to close under its 200-dma at $5.99 after management
lowered their first-quarter revenue guidance to $66.4 million.
Last month the company had forecasted revenues would be $70.6
million, which was still below analysts' estimates of $76
million.  CIEN blamed the timing of a single, albeit large, order
for the shortfall.

Speaking of timing, Oracle (ORCL) has upped its bid to buy
PeopleSoft (PSFT) for the second time.  This morning ORCL raised
its bid to $26.00 a share in cash (about $9.4 billion) for PSFT.
In ORCL's press release Oracle's Chairman and CFO, said, "Given
PeopleSoft's current prospects, including its recent downward
revisions to earnings guidance for the first quarter, we believe
our offer presents compelling value to PeopleSoft's
stockholders."  Their offer is an 18.8% premium over yesterday's
closing price for PSFT but some doubt whether or not the
government would approve of such an acquisition.  If ORCL doesn't
buy PSFT then they might start shopping around for another
target.  If they do get PSFT, then we could see rivals begin
looking for acquisitions to stay competitive.

Today's market declines are likely to weigh on investor sentiment
more than usual because traders are already apprehensive about
Friday's non-farm payrolls report.  If jobs fail to materialize
there could be a rush for the exits.  Many have rationalized that
last month's gain of just 1,000 jobs was an abnormality and
comments from the government have sustained this belief.
However, two months of no job growth starts to look like a trend.
We also have the G7 meeting on Friday and Wall Street has already
assumed that the dollar's decline will take center stage.  There
is hope that tomorrow could see a bounce.  Thursday will see
dozens and dozens of companies report their fourth quarter
earnings.  If we get enough positive surprises it might turn
things around.  Of course this goes against the recent trend of
sell the news no matter how good the numbers are.

We'll also have to contend with an earnings warning by Medtronic
(MDT) who warned tonight after the close.  MDT had previously
guided revenues in the $2.15-2.23 billion range and actually
suggested they might surpass it.  Naturally analysts pegged their
estimates at the top of the range.  This evening MDT is reporting
that revenues will be closer to $2.195 billion, a 15% rise from
the same period a year ago.  The stock was trading lower after
hours and rivals GDT and STJ are likely to trade lower as well.

Thursday also brings the initial jobless claims and a host of
same-store sales figures for January.  Overall the January sales
numbers should be positive.  Retailers should have easier year
over year comparisons since last January the country was holding
its breath as we prepared for the Iraq war.  Unfortunately,
apparel retailers may under perform the pack as steep markdowns
and snowy weather on the east coast reduce margins and traffic.


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

Naz TASRed, enters CSCO skid
Jonathan Levinson

The US Dollar Index extended yesterday's range as treasuries
slid, correcting part of yesterday's gains.  Equities were mostly
lower with the NQ leading the way.  Gold and silver advanced
modestly and the CRB declined.

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 drifted sideways, reaching a high above 87
but never challenging resistance in the 87.15 area.  The morning
gains were supported by positive economic news at 10AM but were
given back on a sharp round of selling before noon.  The CRB
dropped 1.72 to 260.05, led by crude oil, coffee and heating oil
futures.


Daily chart of April gold


The nascent daily cycle upphase continues to sputter along at the
starting gate.  Another higher low by a few cents was established
at 399.60, with an intraday high of 402.  With price trading
within a broad narrowing pennant and an inside day just
completed, traders can look forward to a directional breakout
shortly.  Below 392 would be bearish, targeting next support at
392, while a move above 408 will target 412-414 resistance.
April gold close higher by 90 cents at 401.20, while the XAU and
HUI traded both sides of unchanged, finishing lower by 1.05% at
94.92 and -1.76% at 212.75 respectively.


Daily chart of the ten year note yield


Bonds were weak today, with a bullish engulfing candle retracing
part of yesterday's decline on the ten year note yield (TNX)
which finished higher by .49% or 2 bps at 4.12%.  The Fed was
generous today, adding overnight repos of 3.25B and a coupon pass
of 910M, which is a permanent market operation.  The daily cycle
oscillators on the TNX had looked ready to roll over but extended
the ongoing upphase on today's yield strength.


Daily NQ candles


The NQ outperformed to the downside today, finishing a hair above
its session low of 1461.50 at 1462.50, a 1.65% drop.  It was the
break of 1480 for which we had been waiting, and it stopped 1.50
above our next posted support level of 1460.  Next support below
is at 1438-40 if 1460 fails to hold, and the shape of the daily
cycle downphase suggests that it should be an achievable downside
goal if 1460 cracks.  1480-2, followed by 1496 and 1505 are now
upside resistance.


30 minute 20 day chart of the NQ


It turned out to be a bear flag after all.  Note how the break
came right at the apex of the pennant below the declining
trendline.  That trendline, validated by the failure at
yesterday's cash closing high, roughly coincides with the daily
cycle downphase, as so long as price remains below it, the daily
cycle downphase should continue.  It currently provides
resistance at 1482, and any 30 minute cycle bounce should fail at
or below that level.  If it doesn't, then the daily cycle
downphase will be in jeopardy, and open shorts should be at or
close to their stops by that point.

The Nasdaq lost 52 points today and closed at 2014 on solid
volume of 2.28B.  For the year-to-date, it's up 0.5%.  While the
daily cycle oscillator on NQ is approaching the lower end of its
range, there's no way to know the effect of the Nasdaq's entering
negative territory for the year should such occur.  Best to
continue to follow the cycles, support and resistance levels.


Daily ES candles


Es closed at 1123.50, with a low printed at 1122.  The daily
cycle downphase extended further, and the YM, although far less
weak than the NQ, looks poised for a challenge of 1122.  More
important will be the test of 1115-18, which supported what I
believe to have been the left shoulder of the head and shoulders
formation printing since the beginning of January 04.  To the
upside, 1133-35 remains the top of the current range.


20 day 30 minute chart of the ES


The breakdown came early beneath the descending resistance line-
proxy for the daily cycle downphase, suggesting that I might have
drawn it too high.  If so, resistance moves lower from 1134 to
1130.  The 300 minute stochastic continues to meander lower, as
does the Macd, and I'm looking for a break of 1122 to target
1115-18.  Given the proliferation of important support just
below, traders with more delicate constitutions should be wary of
chasing a break of 1122 for more than a quick scalp with a tight
stop.  So long as the oscillators remain in a synchronized
downtrend below the declining trendline, it looks good for short
positions, but it's been a whippy week, full of surprises.  Below
1115, January will look very much like a complete head and
shoulders, and the selling should become stronger from there if
it occurs.


150-tick ES


A daily cycle downphase is currently in progress on YM, but with
lower Keltner support at 1123 being tested and a wavelet bounce
trying to set up (bottom pane stochastic), traders should be wary
of an overnight bounce. 1128-29 looks like stiff resistance on
this intraday timeframe.


Daily YM candles


Nothing to add on YM, which had the smallest break of its peers.


20 day 30 minute chart of the YM


Despite the selective destruction being meted out in select
stocks this week, the overall trend of the 2003 rally remains
solidly intact.  Until the lower daily channel supports get
broken, the current leg will look like a correction atop many
months of gains.  Even as a bear market rally, there is still
historical precedent for months of gains to come.  That's not to
say that I'm expecting such to occur one way or the other, but we
must keep an open mind.  Wait for the longer uptrend to break
before assuming too bearish a stance.

The US Dollar Index mostly drifted today as bonds and equities
sold, and this despite an injection of more than 4B in liquidity
from the Fed.  The intermarket relationships are still iffy, and
so I'm keeping an open mind there too.  However, the combination
of dollar and equity weakness looks very ungood to me, and we'll
continue to keep an eye out for that relationship this week.  See
you tomorrow.


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

NASDAQ's pullback has been about average.  So far.

Cautious comments from Cisco Systems (NASDAQ:CSCO) $24.08 -8.82%
CEO John Chambers in Tuesday evenings quarterly earnings
conference call sparked a strong round of selling in today's
trade, where few stocks were immune to the selling and now has
the NASDAQ Composite (COMPX) 2,014.14 -2.52% struggling to hang
onto a 12-point gain for the month of January.

Not that Cisco's John Chambers should be credited, or hung by
bulls for triggering today's selling, but comments regarding some
corporate heads still rather hesitant to spend on information
technology and hire back workers raised enough doubt among
investors bulls to trigger another strong round of profit taking.

We're going to take a quick look at the very broad NASDAQ
Composite (COMPX), which has now fallen 140-points since closing
at a 29-month high just seven sessions ago.

Not to sugar coat the recent declines and get mulled into bullish
complacency, but the current 6.5% decline for the NASDAQ
Composite would be considered "average" since the move higher
from the March lows.

Market Snapshot / Internals - 02/04/04 Close



Small caps as depicted by the Russell-2000 Index ($RUT.X) 564.03
-2.6% were hardest hit in today's trade, while most stocks with 4
or more letters in their stock symbol and listed at the NASDAQ
most likely found a lower trade.

While the NASDAQ Composite (COMPX) has decline 6.5% from its
recent highs, the also broad Russell-2000 Index ($RUT.X) has
fallen 6.2% since its January 26th and 27th matching highs of
601.50.

While both A/D lines at the NYSE and NASDAQ were bearish, or weak
throughout today's session, today's NH/NL ratio at the NASDAQ of
92.2% (106 / 115) was actually stronger than a recent January
29th NH/NL daily ratio of 89.2%.  While some bullish leadership
is still found, both the 5-day and 10-day ratios are headed
lower.  Please note.  Both the NYSE and NASDAQ NY/NL 10-day ratio
point and figure charts would still be in a column of X and have
not yet shown a 3-box reversal (charted on 2% box size).

NH/NL breadth at the NYSE showed the daily ratio at 88.3%, where
we would have to go back to November 11 and November 17 to find
daily NH/NL breadth ratios at such a low level.

The NH/NL breadth data simply suggest that buyers are being less
aggressive, or perhaps confident, with the buying of stocks at
new highs, while any building of new lows would also suggest
buyer are becoming less speculative with bottom feeding.

We should remember that BUYING isn't created from bulls only, but
bears, or shorts also.

NASDAQ Composite (COMPX) Chart - Daily Internals



Has the NASDAQ Composite seen its top?  This question won't be
answered for some time, but I've placed a conventional
retracement bracket on the COMPX from its October 2002 lows to
the recent highs to simply depict a very large range.  Levels
that were though to be significant resistance at 2,000 and 2,100
are marked on the chart, where I would have to think that if the
recent highs were to hold in coming days, weeks or month, then
2,100 would be a level of trade to currently assess resistance
at.

What I really wanted to do in the above chart is go back and look
at some of the past percentage declines where the COMPX had
traded a new high, but then pulled back.  A 7.5% decline was
found from a July 14th high to August 8th pullback, which took
19-days to complete.

A similar to current 6.8% decline in mid-September (09/19-09/30)
lasted 7-days before a bounce from the rising 50-day SMA was
found.

I calculated a 7.5% decline from the recent COMPX high would
equate to a COMPX trade near 1,992.

The reason for this exercise in calculating past percentage moves
is to try and put things in perspective of how a broader-market
index has moved in the past, digested gains, and can become a
measurement, or test for current trade.  What we might be
monitoring for from a percentage perspective is either SIMILARITY
to the past, or DIVERGENCE from the past.

How could an index trader use this?

I (Jeff Bailey) have had a difficult time not getting swung out
of a good trade, by either having my stop set too tight, based on
a finite level of trade.  One way a trader might look at
percentages is to understand how far the market has declined,
compare it to past declines, then look to trade accordingly.

For instance, I'm looking for a bounce to take place in these
markets, especially the NASDAQ, and would currently have to
assess further downside of at least 1% based on the COMPX trade,
where a 3% bounce higher might not be unreasonable.

Traders/investors that may not currently have access to a
charting service, but are interested in calculating past
pullbacks for indices or sectors they are interested in trading
can do so for FREE at www.stockcharts.com.

You do NOT need a login name or password to pull up a
"SharpChart" of the S&P 500 Index ($SPX).  Once you pull up a
chart, click the "annotate" button just below whatever chart you
wish to look at, another window should pop up, and you should be
able to move your cursor (crosshairs) into that new window and
pick the inflection points to be studied.  Data should be tracked
at the lower part of the chart as the cursor is moved across the
screen.

Pivot Analysis Matrix -



I'm running way behind for tonight's wrap, but want to focus on
the SPX, which many consider a major market index for determining
market directions.

One reason I'm running late on tonight wrap is I went back and
reviewed recent sessions trade, where I want to consider the
DAILY R1 as a level, which would need to be traded for a first
sign of renewed strength.  Here's why.

Today (02/03/04) the SPX did not test its DAILY R1

Yesterday (02/03/04) the SPX did not test its DAILY R1

On Monday (02/02/04) the SPX traded LOWER, but did NOT test its
DAILY R1 of 1,127.85, then reversed back above its DAILY R1 of
1,134.29 and traded further higher above its DAILY R2 of
1,137.45, but then saw selling late in the session to close just
above its DAILY R1 of 1,134.29.

Now, I've drawn green boxes on the SPX at 1,117.21 as a level of
correlative support, and also at the MONTHLY S1 and WEEKLY S2.

While I would deem 1,117.00 as a level within the matrix to be
looking for support, the 1,103-1,106 level is a further downside
risk assessment level should the SPX fall 4.8% from its recent
high of 1,155.38.

S&P 500 Index Chart - Daily Intervals



In the lower left part of the chart, I point to a rather sharp
pullback witnessed in the latter part of September, where the SPX
fell 4.8% over the course of 8 trading days.  I will take some
time later tonight to go back and review the pivot matrix' for
that period of time to see just how the SPX traded.  Still, I'm
going to assess current downside risk from the recent highs as
being 4.8%, where we can use the levels in the pivot matrix as a
test.

One thing outside the pivot matrix I see coming into play as a
near-term area of support is the extension of our old bullish
resistance channel, which served support on 01/29/04 and looks to
have held the SPX lows today.

I went back an looked at the 01/28/04 Index Trader Wrap, where
for 01/29/04, the DAILY S1 was 1,120.27, and the SPX traded a
session low of 1,122.38 that morning before reversing back
higher.

If memory serves me correct, current levels of trade around 1,125
was a frequently mention level that related to index option trade
ahead of January expiration.  This heightens my alert to being at
a key level of support in the SPX right now.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals



I marked a 6.72% decline on the QQQ, where from $39.00, today's
lows would equate to a 6.85% decline.  Most charting services
that I've viewed do show the QQQ having traded $39.00, so that is
what I'm thinking was the 52-week high.  However, intra-day
charts have the QQQ trading a high of $38.85 and this has been a
point of contention with some traders in calculation of the pivot
matrix.  While I try and NOT trade everything to the penny, this
disparity of the recent highs should be noted.

Note that RYAAY +4.64% was one of today's bigger gainers in the
NDX/QQQ.  It should also be noted that this stock has fallen
sharply from the $58.00 level, where today's gains suggest either
short-covering, or value bulls looking for a bottom.

Dow Industrials (INDU) Chart - Daily Intervals



The INDU has been a pillar of strength compared to the NDX/QQQ
and just how IBM escaped some of the broader technology selling
in today's session is a question I wouldn't have the answer to.

Jeff Bailey


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**************
TRADERS CORNER
**************

A Tale Of Two Markets
by Mark Phillips
mphillips@OptionInvestor.com

In the past, we've talked about the three primary influences on
price action in the market - fundamentals, technicals and
sentiment.  It isn't often that we get such a clear example of the
impact of sentiment on price action, but the reaction to CSCO's
earnings report last night gives us just the foil for a meaningful
discussion on the topic.

There's been much debate lately about whether we're still in a
bear market, or a new bull market.  Central to that discussion is
the fundamental picture, which looks at valuations and economic
strength or weakness.  The case can be made that the market is
rallying in response to an improving economy as the underlying
fundamentals are improving.  At the same time, the persistent rise
of the past several months can also be attributed to pure
technical action, as important resistance levels have been broken,
while at the same time key support has been found at the important
50-day moving averages, both on the major indices and on
individual stocks.

But we can never underestimate the impact of investor psychology
or sentiment on the price action that unfolds in the market.
Lately, sentiment has been trumping both fundamentals and
technicals, as investors have been enjoying the ability to buy the
dips and chase momentum stocks higher.  There are no greater
current examples of what happens when this process comes to its
inevitable end than the meltdown in the shares of TASR over the
past 2 days.  No amount of price rise has been too much for this
stock, as investors have eagerly bid it up from the $4 area last
April to $135 prior to the earnings report yesterday morning.  The
initial reaction to the better than expected earnings and split
announcement sent the stock soaring to $154 and then the polarity
shifted, with investors piling on those Sell orders and driving
the stock down to $127 by the close, a decline that continued
today.

Sentiment changed in a heartbeat from "Buy at any price" to "Get
me out before it falls any further".  The technicals didn't
change, as the prevailing uptrend is still intact and prior
oscillator sell signals didn't produce anything approaching this
level of price weakness.  The fundamentals didn't change either,
although the stock was looking pretty expensive at a P/E ratio
greater than 300 and a price to sales ratio of 28.  The price
decline was simply a result of a dramatic shift in investor
sentiment.

But I said I wanted to talk about CSCO and its earnings report.
Networking stocks have been on fire in recent weeks, as sentiment
has become more overdone to the upside leading into the current
earnings season.  CSCO more than doubled from the April lows near
$13 to a January high of just over $29 as the Networking index
(NWX.X) soared from $140 to over $330 in the same period of time.

Daily Chart of CSCO



It certainly would have made sense that the price pullback in CSCO
over the past couple weeks was just consolidation in front of the
earnings report, with good odds of a bullish move following the
report.  Afterall, investors have been buying every dip for
months, right?  Unfortunately for traders that took that bet,
sentiment shifted sharply and the stock gapped below its 50-dma
and just kept falling from there, coming to rest on $24 support,
losing nearly 9% on absolutely huge volume.  The sentiment shift
is no different than that seen in shares of TASR this week, except
that it took longer to play out.  In hindsight, we can see that
sentiment was becoming significantly weaker leading up to the
earnings report.  But the gloves came off after last night's
report, resulting in today's bloodbath.

A fitting contrast to the price action in CSCO surrounding its
earnings report is what we saw last month when JNPR issued its
quarterly results.  The company handily beat estimates, but if
anything management was trying to reel in investor enthusiasm in
the conference call.  The result was truly astounding, as the
stock skyrocketed $7 the next day and held those gains.

Daily Chart of JNPR



Even weeks later and in the wake of today's meltdown in the
Networking sector, JNPR has held firm above the top of that post-
earnings gap.  There has been no shift in sentiment in JNPR.  Why?
The simple answer is that prior to earnings, investor sentiment
was less bullish than the results that were delivered.  On the
other hand, investors were looking for CSCO to deliver something
more compelling than their usual "beat by a penny" results and
when it didn't appear, the punishment was meted out in brutal
fashion.

Fundamentally, CSCO is a much better value than JNPR, with a P/E
ratio of 39 vs. 290.  Price-to-Sales favors CSCO as well, with a
9:1 ratio vs. JNPR's 15.  Use any other fundamental metric such as
profit margin, return on equity, revenue growth - they all paint
CSCO as a more attractive investment.

Technically, CSCO and JNPR both looked similarly strong prior to
their respective earnings reports, with nary a hint of a Sell
signal, either on the standard price charts or in the PnF chart
view.  Both had pushed up against strong resistance levels prior
to their earnings releases, but for some reason CSCO was turned
back at resistance, while JNPR blasted through, as though that
resistance didn't even exist.

That leaves us with only one explanation for the disparate price
action -- Sentiment!  What I hope this highlights is the fallacy
of trying to make trading decisions based simply on whether the
earnings news was good or bad.  There is no absolute (other than
price action) for determining whether the earnings were good or
bad, because what is more important is the expectations ahead of
the report.  If earnings were strong but below what investors were
hoping for, then price action will likely show that it was a 'bad'
report.  However, if investors are expecting poor earnings and the
company misses official estimates, but the miss isn't as bad as
what investors feared, then price action is likely to be positive,
demonstrating that it was actually a 'good' report.

Perverse, isn't it?  The reality of sentiment's impact on price
action in the marketplace is neither good nor bad -- it is just
part of the equation.  Our job as investors is to try to trade in
accordance with the prevailing sentiment, hopefully in keeping
with the pertinent fundamental and technical factors.  One key
task we must achieve is to avoid exposing ourselves to undue risk
when potentially "sentiment shifting" events occur.  This is the
primary reason why we never advocate holding positions over an
earnings announcement.  It isn't that the earnings report is
unpredictable (although it is), but the mood of the investing
public is far more unpredictable and it is safer to wait for the
herd to move before jumping aboard than to take a position and get
trampled in the stampede.

I hope this has been useful.  By the way, if anyone ever finds a
way to measure investor sentiment ahead of earnings reports -
short of a crystal ball, I'd sure like to know what it is!

Have a great week!

Mark


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The Option Investor Newsletter                Wednesday 02-04-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: AVID
Dropped Calls: None
Dropped Puts: None
Spreads, Combinations & Premium-Selling Plays: Market Rotation
    Offers Little Catalyst For Buying
Watch List: A few Dow components


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AVID - put play
We are TRIGGERED on today's decline - stop loss is now 46.17


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DROPPED CALLS
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None


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

Market Rotation Offers Little Catalyst For Buying
By Ray Cummins

The major equity averages retreated Wednesday, despite bullish
activity in pharmaceutical and consumer-related issues.

The performance of hi-tech shares was the primary reason for the
slump as Cisco's (NASDAQ:CSCO) mediocre profit outlook drove the
composite technology index down 52 points to 2,014, its worst loss
in four months.  The blue-chip Dow industrial average finished 34
points lower at 10,470 with the majority of components in the red.
The S&P 500 Index fell 9 points to 1,126 as early selling pressure
spread to most sectors.  Trading volume was moderate, with about
1.6 billion shares changing hands on the New York Stock Exchange
while 2.2 billion shares traded on NASDAQ.  Decliners outnumbered
advancers by more than 2 to 1 on the NYSE and by more than 3 to 2
on the technology exchange.  Bonds fell with the benchmark 10-year
note down 6/32, bringing its yield up to 4.12%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 02/03/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  27.53    0.40   21.62%   2.04%
CECO     FEB    40    39.30  48.59    0.70    5.04%   1.78%
ERES     FEB    27    27.00  34.04    0.50    5.07%   1.85%
MICC     FEB    65    64.05  74.96    0.95    4.10%   1.48%
NTES     FEB    40    38.90  44.29    1.10    7.39%   2.83%
RMBS     FEB    25    24.50  30.00    0.50    5.60%   2.04%
SEPR     FEB    22    21.90  27.53    0.60    7.02%   2.74%
SINA     FEB    40    38.75  43.10    1.25    7.89%   3.23%
SOHU     FEB    30    29.30  30.41    0.70    6.72%   2.39%
APPX     FEB    35    34.35  34.00   (0.35)   0.00%   1.89%
CRDN     FEB    40    39.05  40.76    0.95    7.15%   2.43%
GPRO     FEB    32    32.10  36.55    0.40    4.17%   1.25%
KYPH     FEB    25    24.45  28.39    0.55    6.84%   2.25%
IMCL     FEB    35    34.15  41.89    0.85    8.93%   2.49%
OSIP     FEB    30    29.60  34.94    0.40    4.67%   1.35%
PCLN     FEB    17    17.15  18.79    0.35    6.93%   2.04%
SEPR     FEB    22    22.05  27.53    0.45    7.00%   2.04%
BRCM     FEB    37    37.00  39.50    0.50    5.08%   1.35%
CLZR     FEB    22    22.20  22.40    0.20    3.67%   1.35%
DRIV     FEB    22    21.95  22.70    0.55    9.34%   2.51%
NANO     FEB    17    17.05  19.04    0.45   10.87%   2.64%
NTAP     FEB    20    19.55  20.88    0.45    8.71%   2.30%
OSTK     FEB    17    17.00  18.28    0.50   11.98%   2.94%
SEPR     FEB    22    22.25  27.53    0.25    5.25%   1.12%

American Pharma Partners (NASDAQ:APPX), Ceradyne (NASDAQ:CRDN),
Priceline.com (NASDAQ:PCLN), Overstock.com (NASDAQ:OSTK),
Candela (NASDAQ:CLZR), and Digital River (NASDAQ:DRIV) are
candidates for early exit.


NAKED CALLS

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

CYD      FEB    35   35.45  19.80    0.45   6.36%    1.27%
SNDK     FEB    80   81.10  48.75    1.10   5.97%    1.36%
ISIL     FEB    30   30.50  25.66    0.50   6.00%    1.64%
MCHP     FEB    35   35.45  28.90    0.45   4.57%    1.27%
UTSI     FEB    40   40.95  34.14    0.95   8.23%    2.32%
AEIS     FEB    25   25.55  21.47    0.55   9.96%    2.15%
ELX      FEB    30   30.45  26.57    0.45   6.62%    1.48%
PHM      FEB    47   48.00  44.24    0.50   4.66%    1.04%


PUT-CREDIT SPREADS

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

COCO    60.73  61.00   FEB  55  55   0.65  54.35   0.65   Open
KOSP    45.30  51.25   FEB  35  40   0.60  39.40   0.60   Open
CEPH    54.65  55.65   FEB  45  50   0.65  49.35   0.65   Open
NFLX    65.10  71.90   FEB  48  50   0.25  49.75   0.25   Open
CFC     80.32  84.61   FEB  70  75   0.65  74.35   0.65   Open
MDC     66.31  64.79   FEB  55  60   0.60  59.40   0.60   Open
GILD    65.37  56.21   FEB  55  60   0.55  59.45  (3.24) Closed
CVH     42.54  39.99   FEB  37  40   0.36  39.64   0.35   Open
SII     48.80  47.41   FEB  43  45   0.30  44.70   0.30   Open

Conservative traders should have closed the bullish spread in
Gilead Sciences (NASDAQ:GILD) last Wednesday, for a much smaller
than published loss, when the issue moved below the sold (put)
strike at $60.  Coventry Health Care (NYSE:CVH) became one to
"watch" after their profit forecast disappointed investors.


CALL-CREDIT SPREADS

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

ANF     24.90  26.19   FEB  30  27   0.30  27.80   0.30   Open
MANH    27.00  28.60   FEB  35  30   0.50  30.50   0.50   Open
ESV     27.45  28.79   FEB  35  30   0.45  30.45   0.45   Open
NVLS    41.68  32.95   FEB  47  45   0.40  45.40   0.40   Open
HTCH    32.45  28.66   FEB  40  35   0.60  35.60   0.60   Open
ICST    27.60  24.91   FEB  35  30   0.50  30.50   0.50   Open
BZH     92.40  96.90   FEB 105 100   0.55 100.55   0.55   Open
KSS     42.67  45.00   FEB  50  45   0.55  45.55   0.55  Closed
LEN     43.71  44.69   FEB  50  47   0.30  47.80   0.30   Open

The bearish spread in Checkfree (NASDAQ:CKFR) has previously been
closed for a small loss.  The recent rebound in Kohl's (NYSE:KSS)
after an upgrade by Oppenheimer analyst Bernard Sosnick put the
issue on the early-exit list.

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.

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

ARO - Aeropostale  $31.55  *** Retail Sector Strength! ***

Aeropostale (NYSE:ARO) is a specialty retailer of casual apparel
and accessories that targets both young women and young men from
ages 11 to 20.  The company provides its customers with a focused
selection of quality, active-oriented, fashion basic merchandise.
It maintains control over its proprietary brand by designing and
sourcing all of its merchandise.  Its products can be purchased
only at its stores or organized sales events at college campuses.
The firm aims to create a fun and high energy shopping experience
with the use of creative visual merchandising, colorful in-store
signage, bright lighting, popular music and a well-trained sales
force.

ARO - Aeropostale  $31.55

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    ARO NF      90   0.50  29.50   8.2%   1.7% *
SELL PUT  MAR 30    ARO OF      21   1.20  28.80   6.8%   4.2%


__________________________________________________________________

ECLG - eCollege.com  $19.02  *** Entry Point? ***

eCollege.com (NASDAQ:ECLG) is a provider of technology, products
and services that enable colleges, universities, primary and high
schools, grade schools and corporations to offer online classes
for distance, on-campus and hybrid learning.  The firm's unique
technology enables it's customers to reach students who wish to
take courses at convenient times and locations via the Internet.
Its customers can also use its technology to supplement on-campus
courses with an online environment.  In addition, the company
offers services to assist in the development of online programs,
including online course and campus design, development, management
and hosting as well as ongoing administration, faculty and student
support.

ECLG - eCollege.com  $19.02

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  EGU NW      31   0.30  17.20   8.9%   1.7% *
SELL PUT  MAR 17.5  EGU OW     106   0.90  16.60   8.9%   5.4%


__________________________________________________________________

ERES - eResearch Technology  $35.56  *** Uptrend Resumes! ***

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

ERES - eResearch Technology  $35.56

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    UDB NF    1097   0.25  29.75   5.3%   0.8% *
SELL PUT  FEB 32.5  UDB NZ     630   0.65  31.85  10.5%   2.0%


__________________________________________________________________

ERICY - LM Ericsson  $22.53  *** Nortel Rally Boosts Telecoms! ***

LM Ericsson (NASDAQ:ERICY) is a global supplier of mobile systems.
The firm provides total communications solutions from systems and
applications to services and core technology for mobile handsets.
Ericsson has been active since 1876 with products such as mobile
systems, multi-service networks, enterprise services, transmission
and transport technologies, general packet radio services (GPRS),
third generation mobile telephony, advisory services, management
and optimization services, multimedia messaging services, and a
variety of Bluetooth wireless technologies.  With Sony Ericsson,
it also is a supplier of complete mobile multimedia products.

ERICY - LM Ericsson  $22.53

PLAY (sell naked put):

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

SELL PUT  FEB 20    RQC ND    1797   0.35  19.65   9.7%   1.8% *
SELL PUT  FEB 22.5  RQC NX    1130   1.15  21.35  21.6%   5.4%


__________________________________________________________________

JCP - J. C. Penney  $27.00  *** Near Multi-Year Highs! ***

J. C. Penney (NYSE:JCP) is a major retailer, operating 1,049 J.C.
Penney department stores in 49 states, Puerto Rico, and Mexico.
In addition, it operates 54 Renner department stores in Brazil.
A major portion of J.C. Penney's business consists of providing
merchandise and services to consumers through department stores,
catalog departments and the Internet.  The stores market family
apparel, jewelry, shoes, accessories and home furnishings.  In
addition, JCP operates a chain of 2,686 drugstores, primarily
through the Eckerd name, located in the southwest, southeast,
Sunbelt, and northeast regions of the United States.

JCP - J. C. Penney  $27.00

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    JCP NE    29715  0.40  24.60   8.3%   1.6% *
SELL PUT  MAR 25    JCP OE     2486  0.85  24.15   6.1%   3.5%


__________________________________________________________________

LIN - Linens 'n Things  $31.45  *** Solid Quarterly Sales! ***

Linens 'n Things (NYSE:LIN) is a national large-format retailer
of home textiles, housewares and home accessories that operated
391 stores in 45 states and four Canadian provinces, as of the
fiscal year ended January 4, 2003.  The company provides its
guests with a one-stop shopping destination for their home
furnishing needs by offering a selection of brand name linens
such as bedding, towels, window treatments and table linens, and
things such as housewares, home and decorative accessories.  The
company has balanced its merchandise mix from being driven mainly
by the linens side of its business to a fuller selection of both
linens and things.

LIN - Linens 'n Things  $31.45

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    LIN NF      22   0.35  29.65   5.8%   1.2% *
SELL PUT  MAR 30    LIN OF       0   0.65  29.35   3.8%   2.2%


__________________________________________________________________

WEBX - WebEx Communications  $24.50  *** A Big Day! ***

WebEx (NASDAQ:WEBX) develops and sells services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video
services are available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and
deploying new services, expanding its marketing organizations
and deploying its global WebEx Media Tone Network.  The company
sells WebEx Meeting Center, WebEx Meeting Center Pro, WebEx
Training Center, WebEx Support Center, WebEx OnStage and WebEx
Enterprise Edition.  It also provides a service called WebEx
Business Exchange to existing customers.

WEBX - WebEx Communications  $24.50

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  UWB NX     638   0.25  22.25   5.9%   1.1% *
SELL PUT  FEB 25    UWB NE      10   1.05  23.95  17.6%   4.4%



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

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.

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

BA - Boeing  $43.56  *** Blue-Chip Play! ***

Boeing (NYSE:BA) makes commercial and military airplanes, missile
systems, space and communications equipment and offers financing
through Boeing Capital.  Boeing's commercial operations involve
development, production and marketing of commercial jet aircraft
and providing related support services.  Military aircraft and
missile systems operations mainly involve research, development,
production, modification and support of military aircraft, both
land-based and aircraft-carrier-based, as well as helicopters and
missiles.  Space and Communications operations involve research,
development, production, modification and support of space and
missile defense systems, satellites and their launching vehicles,
rocket engines and information and battle management systems.

BA - Boeing  $43.56

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-40.00  BA-NH  OI=6064  ASK=$0.15
SELL PUT  FEB-42.50  BA-NV  OI=5354  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=16% B/E=$42.15


__________________________________________________________________

MRK - Merck  $48.94  *** Strong Sector! ***

Merck (NYSE:MRK) is a research-driven pharmaceutical products and
services company that discovers, develops, manufactures and sells
a range of products to improve human and animal health, directly
and through its joint ventures.  The firm also provides pharmacy
benefit management services through Medco Health Solutions.  The
company's operations are comprised of two business segments: Merck
Pharmaceutical and Medco Health.  Merck Pharmaceutical's products
consist of therapeutic and preventive agents sold by prescription
for the treatment and prevention of human disorders.  Medco Health
provides pharmacy benefit services including sales of prescription
drugs through managed prescription drug programs.

MRK - Merck  $48.94

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-45.00  MRK-NI  OI=6853  ASK=$0.10
SELL PUT  FEB-47.50  MRK-NW  OI=5637  BID=$0.30
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$47.25



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

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.

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

MRVL - Marvell Technology  $39.24  *** In A Trading Range? ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.

MRVL - Marvell Technology  $39.24

PLAY (sell naked call):

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

SELL CALL  FEB 42.5  UVM BT    1720   0.40  42.90   5.9%   0.9% *
SELL CALL  FEB 40    UVM BH    2355   1.20  41.20  14.1%   2.9%


__________________________________________________________________

NVLS - Novellus Systems  $31.97  *** Next Leg Down? ***

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

NVLS - Novellus Systems  $31.97

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    NLQ BG    6239   0.25  35.25   4.7%   0.7% *
SELL CALL  FEB 32.5  NLQ BZ    1675   0.90  33.40  13.0%   2.7%


__________________________________________________________________

SSYS - Stratasys  $22.66  *** Pre-Earnings Slump? ***

Stratasys (NASDAQ:SSYS) is in the three dimensional solid imaging
business as a maker of rapid prototyping systems for automotive,
aerospace, industrial, recreational, electronic, medical and other
consumer products OEM's.  The company's patented Fused Deposition
Modeling (FDM)rapid prototyping process create precision three
dimensional plastic and wax prototyping parts directly from 3-D
CAD systems.  Stratasys holds over 110 granted and pending patents
worldwide focused on rapid prototyping.  Stratasys will release
its quarterly results before the market on February 18, 2004.

SSYS - Stratasys  $22.66

PLAY (sell naked call):

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

SELL CALL  FEB 25    QQG BE     147   0.60  25.60  15.6%   2.3% *
SELL CALL  FEB 22.5  QQG BX       0   1.60  24.10  28.1%   6.6%



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

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.

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

BHE - Benchmark Electronics  $32.30  *** Earnings Speculation! ***

Benchmark Electronics (NYSE:BHE) is in the business of making
electronics and provides the its services to original equipment
manufacturers of telecommunication equipment, computers and
related products for business enterprises, video, audio, and
entertainment products, industrial control equipment, testing
and instrumentation products and medical devices.  The services
that the firm provides are commonly referred to as electronics
manufacturing services.  Benchmark Electronics provides its
customers comprehensive and integrated design and manufacturing
services, from initial product design to volume production and
direct order fulfillment.  The company also provides specialized
engineering services, including product design, printed circuit
board layout, prototyping and test development.  The company's
quarterly earnings are due this week.

BHE - Benchmark Electronics  $32.30

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-40.00  BHE-BH  OI=61   ASK=$0.20
SELL CALL  FEB-35.00  BHE-BG  OI=500  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$35.45


__________________________________________________________________

OMG - OM Group  $27.59  *** Concerns Over Insider Selling? ***

OM Group (NYSE:OMG) through its operating subsidiaries, is a
vertically integrated international producer and marketer of
value-added, metal-based specialty chemicals and other related
materials.  More than 625 different products are supplied for
applications to more than 30 industries.  Typically, the firm's
products represent a small portion of the customer's total cost
of manufacturing or processing, but are critical to a customer's
product performance.  The firm operates in three segments: base
metal chemistry, precious metal chemistry and metal management.

OMG - OM Group  $27.59

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-35.00  OMG-BG  OI=553  ASK=$0.20
SELL CALL  FEB-30.00  OMG-BF  OI=367  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$30.45



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

SEE DISCLAIMER - SECTION 1

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


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

A few Dow components
___________________________________________________________________

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.
___________________________________________________________________


Procter & Gamble - PG - close: 103.20 change: +1.18

WHAT TO WATCH:  Investors appear to be turning defensive as the
major indices drift lower.  PG, normally seen as a defensive
play, has managed a five-day streak of gains.  The breakout over
the $100 level looks positive.  Chasing it here may not be the
best bet so look for a pull back.  The $100 level should now be
strong support.

Chart=


---

International Paper - IP - close: 40.72 change: -0.95

WHAT TO WATCH:  The declines in IP just keep coming.  Shares
peaked in early January after a strong run from its Thanksgiving
lows.  Since its highs the stock has been unable to break the
trend of lower highs and has fallen into a descending channel.
The company announced earnings a couple of days ago that beat by
a nickel and still investors used the news to sell the stock.  IP
was one of the worst Dow performers today and looks headed for
what may be support at $40.00.

Chart=


---

Wal-Mart - WMT - close: 55.39 change: +0.38

WHAT TO WATCH:  Keep an eye on WMT.  The retail titan lead the
retail index higher today with a run up and through resistance at
its 200-dma but shares failed at the $56 mark and faded back
below the 200-dma once again.  Retailers are about to announce
their January same-store sales numbers and no one carries more
clout than WMT.  Unfortunately, today's candle does not look
bullish.

Chart=


---

Freeport Mcmoran - FCX - close: 35.92 change: -0.58

WHAT TO WATCH:  The wedge pattern of declining lows in FCX looks
ready to breakdown through support at $35.00.  Should this occur
we could see a quick test of its simple 200-dma near 31.65.  Its
current P&F chart looks bearish as well pointing to a $27.00
price target.

Chart=



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

MXIM $48.69 -2.27 - MXIM has broken support at the $50.00 level
and broken through the bottom of its rising channel.  The stock
may have support near $46.00 but we wouldn't be surprised to see
it test the $45.00 level.

ROP $48.22 -1.20 - ROP bears watching.  The recent bounce from
support at $48.00 is already failing.  If ROP trades under 48.00-
47.50 we could see it test its 200-dma near $43.00.

NSM $36.62 -1.21 - NSM is another semiconductor stock that looks
vulnerable to more selling.  Traders could use a trigger under
$36.00 and target the 200-dma near $31.00.


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