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Daily Newsletter, Sunday, 02/08/2004

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The Option Investor Newsletter                   Sunday 02-08-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Got Chips?
Futures Market: Binary Dollar Trade Floats All Boats
Index Trader Wrap: Toil & Trouble
Editor's Plays: Two in a Row
Market Sentiment: The Big Bounce
Ask the Analyst: Tracking stocks in a matrix
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 02-06        WE 01-30        WE 01-23        WE 01-16
DOW    10593.03 +104.96 10488.1 - 80.22 10568.3 - 32.22 +141.62
Nasdaq  2064.01 -  2.14 2066.15 - 57.72 2123.87 - 16.59 + 53.54
S&P-100  566.06 +  5.75  560.31 -  5.10  565.41 +  0.69 +  8.17
S&P-500 1142.76 + 11.63 1131.13 - 10.42 1141.55 +  1.72 + 17.97
W5000  11129.40 +100.20 11029.2 -127.58 11156.8 + 40.74 +187.04
RUT      584.07 +  3.31  580.76 - 15.38  596.14 +  5.73 + 15.21
TRAN    2894.36 +  8.40 2885.96 -186.99 3072.94 + 36.66 + 47.34
VIX       15.99 -  0.64   16.63 +  1.79   14.84 -  0.16 -  1.75
VXO       15.98 -  1.07   17.05 +  2.18   14.87 -  0.40 -  0.67
VXN       24.63 -  0.43   25.06 +  3.79   21.27 +  1.03 -  2.77
TRIN       0.62            1.00            1.15            0.47
Put/Call   0.62            0.81            0.77            0.51
******************************************************************

Got Chips?
by Jim Brown

The semiconductor sector cured the Nasdaq from its bout of
profit taking flu with a +4.77% gain on Friday and a total
of +23.68 points. Considering the Nasdaq gained +44 points
you can see where the real strength appeared. Traders who
were dumping chip stocks for the last two weeks suddenly
decided to put that money back to work when the Jobs report
failed to implode.

Dow Chart - Daily


Nasdaq Chart - daily




The Jobs report was neutral with a gain of +112,000 jobs
but that is exactly where we wanted it. Not too hot to
stimulate the Fed to hike rates and not too cold to suggest
the recovery is failing. Yes, the porridge was just right
for the Goldilocks market.

The headline number was below the general consensus estimates
between 125K and 150K and well below many of the outrageous
speculations in the 175k to 225K range. After some initial
volatility traders breathed a sigh of relief and charged
off to buy stocks. It was more of a relief rally than a
rally based on a change in fundamentals.

Looking at the internals there were still some problems.
The manufacturing component showed the 42nd consecutive
monthly loss in manufacturing jobs with a loss of -11,000.
Another benefit came from the seasonal adjustment for
retail jobs. Fewer retail jobs were added at the end of
2003 which meant there were fewer people laid off in
January. After the government adjusted for the normal
seasonality they showed a gain of +76,000 net jobs. It is
unsure whether they were actually gained or just the result
of the over adjustment. Either way they "found" 76,000 jobs
in the retail sector. Maybe they were making up for the
decline of -13,000 jobs in government payrolls for the
month. Professional/business payrolls declined by -22,000
but were offset by health services which rose by the same
number. Leisure services rose by +21,000.

Service industries declined with temporary workers
dropping -21,000. Private non-retail jobs grew by only
+36,000 jobs and less than half the +76,000 December rate.
The unemployment rate fell to 5.6% but the average duration
of unemployment rose to 10.7 weeks. Those out of work more
than a year rose to 22.7%. When you boil down all the
internals it appears the jobless rate is decreasing more
from a slow down in layoffs than an increase in hiring.
The number of unemployed remains at 8.3 million but that
is nearly a million less than the level just six months
ago.

The alternative survey was the goldmine. Home based workers
and 1099 workers increased by +496,000 according to the
report. I hasten to add that these numbers are very suspect
and the government is working to resolve the differences.
Still the markets celebrated the official +112,000 headline
number on the Nonfarm Payroll report with a sigh of relief.
There was such a wide range of whisper numbers from -100K
to +250K that just coming in close to the consensus was
very encouraging.

Bet you did not hear this on the mainstream media. The
government also revised the jobs numbers for the last
seven months and found even more jobs. The total gained
by the revision was only +32,000 but the key point for
me was the cycle. The recent months of Nov and Dec were
revised up while the prior three months were revised down.
That would tend to support the contention that jobs are
growing in the current environment. December was revised
up to 16,000 from 1,000 and November was revised up from
43,000 to 83,000. That is an increase of +55,000 over the
prior two months. When added to the January numbers that
is a +167,000 gain in the last 90 days that was just
disclosed Friday morning. Using the political campaign
method of reporting that blurb will be improved to
"211,000 jobs were created in the last 90 days". I am
surprised this was not more widely reported. Now the
question remains. Whenever they can shuffle the numbers
at will for nearly three quarters and nobody notices is
it a good thing? Since the change was positive it suggests
they could always "find" jobs when needed by "adjusting"
the numbers into a more favorable time frame. But, that
would be a conspiracy and it would never happen, right?

Job Adjustment Table Since June



The just right jobs report gave the bond groupies a new
lease on life and they bought bonds at the open and kept
it up all day. According to the bond bulls the Fed should
be on hold for the rest of 2004. The odds of a May/June
rate hike dropped somewhere in the 18% range and the next
likely target even close to the radar screen became August.
Considering the political implications of a rate hike two
months before the election this is not likely and puts the
Fed on vacation until January. There is a December meeting
but the Fed almost never raises rates the week before
Christmas.

The Jobs report trumped the Fed and opened the window for
another hot spring/summer for the home builders. With Fed
rates still at 45 year lows the real rates for things like
mortgages will not be surging any time soon. This should
help the consumer confidence for the next quarter. There
was another confidence report out Friday from the
Associated Press. They said confidence FELL to 91.7 in
January from 106.3 in December. Unemployment worries
topped the list of consumer concerns. While this is not a
mainline report it suggests the Michigan Sentiment next
Friday could show a decline. The positive Jobs report
will be seen as only a headline by Mom and Pop consumers
and the questionable internals will never be seen. They
should perk up on the news and the market gains from
Friday will not hurt.

The big money tried hard to get the Dow back to 10600
for Friday's close and they almost made it with the 10593
print. The Nasdaq gained +2.2% or +44 points to close at
2063 and well away from the support levels it threatened
to break all week. The winner of course was the SOX. As
I pointed out last week the SOX was the key and it held
support and closed right on the 100 dma on Thursday. The
sector had dropped -10% and was poised for a rebound.
That rebound came on Friday with a +4.77% +23.68 point
gain. Was it just an oversold relief rally or real buying?
I think a little of both as well as some strong short
covering. The jobs disaster failed to appear and shorts
ran for cover. The Russell came in second with a +2.55%
gain of +14.50 points and performed a perfect rebound
off its 50 dma.

SOX Chart - Daily


Russell-2000 Chart



The internals were unbelievably strong with advancers
beating decliners 3:1 and advancing volume 5:1 over
declining volume. Unfortunately volume was very light with
barely 1.8B on the Nasdaq and 1.4B on the NYSE. The light
volume was probably due to major events occurring over the
weekend. The G7 is meeting and while nothing material is
expected to happen it is still a potential powder keg.
Also, President Bush is going to be on Meet the Press for
a full hour on Sunday and you can bet Tim Russert will
ask some pointed questions. Again, I expect no smoking
gun but it will definitely be a risk. These events made
some traders think twice before making big bets on Friday.

For next week the economic reports are minimal with no
important releases. The biggest challenge will be the
Greenspan testimony to Congress on Wed/Thr and will
give him the opportunity to correct any misunderstanding
about the current Fed stance. Don't hold your breath.
He typically does not divulge much real information but
the potential exists for a slip of the tongue and the
markets will be cautious until this event passes.

Traders will also be watching the bonds with over $60
billion in new supply coming to market. The consensus
of opinion also suggests the dollar will be under
pressure again on Monday after a successful G7 meeting
with no material announcements. That produces a mixed
bag of blessings with the weak dollar providing an
earnings boost to most companies doing business overseas.
Of course the administration supports a strong dollar,
wink, wink.

Despite the pullback in techs over the last two weeks
investors are still pouring money into the market. AMG
Data said that as of Wednesday over $24 billion had moved
into equity funds for the year. Five weeks and over $4B
per week. That is a pretty good clip considering how high
the indexes are after the 4Q rally. That rally is being
called the flight to garbage rally due to the inversion
of normal values. Stocks graded by Schwab with an "F"
outperformed stocks they had graded an "A". Stocks with
an S&P rating of one star out performed stocks with their
five star rating. I mentioned last week we were seeing a
rotation out of those stocks and back into blue chips.
The Friday rebound was clearly on the back of those same
small cap tech names with big cap stocks like IBM and
MSFT up only fractionally while GE was down for the day.
This was a retail investor rally and they partied with
their old favorites instead and let those new found
friends walk home.

Where are we going now? I told you on Thursday that I
thought Friday was a throw away day. It was going to be
reaction driven and I thought any negative news was
already baked into the cake. That prediction turned out
to be correct with the mediocre jobs number providing a
big gain in techs. I did not say "strong" relief rally
because the volume was less than exciting. At 4B it is
about -20% below recent market ramp days. When we were
setting new highs two weeks ago we had many 5B days in
succession. Still the internals were strong and I am
chalking up the light volume to the weekend events. I
suggested we monitor Monday as the moment of truth and
I still believe it. If we do not get a news event over
the weekend that moves the markets then the Monday
direction will be the key for the week.

I would not be surprised to see a drop at the open as
shorts squeezed out on Friday try to take it down again.
If there is no bad news then I expect that dip to be
bought but not in volume. This is the pivot week for
the quarter. It is the week before option expiration
and earnings are about over but it is too early for
mid-quarter updates. There will be a shortage of stock
events to move the market and an excess of face time
by Greenspan on TV.

What I would like to see is another week of consolidation
at this higher level. The Dow now has some breathing room
above 10450 support and could easily trend sideways in
a higher range above 10500. The longer we hold the higher
ground the better chance of making new highs once the
mid-quarter estimates start flowing. The Nasdaq is now
well above its 50 dma support at 2021 and has some room
to breathe of its own. If we can hold over 10500/2020 all
next week we should be in good shape for an April earnings
run. We are not out of the woods yet but that may be
daylight up ahead. We dodged several large bullets last
week with a successful Super Bowl and a positive Jobs
report. Greenspan is now the hurdle for this week. Monday
should be the key and another positive day would give us
a nice cushion to wait out the Greenspan speech. A word
of caution, February is normally a consolidation month.
Since we have not seen normal in a long time I do not
know if that trend will continue but that makes Monday
even more critical as a directional indicator.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


**************
FUTURES MARKET
**************

Binary Dollar Trade Floats All Boats
Jonathan Levinson

The US Dollar Index got sold steeply on Friday, with correlative
gains in equities, metals, treasuries and the CRB.


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 failed on Friday morning with the release of
the 8:30AM data, kicking off a nearly vertical move that found
support just north of 85.85 before bouncing weakly.  The move
left a bearish engulfing candle on the daily chart and kicked off
a sell signal on the daily cycle oscillators.  The descending
trendline from September is confirmed by the roll in the
oscillators, and targets a retest of support below 85. The CRB
gained .40 to finish at 261.07, led by silver, FOCJ, corn and
gold futures.


Daily chart of April gold


The selloff in the dollar coincided with a rally in everything
else, and April gold posted a bullish engulfing candle from a
higher low.  The long awaited bullish cross printed on the 10-day
stochastic, and we now await confirmation on the Macd.  The
intraday high was 409.90, and price settled into a narrow
range between 403 and 406.  Resistance above 409 is 413-414,
followed by 419.  For the day, April gold on Globex added 7 or
1.76% to close at 405, HUI added 5.98% to close at 229.71 and XAU
+4.85% to finish at 100.90.


Daily chart of the ten year note yield


Treasury notes rose sharply from 8:30AM continued to advance
throughout the day, with the ten year note yield (TNX) finishing
lower by 8.5 bps at 4.089%, a 2.04% move for the day.  With
Bernanke herding bonds lower on Thursday followed by a pre-G7
rally on Friday, the treasury market is becoming a rollercoaster.
But Friday's move launched from a lower high on the TNX, just as
the rally in gold launched from a higher low and the selloff in
the Dollar Index from a lower higher, and so the relationships
are clear for the moment.  Any failure of bonds to sell off on
Monday should see a new daily cycle downphase in the yield,
targeting support at 4.07%, 3.96% and ultimately 3.92%.

It's worth noting that the Fed drained 7.25B in unrefunded repos
on Friday, with no appreciable weakness in any market other than
the dollar.  I suspect that we'll see news after the fact
attributing the buying to yet another wave of massive Japanese
intervention such as was reported in the Futures Monitor on
Friday, but in the meantime it underscores the need to take these
macro liquidity measures with a grain of salt.


Daily NQ candles


The NQ had a stellar day on Friday, spiking to a marginally lower
low at 1460 before finding its legs and engulfing the week's
losses, closing off its session high of 1501 at 1494.  A bullish
kiss printed on the 10-day stochastic, and so long as 1490
support holds, we should expect a bullish cross to complete on
Monday.  Last week's resistance was between 1505-1510, and that's
the next challenge for bulls before more substantial resistance
at 1518-1520.  For the day, the NQ gained 26.50 for a 1.81% gain
on the day.

30 minute 20 day chart of the NQ


The 30 minute cycle oscillators advanced haltingly throughout the
entire session, and felt ready to roll over throughout the
afternoon even as the consolidation erupted into a secondary leg
up.  1482 and 1490 resistance both fell on the way to 1500.  Note
how the Friday morning launch kicked off from a higher oscillator
low against the lower price low, a bullish divergence.  While the
daily cycle oscillator is trying to turn up, the 30 minute cycle
is in topping territory and finished on a downtick in overbought.
My stochastic settings don't tend to trend in either overbought
or oversold extreme, telling us that the 30 minute cycle is not
likely to get much further before at least a corrective pullback
for the NQ.  This cycle picture lines up with 1500-02 resistance
just overhead.  A correction that bounces from any higher lower
above 1460 will confirm the daily cycle oscillators in the
process of turning up.  On the other hand, a violation of today's
1460 low would set up today as a spectacularly tricky whipsaw,
targeting the 1440 level.


Daily ES candles


ES gained 13 points to finish at 1139.50, a 1.15% gain.  The move
kicked off from a higher low of 1125, engulfing the week's
endless range below 1136.  The move failed at 1142 resistance,
but the pullbacks were shallow.  The daily cycle oscillators,
which had become less oversold than those on the NQ, remain in a
downphase that is in the process of aborting.  The price was so
firm on Friday that it's difficult to image a bearish reversal
from here, but that's what the market does best.  1133-36 was
persistent resistance and should now be support, and any higher
low from current levels should be enough to permit the daily
cycle oscillators to abort their downphases.  Above 1142 is 1149
resistance, and any touch of that level should see a new daily
cycle upphase underway.


20 day 30 minute chart of the ES


The less bullish interpretation of today's rise is the head and
shoulders pattern that looks admittedly sloppy but still viable.
The neckline is likely as indicated at 1125, but I've not
forgotten how persistent 1115 support once was, and it will be
difficult to feel very bearish until that level breaks.  The 1142
resistance level lines up with the tests in that area two weeks
ago, and if it holds here, bulls will be considerably more
nervous for the retest of 1122-4.  The 30 minute cycle is rolling
over as of the cash close on Friday, and the bottom of that
downphase is going to tell us a lot about the outcome of the key
daily cycle on the preceding chart.


150-tick ES


The daily cycle oscillators were trying to roll over at 4:15PM
Friday, with a wavelet oscillator bounce due (3rd pane from the
bottom).  A light bounce followed by a retest of 1136 support is
my best guess for Sunday night/Monday morning.


Daily YM candles


The YM resembles ES most closely here, but lagged its peers with
the smallest percentage gain of the 3.  The daily cycle downphase
is paused but not over, and it should take a revisit to 10600 to
get the oscillators into bull mode.

20 day 30 minute chart of the YM


As on NQ and ES, a corrective pullback is due on the 30 minute
cycle, with first support at 10525, followed by 10500-10505, then
10456.  The daily cycle should continue to form a bottom so long
as the 10420 level holds.

Friday added a great deal of clarity.  The upper ranges on the
equity indices broke, the daily cycle downturns paused, and on an
intermarket basis, all of the markets we follow finished right at
or on the line of significant cycle reversals.  The dollar and
ten year treasury yield are trying to kick off new downlegs,
gold and equities are trying to kick off new uplegs.  So long as
we don't see a strong reversal of today's gains and losses on
Monday, these signals should complete.  I emphasize the  word
"should", however, because it's ill-advised to anticipate
signals.  This is particularly important in light of the 30
minute sell signals that were printing at the cash close on ES,
NQ and YM.  The bottom of the next 30 minute downphase, if
higher, will give bulls the confirmation they need, and should
afford a lower entry for bullish positions.  If the bottom falls
out, then Friday's early signals will be written off to one of
the great headfakes of the rally.


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

Toil & Trouble
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
Toil and trouble is what the Bush Administration is feeling some
of over the past week or two.  This part of the election cycle,
with a Market-popular Republican administration (not for nothing
has the financial industry been the single biggest giver to the
Grand Old Party - GOP) is going to give a second act or up "leg"
to this market some trouble, perhaps into the spring.  Well, that
and the anemic job creation and the dollar, plus Iraq hangs out
there in the wings.  But that's another story.

Technically the market has reached both an overbought situation
and a bit of a plateau in terms of some prior resistance.  So,
look for more of a trading range and some trading opportunities
with puts, especially OEX, if the S&P 100 drives back up to the
prior peak and forms a double top.  After all, one of my better
signals for a possible interim top was given by a bearish
Price/RSI divergence.  But more on that later.

And, I'm glad to be back toiling away on the Weekly Sunday Index
Wrap – plus I'll get to sound off on a Trader's Corner article
once weekly, rooting around in the garden of technical analysis.
I promise not to shamelessly promote my book on the subject
either.  Opps, just did!

FRIDAY'S TRADING ACTIVITY –

Stocks were up strongly after the job growth reported for January
– not enough job growth to satisfy economists that the recovery
is really robust, but not so much as to prompt the Federal
Reserve to rain on the market's optimism by raising interest
rates in the next few weeks or months.

Hope springs eternal in the Nasdaq market and it had it best 1-
day rally in some weeks – up over 2% or 44 points.  The
bullishness of the Ericsson quarter was a big help in providing
some tangible evidence that tech spending was picking up.
Better-than-expected earnings from Ericsson also helped boost
European markets on Friday.  Goldman upgraded the stock to
"outperform" from its "in-line" (with the market) rating.

Financial stocks did well and this is the blue chip leadership
the Street likes to see.  The S&P Banks Index (BIX.X) continues
to perform well as a sector and its strength was seen as definite
positive during the Friday session.  Moderate growth in jobs is
seen as more positive than cranking out 300,000 a month, which is
probably the rate we need to really help boost the
administration's case that their economic plan is working –
Republicans are however, alarmed by the climb in the deficit
which was precipitated by revised estimates that the Medicare
prescription drug benefit will cost about a third more than the
400 billion cost they were "sold" on.

The S&P 500 Index, closely watched by big time money managers,
fared pretty well also by surging nearly 1 and half percent as it
got to 1142 by the close, up 14.

As reported widely on Friday, the closely watched nonfarm payroll
report showed growth of 112,000 jobs – you have to now go back to
2000 to find the last time there was this much of a monthly jump.
And, the unemployment rate declined further under 6% - this may
not mean that much to economists, as many job searchers have
stopped looking for work, but it’s a talking point to the
administration, which is feeling a bit beleaguered. I mean the
talking heads even get a chance to have a good Q&A with the
President on Sunday morning – at least talking head Tim Russert.

I think the Fed watch factor is most significant in the quick
rush to exit shorts that we were seeing at the end of the week
here.  Rising rates do at some point have a danger in that so
much of the recovery is still being fueled by borrowing at such
historically low interest cost.  Well, except for our credit
cards!  Wonder why the banks are pushing, yet again for the
umpteenth time to get that bill through that toughens the ability
to declare bankruptcy.

Which I won't be doing anytime soon, as long as I keep my euro
assets – gee pleasant surprise when I convert to the greenback –
worrisome in other ways as you could read about Friday in OIN
intraday reporting.

The meeting of the Group of 7 (G7) was in Florida on Friday.  The
extreme strength in the Euro has our European partners – at least
they used to be our pals – quite concerned.

Bonds also surged on Friday on the back of the economic data,
with the yield on the 10-year T-note falling .084% to a 4.085
percent yield.  The dollar, fell over a percentage point against
the euro to close at $1.27.  Again the Yen, the greenback was off
far less, closing at 105.53 in New York.

Expectations on Friday was that not much would come out the G-7
Finance Minister's meeting here in the States that would be a
call to action to support the dollar.

MY INDEX OUTLOOKS –

As I'm re-introducing my particular style of analysis and the
types of indicators and patterns I find meaningful to assess
probabilities for future direction near term and out, I will take
the widely traded OEX index – and, a personal trading favorite of
mine - and introduce more charts on it then would normally be the
case – by way of demonstrating some things that I suggest you
look at as you make your own trading decisions.

S&P 100 Index (OEX) – Daily charts:

One of the things I look at closely from week to week to gauge
market "sentiment" is a simply to plot a ratio of the total daily
volume of (total) equity call volume to daily total put volume.
Now this is not the Put/Call reading as it takes the ratio the
other way round and most importantly takes out the hedging (of
stock positions and S&P 100 Index funds) activity related to
Index puts and calls.

The "indicator" gives a more pure read of what market
participants using and trading options are up to. How bullish or
bearish this group tends to can be pretty well calculated by how
much call volume there is relative to put volume, at least on the
CBOE.




As we know the market is tricky in that often when calls or puts
are heavily favored, a point of imbalance is reached and the
market tends to tip in the opposite direction.  When CBOE equity
daily call volume runs about 2.5 times put volume on any given
day, and I smooth this out a bit with a 5-day average above –
lower left, there is often a top coming in 1-5 days.  Not very
precise in that, but it’s a "get ready" and watch indicator.
I've marked some prior extremes – green arrows suggest a rebound
or renewed push higher ahead. The red arrow suggests looking for
a top within a day or so, within 5 days typically.  But, like any
indicator, there are times it doesn't work just that way.  In a
strong uptrend, there will be some false suggestion of froth and
a top - the reverse in a strong downtrend.

The recent reading on my Call/Put indicator – by the way this is
a "custom" indicator that I have to keep up in a spread
sheet/charting program so I can't refer you to a web site to
watch it.  The last extreme was suggesting a rebound and we got
that strongly on Friday.  Look for some attempt to follow through
on the upside, but be watchful for a double top, which I think is
a likely outcome.  This is also suggested by the top indication,
and about as reliable (not infallible) as they get in technical
analysis terms by the drive to a new price peak, that was not
also followed by a similar new high in the Relative Strength
Index (RSI) as shown in the chart above – right.

The trading envelopes also shown in the upper right chart have
come back to a more historical average – as, relative to a 21-day
moving average, the indexes tend to trade between a value that is
within about 3% above/below the moving average in the center.
The pop back up above the 21-day suggests the uptrend is back on
track, but a second drive up toward the (upper) trading band is
often a more significant lid on the market.

OEX – Hourly:

When is a bottom real simple to figure out – when it's a double
bottom!  Typically, you can trade off from double tops and
bottoms and they won't fool you.  This is showing real buying or
selling pressure.  However, basis the hourly chart in a close up
view, there is also resistance coming up in the 570 area. This is
an area where I want to buy puts, if I see churning going on.
This means buyers don't have enough left to push it past the
supply of stock for sale.




The other thing worth noting with the chart above is that some of
the better trading opportunities come along when both the short
and longer-term hourly stochastic models (5 and 21-hour settings)
get into overbought or oversold territory together.  The last
time was on the downside, but now they're both getting into
oversold territory – with resistance indicated on the hourly
chart above in the 570 area, looks like some potential for puts
with OEX in the 570-575 area, looking for another downswing and
to stay in a relatively narrow range awhile longer.

OEX – Daily chart with some other indicators:

One thing about the broadly traded indices, is that they can get
into a trend where you can do significant buying or selling when
the index comes down/up to its 50-day moving average.  And such a
"safe" point if we can ever call it that (let's say high
probability trade) is not unless OEX got back down into the 550
area.  530 is major support as suggested by the trendline.  The
market is oversold near-term as suggested by the stochastic, but
the pattern looks most like the formation of a top.  Stay tuned!





S&P 100 Index Weekly chart:

The problem with getting too focused on the short to intermediate
oversold is that the longer-range overbought/oversold type
indicators, like the 13-week RSI shown on the OEX weekly chart
below, are suggesting that the market is overbought now and may
need to consolidate before conditions are ripe for another up
swing.  This is reflected also in the political/economic
uncertainties that will be a focus for the next few weeks.




This first up leg, if its reaching a consolidation/resting point
ahead, was a pretty good run of 150 points.  Hey, I'd like to be
along for any 150 point move on the OEX!  Not that I don't have
some things to also worry about in index options, like how fast
the time premium erodes relative to this trend.

The Dow 30 Average:

I would be mildly bullish here only as long as the Dow can now
stay back above its 21-day moving average.  It looks like there
is significant resistance and stock for sale above 10,600.  The
weekly chart, below left, shows the same overbought condition as
discussed with the S&P 100.




The daily chart pattern (above left) had the appearance of a bear
flag – midpoint in a downside correction – until the sharp
rebound of Friday.  That rally looked like it had more to do with
short-covering than the start of a renewed uptrend.  Let the
market decide and watch for a possible double top - if that
develops, it suggests a more prolonged correction and at least a
sideways move to "throw off" the overbought condition.  Indexes
correct in price and or time – by going sideways.  I thing there
will be a retracement lower also.

Nasdaq Composite Index (COMPX) – Weekly, Daily & Hourly:

The Composite or COMPX looks like it has significant overhead
resistance in the 2100 –2120 area.  The oversold and strong
rebound from the 50-day moving average should carry it up into at
least this area, and maybe back into the 2150 area.  A double top
there would be my indication to short the Nasdaq, such as by
shorting the QQQ tracking stock.  A weekly close above 2150
however, along with the ability to hold this area as support on
pullbacks, would suggest still substantial upside.  I wouldn't
rule it out but this possibility is not leaping out at me in what
I am seeing here.





Remember how far above, then how far below, the COMP got relative
to its 200-day moving average?  It is now pretty far above it, as
shown in the upper right – the 200-day average is just climbing
over 1800.  A decisive downside penetration of the 50-day average
at 2025 currently, would suggest two things – the longer moving
average will gain a bit on current price levels and the Nasdaq
Composite could retreat back into the 1900-1950 price zone.

QQQ - Daily:

Speaking of QQQ, the stock has been trading pretty reliably up to
5% above its 21-day moving average before corrections set in.  In
a downtrend, it tends to move down to about the same percentage
below this average, but in an uptrend as we've been having, the
lower end of its range has been on moves to about 3% under the
21-day average.




What does all this mean.  Well, the rebound came in right where I
would have looked for it to, based on the lower envelope line.
Now, I want to see if it can get back above the 21-day average in
the center of these envelope bands.  If not, look for the QQQ to
come back down to the lower band again, at least, like it did on
the last correction.

Above 38, my upside target become to $40 where I would look to
short the stock.  Volume trends are, so far, consistent with the
bull move underway for months, as volume expands or picks up in
the direction of the trend – and contracts or slows down on
corrective declines.

The long sideways move in the fall, is now providing a floor
under the stock as the Q's pulled back to the top end of this
range.  Still have to favor the trend continuing until we see
otherwise.  Little danger signals don't offset the trend – number
1 is the trend, until it shows definite signs of reversing.
Still, trading opportunities have been coming on both sides of
the market.

Good Trading Success!


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**************
Editor's Plays
**************

Two in a Row

Last weeks VSEA put play at $48.74 hit our profit target
at $46.00 and continued to a low of 44.65 on Wednesday.
The option opened on Monday at $1.90 and was selling for
$2.80 when our profit target was reached. Two winning
weeks in a row. Can we stretch it to three?

I discussed TASR last week and the lack of options and
it had a monster week. Unfortunately, still no options.
If we could just get options on TASR and NVR we would
never need another candidate. The moves on those two
stocks alone would keep us in the chips.

Keeping with the earnings spike theory I chose MHK for
my target this week. MHK spiked +$6.19 on Friday to close
at 79.64. The reason for the spike was the jump in guidance
from 90 cents to $.95-$1.12. While this is an admirable
jump there was an extenuating circumstance. They changed
their accounting period to include 4 more days in the
first quarter. They estimate that each additional day
in the quarter adds +2% to their sales.

Now focus on this for a minute. Unless they have developed
a time warp they have not added any more days to the year.
I think our calendar has been fixed at 365 days for quite
sometime. This means if they are adding +4 days to the
first quarter those days have to come out of some other
quarter. The actual revenue for the year will remain
basically the same at the old estimate. This is not
rocket science.

The +8.42% jump in MHK stock on Friday could be slightly
overdone in my opinion.

Because this reaction was so overdone and should correct
fairly quickly I am thinking a February option would still
work. The Feb-$80 put MHK-NP at $1.75 is already slightly
in the money an it would not take a very big move to be
profitable but the time fuse is short. The Feb-$75 put
MHK-NO is very cheap at .30 cents but it is well out of
range for the time remaining.

This suggests the March $75 Put MHK-OO at $1.05 is the
best play. It would take a $2-3 move to cause any serious
appreciation in premium but the odds of most of that $6
gain evaporating over the next week are good. The $1.05
put also offers the best risk reward ratio when you
include the time factor.

The profit target will be $2.00-$2.25 on the option and
that should occur somewhere in the $66-67 range on the
stock.

As always this is a risk trade. There is no stop but I
would think twice about sticking with the trade if MHK
moves over $80 on Monday for more than a few minutes.

MHK Chart - Daily





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

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

Good Luck

Jim Brown


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

The Big Bounce
- J. Brown

No, I'm not talking about the movie in theaters titled the Big
Bounce but the recent market action.  The DJIA had been churning
sideways and the NASDAQ was falling ahead of the Friday jobs
report.  As you've probably read numerous times now the jobs
number (at 112,000) was neither too hot, nor too cold.  Investors
interpreted the report as a boon for stocks.  The economy is
growing but not overheating so the Fed should keep interest rates
untouched for the foreseeable future.

Considering the NASDAQ's bounce off the 50-dma just above the
2000 level and the DJIA's rally off short-term support above
10,400 we could see bullish week in front of us.  It is
interesting that while the markets have generally traded sideways
or pull back in profit taking (depending on what sector your look
at) for the last two weeks investors have continued to pour money
into stock funds.  That should mean managers have plenty of cash
to put to use and buy this dip.

Buyers were certainly out in force on Friday.  Market internals
were very strong.  Advancing stocks out paced decliners by more
than 4-to-1 on the NYSE and more than 3-to-1 on the NASDAQ.  Up
volume was almost 7 times down volume on the NYSE and about five
times down volume on the NASDAQ.  Not one sector index closed in
the red on Friday making it a very broad-based bounce.

The biggest performers were the homebuilders, gold & silver
stocks and the semiconductors.  All three were up more than four
percent on Friday.  The homebuilders are noteworthy because the
jobs number puts the Fed on hold and that will keep mortgage
rates down.  The DJUSHB index broke through resistance at the 50-
dma and its technical oscillators look bullish.  Gold stocks were
strong again because the dollar took a dive ahead of the G7
meeting and gold futures rallied back above the $400 an ounce
level.  Semiconductors helped lead the recovery in the NASDAQ
with a huge move off its 100-dma to close back above the 500
level and its simple 50-dma.

The volatility indices collapsed again on Friday's indicating
investor confidence is high.  However, even though bulls appear
to be back in control I do expect some sideways action when
Greenspan makes his appearances this week.  Greenspan is making
his regularly scheduled monetary policy report before congress on
the 11th and before the senate on the 12th this week.

Also look for the official Retail sales numbers on Thursday and
the Michigan Sentiment numbers on Friday.


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

Market Averages

DJIA ($INDU)

52-week High: 10701
52-week Low :  7416
Current     : 10593

Moving Averages:
(Simple)

 10-dma: 10534
 50-dma: 10308
200-dma:  9521



S&P 500 ($SPX)

52-week High: 1155
52-week Low :  788
Current     : 1142

Moving Averages:
(Simple)

 10-dma: 1136
 50-dma: 1105
200-dma: 1024



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  795
Current     : 1498

Moving Averages:
(Simple)

 10-dma: 1496
 50-dma: 1469
200-dma: 1331



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

Looks like the rise in the VIX, VXO and VXN last week was a
false alarm.  All three promptly dropped on Friday's rally.
Of course that means we could have another move higher in the
markets this week.

CBOE Market Volatility Index (VIX) = 16.00 -1.71
CBOE Mkt Volatility old VIX  (VXO) = 15.98 -1.77
Nasdaq Volatility Index (VXN)      = 24.67 -1.50

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63        897,646       563,415
Equity Only    0.46        779,861       360,398
OEX            1.17         32,923        38,409
QQQ            1.31         31,825        41,620


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.3    + 0     Bull Confirmed
NASDAQ-100    70.0    + 0     Bear Alert
Dow Indust.   86.7    - 3     Bull Confirmed
S&P 500       87.2    + 1     Bull Confirmed
S&P 100       88.0    + 0     Bull Confirmed


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

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


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

 5-dma: 0.96
10-dma: 0.96
21-dma: 0.99
55-dma: 1.01


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    2306      2301
Decliners     565       772

New Highs     205       162
New Lows        8         3

Up Volume   1571M     1483M
Down Vol.    234M      330M

Total Vol.  1811M     1819M
M = millions


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

Commitments Of Traders Report: 02/03/04

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

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

S&P 500

Commercial traders can't seem to make up their mind.  Currently,
they're almost flat with a slight edge to the bears.  Meanwhile
the small traders have grown even less bearish.


Commercials   Long      Short      Net     % Of OI
01/13/04      405,558   411,361    (5,803)   (0.7%)
01/23/04      422,135   407,626    14,509     1.7%
01/27/04      417,089   410,930     6,159     0.7%
02/03/04      411,920   414,596    (2,676)   (0.3%)

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

Small Traders Long      Short      Net     % of OI
01/13/04      149,057    90,571    58,486    24.4%
01/23/04      141,107   100,090    41,017    17.0%
01/27/04      143,089    87,828    55,261    23.9%
02/03/04      141,465    81,926    59,539    26.7%

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


E-MINI S&P 500

Commercials have become significantly more bearish by upping
their short positions and closing some bullish ones.  Small
traders are still feeling optimistic.


Commercials   Long      Short      Net     % Of OI
01/13/04      196,858   263,845    (66,987)  (14.5%)
01/23/04      233,867   307,122    (73,255)  (13.5%)
01/27/04      291,166   334,618    (43,452)  ( 6.9%)
02/03/04      280,519   346,042    (65,523)  (10.5%)

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

Small Traders Long      Short      Net     % of OI
01/13/04     191,241     62,711   128,530    50.6%
01/23/04     187,270     57,196   130,074    53.2%
01/27/04     154,485     60,556    93,929    43.7%
02/03/04     133,293     55,476    77,817    41.2%

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


NASDAQ-100

Commercial traders in the NDX remain in limbo with very
little movement over the last few weeks.  In contrast
small traders have become much more bearish.


Commercials   Long      Short      Net     % of OI
01/13/04       41,829     38,547     3,282    4.1%
01/23/04       42,823     39,442     3,381    4.1%
01/27/04       43,704     40,951     2,753    3.3%
02/03/04       43,600     41,441     2,159    2.5%

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

Small Traders  Long     Short      Net     % of OI
01/13/04        9,705    12,539    (2,834)  (12.7%)
01/23/04        9,180    11,371    (2,191)  (10.7%)
01/27/04       10,137    10,715    (  578)  ( 2.8%)
02/03/04        8,907    13,729    (4,822)  (21.3%)

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

DOW JONES INDUSTRIAL

The shuffling continues for commercial traders in the Dow.
Small traders have become more bearish.


Commercials   Long      Short      Net     % of OI
01/13/04       16,501     8,724    7,777      30.8%
01/23/04       16,403     9,252    7,151      27.9%
01/27/04       16,536     8,404    8,162      32.7%
02/03/04       17,765     9,619    8,146      29.7%

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

Small Traders  Long      Short     Net     % of OI
01/13/04        6,496     9,970   (3,474)   (21.1%)
01/23/04        6,068    10,183   (4,115)   (25.3%)
01/27/04        7,240    12,372   (5,132)   (26.2%)
02/03/04        6,352    13,113   (6,761)   (34.7%)

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

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


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ASK THE ANALYST
***************

Tracking stocks in a matrix

I've noticed that you will make note of a stock's monthly pivot
levels from time to time and you also have shown a monthly pivot
matrix with your top picks for 2004.  I've been amazed at how the
indexes have traded within the weekly and monthly pivot matrix
levels and their use has made me money, but also saved me from
some large losses.

Can you tell me how you're using the pivot matrix algorithm with
your stock selections and entry points?  Is there a reason you
don't also post the daily and weekly pivots?

There are a couple of ways that I'm using the pivot analysis
algorithm.  I'm not using it to necessarily pick stocks, but
using it to track stocks against a major benchmark like the S&P
500 Index (SPX.X) and look for patterns of trade, with a focus on
SIMILARITY or DIVERGENCE.

Let me first point out that I'm currently having to hand enter a
stock's high/low/close into an Excel spreadsheet, and just
keeping up with some of the indices we track in each night's
Index Trader Wrap at OptionInvestor.com becomes somewhat of a
chore when updating the daily pivot levels each night.

With only 24-hours in a day, I've only been able to track a
stock's trade within a MONTHLY pivot matrix, as it cuts down on
the time I must spend typing in numbers for the stocks I like to
follow.  By just tracking stock in a monthly pivot matrix, this
allows me to follow more stocks, where I can then try to pick the
stocks I feel, based on observation, offer good trades.

When I started selecting stocks for this year's "Top Picks for
2004" I built a watch list of sorts from stocks that I had been
following, where their point and figure charts represented stocks
I felt would be bullish on a longer-term basis, for 2004.

Unfortunately, I could only select 10 stocks to start the year
out with, and I had a pretty long list of bullish-looking
candidates.  I also had a long list of bearish-looking
candidates.

My quandary to start the month of January was how I was going to
narrow down a broad watch list, to a list of 10, for what I felt
to be some good stock/option trades to start the new year out
with.  Making things tough was that I had to select a top 10 list
in mid-December, write up profiles of the various stocks, to then
be published in time for those traders and investors that were
kind enough to purchase an annual subscription.

One way I whittled down my list was to plug a bunch of stocks
into a MONTHLY pivot matrix, where the monthly time frame would
give me some perspective of how a stock had been trading relative
to the S&P 500 Index (SPX.X) over the span of several months.

I didn't want to load up my portfolio of "top 10" picks with
stocks that were all breaking out, while at the same time, I
didn't want to put together a list of "top 10" picks that were
all pulling back, as it would be terrible to see all of my
pullback stocks keep pulling back should we have seen some type
of mass profit taking in the new year.

So... here's an example of some stocks I'm currently observing.

Think of these stocks as "candidates" for my "top 10" picks, that
for one reason or another, didn't make the first cut for January
selection.

As noted in the annual renewal letter, I know for a fact that not
all of my "top 10" picks were going to be all-stars for 2004, but
it was the team I wanted to put on the field to start the year.

Should one go down with an injury, I always want to have another
player at the ready, that I feel can step in and be ready to
perform.

My candidate list isn't just a bunch of offensive players either.
No sir!  Investing or trading is very similar to sport.  There's
a time for offensive strategies and a time for defensive
strategies.  To my recollection, John Elway never played a single
down on defense for the Denver Broncos.

When it came time pick my "top 10" players, one stock I wish I
had put on the playing field now (hindsight is always 20/20) was
Amgen (NASDAQ:AMGN) $64.86, but in mid-December, I just wasn't
certain the stock had found its bottom.

But there were some signs in the monthly pivot matrix that AMGN
was starting to find a bottom, and perhaps this is how a
trader/investor can utilize a monthly pivot matrix when selecting
stocks to trade or invest in.

Here's a random list of stocks I'm tracking within a monthly
pivot matrix.  I'm showing just 10 stocks as I don't want to take
up and entire computer screen when looking at a couple of month's
trade.

Various stocks in a MONTHLY pivot matrix - November-January



Since I'm a believer that in a rising or falling market that most
stocks will tend to move in the direction of the market, I like
to be able to benchmark against the S&P 500 Index (SPX.X), so I
include it in my MONTHLY matrix observation.  As I track
different stocks and mark their levels of trade within the matrix
(levels within the matrix colored BLUE are levels where the stock
traded that month), I can pick up on SIMILARITY and DIVERGENCE
relative to the S&P 500 (SPX.X).

Look at the bottom portion of the matrix and the month of
November (For Month Nov).  See Electronic Arts (ERTS) and how on
October 31, 2003 it closed at $49.47, and in November it traded
lower at its MONTHLY Pivot, then its MONTHLY S1 and then its
MONTHLY S2?  Meanwhile, the SPX traded it MONTHLY Pivot.  That to
me is DIVERGENCE.  I mention ERTS' trade in November, as that
trade action within the November MONTHLY pivot was just what
Amgen (NASDAQ:AMGN) had been doing in its October Pivot Matrix.

The reason AMGN was on my bullish candidate list was that AMGN's
point and figure chart had turned more bearish in September of
2003, and had generated a bearish vertical count of $57.  All be
darned if AMGN didn't trade $56.76 on 12/11/03.  Do you see for
the month of November, AMGN traded its MONTHLY S1 of $58.03?
That was pretty darned close to the bearish vertical count of
$57.00 wasn't it?  Could it be that this was a correlative level
of trade between what the point and figure chart had been hinting
at, and where institutions might begin to be re-accumulating the
stock?

Now look at the MONTH of December (For Month Dec) and we see that
AMGN closed at $57.62 on November 28, 2003.  While AMGN did go on
to trade $56.76 in December and fulfill its bearish vertical
count of $57.00, it didn't trade its MONTHLY S1, but did see
higher levels of trade at its MONTHLY Pivot and then its MONTHLY
R1.  In a way, this was some DIVERGENCE to how AMGN had been
trading when it was trading MONTHLY S1 in November.

There was also some DIVERGENCE see as to November and December
trade when comparing AMGN against the SPX.  While AMGN was
DIVERGING from the SPX in November, it was suddenly trading with
the SPX in December.  At the far right of the above table, we see
that my December's end, AMGN had outperformed the SPX with AMGN
sporting an impressive 7.2% gain versus the SPX's 5.1% gain.
Could it be that AMGN had suddenly been moved off the bench and
onto the playing field as an out performer?  Had AMGN fulfilled
its destiny of $57, and is now just beginning to come back into
favor?

As we look at the top of the table and January's trade (For
January) not only did AMGN not trade its MONTHLY S1 like it did
in November, but it didn't trade its MONTHLY Pivot like it did in
December.  Again, something has changed.  True, the SPX also
moved higher when trading its MONTHLY R1 and MONTHLY R2, but AMGN
has been trading with the market on what might be viewed a more
consistent basis and has most likely been a greater contributor
to the SPX's gains.

I could fill several more pages if we discussed each individual
stock, but there are some observations I want to still make as it
relates to the table above.

Look at the various monthly percentage gains and losses (% G/L)
that the stocks show on a month to month basis.  Do you see how
the stocks don't all just keep moving in one direction on a
continual basis, and how buying or selling can take place for a
period of time, then seem to take a break?  But we also note that
when the SPX traded flat like it did in November, the percent
gains and losses for the various stocks are mixed.  And then a
month like December is seen, and the bulk of stocks show gains?

One stock I have a very close eye on for a bullish play right now
is Burlington Coat Factory (NYSE:BCF) $19.59 +1.5%.  BCF's point
and figure chart is longer-term bullish, and after generating a
double-top buy signal at $18.50 last summer, it has built a
bullish vertical count to $31.50, which would be in play as long
as the stock doesn't trade $18.00.

When I look at BCF's monthly pivot matrix for November, December
and January, we see that in November, BCF did NOT trade its
MONTHLY S1 of $19.35 as there must have been more demand above
that level than supply.  In December, BCF did trade its MONTHLY
S1 (so I'm thinking stock is still weak) but did NOT trade its
MONTHLY S2 of $19.57.  (Note:  Buyers above $19.35 and $19.57).
In January, BCF did trade its MONTHLY S1 (so I'm thinking stock
is still weak) but did NOT trade its MONTHLY S2 of $18.73.

An observation I immediately make is that for the past two
months, BCF has NOT traded its MONTHLY S2, and if it does, that
would be a sign of DIVERGENCE from the past.

Now we're going to scroll forward and look at this month's
(February) current Monthly Pivot Matrix, where each night, I also
take some time to type in any new monthly highs or lows for the
stocks I'm tracking, and update their daily closes for the month.
This gives me some "hands on" feel with the stocks I'm tracking,
just as if I was taking some time to hand chart them on a point
and figure chart.

Various stocks in a MONTHLY pivot matrix - January - February



Since I'm still sensing weakness in BCF, but think its reached a
near-term bottom, I'm setting up a bullish entry point.  So far,
BCF has NOT traded its current (For Month Feb) MONTHLY S1 or
Pivot.  I've marked its MONTHLY S1 $17.99 and this interests me
as an IMPORTANT support level, as a trade at $18.00 on BCF's
point and figure chart would be a double-bottom sell signal,
where if traded, BCF's bullish support trend is the last line of
defense for bulls at $17.50.  I can immediately begin assessing a
stopping point if I trade bullish here at $19.59.  An observation
I make for BCF is that in January BCF fell through its MONTHLY
Pivot of $20.89 as sellers (supply) outnumbered buyers (demand).
A true test for strength in February (For Month Feb) is for BCF
to trade back above its MONTHLY R1.  This would be a bullish
action point on strength.  I'm thinking if buyers (demand) can
push BCF above that Feb. MONTHLY R1, which is correlative with
the Jan Pivot, then a resumption of strength would be witnessed.

Look at ERTS.  In January it traded its MONTHLY Pivot, and in
February, its traded its MONTHLY S1.  Resistance seems to be
moving lower from January's MONTHLY R1 to February's Pivot, and
while these levels are lower in value ($50.43 to $47.55) ERTS
hasn't found enough buyers at this point to trade these lower
values.  ERTS's percentage gain/loss for February id DIVERGING
from the broader S&P 500 (SPX.X).  ERTS is a bearish candidate.

When should I have bought AMGN?  $59.02?  $60.95?  $63.85?  Gosh
I hope it pulls back somewhere between $61.93 and $63.83.

Express Scripts (ESRX) is a stock I first profiled as bullish
back in November, when President Bush's Medicare Bill was being
reviewed as passed by Congress.  I think the stock has performed
well relative to the market and if I wished I had bought some at
$64.98 or $68.85, then after a recent move to $71, a pullback
near $67.67 should find buyers if the stock is in favor with the
market, where MONTHLY S1 of $64.63 should provide strong support.
A normal pullback on a point and figure chart is 3-boxes, and
from $71.00, that would be $68.00.  With a beta of -0.236, it's a
stock I consider to be more defensive.

Let's quickly talk about the MONTHLY S2-R2 range.  Look at
Netflix (NASDAQ:NFLX) $76.63 +4.74% and review the wide ranges of
MONTHLY S2-R2.  That's some volatility isn't it?

When you're tracking stocks, you'll pick up on a stock's "normal"
range.  If it is consistently 10-points and the next month its
40-points, like Auto Zone (NYSE:AZO) $88.62 +2.22%, a stock I
view as bullish, then realize the stock has made a major move,
and when the range comes back to historical norm, be ready for
the stock to be "coiling" and make another move.

Since I touched on Netflix (NFLX), here's an example of how the
MONTHLY Pivots can also be used, along with your retracement
tool.  In Friday's market monitor, a trader asked the question on
what might be a bullish price target into Netflix's February 11th
stock split.  Since NFLX is a stock I track in my monthly pivots,
I was eager to try and tackle the question.  Hey!  NFLX's point
and figure chart is bullish, with a vertical count hinting at
$90.  Today's trade also had the stock's point and figure chart
generating the "bullish triangle" pattern.

Here's a bar chart of NFLX, where I use trend, along with the
retracement technique of anchoring retracement at both the
MONTHLY S2 and MONTHLY R2, to then develop a potential price
target into the split.

Netflix Inc. (NFLX) Chart - 120-minute intervals



I don't normally view charts on a 120-minute time scale, but
because I'm limited by horizontal scale, I wanted to show how I
was attaching a bullish resistance trend from two higher highs,
where extension of this bullish resistance might also be deemed a
near-term target into the stock's split.  The trade was
compelling I thought.  After a BIG gap higher to new highs, NFLX
came back to fill its gap, but most likely, with the stock so
heavily shorted, every bear that saw $79 was probably glad to do
some buying on the pullback to that gap.  The above screen
capture was taken on Friday just before 02:30 PM EST.  I thought
the MONTHLY pivot retracement tied in pretty good with how the
stock had been trading, and the intersection of the bullish
resistance trend and the MONTHLY 19.1% retracement made for a
good split target.

Today's close of $76.63 has NFLX clearing the $75.39 level, and
from the MONTHLY Pivot Matrix (For Month Feb) $82.70 looks to be
the next hurdle.  Can NFLX trade its bullish vertical count of
$92.00 this month?  One can never be sure, but it just might with
MONTHLY R2 giving some room at $92.00.  That would be a very
bullish aspiration, but NFLX showed it could trade a MONTHLY R2
in January, and I dare say a bear short below $75 might be a
little jittery.

So, there are quite a few ways we can utilize the pivot matrix
for stocks.  A shorter-term trader might look to incorporate the
DAILY and WEEKLY pivot levels into the trading of their favorite
stocks, but some time is needed to populate the high/low/close.

Still, the MONTHLY pivots only have to be updated once a month,
and can be knocked out pretty quick.

A real neat technique for tracking stocks in a pivot matrix is to
group "like stocks" together (drug stocks, biotech stocks,
semiconductor stocks, airline stocks, retail stocks, gold stocks)
and see how they either move in UNISON with each other, or pick
out the ones that are DIVERGING from each other.  You will
probably see too how the groups move in relation to each other.
Groups that are out of favor or perhaps see profit taking will be
groups DIVERGE from the SPX and other sectors you have grouped
together.  This would be similar to the sector bullish % charts
that the point and figure charting methodology uses for tracking
sector rotation and strength/weakness.

For those interested in setting up their own spreadsheets, the
rather simple mathematic formula for calculation the levels are
posted in the January 19, 2003 Ask the Analyst column titled
"Pivot Analysis to Define Levels and Range."

Jeff Bailey


*************
COMING EVENTS
*************

Symbol  Co               Date           Comment      EPS Est

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

AL     Alcan Inc.            Mon, Feb 09  -----N/A-----       0.40
BOBE   Bob Evans Farms       Mon, Feb 09  After the Bell      0.45
CHD    Church & Dwight Co.   Mon, Feb 09  -----N/A-----       0.35
ESPD   eSpeed, Inc.          Mon, Feb 09  After the Bell      0.15
HAS    Hasbro, Inc.          Mon, Feb 09  Before the Bell     0.55
IACI   InterActiveCorp       Mon, Feb 09  Before the Bell     0.23
KB     Kookmin Bank          Mon, Feb 09  -----N/A-----        N/A
LRY    Liberty Prop Trust    Mon, Feb 09  After the Bell      0.78
LNCR   Lincare Hldgs         Mon, Feb 09  After the Bell      0.60
LNC    Lincoln National      Mon, Feb 09  After the Bell      0.91
MRD    MacDermid             Mon, Feb 09  After the Bell      0.41
MCY    Mercury General       Mon, Feb 09  -----N/A-----       0.60
GAS    Nicor Inc.            Mon, Feb 09  After the Bell      0.82
PRE    PartnerRe Ltd.        Mon, Feb 09  After the Bell      1.68
PPS    Post Props, Inc       Mon, Feb 09  After the Bell      0.48
TLTOB  Tele2 AB              Mon, Feb 09  -----N/A-----        N/A
PNX    The Phoenix Companies Mon, Feb 09  Before the Bell     0.14
TMK    Torchmark             Mon, Feb 09  After the Bell      0.99
UDR    Un Dom Rlty Trust, IncMon, Feb 09  After the Bell      0.37
UVV    Universal Corp        Mon, Feb 09  After the Bell       N/A
ZMH    Zimmer Inc.           Mon, Feb 09  After the Bell      0.47


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

TW     21st Century Ins      Tue, Feb 10  After the Bell      0.20
AGU    Agrium, Inc.          Tue, Feb 10  After the Bell      0.21
AW     Allied Waste Ind, Inc Tue, Feb 10  After the Bell      0.12
AEE    Ameren Corp           Tue, Feb 10  Before the Bell     0.27
ACAS   Am Capl Strategies    Tue, Feb 10  After the Bell      0.69
AMH    AmerUs Grp Co.        Tue, Feb 10  After the Bell      0.95
ATO    Atmos Energy Corp     Tue, Feb 10  -----N/A-----       0.54
BP     Bp PLC                Tue, Feb 10  Before the Bell     0.84
CRL    Charles River Labs    Tue, Feb 10  After the Bell      0.38
CLX    Clorox                Tue, Feb 10  -----N/A-----       0.49
CTSH   Cognizant Tech Solut  Tue, Feb 10  -----N/A-----       0.24
FDP    Fresh Del Monte Prd   Tue, Feb 10  Before the Bell     0.37
GALN   Galen Hldgs PLC       Tue, Feb 10  Before the Bell     0.53
GET    Gaylord Entertainment Tue, Feb 10  Before the Bell    -0.35
HTG    Hrtg Prp Invstmnt TrstTue, Feb 10  -----N/A-----       0.71
HNI    HON IND Inc.          Tue, Feb 10  Before the Bell     0.48
HS     Hughes Electronics    Tue, Feb 10  -----N/A-----      -0.04
RX     IMS Health            Tue, Feb 10  After the Bell      0.31
IPCR   IPC Hldgs             Tue, Feb 10  After the Bell      1.16
LZB    La-Z-Boy Inc.         Tue, Feb 10  After the Bell      0.29
LF     LeapFrog Enterprises  Tue, Feb 10  After the Bell      0.73
TVL    LIN TV Corp.          Tue, Feb 10  Before the Bell     0.21
MAC    Macerich Co           Tue, Feb 10  -----N/A-----       1.02
MPG    Maguire Props, Inc.   Tue, Feb 10  After the Bell      0.49
MAR    Marriott Intl         Tue, Feb 10  Before the Bell     0.61
MDCO   MEDICINES CO          Tue, Feb 10  After the Bell      0.03
MET    MetLife Inc.          Tue, Feb 10  After the Bell      0.74
MICC   Millicom Intl CellularTue, Feb 10  -----N/A-----       0.86
MNST   Monster Worldwide     Tue, Feb 10  After the Bell      0.10
NPSP   NPS Pharmaceuticals   Tue, Feb 10  After the Bell     -1.06
PER    Perot Systems         Tue, Feb 10  Before the Bell     0.14
PNM    PNM Resources         Tue, Feb 10  After the Bell      0.36
PRU    Prudential Financial  Tue, Feb 10  After the Bell      0.61
PSD    Puget Energy          Tue, Feb 10  After the Bell      0.57
STR    Questar.com           Tue, Feb 10  After the Bell      0.65
ROIAK  Radio One             Tue, Feb 10  Before the Bell     0.07
RGC    Regal Entertainment   Tue, Feb 10  Before the Bell     0.31
RCII   Rent-A-Center         Tue, Feb 10  Before the Bell     0.60
PHG    Royal Philips Elect   Tue, Feb 10  -----N/A-----       0.46
SIAL   Sigma-Aldrich Corp    Tue, Feb 10  After the Bell      0.66
SIR    SIRVA, Inc.           Tue, Feb 10  Before the Bell     0.18
SRCL   Stericycle            Tue, Feb 10  After the Bell      0.38
SCMR   Sycamore Networks     Tue, Feb 10  After the Bell     -0.04
XL     XL Capital Ltd        Tue, Feb 10  After the Bell     -2.51


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

ACL    Alcon Inc.            Wed, Feb 11  After the Bell      0.42
ALFA   Alfa Corp             Wed, Feb 11  Before the Bell     0.25
AIG    American Intl Grp     Wed, Feb 11  Before the Bell     1.04
APPB   Applebee's Intl       Wed, Feb 11  After the Bell      0.41
ATR    AptarGrp              Wed, Feb 11  After the Bell      0.48
RMK    Aramark Corp          Wed, Feb 11  Before the Bell     0.34
AXS    Axis Capital Hldgs LtdWed, Feb 11  After the Bell      0.70
BAB    British Airways       Wed, Feb 11  Before the Bell      N/A
BSY    British Sky Brdcstg   Wed, Feb 11  Before the Bell      N/A
BRCD   Brocade Cmmu Systems  Wed, Feb 11  After the Bell      0.02
CGT    CAE                   Wed, Feb 11  Before the Bell      N/A
CARS   Capital Automotive    Wed, Feb 11  Before the Bell     0.60
CHH    Choice Hotels Intl    Wed, Feb 11  After the Bell      0.45
XEC    Cimarex Energy Co.    Wed, Feb 11  Before the Bell     0.44
CMCSA  Comcast Corp          Wed, Feb 11  Before the Bell     0.02
CSC    Computer Sciences CorpWed, Feb 11  After the Bell      0.70
DCN    Dana                  Wed, Feb 11  Before the Bell     0.40
DVA    DaVita                Wed, Feb 11  -----N/A-----       0.69
DFG    Delphi Financial Grp  Wed, Feb 11  After the Bell      0.72
FR     First Indl Rlty Trust Wed, Feb 11  After the Bell      0.91
FLA    Florida East Coast    Wed, Feb 11  Before the Bell     0.14
FST    Forest Oil Corp       Wed, Feb 11  After the Bell      0.38
FOX    Fox Entertainment Grp Wed, Feb 11  Before the Bell     0.34
GRMN   Garmin Ltd.           Wed, Feb 11  Before the Bell     0.45
GEMP   Gemplus Intl S.A.     Wed, Feb 11  Before the Bell      N/A
GRP    Grant Prideco Inc     Wed, Feb 11  -----N/A-----       0.07
DA     Grpe Danone           Wed, Feb 11  -----N/A-----       0.85
HNT    Health Net, Inc.      Wed, Feb 11  Before the Bell     0.76
HPC    Hercules              Wed, Feb 11  Before the Bell     0.18
HRH    Hilb Rogal & Hobbs Co Wed, Feb 11  After the Bell      0.53
IPXL   Impax Labs            Wed, Feb 11  Before the Bell    -0.05
KIM    KIMCO RLTY CORP       Wed, Feb 11  After the Bell      0.84
LAMR   LAMAR ADVERTISING CO  Wed, Feb 11  Before the Bell    -0.05
MHS    Medco Health SolutionsWed, Feb 11  After the Bell      0.46
NRD    NORANDA INC           Wed, Feb 11  Before the Bell      N/A
OCAS   Ohio Casualty         Wed, Feb 11  After the Bell      0.30
OSI    Outback Steakhouse    Wed, Feb 11  After the Bell      0.58
PFCB   P.F. Chang's Chn Bstr Wed, Feb 11  Before the Bell     0.28
PTP    Platinum Underwriters Wed, Feb 11  After the Bell      0.66
PL     Protective Life Corp  Wed, Feb 11  Before the Bell     0.72
QLTI   QLT Inc.              Wed, Feb 11  Before the Bell     0.14
SKYW   SkyWest               Wed, Feb 11  -----N/A-----       0.27
STO    Statoil ASA           Wed, Feb 11  Before the Bell      N/A
SWMAY  Swedish Match         Wed, Feb 11  -----N/A-----        N/A
SYT    Syngenta              Wed, Feb 11  -----N/A-----        N/A
SYNT   Syntel, Inc.          Wed, Feb 11  Before the Bell     0.21
TFX    Teleflex, IncorporatedWed, Feb 11  After the Bell      0.67
TLSN   TeliaSonera AB        Wed, Feb 11  -----N/A-----        N/A
TPP    Teppco                Wed, Feb 11  After the Bell      0.43
KO     The Coca-Cola Co      Wed, Feb 11  Before the Bell     0.45
FAF    The First American    Wed, Feb 11  Before the Bell     1.11
NWS    The News Corp Limited Wed, Feb 11  Before the Bell     0.28
TNB    Thomas & Betts        Wed, Feb 11  After the Bell      0.23
TRH    Transatlantic Hldgs   Wed, Feb 11  -----N/A-----       1.44
VFC    VF                    Wed, Feb 11  -----N/A-----       0.89
BER    W.R. Berkley          Wed, Feb 11  After the Bell      0.87
WC     WellChoice, Inc.      Wed, Feb 11  After the Bell      0.62
WFMI   Whole Foods Market    Wed, Feb 11  After the Bell      0.57
WEC    Wisconsin Energy Corp Wed, Feb 11  Before the Bell     0.62
XTO    XTO Energy Inc.       Wed, Feb 11  Before the Bell     0.45
YUM    Yum! Brands, Inc.     Wed, Feb 11  After the Bell      0.62
ZBRA   Zebra Technologies    Wed, Feb 11  Before the Bell     0.49


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

ADIC   Adv Digital Info Corp Thu, Feb 12  -----N/A-----       0.08
AET    Aetna Inc.            Thu, Feb 12  Before the Bell     1.18
AMIS   AMIS HLDGS INC        Thu, Feb 12  After the Bell      0.11
ADI    Analog Devices Inc.   Thu, Feb 12  After the Bell      0.28
AIV    Apart Invstmnt & Mgmt Thu, Feb 12  -----N/A-----       0.76
BHI    Baker Hughes Incorp   Thu, Feb 12  Before the Bell     0.28
BCS    Barclays Bank PLC     Thu, Feb 12  Before the Bell      N/A
BIO    Bio-Rad Labs, Inc.    Thu, Feb 12  After the Bell      0.74
BDN    Brandywine Rlty Trust Thu, Feb 12  After the Bell      0.66
BNN    BRASCAN CORP          Thu, Feb 12  -----N/A-----       0.47
BTY    BT Grp PLC            Thu, Feb 12  Before the Bell      N/A
BUH    Buhrmann NV           Thu, Feb 12  Before the Bell      N/A
CNP    CenterPoint Energy    Thu, Feb 12  Before the Bell     0.19
CEPH   Cephalon, Inc.        Thu, Feb 12  After the Bell      0.52
CBI    Chicago Bridge & Iron Thu, Feb 12  Before the Bell     0.39
CNA    CNA Financial Corp    Thu, Feb 12  Before the Bell     0.59
CORV   Corvis Corp           Thu, Feb 12  After the Bell     -0.09
COX    Cox Cmmu Inc.         Thu, Feb 12  Before the Bell     0.07
CSR    Credit Suisse Grp     Thu, Feb 12  Before the Bell      N/A
CVS    CVS Corp              Thu, Feb 12  Before the Bell     0.58
DF     Dean Foods            Thu, Feb 12  -----N/A-----       0.54
DELL   Dell, Inc.            Thu, Feb 12  -----N/A-----       0.28
ELUX   Electrolux AB         Thu, Feb 12  Before the Bell     0.92
GPRO   Gen-Probe             Thu, Feb 12  After the Bell      0.16
GNTA   Genta                 Thu, Feb 12  -----N/A-----      -0.21
GSK    GlaxoSmithKline       Thu, Feb 12  Before the Bell     0.65
GTI    GrafTech Intl Ltd     Thu, Feb 12  Before the Bell     0.07
HB     Hillenbrand Ind       Thu, Feb 12  -----N/A-----       0.82
IDC    Interactive Data Corp Thu, Feb 12  Before the Bell     0.19
IVGN   Invitrogen Corp       Thu, Feb 12  Before the Bell     0.56
SFI    iStar Financial       Thu, Feb 12  Before the Bell      N/A
JHX    James Hardie Ind N.V. Thu, Feb 12  -----N/A-----        N/A
KROL   Kroll Inc.            Thu, Feb 12  Before the Bell     0.28
LTR    Loews Corp.           Thu, Feb 12  Before the Bell     1.16
MRH    Montpelier Re Hldgs   Thu, Feb 12  After the Bell      1.18
NOI    National Oilwell      Thu, Feb 12  Before the Bell     0.28
NFX    Newfield Exploration  Thu, Feb 12  Before the Bell     0.98
NXY    Nexen                 Thu, Feb 12  Before the Bell     0.68
NVDA   NVIDIA Corp           Thu, Feb 12  After the Bell      0.11
OCR    Omnicare              Thu, Feb 12  Before the Bell     0.59
OSG    Overseas ShipHldg     Thu, Feb 12  Before the Bell     0.60
PHS    PacifiCare Health Sys Thu, Feb 12  After the Bell      0.52
PHLY   Phil Consolidated HldgThu, Feb 12  -----N/A-----       0.77
PDS    Precision Drilling    Thu, Feb 12  Before the Bell     0.76
SWY    Safeway, Inc.         Thu, Feb 12  Before the Bell     0.58
SPIL   SILICONWARE PRECISION Thu, Feb 12  -----N/A-----       0.09
STRA   Strayer Education     Thu, Feb 12  Before the Bell     0.70
SDS    SunGard Data Systems  Thu, Feb 12  After the Bell      0.36
TLS    Telstra Corp Limited  Thu, Feb 12  -----N/A-----        N/A
TGN    Texas Genco Hldgs, IncThu, Feb 12  Before the Bell     0.29
MAY    May Department Stores Thu, Feb 12  -----N/A-----       1.32
SVM    The ServiceMaster Co  Thu, Feb 12  Before the Bell     0.08
TOC    The Thomson Corp      Thu, Feb 12  -----N/A-----       0.54
TMS    Thomson               Thu, Feb 12  -----N/A-----        N/A
TRZ    Trizec Props, Inc.    Thu, Feb 12  Before the Bell     0.39
TXU    TXU Corp.             Thu, Feb 12  Before the Bell     0.20
UL     Unilever PLC          Thu, Feb 12  Before the Bell      N/A
UNA    UNOVA Inc.            Thu, Feb 12  After the Bell      0.01
WMI    Waste Management      Thu, Feb 12  Before the Bell     0.33
WWCA   Western Wireless      Thu, Feb 12  After the Bell     -0.02
WMGI   Wright Medical Grp,   Thu, Feb 12  After the Bell      0.17
XMSR   XM Satellite Radio    Thu, Feb 12  Before the Bell    -1.16


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

ABX    Barrick Gold          Fri, Feb 13  -----N/A-----       0.08
DP     Diagnostic Products   Fri, Feb 13  Before the Bell     0.51
FRT    Fed Rlty Invstmnt TrstFri, Feb 13  -----N/A-----       0.67
SJM    J. M. Smucker Co      Fri, Feb 13  Before the Bell     0.63
IMI    SanPaolo IMI SpA      Fri, Feb 13  -----N/A-----        N/A
SCG    SCANA                 Fri, Feb 13  Before the Bell     0.61
TELN   Telenor ASA           Fri, Feb 13  -----N/A-----        N/A
TU     TELUS                 Fri, Feb 13  During the Market    N/A


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Co Name              Ratio    Payable     Executable

JST     Jinpan Intl Limited       2:1      Feb   6th   Feb   9th
MSCC    Commercial Capital Bancorp2:1      Feb   6th   Feb   9th
DCAI    Dialysis Corp             3:2      Feb   9th   Feb  10th
TASR    TASER Intl, Inc.          2:1      Feb  10th   Feb  11th
ONFC    Onedia Financial Corp     3:1      Feb  10th   Feb  11th
NFLX    Netflix Inc.              2:1      Feb  11th   Feb  12th
NYB     New York Community Bancorp2:1      Feb  17th   Feb  18th
SBGA    Summit Bank Corp          N/A      Feb  17th   Feb  18th
BMS     Bemis Company             3:2      Feb  17th   Feb  18th
MOG.A   N/A                       3:2      Feb  17th   Feb  18th
OVTI    OmniVision Technologies   2:1      Feb  17th   Feb  18th
SNDK    SanDisk Corp              N/A      Feb  18th   Feb  19th
CCBI    Commercial Capital Bancorp3:2      Feb  20th   Feb  23rd
SLFI    Sterling Financial Corp   3:2      Feb  20th   Feb  23rd
NATI    National Instruments      2:1      Feb  20th   Feb  23rd
ACV     Alberto-Culver Company    N/A      Feb  20th   Feb  23rd


--------------------------
Economic Reports This Week
--------------------------

Wall Street will once again be focusing on Greenspan this week
with his two appearances before the House and Senate.  Look for
the balance of this week's economic reports to announce late
in the week.


==============================================================
                       -For-

----------------
Monday, 02/09/04
----------------
Wholesale Inventories (DM) Dec  Forecast:    0.3%  Previous:     0.5%



-----------------
Tuesday, 02/10/04
-----------------
OPEC meeting


-------------------
Wednesday, 02/11/04
-------------------
Greenspan reports on Monetary Policy to Congress


------------------
Thursday, 02/12/04
------------------
Initial Claims (BB)      02/06  Forecast:     N/A  Previous:     356K
Business Inventories (BB)  Dec  Forecast:    0.2%  Previous:     0.3%
Retail Sales (BB)          Jan  Forecast:    0.2%  Previous:     0.5%
Retail Sales ex-auto (BB)  Jan  Forecast:    0.4%  Previous:     0.1%
Treasury Budget (DM)       Jan  Forecast:   $3.0B  Previous:   $10.6B
Greenspan reports on Monetary Policy to the Senate


----------------
Friday, 02/13/04
----------------
Trade Balance (BB)         Dec  Forecast: -$39.7B  Previous:  -$38.0B
Export Prices es-ag. (BB)  Jan  Forecast:     N/A  Previous:     0.2%
Import Prices es-oil (BB)  Jan  Forecast:     N/A  Previous:     0.1%
Mich Sentiment-Prel. (DM)  Feb  Forecast:   103.6  Previous:    103.8


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


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The Option Investor Newsletter                   Sunday 02-08-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: Is This Your Entry Point?
Dropped Calls: GENZ, HSIC
Dropped Puts: COF, QLGC


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

Is This Your Entry Point?
___________________________________________________________________

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.
___________________________________________________________________


Johnson Controls Inc - JCI - close: 60.06 change: +1.39

WHAT TO WATCH:  JCI is certainly a stock to watch.  We're seeing
conflicting signals here.  Its P&F chart is showing an ugly
bearish signal from very overbought.  Yet its daily chart has
shares bouncing strongly from its rising 40-dma.  The stock
bounced from this technical support twice in November and once in
October of last year.  Even Friday's close back over the $60
level looks encouraging.  The stock does have resistance at
$62.00 but its short-term oscillators are coiling back into
bullish buy signals.

Chart=


---

Winnebago Industries - WGO - close: 72.30 change: +1.92

WHAT TO WATCH:  Back in the middle of December shares of WGO
broke out through the top of its rising channel after announcing
earnings that surpassed estimates by 14 cents.  The stock ran
straight to the $70 level and has since found support in the 68-
69 range for the last seven weeks.  We've noticed that for the
last several days WGO has been using the top of its earlier
channel as support (extend a trendline from the June highs
through the October highs and you'll see it).  It looks like the
rally on Friday might be a trade-worthy entry point for a run
into its 2-for-1 stock split on March 5th.

Chart=


---

Bank of America - BAC - close: 82.76 change: +0.76

WHAT TO WATCH:  Investors may be rotating back into financials
again.  BAC has put together a three-day run of gains but paused
just under resistance at $83.00.  Traders could use a trigger
above $83.00 as a bullish entry point.  Coincidentally, a move
above $83.00 would produce a new double-top breakout for its P&F
chart.  Investors should note that BAC does have some resistance
at $85.00 dating back to the July highs.

Chart=


---

Pulte Homes - PHM - close: 44.95 change: +1.63

WHAT TO WATCH:  PHM has been consolidating in a trend of lower
highs since early December.  Shares did rally on Friday due to
the jobs report and the expectation that the Fed will remain on
hold but the stock is still under resistance at its 50-dma and
the $46.00 level.  We would consider a trigger above $46.00 as an
entry point for new bullish positions.  A move above $46 would
break not only price resistance but its trend of lower highs.

Chart=


---

Juniper Networks - JNPR - close: 29.47 change: +1.25

WHAT TO WATCH:  Only adrenaline junkies should pursue this
opportunity but JNPR is breaking out again.  Shares gapped higher
three weeks ago on a much better than expected earnings report
and guidance.  Since then the stock has been consolidating its
gains and using the top of the gap as support, which is common.
Friday's 4.4% gain has broken its short-term trend of lower
highs.  Aggressive traders could go long now with a stop loss at
27.35.  Less aggressive traders may want to see JNPR break above
the $30 mark or its highs near $31.

Chart=


---

Avocent Corp - AVCT - close: 41.82 change: +0.84

WHAT TO WATCH:  AVCT has broken through long-term resistance at
$40.00 to hit new three-year highs after announcing earnings that
beat the street by 2 cents.  Traders might consider giving chase
but we'd wait for a pull back toward the $40.00 level and buy the
bounce.  Point-and-figure chart readers will note the fresh
triple-top buy signal and $66 price objective.


Chart=


---

Analog Devices - ADI - close: 48.04 change: +2.04

WHAT TO WATCH:  Looking for a way to play the bounce in the
semiconductor sector and don't want to trade the SMH holders?
Check out ADI's bounce from the bottom of its rising channel and
support at $45.00.  Friday's 4.4% rally also broke through
resistance at its 50-dma.  Its MACD is about to turn bullish
while its stochastics and RSI are already on new buy signals.

Chart=


---

Infosys Technologies - INFY - close: 89.13 change: +1.73

WHAT TO WATCH:  We'd keep an eye on this India-based software
firm.  Its stock has been consolidating gains after reaching the
$101 level in early January.  The bounce from $85.00 looks good
but shares are still struggling with resistance at $90.00.
Aggressive traders could buy a break over $90 but its short-term
trend of lower highs is still a concern.  Look for a move over
$91.50 or another bounce from the $85 level.

Chart=



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**************************
PICKS WE DROPPED THIS WEEK
**************************

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


CALLS
^^^^^

Genzyme Corp. - GENZ - close: 54.79 change: -0.21 stop: 53.00

After more than 2 weeks of kicking around on the Call list, GENZ
appears to have lost its way.  Early last week, the stock made
what looked like a convincing breakout move, but the rally stalled
right in the middle of the $57-58 resistance area and then fell
back towards its $55 price magnet.  With the bearish alignment on
the daily oscillators, GENZ looks like it is done with the upside
for the time being, and we're going to pull the plug before it
falls any further.  Traders willing to hold on for one more bounce
towards resistance should set a firm stop at $53.50 (just under
the 20-dma) and exit on a move up near the $56 level.

Picked on January 20th at    $53.00
Change since picked:          +1.79
Earnings Date               2/19/04 (confirmed)
Average Daily Volume =     2.84 mln
Chart =


---

Henry Schein - HSIC - close: 70.42 chg: +0.69 stop: 68.00

We're going to pull the plug on HSIC.  It's been two weeks and
the stock really hasn't performed as expected.  Granted the major
averages have been flat to down over this time period and given
how effective Murphy's law works HSIC will probably rocket higher
next week now that we've closed it.  Just because we're closing
the play doesn't mean readers can't continue to play or monitor
HSIC.  The stock is still in an up trend but its technical
oscillators are giving mixed to bearish signals and we've seeing
a short-term trend of lower highs.  If we were going to remain in
the play we'd probably raise our stop loss to $69.00 since HSIC
hasn't traded under $69.10 in over two weeks.  Remember that HSIC
has already met its current P&F price objective.

Picked on January 22 at $70.65
Change since picked:    - 0.23
Earnings Date         03/04/04 (unconfirmed)
Average Daily Volume:      334 thousand
Chart =



PUTS
^^^^

Capital One Fin. - COF - close: 71.64 change: +1.99 stop: 72.50

Well, that didn't take long!  COF gave us a great setup for a
short, but it needed to break down to tempt us into a position.
That breakdown never occurred, with the stock instead rebounding
smartly in response to the Jobs data this morning.  Since our
trigger was never hit, we're going to pull the plug this weekend.
The play never materialized, and by removing it from
consideration, we have more space to focus on other plays.

Picked on February 5th at     $69.65
Change since picked:           +1.99
Earnings Date                1/21/04 (unconfirmed)
Average Daily Volume =      2.12 mln
Chart =


---

QLogic Corp. - QLGC - close: 45.16 change: +1.69 stop: 46.00

With the Semiconductor index (SOX.X) catching a strong rebound on
Friday, QLGC reluctantly went along for the ride, shooting up to
the top of its descending channel at the open.  The remainder of
the session saw the stock consistently working its way higher,
cleanly breaking above both the 10-dma and the top of the channel,
which has now been resolved as a clear bull flag pattern.  With
the stock ending near its high of the day and within a few pennies
of where we initiated coverage, it is clearly time to move on.
Take advantage of any early weakness on Monday to exit at a more
favorable price, but if that weakness doesn't materialize, then
take whatever exit the market offers.

Picked on January 22nd at    $45.25
Change since picked:          -0.09
Earnings Date               4/14/04 (unconfirmed)
Average Daily Volume =     3.96 mln
Chart =



***********
DEFINITIONS
***********

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

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

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


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DISCLAIMER
**********

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


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Contact Support
The Option Investor Newsletter                   Sunday 02-08-2004
Sunday                                                      3 of 5


In Section Three:

Current Calls: ABK, DHR, ESRX, IBM, IMDC, TEVA
New Calls: APOL, CDWC, GD, DHI
Current Put Plays: AVID, EASI
New Puts: None


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******************
CURRENT CALL PLAYS
******************

Ambac Financial Group - ABK - close: 76.50 chg: -0.29 stop: 71.99

Company Description:
Ambac Financial Group, Inc., headquartered in New York City, is a
holding company whose affiliates provide financial guarantees and
financial services to clients in both the public and private
sectors around the world. Ambac's principal operating subsidiary,
Ambac Assurance Corporation, a leading guarantor of public
finance and structured finance obligations, has earned triple-A
ratings, the highest ratings available from Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Fitch, Inc.
and Rating and Investment Information, Inc.
(source: company press release)

Why We Like It:
We are still bullish on the insurance sector and the IUX has out
performed this week hitting another new high.  Recent earnings
reports from lead companies in the group have not disappointed
and with traders jumping back financials on Friday we'd expect
insurance stocks to continue their recent up trend.

We are a tiny bit perplexed with ABK.  The stock didn't show any
weakness or volatility this last week, unlike the markets, but
neither did it enjoy the rally on Friday.  We would still
consider new positions at current levels but a dip to $75.00
would be more attractive.  Momentum traders can look for a move
above the $77.50 mark.

Suggested Options:
Short-term traders can use February or March strikes.  February
calls expire in two weeks so we're going to suggest the March
calls.  The March 70s and 75s are our favorites.

BUY CALL FEB 70 ABK-BN OI=504 at $6.80 SL=4.00
BUY CALL FEB 75 ABK-BO OI=387 at $2.25 SL=1.15
BUY CALL MAR 70 ABK-CN OI= 11 at $7.10 SL=4.25
BUY CALL MAR 75 ABK-CO OI=140 at $3.00 SL=1.50

Annotated Chart:



Picked on February 1 at $74.77
Change since picked:    + 1.73
Earnings Date         01/28/04 (confirmed)
Average Daily Volume:      476 thousand
Chart =


---

Danaher Corp - DHR - close: 94.64 cls: +2.84 stop: 89.00*new*

Company Description:
Danaher, a leading industrial company, designs, manufactures, and
markets innovative products, services and technologies with
strong brand names and significant market positions. Driven by
strong core values and a foundation provided by the Danaher
Business System, Danaher's associates are pursuing a focused
strategy aimed at creating a premier global enterprise.
(source: company website)

Why We Like It:
The last few days we've heard a lot of talk about investors
moving back into cyclicals and how traders should use the recent
weakness as a buying opportunity.  Looks like it may be a good
idea.  The last couple of weeks the major averages have been flat
to down on concerns that the Fed may raise rates sooner than
expected and that the jobs report on Friday (two days ago) would
disappoint.  Well, the jobs number did disappoint but not too
badly and that has Wall Street thinking that the Fed will remain
on hold or in their own words "patient".  Renewed confidence of a
low interest rate environment had investors opening up their
wallets again.

DHR outperformed most stocks on Friday with a 3% gain on better
than average volume.  The stock had already bounced from the $90
level, where we had suggested traders consider new positions.
Most of its technical oscillators are bullish again and DHR is
poised for a breakout over the $95.00 level.  We're going to
raise our stop loss to $89.00, just under the simple 50-dma.
Readers who like to buy the dip can look for a bounce above the
$93.00 level.  In the mean time we'll be looking for DHR to break
through minor resistance at $95.40.

Suggested Options:
Short-term traders can choose the February or March options and
longer-term players might want to look at June or Septembers.
Our preferred strikes would be the March calls with the March 90s
as our favorite.

BUY CALL FEB 90 DHR-BR OI=1712 at $5.30 SL=3.00
BUY CALL MAR 90*DHR-CR OI= 924 at $6.40 SL=4.00
BUY CALL MAR 95 DHR-CS OI=1012 at $3.30 SL=1.65

Annotated Chart:



Picked on January 30 at $91.01
Change since picked:    + 4.63
Earnings Date         01/29/04 (confirmed)
Average Daily Volume:      841 thousand
Chart =


---

Express Scripts - ESRX - close: 68.69 change: -0.15 stop: 65.50

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

Why we like it:
After several attempts to break out over the $70 resistance level,
it looks like ESRX is going to have to pull back to support and
take another run at a breakout.  Last week's move over $70 did
look encouraging, but the bulls were simply unable to build on the
mid-week gains and the stock drifted back towards support near
$68.  This support is reinforced by the 20-dma ($68.18) and with a
multi-week base near this level, it should prove to be solid
support once again.  It was interesting that ESRX didn't join in
on the broad market rally on Friday and this does raise a caution
flag.  We've continued to favor pullback entries throughout our
coverage of the stock and that bias remains, primarily due to the
fact that the stock hasn't yet been able to sustain a meaningful
breakout.  Look for signs of a rebound from the $68 area or even
from lower support near $67 before considering new positions.  Our
stop remains at $65.50, comfortably below strong support at $66
and the 50-dma at $65.86.

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

Longer Term: Aggressive longer-term traders can use the March $70
Call.  Our preferred option is the March $70 strike, which is just
slightly out of the money and should provide sufficient time for
the play to move in our favor.

! Alert - February options expire in 2 weeks!

BUY CALL FEB-65 XTQ-BM OI= 911 at $4.60 SL=2.75
BUY CALL FEB-70 XTQ-BN OI=2180 at $1.45 SL=0.75
BUY CALL MAR-70*XTQ-CN OI= 374 at $2.90 SL=1.50

Annotated Chart of ESRX:



Picked on January 13th at    $68.32
Change since picked:          +0.37
Earnings Date               2/24/04 (confirmed)
Average Daily Volume =     1.03 mln
Chart =


---

Int'l Bus. Machines - IBM - cls: 98.94 chng: +0.24 stp: 96.50*new*

Company Description:
International Business Machines uses advanced information
technology to provide customer solutions.  The company provides
value to its customers through a variety of solutions including
technologies, systems, products, services, software and financing.
IBM's three hardware product segments are comprised of Technology,
Personal Systems and Enterprise Systems.  Other major operations
consist of a Global Services segment, a Software segment, a Global
Financing segment and an Enterprise Investments segment.

Why we like it:
Following Wednesday's foray over the $100 level, which activated
the trigger for our IBM play, the stock pulled back again, showing
that there wasn't yet sufficient enthusiasm for a sustained
breakout.  It was rather peculiar to see the stock unable to
participate in Friday's rally, but we're encouraged to see price
holding above the $97-98 support area.  Daily oscillators are
starting to peel off from overbought territory, confirming that
IBM needs to retrace a bit before the bulls take another run at
triple-digit territory.  A rebound from the $97-98 area looks good
for new entries, especially with the 20-dma ($96.65) now rising to
reinforce the bottom of that support zone.  Traders that would
prefer to enter on strength will need to wait for a rally to new
recent highs above $100.50 before playing.  We're raising our stop
to $96.50 this weekend, as a break below that level would be cause
for concern, as it would represent a violation of the 20-dma, as
well as the 1/29 intraday low.

Suggested Options:
Shorter Term: The February $100 Call will offer short-term traders
the best return on an immediate move, as it will be at the money
when the play is triggered.

Longer Term: Aggressive longer-term traders can use the March $100
Call, while the more conservative approach will be to use the
March $95 strike.  Our preferred option is the March $100 strike,
which is currently at the money and should provide sufficient time
for the play to move in our favor.

! Alert - February options expire in 2 weeks!

BUY CALL FEB- 95 IBM-BS OI=16596 at $4.40 SL=2.75
BUY CALL FEB-100 IBM-BT OI=28018 at $1.05 SL=0.50
BUY CALL MAR- 95*IBM-CS OI= 1929 at $5.50 SL=3.50
BUY CALL MAR-100 IBM-CT OI= 7312 at $2.35 SL=1.25

Annotated Chart of IBM:



Picked on February 1st at    $99.23
Change since picked:          -0.29
Earnings Date               4/15/04 (unconfirmed)
Average Daily Volume =     5.58 mln
Chart =


---

Inamed Corp - IMDC - close: 50.86 chg: -0.45 stop: 48.00

Company Description:
Inamed is a global healthcare company with over 25 years of
experience developing, manufacturing and marketing innovative,
high-quality, science-based products. Current products include
breast implants for aesthetic augmentation and for reconstructive
surgery; a range of dermal products to treat facial wrinkles; and
minimally invasive devices for obesity intervention, including
the LAP-BAND. System for morbid obesity. (source: company press
release)

Why We Like It:
Last Sunday we added IMDC due to its incredible strength, despite
bad news, and the breakout over the $50.00 level.  The stock
appears to be consolidating its January gains but fortunately it
is doing so above the $50 mark.  A quick recap for those who
missed the original play last Sunday: IMDC produces and markets a
number of cosmetic surgery devices, treatments and supplies.  Its
biggest business is breast implants.  The company got a lot of
press in October during a company-sponsored FDA advisory panel
meeting to look at re-introducing silicone implants.  After some
controversy the FDA essential said no and told IMDC to come back
with more data.  The stock gapped down in early January on the
official no approval letter but shares quickly recouped their
losses and broke above resistance at its 50-dma and the $50.00
mark.  Contributing to the bullish move in IMDC was a very strong
earnings report from rival breast implant maker Mentor.

We're expecting a pre-earnings run for IMDC but shares need to
hold support at $50.00.  We're not happy to see what looks like a
very short-term double-top at the $52.50 mark created last week
and traders may want to wait for IMDC to trade above this level.
More aggressive traders can still use dips to $50.00 as entry
points.  We do expect some resistance just above the $55.00 level
but IMDC's P&F chart is pointing to a $70 price objective.

Checking the company headlines we see that IMDC reported its
latest findings for its Phase II dosing study of a botulinum
toxin type A product at the American Academy of Dermatology
meeting on Friday.  The product is used to smooth out glabellar
lines, which are the wrinkles between your eyebrows.  IMDC plans
to start its Phase III clinical trials in early 2004.  The
product is already on the market in 60 other countries under the
name DYSPORT.

Suggested Options:
We don't plan to hold over the Feb. 24th earnings report but that
date is not confirmed.  We suggest the March or April calls.  Our
favorites are the March 50s and 55s.

BUY CALL MAR 50 UZI-CJ OI=2870 at $3.60 SL=1.85
BUY CALL MAR 55 UZI-CK OI=5066 at $1.40 SL=0.75
BUY CALL APR 50 UZI-DJ OI= 564 at $4.60 SL=2.35
BUY CALL APR 55 UZI-DK OI= 568 at $2.50 SL=1.25

Annotated Chart:




Picked on February 01 at $51.54
Change since picked:     - 0.68
Earnings Date          02/24/04 (unconfirmed)
Average Daily Volume:       682 thousand
Chart =


---

Teva Pharmaceutical - TEVA - cls: 65.25 chng: +0.78 stop: 61.00

Company Description:
Teva Pharmaceutical Industries Ltd. is a global pharmaceutical
company producing drugs in all major treatment categories.  Teva
has utilized its production and research capabilities to establish
a global pharmaceutical business focused on the growing demand for
generic drugs and on the opportunities for proprietary branded
products for specific niche categories.  Teva's active
pharmaceutical ingredients business provides both significant
revenues and profits from sales to third-party generic
manufacturers and strategic benefits to the company's own
pharmaceutical production through its delivery of significant raw
materials.

Why we like it:
The past couple days have seen an unusual amount of volatility in
shares of TEVA as investors have tried to determine whether to
take profits from the recent runup or if this looks like a viable
place to step aboard with new positions.  The pullback from
Thursday's intraday highs was eagerly bought and despite some
intraday volatility on Friday, the stock surged to post another
all-time closing high.  Volume was a bit on the light side heading
into the weekend, but it is hard to argue with the strength in
price.  Traders waiting for a solid pullback into the $62-63
support zone have had their patience tried in the past few days,
as even the slightest dips have been bought, without allowing for
real dip to support.  Aggressive traders can target entries on a
mild dip near the $64 level or a successful test of the 10-dma
($63.46), but we continue to prefer either a pullback to strong
support in the $62-63 area or a clean breakout over $66.  Maintain
stops at $61 for now, as that is just under the bottom of the
late-January consolidation zone, as well as the rising 20-dma
($61.39).

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

Longer Term: Longer-term traders will want to use the March $65
Call, while the more aggressive approach would be to use the March
$70 strike.  We've listed a limited number of strikes on TEVA due
to limited strike selection with acceptable open interest.  Our
preferred option is the March $65 strike, which is at the money
and should provide sufficient time for the play to move in our
favor.

! Alert - February options expire in 2 weeks!

BUY CALL FEB-65 TVQ-BM OI=3642 at $1.55 SL=0.75
BUY CALL MAR-65*TVQ-CM OI=3396 at $2.50 SL=1.25
BUY CALL MAR-70 TVQ-CN OI=1503 at $0.70 SL=0.35

Annotated Chart of TEVA:



Picked on February 3rd at    $64.66
Change since picked:          +0.59
Earnings Date               2/17/04 (unconfirmed)
Average Daily Volume =     2.63 mln
Chart =



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

Apollo Group - APOL - close: 77.44 change: +1.41 stop: 70.75

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

Why we like it:
After a brief respite, APOL is back to soaring like the NASA
rockets of its namesake.  Last time we played the upside in this
education stock, the bulls stumbled just enough to trigger our
stop before the uptrend reasserted itself with vigor.  Beginning
with a powerful breakout on Wednesday, where APOL moved to a
fresh all-time high, the stock consolidated and then charged to
another new high above $77 on Friday.  Last week's breakout
generated another PnF Buy signal, which underscores the Buy
signal from early January that produced a bullish price target of
$94.  At the rate things are going, it looks like that target is
indeed achievable and the only challenge remains finding a
workable entry point into this very strong bullish trend that
shows no signs of letting up.

With the stock already up nearly 10% since its late January low,
chasing APOL higher doesn't seem to be a high-odds strategy.  The
stock is due for a bit of a near-term pullback and that's where
we'll want to look for an entry.  There's mild support near $75
(the site of the late January peak), but support looks even
better in the $74 area, especially with the 20-dma ($73.79)
rising near that level.  Note how the 30-dma has been providing
steady closing support since late November -- we can expect that
pattern to continue and that means a deep pullback near the 30-
dma ($72.40) would provide an even better entry point ahead of
the stock charging to new highs.  We aren't going to be greedy
and target that $94 PnF objective, but APOL does look like it
could give us a nice rally up to the $85 area.  Since we're
looking to enter on a pullback, and not a breakout, we're going
to set a fairly wide stop at $70.75, which is just below the 50-
dma ($70.84).

Suggested Options:
Shorter Term: The February $75 Call will offer short-term traders
the best return on an immediate move, as it is currently in the
money.

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

! Alert - February options expire in 2 weeks!

BUY CALL FEB-75 OAQ-BO OI=1332 at $3.20 SL=1.50
BUY CALL FEB-80 OAQ-BP OI= 477 at $0.60 SL=0.30
BUY CALL MAR-75*OAQ-CO OI= 212 at $4.40 SL=2.75
BUY CALL MAR-80 OAQ-CP OI= 295 at $1.85 SL=0.90

Annotated Chart of APOL:



Picked on February 1st at    $77.44
Change since picked:          +0.00
Earnings Date               12/18/03 (confirmed)
Average Daily Volume =     1.79 mln
Chart =


---

CDW Corp. - CDWC - close: 69.13 change: +2.29 stop: 64.00

Company Description:
CDW Corporation is a direct marketer of multi-brand computers and
related technology products and services in the United States.
The company offers multi-brand computers and related technology
products, including hardware and peripherals, software,
networking and communication products and accessories, for use
with microcomputers based on a variety of operating platforms,
including Microsoft, Apple, Linux, Novel, Oracle and others.
CDWC offers more than 80,000 products that include a range of
product types from manufacturers including Cisco, Hewlett-
Packard, IBM, Intel, Microsoft, Sony and Toshiba.  With this
selection of products, the company can provide its customers with
fully integrated, multi-branded technology solutions and the
convenience of one-stop shopping.

Why we like it:
Just when it looked like the rally in CDWC might be running out
of gas, the stock blasted higher in early January, moving to its
best levels since the first half of 2000.  Over the past few
weeks the stock has been trading in a nice clean consolidation
patter, never drifting too far from its recent highs.  The stock
launched higher on Friday, gaining more than 3.4% and coming very
near a breakout to new multi-year highs.  The strong move in
early January created a fresh PnF Buy signal, and the resultant
vertical count gives an eventual upside target of $93.  If
achieved, it would have CDWC trading at new all-time highs,
easily topping the highs near $85 from 2000.  If looking for the
reason behind the strength in the stock, the latest earnings
report from 1/21 certainly provides some illumination, with sales
rising 28%.  We'll get another view as to the company's growth
rate when it announces its January sales on February 11th.

This looks like a great candidate to trade on a breakout to new
highs, so we're going to set an entry trigger at $70.25, just
over the 1/27 intraday high.  Aggressive traders can enter on the
initial breakout, while those with a more cautious approach may
want to wait for a subsequent pullback to confirm support in the
$67-68 area.  While there's the potential for resistance to be
found in the $72-73 area, it looks as though a solid breakout
over $70 has room to run all the way to next solid resistance at
$80, so that will be our upside target.  Owing to the possibility
that CDWC could still be subject to some consolidation before
breaking out, we'll set a fairly wide stop down at $64, solidly
below the current consolidation banc and the bottom of the 1/15
dip.

Suggested Options:
Shorter Term: The February $70 Call will offer short-term traders
the best return on an immediate move, as it will be at the money
when the play is triggered.

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

! Alert - February options expire in 2 weeks!

BUY CALL FEB-65 DWQ-BM OI=793 at $4.80 SL=2.75
BUY CALL FEB-70 DWQ-BN OI=853 at $1.40 SL=0.75
BUY CALL MAR-70*DWQ-CN OI=325 at $2.75 SL=1.40
BUY CALL MAR-75 DWQ-CO OI= 90 at $1.05 SL=0.50

Annotated Chart of CDWC:



Picked on February 8th at    $69.13
Change since picked:          +0.00
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     1.38 mln
Chart =


---

General Dynamics - GD - close: 96.88 chg: +1.37 stop: 92.00

Company Description:
General Dynamics, headquartered in Falls Church, Va., employs
approximately 67,600 people worldwide and had 2003 revenue of
$16.6 billion. The company has leading market positions in land
and amphibious combat systems, mission critical information
systems and technologies, shipbuilding and marine systems, and
business aviation. (source: company press release)

Why We Like It:
Seems like a day doesn't go by without some division of General
Dynamics announcing another multi-million deal, most of which are
for the government's defense program.  In the last two weeks GD
has announced $1.4 billion in deals on top of the $8.4 billion
multi-year deal it will share with NOC to build submarines.
Investors are betting that the White House's recent budget
proposal calling for an increase in defense spending will send
even more business to GD.

We also like GD's bullish breakout over the $95.00 region last
week after 3 1/2 weeks of consolidation above the $90 level.
Contributing to the bullish mood in GD was a recent upgrade by
UBS who lifted GD to a "buy" and raised their price target to
$110.  We also want to note the fresh triple-top breakout buy
signal on GD's P&F chart and its $125.00 price objective.

The $100 level will probably be GD's next resistance level but
we're going to shoot for the $105-110 range as our profit target.
We like entry points here but patient traders might wait for any
possible dip toward the $95 mark, which should be new support.
We'll start the play with a stop loss at $92.00.

Suggested Options:
There are only two weeks left for February strikes.  Our
preference is the March or May calls.  We normally don't pick OTM
calls as our favorite but we're going to bet on the May 100s.

BUY CALL MAR  90 GD-CR OI=  72 at $7.80 SL=5.25
BUY CALL MAR  95 GD-CS OI= 517 at $4.10 SL=2.25
BUY CALL MAR 100 GD-CT OI= 139 at $1.55 SL=0.75
BUY CALL MAY  95 GD-ES OI=1082 at $5.40 SL=3.15
BUY CALL MAY 100*GD-ET OI= 933 at $2.95 SL=1.50

Annotated Chart:



Picked on February 08 at $96.88
Change since picked:     + 0.00
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       1.0 million
Chart =


---

D.R.Horton - DHI - close: 30.00 chg: +1.35 stop: 27.99

Company Description:
Founded in 1978, D.R. Horton, Inc. is engaged in the construction
and sale of high quality homes designed principally for the
entry-level and first time move-up markets. D.R. Horton currently
builds and sells homes in 20 states and 47 markets, with a
geographic presence in the Midwest, Mid-Atlantic, Southeast,
Southwest and Western regions of the United States. The Company
also provides mortgage financing and title services for
homebuyers through its mortgage and title subsidiaries.
(source: company press release)

Why We Like It:
A number of the homebuilders didn't react well to the Fed's
change in language after their latest FOMC meeting.  However, DHI
held up and consolidated sideways.  This Friday's jobs report,
while disappointing, has given investors renewed confidence that
the Fed will remain on hold and perpetuate the current low
interest rate environment.  That's exactly what homebuilders want
to keep mortgage rates low, even though many have said that a
small up-tick in rates would not hurt business.

Speaking of business, business is good.  DHI's most recent
earnings report showed a 66% jump in net income to $185.6
million.  Revenues jumped 26% to $2.2 billion.  DHI's sales
contract backlog rose 24% to $3.6 billion (14,480 homes) and net
sales last quarter rose 20% to $2.0 billion (8,234 homes).
Earnings were 78 cents, which were 16 cents better than the
estimates.

We like DHI because the stock is out performing many of its peers
and with the Fed on hold investors will feel freer to buy the
homebuilders without threat of a rise in interest rates.  We're
expecting another leg up as traders focus on DHI's current value
with a P/E of just 10.  Our first target is a move to $34-35 with
a stop loss at $28.00.  P&F chart readers will note that DHI's
current price objective is $41.00.


Suggested Options:
There are only two weeks for February strikes.  Our preference is
for the March and May calls.  You may notice some odd option symbols
as a result of the recent 3:2 stock split.  We're going to pick the
May 30s as our favorite.

BUY CALL MAR 25 DHI-CE OI= 154 at $5.40 SL=3.35
BUY CALL MAR 30 DHI-CF OI=1173 at $1.50 SL=0.75
BUY CALL MAY 30*DHI-EF OI= 774 at $2.40 SL=1.20
BUY CALL MAY 35 DHI-EG OI=   9 at $0.75 SL= --

Annotated Chart:




Picked on February 08 at $30.00
Change since picked:     + 0.00
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =



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Avid Technology - AVID - close: 44.11 chg: +1.11 stop: 46.17

Company Description:
Avid Technology, Inc. is the world leader in digital nonlinear
media creation, management and distribution solutions, enabling
film, video, audio, animation, games, and broadcast news
professionals to work more efficiently, productively and
creatively. For more information about the company's Oscar.,
Grammy., and Emmy. award-winning products and services, please
visit: www.avid.com. (source: company press release)

Why We Like It:
Now we're really seeing the oversold bounce in AVID.  Last
Tuesday we added AVID to the put list after a very heavy, high
volume sell-off in reaction to its earnings report, which wasn't
that bad.  The news sparked some broker downgrades and shares
broke price support at $45.00 and technical support at its 200-
dma.  AVID did receive an upgrade from JPM a few days ago but the
stock didn't react.  Now that the major indices are bouncing
we're seeing a bounce, probably short covering, in AVID.

The $45 level and the 200-dma should act as overhead resistance.
Beyond that the $46 mark is also mild resistance.  We do expect
AVID to bounce higher before rolling over again.  We would not
consider new entries until we see where the rally fails.  P&F
chart fans will note that its vertical count (price target) has
dropped from $30 to $28.

Suggested Options:
February strikes don't have much time left so we're going to
suggest the March or June puts.  Our favorite is the March 45s.
! Remember, these are going to shrink in value on the bounce.
Wait for the rebound to fail.

BUY PUT MAR 45*AQI-OI OI=2181 at $4.00 SL=2.15
BUY PUT MAR 40 AQI-OH OI=3164 at $1.85 SL=0.95
BUY PUT JUN 45 AQI-RI OI= 648 at $6.20 SL=3.65
BUY PUT JUN 40 AQI-RH OI= 276 at $4.00 SL=2.25

Annotated chart:



Picked on February 04 at $42.87
Change since picked:     + 1.24
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       612 thousand
Chart =


---

Eng. Support Systems - EASI - cls: 47.96 chng: +2.21 stop: 50.50

Company Description:
Engineered Support Systems, Inc. is a holding company for a group
of subsidiaries that operate as suppliers of military electronics,
equipment and logistics services.  It has nine wholly owned
subsidiaries: Systems and Electronics Inc., Engineered Air
Systems, Inc., Keco Industries, Inc., Radian Inc., Engineered Coil
Company, Engineered Electric Company, Universal Power Systems,
Inc., ESSIbuy.com and Engineered Specialty Plastics, Inc.  In
April 2003, the Company sold its plastic products segment to a
private equity group.  The company supplies high-tech integrated
military electronics, support equipment and logistics services to
the United States armed forces and certain foreign militaries.
EASI also engineers and manufactures air-handling and heat-
transfer equipment, and material-handling equipment.  Products are
manufactured within three operating segments: light military
support equipment, heavy military support equipment and
electronics and automation systems.

Why we like it:
As convincing as last week's breakdown under the $48 level
appeared, we couldn't shake the feeling that an oversold rebound
was in the making, as traders could be expected to step in and buy
the dip down to the $45 support area.  Sure enough, that rebound
materialized right at the opening bell on Friday, with the stock
quickly pushing up to $47 and then steadily marching higher to end
just a few pennies below the $48 level, which was the site of
Wednesday's breakdown.  Now we'll see whether that broken support
has transformed into resistance or if the breakdown last week was
a bear trap.  A rollover from the $48-49 resistance area looks
good for new entries, but if the stock moves back over the 20-dma
($50.16), then it will be a strong sign that we've seen just about
all the downside the stock has to offer.  Traders that would
prefer to enter on weakness will now need to wait for a break
under $45 as an indication of potential downside to our $40 target
before opening new positions.  Maintain stops at $50.50.

Suggested Options:
Aggressive traders can use the March 45 Put, while those with a
more conservative approach will want to use the March 50 put.  Our
preferred option is the March 45 strike, as it provides more bang
for the buck on a significant downward move.

! Alert - February options expire in 2 weeks!

BUY PUT FEB-50 UFE-NJ OI=406 at $3.10 SL=1.50
BUY PUT MAR-50 UFE-OJ OI= 17 at $4.50 SL=2.75
BUY PUT MAR-45*UFE-OI OI=188 at $1.95 SL=1.00

Annotated Chart of EASI:



Picked on February 1st at     $50.00
Change since picked:           -2.04
Earnings Date                3/09/04 (unconfirmed)
Average Daily Volume =         387 K
Chart =



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

None


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The Option Investor Newsletter                   Sunday 02-08-2004
Sunday                                                      4 of 5


In Section Four:

Leaps: The Declining Dollar
Traders Corner: The Long Hard Road To Profits
Futures Corner: An Article Articulating Articulation Points


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*****
LEAPS
*****

The Declining Dollar
By Mark Phillips
mphillips@OptionInvestor.com

As noted on several occasions, the apparent rally in U.S. equities
over the past year has been primarily caused by the falling
dollar.  With that downtrend reasserting itself with a bang on
Friday, it's really no great shock that we saw a significant rally
in equities.  Without even testing its 50-dma (now at $87.90) last
week, the brief rebound in the Dollar index (DX00Y) reversed
itself on Friday in response to the disappointing Jobs report.
The 1.01% decline in the DX00Y correlates nicely with the 0.92%
advance in the DOW and the 1.25% rise in the S&P 500.

A couple weeks ago, I pulled up a PnF chart of the DX00Y and it
tells an interesting story with respect to how much further the
dollar could be expected to fall.    The Sell signal that was
created during the initial leg of the Dollar's decline in the
latter half of 2002 and early 2003 gives a bearish price target of
74, which means potentially another 14% downside from Friday's
close near 86.  Why is this important?  I've demonstrated in the
past that the lion's share of the rise in the market over the past
year has simply been an effect of the falling currency.  If we
project further declines out into the future, another 14% fall in
the DX00Y could be expected to cause roughly another 14% rise in
the major indices like the DOW and S&P 500.

Doing some quick math, that would project to a DOW trading just
north of 12,000 and the S&P 500 trading at roughly 1300.  In the
past, when I heard projections for that sort of growth for 2004, I
scoffed, believing that based on current valuations and the
current tepid level of earnings growth that those levels are
ridiculous.  I'm not so sure anymore.  I didn't expect the rally
that began last spring to have nearly the life it has, but when
put into the context with the sharp fall in the dollar in the same
period of time, it does make sense.

I've made no secret of my bearish long-term views for the U.S.
equity market, based primarily on valuations and the fact that far
more economic growth has been priced into stocks than we have any
reason to expect, at least based on the data that has come out
thus far.  The whole issue of economic statistics has become
thoroughly inscrutable, at least to me.  According to the official
government reports, inflation is still nonexistent, yet all around
us, there are sharp increases in the cost of things we need to
live, like energy, health care, housing and food.  Conveniently,
these items don't figure into the inflation calculations, which
instead focus on the prices paid for goods -- a large portion of
which are being imported from Asia which we all know is exporting
deflation due to the very low comparative production costs.  Those
goods that are domestically produced are not seeing a rise in
price either -- domestic manufacturers can't afford to raise
prices unless they want to lose further market share to foreign
competitors.

So we have real inflation that truly does exist and is eroding
Americans' purchasing power, but it is being kept hidden due to
the fact that manufactured goods are not rising in price and are
actually becoming cheaper.  And with Ben Bernanke continuing to
run the printing presses at the Fed at full tilt, our dollars are
becoming worth less and less on the open market.  That dynamic is
inherently inflationary, but so far, the effects are being hidden
from the official bean counters that give us our monthly economic
reports.

The "Sell dollars and buy U.S. equities" dynamic has a finite
lifespan and eventually, I expect to see a dramatic upsetting of
that apple cart.  But there's no sign of it happening now.  That
means for the foreseeable future (at least I didn't say
"considerable period of time") I think we can expect to see the
dollar continue to weaken and in concert with that trend, equities
will continue to rise.

One trend I expect to be longer-lived though is the relationship
between the dollar and precious metals.  I expect the dollar to
trend lower over the next several years and gold and silver (and
the related stocks of the producers of those metals) to trend
higher -- MUCH higher.  The day is coming when the public will be
forcibly reacquainted with the fact that gold and silver is money
and this paper we carry around in our respective wallets has value
only because the government says it does.  And that relationship
only works so long as the finances of the issuing government are
deemed to be sound.

With the U.S. running twin deficits (budget and trade) each in
excess of $500 billion per year and growing, this is an
unsustainable trend.  I love my tax cuts as much as the next guy,
but when taken together with the current administration spending
like a bunch of drunken sailors, it causes me more than a little
concern for the future.  And this comes from a guy who actually
voted for the guy in office and for the most part thinks he's
doing a good job.  But in terms of fiscal responsibility, let's
just say I'm very concerned about the trend I see.

Alright enough of the big picture and my nebulous political views.
Where are we headed next?  Believe it or not, it looks like that
may be all she wrote in terms of profit taking and consolidation
for now.  Astounding as it may seem, that's what Friday's price
action would seem to indicate.  The poor employment data caused
traders to breathe a sigh of relief that there's plenty of time
before a rate cut arrives and that means more weakness in the
dollar and rising equities.  If I squint, I can see the potential
for a Head & Shoulders topping formation on the DOW, with the
neckline near 10,400.  In order to fulfill that pattern, we'd need
a break below that level and then it only projects down to the
10,100 area.  That is roughly the bottom of the rising channel
that has been in place since last April and a drop to that level
would still be in keeping with the overall bullish trend.

I don't place a lot of credence in that chart pattern though, as I
don't see a corresponding H&S pattern on any of the other indices.
The SPX and COMPX look purely bullish, and it's hard not to
believe the rebound in the COMPX from dual support at the 50-dma
and the bottom of its own rising channel.

It's been awhile since we took a look at the bullish percent
readings and after glancing at them this weekend, I have to say I
don't see anything there to provide any illumination as to when
this cyclical bull market will run out of gas.  The weakest index
is the NDX, which is currently Bear Alert at 70%, but contrasted
with the DOW and SPX, both at 86% and strongly Bull Confirmed, I
just don't see any signs of an impending trend reversal.  Looking
at the SharpChart view doesn't change the picture either -- until
all of the major indices' bullish percent readings break below
70%, I think we can safely expect higher levels ahead for the
overall market.

Until we can see some concrete sign of a trend reversal in terms
of the Bullish Percent and the VIX telegraphing some real fear
with a move above 20, I think it makes sense to focus the bulk of
our efforts here on playing the long side.  We can still seek out
and take advantage of compelling bearish trades, but we must do so
with the understanding that it is bucking the overall trend of the
market, a practice that inherently has a lower success ratio.  So,
without further ado, let's plunge in to our weekly plays
discussion.

Portfolio:

SBUX - It's really hard not to love a play that delivers gains
each week as consistently as SBUX has been doing.  This trend will
eventually end, but for now we may as well ride it for all it's
worth.  It took all week, but SBUX finally pushed through the $37
level on Friday to set another all-time high.  I hope everyone
understands that the stock is very extended after its rally from
the $33 area and I would not be a bit surprised to see a bout of
profit taking at any time.  I've been advising more conservative
traders to harvest some gains up here near the $37 level, and so
everyone has gotten that opportunity.  We'll continue to ride the
trend as long as it lasts, but I'll be suggesting an exit at the
$40 level.  Last week, our stop rose to $33, and I think we can
raise it again to $33.50, as that is now below the 50-dma, as well
as the top of the longer-term channel that SBUX broke out of back
in late December.  Remember, conservative traders unwilling to
exit here, but also unwilling to accept risk all the way down to
our official stop can use a tighter stop at $35, just under the
late January dip.

SMH - I'll be the first to admit, I didn't like Friday's rebound
in the Semiconductors one bit, and that nearly 4.5% gain on the
SMH is definitely a cause for concern.  Not only did price rebound
from above $40 support and the bottom of the former channel, but
it blasted right through the 50-dma, wiping out the prior 6 days'
decline on strong volume.  The one thing that does give me hope of
seeing lower levels is that we still have the potential for
bearish Stochastics divergence on the weekly chart.  We'll keep
the play active and maintain our stop at $46, just over the
January highs.

NEM - I expected the dollar rebound to be rather weak, but I
didn't expect the downtrend to reassert itself quite so quickly.
Nevertheless, that's what we saw happen on Friday, with the sharp
fall in the dollar finally giving a boost to gold and gold stocks
on Friday.  NEM staged an impressive rebound and it looks like
entries taken on the decline into the $40-42 support area were
taken at the right point.  There's still a lot of ground to cover
to get back to the recent highs near $50, but Friday's action is a
good start.  The next major obstacle will be the 50-dma near $46
and once above that point, we can set our sights on a retest of
$50.  Note how the rebound in NEM, the XAU and the GC04J (April)
gold futures contract all commenced from just above strong support
levels, as well as the respective 200-dmas.  Maintain stops at $37
for now, which is below strong support and the 200-dma near $38.

Watch List:

QCOM - So far, QCOM is holding up amazingly well.  The pullback
from the January highs near $60 has been finding strong support
near $56 at the bottom of the early January gap and the rebound
into the end of the week looks constructive to the long side.
We've yet to see enough of a pullback to give us a solid entry
near the 50-dma and without more of a pullback, I just can't see
entering the play near current levels.  Maintain the entry target
at $53-54, which is close to the 50-dma ($53.67), as well as solid
support at the midline of the former rising channel.

HD - After being pinned in a rather tight range for the past
several weeks, HD looks like it is finally going to make a bullish
move.  Friday's gains brought the stock right to the top of the
recent consolidation and a breakout above $36.50 should generate
enough upside to set us up for an entry in the $37-38 area.  This
still looks like the right place to take a position, as it is just
below the top of the multi-year descending channel.  That said,
there's something nebulous about the current price pattern that
leaves me with an uneasy feeling.  I can't quantify it, but it
feels like the stock may be setting up for a breakout to new
recent highs.  For that reason, we don't want to take a position
just because HD trades into our entry zone -- we need to wait for
weakness following that test of resistance.  One other positive
factor that is still in place is the bearish weekly Stochastics
divergence.  We could get handed a nice confirmation of that
pattern if price manages to moves slightly above the October peak,
while at the same time weekly Stochastics turns down from a lower
level.  Time will tell.  Remember to use the protective put to
control risk if our entry setup materializes.  Use the May $40
Call (HD-EH), currently priced at only $0.45.

SNDK - The first part of last week was rather unpleasant for the
bulls, with SNDK continuing its plunge, hitting a low near $48
before rebounding into the end of the week.  There's really
nothing to suggest that this is THE bottom for the stock and I
think we should keep the play on HOLD for now.  Recall my initial
target when we first started talking about the play was for a dip
and rebound from the $40 area.  That may end up being a viable
target for entry, but we'll let the price pattern give us that
answer.  At a minimum, I think we need to wait for a more
encouraging view on the PnF chart, which now has a bearish price
target of $25.  I don't expect that level to be traded, but until
a new Buy signal is generated, that is the downside risk to
bullish positions.

CHK - Close, but no cigar.  Our new natural gas play on CHK
continued to slide lower last week, hitting a low on Thursday of
$11.70 before Friday's solid rebound.  With the weekly Stochastics
still early in the decline from overbought territory and natural
gas prices continuing to drift down towards strong support at
$5.00, we're not in any hurry to take a position.  Wait for the
test of support and subsequent rebound.  To be entirely honest,
I'd be happier with a solid test of the $11.00 support level, as
that is also the site of the 200-dma.

MLNM - Another week of tight range consolidation was all MLNM had
to offer, although Friday's rally certainly looks like the
precursor to a breakout to once again test the $19 resistance
level.  I could certainly make an argument for entries at current
levels, but let's stick with the plan.  Each major pullback over
the past year has come down very close to the rising trendline
(currently $16.30) and there's no reason to expect that it won't
happen this time.  Maintain the entry target at $16.50.  If MLNM
breaks out over the December highs without giving us that
pullback, then we may have to re-evaluate, but we're not there
yet.

Radar Screen:

WMB - As expected, WMB is starting to show a bit more weakness,
last week breaking below the 50-dma and that price weakness was
enough to solidify the bearish rollover on the weekly Stochastics.
That Stochastics rollover gives us a fresh bearish divergence with
price and that means patience is warranted in playing the upside.
I really like the stock's long-term prospects, especially in light
of the developing situation in the Natural Gas arena, but we need
to wait for the right entry point.  Right now, it looks like that
entry point may be near the 200-dma, but it certainly won't hurt
to wait a week or so and see how price acts as the weekly
oscillators come back near oversold.

LUV - The airline stocks have been absolutely clocked in the past
several weeks and shares of LUV have been in a persistent
downtrend since topping out near $19.50 in October.  LUV is
probably my favorite stock in the sector, simply because the
company is very well run and they are eating the lunch of the
major carriers and likely will continue to do so.  The resultant
weakness has driven the stock all the way down to the $14.50
level, as the weekly Stochastics have now fallen deep within
oversold territory.  I don't think this is quite the place to be
putting on a bullish position, but we may be getting close.  Not
that the PnF chart is still completely bearish, so we're not in
any hurry yet.  But this is a good one to stick on our Radar
Screen, just so we're watching if we get another downward leg into
the $12-13 support area.

APA - Here's another Natural Gas play that I have had my eye on
for the past several months.  After breaking out last September,
the stock soared to roughly $43 ahead of its 2-1 split last month.
Since then, the stock has finally seen some real weakness,
dropping the stock back to the site of its 100-dma.  Weekly
Stochastics are early in the bearish phase, so we've got time to
wait here as well.  But a drop back to the 200-dma could see the
stock finding strong support and provide us a solid entry point
for the next leg of the long rally.

Closing Thoughts:
Until we see some of the trends of the past year - weak dollar,
low interest rates and bullish equities - begin to show concrete
signs of a reversal, the best odds lie in plays that are in
alignment with those trends.  There will be occasional bearish
plays that offer themselves up, but my focus is increasingly being
directed to plays on the long side.  Eventually that will cease to
work and then we can get more aggressive on the downside.  But for
now, let's run with the bulls!

Admin Note: I just have a couple more bugs to work out in the new
playlists, and I should have them ready for publication next week.
Fortunately, we didn't have any new Portfolio plays this week, so
taking another week to get it right doesn't pose any great
hardship.  I think the change will be worth the wait!

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
SBUX  11/24/03  '05 $ 30  ZOS-AF  $ 4.30  $ 8.90 +106.98%  $ 33.00
                '06 $ 30  WSP-AF  $ 6.40  $10.80  +68.75%  $ 33.00
NEM   01/18/04  '05 $ 40  ZIE-AH  $ 8.20  $ 8.80  + 7.32%  $ 37.00
                '06 $ 40  WIE-AH  $10.20  $11.60  +13.73%  $ 37.00


Puts:
SMH   12/30/03  '05 $ 40  ZTO-MH  $ 4.90  $ 4.40  -10.44%  $ 46.00
                '06 $ 40  YRH-MH  $ 6.60  $ 6.30  - 4.55%  $ 46.00


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
QCOM   11/16/03   $53-54       JAN-2005 $ 55  ZLU-AK
                            CC JAN-2005 $ 50  ZLU-AJ
                               JAN-2006 $ 55  WLU-AK
                            CC JAN-2006 $ 50  WLU-AJ
                            PP APR-2004 $ 50  AAO-PJ
SNDK   12/21/03   HOLD         JAN-2005 $ 45  XWS-AK
                            CC JAN-2005 $ 40  XWS-AJ
                               JAN-2006 $ 45  YSD-AK
                            CC JAN-2006 $ 40  YSD-AJ
CHK    02/01/04   $11.50       JAN-2005 $ 12  XHV-AV
                            CC JAN-2005 $ 10  XHV-AB
                               JAN-2006 $ 12  WZY-AV
                            CC JAN-2006 $ 10  WZY-AB
                            PP APR-2004 $ 10  CHK-SB
MLNM   02/01/04   $16.50       JAN-2005 $ 17  XVX-AW
                            CC JAN-2005 $ 15  XVX-AC
                               JAN-2006 $ 17  YDA-AW
                            CC JAN-2006 $ 15  YDA-AC
                            PP APR-2004 $ 15  QMN-QC


PUTS:
HD     12/21/03  $37-38        JAN-2005 $ 35  ZHD-MG
                               JAN-2006 $ 35  WHD-MG
                            PC MAY-2004 $ 40  HD -EH


New Portfolio Plays

None


New Watchlist Plays

None

Drops

None


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

The Long Hard Road To Profits
By Mike Parnos, Investing With Attitude

How’s your performance been lately?  Would you like a dose of
trading Viagara to lengthen your time horizon and firm your
resolve?  Remember, the longer your horizon is, the better chance
you have of satisfying your wife, your brokerage account, and your
beneficiaries.

Do you suffer from premature execution, and have little or no
stamina?  The impulse to over-trade can, indeed, be tough to
conquer.   It’s the itch that yearns to be scratched.  When you’re
about to lose control, if you think about baseball, it may give
you the strength to persevere.  At the CPTI, we normally focus on
monthly returns, but, as conservative as we try to be, there is
some risk inherent in all of our strategies.

Well, today’s trading concept might help you to reduce your risk
to zero, IF you don’t soften your stance on your position.  We’ll
help you extend your trading life, using protection the entire
time.  We’re going to fill that void to the satisfaction of all
concerned and do CPTI students a “solid.”  You’re going to like
this one.
_________________________________________________________________

The “Guaranteed” Investment
How many of you have heard ads for those “guaranteed” investment
products?  They claim you can invest $10,000, have your principal
guaranteed and also participate in the appreciation in the stock
market over the next seven years.

How can they do that?  Who, in his right mind, would guarantee
someone’s investment?  What have they been smoking?  Well, this
weekend I was listening to one of Larry McMillan’s very
interesting seminar CDs and I learned how it can be done.
Actually, it’s pretty clever.

First, a major financial institution decides to create a new
product.  They establish a cap limit of, for example, $1,000,000.
They assign a share value of $10 to 100,000 shares.  Their sales
force (representatives) contacts their clients and sell the
concept to generate the $1,000,000.

It’s a pretty easy concept to sell.  Everyone wants security as
well as the opportunity to make money.  Here it is – all wrapped
up in a nice neat little package.

What’s Inside The Package?
Now, the institution has $1,000,000.  They then go out and
purchase $1,000,000 worth of zero coupon bonds that will come due
in seven years.  With zero coupon Treasury bonds (also called
“strips”), the investor buys the bonds at a discount.  At
maturity, they receive the full face value of the bond.  The
prevailing interest rate at the time the bonds are purchased
determines the price of the bond.  The higher the interest rate,
the less paid up front for the bond.  At current rates, a $1,000
seven-year zero coupon bond will cost about $740.

The institution has now spent $740,000 of the million it raised.
With the $240,000 that remains, the institution buys far out calls
on the S&P 500 (SPX).   The strike price, from which profits will
be measured, is where the S&P is trading the date the calls are
purchased.  This measuring point will remain the same for the
entire seven-year duration.

Institutions have their own rules regarding the products they
offer.  Some offer 100% participation in the S&P gains.  Others
may only offer 80%.  Some products may not be structured on the
S&P 500.  They may use the QQQs or the Russell 200 Index – the
choices are endless – whatever is written into the charter.

Some institutions will just sit back and let the S&P do its thing,
while other products may allow, or encourage, active trading
within specified parameters.

Once the product is created, shares can be bought and/or sold on
the open market at any time during the seven years.  Of course,
you’re only guaranteed your investment back in full if you hold
until maturity.  There are complex formulas created to determine
the value of the shares along the way – taking into consideration
the time remaining until maturity and the trading profits
accumulated to that point.

Risks vs. Rewards
By participating in such a program, technically, the upside is
unlimited – limited only by the market movement and the trading
skills of those responsible.  Where’s the risk?  It’s more of an
“opportunity” risk than anything else.  If the market tanks and no
income is generated, you’re still guaranteed the return of your
initial investment.  However, if you put your money in CDs for
seven years, you would have more to show for the experience – not
a lot, but more.

It was Will Rogers who said “I’m more concerned about the return
OF my money as I am about the return ON my investment.”  Maybe
there is a way to get the best of both worlds.

So What’s Stopping Us?
Can this be done by individuals?  Sure!  Most CPTI students have
modest trading accounts, but I know there are some heavy hitters
out there.  Plus, some CPTI traders only use a small portion of
their assets for option trading because they don’t want to risk
the bulk of their assets – and justifiably so.

This may potentially, be a solution for conservative traders, who
have a longer time horizon and who, for safety reasons, have been
reluctant to put their money to work.

Getting “Hypothetical”
Let’s create a hypothetical hedge fund that used the same criteria
as I described above.  I like round numbers.  We’ll use the
$100,000 figure.   But, we’re going to have the flexibility to
trade the extra $26,000 however we want.  We won’t get carried
away, though.  We’re going to use conservative, money generating
strategies.

We’ll start our calculations (which will be “educational,” or
hypothetical,” or “imaginary” – to keep the lawyers happy) using
the closing prices as of Friday.  We’ll keep track of dollars
generated and will update monthly – or as needed.  We’ll call it
the “Zero-Plus” strategy (unless you have a better idea).

Putting It To Work
So, how are we going to put $26,000 to work?  What vehicle should
be choose to make our money?  For our example, I’m going to
suggest the OEX – for one reason.  It’s the only major index I can
find that currently has 2006 options.  There may be others out
there, but I haven’t found them yet.  So, with the OEX at 566.06,
lets:

Buy 3 OEX Jan. 2006 540 calls @ $81.00 = $24,300 debit
Sell 3 OEX March 2004 585 calls @ $3.10 = $930 credit

I selected the Jan. 2006 540 calls for two reasons.  a) it’s 26
points in the money which means that the delta is higher, and b)
the $81 price allows us to buy three contracts and use up most of
the $26,000 we had to spend.

How Aggressive Should We Be?
Good question.   It’s certainly a matter of personal preference.
Keep in mind that we have $100,000 in Zero Coupon bonds sitting in
our account and, guess what?  They’re, at the very least, 70%
marginable.  That means we can use those dollars to satisfy
maintenance requirements on credit spreads.  So, let’s start off
conservatively and put on a bull put spread well out of the money.

Sell 3 OEX March 2004 535 puts, and
Buy 3 OEX March 2004 525 puts
Our net credit is $1.10 (x 3 contracts = $330)

Ultimately, we expect the market to go up over the next seven
years, but we may as well take in a few bucks while we’re waiting.
Now we sit back and put up our feet as we watch our time horizon
and brokerage account grow – a little at a time – until we’re
ready to use it.
______________________________________________________________

FEBRUARY CPTI POSITIONS

Position #1 -- OEX – Credit Spread Boogie – 566.06
With the market trending, let's not fight the tape.  We're going
to establish a bull put spread, take in some premium, and ride the
wave into shore.
We sold 3 OEX February 565 puts, and bought 3 OEX February 540
puts for a total credit of $6.80 (x 3 contracts = $2,040).
This strategy requires $25 x 3 contracts = $7,500.  We're only
trading three contracts because, if the market reverses
significantly, it might become necessary to close the bull put
spread and establish a bear call spread that may be wider and
would require more contracts.  We need to preserve our money for a
potential maintenance requirement.

Position #2 – MNX (mini NDX index) – Iron Condor – 149.90
This index seems substantially safer than the highly volatile NDX.
We going put on an Iron Condor with limited exposure.  Because the
market is trending, we skewed the strike prices slightly so that
we have a little more cushion on the upside.  The market turned
down and that “skew” might come back to bit us in the ass, but the
market popped up off the 50-day MA.

We sold 10 MNX February 165 calls and bought 10 MNX February 170
calls for a net credit of $.40 x 10 contracts = $400.  Then we
sold 20 MNX February 150 puts and bought 20 MNX February 147.50
puts for a net credit of $.50 x 20 contracts = $1,000.  Our total
credit of $1,400.  Our maximum profit range is 150 to 165.  Our
exposure is only $3,600 ($5,000 less $1,400).  Maximum profit:
$1,400.

Position #3 – XAU (Gold/Silver Index) – Iron Condor -- $100.90
This is a low risk and relatively safe play with a wide range.  We
sold 10 XAU February 90 puts and bought 10 XAU February 85 puts
for a net credit of about $.70 (x 10 contracts = $700).  Then we
sold 10 XAU February 110 calls and bought 10 XAU February 115
calls for a net credit of about $.45 (x 10 contracts = $450).  Our
maximum profit range is $90 to $110 – a 20-point range.  Our
exposure is $3,850 ($5,000 less $1,150).  Maximum profit: $1,150.

Position #4 – OSX (Oil Service Sector Index) - $99.72
We're being cautious again here.  We reduced our potential income
by expanding our safety range.
We sold 10 OSX February 105 calls and bought 10 OSX February 110
calls for a net credit of about $.45.  Then we sold 10 OSX
February 90 puts and bought 10 OSX February 85 puts for a net
credit of about $.75.  Our total net credit of about $1.20 (x 10 =
$1,200).  Our maximum profit range is 90 to 105 – a 15-point
range.  Our exposure is $3,800 ($5,000 less $1,200).  Maximum
profit: $1,200.
_____________________________________________________________

ONGOING POSITION
QQQ ITM Strangle – Ongoing Long Term -- $37.13
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We're
going to make money by selling near term puts and calls every
month.  Here's what we've done so far:
October: Oct. $33 puts and Oct. $34 calls – credit of $1,900.
November: Nov. $34 puts and calls – credit of $1,150.
December: Dec. $34 puts and calls – credit of $1,500.
January: Jan. $34 puts and calls – credit of $850.
February: Feb. $34 calls and $36 puts – credit of $750.
Total credit: $6,150.

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

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational plays or our strategies?  To find
past CPTI (Mike Parnos) articles, look under "Education" on the OI
home page and click on "Traders Corner."  They're waiting for you
24/7.
____________________________________________________________

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

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

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


**************
FUTURES CORNER
**************

An Article Articulating Articulation Points
By Francis Chadwick

There is not much written about median lines (usually called
“Andrews Pitchfork” in most charting software) and not many
traders get to the point of being able to use median lines
effectively.  Surprisingly, even though these lines are based on
the basic laws of physics, those with higher education and
training in physics and mathematics “get a headache” (and this is
an actual quote) looking at median line charts.

On the one hand, the market makes “measured moves” in balance and
symmetry (which is where median lines come in), and yet the median
lines are “anchored” off jagged, zig-zagging lines.  The zigs and
zags form “pivots” or “pivot points” – but they are not the kind
that most futures traders think off in terms of the levels of
support and resistance.  In this case, pivot points are the
“turning points” or “articulation points,” much like your elbow.
Point your elbow toward the heavens and you have a “bearish
pivot.”  Point your elbow toward the ground and you have yourself
a “bullish pivot.”  With futures trading, these are sometimes
“panic pivots” because the ES is the ultimate reflection of the
herd mentality.  Those who try to trade the S&P (ES or SP) with
purely trending methodologies are and will be severely frustrated.

Figure 1 (below) may look confusing and “give you a massive
headache,” but once you train your eye (and mind) to see the
turning points and where to anchor the median lines it will not be
confusing at all.  This is not like learning to read “sheet music”
so don’t pretend like it’s a big deal.  Even if you learn to read
sheet music you’ll probably become a “starving musician” but
leaning to use median lines will be better than “music to your
ears.”  You just have to trust us on this one!

The market may get “out of whack” repeatedly, but eventually it
has to get back into balance whether in the long term or the short
term, whether sooner or later.  Median lines show you not only
support and resistance, but give your trend lines, speed lines,
and even targets.  Why mess around with Gann lines (speed lines or
angles) and try to figure out what the speed of the market is or
is supposed to be when the slope of the median lines will tell
you?

Referring to Figure 1 (below) ML-R 1 (Median Line Resistance 1) is
a rally-back median line resistance confirmed by the overbought
CCI over 200 and the “predictive roll-over” at the tipping point
when price was near ES 1140.  Note also that you can draw the
median lines on the CCI (or other “high-wave” oscillators), and
that in this case CCI had “pushed” its way above the blue line of
the median line channel.  ML-R 2 (Median Line Resistance 2) is a
consolidation rally-back into a 3-day old median line that
preceded the drop (with two distinct drive downs) into the 2-week-
old lower median line support channel (labeled LML-S) – which had
given us a “fulcrum point” and target of 1127 from two weeks ago.
You can’t make this stuff up folks, but often it may look that
way!  Your name doesn’t have to be “Merlin” to figure it out
either.




Figure 1. ES (S&P 500 Emini Futures) 45 minute chart (with an 8-
day look-back) showing minor and major median lines.  Some of the
“controlling” median lines go back two weeks (see annotation notes
above and below).

On Thursday we had a “sell first hour rallies” set-up, and then a
“buy weakness” set-up (not an after the fact observation or
commentary either).   The “weakness” gave us another “test” of the
green line (LML-S) before price was once again “contained” inside
the major short-term channel and above the blue line labeled LML-S
2, which basically became a strong support area.  We also had a
wedging set-up marked off with the purple trend lines labeled TL-1
and TL-2 that was cleanly broken to the upside with increasing
volume and volume spikes of over 4000 contracts in two minutes
(see the volume “red-line” in Figure 3 below) in 5 separate bars
which sustained the “outlier” move to the 1130 projected target
(labeled PR, referring to “projected resistance”) area on the 2
minute chart and confirmed by the 45 minute chart (totally nailed
it). There was also a head and shoulders on the 2-minute chart
(see Figure 3 below), with the head peeking coyly one tick above
1130.  There was even a “flapping right arm” (final rally-back) to
1129, which preceded a “panic volume dump” and/or “shakeout/stop
run” back down to the original morning “value area” on the “market
profile” chart (price points where the majority of the trading
took place in a specified period).  Note also the blue line on CCI
labeled “CCI PR” referring to the projected resistance by using
the median line anchored back to the January 26 (Monday) outlier
spike day (on low volume), almost two weeks earlier.  Our
projected target for the week stands at 1140, and will be
“dictated” to a large extent by the “Employment Situation” reports
(non-farm payrolls, unemployment rate, average work week, and
hourly earnings) coming out on Friday 8:30 ET.




Figure 2.  SPX (S&P 500 Index) Weekly chart showing a projected
target (labeled PT) of 1175 on the week of March 21, 2004 if the
blue median line support (anchored from the October 2002 inverse
head and shoulders bottom) is held.  The green upper median line
(labeled UML) anchored from the week of 3/18/01 is the overhead
resistance area that gets lower every week.  We are using the SPX
as a “continuous contract” so we can go back 10 years (or more if
necessary).  In fact, the longest-term median line is anchored
back to 1994 and the next longest term is from 1998.




Figure 3.  ES (S&P 500 Emini futures) with the major median line
(labeled UML-R) anchored from the first hour and nailing the first
rally-back resistance target of 1126, which was broken around
13:15 ET with huge volume spikes labeled VS (see explanations
above also).  The blue line labeled NT ML refers to a new median
line trend which was established and this was also the “speed of
the market” which was the “balance” area after nice “market
inefficiency” (which we were able to exploit) that occurred with
the sudden influx of “outside paper” that created a short-term
“too much too soon” price burst.

It doesn’t matter what time frame you use if the market
methodology you use fits your personality and is valid and robust.
How you “see” the market is subjective, but the overt “market
structure” is objective.  Subjectivity comes in when you decide
where to anchor your median lines and which ones you deem to be
major and minor.  This just takes time, but not as much time as
learning to play the piano and read sheet music.  Not nearly as
much time!  And it’s a lot more profitable if you master it, and
master yourself in the process.  As with any “analysis technique,”
this is more than just TA or methodology-based exercises, it is
also a “market philosophy” of such concepts as “selling into
strength” and “buying into weakness.”  This takes a “lot of guts”
and is part of the Gann Frame methodology, but that’s whole new
area, and certainly outside the scope of this paper.  This is
going to sound opinionated, but you can’t “sell or short into
strength” if you don’t know how to master your emotions.  Apart
from emotions, you have to have targets, and the Gann Frame and/or
median lines will help you with that problem.  Master yourself,
master the market.


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The Option Investor Newsletter                   Sunday 02-08-2004
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Covered-Calls Fundamentals
Naked Puts: Success Basics!
Spreads/Straddles/Combos: A Good Excuse To Rally!


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*************
COVERED CALLS
*************

Trading Basics: Covered-Calls Fundamentals
By Mark Wnetrzak

The duty of every trader is to consider any profitable strategy
that is appropriate for their experience level and matches their
risk-reward tolerance.

Many of our readers find that writing in-the-money covered-calls
fits their criteria for a conservative, easy-to-manage investing
strategy.  Unfortunately, more aggressive traders often become
discouraged with covered-call writing because it limits their
upside potential and eventually, they seek ways to increase the
maximum return, but at the risk of increased downside exposure.

A frequent mistake is "legging-in" to the covered-call position.
For those of you unfamiliar with this method, it involves trading
the stock and option individually -- trying to pick the "bottom"
to buy the stock and the "top" to sell the calls -- the "perfect"
scenario.  Of course, there are problems with this approach.  What
happens if the stock doesn't hit your buy order or worse, it does,
but then continues to move lower?  What happens if the stock price
(after you have purchased it) remains relatively unchanged for an
extended period of time with little change in the option premium?
What will your exposure be then?  Does it outweigh your "potential"
gain?  As you can see "legging-in" to a covered-call position does
offer a higher potential yield but it also carries a greater risk
and obviously, it can be difficult to implement.

A better strategy to use is the "buy-write" order, which involves
the purchase of the stock and the sale of the call simultaneously.
When placing an order for a buy-write, you are requesting to buy
the underlying shares and sell the (call) options for a specific
"net" cost, with both transactions occurring at exactly the same
time.  Since the cost basis is established prior to the trade, a
buy-write order is a useful method to initiate a new covered-call
position.  The exact phraseology is not important but a specific
"net-debit" must be given when the trade instructions are delivered
to the agent.  The broker will execute the order if the net-debit
can be achieved through any combination of stock and call-option
prices.

One of the advantages of this technique is that it prevents the
possibility of "slippage" during the position entry process when
the premium in the call option declines.  Slippage is generally
described as the cost of buying at the "ask" price and selling at
the "bid" price, but it also occurs in the time between the stock
purchase and the sale of the options in a covered-call position.
This problem happens frequently in the plays we offer as many are
opened in the first hour of trading (on Monday) after the week-end
edition of the newsletter is published.  If too many calls are sold
without any buying pressure, the bid premium drops quickly towards
intrinsic value and the position becomes unfavorable.  Traders who
attempt to "leg-in" to these plays (buying the stock with plans to
sell the call later) are sometimes surprised to see the previously
overvalued premiums disappear before they can write the options that
complete the position.

With our total-return concept, we try to minimize risk and strive
to obtain a consistent (low but favorable ) yield.  For those who
wants better returns, there are many methods available to enhance
the potential yield that don't have the disadvantages of legging-in
to the position.  One alternative is the sale of partial positions
using different strike prices and time frames.  Another popular
technique involves the systematic sale of options, where a trader
writes covered-calls incrementally as the stock price rises.  Of
course, an investor can also sell at-the-money or out-of-the-money
options if the market conditions suggest a predominantly bullish
trend.  What it all comes down to is adjusting the strategy to fit
your personal preference and then implementing it with disciplined
money management.  In reality, some of the hardest trades to make
are "selling for a loss" to preserve portfolio capital and "selling
for a smaller profit" even as the little greed-gremlin whispers $$$
in your ear.

Trade Wisely!


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

SUMMARY OF PREVIOUS CANDIDATES

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

Note:  Margin not used in calculations.

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

ZIXI    10.93   12.78  FEB 10.00  1.80    0.87*   6.9%
ACLS    12.60   12.59  FEB 12.50  0.65    0.55*   6.7%
TKLC    20.35   20.34  FEB 20.00  1.20    0.85*   6.4%
CNET    10.75   10.72  FEB 10.00  1.15    0.40*   6.0%
SIRI     3.15    2.80  FEB  2.50  0.80    0.15*   5.7%
VXGN    10.92   10.80  FEB 10.00  1.40    0.48*   5.5%
ALVR    13.09   13.39  FEB 12.50  1.45    0.86*   5.4%
ZIXI    14.67   12.78  FEB 12.50  2.70    0.53*   4.8%
NANO    20.14   19.64  FEB 17.50  3.20    0.56*   4.8%
IPXL    18.90   20.58  FEB 17.50  1.95    0.55*   4.7%
NEOL    19.10   18.73  FEB 17.50  2.30    0.70*   4.5%
TIVO    10.75   11.92  FEB 10.00  1.05    0.30*   4.5%
CREE    20.49   24.49  FEB 20.00  1.65    1.16*   4.5%
AFFX    31.23   29.75  FEB 30.00  2.35    0.87    4.4%
PAAS    16.10   15.55  FEB 15.00  1.95    0.85*   4.4%
CHINA   11.05   10.75  FEB 10.00  1.60    0.55*   4.2%
NANX    12.39   11.44  FEB 10.00  2.90    0.51*   3.9%
CLTK     8.54    7.86  FEB  7.50  1.35    0.31*   3.9%
SCMR     5.63    5.36  FEB  5.00  0.80    0.17*   3.8%
ATSN    10.90   11.60  FEB 10.00  1.30    0.40*   3.7%
SEAC    18.40   19.60  FEB 17.50  1.75    0.85*   3.7%
WEBM    10.93   10.62  FEB 10.00  1.25    0.32*   3.6%
LTXX    19.12   17.26  FEB 17.50  2.45    0.59    3.2%
GSF     27.77   26.81  FEB 27.50  1.35    0.39    1.6%
ADPT    10.50    9.28  FEB 10.00  1.10   -0.12    0.0%
CIEN     7.97    6.17  FEB  7.50  0.85   -0.95    0.0%

* Stock price is above the sold strike price.

Editor's Comments:

Is The Correction Over?

Inquiring minds want to know!  Or is the market merely offering a
second chance to exit "weak" positions?  The next few days should
offer some more clues.  Ciena (NASDAQ:CIEN) disappointed investors
this week with a revenue warning and the position will be shown
closed.  The stock is now testing the bottom of a 9-month trading
channel with the next support level near $4.50.  We will also show
Adaptec (NASDAQ:ADPT) closed next week as the current rebound is
offering a break-even exit.  As always, adjusting the position
by rolling forward and/or down is a viable solution as well.  Of
course, investors with a bullish outlook on the company and market
in general may decide to do nothing.  The watch list for next week
includes:  Zix (NASDAQ:ZIXI), Alvarion (NASDAQ:ALVR), Pan American
Silver (NASDAQ:PAAS), Chinadotcom (NASDAQ:CHINA), Nanophase Tech.
(NASDAQ:NANX), Celeritek (NASDAQ:CLTK) and GlobalSantaFe (NYSE:GSF).

Previously Closed: Centillum Communications (NASDAQ:CTLM).

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

Attention Readers: We are trying to determine which strategies are
most preferred by the subscribers of this newsletter, in order to
adjust our content to better meet your desires.  Please send us a
brief E-mail describing the techniques you utilize most: buying or
selling stocks, buying or selling options, covered-calls, credit
or debit spreads, calendar spreads, synthetic positions, straddles
and strangles, and any other combination strategies.

Thank You!

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

NEW COVERED-CALL CANDIDATES

Sequenced by Target Yield (monthly basis)
__________________________________________________________________

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

MXT     5.89  FEB  5.00  MXT BA  1.05  903    4.84  14   7.2%
ASIA    7.80  MAR  7.50  EUJ CU  0.90  179    6.90  42   6.3%
NEOL   18.73  FEB 17.50  UOE BW  1.70  887   17.03  14   5.9%
DDS    17.53  FEB 17.50  DDS BW  0.45  1334  17.08  14   5.3%
AKSY   10.87  FEB 10.00  KQK BB  1.10  620    9.77  14   5.1%
TIBX    7.95  MAR  7.50  PAV CU  0.90  549    7.05  42   4.6%
CNET   10.72  MAR 10.00  QKW CB  1.30  403    9.42  42   4.5%


Legend (for play description below)

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

__________________________________________________________________

MXT - Metris  $5.89  *** Lateral Trend ***

Metris Companies (NYSE:MXT) provide financial products and
services throughout the U.S.  Mextis' principal subsidiaries
are Direct Merchants Credit Card Bank, National Association
(Direct Merchants Bank), Metris Direct, Inc. and Metris
Receivables, Inc.  The company issues credit cards, and
thereby generates consumer loans through, Direct Merchants
Bank, which obtains information about prospective customers
from credit bureau information, as well as from other 3rd-party
sources including other companies' customer lists and databases.
Metris also offers consumers a variety of enhancement services
products, including credit protection products, membership
program products, warranty products, 3rd-party insurance and
list syndication products.  Metris has been in a trading range
for the last 6 months with a strong support area near $5.  The
recent rally offers a reasonable way to speculate on Metris'
future share price with a favorable cost basis.

FEB-5.00 MXT BA LB=1.05 OI=903 CB=4.84 DE=14 TY=7.2%


__________________________________________________________________

ASIA - AsiaInfo  $7.80  *** Lateral Trend: Part II ***

AsiaInfo Holdings (NASDAQ:ASIA) is a provider of telecommunications
network integration services and software solutions in China.  The
company's operations are organized as two strategic business units,
Communications Solutions and Operation Support System Solutions
(OSS).  The Communications Solutions business unit offers network,
service application, security and monitoring solutions.  The OSS
Solutions unit includes the AsiaInfo's highly scalable software,
which can automate a telecom carrier's key business processes such
as customer care and billing, order fulfillment and customer
relationship management.  ASIA conducts most of its operations
through two wholly owned subsidiaries, AsiaInfo Technologies (China)
and AsiaInfo Management Software.  AsiaInfo has been in a lateral
trend for the last 6 months.  Traders can use this play to profit
from the current trend with a cost basis near technical support.

MAR-7.50 EUJ CU LB=0.90 OI=179 CB=6.90 DE=42 TY=6.3%


__________________________________________________________________

NEOL - NeoPharm  $18.73  *** Trading Channel ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged
in the research, development and commercialization of drugs for
the treatment of various cancers.  The firm has built its drug
portfolio based on its novel proprietary technology platforms,
the proprietary NeoLipid liposomal drug delivery system and a
tumor-targeting toxin platform.  NeoPharm has several promising
compounds in various stages of development.  The company's lead
compound is IL13-PE38, a tumor-targeting toxin being developed
as a treatment for glioblastoma multiforme, a deadly form of
brain cancer.  NeoPharm has formed a trading channel over the
last 10 months and this position offers a favorable reward with
a cost basis near support.

FEB-17.50 UOE BW LB=1.70 OI=887 CB=17.03 DE=14 TY=5.9%


__________________________________________________________________

DDS - Dillard's  $17.53  *** Rally Mode! ***

Dillard's (NYSE:DDS) operates retail department stores located
primarily in the southwestern, southeastern and Midwestern U.S.
The primary product categories of the their stores are cosmetics,
women's & juniors' clothing, children's clothing, men's clothing
and accessories, shoes, accessories, lingerie and home products.
Dillard's emphasizes its private brand merchandise in order to
build penetration and recognition of those brands.  Dillard's
continues to rally off last year's low and investors who retain
a bullish outlook on the company can use this low risk position
to speculate on Dillard's future.

FEB-17.50 DDS BW LB=0.45 OI=1334 CB=17.08 DE=14 TY=5.3%


__________________________________________________________________

AKSY - Aksys  $10.87  *** Bottom Fishing ***

Aksys (NASDAQ:AKSY) provides hemodialysis products and services
for patients suffering from end-stage renal disease (ESRD),
commonly known as chronic kidney failure.  The company has
developed an automated personal hemodialysis system, known as
the Aksys Personal Hemodialysis System (the PHD System), which
is designed to enable patients to perform frequent hemodialysis
at alternate sites, such as their own homes.  Aksys has been
forging a Stage I base for several months with strong support
around $9.  The recent rally on heavy volume bodes well for the
future and this position offers a reasonable reward at the risk
of owning AKSY for less than $10.

FEB-10.00 KQK BB LB=1.10 OI=620 CB=9.77 DE=14 TY=5.1%


__________________________________________________________________

TIBX - TIBCO  $7.95  *** Breaking Out? ***

TIBCO Software (NASDAQ:TIBX) is engaged in the development and
marketing of a suite of software products that enables businesses
to link internal operations, business partners and customer
channels through the real-time distribution of information.
The company's products are marketed and sold as part of the
TIBCO ActiveEnterprise standards-based platform for real-time
business.  TIBCO ActiveEnterprise is a comprehensive set of
solutions comprised of three categories of software: business
optimization software, business integration software and
enterprise backbone software.  All of their products can be
sold individually to solve specific technical challenges, but
the emphasis of its product development and sales efforts is
the creation of products that interoperate seamlessly and can
be sold together as a complete solution to business problems.
TIBCO also provides its customers implementation services,
on-site support, consulting and training.  TIBCO has rallied
above near-term resistance near $6.50 and appears to be ready to
resume its uptrend.  Investors can use this position to speculate
on that outcome in a conservative manner.

MAR-7.50 PAV CU LB=0.90 OI=549 CB=7.05 DE=42 TY=4.6%


__________________________________________________________________

CNET - CNET Networks  $10.72  *** Next Leg Higher? ***

CNET Networks (NASDAQ:CNET), a global media company informing
and connecting buyers, users, and sellers of technology, produces
a branded, global Internet network, print publications and a
technology product database for both businesses and individuals.
Using unbiased content as its platform, the company has built
marketplaces for technology and consumer products, and, through
its CNET Channel division, is a provider of standardized product
information.  CNET obviously pleased investors this week as the
stock exploded higher on Friday to a 2-year high.  Our outlook
is also bullish, due to the recent technical strength and this
position offers a reasonable cost basis in the issue.  Target
shooting a lower "net-debit" will increase the potential yield
and downside protection in the position.  CNET investors appear
to be pleased with the company's earnings as the stock has
rallied on strong volume this week.  This position offers a
reasonable cost basis for those who believe the bullish activity
will continue.

MAR-10.00 QKW CB LB=1.30 OI=403 CB=9.42 DE=42 TY=4.5%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Supplemental Covered Calls
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

Sequenced by Target Yield (monthly basis)
__________________________________________________________________

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

ZHNE    5.38  FEB  5.00  QDJ BA  0.60  25     4.78  14  10.0%
CCI    12.57  FEB 12.50  CCI BV  0.55  1148  12.02  14   8.7%
MSPD   10.15  FEB 10.00  MND BB  0.50  1464   9.65  14   7.9%
ACLS   12.59  FEB 12.50  ULS BV  0.50  605   12.09  14   7.4%
VSAT   25.04  FEB 25.00  IQS BE  0.75  40    24.29  14   6.4%
CLZR   23.12  FEB 22.50  UKZ BX  1.25  347   21.87  14   6.3%
AEOS   20.48  FEB 20.00  AQU BD  0.95  1418  19.53  14   5.2%
NANO   19.64  MAR 17.50  QNK CW  3.20  25    16.44  42   4.7%
IBIS   13.94  FEB 12.50  UIB BV  1.70  1015  12.24  14   4.6%
WEBM   10.62  FEB 10.00  UUW BB  0.80  684    9.82  14   4.0%


**********
NAKED-PUTS
**********

Options 101: Success Basics!
By Ray Cummins

All experienced traders agree on the wisdom of diversification.

Those who participate in the financial markets know a diversified
group of investments is one of the fundamental prerequisites to
long-term success.  By spreading out across industries, you can
avoid the agony of violent swings in a particular stock or sector
and limit losses when unexpected events occur.  This reality is
the main reason trader who have limited capital should divide
their portfolio efficiently among a few positions in different
industry groups or market segments.  When your capital assets are
small, you must manage the collateral effectively and it has been
our experience that most of the issues in a specific sector will
perform in a similar manner.  For example, if one or two of the
primary companies in a given industry move in a bearish manner,
the rest of the stocks in that segment or category also have a
high probability of performing poorly.  In contrast, when a stock
performs well, the odds are high that the rest of the issues in
that sector will react in a comparable manner.  Unfortunately,
new traders usually have little margin (capital) for error in
their portfolios and when they put all their eggs in one basket,
the result is rarely favorable.

Choosing issues in a variety of industries, as well as different
growth categories, can help you take advantage of a wider range
of trading opportunities.  In the current economic environment,
many experts believe that small-cap firms offer the best growth
opportunities because they generally have innovative products
and services.  At the same time, they may have higher share-price
volatility and the associated liquidity risks because of their
limited stature and relative instability.  Those who endorse
"value" investing would recommend owning under-priced stocks of
well-established businesses that have a faster growth rate than
large companies but also more stability than small companies.  A
blue-chip portfolio would focus primarily on the stocks of large
companies that, because of their asset size, tend to be the most
stable.  Another area of diversification includes the geographic
component; buying stocks of companies located both in the United
States and in other countries and regions around the globe.  The
best combination of these groups would blend expanding companies
priced below their long-term valuation with strong potential for
above-average earnings growth in the future.

Some traders believe that diverse portfolios should also contain
a few issues which will react differently to changes in economic
conditions or the outlook for a specific sector or industry.  We
often identify these candidates as "hedge" positions and one way
to illustrate the concept involves the oil sector.  A conservative
investor might hedge a portfolio by initiating positions in both
an electric utility and a major oil service company.  Higher fuel
costs will have negative impact on the utility, but will boost
the value of the oil service issue.  Obviously, the reverse is
also true; lower oil prices will impact the oil service company
negatively while improving the utility's outlook.  This strategy
not only protects your portfolio against unexpected downturns in
a particular industry, it also enables you to take greater risks
with a few positions, which in some cases can increase your total
return.

Regardless of the manner in which you diversify your portfolio,
it's important to remember that the activity is more than just a
one-time event.  In all cases, you should follow a precise and
well-developed trading plan using a variety of favorable issues
in a range of sectors, and you must make adjustments in a timely
manner when unexpected events occur.

Good Luck!

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

SUMMARY OF PREVIOUS CANDIDATES

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

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

NGEN    12.59   10.91  FEB 10.00  0.30    0.30*   4.5%  15.4%
ADAT    16.80   16.14  FEB 12.50  0.40    0.40*   3.6%  11.6%
RMBS    31.16   30.29  FEB 25.00  0.45    0.45*   2.7%   9.7%
ADAT    16.95   16.14  FEB 12.50  0.40    0.40*   3.0%   9.4%
SEPR    27.99   26.28  FEB 22.50  0.65    0.65*   2.7%   9.1%
XING    12.80   12.49  FEB 10.00  0.35    0.35*   2.6%   8.7%
IMCL    43.41   40.80  FEB 35.00  0.75    0.75*   2.4%   8.4%
NEOL    18.26   18.73  FEB 15.00  0.40    0.40*   2.5%   8.1%
INSP    34.15   33.86  FEB 30.00  0.55    0.55*   2.7%   7.9%
OPWV    15.18   14.86  FEB 12.50  0.40    0.40*   2.4%   7.6%
PMCS    23.80   21.54  FEB 20.00  0.50    0.50*   2.3%   7.2%
SEPR    27.25   26.28  FEB 22.50  0.65    0.65*   2.2%   6.9%
ASKJ    23.83   22.82  FEB 20.00  0.60    0.60*   2.2%   6.9%
SINA    45.69   42.51  FEB 35.00  0.45    0.45*   1.9%   6.8%
MU      16.11   16.15  FEB 15.00  0.25    0.25*   2.5%   6.5%
IDCC    24.36   24.13  FEB 20.00  0.25    0.25*   1.8%   6.4%
BLTI    21.14   19.35  FEB 17.50  0.30    0.30*   1.9%   6.4%
SPRT    16.40   12.98  FEB 12.50  0.25    0.25*   1.8%   6.3%
NKTR    17.12   18.40  FEB 15.00  0.45    0.45*   2.2%   6.3%
IDCC    24.46   24.13  FEB 20.00  0.50    0.50*   1.9%   6.2%
RMBS    34.60   30.29  FEB 25.00  0.50    0.50*   1.8%   6.0%
ERICY   23.01   26.77  FEB 20.00  0.25    0.25*   1.8%   5.6%
JNPR    22.00   29.47  FEB 20.00  0.55    0.55*   2.0%   5.4%
AFFX    28.29   29.75  FEB 25.00  0.50    0.50*   1.8%   5.2%
AFFX    28.40   29.75  FEB 25.00  0.40    0.40*   1.8%   5.2%
RDWR    30.73   24.00  FEB 25.00  0.35   -0.65    0.0%   0.0%
ATRS    37.40   27.31  FEB 30.00  0.45   -2.24    0.0%   0.0% *

* Stock price is above the sold strike price.

Editor's Comments:

A Timely Rebound!

Stocks bounced "right on cue" Friday with the trend in the NASDAQ
Composite and the Russell 2000 Index reversing exactly at their
respective 50-DMAs.  Chart watchers were fervently waiting for
this key test to determine the intermediate direction of equities
and they responded with a clear-cut forecast: range-bound!  Yes,
most analysts say the market will trade between the 2004 peaks and
valleys in the coming month with no real progress until the next
period of profit warnings rolls around.  Actually, that's a great
outlook for traders who sell "premium" and with earnings season
coming to an end, it should be easier to take advantage of the
volatility without the concern of a "gap-down" in the underlying
issue.  Along those lines, traders who did not run for the exits
during the post-earnings slump in Altiris (NASDAQ:ATRS) were left
grieving their inactivity at the end of the week as the issue fell
another $5 in only three sessions.  Experienced traders would have
closed the position on Tuesday, or possibly as late as Wednesday
morning, while it was still profitable.  Radware (NASDAQ:RDWR) is
now among the ranks of the "early-exit" candidates and Supportsoft
(NASDAQ:SPRT), PMC-Sierra (NASDAQ:PMCS), Biolase (NASDAQ:BLTI) and
Nanogen (NASDAQ:NGEN) remain on the "watch" list.

Positions Previously Closed: Wireless Facilities (NASDAQ:WFII),
United Therapeutics (NASDAQ:UTHR) and Retek (NASDAQ:RETK), which
is currently profitable.

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

Attention Readers: We are trying to determine which strategies are
most preferred by the subscribers of this newsletter, in order to
adjust our content to better meet your desires.  Please send us a
brief E-mail describing the techniques you utilize most: buying or
selling stocks, buying or selling options, covered-calls, credit
or debit spreads, calendar spreads, synthetic positions, straddles
and strangles, and any other combination strategies.

Thank You!

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

WARNING: THE RISK IN SELLING NAKED 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.


MARGIN REQUIREMENTS

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

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

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

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


NEW NAKED-PUT CANDIDATES

Sequenced by Maximum Yield (monthly basis)
__________________________________________________________________

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

AZR    23.35  FEB 22.50  AZR NX 0.60 2600 21.90  14   6.0%  14.3%
LSCP   19.53  FEB 17.50  LXQ NW 0.40 2    17.10  14   5.1%  14.1%
NVDA   22.76  FEB 20.00  UVA ND 0.30 3621 19.70  14   3.3%   9.8%
AMR    16.05  FEB 15.00  AMR NC 0.25 6047 14.75  14   3.7%   9.7%
TER    26.77  FEB 25.00  TER NE 0.40 1789 24.60  14   3.5%   9.3%
ASKJ   22.82  FEB 20.00  AUK ND 0.25 1591 19.75  14   2.8%   8.3%
BLUD   23.52  FEB 22.50  QMQ NX 0.25 10   22.25  14   2.4%   6.3%


Legend (for play descriptions below)

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

__________________________________________________________________

AZR - Aztar  $23.35  *** Hot Sector! ***

Aztar (NYSE:AZR) is a publicly traded company that operates the
Tropicana Casino and Resort in Atlantic City, New Jersey; the
Tropicana Resort and Casino in Las Vegas, Nevada; the Ramada
Express Hotel and Casino in Laughlin; Nevada, the Casino Aztar
in Caruthersville, Missouri; and Casino Aztar in Evansville,
Indiana.  Aztar is an experienced developer and operator of
casinos that provide a gaming environment.  Each of its casinos
is designed and operated to serve the unique demographics of
its particular market.  Gaming stocks are "hot" and AZR appears
to be setting up for a test of its all-time high near $25.  The
company's earnings, due out next week, will determine the trend
in the coming weeks and traders can speculate on the quarterly
report with this position.

FEB-22.50 AZR NX LB=0.60 OI=2600 CB=21.90 DE=14 TY=6.0% MY=14.3%


__________________________________________________________________

LSCP - Laserscope  $19.53  *** Entry Point? ***

Laserscope (NASDAQ:LSCP) designs, manufactures, sells and services,
on a worldwide basis, an advanced line of medical laser systems and
related energy devices for the medical office, outpatient surgical
center and hospital markets.  The firm pioneered development and
commercialization of lasers and advanced fiber-optic devices for a
variety of applications.  The company's product portfolio consists
of more than 150 medical laser systems and related energy delivery
devices.  The firm's primary medical markets include dermatology,
aesthetic surgery and urology.  Its secondary markets include ear,
nose & throat surgery, general surgery, gynecology, photo-dynamic
therapy and other surgical specialties.  On Friday, the firm said
it will introduce the Gemini Dual-Wavelength Laser System at the
American Academy of Dermatology's Annual Meeting next week.  The
Gemini system, which is approved for various clinical applications,
is awaiting clearance for treatment of acne, wrinkle reduction and
permanent hair reduction on all skin types.  Investors who like the
outlook for the company can establish a conservative cost basis in
its stock with this position.

FEB-17.50 LXQ NW LB=0.40 OI=2 CB=17.10 DE=14 TY=5.1% MY=14.1%


__________________________________________________________________

NVDA - Nvidia  $22.76  *** Earnings Speculation Only! ***

Nvidia (NASDAQ:NVDA) designs, develops and markets graphics and
media communication processors and related software for personal
computers (PCs), workstations and digital entertainment platforms.
The company provides an architecturally compatible top-to-bottom
family of unique, performance 3-D graphics processors and graphics
processing units that set the standard for performance, quality
and features for a broad range of desktop PCs.  Nvidia's graphics
processors are used for a wide variety of applications, including
games, digital image editing, business productivity, the Internet
and industrial design.  Its graphics processors are designed to be
architecturally compatible backward and forward between computer
generations, giving its original equipment manufacturers, end users
and other customers a low cost of ownership.  Nvidia will announce
its financial results for the fourth quarter and the fiscal year on
February 12, 2004, after the market close.  Traders can speculate
on the content of the quarterly report with this position.

FEB-20.00 UVA ND LB=0.30 OI=3621 CB=19.70 DE=14 TY=3.3% MY=9.8%


__________________________________________________________________

AMR - AMR Corporation  $16.05  *** Airline Sector ***

AMR Corporation (NYSE:AMR) is principally engaged in the airline
industry and its primary subsidiary is American Airlines, which
together with its wholly owned subsidiary TWA Airlines, operates
as a scheduled passenger airline.  American provides scheduled
jet service to more than 150 destinations across North America,
the Caribbean, Latin America, Europe and the Pacific.  American
is also a global airfreight carrier, providing various freight
and mail services to shippers throughout its system.  AMR's other
subsidiaries include AMR Eagle, which owns two regional airlines,
and AMR Investment Services, which handles the investments and
oversight of the company's assets.  Airline stocks closed higher
on Friday and the sector appears to be recovering along with the
economy.  Investors who want to diversify their portfolio with a
position in the airline industry should consider this position.

FEB-15.00 AMR NC LB=0.25 OI=6047 CB=14.75 DE=14 TY=3.7% MY=9.7%


__________________________________________________________________

TER - Teradyne  $26.77  *** The Bullish Trend Resumes! ***

Teradyne (NYSE:TER) is a worldwide supplier of automatic test
equipment, high-performance interconnection systems and electronic
manufacturing services.  The company's automatic test equipment
products include Semiconductor Test Systems, Circuit Board Test
and Inspection Systems and Broadband Test Systems.  Teradyne's
interconnection systems products and services (Connection Systems)
include high-bandwidth backplane assemblies and other associated
connectors used in electronic systems and electronic manufacturing
services of assemblies that include its backplanes and connectors.
TER shares rebound Friday in tandem with the chip-sector rally and
the issue appears poised to move higher in the coming sessions.
Traders who believe the bullish trend in semiconductor-equipment
stocks will resume can profit from that outcome with this position.

FEB-25.00 TER NE LB=0.40 OI=1789 CB=24.60 DE=14 TY=3.5% MY=9.3%


__________________________________________________________________

ASKJ - Ask Jeeves  $22.82  *** On The Rebound! ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search,
providing consumers with authoritative and fast ways to find
relevant information to their everyday searches.  Ask Jeeves
deploys its search technologies on Ask Jeeves (Ask.com and
Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com).
In addition, to its internet sites, Ask Jeeves syndicates its
monetized search technology and advertising units to a network
of affiliate partners.  The company is based in Emeryville,
California, with offices in New York, Boston, New Jersey, Los
Angeles, London and Dublin.  On Friday, ASKJ spiked higher in
conjunction with the rebound in technology stocks and the move
suggests an end to the recent consolidation pattern.  Traders
can speculate on the issue's near-term performance with this
position.

FEB-20.00 AUK ND LB=0.25 OI=1591 CB=19.75 DE=14 TY=2.8% MY=8.3%


__________________________________________________________________

BLUD - Immucor  $23.52  *** You Can't Live Without BLUD! ***

Immucor (NASDAQ:BLUD) develops, manufactures and sells a complete
line of reagents and automated systems used primarily by hospitals,
clinical laboratories and blood banks in a number of tests performed
to detect and identify certain properties of the cell and serum
components of human blood prior to blood transfusion.  Immucor also
markets a complete family of automated instrumentation for all of
their market segments.  During the past year, the company resolved
the remaining performance issues relating to its ABS2000 instrument
and launched new software for the product.  The company has recently
submitted the 510(k) pre-market notification submission for its new
"Galileo" instrument to the U.S. Food and Drug Administration.  In
addition, Immucor replaced Concerto Software in the S&P Small-Cap
600 after the close of trading Friday, suggesting additional buying
pressure from institutions in the coming weeks.

FEB-22.50 QMQ NX LB=0.25 OI=10 CB=22.25 DE=14 TY=2.4% MY=6.3%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Supplemental Naked Puts
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

Sequenced by Maximum Yield (monthly basis)
__________________________________________________________________

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

QLTI   23.35  FEB 22.50  QTL NX 0.65 160  21.85  14   6.5%  15.5%
NSIT   22.64  FEB 22.50  QNT NX 0.65 2    21.85  14   6.5%  14.8%
ACF    17.76  FEB 17.50  ACF NW 0.50 2207 17.00  14   6.4%  14.8%
AV     17.63  FEB 17.50   AV NW 0.50 1314 17.00  14   6.4%  14.6%
MU     16.15  FEB 16.00   MU NQ 0.45 6304 15.55  14   6.3%  14.5%
TKLC   20.34  FEB 20.00   KQ ND 0.55 46   19.45  14   6.1%  14.3%
ARRS   10.30  FEB 10.00  AQC NB 0.25 98    9.75  14   5.6%  13.3%
ABTL   12.93  FEB 12.50  BCU NV 0.30 177  12.20  14   5.3%  12.9%
GNTA   13.70  FEB 12.50  GJU NV 0.25 4254 12.25  14   4.4%  12.0%

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

SEE DISCLAIMER IN SECTION ONE

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


************************
SPREADS/STRADDLES/COMBOS
************************

A Good Excuse To Rally!
By Ray Cummins

U.S. equities soared Friday in spite of a tepid jobs report after
analysts suggested the data would delay anti-inflationary measures
by the Fed.

The Dow Industrial Average closed up 97 points at 10,593 with AT&T
(NYSE:T), Caterpillar (NYSE:CAT), Citigroup (NYSE:C), and Wal-Mart
(NYSE:WMT) leading the blue-chip group higher.  The NASDAQ soared
44 points to 2,064, its largest one-day gain since early November,
as semiconductor issues bolstered the technology segment.  The S&P
500 Index added 14 points to finish at 1,142, with homebuilding,
casino, aluminum, consumer finance, biotech, airline, and hospital
shares among the best performers.  Volume was average with 1.46
billion shares swapped on the New York Stock Exchange, while 1.85
billion shares changed hands on the NASDAQ.  Advancers outpaced
decliners by almost a 3 to 1 margin on both the Big Board and the
technology exchange.  The bond market powered higher amid a belief
that the Federal Reserve will hold rates at the current levels for
some time.  The 10-year note ended the day near its high, up 21/32
with a yield of 4.08%.

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

Attention Readers: We are trying to determine which strategies are
most preferred by the subscribers of this newsletter, in order to
adjust our content to better meet your desires.  Please send us a
brief E-mail describing the techniques you utilize most: buying or
selling stocks, buying or selling options, covered-calls, credit
or debit spreads, calendar spreads, synthetic positions, straddles
and strangles, and any other combination strategies.

Thank You!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 02/06/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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 or to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management, nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

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

PUT-CREDIT SPREADS

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

OHP     46.69   46.45   FEB   40  43   0.30  42.20   0.30   Open
NBR     44.11   43.97   FEB   38  40   0.30  39.70   0.30   Open
BIIB    43.19   43.50   FEB   35  40   0.55  39.45   0.55   Open
GENZ    54.26   54.79   FEB   48  50   0.30  49.70   0.30   Open
AVE     73.00   78.81   FEB   65  70   0.45  69.55   0.45   Open
CI      60.55   56.55   FEB   50  55   0.55  54.45   0.55   Open?
DNA     96.40   96.52   FEB   85  90   0.70  89.30   0.70   Open
ADI     47.85   48.04   FEB   40  45   0.60  44.40   0.60   Open
KOSP    51.00   53.43   FEB   40  45   0.50  44.50   0.50   Open
MSTR    62.40   62.08   FEB   50  55   0.55  54.45   0.55   Open

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

Bullish positions in Cabot Micro (NASDAQ:CCMP) and Lam Research
(NASDAQ:LRCX) have previously been closed for small losses.  The
position in Cigna (NYSE:CI) is on the "watch" list.


CALL-CREDIT SPREADS

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

ADBE    37.12   38.92   FEB   45  40   0.55   40.55   0.55   Open
TBL     51.13   57.70   FEB   60  55   0.65   55.65  (2.05) Closed
ABT     43.25   44.37   FEB   48  45   0.25   45.25   0.25   Open
POWI    32.05   30.08   FEB   40  35   0.75   35.75   0.75   Open
SCHN    45.90   46.77   FEB   60  55   0.50   55.50   0.50   Open
OVTI    51.10   49.06   FEB   65  60   0.50   60.50   0.50   Open
VSEA    45.27   46.90   FEB   55  50   0.55   50.55   0.55   Open
AVCT    36.56   41.82   FEB   43  40   0.25   40.25  (1.57) Closed
OVTI    48.48   49.06   FEB   60  55   0.60   55.60   0.60   Open
LLY     68.04   72.85   FEB   75  70   0.60   70.60  (2.25) Closed

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

Positions in Timberland (NYSE:TBL), Avocent (NASDAQ:AVCT) and Eli
Lilly (NYSE:LLY) were closed early in the week (Tuesday/Wednesday)
for smaller-than-published losses.  Adobe Systems (NASDAQ:ADBE) is
on the "watch" list along with Varian Semiconductor (NASDAQ:VSEA)
and Abbott Labs (NYSE:ABT).


CALL-DEBIT SPREADS

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

BRCM    36.78  39.64   FEB   30  32   2.20   32.30  0.30   Open
CREE    25.85  24.49   FEB   20  22   2.20   22.20  0.30   Open?
TEVA    61.75  65.25   FEB   55  60   4.45   59.45  0.55   Open
INTU    50.37  48.99   FEB   45  47   2.20   47.20  0.30   Open

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


PUT-DEBIT SPREADS

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

MIK     41.42  47.00   FEB   47  45   2.20   45.30 (1.10) Closed
QLGC    47.16  45.16   FEB   55  50   4.20   55.80  0.80   Open
NVLS    39.89  33.73   FEB   45  42   2.20   42.80  0.30   Open
AVID    47.04  44.11   FEB   55  50   4.55   50.45  0.45   Open

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss

As noted last week, the position in Michael's Stores (NYSE:MIK)
was on the "watch" list and Thursday's close above the recent
resistance area near $45.50 was our exit signal in the bearish
position.  The loss reflected in the summary is based on the
closing prices on that day.


SYNTHETIC (BULLISH)

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

CEPH    52.50  53.04   FEB     60     45     0.10    1.00  Closed
MXT      6.04   5.89   MAR      7      5     0.10    0.00   Open

Previous positions in United Therapeutics (NASDAQ:UTHR) and Visx
(NYSE:EYE) achieved profitability, however they were eventually
closed to limit potential losses.  The same can now be said of
Cephalon (NASDAQ:CEPH), which was closed Friday after moving to
a recent low on heavy trading volume.


SYNTHETIC (BEARISH)

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

DD      42.72  44.45   MAR     40    45     0.00     0.00   Open

Dupont (NYSE:DD) surprised almost everyone with a bullish profit
report and subsequent rally.  However, the overhead supply near
the sold (call) strike at $45 is formidable and with any luck,
the issue will remain below that price for two more weeks.


CALENDAR & DIAGONAL SPREADS

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

FISV    38.28  37.97   MAR-35P   FEB-35P   0.30    0.50    Open
AMHC    27.08  28.32   MAY-30C   FEB-30C   1.25    1.50    Open
ABGX    15.60  15.57   APR-17C   FEB-17C   0.60    0.60    Open
SONS     8.54   7.81   JUL-10C   FEB-10C   1.00    0.90    Open

Fiserve (NASDAQ:FISV) offered a viable "early-exit" profit for
conservative traders when the issue fell below $36 on Thursday.
The American Healthways (NASDAQ:AMHC) calendar spread is also
profitable with over three months left in the position.


DEBIT STRADDLES

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

MATK    65.74  60.99   MAR    65    65     9.40    9.00    Open
BSC     84.10  83.00   MAR    85    85     5.25    6.10    Open
FRX     74.49  75.54   MAR    75    75     6.50    6.30    Open

New straddles in Nam Tai Electronics (NYSE:NTE) and Petrochina
(NYSE:PTR) were not available due to pre-market volatility on
the first trading day after the positions were offered.


CREDIT STRANGLES

No Open Positions


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 investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance, and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CREDIT SPREADS (BULLISH & BEARISH)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

__________________________________________________________________

CFC - Countrywide Financial  $85.54  *** Next Leg Up? ***

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

CFC - Countrywide Financial  $85.54

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-75.00  CFC-NO  OI=9717  ASK=$0.40
SELL PUT  FEB-80.00  CFC-NP  OI=4550  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$79.50


__________________________________________________________________

CERN - Cerner  $46.09  *** Technical Break-Out? ***

Cerner (NASDAQ:CERN) designs, develops, markets, installs, hosts
and supports software information technology and content solutions
for healthcare organizations and consumers.  The firm's solutions
give end users secure access to clinical, administrative and other
financial data in real-time.  Consumers retrieve appropriate care
information and educational resources via the Internet.  The firm
implements these solutions as stand-alone, combined or enterprise
wide systems.  Cerner solutions can be managed by the company's
clients or via an application outsourcing/hosting model.  Cerner
provides hosted solutions from its data center in Lee's Summit,
Missouri.

CERN - Cerner  $46.09

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-35.00  CQN-OG  OI=4185  ASK=$0.40
SELL PUT  MAR-40.00  CQN-OH  OI=2659  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$39.45


__________________________________________________________________

NFLX - Netflix  $76.63  *** 2 For 1 Split = Entry Point? ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.

NFLX - Netflix  $76.63

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-65.00  QNQ-NM  OI=7835  ASK=$0.35
SELL PUT  FEB-70.00  QNQ-NN  OI=4534  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$69.50


__________________________________________________________________

CYBX - Cyberonics  $27.04  *** In Need Of Depression Therapy! ***

Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and
markets the NeuroCybernetic Prosthesis, an implantable medical
device that delivers a novel therapy, Vagus Nerve Stimulation,
for treating epilepsy and debilitating neurological, psychiatric
diseases and other disorders.  In July 1997, the NCP System was
approved by the United States Food and Drug Administration for
commercial distribution in the United States for the treatment
of epilepsy, which the firm sells using its own employee-based
direct marketing organization.  In addition, the NCP System is
marketed internationally for the treatment of epilepsy (mainly
in Europe) using a combination of Cyberonics' own direct sales
organization and independent distributors.

CYBX - Cyberonics  $27.04

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-35.00  QAJ-CG  OI=2160  ASK=$0.35
SELL CALL  MAR-30.00  QAJ-CF  OI=47    BID=$0.90
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$30.60


__________________________________________________________________

SOHU - Sohu.com  $29.05  *** Stuck In A Range? ***

Sohu.com (NASDAQ:SOHU) is an Internet portal in China.  The firm's
portal consists of sophisticated Chinese language Web navigational
and search capabilities, 15 main content channels, Internet-based
communications and community services, and a unique platform for
e-commerce and short messaging services.  Each of the company's
interest-specific main channels contains multi-level sub-channels
that cover a range of topics; news, business, entertainment, sports
and careers.  The firm also offers free Web-based e-mail.  Sohu.com
offers a universal registration system, and the company's portal
attracts consumers and merchants alike.  One of the key features is
a proprietary Web navigational and search capabilities that reflects
the cultural characteristics and thinking and viewing habits of the
People's Republic of China Internet users.

SOHU - Sohu.com  $29.05

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-40.00  UZK-CH  OI=8152  ASK=$0.40
SELL CALL  MAR-35.00  UZK-CG  OI=3708  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$35.60



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
DEBIT SPREADS (BULLISH & BEARISH)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

__________________________________________________________________

KSS - Kohl's  $48.64  *** Revenge Play! ***

Kohl's (NYSE:KSS) operates family-oriented, specialty department
stores.  The company's stores sell moderately priced apparel,
shoes, accessories and home products targeted to middle-income
customers shopping for their families and homes.  Kohl's stores
have fewer departments than traditional, full-line department
stores, but offer customers assortments of merchandise displayed
in complete selections of styles, colors and sizes.  Since 1992,
the company has increased square footage an average of 22% per
year, expanding from 79 stores located in the Midwest to a total
of over 400 stores with a presence in six regions.  Of the stores
it operates, over 100 are take-over locations, which facilitated
the entry into several new markets, including Chicago, Illinois;
Detroit, Michigan; Ohio; Boston, Massachusetts; Philadelphia,
Pennsylvania; St. Louis, Missouri, and the New York region.

KSS - Kohl's  $48.64

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-40.00  KSS-CH  OI=370   ASK=$8.90
SELL CALL  MAR-45.00  KSS-CI  OI=3428  BID=$4.40
INITIAL NET-DEBIT TARGET=$4.40-$4.45
POTENTIAL PROFIT(max)=12% B/E=$44.45


__________________________________________________________________

SPF - Standard Pacific  $49.75  *** Next Leg Up? ***

Standard Pacific (NYSE:SPF) is a diversified builder of single
family homes.  The company constructs homes within a wide range
of prices and sizes targeting a variety of homebuyers.  Standard
Pacific has operations in major metropolitan areas in California,
Texas, Arizona, Colorado, Florida and the Carolinas and has built
homes for thousands of families during its history.  In addition
to its core homebuilding operations, the firm provides mortgage
financing and title services to its homebuyers through its many
subsidiaries and joint ventures: Family Lending Services, SPH
Mortgage, WRT Financial, Westfield Home Mortgage, Universal Land
Title of South Florida and SPH Title.

SPF - Standard Pacific  $49.75

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-40.00  SPF-CH  OI=331   ASK=$10.10
SELL CALL  MAR-45.00  SPF-CI  OI=2338  BID=$5.60
INITIAL NET-DEBIT TARGET=$4.40-$4.45
POTENTIAL PROFIT(max)=12% B/E=$44.45



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SYNTHETIC POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

__________________________________________________________________

SKX - Skechers U.S.A.  $8.94  *** Rally Mode! ***

Skechers U.S.A. (NYSE:SKX) designs and markets a collection of
branded contemporary footwear for men, women and children, as
well as a designer line for women branded separately.  The firm's
product line consists of over 1,500 styles that are organized in
11 distinct collections.  The company pursues its retail store
strategy through three integrated retail formats, the concept
store, the factory outlet store and the warehouse outlet store.
The company's Warehouse Outlet Stores are freestanding stores
located throughout the United States that enable it to liquidate
excess merchandise, discontinued lines and odd-size inventory in
a cost-efficient manner.

SKX - Skechers U.S.A.  $8.94

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  APR-10.00  SKX-DB  OI=81   ASK=$0.40
SELL PUT   APR-7.50   SKX-PU  OI=245  BID=$0.20
INITIAL NET-DEBIT TARGET=$0.05-$0.10
INITIAL TARGET PROFIT=$0.35-$0.50

Note: Using options, this position is similar to being long in
the stock.  The minimum initial margin/collateral requirement
for the sold (short) option is approximately $250 per contract.
However, do not initiate this position if you can not afford to
purchase the stock at the sold call strike price ($7.50).


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CALENDAR SPREADS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

__________________________________________________________________

MEDI - MedImmune  $25.14  *** Bottom-Fishing Only! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of
unique products on the market and a diverse product pipeline.  The
firm is focused on using advances in immunology and the biological
sciences to develop new products that address significantly unmet
medical needs in the areas of infectious disease, immune regulation
and cancer.  MedImmune actively markets Synagis, Ethyol and CytoGam
and FluMist.

MEDI - MedImmune  $25.14

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  JUN-20.00  MEQ-FD  OI=1214  ASK=$5.90
SELL CALL  MAR-25.00  MEQ-CE  OI=7367  BID=$1.55
INITIAL NET DEBIT TARGET=$4.30-$4.35
INITIAL TARGET PROFIT=$0.55-$0.60



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

__________________________________________________________________

LF - LeapFrog Enterprises  $29.75  *** Earnings Speculation! ***

LeapFrog Enterprises (NYSE:LF) is a designer, maker and marketer
of technology-based educational products and related proprietary
content, dedicated to making learning effective and engaging.  The
firm designs its products to help preschool through eighth grade
children learn age- and skill-appropriate subject matter, such as
phonics, reading, math, spelling, science, geography, history and
music.  The company has also extended its product line downward in
age to reach infants and toddlers and upward in age to reach high
school students.

LF - LeapFrog Enterprises  $29.75

PLAY (speculative - neutral/debit straddle):

BUY CALL  FEB-30.00  LF-BF  OI=5105  ASK=$1.55
BUY PUT   FEB-30.00  LF-NF  OI=4601  ASK=$1.75
INITIAL NET-DEBIT TARGET=3.10-$3.20
INITIAL TARGET PROFIT=$1.45-$2.10


__________________________________________________________________

MNST - Monster Worldwide  $25.13  *** Earnings Speculation! ***

Monster Worldwide (NASDAQ:MNST), formerly known as TMP Worldwide,
is a global provider of career solutions.  The company, through
its flagship Interactive product, Monster (www.monster.com), is
engaged in online career management.  Monster Worldwide is also a
worldwide recruitment advertising agency through its Advertising
and Communications division and a yellow pages advertising agency
through its Directional Marketing division.  On March 31, 2003,
the company completed the distribution of the common stock of
Hudson Highland Group, previously reported as the eResourcing and
Executive Search divisions of Monster Worldwide.

MNST - Monster Worldwide  $25.13

PLAY (speculative - neutral/debit straddle):

BUY CALL  FEB-25.00  BSQ-BE  OI=1778  ASK=$1.45
BUY PUT   FEB-25.00  BSQ-NE  OI=1834  ASK=$1.35
INITIAL NET-DEBIT TARGET=2.60-$2.70
INITIAL TARGET PROFIT=$1.10-$1.55


__________________________________________________________________

XMSR - XM Satellite Radio  $22.86  *** Earnings Speculation! ***

XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio
service with over 1,000,000 subscribers.  Broadcasting live daily
from Washington, DC, New York City and Nashville, Tennessee, at
the Country Music Hall of Fame, XM provides its loyal listeners
with 101 digital channels of choice: 70 music channels, more than
35 of them commercial-free, from hip hop to opera, classical to
country, bluegrass to blues; and 31 channels of premiere sports,
talk, comedy, kid's and entertainment programming.  Compact and
stylish XM satellite radio receivers for the home, the car, the
computer and even a "boom-box" for on the go are available from
retailers nationwide.  In addition, XM is available in more than
80 different 2004 car models.

XMSR - XM Satellite Radio  $22.86

PLAY (speculative - neutral/debit straddle):

BUY CALL  FEB-22.50  QSY-BX  OI=7832   ASK=$1.30
BUY PUT   FEB-22.50  QSY-NX  OI=17830  ASK=$0.95
INITIAL NET-DEBIT TARGET=2.10-$2.15
INITIAL TARGET PROFIT=$0.90-$1.55


__________________________________________________________________


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