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Daily Newsletter, Tuesday, 02/10/2004

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The Option Investor Newsletter                 Tuesday 02-10-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: The Fed Man Cometh
Futures Markets: Doji Day
Index Trader Wrap: Light volume ahead of Greenspan's testimony
Market Sentiment: Holding Pattern


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      02-10-2004           High     Low     Volume Advance/Decline
DJIA    10613.85 + 34.80 10626.66 10559.26 1.75 bln   2111/1129
NASDAQ   2075.33 + 14.80  2075.33  2060.44 1.66 bln   1988/1192
S&P 100   566.35 +  2.63   567.18   563.07   Totals   4099/2321
S&P 500  1145.54 +  5.73  1147.02  1138.70
W5000   11181.46 + 64.70 11183.26 11108.16
RUS 2000  592.83 +  7.34   592.85   584.69
DJ TRANS 2921.86 + 18.20  2921.86  2887.96
VIX        15.94 -  0.45    16.76    15.84
VXO (VIX-O)15.55 -  0.22    16.09    15.32
VXN        24.50 -  0.71    25.44    24.28
Total Volume 3,713M
Total UpVol  2,324M
Total DnVol  1,328M
Total Adv  4644
Total Dcl  2639
52wk Highs  628
52wk Lows     7
TRIN       1.14
NAZTRIN    0.86
PUT/CALL   0.72
************************************************************

The Fed Man Cometh

Investor positioning ahead of the Greenspan testimony tomorrow
kept the markets in a tight range but it could not keep them
from posting a decent gain for the day. The Dow closed back
over 10600 and the Nasdaq surged to 2075. Not a bad day when
you consider the fear some have of the Greenspan testimony.

Dow Chart - Daily


Nasdaq Chart - Daily



The morning started off slow despite the Chain Store Sales for
last week showing +1.8% growth. That was the strongest growth
since December and about six times the average for the last
five weeks at -0.3%. The year over year gains were +5.9% and
the strongest growth since November. The cold weather is
helping sell the remaining coats and sweaters and clearing
the shelves for the spring wardrobe change. The ICSC raised
its estimates for February to a range of +4.5% but it would
still be below the +5.7% level for January. With the tax
refunds beginning to flow soon the sales for late Feb and
all of March should be very strong.

The Richmond Fed Survey rose to 18 and up from 8 in December.
This was the second highest level in the last year with the
high being 20 last October. That October number was the
result of the hot 3Q carry over that pulled the numbers
back from negative territory. New Orders and Back Orders both
improved although the long term outlook slipped slightly.
New orders rose to 24 and the highest level since Jan-2003.
Back orders rose to 7 and the highest level since June-2000.
The employment component fell -8 points and back into negative
territory. Future employment expectations fell to a four-month
low. I guess the Richmond area did not benefit from any
of those "found" jobs from last week. Inflation pressures
increased with prices paid rising faster than prices received.
Raw materials prices continue to climb across the board with
energy prices spiking again today on news from OPEC. With
commodity prices rising and prices received still falling
due to excess capacity there is a profit squeeze in our
future. Bottom line here is increased production and output
but continued drop in hiring as manufacturers continue to
try and lower employee costs.

The news today was not earnings but fixation on what Greenspan
might say on Wednesday. Opinions were plentiful and differing.
The consensus was an optimistic outlook on the economy and
nobody expects any problems there. The cloud over the market
is the potential for any language that will suggest a rate
hike in the near future. There is a growing concern that the
Fed could raise rates preemptively this summer to avoid a
later pre election hike. Earnings are still running in the
+28% range for the 4Q and guidance has mostly been stronger
than expected. If we did put in back to back quarters of
strong earnings growth the Fed might feel the need to open
the pressure relief valve slightly after the April earnings
cycle. There is a meeting on May-4th and another two day
meeting beginning on June 29th. This gives them three maybe
four more employment reports to see if jobs are picking up
before making a decision. IF they were going to hike the
bond groupies are projecting a hike at the June meeting. The
Fed funds futures are suggesting the rate will be hiked to
1.25% by August. There is no July meeting making the June
meeting the target.

Traders are hoping for a sign from Greenspan that nothing
has changed and the Fed is planning on being patient at
least until June. What they will probably get is nothing.
Depending on Greenspan's mindset he will give them nothing
but useless Greenspeak and leave them as confused as before.
He has in the past taken advantage of a very few public
appearances to "correct" the market's understanding of the
Fed position with a well structured sentence or two. This
is very rare occurrence but it does happen. What I would
expect is a simple "economy growing slow but ramping up"
context and a restatement of the "Fed can continue the
current accommodative stance until capacity utilization
and job creation improve". The bond bulls will interpret
it in view of their outlook and go their merry way. Just
in case Greenspan says something he did not mean to say
or gets home to find the market interpreted it different
than he expected then he gets a second chance to correct the
statement on Thursday with a repeat appearance. The average
change in the bond market when Greenspan gives his testimony
is a full point. There are always fireworks in bonds when
he speaks before Congress. The stock market is far less
reactive but in this current mode we could be bond reactive.

While it seems the market has come to a screeching halt while
we wait for the master to speak that outlook is not true. We
have had a very strong week in my opinion. The Dow jumped
+140 points from its lows on Friday and the trend this week
has continued upward. We did consolidate on Monday with a
higher high but it was only a minor pullback at the close.
That was corrected today with another higher high and a close
over 10600. This was the highest close for February and we
are nearing the 10650 resistance that gave us fits in
January. Not a bad month so far for the Dow and February
is historically the 3rd worst month of the year.

The Nasdaq is not doing as good but is well off its lows.
The close at 2075 was right at the month end resistance and
about +63 points off the lows. This is great considering the
rebound off the 50 dma but there are tougher levels above
for the index. If the Nasdaq can get over the 2075 resistance
it can then take aim at the very strong 2150 resistance level.
The Nasdaq is dragging some heavy baggage along with its move.
One piece of that baggage is Dell, which announces earnings
on Thursday. While they are not expected to miss there is
some worry that they could show the wear and tear of a major
price war. Their major competitor HPQ while not a Nasdaq
stock does not announce until the following Thursday. This
sets up a great potential for an option play on HPQ which
I will layout following this commentary.

The Nasdaq will probably rejoice more over some good news
from Dell than it will from any positive Greenspeak. Because
of Dell's position as the second biggest PC maker they will
impact all the component sectors with their market view. The
Dow will also hear from a couple major components tomorrow.
Disney and Coke will report earnings and there is much to
speculate about. PIXR posted record earnings after their
success with the Disney films. This would suggest Disney
should also post better than expected earnings and this has
been priced into the stock over the last couple days. KO
has also seen a significant bounce after hitting the 50 dma
last week. KO has been under fire from channel stuffing
allegations that go back for several years. Coincidently
KO said Japan results could be very strong and that is
where the majority of the stuffing allegations were focused.
Their earnings will be heavily scrutinized. Both stocks
could find some profit takers on the announcement without
any material upside surprise to provide a catalyst.

While the Tuesday bounce was encouraging it did come on
very low volume of only 3.7B shares compared to the 5B+
shares we were seeing on the last rally to this area. The
internals remained very strong despite the lackluster
volume. Advancers were nearly 2:1 over decliners and new
highs rose to 628. This was more than twice the level we
saw on the lows last week. The dip buyers are still alive
and well. The market saw a major drop at 2:12 just as a
rumor hit that the Washington Dulles Airport had been
closed. That rumor knocked about -50 points off the Dow
and the dip was immediately bought. The rumor did take some
of the excitement away from the buyers and it was not until
the last 30 min before they united to push it back over
10600 again.

Assuming Greenspan does not attack the markets, the weak
dollar, tax cuts or throws his support to Kerry for the
election we should be in good shape. The Dow has a three
day uptrend in place and the Nasdaq is poised to break
out over 2075 resistance. We are only 93 points away from
10705 and the highs for the year on the Dow. The Nasdaq is
only -88 points from its high of 2152. While this is
positive I would not expect a sudden bullish ramp to new
highs. We are simply trading at the high end of our range
and we should continue to trend up once this week is over.

We need to remember that February is the 3rd worst month
of the year historically and is known for consolidations.
This is exactly what we have been doing for the last nine
days on the Dow and it may not be over despite the current
uptrend. The Nasdaq saw more serious profit taking but
despite the rebound could also till be vulnerable. Dell
will be the key more than Greenspan but he is still a risk.
The game plan should still be "buy the dip" until something
changes. Personally I think there are quite a few traders
hoping Greenspan takes aim at the markets just so they can
get a better entry point. Dow 10475-10500, Nasdaq 2020-2050
support should hold on any minor verbal attack. I know my
long positions would be perfectly happy to see a catapult
spike back to 10700 tomorrow but I would also eagerly take
advantage of any dip to add to those positions.

Enter Passively, Exit Aggressively.

Jim Brown
Editor


HPQ Earnings Play

With Dell announcing earnings on Thursday and HPQ not
announcing until the following Thursday we have an
opportunity for a cheap speculative play. HPQ should
react violently to any Dell news but they do not announce
themselves for another week. This gives us two chances
to profit from a HPQ option.

HPQ is currently $24.11. The Feb-$25 call is only $.40
and the $22.50 put is only $.20. The odds are very good
that Dell will say something positive given the PC sales
in the 4Q. This should spike HPQ to the $25 level or
higher as HPQ is really on fire and has a broader business
model than Dell. What is good for Dell is also good for
HPQ. With HPQ announcing a week later we could then see a
ramp for HPQ on positive expectations for their earnings
report.

While I would be comfortable buying HPQ Feb-$25 calls at
40 cents each as a lottery play that may not fit the risk
profile of every reader. Dell could say something negative
and both get knocked for a big loss.

Therefore, if you are a risk taker jump on the HPQ calls and
hope Dell surprises to the upside. If you are conservative
then buy the calls and the puts, currently 60 cents total
and roll the dice. That puts you in the camp that does
not care what the earnings are just as long as they send
the stock into a directional frenzy.

I am suggesting February options because of the timing
involved. I do not want to speculate with the March options
because they cost more and make an insurance strategy less
appealing. If you are uncomfortable with selling your Feb
options on expiration Friday then go with March. (Mar-25
calls = 65 cents, 22.50 puts = 50 cents) Regardless of
which options you choose this is a speculative play and
you can lose all or part of your investment if the stock
remains between 22.50-25.00 prior to expiration.

HPQ - Chart



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

Doji Day
Jonathan Levinson

The US Dollar declined as equities raced first lower and then
higher to finish just north of unchanged.  Precious metals
declined, and treasuries sold off, reversing yesterday's gains.


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


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

Chart of the US Dollar Index


The US Dollar Index rose from its overnight lows to a high at
85.95 at 11AM, from which point it began a volatile grind lower
to the 85.80 level.  It finished below yesterday's close, so far
respecting the daily cycle rollover that began last week.  The
CRB traded both sides of unchanged, finishing lower by .45 at
261.56, with strength in coffee, crude oil and heading oil
futures.


Daily chart of April gold


Front month gold futures were up strongly today until they
weren't, with a gap up at 11AM reversing into a cascade of
selling that reversed the gains from a high of 411.10 to
fractional negative territory at the day low of 406.80.  It was a
higher high and higher low for the day, with the Macd confirming
the daily cycle bottom last week.  412-414 was good support on
the way down, and it's predictably behaving as resistance from
below, but provided that the apex of this corrective pennant
between 397 and 402 is not violated, the daily cycle upphase will
remain intact.  For the day, April gold dropped .60 to close at
407.20, HUI lost .95% to close at 231.97 and XAU dropped .60% to
close at 101.33.


Daily chart of the ten year note yield


The treasury market was busy today, with a large 3-year note
auction generating a bid to cover ratio of 2.27 with a large
contingent of bids from foreign central banks.  Was Bernanke busy
in Boca Raton at the G7 meeting with a Powerpoint projector
presentation, pushing US treasuries with laser pointer in hand as
he discussed the technical merits of bearish descending triangles
and the one we've been tracking on the ten year note yield?
Perhaps he was using the above chart?  In any event, ten year
notes declined today, with ten year note yields (TNX) gaining 3.7
bps to finish at 4.102%, a .91% move for the day.  This was
countertrend to the ongoing daily cycle downphase in progress
since last week and failed at 4.12% resistance.


Daily NQ candles


Bullish?  Bearish?  It was difficult to tell as traders rejected
first the lows, then the highs, then the flats, closing the NQ
higher by 3 points at 1497 for a net gain of .30% on the day.
The range was only slightly wider than yesterday but in both
directions, with a low of 1490.50 and a high of 1506.  The higher
high gave bulls the first bullish cross on the 10-day stochastic,
and it's looking like last Friday's dip to 1460 was the bottom of
the downphase.  If so, it bottomed at a higher low without ever
testing the lower rising channel support line.  Resistance
remains at 1510-12, followed by 1518-20.  Support is at 1490,
followed by 1482 and 1460.


30 minute 20 day chart of the NQ


The NQ sold off in the morning, continuing the 30 minute cycle
downphase but without particular vigor or inspiration.  The
selling tired quickly, without the terminal burst of selling that
usually marks the end of downphases.  The upphase that followed
ended even more abruptly with a small throwover above last week's
downtrend resistance line that may or may not be a reverse head
and shoulders neckline as discussed last night.  The rollover
that followed aborted the 30 minute cycle upphase from a lower
oscillator high, leaving a steep bearish divergence.  The picture
would have been clearer to the downside if not for the end of
session ramp job, but it appears to have been only a short cycle
anomaly.  Traders trying to make sense of this mess are best
advised to watch range support and resistance, currently 1508-10
and 1490-92.  Despite heavy resistance beginning just south of
1520, the reverse head and shoulders on this 30 minute timeframe
coinciding with the daily cycle bullish cross above is a powerful
bullish combination, if buyers can clear the neckline just
overhead.  On the other hand, the bearish divergence is not to be
ignored, and if bears can break 1490, there's a good chance of a
retest of 1477-82 support.


Daily ES candles


ES closed at a higher high despite the lower low in the morning,
and left off with a bullish kiss (but not a cross) on the 10-day
stochastic.  It appears to be sealing the end of the long-
awaited, utterly pathetic daily cycle downphase that was more of
a shake than even a correction.  With resistance up to 1149 from
here, bulls will need to clear the current congestion zone in
order to protect this early signal from a whipsaw, but the
selling was so weak today that it's not difficult to imagine.
Support below is at 1136.  For the day, ES added 3.50 to close at
1143.50.


20 day 30 minute chart of the ES


The same bearish divergence we see on NQ (and YM) is evident here
on ES.  The reverse head and shoulders interpretation is
difficult to apply here because ES saw much less selling in the
past 3 weeks than the NQ.  Above 1149 are the rally highs to
1155, while the last week's support levels have blended to form a
congestion zone all the way to 1122.  The question for tomorrow
will be whether there's anything behind this bearish oscillator
divergence.  With a daily cycle upphase trying to form, bears are
running out of signals that they can afford to squander.


150-tick ES


The last hour's buying left the short cycle oscillators near a
peak.  With the daily cycle trying to turn up, the 30 minute
diverging lower and the short intraday cycles near or at top,
direction tomorrow is up for grabs, but I'd guess for downside.


Daily YM candles


YM added 14 to close at 10585 despite the red candle printed by
Prophetcharts for the day.  Like the ES, it left off on a bullish
kiss, and while a cross appears imminent, it hasn't printed yet.
The daily cycle downphase has been every bit as weak here as it
was on ES, if this is indeed the end.


20 day 30 minute chart of the YM


The weaker dollar lined up with higher prices for equities but
lower prices for bonds.  This would look like very bad news for
treasuries, but given the treasury auction, G7 meeting of the
weekend and Greenspan's semi-annual address to Congress tomorrow,
there's ample noise to distort the picture.  The rise in yields
today ran against the daily cycle downphase, and it looks
corrective for now.  With equities continuing to do their best to
defy any trend however short in this unrelenting low-volatility
environment, we're best to continue to follow the different
cycles and watch support/resistance on those specific charts
we're trading.  Intermarket relationships remain iffy,
particularly with central banks dominating an increasingly large
portion of the news and the markets.


The clearest moves recently have coincided with Fed comments, and
those comments have been just the slightest bit cautionary.  As
the rally of 2003 lined up with assurances that the Fed would
support bond prices / suppress rates, the very hint that rates
might ever again rise has been sufficient to spark strong selling
in bonds and equities together.  Hopefully tomorrow will provide
further clues.  See you there!


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

Light volume ahead of Greenspan's testimony

For the second-straight session, volume levels at both the New
York Stock Exchange and NASDAQ came close to matching the
lightest volumes of the year, which were found on January 2nd,
when traders came stumbling back from New Year's celebrations.

But traders will be sober tomorrow and listening closely as Fed
Chairman Alan Greenspan begins his semiannual testimony on the
state of the economy to Congress tomorrow.

Most Washington watchers expect congressional leaders to probe
Mr. Greenspan's brain not only on his views of the economy, with
special focus on jobs growth, but the Treasury's view on the
budget deficit and government spending, with job growth still
showing very modest signs of recovery.

Yesterday's and even today's light volumes strongly suggest
traders were unwilling to get in front of Mr. Greenspan's
testimony, where alternating buy/sell programs in the second-half
of today's session seemed centered around the NASDAQ-100 Index
(NDX.X) 1,500.29 +0.62% and its 1,500 level.

Earlier today, in the 03:15 PM EST I made comment that a sell
program premium alert may have been generated just after the NYSE
Composite ($NYA.X) 6,677.04 +0.5% had traded a new 52-week high,
but some observations made this evening after the close of trade
has me thinking it was NASDAQ-100 1,500 and its MONTHLY Pivot of
1,503, which found some institutional focus, and may be an
important level of near-term resistance, where traders like you
and I might be able to use as a key level up to, during and after
Mr. Greenspan's testimony, where trade either side of this level
dictates broader-market trade.

Market Snapshot / Internals - 02/10/04 Close



The NYSE Composite ($NYA.X) is first to trade a new 52-week high
after the recent pullback, but doing so intra-day by just more
than 1 point would not be indicative of a full out bullish
stampede.  The smaller-cap Russell-2000 Index (RUT.X) 591.91
+1.25% posted today's largest percentage gain among the major
indices, and was the only major indices to exceed its early
afternoon highs and show bullish conviction to then close at its
session highs.

I wanted to quickly show some of this year's volume levels and
NH/NL indications, where some early sign of renewed bullish
leadership begins to show up, as both the 5-day and 10-day NH/NL
average ratio's start to show some stability.

Internals Since 01/02/04 - Volume and NYSE:NASDAQ NH/NL



We know that stocks don't just trade a new 52-week high day after
day after day, and the pullbacks in the major indices into last
week had a gravitation effect on the number of new highs.  We can
see some slight improvement, or abating of decline in the 5 and
10-day average ratios of the NYSE and NASDAQ NH/NL indicators,
which hints that some of the recent rebound for the major indices
has seen a greater number of new highs, and fewer new lows.  This
action may begin to hint that the recent pullback for the major
indices was corrective in nature, and perhaps attributed to
profit taking, where some of that profit taking has started to
run its course.

In GREEN and RED boxes, I've highlighted the NH/NL columns of
both the NYSE and NASDAQ, where the NYSE achieved a 52-week high
on 01/22/04, it recent relative low on 01/29/04 and a new 52-week
high today.  The NASDAQ Composite achieved its most recent 52-
week high on 01/26/04, while its recent relative low was found on
02/05/04, which was on Thursday.

Shoot... I'm just now seeing that the NASDAQ's 5-day NH/NL
average ratio would have crossed back above its 10-day NH/NL
average ratio, and I should have colored that 95.3% green to
reflect a near-term bullish crossover.

Pivot Analysis Matrix -



In PINK, I've highlighted today's high's in the both the NASDAQ-
100 Index (NDX.X) and its Tracking Stock (AMEX:QQQ) $37.18
+0.16%, where I think this afternoon's buy program was centered
on the NASDAQ-100, which gave lift to the NASDAQ-100, but an
offsetting, and rather powerful looking sell program was later
seen, which hit the NDX/QQQ back lower from these levels.  Both
very close to their MONTHLY Pivots.

This may be an important observation as the NDX/QQQ have been the
recent lagging indices in our pivot matrix, and you know me, I
like to monitor both ends of the snake/inchworm, where the
NDX/QQQ currently represent the "tail."

While the NYSE Composite showed some sign of trying to lead with
a new 52-week high in today's session, it may well be the NASDAQ-
100 that needs to pull free as a sign these markets can move past
the recent highs.

NASDAQ-100 Index (NDX.X) Chart - Daily Intervals



Tomorrow will be the first opportunity that Mr. Greenspan might
be expected to address any further Fed thought on interest rates
or the economy since Friday's release of January nonfarm
payrolls, which showed the economy generated 112,000 new jobs,
which was below economists' forecast of 165,000.  The NDX and
other major indices rallied on Friday, even though the nonfarm
payroll data was weaker than forecasted.  Some traders thought
the level of job production, while still rather anemic, might
have been a positive, as it would keep the Fed on hold for any
type of raising of interest rates.  A good test into Greenspan's
testimony would be for the NASDAQ-100 to hold above the 1,478
level.

NASDAQ-100 Index (NDX.X) Chart - 5-minute intervals



The MONTHLY Pivot of 1,503.69 is notable resistance, and while
volume levels were very light today, I'm noting the levels of
trade where today's afternoon buy, then sell program premium
alerts were generated, where I think NDX 1,500 is the point of
contention, and perhaps major disagreement between bulls and
bears.  My thought process at tonight's close is that bulls are
probably very cautious below the 1,504 level until a break higher
is found, and while not shown on the above chart, it was a break
above the 1,480 level on Friday, when the NDX sprinted quickly to
our current WEEKLY Pivot, to then finish Friday's session at the
1,500.00 level.

Dow Industrials (INDU) Chart - Daily Intervals



Certainly the INDU is encountering some overhead supply, but I
get the feel that the INDU is "looking back" at the NDX/QQQ to
see if it is following the leader.

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



The SPX is similar to the INDU in that it too looks to try and be
leading for strength, but needs some "high octane" in its fuel,
which can be provided from technology stocks, which largely
comprise the NASDAQ-100 Index (NDX.X).

I've pointed to the SPX's WEEKLY Pivot of 1,136.66, which is a
level where on a knee-jerk negative reaction, we might prepare
for NDX weakness back to 1,480.  If NDX is weaker, then need to
monitor a stronger SPX for strength above its WEEKLY Pivot.

Jeff Bailey


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

Holding Pattern
- J. Brown

The path of least resistance still appears to be up but the path
may have grown a lot more rocky.  Both the DJIA and the NASDAQ
are up off their lows from last week but the buyers seem to be
cautious, especially ahead of the Alan Greenspan's appearances
this week.  The last FOMC brought forth a change in language that
the markets were not prepared for and now investors are
apprehensive that he may say something else during his Wednesday
or Thursday appearance before congress and the senate.

On top of being fearful of what the Fed chairman might say we've
had little economic news to drive stocks higher and earnings are
almost over.  Despite a lack of catalysts the Russell 2000 has
seen a strong rebound in the last few days that has out performed
the major averages.  Also noteworthy is the bounce in the Dow
Transport index.  Traditional Dow theory suggests that we can't
have a sustained market rally (bull market) unless the transports
participate in it as well.

Looking over the tech sector the Internet seem to be leading the
way while the semiconductors have been digesting Friday's big
gain. Meanwhile financial sectors have been churning sideways as
investors continue to rotate money into drug and biotech stocks.
The continued strength into drugs might be translated as a
defensive posture by investors.  Energy stocks have also been out
performing with oil, oil services, utilities and natural gas all
with three days of consecutive gains.  Setting new highs are the
insurance and defense indices while the RLX retail index has
rallied straight to resistance.  A strong round of earnings from
the retailers could produce a breakout for the sector in general.


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

Market Averages

DJIA ($INDU)

52-week High: 10701
52-week Low :  7416
Current     : 10613

Moving Averages:
(Simple)

 10-dma: 10522
 50-dma: 10341
200-dma:  9544



S&P 500 ($SPX)

52-week High: 1155
52-week Low :  788
Current     : 1145

Moving Averages:
(Simple)

 10-dma: 1134
 50-dma: 1108
200-dma: 1026



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  795
Current     : 1500

Moving Averages:
(Simple)

 10-dma: 1487
 50-dma: 1472
200-dma: 1335



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

The stock market may not be galloping higher but investor
confidence is still growing as evidenced by the declines in
the volatility indices.

CBOE Market Volatility Index (VIX) = 15.94 -0.45
CBOE Mkt Volatility old VIX  (VXO) = 15.55 -0.22
Nasdaq Volatility Index (VXN)      = 24.50 -0.71

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.72        712,657       510,672
Equity Only    0.62        608,761       377,773
OEX            1.21         19,476        23,563
QQQ            1.14         31,191        35,640


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.5    + 0     Bull Confirmed
NASDAQ-100    70.0    + 0     Bear Alert
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       87.6    + 0     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: 0.98
10-dma: 1.02
21-dma: 1.02
55-dma: 0.99


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    1875      1970
Decliners     969      1138

New Highs     372       182
New Lows        9         1

Up Volume   1021M     1025M
Down Vol.    678M      540M

Total Vol.  1711M     1644M
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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The Option Investor Newsletter                  Tuesday 02-10-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: APOL, ABK, CDWC, DHR, DHI, GD, ESRX, IBM, IMDC,
                   TEVA
New Calls Plays: AHC, PD
Put Play Updates: AVID, EASI
New Put Plays: None


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

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


CALLS:
*****

None


PUTS:
*****

None


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Brokerage Group, addressing the demand for personalized,
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within the same firm. Licensed Option Principals Andrew Aronson
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Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
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********************
PLAY UPDATES - CALLS
********************

Apollo Group - APOL - close: 77.44 change: +1.41 stop: 71.00*new*

Since Friday's breakout, volume in APOL has been downright
anemic, with Tuesday's tally coming in at only about a third of
the ADV.  Given the light volume, it should come as no surprise
that the price action has been rather muted as well, with the
upside capped near $77.50, but no real sign of weakness either,
as support is being found above $76.  That leaves us in limbo
right here, as an attractive entry point has yet to present
itself.  A pullback to the $75 or even $74 levels would make for
a nice bargain entry point, but we need to wait for the rebound
after that pullback before entry.  On the upside, momentum
traders should wait for a breakout over $77.75 before playing.
With other education stocks like CECO, COCO and UOPX looking
strong as well, we definitely have sector strength working in our
favor.  Stops can be raised slightly to $71, which is still below
the 50-dma ($71.15).

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 =


---

Ambac Financial Group - ABK - close: 76.20 chg: -0.60 stop: 71.99

Today marked the sixth day in a row that shares of ABK have
consolidated sideways above the $76.00 level.  While we're happy
to see minor support at $76 hold up we're disappointed that ABK
is not pacing the IUX insurance index, which has risen 7 out of
the last 9 trading days.  We would still a dip to $75.00 as an
attractive entry point but we might wait to actually see the
bounce before committing new capital.  There are no new headlines
for ABK and no change to our stop loss.

Picked on February 1 at $74.77
Change since picked:    + 1.43
Earnings Date         01/28/04 (confirmed)
Average Daily Volume:      476 thousand
Chart =


---

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

With the broad market spending the first two days of the week in
a rather tight-range, low-volume consolidation, it is really no
surprise that our new play on CDWC hasn't yet been able to get
moving.  Continuing to consolidate just below $70, the stock
still looks like an appealing breakout candidate, and we'll just
have to wait for price action to prove it to us.  Our entry
trigger remains at $70.25, as that will force the stock to
exhibit solid strength before we're tempted into a position.
Aggressive traders can enter on the initial breakout, while those
employing a more cautious approach will need to wait for a
subsequent pullback to test the $68-69 area as new support.  Our
stop remains at $64.

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 =


---

Danaher Corp - DHR - close: 93.65 cls: -0.50 stop: 89.50 *new*

Right on schedule! If you were waiting for a bounce from $93.00
in DHR you got it.  Actually, the low today was 92.64 but as
expected DHR bounced from this region.  Its MACD indicator is
still in a relatively fresh buy signal and the volume during the
last two sessions of mild losses has been declining.  If we're
looking for a pull back in a bullish up trend we want to see
lower volume in the profit taking and that's what we got.  Given
the bounce we still feel this looks like a good entry point but
more conservative traders may want to consider waiting for DHR to
trade above the $95 level.  We're going to raise our stop loss to
$89.50, which is about half a point below the 50-dma.

Picked on January 30 at $91.01
Change since picked:    + 2.64
Earnings Date         01/29/04 (confirmed)
Average Daily Volume:      841 thousand
Chart =


---

D.R.Horton - DHI - close: 29.88 chg: -0.22 stop: 27.99

The market has been in a holding pattern as investors wait to
hear from Greenspan in his appearance before congress this week.
Everyone wants to know if he'll drop any hints about fed policy
and interest rates.  Investors have been flipping back and forth
between concern over potentially higher rates and expectations
that low rates are here to stay for the next several months if
not the rest of the year.  This indecision has seen the major
indices trade relatively sideways and we're seeing the same
action in the homebuilders and DHI is not exception.  Actually,
DHI has traded within a $1.00 range this week.  We're still
bullish and the very late afternoon bounce today looks tempting
but more conservative types may want to wait for a move over
Monday's high (30.58).

Picked on February 08 at $30.00
Change since picked:     - 0.12
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =


---

General Dynamics - GD - close: 96.30 chg: -0.08 stop: 92.00

GD is a new call play we added over the weekend.  In our comments
we suggested that patient traders might want to look for a dip
toward the $95.00 mark.  GD provided just such a dip today.
Actually, the low was $94.70 before the stock quickly bounced
back above the $95 level.  Driving the early morning volatility
was investor reaction to comments from the CEO who was speaking
at the SG Cowen Global Aerospace Technology conference.  GD's CEO
said that their full year earnings guidance looks strong and
should meet previous expectations with net income rising
sequentially quarter after quarter.  The bad news is that GD's
guidance was a little lighter than analysts' estimates for the
first three quarters of the year.  In spite of this news the
reaction seemed to be mild.  GD's CEO mentioned a strong backlog
for several of its units and said its lighter-weight vehicles
like the Stryker would outsell their heavier tanks.  Investors
may also have taken comfort in the CEO's comments that he and the
board of directors were willing to consider extending his
contract, which expires next year and that any successor would
likely come from inside the company.

The bounce today looks like a great entry point although we do
note on GD's intraday chart a very short-term trend of lower
highs.  Readers might want to consider looking for GD to trade
above the $96.50 mark now as a precaution.  As an alternative to
GD bullish traders should also take a look at Northrop Grumman
(NOC).  NOC has been very strong the last few days and a dip to
$101 or $102 might be an attractive entry point.

Picked on February 08 at $96.88
Change since picked:     - 0.58
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       1.0 million
Chart =


---

Express Scripts - ESRX - cls: 68.69 chng: -0.15 stop: 66.00*new*

Our patience is certainly wearing thin with ESRX, as it continues
to vacillate between support near $68 and resistance just over
$70.  hat said, the rebound off the 20-dma ($68.21) does look
encouraging, as does the hint of an upturn in the daily
oscillators.  We were looking for a rebound off the $68 level for
a viable pullback entry and the action from the first two days of
the week certainly seems to have delivered that.  The primary
concern today though was the stock's inability to hold onto its
intraday gains, giving back more than half of them by the closing
bell.  The best approach for entering the play continues to be
targeting dips to the $68 area.  Note that the 50-dma ($66.09)
has now risen over $66, so we're raising our stop to that level
tonight.

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

So far, our IBM play has been rather disappointing, as the stock
has shown no ability to get back over the $100 level since
satisfying our entry trigger last week.  That said, today's
rebound from just above $98 was encouraging, especially since IBM
was able to close near the top of the intraday range.  Dips into
the $98 area continue to look viable for new entries, although
momentum traders will need to wait for a rally (preferably on
stronger volume than we've seen the past two days) through the
$100.50 level.  With the 20-dma now moving above $97, our $96.50
stop should be well-protected unless something unforeseen crops
up to spook the bulls.

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: 50.65 chg: -0.25 stop: 48.00

The picture isn't improving for shares of IMDC.  The stock may be
trading in a very narrow range the last two days but the trend
seems to be lower.  More aggressive players can still consider
bounces from the $50.00 mark as entry points but we're growing
more cautious on committing new capital in IMDC.  If IMDC closed
under the $50 mark we'll probably close the play, especially now
that its technical oscillators are starting to roll over.

Picked on February 01 at $51.54
Change since picked:     - 0.89
Earnings Date          02/24/04 (unconfirmed)
Average Daily Volume:       682 thousand
Chart =


---

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

It isn't setting any speed records, but TEVA is making steady
progress on a daily basis.  After a tight-range consolidation
near Friday's high yesterday, the stock pushed up to test its
all-time high at $65.88 on Tuesday, before settling just off that
level at a new all-time closing high.  TEVA is still holding well
above the 10-dma ($64.13) and a test of that level would make for
a decent entry into the uptrend.  Of course, we can't rule out a
more significant pullback to confirm that $62-63 support area,
and with the 20-dma now creeping over $62, that should be a good
- albeit aggressive - entry point if we get it.  Following the
consolidation near the highs over the past week, breakout entries
over $66 are starting to look more attractive, but make sure that
volume is looking stronger before chasing the stock higher.  Take
note of the fact that TEVA is set to report earnings next
Tuesday, so time is running out for the stock to make the move
towards $70 that we're expecting.  Maintain stops at $61 until we
get that breakout.

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

Amerada Hess Corp. - AHC - close: 59.53 change: +1.43 stop: 55.50

Company Description:
Amerada Hess Corporation explores for, produces, purchases,
transports and sells crude oil and natural gas.  These
exploration and production activities take place in the United
States, United Kingdom, Norway, Denmark, Equatorial Guinea,
Gabon, Indonesia, Thailand, Azerbaijan, Algeria, Malaysia,
Colombia and other countries.  The company also manufactures,
purchases, transports, trades and markets refined petroleum and
other energy products.  It owns 50% of a refinery joint venture
in the United States Virgin Islands, as well as another refining
facility, terminals and retail gasoline stations located on the
east coast of the United States.

Why we like it:
Energy stocks have been looking strong again and it is no great
surprise, with the price of Crude Oil holding firm above $32.
Adding to the bullish landscape was today's news out of the OPEC
meeting that the cartel would be cutting production by 4%
starting on April 1st.  U.S. officials were expectedly displeased
with the move, but investors cheered by propelling the Oil
Services sector (OSX.X) to a 2.25% advance.  The Oil index
(OIX.X) advanced as well, although at a more moderate 0.76% pace.
AHC really shone though, as its 2.46% gain propelled the stock
through the $59 resistance level on strong volume.  This is the
best level for the stock since it dropped sharply in October of
2002.  The PnF chart was already on a Buy signal with a vertical
count of $72, but the most recent dip and rebound really
solidified the bullish picture, as price found support at the
former bearish resistance line near $56.  A trade at $60 will be
another PnF Buy and have the bullish case looking that much
stronger.

There's some mild resistance just below $62, but it looks like
the near-term upside could extend to stronger resistance at $64
or even $66.  Since we've already gotten the breakout, we don't
need to use a trigger on the play.  A pullback to the $58 level
looks good for new entries, as does a breakout over today's high.
Note how the recent dip found solid support near $56, bouncing
twice off the 30-dma ($56.66).  That average should continue to
be strong support if we get a more substantial pullback, so we'll
set our initial stop just below there at $55.50.  Monitor the
action in the OIX and OSX indices, as continued strength there
will confirm the bullish prospects for AHC.

Suggested Options:
Shorter Term: The February $60 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.  But with February expiration less than 2 weeks away, the
better choice appears to be the March $60 call

Longer Term: Aggressive longer-term traders can use the March $60
Call, while traders looking for more insulation against time
decay will want to use the May $60 strike.  Our preferred option
is the March $60 strike, which is at the money and should provide
sufficient time for the play to move in our favor.

! Alert - February options expire in less than 2 weeks!

BUY CALL FEB-55 AHC-BK OI=1779 at $4.70 SL=2.75
BUY CALL FEB-60 AHC-BL OI=1973 at $0.80 SL=0.40
BUY CALL MAR-60*AHC-CL OI= 391 at $1.65 SL=0.75
BUY CALL MAY-60 AHC-EL OI= 610 at $2.75 SL=1.40

Annotated Chart of AHC:



Picked on February 10th at   $59.53
Change since picked:          +0.00
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =     1.05 mln
Chart =


---

Phelps Dodge - PD - close: 79.82 chg: +2.02 stop: 75.99

Company Description:
Phelps Dodge Corp. is the world's second-largest producer of
copper, a world leader in the production of molybdenum, the
largest producer of molybdenum-based chemicals and continuous-
cast copper rod, and among the leading producers of magnet wire
and carbon black. The company and its two divisions, Phelps Dodge
Mining Co. and Phelps Dodge Industries, employ more than 13,000
people in 27 countries. (source: company press release)

Why We Like It:
It's no secret that copper prices are high.  A recovering economy
here in the U.S. coupled with a growing global economy and heavy
demand from China in addition to worker strikes and supply
disruptions have sent copper to new 6 1/2 year highs ($1.14/lb).
The increasing demand and the steady rise in price has lead
Phelps to its first quarterly net profit since 2000.  About two
weeks ago PD reported Q4 earnings of 90 cents a share, which was
13 cents better than expected on revenues that soared more than
30% over the same period a year ago and well above consensus
estimates.

Demand has been so strong that PD increased its production plans
for both 2004 and 2005.  Analysts are also bullish on the stock.
This morning Lehman Brothers raised PD from an "equal-weight" to
an "over weight" and lifted their price target from $85 to $110.
We also like the technical picture.  PD has been consolidating
under resistance at $80 for six weeks now and the last dip
bounced off its rising 50-dma.  Volume has been rising the last
few sessions as well and its MACD just produced a new buy signal.
This morning's upgrade news helped push PD above the $80 mark and
that sparked a new buy signal on its P&F chart, which suggest a
$97 price target.

While all of this sounds great we are a little bit cautious with
PD's inability to close above the $80 level.  Therefore we're
going to use a TRIGGER at $80.51 to open the play for us.  Until
then we'll be happy to watch.  If we are triggered we'll use a
stop loss at 75.99.  More aggressive traders may want to hope for
a dip and buy a bounce from the 77.50-78.00 levels.

Suggested Options:
We like the March and April strikes.  If PD sees a dip the $75's
would be a good play.  We're going to suggest the March 80's.

BUY CALL MAR 75 PD-CO OI=747 at $7.00 SL=4.75
BUY CALL MAR 80 PD-CP OI=934 at $3.90 SL=2.20
BUY CALL MAR 85 PD-CQ OI=328 at $1.75 SL=0.90
BUY CALL APR 75 PD-DO OI=735 at $8.10 SL=5.65
BUY CALL APR 80 PD-DP OI=704 at $5.00 SL=3.25
BUY CALL APR 85 PD-DQ OI=799 at $3.00 SL=1.65

Annotated Chart:



Picked on February xx at $xx.xx
Change since picked:     + 0.00
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       1.6 million
Chart =



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PLAY UPDATES - PUTS
*******************

Avid Technology - AVID - close: 42.91 chg: +0.23 stop: 46.17

It was encouraging to see AVID trade lower yesterday and hit a
new relative low this morning with a breakdown through the $42.00
level.  Unfortunately, today's weakness didn't last.  Traders
should make a note of the stronger than average volume today.  We
want to see big volume on the declines but not on the bounces.
The bounce late in Tuesday's session suggest AVID will continue
to rebound tomorrow.  We wouldn't be surprised to see it hit
$44.00.  Fortunately, AVID's 10-dma and 200-dma have converged
just north of the $45.00 mark and together it should be a
formidable line of resistance.  If you're planning a new entry
point consider a failed rally under $44.00.

Picked on February 04 at $42.87
Change since picked:     + 0.04
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       612 thousand
Chart =


---

Eng. Support Sys. - EASI - cls: 47.96 chng: +2.21 stop: 50.00*new*

As good as last week's breakdown under $48 looked, our EASI play
is starting to cause us some indigestion.  Friday's rebound took
the stock right back to that $48 level and so far this week, the
stock is looking rather bullish, creeping gradually higher and
closing on a positive note on Tuesday right at the converged 10-
dma ($48.80) and 100-dma ($48.85).  While a rollover here could
provide a solid entry point, price action doesn't indicate that
is the likely near-term direction, especially with the
oscillators having turned up in bullish fashion.  We'd prefer to
see price back under $48 and ideally under $47 before jumping
into new positions.  Due to our increasingly cautionary stance,
we're lowering our stop to $50.00 tonight, which is above both
yesterday's intraday high and the 20-dma ($49.84).

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



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The Option Investor Newsletter                  Tuesday 02-10-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Definitely a mixed bag


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

Definitely a mixed bag
___________________________________________________________________

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.
___________________________________________________________________


United Technology - UTX - close: 95.60 change: +0.73

WHAT TO WATCH:  Conglomerate UTX has been consolidating sideways
in a $5.00 range for almost two months now.  Bulls might be
tempted to buy the recent bounce but there has been no volume to
back it up.  We'd watch this stock for a move below the $92.50
level (which would produce a drop through its 50-dma) or a move
above the $97.50 mark (new highs).

Chart=


---

QUALCOMM - QCOM - close: 58.09 change: +0.93

WHAT TO WATCH:  Shares of QCOM have been consolidating for the
last month and it appears that the recent base at $56 might hold.
Technical oscillators are turning positive and a move over $59.00
may be an early entry point for QCOM's next leg up.

Chart=


---

Ingersoll-Rand - IR - close: 65.79 change: -0.67

WHAT TO WATCH:  Concerns over interest rates and what the Fed
chairman might say to congress this week has brought a new round
of selling for many of the cyclical stocks.  This has produced
what appears to be a failed rally in a number of their charts and
IR is one of them.  The highs from Friday and Monday stalled at
its 50-dma.  Bulls will look at IR and see its strong trendline
of support dating back months.  This would indeed be an entry
point to buy IR near support.  Bears, of course, will be looking
at the recent weakness and hoping for a breakdown through that
trendline.  We'd consider a decline under $64.00 as a bearish
entry point.  Bulls are better off waiting for a move over
$67.50.

Chart=


---

American Intl Group - AIG - close: 73.50 change: +1.67

WHAT TO WATCH:  The pre-earnings run up in AIG continued today
with another new high on very strong volume of 8.6 million
shares.  The entire insurance group has been very strong and out
performing the major averages.  Now the question is whether or
not AIG will beat the estimates of $1.04 a share tomorrow with
its earnings report due out before the opening bell.  Second,
will investors sell the news?

Chart=


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

AMGN $64.97 +0.75 - The BTK biotech index looks ready to run
again and AMGN happens to be bouncing from its 200-dma.  A move
over $65.50 and this might be a play.

SLB $63.46 +1.33 - Oil services stocks have been hot and SLB just
broke out of a two week consolidation to hit new highs today.
Use a tight stop if this fits your style of play.

GCI $87.05 +0.86 - GCI has bounced several times now from the $84
level in the last two weeks and the most recent bounce has
produced a fresh MACD buy signal.  We'd watch it for a move over
87.50 and its 50-dma but be aware that $90 still looks like
resistance.

FCX $39.60 -0.09 - Keep an eye on FCX for a move over its 50-dma
near $41.00.  A breakout there could lead to a run toward early
January resistance at $45.00.


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