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Daily Newsletter, Wednesday, 02/11/2004

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The Option Investor Newsletter                Wednesday 02-11-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: The Picture Has Brightened
Futures Wrap: Fed-Sponsored Binary Dollar Trade
Index Trader Wrap: Let's make a deal
Traders Corner: What's In Your Toolbox?


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     02-11-2004            High     Low     Volume Advance/Decline
DJIA    10737.70 +123.85 10746.88 10572.59 2.12 bln   1923/ 911
NASDAQ   2089.66 + 14.33  2089.66  2064.77 2.00 bln   1853/1238
S&P 100   572.39 +  6.04   573.20   565.01   Totals   3776/2149
S&P 500  1157.76 + 12.22  1158.89  1142.33
RUS 2000  597.07 +  4.24   597.08   590.14
DJ TRANS 2951.93 + 30.07  2951.97  2910.47
VIX        15.39 -  0.55    16.16    15.26
VXO        14.88 -  0.67    16.26    14.80
VXN        23.53 -  0.97    24.77    23.40
Total Volume 4,721M
Total UpVol  3,298M
Total DnVol  1,358M
52wk Highs     858
52wk Lows        5
TRIN          0.57
PUT/CALL      0.68
*******************************************************************

The Picture Has Brightened
by James Brown

"...the picture has brightened." sums up the day and Greenspan's
perspective on the U.S. economy.  The excerpt was part of Federal
Reserve Chairman Alan Greenspan's official comments before
congress in day one of a two-day semiannual meeting. Alan's
positive speech sent the markets soaring while broker-dealers and
media stocks traded higher on the $66 billion Disney takeover bid
by cable-giant Comcast.

The one-two punch of Greenspan's speech and the Disney bid sent
the markets to new highs.  The Dow Jones Industrials added 123
points to close above resistance at 10,700 and hit levels not
seen since June 2001.  The S&P 500 also broke out to a new one-
year high above January's resistance near 1155.  The NASDAQ
lagged behind with a 14-point gain but it closed over minor
resistance at 2075 and the index looks poised to take another
swing at the 2150 level.

Overall the rally was very widespread.  Every major sector closed
higher except for the HMO index, which fell 2%.  Investors were
pouring money into broker-dealers, homebuilders, gold and mining,
semiconductors and retail stocks.  Market internals were
naturally bullish with advancers outrunning decliners by more
than 2-to-1 on the NYSE and 3-to-2 on the NASDAQ.  New highs
exploded to 665 between the two exchanges.  Up volume was four
times down volume on the NYSE and more than twice down volume on
the NASDAQ.  Traders want to see rallies support by strong volume
and we got that today with more than 4 billion shares trading
between the two exchanges.

Chart of the DJIA:



Chart of the NASDAQ:



Chart of the S&P 500:



The new closing high for the DJIA is very bullish.  This breaks
the major resistance near 10,700 from March 2002 and paves the
way for the Dow to run towards its next overhead barrier in the
10,900-11,000 range.  The NASDAQ also looks good.  The move
through resistance in the 2050-2075 range has set us up for a run
toward overhead resistance at 2150.  Today's close puts the
NASDAQ above all its major moving averages on both its daily and
weekly chart save for the 21-dma.  The S&P 500 has followed the
Dow's lead and broken through to a new one-year high above
January's resistance.  Overhead resistance on the SPX is
virtually nonexistent between here and the 1175 level dating back
to December 2001-March 2002.

This week the markets have been exceptionally Greenspan-centric.
Monday and Tuesday the markets traded cautiously ahead of his
appearance for fear of what he might say.  Today they soared
higher on his bullish comments for the economy and a reiteration
of the Fed's plan to be patient.  When commenting on how the
situation has changed from his last visit to congress Alan said,
"Since then, the picture has brightened. The gross domestic
product expanded vigorously over the second half of 2003 while
productivity surged, prices remained stable, and financial
conditions improved further. Overall, the economy has made
impressive gains in output and real incomes; however, progress in
creating jobs has been limited."  More importantly Alan followed
up with, "Looking forward, the prospects are good for sustained
expansion of the U.S. economy."  That's exactly what the markets
want to hear from him.

Alan also commented on the "growing confidence of business
executives in the durability of the expansion" and the "favorable
financial conditions" that lead to a turnaround in business
spending.  Of course Greenspan couldn't dodge the jobs question,
mainly where are they?  His response was that "stunning increases
in productivity" had been a surprise and allowed businesses to
meet increasing demand "without stepping up hiring".  However, he
quickly pointed out that "employment will begin to grow more
quickly before long as output continues to expand."  Essentially
he believes that productivity increases are going to become
harder and harder to squeeze out and as the expansion continues
managers will become more confident in its "durability" and
"firms will surely once again add to their payrolls."  Following
his appearance there is always a lot of discussion as the markets
dissect his comments and I heard some analysts suggesting that
the U.S. could produce between 2 million and 3 million jobs by
the end of the year.

Speaking of jobs some believe that Disney's CEO Mike Eisner's job
may be on the line.  The big story today was an unsolicited $66
billion all-stock bid by Comcast cable (CMCSA) to buy Disney
(DIS).  Evidently Comcast's CEO Brian Roberts had pitched the
idea of a merger to Eisner earlier this week but Mike turned him
down.  In response Comcast decided to take it to the Disney
shareholders and Board of directors by making it public.  The $54
billion deal, plus $12 billion in assume debt, offers 0.78 shares
of Comcast's Class A stock for each share of Disney stock.
Should the deal go through it would form the largest media
company on the planet, eclipsing media titan Time-Warner's $40
billion in revenues and $79 billion market cap.

What really makes this interesting is not only the timing of the
bid but Wall Street's reaction to it.  Based on yesterday's
prices the Comcast offer values Disney at $26.47 a share, almost
a 10% premium from Tuesday's close.  Yet shares of DISNEY shot up
14.6% to 27.60, which means Wall Street believes there may be a
bidding war between Comcast and other media giants looking to buy
up Disney's brand and assets.  A few of the companies considered
as potential buyers are Viacom, News corp., Time-Warner and even
Microsoft since the software company is still sitting on a $50
billion pile of cash and has expressed an interest in the media
business.  Right now Viacom seems to be the most viable
alternative to Comcast who will probably end up raising its bid.
A combined Comcast-Disney business has immediately raised some
antitrust concerns.  Such a media conglomerate would own ABC,
Disney Channel, E! entertainment, the Golf channel, ESPN sports
network, Disney's film studio, Disney's Touchstone movie studio,
Disney's theme parks, cruise ship business, the most enviable
portfolio of cartoons and movies on top of a cable business with
21 million homes, and 5 million high-speed Internet customers.

The merger news completely overshadowed earnings reports from
both Disney and Comcast.  DIS reported earnings of 33 cents a
share, which was a dramatic improvement from last year's 2 cents
and above current estimates at 23 cents a share.  Revenues soared
past analysts' estimates to $8.5 billion for the quarter.
Meanwhile Comcast reported earnings of 17 cents a share, where
were also dramatically better than last year's loss of 7 cents
and well above current estimates for a net profit of 3 cents per
share.  Comcast's revenues jumped more than 58% to $4.74 billion.

Another major earnings report out today was Dow component Coca-
Cola Co (KO).  KO reported before the opening bell with 38 cents
a share, but minus one-time charges their EPS was 46 cents, or 2
cents above the estimates.  Revenues surpassed the estimate but
investors sold the news as analysts comments turned negative over
a drop in operating income and an 8% jump in expenses.  Also
noteworthy was an earnings pre-announcement from Hewlett-Packard
(HPQ).  Speculation had been growing over HPQ's earnings but the
company wasn't due to report until next week on Feb. 19th.  We
don't know whether HPQ management got tired of the rumors  or
whether they wanted to steal some of Dell's thunder but they pre-
announced an hour before today's close.  For the quarter ending
January 31st HPQ will report earnings of 35 cents a share, which
is in line with estimates on revenues of $19.5 billion.  The news
quickly took the wind out of the stock and shares fell steadily
into the close.

Tomorrow should be interesting.  The new highs on the Dow and the
SPX above January's resistance could spark another round of short
covering and inspire bulls who had been waiting for another dip
to finally jump on board for fear they'll miss the train.  We'll
also hear the latest weekly jobless claims, the January retail
sales figures, business inventories and the Treasury budget
numbers.  However, eclipsing them all will be Alan Greenspan's
second appearance, this time before the senate.  As Jim mentioned
in the monitor today the Q&A section is likely to be tougher and
this is still a wild card event should he stumble and issue the
wrong comment.  Personally, after today's speech I feel that any
Greenspan-risk has sunk considerably.  That leaves us with just
Dell's earnings report after the close.  Let's hope Michael Dell
has some positive comments for us!


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

Fed-Sponsored Binary Dollar Trade
Jonathan Levinson

Fed Chairman Greenspan testified before Congress today, and we
were treated to some big market moves for a change.  The
headlines were far sunnier than the Chairman's actual words, but
as traders, movement is our primary focus.  The US Dollar Index
was sold aggressively, bonds, precious metals, the CRB and
equities all rallied, with the YM and ES reaching new rally
highs.


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 is perilously close to the year lows of
84.80, having touched 85.10 this afternoon.  The daily cycle
downphase appears to be gathering steam, and a break of that
level could see a run on stops of prior longs.  Predictably,
gold, silver and foreign currencies all rallied strongly.   The
CRB added 1.46 to close at 263.04, led by copper, silver and lean
hog futures.


Daily chart of April gold


April gold and March silver had a day as good as the US Dollar
Index' was bad.  Gold walked higher in a mostly straight line,
stopping at a high of 412.70, low of 406.  The daily cycle
upphase is still young, and next support is currently at 414,
followed by 420 and then 428.  Trendline support is now 402, with
Fibonacci support at 406 having held today.  April gold closed
higher by 1.25% at 412.30, silver +3.12% at 6.60, HUI +2.89% at
238.68 and XAU +2.95% at 104.32.


Daily chart of the ten year note yield


The Fed replaced 5B in expiring repos with 5.75B for a small 750M
net addition.  The 16B 5-yr note auction generated a respectable
2.87 bid-to-cover ratio, and Al Green survived yet another
grilling from Bernie Sanders and Ron Paul.  Bonds caught a wave
of bids, with ten year note yields (TNX) diving 8.1 bps to close
at 4.021% for a 1.97% move on the day.  The spike lower took out
4% before the TNX bounced back, and the 4.02% level has become
confluence over the past 6 months.  Yesterday's rise in the yield
was indeed corrective, and the daily cycle downphase reasserted
itself with a vengeance.  Below 3.98%, support is at 3.92%.


Daily NQ candles


The NQ had a good day today, rising 1.00% to close at 1512.50, a
15 point gain.  The bullish cross completed and first resistance
was cleared, though the confirming cross on the daily Macd has
not yet occurred.  We've been discussing 1518-1520 resistance,
and the NQ set its session high at 1516.50.  That
notwithstanding, it was clearly the bulls' day today, and with
the daily cycle upphase looking good, the daily chart looks most
likely to print some consolidation above 1505-1508 support,
followed by the next attempt to clear 1520.


30 minute 20 day chart of the NQ


Within the context of the bullish daily chart, the 30 minute
chart is slightly less so.  The higher 300-minute stochastic low
that printed today confirmed the daily cycle upturn, but the
stochastic appears to be topping as of the cash close from a
lower cycle high against the higher price high for a bearish
divergence.  That's the most bearish thing I see here.  1518
resistance remains unchallenged and should provide stiff
resistance, but bulls had a good day.  Another higher 30 minute
cycle low should provide a higher base from which to launch the
assault on 1518-20, while a lower oscillator low and a break of
support at 1502-1506 and 1492 below that would change the
picture.  Bears need to see a strong violation of the daily cycle
uptrend, and a break below 1482 would be the level likely to
accomplish that.


Daily ES candles


ES gained 1.05% or 12 points to close at 1155.25, setting a new
rally high and giving us a bullish kiss on the daily Macd as the
stochastic cross strengthened.  I've added a daily trendline to
line up with the early downphase abort, and on this basis 1134 is
current upphase support.  Immediate support is 1151, 1149 and
1145.

20 day 30 minute chart of the ES


The possible bearish oscillator divergence on the NQ is absent on
the ES.  That said, the oscillators appear to be trying to top in
overbought territory, and one would expect some consolidation
within the young daily cycle upphase before the next push higher.
Provided that 1134 holds, which appears likely from here, all
should be well for the bulls, though a move below 1145 would
likely pause the daily cycle upphase.  The bottom of the next 30
minute cycle downphase will be very instructive- a higher low
confirms the bullish scenario, while a break below the mid 1140's
would be a different story.


150-tick ES


The 150 tick ES chart shows the short cycle oscillators in a weak
downphase as of the close.  The wide (orange) Keltner channel
approximates the 30 minute cycle we follow on the previous chart,
and is currently flat at what is likely a top for that cycle.
Any break below 1154 would turn the channel lower and should kick
off the 30 min cycle downphase.


Daily YM candles


YM gained 119 or 1.12% to close at 10702, a new rally high.  We
have bullish crosses on the Macd and 10-day stochastic, and last
Friday's low was indeed the daily cycle bottom.  10500 is now
uptrend support.


20 day 30 minute chart of the YM


We've been discussing the binary dollar trade, and today was yet
another example of that.  The bearish dollar continues to be
bullish for everything else, be it British pounds, US treasuries,
equities or commodities.  The kicker will be the day that might
never come, when Asian central banks decide that they've bought
their fill of US debt.  Rising rates would bolster the value of
US Dollars, which is another way of saying that they would
depress the price of assets valued in those dollars.  Until that
happens, however, bulls need only buy cycle bottoms and ride the
rockets higher.  For tomorrow, I expect to see some sort of
consolidation (read pullback) attributable to the toppy 30 minute
cycle, but unless they break the listed support levels, the daily
cycle should continue to lift equities higher.   See you there!


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

Let's make a deal

A hostile $66 billion bid by Comcast (NASDAQ:CMCSA) $31.23 -7.95%
to buy Walt Disney Company (NYSE:DIS) $27.60 +14.61%, where both
companies reported quarterly earnings that beat Wall Street's
estimates, ignited further hopes that more mega merger deals
might fuel profits for the brokers, where the AMEX Securities
Broker Dealer Index ($XBD.X) 730.49 +3.88% lead a broad market
gains.

While Comcast executives do not view their bid as hostile, and
would be good for Disney in that it gives the entertainment
behemoth the pairing with the nation's biggest cable provider and
premium distributor of content, the timing of Comcast's offer
comes as dissident ex-Disney board member Roy Disney has been
saying that Disney has lost direction under current CEO Michael
Eisner.

Comcast says that Disney shareholders won't be the only
beneficiary of combined synergies, and that a Comcast/Disney
merger allows Comcast to fulfill one of its prime objectives,
which is to obtain broader expertise in producing and programming
of entertainment and other media offerings, which could piggyback
some of Comcast's digital cable offerings.

While Comcast was explaining potential synergies of the deal, Fed
Chairman Alan Greenspan was preaching patience in front of the
House Financial Services Committee, saying the U.S. economy is
expanding at a healthy clip, but with inflation still low, the
Federal Reserve can be patient before raising interest rates.

The U.S. Dollar fell on Greenspan's comments with the U.S. Dollar
Index (dx00y) 85.08 -0.88% falling 0.76 points and nearing its 4-
year low set in January of 84.97.  The interpretation taken away
from the dollar's decline is that with the rising budget deficit,
it will most likely take a rate-tightening Fed to see dollar
firming.

While Greenspan warned that the growing federal budget deficit
doesn't come without some downside risks for the economy,
Greenspan commented that that to date, the dollars decline has
been orderly and is in line with historical dollar trends.

The reaction from the bond market was equally bullish for
Treasuries as for stocks, with the benchmark 10-year YIELD
($TNX.X) falling 8.1 basis points to 4.021%.

U.S. Market Watch - 02/11/04




In PINK I've marked some of those asset classes or sectors that
seemed to find a more major response to some of today's news.
The decline in the dollar gave further lift to gold equities as
the AMEX Gold Bugs Index ($HUI.X0 238.68 +2.89% has now recouped
all of its recent month's declines, while homebuilders as
represented by the Dow Jones Home Construction Index (DJUSHB)
599.03 +3% continue to trade benefit from the thought of lower
mortgage rates, which are tied to Treasury YIELDS.

I do believe, based on observation, that thoughts of renewed
merger activity, which often comes in a healthy stock, found
strong interest among the larger brokers with investment banking
arms.  Broker/Dealer Index (XBD.X) components Lehman Brother
(NYSE:LEH) $86.89 +7.21%, Morgan Stanley (NYSE:MWD) $59.86
+5.05%, Bear Stearns (NYSE:BSC) $87.05 +5.01%, Goldman Sachs
(NYSE:GS) $107.09 +4.8% and Merrill Lynch (NYSE:MER) $60.91
+4.65% all found healthy percentage gains in today's trade.

I thought Citigroup (NYSE:C) $49.74 +1.67%, which owns Smith
Barney had been overlooked in today's session, and traders
looking for new bullish exposure to the financials should trade
long at $49.57, stop $48.25 and target $52.00 for Citigroup (C)
near-term.

Market Snapshot / Internals - 02/11/04 Close



After two days of anemic volume, traders seemed more active today
where brisk volumes were found at both the NYSE and NASDAQ.  A/D
breadth at the NYSE had advancer outnumbering decliners by a more
healthy 2:1 margin, when compared to NASDAQ's 3:2 breadth.

In last night's Index Trader Wrap we noted that the NASDAQ's 5-
day NH/NL ratio had edged above its 10-day NH/NL ratio, and
today's trade found the NYSE 5-day ratio (96.8%) moving above its
10-day ratio (96.2%).  This suggests shorter-term bullish
leadership at both the NYSE and NASDAQ is taking hold.

Pivot Analysis Matrix



The INDU, SPX, OEX saw a resurgence in buying today and all
traded above their WEEKLY R1s, MONTHLY R1s and WEEKLY R2s.  The
QQQ's, which tend to overdo things a little, relative to the NDX,
did see trade at their WEEKLY R1s.

There were some casualties among the NASDAQ-100 Components, with
Garmin Ltd. (NASDAQ:GRMN) $46.82 -10.13% and Comcast (CMCSA)
$31.23 -7.95% hit lower.  While these two companies are not
heavily weighted components in the NDX/QQQ, larger weighted
components Microsoft (NASDAQ:MSFT) $27.15 +0.48% (8.32% weight),
Intel (NASDAQ:INTC) $30.99 +1.47% (5.78% weight), Cisco Systems
(NASDAQ:CSCO) $24.24 -2.17% (5.03% weight) and Qualcomm
(NASDAQ:QCOM) $59.38 +2.22% (4.64% weight) gives the look that
"big tech" wasn't a major focus among buyers in today's rather
bullish session.

Dow Industrials (INDU) Chart - Daily Intervals



"Good gravy" is a term my grandmother used to use instead of
"good Lord," or "holy ....," which was likely what many a bear
was saying today.  The Dow Industrials simply erupted today and
looks to have some formidable momentum building to 10,800.

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



I've "cloned" or simply copied a prior bullish trend we had on
the SPX chart to try and visualize a bullish channel, similar
perhaps to the regression channel on the INDU chart.  While DAILY
levels in the pivot matrix do give some additional level to work
with as the SPX breaks above WEEKLY R2, 1,165 may be viewed as
bullish resistance.

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



While the INDU and SPX traded new 52-week highs today, the OEX
couldn't quite make it above its MONTHLY R1.  An intra-day look
of the OEX shows that at 11:00 AM EST, the OEX made a bold move
above the MONTHLY 38.2% retracement level of 566.60 and sprinted
directly to 570.25, came back within the 568.86 to 569.18 zone
(for about 5-minutes) then worked its way higher to the close.  I
would have to view support being rather firm at 566.60, as this
really seemed to be a decisive point for bullish buying today.

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



One trade to be cognizant of I think is the "beta trade" where
any institutional bulls that had moved money to the sidelines now
see the INDU and SPX making new highs, and may now feel pressured
to try and get back in on the move, with the feeling they aren't
"chasing" the markets.  With the NDX/QQQ lagging the move higher,
I think bulls look for a bullish entry back near $37.25, then a
reversal back above $37.43 for a "sling shot" type move above the
$37.70 level.

A correlative upside move might be found with the OEX breaking to
new highs.

INDU, SPX and OEX traders should also be keeping an eye on the
NDX/QQQ to see if the weaker index is following and perhaps
confirming the renewed bullishness.

Jeff Bailey


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

What's In Your Toolbox?
by Mark Phillips
mphillips@OptionInvestor.com

Trading is no different from any other profession, in that we need
to utilize the appropriate tools of the trade.  Of course we need
a chunk of cash in our brokerage account.  We also need a broker
that provides good service for the type of trading we do.
Attractive commission prices are good, but as many of you know,
good fills are at least as important.  What good would it do you
to save $10 on your commission, only to lose $200 because of a
lousy fill in a fast moving market?  Additionally, we need a
reliable and accurate data provider so we have good data on which
to base our trading decisions.

To process that data we need a workstation appropriate to our
trading approach.  A long-term trader/investor can get by with a
less sophisticated workstation than an agile day-trader, and there
are different levels of equipment needs spread between these two
extremes.  For all except for the most aggressive short-term
traders, a fast PC with a 17-inch monitor and a reliable internet
connection is probably sufficient for all of the research and data
processing necessary on a daily basis.

But that is really only the first step.  All it does is bring the
information to you and allow you to efficiently place trades.
Where the  rubber meets the road is in the set of tools you use to
decide which trade to take (what security and which direction),
when to place the trade and when to exit the trade (either for a
profit or loss).

The tools you use for this aspect of the process depend on the
types of trades you like to place, what your trading bias is (what
you expect from the market), and what strategies and analysis
tools you have found to be effective in the past.  And therein
lies the core of what I'd like to talk about today.  We've all
seen the disclaimers from brokers, advisory services, mutual funds
and company prospectuses that state, "Past performance is no
guarantee of future results".  A trading strategy will only remain
successful so long as the market conditions under which past
successes occurred remains in force.  If we fail to recognize the
change in market conditions, we will be applying rules and
decision-making processes that do not apply to the current market.

Remember the runaway bull market of late 1999 and early 2000?
Simple bullish strategies prevailed and we could consistently
profit either by buying the dips or jumping onto breakout moves to
profit wildly.  Those of us that prospered in that market
developed a set of tools that allowed us to profit from the
current market conditions.  A run into earnings was nearly as
certain as the fact that the sun would rise tomorrow and split
runs were equally lucrative.  In essence we could look for bullish
chart patterns, buy the breakout or a dip and pocket juicy profits
as the stock rocketed to new highs.

Then came the early stage of the bursting of the dot-com bubble
and market conditions changed dramatically.  Those bullish
strategies of a few months before yielded only busted plays.  Many
traders who failed to recognize the change in market conditions
watched like deer in headlights as their once-infallible set of
tools produced one losing trade after another.  After the
precipitous drop in the spring of 2000, die-hard bulls continued
to apply these broken tools and strategies as the markets rose in
agony throughout the summer.  They were easy pickings for bearish
traders who had recognized that the bull market would be a long
time returning.

Along came Labor Day of 2000 and with the rapidly slowing economy,
the tables were suddenly reversed.  Momentum trading was working
again, but to the downside.  Selling into the rallies or selling
the breakdowns worked equally well.  The tools that had worked in
the runaway bull market were applicable again, but they had to be
applied upside down.

This runaway bear market really chewed up quite a bit of chart
space before the decline finally halted in October 2002, and once
again the tone of the market changed.  It took several months as
traders were poised on pins and needles through the Iraq conflict.
But once they could see that it would be short-lived and have
minimal impact on the economy, the dip buyers became bolder and
bolder.  Since March of last year, very little other than long
strategies has been working, but it hasn't been a momentum market.
No, things are very different than 1999/2000, as the persistent
rise has been halting and erratic.  But the net result is the
same, with the market gradually working its way higher.

The past couple months have seen market conditions change once
again as both economic reports and earnings are looking decidedly
stronger.  That fueled a major breakout in early December and with
Easy Al offering more placating words again today, it looks like
the bulls are off to the races again.  The key dynamic that has
been at play recently is that every dip can be bought - seemingly
with impunity -- as there is no real selling pressure.  But we
haven't yet returned to the heady momentum trading days of years
past.  It is a market truism that markets fluctuate.  But a less
well-understood corollary is that successful trading techniques
fluctuate as well.  Determining when to use what strategy is at
the very heart of long-term trading success.

Here's a quick test you can do to see if my observations hold any
merit.  Scan through some of your favorite charts and look for
charts that have shown coiling action in recent months.  It
doesn't matter whether they have coiled for a breakout or a
breakdown.  When the stock finally poked through resistance or
dipped below support, did it result in a runaway move, or was it a
head-fake that resulted in a reversal?  Now look at the same
charts with your favorite oscillator displayed.  Is it just me, or
does it look like stocks are starting to trade off of overbought
and oversold levels once again?

But more importantly, I've noticed both stocks and the major
indices adhering more rigidly to important moving averages than
we've seen in recent years.  One good example is the recent
rebound of the NASDAQ Composite off its 50-dma and the
Semiconductor index off its 100-dma.  Now when we can get both the
moving averages and the oscillators in agreement, wouldn't you
agree that makes for a higher-odds trade?  Add in Fibonacci
retracements and a couple other tools and we can see how Technical
Analysis is worth its weight in gold.

Trading is a dynamic profession and one that is fraught with peril
for those that become complacent.  If the tools you are using to
trade are proving successful, then keep up the good work.  But
always keep a watchful eye on the big picture.  When you start to
notice that your winning trades are not coming as easily, it could
be an early warning that the underlying market conditions are
starting to change and that it is time to re-evaluate what is in
your toolbox.

On the other hand, if your trading strategies are not performing
as you would like, take a good look at the underlying market
conditions.  If you are applying momentum-based trading strategies
in a rangebound market or rangebound strategies in a runaway
market, you are likely to be disappointed with the results -- to
put it mildly.  And woe be to any of us (I'm as guilty as anyone)
that let their market bias get in the way of what the charts are
telling us.  If these shortcomings apply to you and your recent
trading results, then perhaps it is time to take a trip to the
hardware store and acquire some new tools.  At the very minimum,
some of those tools may need to be sharpened, cleaned or tuned up.

As for me, I'll be in the power-tool aisle!

Mark


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The Option Investor Newsletter                Wednesday 02-11-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: APOL, PD, TEVA
Dropped Calls: None
Dropped Puts: None
Spreads, Combinations & Premium-Selling Plays: Greenspan Sends
    Stocks Higher!
Watch List: Homebuilders & Broker-dealers


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APOL - Call Play
Raise stop from $71.00 to $73.50

---

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TEVA - Call Play
Raise stop from $61.00 to $62.00


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

None


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

None


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success.

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

Greenspan Sends Stocks Higher!
By Ray Cummins

Investors saw nothing but "green" Wednesday after the Fed Chief
said he saw "no urgency" in raising interest rates.

Blue-chips were also boosted by a $66 billion bid for Walt Disney
(NYSE:DIS) from Comcast (NYSE:CMCSA) and the Dow Jones Industrial
Average closed up 123 points to 10,737.  The NASDAQ Composite was
14 points higher at 2,089, with wireless stocks among the better
performers.  The broader the S&P 500 Index added 12 points to end
at 1,157 as aluminum, brokerage, steel, health care, oil & gas,
casino, gold, and homebuilding shares saw renewed buying pressure.
Advancing stocks outpaced decliners 7 to 3 on the New York Stock
Exchange and 3 to 2 on the technology exchange.  Over 1.7 billion
shares changed hands on the Big Board while volume was nearly 2.2
billion shares on the NASDAQ.  The bond market responded boldly
to Chairman Greenspan's comments with the 10-year note up 24/32
while its yield dropped to 4.02%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 02/10/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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

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

NAKED PUTS

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

SEPR     FEB    20    19.60  27.44    0.40   21.62%  2.04%
CECO     FEB    40    39.30  54.48    0.70    5.04%  1.78%
ERES     FEB    27    27.00  32.81    0.50    5.07%  1.85%
MICC     FEB    65    64.05  76.00    0.95    4.10%  1.48%
NTES     FEB    40    38.90  43.00    1.10    7.39%  2.83%
RMBS     FEB    25    24.50  30.04    0.50    5.60%  2.04%
SEPR     FEB    22    21.90  27.44    0.60    7.02%  2.74%
SINA     FEB    40    38.75  42.42    1.25    7.89%  3.23%
SOHU     FEB    30    29.30  29.79    0.49    4.70%  2.39% *
APPX     FEB    35    34.35  35.46    0.65    5.65%  1.89% *
CRDN     FEB    40    39.05  38.94   (0.11)   0.00%  2.43% *
GPRO     FEB    32    32.10  37.64    0.40    4.17%  1.25%
KYPH     FEB    25    24.45  26.96    0.55    6.84%  2.25%
IMCL     FEB    35    34.15  41.16    0.85    8.93%  2.49%
OSIP     FEB    30    29.60  35.20    0.40    4.67%  1.35%
PCLN     FEB    17    17.15  21.40    0.35    6.93%  2.04%
SEPR     FEB    22    22.05  27.44    0.45    7.00%  2.04%
BRCM     FEB    37    37.00  40.35    0.50    5.08%  1.35%
CLZR     FEB    22    22.20  24.03    0.30    5.54%  1.35% *
DRIV     FEB    22    21.95  23.48    0.55    9.34%  2.51% *
NANO     FEB    17    17.05  19.37    0.45   10.87%  2.64%
NTAP     FEB    20    19.55  21.93    0.45    8.71%  2.30%
OSTK     FEB    17    17.00  18.65    0.50   11.98%  2.94%
SEPR     FEB    22    22.25  27.44    0.25    5.25%  1.12%
ARO      FEB    30    29.50  32.05    0.50    8.22%  1.69%
ECLG     FEB    17    17.20  21.86    0.30    8.93%  1.74%
ERES     FEB    30    29.75  32.81    0.25    5.33%  0.84%
ERICY    FEB    20    19.65  28.92    0.35    9.74%  1.78%
JCP      FEB    25    24.60  28.34    0.40    8.27%  1.63%
LIN      FEB    30    29.65  31.50    0.35    5.80%  1.18%
WEBX     FEB    22    22.25  26.37    0.25    5.90%  1.12%

Positions in Sohu.com (NASDAQ:SOHU), Ceradyne (NASDAQ:CRDN)
American Pharmaceutical Partners (NASDAQ:APPX), Digital River
(NASDAQ:DRIV), and Candela (NASDAQ:CLZR) should have been
closed by conservative traders.  Overstock.com (NASDAQ:OSTK)
remains on the "watch" list.


NAKED CALLS

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

CYD      FEB    35   35.45  22.25    0.45   6.36%   1.27%
SNDK     FEB    80   81.10  50.25    1.10   5.97%   1.36%
ISIL     FEB    30   30.50  25.10    0.50   6.00%   1.64%
MCHP     FEB    35   35.45  30.09    0.45   4.57%   1.27%
UTSI     FEB    40   40.95  35.03    0.95   8.23%   2.32%
AEIS     FEB    25   25.55  22.20    0.55   9.96%   2.15%
ELX      FEB    30   30.45  26.68    0.45   6.62%   1.48%
PHM      FEB    47   48.00  44.75    0.50   4.66%   1.04%
MRVL     FEB    42   42.90  43.21   (0.31)  0.00%   0.93% *
NVLS     FEB    35   35.25  32.82    0.25   4.75%   0.71%
SSYS     FEB    25   25.60  24.60    0.60  15.57%   2.34% *

Marvell Technologies (NASDAQ:MRVL) and Stratasys (NASDAQ:SSYS)
are early-exit candidates.


PUT-CREDIT SPREADS

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

COCO    60.73  64.98   FEB  55  55   0.65  54.35   0.65   Open
KOSP    45.30  55.45   FEB  35  40   0.60  39.40   0.60   Open
CEPH    54.65  54.38   FEB  45  50   0.65  49.35   0.65   Open
NFLX    65.10  72.80   FEB  48  50   0.25  49.75   0.25   Open
CFC     80.32  87.70   FEB  70  75   0.65  74.35   0.65   Open
MDC     66.31  65.63   FEB  55  60   0.60  59.40   0.60   Open
CVH     42.54  42.31   FEB  37  40   0.36  39.64   0.36   Open
SII     48.80  49.00   FEB  43  45   0.30  44.70   0.30   Open
BA      43.56  43.77   FEB  40  43   0.30  42.20   0.30   Open
MRK     48.94  48.40   FEB  45  48   0.25  47.25   0.25   Open

Gilead Sciences (NASDAQ:GILD) has previously been closed for a
small loss.  Coventry Health Care (NYSE:CVH) remains on the
"watch" list.


CALL-CREDIT SPREADS

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

ANF     24.90  27.33   FEB  30  27   0.30  27.80   0.30   Open?
MANH    27.00  26.96   FEB  35  30   0.50  30.50   0.50   Open
ESV     27.45  29.91   FEB  35  30   0.45  30.45   0.45   Open?
NVLS    41.68  32.82   FEB  47  45   0.40  45.40   0.40   Open
HTCH    32.45  28.57   FEB  40  35   0.60  35.60   0.60   Open
ICST    27.60  27.14   FEB  35  30   0.50  30.50   0.50   Open
BZH     92.40  98.88   FEB 105 100   0.55 100.55   0.55   Open?
LEN     43.71  45.07   FEB  50  47   0.30  47.80   0.30   Open
BHE     32.30  35.36   FEB  40  35   0.50  35.50   0.14  Closed
OMG     27.59  31.67   FEB  35  30   0.50  30.50  (1.17) Closed

OM Group (NYSE:OMG), Benchmark Electronics (NYSE:BHE), Beazer
Homes (NYSE:BZH) and Ensco (NYSE:ESV) are candidates for early
exit.  Abercrombie & Fitch (NYSE:ANF) is on the "watch" list and
any further upside movement would be cause for closure.  Bearish
spreads in Checkfree (NASDAQ:CKFR) and Kohl's (NYSE:KSS) have
previously been closed for small losses.

Questions & comments on spreads/combos to Contact Support

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

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

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

BULLISH PLAYS - NAKED PUTS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

DISH - EchoStar  $39.28  *** New Merger Target? ***

EchoStar Communications (NASDAQ:DISH) operates through two major
business units, the DISH Network and EchoStar Technologies.  The
DISH Network offers a direct broadcast satellite subscription TV
service across the United States with millions of DISH Network
subscribers.  EchoStar Technologies Corporation is engaged in the
design, development, distribution and sale of DBS set-top boxes,
antennae and other digital equipment for the DISH Network and the
design, development and distribution of similar equipment for a
range of international satellite service providers.

DISH - EchoStar  $39.28

PLAY (sell naked put):

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

SELL PUT  FEB 37.5  UAB NU     850   0.25  37.25   6.0%   0.7% *
SELL PUT  MAR 35    UAB OG    4268   0.45  34.55   3.1%   1.3% TS
SELL PUT  MAR 37.5  UAB OU    1373   1.05  36.45   5.8%   2.9%


__________________________________________________________________

IDCC - InterDigital Comm.  $24.83  *** Entry Point? ***

InterDigital Communications (NASDAQ:IDCC) specializes in the
architecture, design and delivery of wireless technology and
product platforms.  Over the course of its corporate history,
the company has amassed a substantial and significant library of
digital wireless systems experience and know-how, and holds an
extensive worldwide portfolio of patents in the wireless systems
field.  InterDigital markets its technologies and solutions
primarily to wireless communications equipment producers and
related suppliers.  In addition, the company licenses its Time
Division Multiple Access and Code Division Multiple Access
patents to equipment manufacturers worldwide.

IDCC - InterDigital Comm.  $24.83

PLAY (sell naked put):

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

SELL PUT  FEB 22.5  DAQ NX    1385   0.20  22.30   8.7%   0.9%
SELL PUT  MAR 20    DAQ OD    1737   0.45  19.55   6.7%   2.3% *
SELL PUT  MAR 22.5  DAQ OX    1165   0.95  21.55   9.1%   4.4%


__________________________________________________________________

IMCL - ImClone Systems  $43.10  *** Erbitux Speculation Only! ***

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

IMCL - ImClone Systems  $43.10

PLAY (sell naked put):

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

SELL PUT  FEB 30    QCI NF   14386   0.45  29.55  16.8%   1.5% *
SELL PUT  FEB 35    QCI NG   19182   1.00  34.00  33.3%   2.9%
SELL PUT  FEB 40    QCI NH   12115   2.00  38.00  41.9%   5.3%


__________________________________________________________________

LSCP - Laserscope  $21.00  *** Next Leg Up? ***

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.

LSCP - Laserscope  $21.00

PLAY (sell naked put):

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

SELL PUT  FEB 20    LXQ ND      10   0.60  19.40  25.3%   3.1%
SELL PUT  MAR 17.5  LXQ OW      10   0.40  17.10   6.2%   2.3% *
SELL PUT  MAR 20    LXQ OD      23   1.30  18.70  12.3%   7.0%


__________________________________________________________________

PCLN - Priceline.com  $24.87  *** A Big Day! ***

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

PCLN - Priceline.com  $24.87

PLAY (sell naked put):

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

SELL PUT  MAR 20    PUZ OD     637   0.20  19.80   3.1%   1.0% TS
SELL PUT  MAR 22.5  PUZ OX      30   0.80  21.70   7.8%   3.7% *
SELL PUT  MAR 25    PUZ OE       0   1.75  23.25  12.2%   7.5%


__________________________________________________________________

SLAB - Silicon Laboratories  $58.69  *** New Trading Range? ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits for
the wireless, wireline and optical communications industries.  The
company initially focused its efforts on developing ICs for the
personal computer modem market and is now applying its mixed-signal
and communications expertise to the development of ICs for other
high growth communications devices, such as wireless telephones and
optical network applications.  The company's mixed-signal design
engineers utilize standard complementary metal oxide semiconductor
(CMOS) technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.

SLAB - Silicon Laboratories  $58.69

PLAY (sell naked put):

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

SELL PUT  FEB 55    QFJ NK     493   0.40  54.60   6.7%   0.7% *
SELL PUT  MAR 50    QFJ OJ     292   0.60  49.40   3.2%   1.2% TS
SELL PUT  MAR 55    QFJ OK     461   1.70  53.30   6.5%   3.2%


__________________________________________________________________

SONO - SonoSite  $25.46  *** Premium-Selling Only! ***

SonoSite (NASDAQ:SONO) is a provider of point-of-care, all-digital,
high-performance, ultrasound imaging systems for use in a variety
of clinical applications and settings.  The company focuses on six
market segments: radiology, obstetrics and gynecology, emergency
medicine, surgery, cardiology and vascular medicine.

SONO - SonoSite  $25.46

PLAY (sell naked put):

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

SELL PUT  FEB 22.5  UZS NX      45   0.30  22.20  13.5%   1.4% *
SELL PUT  FEB 25    UZS NE      35   0.95  24.05  30.1%   4.0%



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

BULLISH PLAYS - CREDIT SPREADS

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

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

GS - Goldman Sachs  $107.09  *** Strong Sector! ***

The Goldman Sachs Group (NYSE:GS) is a global investment banking
and securities firm that provides a range of services worldwide
to a substantial and diversified client base.  The firm operates
offices in over 20 countries with activities are divided into two
primary segments: Global Capital Markets, and Asset Management
and Securities Services.  The Global Capital Markets segment is
made up of Investment Banking, Trading and Principal Investments.
Goldman's Asset Management segment offers investment strategies
and advice across all major asset classes: global equity; fixed
income, including money market instruments; currency, as well as
alternative investment products.  The firm's Securities Services
activities include brokerage, financing services and securities
lending.

GS - Goldman Sachs  $107.09

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-95.00   GS-OS  OI=3656  ASK=$0.50
SELL PUT  MAR-100.00  GS-OT  OI=1696  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$99.35


__________________________________________________________________

MSTR - MicroStrategy  $64.78  *** New "All-Time" High! ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on
this data to users via web, wireless, and voice.

MSTR - MicroStrategy  $64.78

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-50.00  EOU-OJ  OI=156  ASK=$0.55
SELL PUT  MAR-55.00  EOU-OK  OI=243  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$54.45



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

AAII - aaiPharma  $19.98  *** Inventory Concerns? ***

aaiPharma (NASDAQ:AAII) is a science-based specialty drug company
focused on the commercialization of various branded pharmaceutical
products that it develops or acquires.  The company has operations
primarily in the United States and Europe.  It has acquired three
branded product lines since August 2001: the M.V.I. and Aquasol
family of products, Brethine and the Darvon and Darvocet family of
products.  It is also developing its own proprietary products, as
well as developing improvements and line extensions to its current
products, by applying its scientific expertise and portfolio of
proprietary and in-licensed drug-delivery technologies.

AAII - aaiPharma  $19.98

PLAY (sell naked call):

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

SELL CALL  MAR 25    IUQ CE     747   0.40  25.40   7.5%   1.6% *
SELL CALL  MAR 23    IUQ CX     397   0.85  23.35  11.1%   3.6%


__________________________________________________________________

GRMN - Garmin  $46.82  *** Sell-Off In Progress! ***

Garmin (NASDAQ:GRMN) is a global provider of unique navigation,
communications and information devices, most of which utilize
global positioning system (GPS) technology.  The company designs,
develops, manufactures and markets a diverse family of handheld,
portable, and fixed GPS-enabled products and other navigation,
communications and information products for the general aviation
and consumer markets.  Each of Garmin's GPS products utilizes its
proprietary integrated circuit and receiver designs to collect,
calculate and display location, direction, speed and other useful
information in forms optimized for specific uses.

GRMN - Garmin  $46.82

PLAY (sell naked call):

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

SELL CALL  FEB 50    GQR BJ    1062   0.45  50.45   9.5%   0.9% *
SELL CALL  MAR 55    GQR CK     217   0.40  55.40   3.0%   0.7% TS
SELL CALL  MAR 50    GQR CJ      39   1.40  51.40   6.8%   2.7%


__________________________________________________________________

PHS - PacifiCare Health Systems  $29.13  *** Sector Slump! ***

PacifiCare Health Systems (NYSE:PHS) offers managed care and
other health insurance products to employer groups and Medicare
beneficiaries in eight western states and Guam.  The company's
commercial and senior plans include various health maintenance
organizations (HMOs), preferred provider organizations (PPOs),
and Medicare Supplement products.  The firm also offers a variety
of specialty managed care products and services that employees can
purchase as a supplement to basic commercial and senior medical
plans or as stand-alone products.  These products include pharmacy
benefit management (PBM), behavioral health services, group life
and health insurance, dental and vision benefit plans.

PHS - PacifiCare Health Systems  $29.13

PLAY (sell naked call):

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

SELL CALL  FEB 32.5  PHS BZ    7631   0.20  32.70   8.0%   0.6% *
SELL CALL  MAR 35    PHS CG     547   0.25  35.25   3.4%   0.7% TS
SELL CALL  MAR 32.5  PHS CZ    1097   0.65  33.15   6.0%   2.0%



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

BEARISH PLAYS - CREDIT SPREADS

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

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

MGAM - Multimedia Games  $38.65  *** New Downtrend Underway? ***

Multimedia Games (NASDAQ:MGAM) is the leading supplier of
interactive electronic games and player stations to the rapidly
growing Native American gaming market.  The company's games are
delivered through a telecommunications network that links its
player stations with one another both within and among gaming
facilities.  Multimedia Games designs and develops networks,
software and content that provide its customers with a range of
gaming systems.  The company's development and marketing efforts
focus on Class II gaming systems and Class III video lottery
systems for use by Native American tribes throughout the United
States.

MGAM - Multimedia Games  $38.65

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-50.00  QMG-CJ  OI=275  ASK=$0.25
SELL CALL  MAR-45.00  QMG-CI  OI=246  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$45.45


__________________________________________________________________

UTEK - Ultratech  $26.28  *** In A Trading Range? ***

Ultratech (NASDAQ:UTEK) develops, makes and sells photolithography
equipment to help reduce the cost of ownership for manufacturers
of integrated circuits, including advanced packaging processes and
various nanotechnology components such as thin film head magnetic
recording devices.  The company supplies step-and-repeat systems
based on one-to-one technology to customers located throughout
North America, Europe, Japan and the rest of Asia.

UTEK - Ultratech  $26.28

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-35.00  UQT-CG  OI=21  ASK=$0.20
SELL CALL  MAR-30.00  UQT-CF  OI=45  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$30.60



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

SEE DISCLAIMER - SECTION 1

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


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

Homebuilders & Broker-dealers
___________________________________________________________________

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.
___________________________________________________________________


Pulte Homes Inc - PHM - close: 46.55 change: +1.80

WHAT TO WATCH:  Positive comments from Greenspan drove away
investor fears over interest rates and homebuilders soared during
the widespread market rally.  PHM added more than 4% and broke
out above price resistance at $46.00 and technical resistance at
the descending trendline of lower highs.  Volume was decent at
2.2 million shares.  This looks like a bullish entry point for
traders to try and capture any move toward the $50 level.

Chart=


---

Goldman Sachs - GS - close: 107.09 change: +4.91

WHAT TO WATCH:  Smith Barney upgraded GS to a "buy" from a "hold"
and raised its price target to $122, which helped launch a rally
in the brokers.  Boosting that rally was the Comcast-Disney
merger (hostile bid) news.  More M&A activity like this one and
the JPM-ONE merger announced last month is big news for the
broker-dealers who reel in tons of cash in the deal making.  Wall
Street is starting to believe that 2004 could unveil a number of
deals.  Look for a pull back to catch an entry point in GS.

Chart=


---

Maxim Integrated Products - MXIM - close: 54.33 change: +2.03

WHAT TO WATCH:  The semiconductor index finally began to move
higher today after two days of consolidation in the shadow of
Friday's big rally.  Enjoying a strong rebound with the SOX is
MXIM.  Like the SOX its MACD technical indicator has produced a
new buy signal and shares are rushing back into its rising
channel.  We'd look for a bounce in MXIM from the $53.00 level as
a potential bullish entry point.

Chart=


---

Caterpillar - CAT - close: 78.96 change: +2.40

WHAT TO WATCH:  Economically sensitive stocks like CAT were
bouncing strongly higher today on positive comments from Alan
Greenspan before congress.  The daily chart on CAT suggest a new
bottom at the $76 level.  We'd consider new bullish positions on
a move above the $80 mark and its 50-dma.  Target the $86 level.

Chart=


---

Legg Mason - LM - close: 92.79 change: +3.93

WHAT TO WATCH: LM is another broker-dealer that really out
performed today with a big breakout over resistance at $90 with
extremely strong volume.  This looks like a bullish entry point
to capture any move toward the $100 level.  Patient traders can
hope for a dip back toward $90 and buy the bounce but given LM's
close at its high for the session it may not pull back any time
soon.

Chart=



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

AMAT $22.30 +0.27 - AMAT managed a 1.22% gain today, under
performing many of its peers in the SOX.  AMAT remains under its
50-dma but the stock appears to have set a new bottom at the $21
level.  Technicals are bullish.  Earnings should be out on Feb.
18th.

BZH $101.91 +3.03 - BZH is another homebuilder that looks very
strong.  We like the bullish breakout over the $100 level and
believe this could be an entry point for a run back towards the
$110 region.

MER $60.91 +2.71 - MER managed to close near 2-year highs on very
strong volume at 9.8 million shares.  We could see a breakout
tomorrow.

LEH $86.89 +5.85 - LEH actually hit new all-time highs above the
$86 level.  We wouldn't chase it here.  Look for a dip.

PDCO $68.83 +1.65 - PDCO looks interesting.  The consolidation
appears to be ending but bulls need to see a breakout over the
$70 level.


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