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Daily Newsletter, Tuesday, 02/17/2004

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The Option Investor Newsletter                 Tuesday 02-17-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Home In The Range
Futures Markets: Triple tops and bottoms
Index Trader Wrap:
Market Sentiment: Another Broad-Based Rally


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      02-17-2004           High     Low     Volume Advance/Decline
DJIA    10714.88 + 87.00 10735.25 10628.74 1.82 bln   2379/ 888
NASDAQ   2080.35 + 26.80  2084.72  2068.01 1.64 bln   2067/1125
S&P 100   571.24 +  5.32   572.28   565.92   Totals   4446/2013
S&P 500  1156.99 + 11.18  1158.98  1145.81
W5000   11284.06 +110.10 11298.52 11174.00
RUS 2000  594.48 +  9.34   594.48   585.14
DJ TRANS 2920.74 +  4.20  2926.70  2896.59
VIX        15.40 -  0.18    15.96    15.32
VXO (VIX-O)15.56 -  0.07    16.15    15.24
VXN        23.87 -  0.27    25.40    23.66
Total Volume 3,728M
Total UpVol  2,787M
Total DnVol    896M
Total Adv  4992
Total Dcl  2329
52wk Highs  746
52wk Lows     9
TRIN       0.65
NAZTRIN    0.66
PUT/CALL   0.88
************************************************************

Home In The Range

Positive events in the chip sector and takeover speculation
sent the indexes back to the top of their recent ranges. The
coming option expiration probably helped with the futures up
substantially before the cash markets opened for trading. For
a month known for consolidations February is not following the
historical trend.

Dow Chart - Daily


Nasdaq Chart - Daily



The morning started strong with the NY Empire State Survey at
42.1 and well above consensus of 39.5. This was a record high
for this survey and suggests on the surface that the health of
the manufacturing sector in New York is robust. However, New
Orders were flat at 34.9 and shipments fell sharply to 26.6
from 41.4. The decrease in shipments came from only 17% of
the respondents but it was enough to knock the number back to
the October level. 57% of the respondents still expect growth
over the next six months. Prices paid rose to 33.6 from 27.9
and the employment component fell to 16.5 from 24.5. This shows
that while the overall outlook is good there are still some
cracks in the foundation. The big drop in the employment
component does not bode well for an increase in the various
jobs reports in the coming months.

Industrial Production rose +0.8% in January and slightly over
the consensus estimates. December's numbers were revised lower
and knocked production back to +0.0% for the December period.
Capacity Utilization finally moved back over 76% after nearly
a year at lower levels. All the major components were either
flat or rose in January. The bad news? Utility output rose
+5.2% due to the cold weather and contributed strongly to the
production gains. Since utility output is not normally a job
creator or indications of a positive consumer trend the impact
is really negative. The majority of news sources that report
on this economic number will not likely disclose this impact.
That means 99.9% of traders will only see the headline number
and assume it was good news when in reality it is questionable.

The Housing Market Index fell again to 65 and the lowest level
since last July. All components fell with present conditions
falling to 72 from 76. The six-month outlook fell from 76 to
73 and the potential traffic numbers fell from 51 to 46. The
drop in traffic below 50 indicates the majority of builders
are reporting fewer lookers. On the surface this would look
negative but I feel the weather is the main contributing
factor. We have had a very cold January with multiple
blizzards and those conditions do not prompt many buyers
to cruise the suburbs looking for an open house. With interest
rates still low I expect these numbers to rise dramatically
when warmer weather appears.

Microsoft learned today that the EU had refused to accept
their proposed antitrust settlement. Microsoft had offered
to include a CD with competitors software with each Windows
system released and the EU said it was not enough. Since the
competition is only a download away today it remains to be
seen what the EU wants. If you want to use Real Networks
instead of Windows Media Player it only takes a couple
minutes to download the software now but you actually have
to decide you want to try it and go look up the website. If
MSFT included a CD with every Windows system it might actually
gain some impulse customers Real Networks might never have
had. Evidently the EU wants Microsoft to include the software
in the installation much like AOL is now. That way on every
new installation you would have a couple more icons to move
to the recycle bin once your system was running.

John Deere reported blowout earnings for the last quarter and
soared +3.00 in regular trading. Earnings more than doubled
over the same period last year. The blamed the gains on low
interest rates, tax cuts and strong demand for agriculture
products around the globe. DE reported +68 cents per share
compared to analyst's estimates of only 52 cents. Caterpillar
also reported a +11% growth in sales over the last 90 days
with a +27% gain in North America. On a smaller scale Toro
announced that they now expect to earn between 34 - 36 cents
per share compared to previous guidance of 15 - 20 cents. It
appears there is a revival underway in the outdoor equipment
sector that spans all price ranges.

Amazon said it was full of hot air and the cost of that air
was rising. AMZN uses plastic bags of air as packing material
in their shipments. These air pillows are produced with natural
gas and the spike in gas rates had pushed the cost of the air
bags up by +40%. The stock lost another -85 cents and closed
right on its 200 dma at 45.53. AMZN has been riding the line
for the last ten trading sessions and was trying to rebound
until the increased cost news hit the airwaves. Also making
news was a drop of -7% in the shares owned by Bezos. He now
claims ownership of only 26% of AMZN shares. Raising some
vacation money Jeff?

Wal-Mart rose +1.20 on news that same store sales came in at
the high end of its 3% - 5% growth estimate for February. The
news came only two days before WMT is scheduled to report
earnings. WMT said its average ticket was up and sales were
in its high profit categories of apparel, pharmacy and
Valentine's items.

Intel made several announcements today including upgrading its
Xeon server chips to 64-bit technology. The announcements at
its developer conference were aimed to gain support for its
64-bit product and delay acceptance of the AMD chip. Microsoft
also made press releases about the progress of the Windows-XP64
product. CEO Craig Barrett said plans for product development
and release were right on schedule. He also said they were
seeing "sustained growth in processor sales" that indicated
to them a continuing IT recovery. Twice during the speeches
the comments provided a spike in the market. INTC rose +67
cents but did not get very far away from the $30 price magnet
that has been tough to escape for the last two weeks.

After the bell BRCM announced it was holding a conference call
on Wednesday to discuss a substantial improvement in their
business outlook. The stock jumped +$3 in after hours trading.
The call will be at 1:45 Pacific time. No further details were
given and a spokesman would not say what period would be discussed.
Month, quarter, year? It makes a big difference and no clues were
available.

CSCO announced a new video over IP solution for corporate
accounts. This Video-OIP solution will run $200 per user and
is expected to take the Voice-OIP application to the next level.
CSCO also announced that expensing employee stock options would
have knocked -43% off its most recent earnings if forced to
account for them in regular earnings. Earnings would have been
6 cents instead of a dime.

AT&T Wireless (AWE) finally got a bid it was happy with at $15,
all cash, from Cingular Wireless. This will propel the SBC/BLS
joint venture to the lead in the U.S. wireless race with 46 mil
customers. The deal will still have to be approved by the
government but is not expected to be denied. The baby bells
see wireless growth as the only way to compensate for the drop
in their traditional wireline business.

In other takeover news Disney declined the Comcast offer as
too cheap. Comcast said they did not want to pay more and the
companies are at a standoff. If another bidder does not appear
and Disney stock drops once the speculation cools then Comcast
will probably revive their offer. Until then it is a waiting
game.

The Bureau of Labor Statistics cancelled the PPI release that
was scheduled for Thursday citing "unexpected difficulties"
in data conversion. They have not announced when the PPI will
be rescheduled. It took me several minutes to access the
BLS website where the notice was posted with a continuous
message of "too many people accessing the website at this
time". Evidently quite a few people were interested in the
sudden cancellation.

The markets gapped open Tuesday and never looked back. The Dow
came within 11 points of its two year high made last week at
10746. The index was very strong despite weakness in DIS, SBC
and IBM. If the entire market was up to the Dow there would be
little doubt we were going higher. However, the Nasdaq stalled
against the upper resistance range at 2085 that held it back
last week. The Nasdaq had a good day at +26 points but it just
seemed to be filled with tension that it could break at any
moment. The two strongest indexes for the day were still the
SOX and the Russell. While neither are close to their highs
they led the other indexes once again with the Russell closing
near the high of the day.

Make no mistake this was a very bullish day. Advancers beat
decliners 5:2 and up volume beat down volume 3:1. The only
negative was light volume overall. All the indexes ended near
the top of their recent range and there was no major selling
at the close. The only negative after the close was an
earnings miss by Agilent. They missed earnings by a penny.
NTAP beat by a penny, PLAB beat by five cents, NTES beat by
+4 cents and SIMG by a penny. The various futures are mixed
but not showing any indications of selling before tomorrow.

For us to move up from here the Nasdaq has to break the 2085
resistance. Once that level is behind us the Dow could move
to a new high. This may sound like overt bullishness but the
supporting internals are very strong. Remember this is
normally a consolidation month. ANY forward progress should
be looked upon thankfully. The BRCM announcement after the
close along with several positive tech earnings should keep
the pressure on the bears and leave the bulls in control.

The potential problems are the pickup in economic reports
the rest of the week and the AMAT earnings tomorrow after
the close. Nobody is expecting any bad news from AMAT but
you can never be too careful. Initial support for the
Nasdaq is 2065 but it could easily drift lower if we run
out of excitement. Initial support for the Dow is 10680
and then 10600 but we are at the top of the range. We could
easily drift lower for sometime and still be in an up trend.
Should we move up from here a move over 10750 should generate
additional short covering and attract those earnings run
buyers off the sidelines.

The Nasdaq pattern worries me. We currently have a lower
high in progress with the Nasdaq struggling to break 2085.
Should this resistance hold we could easily retest the
50 dma at 2034 or even horizontal support at 2000. We need
to break the 2085 resistance quickly and strongly to banish
thoughts of a retest and bring buyers back into the market.

There were several comments today suggesting this rally
was option related. It could be but I have nothing to base
that opinion on. The volume was light and normally option
related rallies come on heavy volume. With expiration on
Friday traders are running out of time to close positions.
With the three-day weekend I would have expected most big
players to have closed positions by last Friday rather than
face the additional event risk of world markets being open
while ours were closed.

Wednesday will be a pivotal day. If the Dow can move higher
it could easily set a new high and help drag the Nasdaq
through its current resistance levels. Just remember that
any pullback to the middle of its range (10600) is just
consolidation and would be normal. I would also consider
it another buying opportunity. It is too soon to expect
the April earnings run to begin in earnest so take whatever
gains the market gives us with gratitude.

Enter Passively, Exit Aggressively.

Jim Brown
Editor


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

Triple tops and bottoms
Jonathan Levinson

The binary dollar trade gave us another day of dollar weakness
and equity/commodity strength, with the US Dollar Index testing
multiyear lows while select equities and commodities try for new
highs.  Treasuries were unchanged for the day.


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 tested the bottom at 84.80 for the third time
this year, and for the third time dollar bears couldn't keep it
down.  The bounce was weaker than the preceding two tries,
however, and the test is far from over.  Note the potential
bullish divergence on the 10-day stochastic if the current low
holds, with the potential for a much higher oscillator low
against the current price low.  In any event, the downtrend
remains comfortably intact, 84.80 is the key level to watch, and
the dollar is so far negative for the week.  The CRB was up
strongly for the day, adding 2.20 to close at 267.05, led by
copper (+4.54% to 1.30), silver and sugar futures.


Daily chart of April gold


Gold and silver had a great day, with April gold adding 5.10 to
close at 416.10, just below its high of 416.80, while silver rose
228 to close at 6.798, a 3.47% move.  Gold posted a higher low
and lower high against Friday's wide range, and was firm
throughout the day.  The daily cycle upphase continues to
progress and support is below at 412-414, followed by 408.  418-
420 is next resistance before a retest of the rally highs.


Daily chart of the ten year note yield


Ten year treasuries managed to frustrate everyone today, with the
ten year note yield (TNX) closing unchanged at 4.048% after
trading both sides of unchanged.  This occurred despite a
whopping 10B overnight repo to replace the 3B expiring, and an
additional 730M coupon pass delivered today.  With a net 7.73B in
new liquidity, the lack of movement in bonds is strange, and
indicates that the Fed's dealers were either assisting equities
today.  Perhaps some of that money was used to make payment on
the treasury auctions settling from last week.  Either way,
treasury yields put in their fourth consecutive higher low today,
and while the daily cycle downphase on the TNX continues, it's
acting tired.


Daily NQ candles


The NQ had a good day, adding 20 points to close at 1508 after
trading as high as 1514 in the afternoon.  It erased Friday's
damage and redeemed the hesitant daily cycle upphase, with a
higher low printed at 1487 just to remove any shred of doubt.
1480 is now rising trendline support, and while the picture looks
considerably more bullish than it did on Friday, it's worth
noting that the hunchback head and shoulders has yet to be
violated.  A break above 1520 would be the first step, but until
the rally highs get exceed, this sloppy topping formation will
remain viable.  Resistance is at 1514, 1518-20, followed by 1530.
Support below is at 1505, 1496, 1492, 1488 and 1480.


30 minute 20 day chart of the NQ


The 30 minute cycle oscillators were more trouble than they were
worth today, with the 300 minute stochastic spending longer in
overbought territory than we've seen all month.  A fairly
convincing pullback off the high caused a sell signal on the
stochastic from an intraday bearish divergence and left the Macd
on a bearish kiss.  Whether this is a throwover above the
descending trendline or the first step of a retest of the rally
highs, we can only guess.  However, the daily cycle upphase
delivered strength where there should have been weakness today.
Any weakness tomorrow should kick off the 30 minute cycle
downphase that was expected as of this morning, and in honor of
the unexpected strength that lasted all day, bears should be
looking for a break of 1500 support for first confirmation.


Daily ES candles


ES gained 10.75 to close at 1156.50.  It bears a remarkable
resemblance to the triple bottom action on the US Dollar Index
above, but in reverse.  Gold would look similar, but it's
relatively further from its rally high than is the ES.  That said,
the ES engulfed Friday's sell, setting a higher low and
higher high and reinvigorating the daily cycle upphase.
Resistance is at 1158.75, today's high, and carries through to
1160.  One would expect a short covering rally above that level,
and anything more than a suddenly reversed spike above 1160 would
set up the current 1158.75-1160 as strong support.  Current
support is 1152, followed by 1146-7.


20 day 30 minute chart of the ES


The 30 minute ES looks like a breakout trying to happen, hindered
only by the intraday overbought condition.  Any failure of bears
to break the rising support line currently at 1152 would set up a
likely break of 1158.75-1160 on the following 30 minute cycle
bounce.  The Macd left off on a bearish kiss, reminding us why
it's a bad idea to chase tops based on one indicator alone.  The
300 minute stochastic spent the day telling us to expect
downside, but the Macd took its time and has not yet confirmed
it.


150-tick ES


The short cycle ES shows a mixed picture because of the
predominantly sideways drift, but the Keltner channels are in
gear to the downside, with the broader envelope (proxy for the 30
minute cycle) and the narrower red channel (proxy for the short
intraday cycle) both pointed lower.  Given the confusion in the
short cycle oscillators, I'm inclined to follow the 30 minute
cycle here, and so long as today's highs don't get exceeded, that
channel should continue to point south.


Daily YM candles


YM rose 80 to close at 10705, and continues to hold at last
week's highs.  The Dow transports diverged for much of the day in
negative territory.  Despite discussions of impending higher
interest rates, there was no corresponding weakness in metals,
equities or even the ten year note, and my thinking is that the
recent weakness in the Trannies has more to do with the
persistent high prices of crude futures than interest rates.  If
so, then the weakness in the Trans should eventually spread (as
long as crude stays at or above current levels), because high oil
leads to destructive cost-push inflation and ultimately,
stagflation.

20 day 30 minute chart of the YM


The binary dollar trade was alive and well again today, with
dollar weakness corresponding to strength in everything else.
This intermarket pattern should continue to guide our market view
until it ceases to work.  Theoretically, a continued declining
dollar would lead to hyperinflationary increases in all other US
asset classes, but as the Transports may be signaling, rallying
commodities aren't necessary compatible with rallying equities.
In the meantime, prudence dictates following the trend in
whichever timeframe you're watching.  For tomorrow, I'm expecting
intraday weakness within the context of a daily cycle upphase- in
other words, a corrective move lower that should find support at
a higher low.  See you there.


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

John Deere green

Market participants bid stocks higher after manufacturing data
from the regional New York State Empire indices as well as
broader January industrial production data revealed continued
growth at many of the nations factories.  Enough growth was seen
to have January capacity utilization rising to 76.2% from
December's 75.6%, giving investors and/or the unemployed hope
that the growing economy may indeed bare fruit in the form of
more jobs in coming months.

By session's end, all equity sectors were colored John Deere
green, where even Joe Diffie may have been at a loss for lyrics
after seeing heavy equipment maker Deere & Company (NYSE:DE)
$67.00 +4.67% trade an all-time high in today's session after
posting stronger-than-expected quarterly earnings as its easily
recognizable farm equipment and earthmoving machinery found
healthy demand from farmers and constructors alike.

The AMEX Gold Bugs Index ($HUI.X) 242.03 +3.41% edged out the
Airline Index ($XAL.X) 63.28 +3.26% for today's sector winner.

While gold equities traded broadly higher with the U.S. Dollar
Index (dx00y) 84.97 -0.58% showing dollar weakness, industrial
metal stocks also performed admirably on the heels of today's
manufacturing/industrial data with Dow component Alcoa (NYSE:AA)
$37.75 +1.99% jumping $0.75 per share, while copper producer
Phelps Dodge (NYSE:PD) $83.80 +2.35% gained $1.93.  Palladium
producers Stillwater Mining (NYSE:SWC) $13.99 +7.6% and North
American Palladium (AMEX:PAL) $10.00 +7.99% rose to new 52-week
highs, while Titanium Metals Corp. (NYSE:TIE) $77.91 +6.74%
surged to all-time highs.

Silver $6.78 +3.19% jumped $0.12 to trade multiyear highs, while
Western Silver Corp. (AMEX:WTZ) $7.44 +14.28%, which has yet to
report any revenues from current operations, surged to all-time
highs.

Financials also put in another strong session with the Securities
Broker/Dealer Index ($XBD.X) 739.87 +2.28% closing at an all-time
high as merger and acquisition activity along with more robust
trading volumes continues to drive sector gains.

Banking mergers had National City (NYSE:NCC) $34.56 -2.34% buying
Provident Financial (NASDAQ:PFGI) $38.70 +11.11% for
approximately $2.1 billion, while North Fork Bancorp (NYSE:NFB)
$43.37 -0.86% is acquiring Greenpoint Financial (NYSE:GPT) $45.25
-3.37% for $6.3 billion, where the transaction will create the
largest regional bank in the New York metro area and the 16th
largest bank holding company in the nation.

Market Snapshot / Internals - 02/17/04 Close



A pickup in volume in today's last-hour of trade kept volumes
respectable at both the NYSE and NASDAQ, where AT&T Wireless
(NASDAQ:AWE) $13.78 +16.58 accounted for just over 10% of NASDAQ
volume after agreeing to be acquired by Cingular for $15 per
share, in a cash transaction valued at approximately $41 billion.

Pivot Analysis Matrix -



Friday's close found the major indices closing below this week's
WEEKLY Pivot levels, but this morning's upbeat economic data had
the major indices rising to trade their WEEKLY R1s intra-day.
Applied Materials (NASDAQ:AMAT) $21.94 +0.78% reports quarterly
EPS after tomorrow's close, and views from fundamental shops in
recent days has been mixed, where forward guidance most likely
dictates whether the SOX.X can break back above the correlative
WEEKLY R1 and MONTHLY Pivot of 526.

Semiconductor Index (SOX.X) Chart - Daily Interval



According to Dorsey/Wright and Associates, the Semiconductor
Sector Bullish % (BPSEMI) is "bear confirmed" at 69.47%, which
has me more cautious from the bullish side as long as the SOX
remains below the 531 level.  Last week, Allen Steinkopf, an
analyst at Federated Investors, said that Federated funds sold
all their positions in semiconductor equipment names like AMAT,
KLAC and ASML in January on thought that the equipment makers
have come too far too fast and that valuations appear stretched.
Today, Banc of America Securities said it thinks AMAT will report
blowout quarterly earnings, but thinks a strong quarterly report
is already factored into the stock.

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



Both the NASDAQ-100 Index (NDX.X) and its Tracking Stock
(AMEX:QQQ) $37.44 +1.35% gapped higher at the open.  I would have
to think bullish traders are going to be tentative into tomorrow
evening's Applied Materials (AMAT) $21.94 +0.78% earnings where
the NDX/QQQ will be susceptible to backfilling a portion of
today's gap higher.  MACD continues to waiver just above the zero
level where it would appear that any type of resurgence in
strength for the NDX comes above the 1,516 level, or QQQ $37.70.

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



The broader S&P 500 (SPX.X) just barely achieved a new 52-week
high intra-day as Friday's declines and weaker than forecasted
February Michigan sentiment survey was quickly erased by hard
data in the form of today's January industrial production
figures.

I wouldn't try to argue that the Michigan sentiment data released
on Friday wasn't a negative, but traders, and economists will
often note that sentiment or consumer confidence is survey data,
where those polled are giving anecdotal data, while Industrial
production is based more on hard numbers, where some traders and
economists give greater weight.

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



Nine of the ten most heavily weighted OEX components saw gains in
today's session.  Of the top 5, only XOM managed a new 52-week
high.  A quick review of bar charts shows C looking as if it
wants to challenge its recent 52-week high of $52.00, where GE
and PFE look to stabilize after a more modest pullback.
Meanwhile, Microsoft (NASDAQ:MSFT) $26.99 +1.5% moved back above
its longer-term 200-day SMA after the European Commission told
the company it didn't find MSFT's willingness to enclose CD-ROMS
with competitors software a likely solution to anti-trust issues.

Dow Industrials (INDU) Chart - Daily Intervals



The INDU finds near-term resistance at/around the 10,730 level.
MACD oscillator has edged above its Signal, and in an upward
trend, a Dow break above 10,760 would easily see gains to the
MONTHLY R2 of 10,857.  IBM (NYSE:IBM) 99.37 -0.34% has been
seeing higher lows in recent sessions, but has found willing
sellers just below $100.50.  With CAT $79.52 +2.71% showing some
signs of recovery after a pullback from $85 to $75, look for
further strength in IBM and some continued strength from CAT to
provide upside catalysts for the INDU.

Jeff Bailey


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

Another Broad-Based Rally
- J. Brown

Investors returned from their long, three-day weekend feeling
refreshed and in a buying mood.  Helping set the tone were
positive economic reports and a new round of merger
announcements.  The Dow Transports were probably the weakest
sector of the market today due to one brokerage downgrading the
truckers and another downgrading the railroads over concerns of a
rising interest rate environment.  Obviously, these two analysts
are planning ahead since the Fed has stated it will remain
patient before raising rates and many believe it could be 2005
before the FOMC raises rates as we wait for our economy to
generate substantial job growth.

State Street Bank issued a report on their investor confidence
index.  They claim investor confidence has fallen sharply since
December and they interpret the drop as institutional investors
becoming much more cautious although still focused on equities.
The news certainly didn't affect traders today.  The rally was
very widespread with every major sector index closing in the
green.  The best performer today was the airline index (XAL),
which gained 3.26%.  This put the XAL above its 50-dma and poised
for a run towards its January highs.

The second best performer today was the XAU Gold & Silver index,
which added 3%.  This also happened to be a bullish breakout over
its 50-dma.  Boosting the group was a $5 gain in gold futures to
$416 an ounce.  Rounding out the top three sectors is the
homebuilders.  The DJUSHB home construction index added 2.36% to
close over the 600 level for the first time since late December.
Obviously investors are not concerned about interest rates rising
or they wouldn't be pouring money into this industry.  Granted a
number of builders have stated that business is so good they
would not expect any slow down even if interest rates did rise a
bit.

The last few weeks have seen the DFI defense sector and the IUX
insurance sector as the leaders setting new highs on a regular
basis.  Noteworthy today was the new all-time closing high for
the Defense sector over the 700 level.  Plus, we have the XBD
broker-dealer index hitting a new all-time high.  The recent out
break of mergers and speculation that we'll continue to see
consolidation has sent these deal-makers strongly higher.  Given
the two bank mergers today we also note that the BKX and BIX are
near their highs.

As a matter of fact several of the leading sectors have been able
to maintain their gains and today's rally sent them right back
toward their recent peaks.  The retailers have been doing well
and should continue to do well as we hear more earnings news from
the group this week.  Healthcare and biotech are also near their
highs.  Plus the OIX oil index is poised for a breakout over the
330 level as crude oil prices creep towards the $35 a barrel.

Overall it was a very bullish day.  Advancing stocks crushed
decliners 3-to-1 on the NYSE and 2-to-1 on the NASDAQ.  Up volume
was more than 3 times down volume on the NYSE and almost as
strong on the NASDAQ.

Tomorrow look for more strength in the techs, especially chip
stocks, after Broadcom (BRCM) announced tonight plans to host a
conference call after the bell on Wednesday to discuss its
stronger business outlook.  This sent the stock higher by more
than 6% in after hours trading.  Plus, we'll hear from Applied
Materials (AMAT), the largest chip equipment maker in the world,
as they report earnings after the close on Wednesday.

Wall Street will also be digesting the latest housing starts and
building permits tomorrow morning.  Both reports are expected to
show a slight dip from previous readings but still at
historically high levels.  On Thursday we'll have the PPI report,
leading indicators, weekly jobless claims and the semi book-to-
bill report.


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

Market Averages

DJIA ($INDU)

52-week High: 10746
52-week Low :  7416
Current     : 10714

Moving Averages:
(Simple)

 10-dma: 10603
 50-dma: 10408
200-dma:  9588



S&P 500 ($SPX)

52-week High: 1158
52-week Low :  788
Current     : 1156

Moving Averages:
(Simple)

 10-dma: 1143
 50-dma: 1115
200-dma: 1031



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  795
Current     : 1506

Moving Averages:
(Simple)

 10-dma: 1491
 50-dma: 1478
200-dma: 1343



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

I'm actually a bit surprised that the VXO didn't drop further
today given the strong broad-based rally. The VIX and VXN also
posted similar losses - mild and inside the recent trading range.

CBOE Market Volatility Index (VIX) = 15.40 -0.18
CBOE Mkt Volatility old VIX  (VXO) = 15.56 -0.07
Nasdaq Volatility Index (VXN)      = 23.87 -0.27

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.88        830,958       730,243
Equity Only    0.81        691,467       561,932
OEX            1.29         32,917        42,510
QQQ            7.88         21,541       169,743


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

Bullish Percent Data

           Current   Change   Status
NYSE          77.6    + 0     Bull Confirmed
NASDAQ-100    70.0    + 1     Bear Alert
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       88.2    + 0     Bull Confirmed
S&P 100       89.0    + 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: 0.95
10-dma: 0.98
21-dma: 0.96
55-dma: 0.98


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    2146      2018
Decliners     723      1057

New Highs     373       239
New Lows        8         7

Up Volume   1365M     1122M
Down Vol.    391M      399M

Total Vol.  1777M     1568M
M = millions


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

Commitments Of Traders Report: 02/10/04

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

No change for the Commercial traders.  Small Traders have
grown slightly more bullish.


Commercials   Long      Short      Net     % Of OI
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%)
02/10/04      412,217   414,044    (1,827)   (0.2%)

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
01/23/04      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%
02/10/04      143,496    80,362    63,134    28.2%

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 are starting to put some money to work and we're
seeing another jump in contracts for both longs and shorts.
Small traders have pared back their longs a bit and put some
of that money on the short side.


Commercials   Long      Short      Net     % Of OI
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%)
02/10/04      297,601   356,630    (59,029)  ( 9.0%)

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
01/23/04     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%
02/10/04     110,480     58,428    52,052    30.8%

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


NASDAQ-100

Not much change from the Commercial traders but they are
a tiny bit more bullish here.  Small Traders have significantly
bumped up their long positions.


Commercials   Long      Short      Net     % of OI
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%
02/10/04       44,406     40,439     3,967    4.7%

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
01/23/04        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%)
02/10/04        9,906    13,018    (3,112)  (13.6%)

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

Not much change this week for Commercials.  Small traders
are slightly more bearish on the Dow.


Commercials   Long      Short      Net     % of OI
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%
02/10/04       21,764    11,974    9,790      29.0%

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
01/23/04        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%)
02/10/04        6,267    14,220   (7,953)   (38.8%)

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 02-17-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: CDWC
Dropped Puts: None
Call Play Updates: AHC, APOL, ATH, DHR, DHI, GD, ESRX, IBM, PD, RNR
New Calls Plays: BRL, QCOM,
Put Play Updates: AVID, MMM, SINA
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:
*****

CDW Corp. - CDWC - close: 68.22 change: +0.93 stop: 64.00

Despite giving all the appearances of a pending breakout when we
began coverage just over a week ago, CDWC has definitely lost its
way.  The stock has been struggling below the $70 resistance
level without a single push over that level since late January.
Fortunately, we initiated the play with a trigger over the 1/27
intraday high and that trigger has never been satisfied.  Rather
than continue to wait, we're pulling the plug tonight in order to
make room for more promising play candidates.

Picked on February 8th at    $69.13
Change since picked:          -0.91
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     1.34 mln
Chart =



PUTS:
*****

None


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option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

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********************
PLAY UPDATES - CALLS
********************

Amerada Hess Corp. - AHC - close: 60.79 change: +0.45 stop: 57.00

The past few sessions certainly haven't offered much in the way
of price action on our bullish play on AHC, as the stock has
consolidated near its highs and looks ready to make another
bullish push.  The past few day's sideways price action looks
like it could be a bullish continuation flag and today's intraday
slight move over $60.75 could be the beginning of a breakout from
that pattern.  That breakout should kick off a move up to the $65
area, mirroring the first leg of the rally from $56 to roughly
$60.50.  Recall that there's some resistance that may come into
play near the $62 level, so momentum entries above $61 may run
into some near resistance.  So the better entry strategy may be
to look for a pullback to support near $59 or possibly as low as
$58 to give a continuation entry.  Maintain stops at $57 for now.

Picked on February 10th at   $59.53
Change since picked:          +1.26
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =     1.08 mln
Chart =


---

Apollo Group - APOL - close: 77.25 change: -0.12 stop: 73.50

Bullish enthusiasm seems to have waned a bit among APOL investors
over the past few sessions and it looks like the stock is due for
another orderly pullback to support before continuing its upward
journey.  Daily Stochastics are now clearly tipped over into a
bearish descent and that adds weight to the continued profit
taking thesis, at least for the next couple days.  That reality
has us turning our focus to looking for a pullback entry near
support, which ideally should occur near $75, the site of the
mid-January price high, as well as the 20-dma at $75.23.  Should
price action reverse back higher from current levels, then
momentum traders will get their shot, with the likely action
point being a breakout over the $80 level.  For now, it looks
like the higher odds approach is to wait for the rebound from
support before playing.  Maintain stops at $73.50.

Picked on February 1st at    $77.44
Change since picked:          -0.19
Earnings Date               12/18/03 (confirmed)
Average Daily Volume =     1.80 mln
Chart =


---

Anthem, Inc. - ATH - close: 83.98 change: -0.22 stop: 81.00

Friday's thrust higher was just enough to satisfy our entry
trigger on ATH and when there was no bullish follow-through, the
stock began drifting back down into its consolidation zone
between $82-85.  The bulk of today's price action was focused
near the middle of that range, so it's hard to make a case for a
high-odds entry point yet.  A dip and rebound from the $82-83
area would still make for a very nice continuation entry, whereas
momentum traders will want to see a strong breakout over $85.25
before jumping into the fray.  Note how the 10-dma ($83.27)
continues to provide closing support -- we're looking for that
pattern to remain in place, producing a fresh breakout to new
highs later this week.  Since this leg of ATH's rally kicked off,
the 20-dma ($81.83) hasn't been touched, so our $81 stop should
be well protected.

Picked on February 12th at   $84.53
Change since picked:          -0.55
Earnings Date               4/28/04 (unconfirmed)
Average Daily Volume =     1.52 mln
Chart =


---

Danaher Corp - DHR - close: 93.87 cls: +1.43 stop: 89.85

Headlines continue to be scarce for DHR but the stock did bounce
today. Unfortunately, it remains under resistance at the $95
level.  More of a concern is the hint of a trend of lower highs
easier to see on the hourly chart of DHR.  Bullish traders may be
better off waiting for DHR to clear the $95 level before
initiating new positions.  As mentioned in Sunday's update DHR's
technicals are somewhat bearish so the bounce from its 50-dma
(currently 90.60) is still a viable alternative.

Picked on January 30 at $91.01
Change since picked:    + 2.86
Earnings Date         01/29/04 (confirmed)
Average Daily Volume:      841 thousand
Chart =


---


D.R.Horton - DHI - close: 31.38 chg: +0.93 stop: 27.99

Good news for homebuilders.  The DJUSHB home construction index
rose 2.36% to close over the 600 level for the first time since
late December.  Leading the way was DHI, which set a new high of
its own, hitting $32.10 before slipping back into the afternoon's
close.  The entire group looks poised for additional gains and
traders may want to consider buying any dip toward the $31 level
in DHI.  An alternative stock we'd consider in the homebuilder
group is BZH with a target of $110.

Picked on February 08 at $30.00
Change since picked:     + 1.38
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =


---

General Dynamics - GD - close: 96.55 chg: +0.61 stop: 92.00

The defense sector continues to march higher with today's new
all-time high over the 700 level on the DFI.X.  Meanwhile GD is
still consolidating under the $97 level.  Rival NOC also traded
up today but it was defense issue Alliant Tech Systems (ATK),
which really lead the group higher, with a new breakout over the
$60 level.  We do expect GD to rejoin the group in the journey
higher soon but traders will probably do best to wait for GD to
break over the $97 level before initiating new positions.

Picked on February 08 at $96.88
Change since picked:     - 0.33
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       1.0 million
Chart =


---

Express Scripts - ESRX - cls: 71.90 chng: +1.32 stop: 68.00*new*

Finally, our patience was rewarded.  After its incessant range-
bound trade in the $68-71 area for the past month, ESRX finally
broke out on Tuesday, tacking on 1.87% at the close after briefly
testing the $73 level early in the day.  This certainly looks
like the beginning of the next upward leg, which ought to propel
price action up to our $75 price target, also the site of the
double top from last summer.  There were ample opportunities to
establish positions just above $68 over the past two weeks and
now that ESRX has broken out, that level should not be revisited.
Raise stops to $68 tonight, which is just below the bottom of the
recent consolidation, as well as the 30-dma ($68.01).  A pullback
and rebound from the $70.50-71.00 area now looks favorable for
continuation entries, but we would not recommend breakout entries
above today's high due to the proximity of our final target at
$75.

Picked on January 13th at    $68.32
Change since picked:          +3.58
Earnings Date               2/24/04 (confirmed)
Average Daily Volume =        987 K
Chart =


---

Int'l Bus. Machines - IBM - cls: 99.37 chng: -0.34 stp:
97.50*new*

There seems to be something peculiar going on with IBM, as the
stock has still been unable to capitalize on the broad market
strength to sustain a breakout over the $100 level.  The stock
continues consolidating in an ever-narrowing range, with
resistance being found just over the century mark, while at the
same time, the intraday lows are steadily moving higher as
support continues to materialize near the 10-dma ($99.25) with
backup support at the 20-dma (now rising to $98.98).  Intraday
dips near support can still be used for entry, while traders
looking to enter on strength will want to wait for the breakout
over $100.50 before playing.  IBM really shouldn't be able to
fall below the $98 level that has been untouched for over two
weeks now, so we'll snug our stop up to $97.50 tonight.

Picked on February 1st at    $99.23
Change since picked:          +0.14
Earnings Date               4/15/04 (unconfirmed)
Average Daily Volume =     5.42 mln
Chart =


---

Phelps Dodge - PD - close: 83.80 chg: +1.93 stop: 78.00

Copper prices hit another new high today, which helped drive the
2.35% rebound in shares of PD.  Patient traders may want to hope
for a dip closer to the $80 level and buy a bounce there.
However, there is no guarantee that PD will pull back that much
after Friday's low at 81.30.  We're going to keep a close eye on
our stop loss.  If PD provides another strong move higher we'll
probably raise our stop to $79.99, but not yet.

Picked on February 11 at $80.51
Change since picked:     + 3.29
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       1.6 million
Chart =


---

Renaissancere Ltd - RNR - close: 52.19 chg: +1.36 stop: 49.50

The IUX insurance group stretched to hit another new high today
and RNR joined the rally with a 2.67% gain of its own.  The
rebound from Friday looked pretty bullish and its nice to see the
follow through today on more than twice the average volume.
We're going to leave our stop at 49.50 for now.

Picked on February 15 at $50.83
Change since picked:     + 1.36
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =



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

Barr Pharmaceuticals - BRL - close: 80.23 chg: +1.21 stop: 78.00

Company Description:
Barr Laboratories, Inc. is a specialty pharmaceutical company
engaged in developing, manufacturing and marketing generic and
proprietary pharmaceuticals. With fiscal 2003 revenues of $903
million, the Company currently manufactures and distributes more
than 100 pharmaceutical products in core therapeutic categories
including oncology, female healthcare (including hormone
replacement and oral contraceptives), cardiovascular, anti-
infective and psychotherapeutics. The Company currently has
facilities in six states – New Jersey, New York, Ohio,
Pennsylvania, Virginia and Washington DC – and employs
approximately 1,224 individuals. (source: company website)

Why We Like It:
Longer-term BRL has been a relatively strong performer, more than
doubling from its November 2002 lows near $40.  The journey
higher hasn't been without its pull backs but these have allowed
investors to time their entries.  The January 2004 low near $70
was a test of previous resistance acting as support and investors
used it as another entry point.  More recently in February the
stock gapped higher on Feb. 6th after a strong earnings report.
BRL beat the estimates by 7 cents on revenues that rose almost
80% from the previous year and well above consensus.  Furthermore
the company reaffirmed their estimates for 20-25% earnings
growth.  Wall Street is actually very bullish on generic drug
makers in general and believes the niche can generate 20%
earnings growth for the next 3-to-5 years.  What should excite
fans of generic drug makers is the fact that over half the
current "blockbuster" drugs will lose their patent protection by
2008.

Short-term traders will note that BRL announced a 3-for-2 stock
split last Friday.  The split is expected to take effect on March
15th and this provides a great short-term catalyst for momentum
traders.  If you do your homework you will see news that the FDA
has delayed its decision to allow "Plan B", a morning after pill,
to be sold over the counter.  BRL is buying Plan B from the
Women's Capital Corp and expects to complete the sale by Feb.
20th.  Neither Wall Street nor BRL seemed concerned over the
FDA's decision to delay Plan B, which is not expected to hit very
high sales numbers, although BRL is expected to more than double
the current annual sales for the drug.

We believe that BRL is almost done consolidating in the current
$78-80.50 range but we will use a TRIGGER at $80.61 to open the
play for us.  Until BRL trades at or above this price we'll sit
on the sidelines.  More aggressive traders can try and time an
entry on a test of the 10-dma currently near $78.40.  Our first
target is the $85 region.  If we are triggered our stop loss will
be $78.00.  FYI: Point-and-figure chart fans will note that BRL
has recently broken out above its bearish resistance and its
vertical count suggests a price target of $97.00.

Suggested Options:
Short-term traders can choose from the March or May calls.  Both
months have plenty of open interest.  Our favorites are the March
80s but the May 80s look good too.

BUY CALL MAR 75 BRL-CO OI= 126 at $6.30 SL=4.00
BUY CALL MAR 80*BRL-CP OI= 745 at $2.80 SL=1.40
BUY CALL MAR 85 BRL-CQ OI= 356 at $0.95 SL= --
BUY CALL MAY 80 BRL-EP OI= 586 at $5.00 SL=3.00
BUY CALL MAY 85 BRL-EQ OI= 327 at $2.85 SL=1.50


Annotated Chart:



Picked on February xx at $xx.xx <-- see trigger
Change since picked:     + 0.00
Earnings Date          02/05/04 (confirmed)
Average Daily Volume:       730 thousand
Chart =


---

Qualcomm, Inc. - QCOM - close: 59.55 change: +1.86 stop: 56.00

Company Description:
Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated CDMA
chipsets and system software and technology licensing.  QCOM owns
patents that are essential to all of the CDMA wireless
telecommunications standards that have been adopted or proposed
for adoption by the worldwide standards-setting bodies.
Currently, QCOM has licensed its CDMA patent portfolio to more
than 80 telecommunications equipment manufacturers around the
world.

Why we like it:
It has been a stellar year for QCOM investors, as the stock began
its upward trajectory last May near $30 and worked steadily
higher in an ascending channel until late December, when the
stock broke out of that channel and then blasted higher in early
January, reaching to just shy of $61 and then relaxing a bit into
the earnings report on January 21st.  With no nasty surprises,
investors supported the stock after the report and it found
support at the top of the 1/08 gap and the top of the broken
channel near $56.  Traders looking for a more substantial
pullback in order to enter the bullish trend were left standing
on the sidelines as the bullish action has been picking up steam
again over the past week.  Today's 3% advance puts QCOM just
below $60 again and with daily MACD just starting to turn bullish
again, it looks like a breakout move may be in the offing.

The PnF chart confirms the bullish outlook with one Buy signal
after another since the breakout over $40 last August.  The
current vertical count projects upside for the stock to the $67
level.  That lines up nicely with what we can see on the long-
term price chart, as the stock will find firm resistance in the
$67-68 area, at the site of the highs from July and August of
2001.  There is the potential for the stock to stumble a bit near
the $62 level, resistance from the November/December highs from
2001, but we're betting that will be only a pausing point on the
way to our $67 target.  Of course, we want to make QCOM prove its
bullish intentions before we step into the play, so we're going
to use an entry target of $60.75, just over the early January
highs.  Momentum trades on the initial breakout look favorable,
while more cautious traders can look for rejection at $62 and a
subsequent pullback to confirm new support in the $59-60 area.
Set stops initially at $56, at the bottom of the recent
consolidation.

Suggested Options:
Shorter Term: The March $60 Call will offer short-term traders
the best return on an immediate move, as it will be at the money
when the play is triggered.

Longer Term: Aggressive longer-term traders can use the March $65
Call, while the more conservative approach will be to use the
April strikes due to the greater time until expiration.  Our
preferred option is the April $60 strike, which is at the money
and should provide sufficient time for the play to move in our
favor.

BUY CALL MAR-60 AAO-CL OI=5502 at $2.10 SL=1.00
BUY CALL MAR-65 AAO-CM OI=3745 at $0.60 SL=0.30
BUY CALL APR-60*AAO-DL OI=9940 at $3.10 SL=1.50
BUY CALL APR-65 AAO-DM OI=4075 at $1.35 SL=0.60

Annotated Chart of QCOM:



Picked on February 17th at   $59.55
Change since picked:          +0.00
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     8.48 mln
Chart =



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

Avid Technology - AVID - close: 42.62 chg: +1.37 stop: 44.36*new*

It's very tough to pick bearish plays in this environment.  It
may be even tougher to maintain them.  We have the sneaking
suspicion that AVID is trying to put in a bottom here.  Its
technical oscillators are starting to curve higher again.
Normally, we expect that because the stock has been so short-term
oversold.  However, with the major indices like the DJIA and the
S&P 500 near two-year highs we're feeling cautious.  The 3.3%
gain in AVID today doesn't help.  We're going to lower our stop
loss to $44.36, which is just above the high on Feb. 9th.  More
conservative traders can protect themselves with a stop loss at
43.40, just above the high on Feb. 11th.

Picked on February 04 at $42.87
Change since picked:     - 0.25
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       612 thousand
Chart =


---

3M Company - MMM - close: 80.32 change: +0.64 stop: 82.50

With the broad market starting off with a bullish surge this
morning, MMM popped up above the $80 level at the open and then
spent the bulk of the day consolidating in a very narrow range of
less than a dollar.  While it is a bit irritating that the
nascent downward move from last Friday found no follow through,
it was encouraging to see how the stock traded notably weaker
than the major indices.  MMM was unable to return to its first
hour highs in the afternoon, even though the broad market broke
out to trade and close above those first hour markers.  We still
like entries on a rollover below the $81 area or on a break under
the 100-dma ($79.15), although the more conservative approach on
a breakdown is still to wait for a trade at $77, generating that
PnF Sell signal.  Traders playing today's inside day setup can
use a drop below Friday's intraday low ($79.68) as a trigger for
entry into the play.  Maintain stops at $82.50, just above the
50-dma ($82.12).

Picked on February 15th at    $79.68
Change since picked:           +0.64
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.77 mln
Chart =


---

Sina Corp - SINA - close: 40.56 change: +0.11 stop: 41.35

Hmm... we are triggered on our new aggressive put play but this
Chinese Internet stock may prove too volatile for us.  The stock
broke through support at its simple 50-dma and its month-long
price support at $39.35 this morning and hit $39.14 before
quickly bouncing.  Our trigger was $39.35 (or 39.34) so we're
(hypothetically) in this play with a stop loss at $41.35.
Unfortunately, the intraday rebound didn't stop and SINA closed
back above its 50-dma and the $40.00 level.  This is not a good
sign and smells like a bear trap.  Fortunately, SINA still has a
trend of lower highs and its 10-dma (currently 41.82) is still
putting pressure on the stock.  The bad news (for us) is that our
stop is a little tight at 41.35.  We didn't want to risk that
much and we may be stopped out tomorrow on another test of the
10-dma.  More aggressive traders who can take the heat may want
to adjust their stops to the $42.00 level.  We are not suggesting
any new bearish entries.

Picked on February 17 at $39.35
Change since picked:     + 1.21
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =



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

None


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The Option Investor Newsletter                  Tuesday 02-17004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Homes, Cars, Jewelry and more


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

Homes, Cars, Jewelry and more
___________________________________________________________________

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.
___________________________________________________________________


Beazer Homes - BZH - close: 102.59 change: +1.78

WHAT TO WATCH:  The homebuilders were pretty strong today as the
DJUSHB home construction index added 2.36% to close above the 600
level for the first time since December.  The entire group looks
poised for additional gains and BZH could be a leader.  The stock
has broken above its 50-dma (last week) and the psychological
$100 mark.  Now there is some resistance near $103 and traders
may want to consider a trigger above today's high at $103.25 but
BZH looks like a bullish play with a short-term target at its
December highs near $110.

Chart=


---

General Motors - GM - close: 49.48 change: +0.60

WHAT TO WATCH:  General Motors still looks tempting as a long
play if the current rebound can break above resistance at the
$50.00 mark.  The stock has failed there four days in a row.
Granted it won't be an easy run if it does breakout because its
50-dma is still overhead.  Bearish traders may want to look for a
move under $48.50 as a potential trigger to ride a drop toward
the $45 level.

Chart=


---

Infosys Technologies - INFY - close: 91.44 change: +2.44

WHAT TO WATCH:  We've been looking for a bullish breakout over
the $90 level and its 50-dma for days now.  INFY finally
delivered today and its MACD just produced a new buy signal.  The
rally today has also broken its short-term trend of lower highs.
We'd consider this an entry point with a target of $101.  Watch
out for potential resistance near $96.

Chart=


---

Tiffany & Co - TIF - close: 41.00 change: +2.03

WHAT TO WATCH:  Investors must be betting that Valentines day
shopping was pretty strong this last week.  Shares of TIF have
soared 5.2% today after basing along the $38-39 level above its
200-dma for the last month.  Volume was very strong today at 1.5
million shares and if TIF can break above its 50-dma it may be a
play for a run toward its next resistance near $45.

Chart=



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

FRE $64.70 +0.33 - Freddie Mac looks like a potential play with a
trigger over $65.00 and a target near $70.00.

CAT $79.52 +2.10 - Fellow heavy machinery maker Deere & Co (DE)
posted very strong earnings today and CAT joined in with a 2.7%
rally of its own.  We'd consider CAT a play over its 50-dma,
target the $85 level.

HAR $75.49 +1.99 - Harman closed right at resistance but still
looks poised for a move toward the $80 mark, which is all-time
resistance from January.

MWD $60.59 +0.84 - We'd consider MWD a play with a trigger over
$61.00.  The entire broker-dealer sector is on fire and the rash
of mergers is going to keep interest hot for the people who make
it happen.


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