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Daily Newsletter, Sunday, 02/22/2004

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The Option Investor Newsletter                   Sunday 02-22-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Questions and More Questions
Futures Market: Buyers of Cash
Index Trader Wrap: Running out of Gas
Editor's Plays: Readers Write
Market Sentiment: Are You Ready?
Ask the Analyst: See Note
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 02-20        WE 02-13        WE 02-06        WE 01-30
DOW    10619.03 -  8.82 10627.8 + 34.82 10593.0 +104.96 - 80.22
Nasdaq  2037.93 - 15.63 2053.56 - 10.45 2064.01 -  2.14 - 57.72
S&P-100  564.87 -  1.05  565.92 -  0.14  566.06 +  5.75 -  5.10
S&P-500 1144.11 -  1.70 1145.81 +  3.05 1142.76 + 11.63 - 10.42
W5000  11143.58 - 30.42 11174.0 + 44.60 11129.4 +100.20 -127.58
RUT      579.89 -  5.25  585.14 +  1.07  584.07 +  3.31 - 15.38
TRAN    2892.18 - 24.38 2916.56 + 22.20 2894.36 +  8.40 -186.99
VIX       16.04 +  0.46   15.58 -  0.41   15.99 -  0.64 +  1.79
VXO       16.25 +  0.62   15.63 -  0.35   15.98 -  1.07 +  2.18
VXN       24.12 -  0.02   24.14 -  0.49   24.63 -  0.43 +  3.79
TRIN       1.29            1.19            0.62            1.00
Put/Call   0.86            0.76            0.62            0.81
******************************************************************

Questions and More Questions

Was Friday's market weakness caused by the CPI data?  Did Tokyo's
raised terror alert spook the markets?  Did the dollar's strength
hit those stocks that had seen gains in an export-friendly, low-
dollar environment?  And, the biggest question of all--did the
markets begin a breakdown on Friday or just rest for a day?

Friday dawned with a mixed performance in overnight markets.
Japanese investors reacted to a smaller-than-expected rise in the
Japanese services industries index by sending the Nikkei lower by
0.31 percent.  Other Asian bourses turned in a mixed performance.
Semi-conductors fell in Asia due to a January U.S. semiconductor
book-to-bill number that was above the benchmark 1 but still
deemed disappointing by Asian investors.  A strengthening dollar
helped support those export-heavy Asian markets, however.
European markets were mixed, too, but U.S. futures were higher
and U.S. markets looked primed for a bounce until the release of
the CPI data.

That CPI data showed a 0.5 percent increase for January, far
above the expected 0.1 percent rise.  The surprise number raised
fears of inflation and rate hikes.  The markets tried to steady
at the open, but then news of a heightened terror alert in Japan
hit the markets.  Indices fell, climbed in bear flag formations
and broke down again.  By 1:00 EST, most had hit their day's low
and then began a laborious climb that caught fire at about 2:00
EST.  The Fed had marshaled its forces and Fedspeak included
Federal Reserve Governor Ben Bernanke asserting that the CPI
figure shouldn't raise alarms.  The president of St. Louis's
Federal Reserve Bank, William Poole, also reassured investors,
saying that inflation should remain low throughout 2004.
Greenspan did his part, although he focused on job growth and not
inflation.  He reiterated his belief that expanding output would
soon lead to jobs growth.

The Dow, SPX, NDX, and OEX all managed climbs above their opening
levels, but the SOX and Nasdaq never made it that far when
another bout of selling hit the markets just before the bond
market close.  Most indices ended near the middle of their day's
ranges, with the Dow down 0.43 percent, the Nasdaq down 0.39
percent, and the SPX down 0.26 percent.

Weak sectors included semiconductor stocks, networking stocks,
computer storage and peripherals, the metals, the airliners, and
the homebuilders, but even normally defensive sectors such as the
pharmaceuticals and those represented by the Morgan Stanley
Healthcare Providers Index traded lower.  The Oil Service Sector
Index was green as were the Morgan Stanley Consumer and Early
Cyclical Indices, but the first two of those three were
essentially flat.  The advdec line was negative all day, and by
the close there were 12 advancers to 21 decliners on the NYSE and
12 advancers to 20 decliners on the Nasdaq.  Down volume measured
2.7 times up volume on the NYSE and 1.7 times up volume on the
Nasdaq.

HPQ and AA led decliners among Dow stocks.  HPQ lost 3.06 percent
following its earnings report, considered in line with
expectations; and AA lost 2.41 percent after it announced that it
had sold its automotive fastener business.  This was part of an
already announced plan to help AA pay down debt.  Other story
stocks included DIS, now target of Comcast's takeover bid; and
KO, subject of a Bear Stearns downgrade to a peer-perform rating
after Thursday's announcement that the CEO would retire at the
end of the year.  DIS lost 1.67 percent, but KO declined only
0.12 percent.  Some stocks performing well included G, adding
0.82 percent and reaching a 52-week high after Prudential raised
its rating to an overweight rating; and WMT, gaining 1.80 percent
after yesterday's earnings report.

Those who came to the markets today expecting the usual opex
Friday, including early-morning volatility and then pin-them-to-
the-max-pain number, straight-across-the-charts trading, found
themselves surprised by the day's action.  How much damage was
actually done?

Annotated Daily Chart for the Dow:



On the way to its low of the day, the Dow slipped below 10,600,
testing its 21- and 30-dma's and finding support from them.
However, some troubling facts become apparent from a study of the
chart.  The Dow may have broken down below a recently established
symmetrical right triangle, and the afternoon bounce may have
been nothing more than a bounce back up to retest the broken
support.  Bearish price/MACD divergence occurred as that higher
high was hit week before last, and oscillators have continued a
pattern of lower highs.  The apparent breakdown, even with the
bounce, may merely have been reforming the consolidation pattern
into a bearish right triangle, with a flat bottom at about
10,575-10,580 and a descending top trendline.

RSI and stochastics have rolled down and both have far to go
before hitting levels indicating oversold conditions.  Those
oscillators support the idea that the Dow is either in the
process of breaking down or has already broken down, with plenty
of downside to go.  Believing in oscillators in a trending market
is a treacherous endeavor, but the Dow has begun a consolidation
process despite the recent new highs, and we might be able to
begin putting more credence in those oscillators.  For now,
however, I consider the evidence inconclusive, although with a
slight bias to the downside.  Look for another break above 10,700
as a sign that the Dow may be breaking out to the upside, and a
break below Friday's low as confirmation of a downside break.  Be
careful, though, if that downside break occurs, because the 50-
dma speeds up to join forces with the top line of the former
ascending trendline.  A bounce of some amplitude should be
expected at that point.  A failure to maintain the 50-dma would
be more serious.

Annotated Daily Chart for the TRAN:



While the Dow was rising to its 2/11 new high, the TRAN was
bouncing from the bottom of its recent plunge.  The 50 percent
retracement of the plunge and the 50-dma stopped the TRAN's
advance, however.  The divergent behavior of the two sister
indices, the Dow Industrials and Transports, has been troubling
to those familiar with Dow theory, and the longer that divergence
persists, the more bearish the outlook for the Dow.

Like the Dow, however, the TRAN's chart leaves questions
unanswered.  Until and unless the TRAN sustains levels above that
50 percent retracement of the recent plunge, we can't consider
any move higher to be a bullish move.  Yet Friday's doji at the
bottom of a decline left open the possibility that the TRAN could
reverse, printing a higher low.  Oscillators look bearish, but
also look as if they're trying to slow their descent in
preparation to turn up again.  Next week's movement will tell us
more, but watch for a TRAN move above 2952 to verify strength in
the Dow, or a fall below 2800 to verify weakness.  A TRAN move to
2800 will create a new P&F sell signal.

Annotated Daily Chart for the NDX:



The NDX left traders with as many unanswered questions as did the
other indices.  Is the NDX breaking down out of this long-term
ascending channel?  The NDX closed right on its 50-dma after
having broken through it during Friday's dip.  Oscillators look
ready to tip over again, but essentially just squiggle around at
neutral levels for each.

As I study this chart, I note that each of the last few times the
NDX approached the upper boundary of its rising regression
channel, it turned down from a bigger distance away from that
boundary, and each time it approached the lower boundary, it
violated it to a greater degree.  Is this signaling increasing
weakness?  Perhaps, but it's been dangerous to reach that
conclusion during the last year.  If the NDX should dip below the
50-dma, it will soon find historical support at 1450, a point at
which traders should expect a bounce, if not before.  It's only
after such a bounce or failure to bounce that we'll know more
about continuing strength or weakness.  Another lower high would
set up the possibility of a bearish right triangle on this chart,
too, with a much lower downside target.

Annotated Daily Chart for the SOX:



A look at the NDX wouldn't be complete without a study of the
SOX.  Over the last few days, I've been watching as the SOX
retraced some of its recent descent.  The climb appeared to be
taking the form of a bearish rising wedge, but these formations
have been notoriously unreliable over the last year.  I found
myself somewhat skeptical.  Thursday, the SOX climbed above a 50
percent retracement of the plunge, to levels that shouldn't be
sustained if the climb is a bearish distribution formation.
However, by the end of that day, the SOX had fallen back below
that key level, unable to sustain the retracement.  Friday, the
SOX appeared to have fallen out of the bearish rising wedge.  It
certainly fell back below the 50-dma, and, unlike the NDX and
COMPX, was unable to close back on that average.  The break was
minimal, however, and the oscillators inconclusive, leaving open
the question of whether the SOX can climb back inside that
regression channel and continue its way higher.  Without the SOX,
however, the NDX and COMPX are unlikely to make much headway.

Friday's action left me with the impression that the markets
teeter on the edge of a bigger pullback, but that the action
could have resulted from a combination of multiple blows received
one after the other and opex activity.  The damage did not prove
so severe that the markets could not recover, as we've seen them
do so many times over the last year when similarly teetering on
the edge of a breakdown.  When I study the weekly chart of the
OEX, a favorite index of mine to watch, I see the possibility
that the OEX could trade sideways a number of weeks, expending
any overbought pressure, just as it's done through other periods
over the last year.  The last two sideways consolidations each
required 11 to 12 weeks, and we've seen only five or six in this
latest consolidation period. The question of what happens next
must unfortunately be delayed until next week.

Earnings reports slow down next week, but a number of retailers
do report, including GPS, JCP, and KSS, among others.  Next
week's economic calendar will see a number of releases, with
February's consumer confidence number Tuesday morning at 10:00
and January's existing home sales Wednesday at 10:00.  That's
only the beginning.  Thursday will see the release of January's
durable orders, help-wanted index, and new home sales, as well as
the previous week's initial claims.  The releases don't let up on
Friday, either, with before-the-bell releases of the Q4
preliminary GDP and chain deflator, the 9:45 release of
February's revised Michigan sentiment, and the 10:00 release of
the February Chicago PMI.  The durable orders, preliminary GDP,
Michigan sentiment, and Chicago PMI will probably draw the most
attention out of those numbers.


Linda Piazza


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

Buyers of Cash
Jonathan Levinson

The US Dollar Index broke its 6-month descending trendline and
commenced a new daily upphase on a huge move Friday, drilling
equities, treasuries, commodities and precious metals lower.


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


You're looking at the big winner today on a global basis.  The US
Dollar Index, whose decline since 2002 has buoyed the price of
virtually everything that can be bought, rose strongly today
against other currencies and assets.  An overnight low of 85.60
on the cash index topped at 87.40 before returning to the 87.20
level.  On the March future, the DX contract broke descending
resistance with authority, consummating the bullish divergence on
both the Macd and 10-day stochastic, and targets 88.20
resistance.  The CRB dropped 1.70 to close at 264.07, led to the
downside by heating oil, gold, silver and platinum futures.


Daily chart of April gold


I've zoomed in to a six month view of April gold to get a better
bead on the damage caused by today's selloff in metals.  April
gold bottomed at 394.50, printing a double bottom from the
beginning of February.  The rising trendline was broken, setting
up the possibility of a head and shoulders top projecting roughly
to the 365-70 level.  That said, 388-392 was significant
resistance on the way up, and despite the ferocity of today's 3%+
move, the US Dollar Index is approaching resistance just as gold
is approaching support.  The daily cycle upphase ended at a lower
high, and any weakness on Monday will kick off a new daily cycle
downphase.  For the day, April gold lost 12.60 or 3.07% to close
at 398.40.  HUI and XAU recovered from deep losses in the mid-
afternoon to close down 3.28% at 222.30 and -2.69% at 97.55
respectively.


Daily chart of the ten year note yield


Ten year note yields (TNX) also made good on their promise of
higher prices, but with a more moderate advance, gaining 4.6
basis points to close at 4.098%, a 1.14% move.  The daily cycle
downphase on the yield did not abort, and given how frequent
pennant apex whipsaws have become this year, it's premature to
rule the current downphase in the yield over.  But today's move
was impulsive and build from a higher low and reached a higher
high, with the Macd and stochastic oscillators set up for the
same bullish divergence that we see above on the US Dollar Index.
A higher dollar would be expected to be accompanied by higher
yields as US cash rises in value.  For this reason, I'm bearish
on treasuries.  Yet, if foreigners decide to ride a US Dollar
bounce in treasuries, increased foreign demand could drive yields
down.  Add the constant drumbeat of BoJ and Fed interventions,
and it's safer to defer to technical oscillators.  The upphase is
not underway, but the daily cycle low on the TNX may well have
printed this week.


Daily NQ candles


Friday morning's bark was worse than its bite, in the end, as the
NQ recovered multiple broken supports to both the day and the
week with slight losses.  The NQ plunged to a session low of
1470.50 but managed to bounce into positive territory, failing at
1495 and closing lower by 4.5 points or .30% at 1484.  The
recovery off the low left a long doji tail, and combined with the
rejection at the day highs we were left with the perfect
indecision depicted by a doji star.  A lower high and lower low
were printed, as would be expected by the US Dollar rally in
light of the binary dollar relationship we've been following.
The same head and shoulders discussed on the gold contract
applies here, with the neckline on NQ tested but not broken on a
closing basis.  The daily cycle upphase is still intact, but the
Macd will give a clear sell signal on any weakness Monday.
Support came at 1480-82, 1476-7 and 1470, below which is 1460 and
1440.  Volume was heavy on QQQ, worth noting at 135M+ shares for
the day.


30 minute 20 day chart of the NQ


Friday was a blast from the past, with directional moves in both
directions.  The 30 minute cycle oscillators opened near their
lows and ground slowly lower as the price sliced through support.
The first Macd buy signal was the one to follow, as NQ spiked
back up to the pennant apex where it failed.  That failure in
positive territory was signaled by the overbought short cycle
oscillators, but the ensuing pullback into the close found
support at a higher low, confirming the 30 minute cycle upphase.
Confused?  We should see an intraday pattern of higher highs and
higher lows on the 150-tick (approx 3 minute candle) chart,
provided that 1480 support (the bottom of the 30 minute cycle
channel) is not violated.  Resistance is at 1495-6, followed by
1502 and 1508.  A failure from any high below 1518 would confirm
that the daily cycle upphase is over, and we'll return to short-
all-rallies mode.


Daily ES candles


ES fell 3.50 to 1143.75, bouncing from a low at 1137.75 and then
failing at 1151.  As on the NQ, a doji star reflects equal
amounts of fear on both sides of the trade, but the day
nevertheless finished with a lower low and lower high, the third
in a row for a lightly negative week.  If the rising trendline at
1136 actually breaks next week, we will have to applaud the
outstanding sustained distribution job evidenced the repeated
sustained prints at 1160 without breakout or breakdown until
yesterday.  The daily cycle upphase remains intact as the Macd
grinds toward a sell signal, and absent a sharp rally starting on
Monday, it's likely that we've seen the top of this upphase.  A
new downphase from this lower oscillator high would be divergent,
portending a strong downphase to follow.  Support is at 1136-7,
followed by 1130, 1128, 1122, and finally 1115-1118.


20 day 30 minute chart of the ES


I've left the mid-week oscillator divergences highlighted to
emphasize the potential if the daily cycle oscillators above
flash bearish crosses from those lower highs.  On the 30 minute
chart, the rising support line break was disastrous, but as with
the NQ an afternoon stick save recovered to positive territory
until the final hour selloff.  The 30 minute cycle points higher,
and so I expect a pattern of higher short cycle highs and lows to
fail well-below the broken trendline- ideally in the 1151-53
area, which would confirm a new daily cycle downphase.  This
picture will be invalidated by either a break above the rising
trendline or an immediate failure on Monday morning, which would
indicate a much stronger than expected daily cycle downphase
forming.


150-tick ES


The 150-tick chart shows the oversold short cycle oscillators and
Keltner channel proxy (red envelope nested within the orange 30
minute cycle proxy).  The downward slope to the 30 minute channel
should abort on Monday's open, as it's not confirmed by the 30
minute cycle oscillators above.  This mixed picture leaves the
door open for either direction on Monday, but I'm guessing at
strength first.


Daily YM candles


YM dropped 41 points or .38% to close at 10623, breaking below
its primary channel support line for the first time in 2 weeks.
Despite its relative strength this week, it too appears headed
for a daily cycle downphase and a failure below the secondary
rising trendline that supported Friday's decline should be
sufficient to get the ball rolling-  look for a break of 10575.


20 day 30 minute chart of the YM


Nothing to add here, as the 30 minute YM closely resembles the ES
contract.

The NQ is now negative for the month, while ES and YM are hanging
onto fractional gains by a hair.  The impulsive, divergent nature
of the dollar bounce signals more pain ahead for all US Dollar
denominated assets, but the market never makes matters as easy as
one hopes.  Equities didn't decline that much on Friday, and
while bonds got hit as well, it wasn't a clear trend change
either.  The wildcard here is the response of foreign investors
to a rising US Dollar.  If they choose to take their forex gains
and covert to "cheap" US Dollars, and, for fun, park that money
in t-bills, GE, MSFT and maybe a high-beta screamer or two, we
could see a whole new wave to the rally.  This ultra-bullish
scenario isn't unimaginable to me, surprising though it would be.

With opex week rebalancing to continue on Monday, unexpected
moves (or lack thereof) should be expected.  Traders confused by
the action are best advised to stick to the individual charts
they're trading and leave the intermarket relationships for
afterhours consideration.  We're likely at a daily cycle turn for
NQ, ES and YM, as well as ten year treasuries and gold.  If so,
today's moves will continue to extend, possibly after some
corrective chop as the channels roll over.  Enjoy the weekend and
I'll see you in the Futures Monitor on Monday.


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

Running out of Gas
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
The market is losing some steam - running out of gas is an apt
metaphor due to the energy bump reflected at the pump and seen in
the CPI jump. The market is starting to tire here and I continue
to anticipate the Indices will work sideways to lower. Specifics
on this after some news and views from the Street of Dreams.

FRIDAY'S TRADING ACTIVITY –
Stocks finished lower with the S&P 500 (SPX) off 0.3% to 1144 and
the Nasdaq Composite (COMPX) falling 0.4% to 2037, in a see-saw
day where the major talk was about global terrorism and concerns
about inflation – you remember inflation?  That condition where
prices keep going up at a rate faster than your income.

The inflation fear was sparked by the report from the U.S. Labor
Department that the Consumer Price Index (CPI) jumped by 0.5%.
This was the largest increase since a year ago – 3/4ths of this
came from a jump in energy prices, which is why, hey!, those fill
ups are costing more and more lately.  Anyway, energy costs were
up nearly 5%.  Excluding the more volatile food and energy costs,
the "core" CPI was up a more modest 0.2%, but still double the
0.1% that was the consensus forecast.

Of course, with bond yields low already, a jump in inflation is
tough to take for holders of fixed income investments.  What's a
poor bondholder to do but to look for higher rates.  The 30-year
Treasury bond, which is most sensitive to this concern, fell
nearly a full point (31/32nds), which put its yield up to 4.96%
from 4.9.

A new high for the dollar against the yen also was a contributor
to bonds selling off – when the yen cheapens and buys less bucks,
Japanese appetite for U.S. bonds is anticipated to fall off.
And Japan is financing a lot of the big debt we are taking on –
I've seen estimates that they have been averaging purchases that
amount to some 40% of our bond sales. Dollar levels are
significant when our savings rate is low and we depend on capital
markets from abroad to buy our paper.

Ripple effects into equities were apparent early Friday after
Japan's government raised its national terrorism threat level to
its highest level.  AP reported early that Japanese officials
were putting heavily armed police around airports, government
offices and nuclear plants.  Officials there wouldn't say whether
there was new information about a terror strike.  But we leave
the speculation about that to stock traders!

The news out of Japan sent the major equity averages to the lows
of the day early on. The strong increase in consumer prices
outweighed any "flight to quality" trading.

Option-related activity along with a lessening sign of aggressive
buyers pressured stocks most of the day. With the Dow (off 45 pts
on Friday to 10,619) and Nasdaq indices down for the week, Wall
Street sentiment has been shifting to the idea that stocks are
starting to run out steam – a sentiment I echoed at the beginning
of the week.  Not cause the Street of Dreams was thinking it, but
cause that's what the charts were showing. Hey, the charts don't
lie – only analysts and pundits, but that's another story.

The latest from Fed Chairman Alan-the-man Greenspan, was
reassuring an audience in Nebraska (in those soothing tones he
always speaks in) that he was confident that "employment will
begin to increase more quickly before long as output continued to
expand". By the way, the White House or specifically President
Bush backed away from an earlier week report that the
Administration was expecting 2.7 million new jobs created this
year.

A Federal Reserve Governor, Ben Bernanke, had some soothing
things to say about the January CPI number as not being a cause
for alarm and not reflective of a new trend in pricing. William
Poole, another Fed Board member, also reflected his expectation
that inflation will remain at its current low levels for the
balance of this year.

SOME STOCKS IN THE NEWS –
Important Nasdaq bellwether Cisco Systems (CSCO) was down sharply
and led the NASDAQ most actives. The stock looked to be in danger
of breaking important technical support at $23.00, a key price
resistance in November before it ran up to just over 29. An old
technical axiom is that what was resistance (once decisively
penetrated) should offer support on pullbacks.  If not, well,
it’s not a bullish sign. CSCO closed at 23.19, off 2%.

As Jeff reported Friday, after falling to a morning low of
$32.55, shares of Netflix (NFLX) moved back up like gangbusters
to close at 35.38, up 3.6%. What Jeff didn't report was that, in
MY personal opinion, this company will eat Blockbuster and
Hollywood Video's lunch by continuing to met consumer
dissatisfaction with LATE FEES! I hates em. We hates em! And the
mailbox delivery is great for us coach potatoes too!! Not so
great for the lets-get-it-NOW kids. Disclosure: I DON'T own the
stock. (I only wish I did, like under 10, where it was less than
a year ago!)

In the Dow 30, CAT, GM, MRK, SBC and DIS were all off more than
1%. Disney (DIS) is of course the target of a takeover bid by
Comcast – ex-board member Roy Disney repeated that while CEO
Michael Eisner has failed to deliver shareholder value (and paid
himself gazillions of dollars), Comcast's offer is too low.

SBC fell every day last week after its Tuesday announcement that
it would acquire AT&T wireless (jointly with BellSouth) for $41
billion bucks – a lot of bucks.  And reception/signal strength
continues to be such a problem so often! – well maybe its just
when I make MY important calls on my mobile.

Reminding us of what drives the market – it’s the earnings
stupid! – only Wal-Mart (WMT) bucked the downslide by rallying on
a strong Q1 profit report – it added nearly 2%, to 59.43.

MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Daily charts:
I talked last week about the likelihood that the bellwether S&P
indexes (and the Dow) were forming double tops.  Of course, a
breakout above the prior high could have occurred.  As to why I
didn't think so, requires taking a look at more than just one
concept or idea. I looked at the political/economic uncertainties
of course, especially given that stocks has run up so far without
too much of a correction.

Technically, the other key factors in assessing the likelihood of
at least an interim stop, was the bearish Price/RSI divergence;
i.e., the move to the prior high was accompanied by significantly
lower "relative strength" as suggested by the RSI Indicator.  The
down sloping line on the RSI chart shows this visually.  The two
down arrows show the likely double top.




The overbought situation can be seen by how far the S&P 500 is
trading above its 200-day moving average – you know, that line
hanging out why lower than the 50-day average. Another measure of
an "overbought" market situation is when the RSI on a daily and
weekly chart (not shown) basis gets above a reading at 70-75 as
can be seen by the move above the red level line in the RSI chart
above.

I use "simple" moving average envelopes to give some idea of
downside or upside potential, assuming that the indices continue
(they usually do) to trade in their recent historical range as
measured by how far above or below prices get(in percent terms)
above or below a 21-day moving average.  Typically, given
"normal" volatility, the S&P trades 2-3% above or below this
average before falling off, or rebounding.

In an uptrend like we have currently, the upper S&P Index band
can be set at 3% and prices will tend to have periods where it
advances up along (hugs) this line.  Eventually however, it drops
back to the average.

On the downside, within an uptrend, look for declines to hold 1)
above the 21-day average even sometimes even after 1-2 days spent
below it; 2) to fall to prior chart support (dashed blue level
line); 3) to decline to its 50-day average (shown on first
chart); or, 4) to fall to the lower moving average envelope line.
Simple benchmarks!  Not a trading "system" however!

The 1120-1125 area is my downside objective for SPX, with the
possibility of brief slippage to 1115-1128.  A close above 1160
however, changes this outlook to a bullish one.




I wrote this past week on the use of the ratio of the CBOE daily
volume ratios for equities options as an Indicator of when the
market is vulnerable for a trend reversal within 1-5 trading
days.

See the Trader's Corner article at –
http://www.OptionInvestor.com/traderscorner/tc_021904_2.asp

This most recent price peak in the S&P indices was accompanied by
this indicator reaching the extreme (at the red level line) that
I usually consider a forewarning for a downside reversal - at
least for a while.  Important to know when you see index option
time premiums falling fast when the market starts to correct.

Now, I will be watching for SPX's ability to maintain closes
above its 21-day moving average.  More than 1-2 consecutive days
closing below this average suggests that I stay put in puts – no
PUN intended of course.

[NOTE: E-mail me with questions related to such technical stuff –
as in technical analysis – which I use for possible answer in my
weekly Trader's Corner article.]

S&P 100 Index (OEX) – Daily charts:
The double top that has formed so far, was what I anticipated for
this Index based on the bearish/price RSI divergence that had
developed, the aforementioned overbought situation and my
sentiment indicator – equities calls to puts daily volume ratio
that got pretty extreme at the first price peak.  See this on the
left hand side.

I look would for further weakness now if there is one or, better,
a couple of consecutive closes below the 21-day moving average as
seen on the right hand chart.  The OEX's 21-day average is at 565
currently. The Indexes tend to trade within envelope lines or
percentages above or below a moving average.




When there is second drive to a top that lacks follow through AND
the index then retreats to below the average (center line), there
is usually a further drop – sometimes back to the lower envelope
line. However, I always also look at the trend – in a strong
uptrend, the surprises, and extreme moves, tend to come on the
upside.

OEX support looks to be in the 557 area.  Given the double top,
and the line of resistance above, I expect a retreat to lower
support. If so, a drop to 560 or below, would break the steep up
trendline. If in puts at 570 and above per my last commentary, I
suggest staying put – no PUN intended. However, a new closing
high would be my stop out/exit/liquidation/get-me-out trigger.

OEX – Hourly:
As key support, my focus is on the support (up) trendline that
comes suggested by various recent lows on the hourly chart – I
said last week to look for support just above 560, which was
where the OEX got too on Friday. If prices penetrate this
trendline, perhaps after another rally attempt - such as back up
the down sloping trendline which intersects around 570 currently
– my next downside objective is to around 558, a measured move
objective where a decline would at least equal the amount that
the Index fell on its last correction.  Stay tuned.




As always, I like to keep aware of the tendency for short-term
trend reversals, and 1-3 day price moves, when both the 5 and 21-
hour stochastics get to extremes.  Short term, the S&P 100 is
both near some technical support and falling to a short-term
oversold.

I suggest using rallies as an opportunity to purchase some index
puts.  At around 568-570, the downside potential looks to be to
558-560. Evaluating downside objectives is tricky but if the
trendline is broken and the OEX cannot get back above this line,
the short-term trend turns down by this key measure.

Nasdaq 100 Index (NDX) – Daily & Hourly:
In terms of the Nasdaq and focusing this week on the Nas 100 or
NDX, there has been a couple of consecutive closes under the 21-
day moving average (left hand chart), suggesting more weakness to
come in the week ahead.  My downside objective is to 1460, back
to prior hourly chart support or to around 1450 at the lower
envelope line.

If, on the other hand, NDX regained or got back above resistance
at 1500-1505, it would be an alert that the Nasdaq up trend was
getting back on track.  I would then want to see an ability to
hold at or above 1500 to confirm a trend change. The idea of
price resistance becoming support later on brings me to a related
thought.





What is the "KOD" trendline?
Inquiring minds want to know and the answer is, that this is a
trendline that was previously broken and where prices have
returned to it – however, this is often the "Kiss Of Death" to
that rally.

The idea for a trendline to do this is a variation of the idea
that what was support can "become" resistance later on and vice
versa.  This principle would also be demonstrated if Cisco (CSCO)
closed under prior key support at $23, an area that then might
offer strong resistance on a subsequent rebound.  (Cisco stock
comment was in the first part of my commentary.)

QQQ – Daily & Hourly:
The Q's are in a short-term downtrend as suggested by its hourly
channel shown in the top chart.  Key resistance comes in at 37.5,
and key support at 35.5.  A move to 35.5 would however be a
bearish break of the daily chart uptrend channel.




A possible tip off that such a break may be in the works ahead is
seen in the way that daily volume jumped on this latest sell off.
As I noted in the same Trader's Corner article mentioned already,
volume, to "confirm" a bullish trend, ought NOT to jump or expand
on a decline.

The consistent pattern prior weeks' pattern of expanding daily
trading volume, basically expanding on rally phases and declining
or contracting on downswings, was altered with the substantial
volume jump on Friday when the stock was under selling pressure.

If short the stock, I suggest using a liquidating (buy) stop
order at 37.8, with an objective to also exit on a profit on a
dip under 36.

Good Trading Success!


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

Jim is under the weather this weekend and there will not be
a new play.  Instead here is an email we received this week.

Readers Write

Dear Jim:

I have been a subscriber to OIN for five years, and this is
the first time I write. I work here in Italy (in beautiful
Verona, to be exact) and I log in every day to OIN to trade.
I just wanted to say that the market analysis you and your
staff provide is phenomenal. But more than this, the most
important thing I received from the OIN staff is the education:
the ability to analyze stocks, and the importance of making a
plan and trading according to my risk profile. After five years
of following you guys, it's really starting to pay off! Using
the education I receive from OIN, I have been making some
really good trades recently.

One example: I took your advice, and traded AMAT calls.
Tuesday I bought 10 ANQDX (Apr 22.5 C) at $1.40, and I sold
them this morning at the open for $2.20 - that's a $700 profit
in two days!!!

I owe it all to you and OIN - because, when I started, I didn't
know what technical analysis was and I didn't even know that
options existed. But now I have learned how to analyze markets,
how to pick stocks, and most of all, how to make decisions for
myself based on the educational material you and your staff
provide. Of course, I have just started learning, and I will
keep on logging in to further my education. However, what I
have learned thus far is starting to bring some good results!
Keep up the good work!

One extremely satisfied subscriber

Sincerely

Mauro
Verona, Italy


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

Are You Ready?
- J. Brown

Hmm... the failed rally on Thursday was bad enough but Friday's
afternoon bounce also rolled over in the last two hours of
trading and that doesn't bode well for next week.  Are you ready
for the major indices to test support again?

Inflationary fears sapped the strength out of the markets on
Friday after St. Louis fed head William Poole issued comments
concerning a stronger rise in inflation than expected.  This lead
investors to fear over a sooner than expected rise in rates
despite the Fed's promise to be patient.  Fortunately, Alan
Greenspan soothed those fears somewhat with his own comments on
Friday afternoon.  Aggravating the mood on Wall Street were
headlines from Japan about the country gearing up to their
highest state of alert over terrorism fears.

Overall it was a choppy day with only retail and oil stocks
managing any gains.  Market internals were bearish as declining
stocks out paced advancers almost 18 to 10 on the NYS and nearly
19 to 11 on the NASDAQ.  Down volume was more than double up
volume on the NYSE and almost as bad on the NASDAQ.

All of the talk about the markets looking tired is finally
starting to take affect.  Most of the sector indices do look
tired and several are testing support.  The disk drive index has
pulled back to support at 125 and if it breaks there it should
quickly test its 200-dma.  Hardware stocks also look weak as the
GHA.X has produced another sell signal in its MACD indicator.
Software stocks tell the same story but the GSO is still holding
on to its 50-dma.  Surprisingly Internet stocks are holding up
relatively well due to the strength in shares of EBAY.  The
bounce in the semiconductors appears to be fading and the
February consolidation may turn out to be nothing but a big bear
flag.  I'd expect the SOX to retest support at the 500 level
soon.  The NWX networking index is beginning to look pretty weak
with Friday's drop to the 50-dma.

Banking stocks have managed to hold up pretty well considering
all the M&A activity and speculation for more mergers defusing
most of the selling pressure.  Brokers are doing pretty well too
with only minor profit taking.

Normally one might expect defensive stocks like drugs to out
perform with the markets weak but not so this last week.  The DRG
has dropped five out of the last six sessions and looks poised
for more declines.

Oil and oil services have been able to maintain their bullish
trends but traders are beginning to take some money out of oil
services issues and the OIX still can't break resistance at 330.
Natural gas stocks had a rough week after the El Paso warning.

Defense and insurance stocks, which have been real leaders in the
markets, are finally seeing some profit taking.  If the major
indices bounce I'd expect to see traders buying the dip here.

Retail issues have been able to maintain their gains with Wal-
Mart's strong performance lending a floor to the RLX index.

Gold stocks look weak now after a strong drop in gold futures due
to the big bounce in the dollar.  The dollar may have put in a
short-term bottom but still has resistance just overhead.

Be sure to revisit your stop losses as next week could be choppy
with another round of economic reports and multiple speaking
engagements for the various Federal Reserve governors.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  7416
Current     : 10619

Moving Averages:
(Simple)

 10-dma: 10651
 50-dma: 10452
200-dma:  9619



S&P 500 ($SPX)

52-week High: 1158
52-week Low :  788
Current     : 1144

Moving Averages:
(Simple)

 10-dma: 1148
 50-dma: 1120
200-dma: 1034



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  938
Current     : 1482

Moving Averages:
(Simple)

 10-dma: 1497
 50-dma: 1482
200-dma: 1349



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

The major market averages couldn't make up their minds what
direction to go and neither could the volatility indices,
but that's probably par for the course on an expiration Friday.

CBOE Market Volatility Index (VIX) = 16.04 +0.24
CBOE Mkt Volatility old VIX  (VXO) = 16.25 -0.65
Nasdaq Volatility Index (VXN)      = 24.12 -0.12

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.86      1,224,856     1,050,314
Equity Only    0.63      1,046,201       689,385
OEX            1.30         63,522        82,645
QQQ            2.89         44,855       129,820


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.9    - 1     Bull Confirmed
NASDAQ-100    68.0    - 1     Bear Alert
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       87.0    - 1     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: 1.11
10-dma: 1.02
21-dma: 1.02
55-dma: 0.99


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1050      1142
Decliners    1774      1896

New Highs     171       158
New Lows       13        10

Up Volume    476M      695M
Down Vol.   1310M     1165M

Total Vol.  1823M     1882M
M = millions


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

Commitments Of Traders Report: 02/17/04

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

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

S&P 500

Commercial traders are still stuck in limbo with very little
movement, although the movement this week was bullish.  As is
normally the case small traders moved the opposite direction.


Commercials   Long      Short      Net     % Of OI
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%)
02/17/04      416,148   415,278       870     0.0%

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
01/27/04      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%
02/17/04      141,533    84,227    57,306    25.3%

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

Commercial traders became slightly more bearish last week
with a decent increase in short positions.  Small traders
increased both longs and shorts but overall look a lot
more bullish.


Commercials   Long      Short      Net     % Of OI
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%)
02/17/04      296,313   371,703    (75,390)  (11.3%)

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
01/27/04     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%
02/17/04     144,014     64,391    79,623    38.2%

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


NASDAQ-100

Commercials still aren't making any big changes here but
they did turn slightly more bullish on the NDX.  Small
traders didn't move much.


Commercials   Long      Short      Net     % of OI
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%
02/17/04       46,104     40,385     5,719    6.6%

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
01/27/04       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%)
02/17/04        9,630    12,338    (2,708)  (12.3%)

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

DOW JONES INDUSTRIAL

Minor increases in both shorts and longs for commercial
traders lead to a small up tick in bullish sentiment.
Small traders turned slightly more negative on the Dow.


Commercials   Long      Short      Net     % of OI
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%
02/17/04       24,451    12,907   11,544      30.9%

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
01/27/04        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%)
02/17/04        6,768    15,623   (8,855)   (39.5%)

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

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


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

We're sorry but the Ask the Analyst column has been delayed
and will be published on Monday.


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

Symbol  Co               Date           Comment           EPS Est

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

BNL    BUNZL PLC             Mon, Feb 23  Before the Bell      N/A
CPB    Campbell Soup         Mon, Feb 23  -----N/A-----       0.57
CHK    Chesapeake Energy CorpMon, Feb 23  After the Bell      0.35
CE     Concord EFS           Mon, Feb 23  Before the Bell     0.20
DY     Dycom Industries      Mon, Feb 23  After the Bell      0.18
ETM    Entercom Comm         Mon, Feb 23  Before the Bell     0.38
LOW    Lowe's Companies      Mon, Feb 23  Before the Bell     0.50
NAV    Navistar Intl         Mon, Feb 23  Before the Bell    -0.44
NOVL   Novell, Inc.          Mon, Feb 23  After the Bell      0.03
ODSY   Odyssey Healthcare    Mon, Feb 23  After the Bell      0.23
OKE    ONEOK Inc.            Mon, Feb 23  -----N/A-----       0.66
KPN    Royal Kpn N.V.        Mon, Feb 23  -----N/A-----        N/A
SNPS   Synopsys              Mon, Feb 23  After the Bell      0.31
TRI    Triad Hospitals, Inc  Mon, Feb 23  After the Bell      0.47
WRI    Weingarten Rlty InvstrMon, Feb 23  Before the Bell     0.88


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

ABGX   Abgenix               Tue, Feb 24  After the Bell     -0.46
AIB    Allied Irish Banks    Tue, Feb 24  Before the Bell      N/A
AMSG   AmSurg                Tue, Feb 24  After the Bell      0.40
AMLN   Amylin Pharm, Inc.    Tue, Feb 24  Before the Bell    -0.22
ASMI   ASM International N.V.Tue, Feb 24  -----N/A-----      -0.19
BMO    Bank Of Montreal      Tue, Feb 24  -----N/A-----        N/A
BTI    British Am Tobacco    Tue, Feb 24  Before the Bell     0.58
BFb    Brown-Forman Corp     Tue, Feb 24  Before the Bell     0.60
CCU    Clear Channel Comm    Tue, Feb 24  Before the Bell     0.33
COLT   COLT Telecom Group    Tue, Feb 24  Before the Bell      N/A
CPRT   Copart                Tue, Feb 24  After the Bell      0.16
DLTR   Dollar Tree Stores    Tue, Feb 24  After the Bell      0.69
ESRX   Express Scripts, Inc. Tue, Feb 24  After the Bell      0.85
FOSL   Fossil, Inc.          Tue, Feb 24  Before the Bell     0.55
HRB    H&R Block, Inc.       Tue, Feb 24  After the Bell      0.45
HNZ    H.J. Heinz Company    Tue, Feb 24  Before the Bell     0.57
HIW    Highwoods Properties  Tue, Feb 24  After the Bell      0.63
HD     Home Depot Inc        Tue, Feb 24  Before the Bell     0.39
HMT    Host Marriott         Tue, Feb 24  Before the Bell     0.23
IM     Ingram Micro          Tue, Feb 24  -----N/A-----       0.23
LIHRY  LIHIR GOLD LTD        Tue, Feb 24  -----N/A-----       0.10
NXTP   Nextel Partners       Tue, Feb 24  -----N/A-----      -0.04
POG    Patina Oil & Gas      Tue, Feb 24  After the Bell      0.70
PUK    Prudential PLC        Tue, Feb 24  Before the Bell      N/A
RCI    Renal Care Group, Inc.Tue, Feb 24  After the Bell      0.56
REP    Repsol YPF            Tue, Feb 24  Before the Bell     0.50
STOSY  Santos Ltd.           Tue, Feb 24  -----N/A-----        N/A
SRE    Sempra Energy         Tue, Feb 24  -----N/A-----       0.57
SMTC   Semtech               Tue, Feb 24  After the Bell      0.14
SFD    Smithfield Foods      Tue, Feb 24  Before the Bell     0.43
TIWI   Telesystem Intl Wrls  Tue, Feb 24  After the Bell      0.01
TTC    Toro                  Tue, Feb 24  Before the Bell     0.22
TUES   Tuesday Morning Corp  Tue, Feb 24  Before the Bell     0.88
TZA    TV Azteca S.A. de C.V.Tue, Feb 24  After the Bell      0.28
WOOF   VCA Antech, Inc.      Tue, Feb 24  After the Bell      0.20
WTW    Weight Watchers Intl  Tue, Feb 24  After the Bell      0.35


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

AEM    Agnico-Eagle Mines LtdWed, Feb 25  After the Bell      0.01
AFR    Am Finl Rlty Trust    Wed, Feb 25  Before the Bell     0.24
AAUK   Anglo American Plc    Wed, Feb 25  Before the Bell      N/A
BLI    Big Lots, Inc.        Wed, Feb 25  Before the Bell     0.65
CNQ    Can Natl Resources LtdWed, Feb 25  Before the Bell     0.95
CPG    Chelsea Property GroupWed, Feb 25  After the Bell      1.02
CYH    Comm Hlth Sys Inc.    Wed, Feb 25  After the Bell      0.32
EV     Eaton Vance Corp.     Wed, Feb 25  Before the Bell     0.45
ERIE   Erie Indemnity        Wed, Feb 25  After the Bell      0.66
FMT    Fremont General       Wed, Feb 25  Before the Bell      N/A
FMS    Fresenius Medical CareWed, Feb 25  -----N/A-----        N/A
EKT    Grupo Elektra S.A.    Wed, Feb 25  After the Bell       N/A
TV     Grupo Televisa, S.A.  Wed, Feb 25  After the Bell      0.91
JOYG   Joy Global Inc.       Wed, Feb 25  Before the Bell     0.06
MDG    Meridian Gold Inc.    Wed, Feb 25  After the Bell      0.10
NDSN   Nordson               Wed, Feb 25  -----N/A-----       0.24
ORLY   O'Reilly Automotive   Wed, Feb 25  After the Bell      0.43
PEI    Penn Rl Est Invest    Wed, Feb 25  Before the Bell     0.77
TRK    Speedway Motorsports  Wed, Feb 25  Before the Bell     0.25
SPM    Spirent PLC           Wed, Feb 25  Before the Bell     0.06
TRLY   Terra Networks        Wed, Feb 25  Before the Bell      N/A
TJX    The TJX Companies Inc Wed, Feb 25  Before the Bell     0.44
TIF    Tiffany & Co.         Wed, Feb 25  Before the Bell     0.70
URI    United Rentals        Wed, Feb 25  Before the Bell     0.16


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

ABB    ABB                   Thu, Feb 19  -----N/A-----        N/A
AEOS   Am Eagle Outfitters   Thu, Feb 26  Before the Bell     0.55
APPX   American Pharm Prtnrs Thu, Feb 26  -----N/A-----       0.22
ADSK   Autodesk, Inc.        Thu, Feb 26  After the Bell      0.29
AXA    AXA                   Thu, Feb 26  -----N/A-----        N/A
BE     BearingPoint, Inc.    Thu, Feb 26  Before the Bell     0.07
CPN    Calpine Corporation   Thu, Feb 26  Before the Bell    -0.11
BCM    Can Imprl Bank Comm   Thu, Feb 26  Before the Bell      N/A
CZ     Celanese AG           Thu, Feb 26  -----N/A-----        N/A
KOF    COCA-COLA FEMSA       Thu, Feb 26  Before the Bell     0.43
BVN    Comp Minas Buena      Thu, Feb 26  After the Bell      0.42
CXR    COX RADIO INC         Thu, Feb 26  Before the Bell     0.15
DDIOOB DDi Corp.             Thu, Feb 26  After the Bell       N/A
DCI    Donaldson             Thu, Feb 26  After the Bell      0.57
ECA    EnCana Corporation    Thu, Feb 26  -----N/A-----       0.61
EASI   Engineered Support SysThu, Feb 26  Before the Bell     0.55
E      ENI SpA               Thu, Feb 26  -----N/A-----       1.71
FMX    FEMSA                 Thu, Feb 26  -----N/A-----       0.85
GPS    Gap Inc.              Thu, Feb 26  After the Bell      0.37
HTV    Hearst-Argyle TV, Inc Thu, Feb 26  Before the Bell     0.33
OTE    Hellenic Telecomm     Thu, Feb 26  -----N/A-----        N/A
IMDC   INAMED                Thu, Feb 26  After the Bell      0.47
ISG    Intl Steel Group Inc. Thu, Feb 26  Before the Bell     0.15
IRM    Iron Mountain Incorp  Thu, Feb 26  Before the Bell     0.21
JCP    JC Penney             Thu, Feb 26  Before the Bell     0.80
KSS    Kohl's                Thu, Feb 26  -----N/A-----       0.69
LQI    La Quinta Corporation Thu, Feb 26  Before the Bell    -0.10
LR     Lafarge               Thu, Feb 26  Before the Bell      N/A
LTD    Limited Brands        Thu, Feb 26  Before the Bell     0.74
LIZ    Liz Claiborne         Thu, Feb 26  Before the Bell     0.66
CLI    Mack-Cali Realty Corp Thu, Feb 26  Before the Bell     0.88
MGA    Magna International   Thu, Feb 26  -----N/A-----       1.63
MRVL   Marvell Technology    Thu, Feb 26  After the Bell      0.28
NXL    Nw Pln Excel Rlty TrstThu, Feb 26  Before the Bell     0.47
NIHD   NII Holdings          Thu, Feb 26  Before the Bell     0.45
POM    Pepco Holdings, Inc.  Thu, Feb 26  -----N/A-----       0.18
PRX    Pharmaceutical Res    Thu, Feb 26  -----N/A-----       1.08
PDG    Placer Dome           Thu, Feb 26  -----N/A-----       0.12
PDE    Pride International   Thu, Feb 26  After the Bell      0.12
PSA    Public Storage        Thu, Feb 26  After the Bell      0.71
RHD    R.H. Donnelley Corp   Thu, Feb 26  After the Bell      0.46
RA     Reckson Ass Rlty Corp Thu, Feb 26  After the Bell      0.36
SPW    SPX                   Thu, Feb 26  After the Bell      1.30
TKP    Technip               Thu, Feb 26  -----N/A-----        N/A
RSE    The Rouse Company     Thu, Feb 26  -----N/A-----       1.11
TOL    Toll Brothers         Thu, Feb 26  -----N/A-----       0.60
TKS    Tomkins PLC           Thu, Feb 26  Before the Bell      N/A
TD     Toronto Dominion Bank Thu, Feb 26  -----N/A-----        N/A
UNEWY  United Business Media Thu, Feb 26  Before the Bell      N/A
USON   US Oncology           Thu, Feb 26  Before the Bell     0.21
VTR    Ventas                Thu, Feb 26  -----N/A-----       0.39
WPC    W. P. Carey & Co. LLC Thu, Feb 26  Before the Bell     0.84


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

ANIK   Anika Therapeutics    Fri, Feb 27  Before the Bell      N/A
AVE.L  Avis Europe           Fri, Feb 27  -----N/A-----        N/A
XTXI   CROSSTEX ENERGY INC   Fri, Feb 27  Before the Bell      N/A
FIA    Fiat S.p.A.           Fri, Feb 27  -----N/A-----        N/A
KIDD   First Years           Fri, Feb 27  -----N/A-----        N/A
FS     Four Seasons Hotels   Fri, Feb 27  Before the Bell     0.25
IART   Integra LifeSciences  Fri, Feb 27  Before the Bell     0.30
IPR    International Power   Fri, Feb 27  Before the Bell      N/A
INGN   Introgen Therapeutics Fri, Feb 27  -----N/A-----      -0.35
LOJN   LoJack                Fri, Feb 27  Before the Bell     0.15
MED.F  Mediclin AG           Fri, Feb 27  -----N/A-----        N/A
PSS    PAYLESS SHOESOURCE    Fri, Feb 27  -----N/A-----      -0.32
PNY    Piedmont Natural Gas  Fri, Feb 27  -----N/A-----       1.80
RANKY  Rank Group Plc.       Fri, Feb 27  Before the Bell      N/A
RY     ROYAL BK CDA MONTREAL Fri, Feb 27  -----N/A-----        N/A
TWI    Titan International   Fri, Feb 27  -----N/A-----      -0.47
WPPGY  WPP Group PLC         Fri, Feb 27  Before the Bell     1.18

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

Symbol  Co Name              Ratio    Payable     Executable

CCBI    Commercial Capital Bancorp4:3      Feb  20th   Feb  23rd
SLFI    Sterling Finl Corp        5:4      Feb  20th   Feb  23rd
NATI    National Instruments      3:2      Feb  20th   Feb  23rd
ACV     Alberto-Culver Co         3:2      Feb  20th   Feb  23rd
AMG     Affliated Managers Group  3:2      Feb  24th   Feb  25th
SAFM    Sanderson Farms, Inc      3:2      Feb  26th   Feb  27th
ETN     Eaton Corp                2:1      Feb  27th   Mar   1st
CNI     Canadian National Railway 3:2      Feb  27th   Mar   1st
AME     AMETEK Inc                2:1      Feb  27th   Mar   1st
HCP     Hlth Care Prop Investors  2:1      Mar   1st   Mar   2nd
SJW     SJW Corp                  3:1      Mar   1st   Mar   2nd
FWFC    Washington FinancialCorp  5:4      Mar   1st   Mar   2nd
AVP     Avon Products Inc         2:1      Mar   1st   Mar   2nd
HCSG    Healthcare Services       3:2      Mar   1st   Mar   2nd
POG     Patina Oil & Gas Corp     2:1      Mar   3rd   Mar   4th
TRMB    Trimble                   3:2      Mar   4th   Mar   5th
CLFC    Center Financial Corp     2:1      Mar   5th   Mar   8th
WGO     Winnebago                 2:1      Mar   5th   Mar   8th
SSNC    SS&C Technologies, Inc    3:2      Mar   5th   Mar   8th




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

Another busy week of economic reports with the Consumer
confidence, home sales, durable good orders, preliminary GDP,
Chicago PMI and revised Michigan Sentiment.  Plus we have several
federal reserve governors speaking this week.


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

----------------
Monday, 02/23/04
----------------
None


-----------------
Tuesday, 02/24/04
-----------------
Consumer Confidence (DM)   Feb  Forecast:    93.0  Previous:     96.8
Alan Greenspan makes an appearance

-------------------
Wednesday, 02/25/04
-------------------
Existing Home Sales (BB)   Jan  Forecast:   6.45M  Previous:    6.47M
Alan Greenspan speaks on economic outlook
Fed Governor Poole speaks in N.Carolina

------------------
Thursday, 02/26/04
------------------
Initial Claims (BB)      02/21  Forecast:    347K  Previous:     344K
Durable Orders (BB)        Jan  Forecast:    1.4%  Previous:     0.3%
Help-Wanted Index (DM)     Jan  Forecast:      39  Previous:       38
New Home Sales (DM)        Jan  Forecast:   1095K  Previous:    1060K
Bernanke speaks in Washington

----------------
Friday, 02/27/04
----------------
GDP-Prel. (BB)              Q4  Forecast:    3.8%  Previous:     4.0%
Chain Deflator-Prel. (BB)   Q4  Forecast:    1.1%  Previous:     1.0%
Mich Sentiment-Rev. (DM)   Feb  Forecast:    93.8  Previous:     93.1
Chicago PMI (DM)           Feb  Forecast:    63.5  Previous:     65.9


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


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The Option Investor Newsletter                   Sunday 02-22-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: Auto-related stocks top the list.
Dropped Calls: ATH, BRL
Dropped Puts: None


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

Auto-related stocks top the list.

___________________________________________________________________

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.
___________________________________________________________________


Chiron Corp - CHIR - close: 49.67 change: -0.45

WHAT TO WATCH:  CHIR has been under performing its peers in the
biotech sector and the recent trend of lower highs has broken
down through support at $50.00 and its 200-dma.  Technicals are
turning lower again and the stock might be a short candidate with
a target near the $45 area.

Chart=


---

Borg Warner - BWA - close: 92.03 change: -1.10

WHAT TO WATCH:  We're still keeping an eye on BWA.  The recent
pull back has stalled at BWA's 40-dma and above support near $90
and its 50-dma. Its P&F chart appears to be building a pennant or
triangle formation, which means we may see big move either
direction soon but it could still have some coiling to do as it
completes the pattern.

Chart=


---

General Motors - GM - close: 48.51 change: -1.09

WHAT TO WATCH:  GM has spent the last several days unsuccessfully
trying to break resistance at the $50.00 level.  Friday's market
decline sent GM lower by 2.19% but also broke its trend of higher
lows.  This may be the failed rally that bears have been looking
for.  There is some support at $47.50 but GM has stronger support
at $45 and makes a decent target for short positions.

Chart=


---

Daimlerchrysler - DCX - close: 45.27 change: -1.42

WHAT TO WATCH:  DCX may be hinting at a deeper correction on the
way.  Shares broke down through support at its 50-dma on Friday
after several days of lower highs.  Volume was twice the norm on
Friday's breakdown.  Traders concerned about possible support at
$45.00 can look for a move under Friday's low (44.80) and target
a move toward $40.00.

Chart=



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

GS $106.52 +0.75 - Goldman Sachs has been able to maintain its
position above the $105 level and consolidate sideways.  Traders
can watch for a move over new resistance at $108 or a bounce
above $103.

WMT $59.43 +1.05 - Wal-Mart is quickly approaching long-term
resistance at the $60.00 level.  After such a strong run during
the month of February it wouldn't surprise us to see a pull back
to $58 again before it attempts a breakout.

HSY $83.72 +3.56 - Hershey soared on Friday with very strong
volume after CSFB upgraded the stock to "out perform".  We would
watch it for a dip before considering any bullish positions.


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

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


CALLS
^^^^^

Anthem, Inc. - ATH - close: 82.22 change: -0.38 stop: 81.00

Pushing just high enough a week ago to activate our trigger, ATH
has been a poor performer throughout the last week.  While the
stock hasn't broken down yet, Friday's dip near our $81 stop
doesn't look encouraging.  Although it did manage to fight its
way back over the $82 level, ATH looks stalled at best and weak
at worst.  Right now, the prospects for another bullish move over
$85 look rather bleak and we'd prefer to drop the play from
consideration and focus on stronger candidates.  Use any sort of
rebound back into the $83-84 to effect a more favorable exit from
the play.  But a rebound from here now has its work cut out for
it and we'd prefer to watch this one from the sidelines.

Picked on February 12th at   $84.53
Change since picked:          -2.31
Earnings Date               4/28/04 (unconfirmed)
Average Daily Volume =     1.46 mln
Chart =


---

Barr Pharmaceuticals - BRL - cls: 78.02 chg: -0.88 stop: 77.95

We tried to keep our risk at a minimum by placing the top near
$78.00, which was the top of the gap from BRL's recent jump
higher.  The profit taking the last three days of this week was
too much and BRL broke through this level of support.  Not
helping our bullish case any was news on Friday that BRL's CEO
Bruce Downey sold 405,000 shares of stock.  Downey exercised his
stock options with an average price of $4.48 so he took home
quite a bit of cash.  However, he did use part of the funds to
buy 27,000 incentive-based options, which increased his holdings
in BRL to 286,000 shares (-Reuters).

Picked on February 18 at $80.61
Change since picked:     - 2.59
Earnings Date          02/05/04 (confirmed)
Average Daily Volume:       730 thousand
Chart =



PUTS
^^^^

None


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

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

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

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


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**********
DISCLAIMER
**********

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


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Contact Support
The Option Investor Newsletter                   Sunday 02-22-2004
Sunday                                                      3 of 5


In Section Three:

Current Calls: ATH, APOL, DHR, DHI, GD, PD, QCOM, RJR, RNR
New Calls: EBAY
Current Put Plays: AVID, CTSH, MMM
New Puts: WGO


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

Amerada Hess Corp. - AHC - cls: 61.55 chng: +0.02 stop:
58.50*new*

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

Why we like it:
Despite the broad market weakness, AHC managed to eke out a tiny
gain of 2 cents on Friday, but the reversal from the intraday
high of $62.29 hints that perhaps a bit of profit taking is in
store.  The stock has been moving steadily upwards - albeit at a
snail's pace - since breaking out on 2/10.  Note that daily
Stochastics are starting to tip over from well within overbought
territory, so it looks like a pullback to test support is in
order.  The first likely spot to provide support will be the $60
level, as it is now reinforced by the 10-dma ($60.25).  A more
significant pullback could see support tested near $59, which is
the site of the recent breakout.  The 20-dma (now at $58.55)
should provide strong support in that event, so it seems prudent
to raise our stop to $58.50 this weekend.  With the need to
retrace a bit before heading higher, we are not interested in
breakout entries at this time.  Let's wait for the pullback and
support test first.

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

Longer Term: Aggressive longer-term traders can use the May $65
Call, while traders looking for more immediate movement will want
to use the May $60 strike.  Our preferred option is the March $60
strike, which is at the money and should provide sufficient time
for the play to move in our favor.

BUY CALL MAR-60*AHC-CL OI= 953 at $2.50 SL=1.25
BUY CALL MAR-65 AHC-CM OI= 272 at $0.50 SL=0.25
BUY CALL MAY-60 AHC-EL OI= 729 at $3.80 SL=2.25
BUY CALL MAY-65 AHC-EM OI= 295 at $1.55 SL=0.75

Annotated Chart of AHC:


Picked on February 10th at   $59.53
Change since picked:          +2.02
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =     1.03 mln
Chart =


---

Apollo Group - APOL - close: 77.63 change: +0.02 stop: 73.50

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

Why we like it:
APOL continues to be stymied by resistance near $79, but the lack
of a breakout certainly isn't for a lack of trying.  The stock
has been testing that level of resistance almost on a daily basis
for over a week, but each attempt is followed by a pullback near
the $77 support level.  Friday's price action was no different,
with a push to an intraday high of $78.98, and then a drop back
to exactly $77, before a feeble rebound at the end of the day.
While we're still expecting a drop back to the $75 level before
the current round of consolidation is complete, it has been
encouraging to see the stock holding above $77 while daily
Stochastics are working off their overbought condition.
Aggressive traders can consider entries on successive rebounds
from the $77 level, while the better entry will be found on a
pullback and rebound from the site of the 20-dma (now at $75.72).
The only momentum entry that makes sense is a strong breakout
over $79.55, which was the site of the intraday high a week ago.
Maintain stops at $73.50.

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

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

BUY CALL MAR-75*OAQ-CO OI= 473 at $4.20 SL=2.50
BUY CALL MAR-80 OAQ-CP OI= 764 at $1.50 SL=0.75
BUY CALL MAY-75 OAQ-EO OI=1993 at $6.50 SL=2.25
BUY CALL MAY-80 OAQ-EP OI= 871 at $3.80 SL=2.25

Annotated Chart of APOL:


Picked on February 1st at    $77.44
Change since picked:          +0.19
Earnings Date               12/18/03 (confirmed)
Average Daily Volume =     1.61 mln
Chart =


---

Danaher Corp - DHR - close: 92.55 cls: -0.28 stop: 90.00

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

Why We Like It:
The markets struggled this week and many of the cyclicals churned
sideways as investors wrestled with concerns over the economy,
potentially higher interest rates and the dollar.  Fortunately,
the longer-term bullish trends for DHR are still very much
intact.  It is the short-term trends that look worrisome.  We
were expecting a dip toward the $90 level and DHR only traded to
$91.47 on Friday morning.  That may be a new short-term bottom
given the afternoon bounce but don't count on it yet.  DHR has
still not tested its 50-dma (near $91.00) and it does have a
disturbing trend of lower highs.  For the last several days we've
been suggesting that only aggressive traders try and initiate
plays on a bounce above $90.00.  The rest of us can probably do
okay waiting for DHR to trade back above the $95.00 level.


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

BUY CALL MAR 90*DHR-CR OI= 947 at $4.40 SL=2.20
BUY CALL MAR 95 DHR-CS OI=1036 at $1.70 SL=0.85

Annotated Chart:




Picked on January 30 at $91.01
Change since picked:    + 1.54
Earnings Date         01/29/04 (confirmed)
Average Daily Volume:      841 thousand
Chart =


---

D.R.Horton - DHI - close: 30.15 chg: -0.35 stop: 27.99

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

Why We Like It:
Homebuilders were prime candidates for profit taking this week
but odds are the pull back may just be another entry point into a
strong sector that should out perform the markets this year.  The
group as a whole held up pretty considering some of the broker
talk about interest rates potentially rising sooner rather than
later but with the Fed's promise to be patient and the up coming
spring-summer home buying season these stocks should do well.

Mortgage rates are still at historic lows and if analysts were
suggesting investors buy homebuilders last week then they look
even better today.  Unfortunately, CSFB doesn't feel so bullish
on DHI and they lowered their rating from "out perform" to
"neutral" on Thursday but shares of DHI held up.  We do suspect
more weakness in DHI or at least more sideways consolidation.
Its technical indicators like the MACD, stochastics and RSI are
all pointing lower (or about to like the MACD).  If you're
looking for new positions be patient.  DHI may dip toward the
$29.00-29.50 level and offer a slightly better entry than here at
$30.00.

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

BUY CALL MAR 25 DHI-CE OI= 172 at $5.40 SL=3.25
BUY CALL MAR 30 DHI-CF OI=1420 at $1.45 SL=0.75
BUY CALL MAY 30*DHI-EF OI= 750 at $2.55 SL=1.30
BUY CALL MAY 35 DHI-EG OI= 457 at $0.80 SL= --

Annotated Chart:



Picked on February 08 at $30.00
Change since picked:     + 0.15
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =


---

General Dynamics - GD - close: 94.43 chg: -0.83 stop: 92.00

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

Why We Like It:
Is buying interest waning for the defense stocks?  We think not -
at least not yet.  The defense sector has been one of the
strongest groups for investors this year and was overdue for some
profit taking.  While the DFI traded lower shares of GD churned
mostly sideways between $94 and $97.  We're actually a little
surprised that the defense group didn't tick higher on Friday
after the news in Japan about the government going on their
highest level of alert.

Right now GD has pulled back to minor support at $94.  If it
holds great; if not then the next stop should be in the $92 range
as its 40 & 50-dma's rise to meet it.  According to GD's
oscillators this may be a good bet since its technicals don't
look that strong at the moment.  Fortunately, its P&F chart is
still very bullish with a target of $125.00.

Suggested Options:
Our preference is the March or May calls.  We normally don't pick
OTM calls as our favorite but we're going to bet on the May 100s.

BUY CALL MAR  90 GD-CR OI=  57 at $5.50 SL=3.25
BUY CALL MAR  95 GD-CS OI= 802 at $2.10 SL=1.05
BUY CALL MAR 100 GD-CT OI= 306 at $0.55 SL= --
BUY CALL MAY  95 GD-ES OI=1005 at $3.80 SL=1.90
BUY CALL MAY 100*GD-ET OI=1004 at $1.80 SL=0.90

Annotated Chart:



Picked on February 08 at $96.88
Change since picked:     - 2.45
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       1.0 million
Chart =


---

Phelps Dodge - PD - close: 80.87 chg: -1.01 stop: 78.00

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

Why We Like It:
If you missed the entry point near $80 last week here's another
chance.  Shares of PD have consolidated their early February
gains despite the price of copper hitting new highs this week.
Analysts continue to be bullish on copper as the global economy
heats up, especially in China and other Asian emerging markets.

While we believe PD is a great way to play the rise in copper it
may actually see more weakness next week despite being right at
$80 support.  We're going to leave our stop loss at $78.00 but if
you're still looking for an entry point consider waiting.  PD
might pull back and tag its 50-dma again, which is currently near
$76.00.  We'll be stopped out but we may consider a new position
on a bounce back above $80.00.  If PD does not break $78.00 you
may also want to consider waiting on a new position until it
breaks the current short-term trend of lower highs.  Right now
that would probably require a move over $83.00.  However, while
these two alternate entries sound tempting, pure technical
traders should probably be evaluating entries now with the
afternoon bounce from the $80 region.  The stock has already
retraced nearly half its run from the early February low.

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

BUY CALL MAR 80 PD-CP OI=3229 at $4.20 SL=2.10
BUY CALL MAR 85 PD-CQ OI=1427 at $1.95 SL=1.00
BUY CALL APR 80 PD-DP OI=1130 at $5.50 SL=3.25
BUY CALL APR 85 PD-DQ OI=1819 at $3.20 SL=1.65

Annotated Chart:




Picked on February 11 at $80.51
Change since picked:     + 0.36
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       1.6 million
Chart =


---

Qualcomm, Inc. - QCOM - close: 59.40 change: +0.61 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:
The weakness in the NASDAQ certainly isn't apparent in the price
action of QCOM, as the stock has stubbornly held up very near the
$60 resistance level throughout the past week.  This still looks
like a very bullish consolidation, with support being found above
$58, in anticipation of a breakout to new highs in the near
future.  Because of the tight range-bound action over the past
week, oscillators are hard to read, but they certainly aren't
giving a bearish indication.  Remember that we need to see QCOM
break out over our $60.75 trigger before considering entries into
the play.  Momentum traders will want to play on the initial
breakout, while those employing a more cautious approach can look
for a subsequent pullback to confirm support in the $59-60 area
before playing.  Maintain stops at $56, which will be under the
50-dma ($55.88) by Monday.

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= 9094 at $2.05 SL=1.00
BUY CALL MAR-65 AAO-CM OI= 5359 at $0.60 SL=0.30
BUY CALL APR-60*AAO-DL OI=10415 at $3.10 SL=1.50
BUY CALL APR-65 AAO-DM OI= 4642 at $1.30 SL=0.60

Annotated Chart of QCOM:



Picked on February 17th at   $59.55
Change since picked:          -0.15
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     8.40 mln
Chart =


---


RJ Reynolds Tobacco - RJR - cls: 59.98 chg: +0.25 stop: 57.50

Company Description:
R.J. Reynolds Tobacco Holdings, Inc. is the parent company of
R.J. Reynolds Tobacco Company and Santa Fe Natural Tobacco
Company, Inc. R.J. Reynolds Tobacco Company is the second-largest
tobacco company in the United States, manufacturing about one of
every four cigarettes sold in the United States. Reynolds
Tobacco's product line includes four of the nation's 10 best-
selling cigarette brands: Camel, Winston, Salem and Doral. Santa
Fe Natural Tobacco Company, Inc. manufactures Natural American
Spirit cigarettes and other tobacco products, and markets them
both nationally and internationally.
(source: company press release)

Why We Like It: (Thursday's Original Update follows)
We're going to add RJR to the call list both on its developing
bullish technical picture and as a defensive play if the markets
continue to slip lower.  Technicals are turning bullish as the
stock builds on its trend of higher lows and consolidation under
resistance in the $60.00-60.50 level.  RJR is also a defensive
play based on its recession proof products and 6.4% annual
dividend.  We're going to use a TRIGGER at $60.51 to open the
play.  This should be a clean breakout above the recent highs.
If we're triggered we'll use a stop loss at $57.50 but more
conservative traders can probably get away with a stop under the
50-dma (near 58.50).

RJR made some headlines recently when management stated their
proposed merger with British American Tobacco's Brown and
Williamson unit should close this summer.  Together RJR, the No 2
U.S. tobacco company, and Brown and Williamson, the No 3 tobacco
company, will form to become Reynolds American.  They hope to
compete more efficiently with their much larger rival Phillip
Morris, owned by Altria Group (MO).  Currently the merger is
still under FTC review.

Weekend Update:
Wow! We have quite the knack lately for stocks hitting our
trigger and pulling back the opposite direction.  That's not a
skill we really want to develop.  The move to $60.60 surpassed
our trigger at 60.51 so the play is officially open.
Unfortunately the close back under the $60.00 is a concern.  We
would remain CAUTIOUS and look for RJR to surpass Friday's high
at $60.60 before initiating new positions! We don't want this to
be a bull trap sort of move.

Suggested Options:
Looking over the March and May options we like the 55 and 60
strikes but our favorite is the March 55's.

BUY CALL MAR 55 RJR-CK OI= 201 at $5.40 SL=3.20
BUY CALL MAR 60 RJR-CL OI=1577 at $1.45 SL=0.75
BUY CALL MAY 55 RJR-EK OI= 722 at $6.20 SL=4.10
BUY CALL MAY 60 RJR-EL OI=2994 at $3.00 SL=1.50

Annotated Chart:



Picked on February 20 at $60.51
Change since picked:     - 0.53
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       699 thousand
Chart =



---

Renaissancere Ltd - RNR - close: 51.15 chg: -0.17 stop: 49.50

Company Description:
RenaissanceRe Holdings Ltd. is a global provider of reinsurance
and insurance. The Company's business primarily consists of four
business units: (1) Catastrophe Reinsurance; (2) Specialty
Reinsurance; (3) Individual Risk business, which includes primary
insurance and quota share reinsurance, and (4) Renaissance
Underwriting Managers, which manages the Company's Property
Catastrophe Joint Ventures, its Business Development Joint
Ventures, and its Structured Reinsurance Products.
(source: company press release)

Why We Like It:
Much like the defense sector the insurance sector, which had been
leader in the market's climb, has pulled back the last three days
in profit taking.  Odds are good that investors who have been
watching the advance will be tempted to buy the dip.  RNR is no
exception.  The stock shot higher on Tuesday as we expected and
pulled back the rest of the week.  The stock may see a dip to the
$50.00 level, which would be the preferred entry point for new
positions.  We're going to keep our stop tight at $49.50.

Suggested Options:
Option trading is a little light on RNR especially in the March
strikes.  We're going to suggest the April 50s as our favorite.

BUY CALL MAR 50 RNR-CJ OI= 19 at $2.10 SL=1.05
BUY CALL APR 45 RNR-DI OI=100 at $6.70 SL=4.20
BUY CALL APR 50*RNR-DJ OI=210 at $2.75 SL=1.35
BUY CALL APR 55 RNR-DK OI= 54 at $0.70 SL= --

Annotated chart:




Picked on February 15 at $50.83
Change since picked:     + 0.32
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =



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

eBay, Inc. - EBAY - close: 69.26 change: +0.83 stop: 66.50

Company Description:
After developing a Web-based community in which buyers and
sellers are brought together in an efficient format, EBAY has
emerged as the dominant online auction site.  The eBay dynamic
pricing format permits sellers to list items for sale, buyers to
bid on items of interest and all eBay users to browse through
listed items.  Items listed on eBay include collectibles,
automobiles, art objects, jewelry, consumer electronics and a
host of practical and miscellaneous items.  Although based in the
United States, through its subsidiaries, EBAY also operates
trading platforms in Germany, the United Kingdom, Australia,
Japan, Canada, France, Austria, Italy and South Korea.

Why we like it:
In defiance of all its critics, EBAY has remained very strong
since breaking out to all time highs over $64 in late January.
Surging to just below $70 following its earnings report, the
stock pulled back just enough to confirm new-found support near
$65 and then pushed its way back to just below $70, where it has
been consolidating for the past week.  The stock is consistently
finding support above its 20-dma ($67.72) as it consolidates at a
higher level in preparation for another breakout to new all-time
highs.  Even with the rollover in the daily oscillators, price
action has remained strong over the past week and the stock has
remained unperturbed by the weakness in the overall market.  With
a very bullish PnF chart, complete with a $96 bullish price
target, it's hard not to like the stock.

We don't have any illusions about that target being reached in
the near term, but once over $70, it seems reasonable to expect a
continued rally up to the $75 level, at least.  This is clearly a
play where we want to wait for proven strength in the form of a
breakout before playing, so we're setting an entry trigger at
$70.10, just over Thursday's all-time intraday high.  Clearly,
our preference is for entries on that initial breakout, although
more conservative traders may get a better entry if they wait for
a subsequent pullback to confirm new support near $69 before
playing.  We'll initially target a rally to $75, but will leave
room for EBAY to run as high as $80 in case it delivers another
$10 move like it did when the stock rallied from $55 to $65 in
one swift move last December.  We're going to use a fairly tight
stop on EBAY, setting it just below the bottom of the trading
range of the past 2 weeks.

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

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

BUY CALL MAR-70 XBA-CN OI= 7195 at $2.30 SL=1.25
BUY CALL MAR-75 XBA-CO OI= 3051 at $0.65 SL=0.30
BUY CALL APR-70*XBA-DN OI=10241 at $3.30 SL=1.75
BUY CALL APR-75 XBA-DO OI= 1809 at $1.50 SL=0.75

Annotated Chart of EBAY:



Picked on February 22nd at   $69.26
Change since picked:          +0.00
Earnings Date               4/21/04 (confirmed)
Average Daily Volume =     7.04 mln
Chart =



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Avid Technology - AVID - close: 40.01 chg: -0.06 stop: 42.87*new*

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

Why We Like It:
The put play in AVID is actually working out pretty well.  The
trend of lower lows continues to hold up and shares are
struggling to hold support at $40.00.  Traders should begin to
plan their exit strategy.  Our initial target was a move to the
$38.50-38.00 region.  That could happen soon but take note of the
short-term descending channel.  AVID is at the bottom of this
channel and should actually bounce again.  We would not suggest
new bearish positions unless we see a failed rally near the
$41.50 area.  If AVID hits $38.00 intraday we'll close the play.
We're also going to lower our stop loss to breakeven at $42.87.

Suggested Options:
This close to our target we're not suggesting new positions
unless AVID fails again near $41.50.

Annotated chart:



Picked on February 04 at $42.87
Change since picked:     - 2.86
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       612 thousand
Chart =



---

Cognizant Tech. - CTSH - cls: 48.67 chng: +1.18 stop: 52.50*new*

Company Description:
Cognizant Technology Solutions Corporation delivers full
lifecycle  solutions to complex software development and
maintenance problems that companies face as they transition to e-
business.  These information technology (IT) services are
delivered through the use of a seamless on-site and offshore
consulting project team.  The company's solutions include
application development and integration, application management
and re-engineering services.  Among CTSH's prominent clients are
ACNielsen Corporation, ADP, Inc., Brinker Int'l, Computer
Sciences, The Dun & Bradstreet Corporation, First Data
Corporation and Nielsen Media Research.

Why we like it:
It was really no great surprise to see CTSH rebound on Friday,
following the breakdown under the 50-dma on Thursday.  As noted
in the initial writeup, there was the potential for a rebound
from the $47 level and that's exactly what happened.  After it
became clear there wasn't enough selling pressure to take out
Thursday's $46.96 low, bargain hunters came in and pushed the
stock right back to test the 50-dma ($49.66) as resistance.  That
resistance held and in so doing is providing us the opportunity
for a solid entry on a rollover here in the $49.50-50.50 area.
Once that rollover occurs, look for $47 support to be broken and
allow price to sag to next support at $45 before continuing the
bearish journey towards our $41 target.  We can edge our stop
down to $52.50, as that is now over the 20-dma ($52.42), and that
average should not be violated if the downside is to play out the
way we're expecting.

Suggested Options:
Aggressive short-term traders can use the March 45 Put, while
those with a more conservative approach will want to use the
March 50 put.  Aggressive traders looking for more insulation
against time decay will want to utilize the April strike.  Our
preferred option is the April 45 strike, as it provides more time
until expiration.

BUY PUT MAR-50 UPU-OJ OI= 339 at $3.50 SL=1.75
BUY PUT MAR-45 UPU-OI OI=1475 at $1.40 SL=0.75
BUY PUT APR-45*UPU-PI OI= 756 at $2.20 SL=1.00

Annotated Chart of CTSH:


Picked on February 19th at    $47.49
Change since picked:           +1.18
Earnings Date                2/10/04 (confirmed)
Average Daily Volume =      1.26 mln
Chart =


---

3M Company - MMM - close: 79.70 change: +0.60 stop: 82.00*new*

Company Description:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety of
industrial, consumer, and medical products.  Reflective sheeting
on highway signs, respirators, spill-control sorbents, and
Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products,
making it easier for food processors to test for the
microbiological quality of food.

Why we like it:
Just to keep the bears on their toes, MMM followed up the
weakness seen throughout the rest of the week to rebound back
over the 100-dma on Friday.  Of course, we probably could have
anticipated that rebound, as participants would seek to close the
stock near the $80 level on expiration Friday.  That slight
rebound doesn't look particularly troublesome though, as the
stock remained below the 20-dma ($80.09) and closed well off its
intraday high.  The daily oscillators are clearly pointing down
with fresh bearish crosses and if the broad market weakness
continues, we ought to see a test of strong support near $77.50
next week.  Remember that it will take a trade at $77 to give us
the PnF Sell signal and open the door to further weakness.  New
entries look good on failed bounces below the $81 level, although
more conservative traders will want to wait for the break of $77
before playing.  Once that support gives way, look for potential
support also near $76 before a continued slide towards our target
at the 200-dma (currently $73.18).  Lower stops to $82 this
weekend, as that will be above the 50-dma ($82.01) by Monday.

Suggested Options:
Aggressive short-term traders can use the March 75 Put, while
those with a more conservative approach will want to use the
March 80 put.  Our preferred option is the March 80 strike, as it
is currently at the money.  Aggressive traders looking for more
insulation against time decay will want to use the April strike.

BUY PUT MAR-80*MMM-OP OI=3243 at $1.95 SL=1.00
BUY PUT MAR-75 MMM-OO OI=3118 at $0.50 SL=0.25
BUY PUT APR-75 MMM-PO OI=2856 at $1.05 SL=0.30

Annotated Chart of MMM:



Picked on February 15th at    $79.68
Change since picked:           +0.02
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.74 mln
Chart =



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

Winnebago - WGO - close: 68.13 chg: -1.44 stop: 71.50

Company Description:
Winnebago Industries, Inc. is the leading manufacturer of motor
homes, self-contained recreation vehicles used primarily in
leisure travel and outdoor recreation activities. The Company
builds quality motor homes under the Winnebago, Itasca, Rialta
and Ultimate brand names with state-of-the-art computer-aided
design and manufacturing systems on automotive-styled assembly
lines. The Company's common stock is listed on the New York,
Chicago and Pacific Stock Exchanges and traded under the symbol
WGO. (source: company press release)

Why We Like It:
Honestly we're bullish on WGO given its leadership position in
the industry and the upcoming spring-summer RV season.  This last
year's rise in the stock market has probably resurrected the
"wealth effect", which should boost RV sales.  However, the stock
has gotten ahead of itself and more than one broker has
downgraded WGO on valuation concerns.  The technical breakdown
under $69-70 looks like bad news and its P&F chart looks very
bearish with a triple-bottom breakdown and a $52 price objective.

Pressuring the stock was news out last week that a major
shareholder, Hanson Capital Partners, who owns 13% of WGO's
outstanding shares plans to diversify by selling just over half
their position, or 1.25 million shares between now and July 31st.
Also noteworthy is WGO's 2:1 split on March 5th and its quarterly
cash dividend of 5 cents a share payable on April 15th (5 cents
is post-split).  Normally the split and dividend would be bullish
drivers for the stock but this time they may not help.

We're going to target a move to the $60-62 range with a stop loss
at 71.50.


Suggested Options:
We would choose from the March of April puts at the 70 or 65
strikes.  Our favorite is the April 65's.

BUY PUT MAR 70 WGO-ON OI= 430 at $4.20 SL=2.10
BUY PUT MAR 65 WGO-OM OI= 203 at $1.70 SL=0.90
BUY PUT APR 70 WGO-PN OI= 174 at $5.10 SL=3.00
BUY PUT APR 65*WGO-PM OI= 892 at $2.75 SL=1.35

Annotated chart:


Picked on February 22 at $68.13
Change since picked:     - 0.00
Earnings Date          12/17/03 (confirmed)
Average Daily Volume:       276 thousand
Chart =



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The Option Investor Newsletter                   Sunday 02-22-2004
Sunday                                                      4 of 5


In Section Four:

Leaps: Successful Reinflation?
Traders Corner: The CPTI Rules!  We’re Back With A Vengeance


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LEAPS
*****

Successful Reinflation?
By Mark Phillips
mphillips@OptionInvestor.com

Last week was rather interesting in terms of the big picture, even
if the magnitude of the moves in the equity market didn't reflect
it.  With the DOW and the S&P 500 surging to new highs on
Thursday, we wouldn't have been out of line expecting a breakout
before the end of the week.  But once again, resistance held and
the DOW and SPX fell back into the midst of the trading range that
has held since the start of the year.

I normally don't focus on the details of economic reports, because
I find that I just can't interpret them accurately or quickly
enough to make incisive trading decisions.  But every once in a
while there are some nuggets of wisdom to be found there that
cause me to sit up and take notice.  The last couple days provided
just such an opportunity.  Friday's CPI release showed prices
rising by 0.5%, with the official inflation rate coming in at 1.1%
(excluding food and energy) for the past 12 months.  As was
parroted across the airwaves on Friday, there's no inflation
problem.  To which I reply, "Oh really?"  First off, the primary
cause of January's sharp rise over the 0.2% of December was
attributed to increased energy costs.

Well, guess what?  Energy prices aren't rising!  You think I'm
crazy for making that statement?  Do you remember what the price
of crude oil was 2 years ago?  Do you remember where the Dollar
index (DX00Y) was 2 years ago?  Here's a quick trip down memory
lane -- in January of 2002, crude oil was going for between $22-24
per barrel and the DX00Y was resting near 120.  Since then, we've
seen the DX00Y crumble by roughly 30%.  Add 30% to that $24 level
and we get something just over $31 as where the price of crude oil
should be if the supply/demand equation was exactly the same as it
was 2 years ago.  Granted, $31 is below the current $35 level for
a barrel of crude oil, but not by a whole lot.  And just 2 weeks
ago, the price of crude was down near $32, essentially reducing
the discrepancy to the point of insignificance.  Do you think it
is any coincidence that the rise in the price of crude has
mirrored the fall in the dollar?  I don't, especially given the
fact that all global crude oil transactions are denominated in
dollars.

I've been saying for quite some time now that it is all about the
dollar and that reality is being borne out in many ways in the
current macro-economic landscape.  2003 was an anomalous year in
that all asset classes rose.  It was a sell the dollar and buy
everything else kind of year.  I do not expect that pattern to be
repeated in 2004.  Intermarket relationships have been stressed to
the breaking point and I believe something has got to give, and
soon.  Predicting how these connections will be broken in the year
ahead of us is an exercise for which I am completely out of my
league, but I can look at the data and see that something has got
to change.

Are we near the end of the current bullish trend in the stock
market?  Is the dollar near the end of its decline?  Are interest
rates poised to rise from here?  Is the bull market in gold and
other commodities about to reverse?  Is inflation going to rear
its ugly head?  As you can see, I have a lot of questions and very
few answers.  But the answers to those questions all hinge (in my
never-to-be-humble opinion) on what happens with the dollar.  If I
were to guess, I would say that the dollar is destined for lower
levels before the dominant downtrend is reversed.  It would take
the Dollar index (DX00Y) moving over 92 to convince me that I need
to rethink that position.

If the dollar does continue down, then we could see the equity
market continue to work its way higher and interest rates hold
near their lows.  At the same time, we can expect prices for most
commodities like gold, silver, platinum, copper, oil, etc. to
continue to rise in terms of dollars.  On the other hand, if the
dollar were to rise significantly, then we should expect many of
these bullish trends to reverse over the intermediate term and we
would probably we faced with a rising interest rate environment.
The Fed has recently said that interest rates will remain low
until there are concrete signs of strong and sustained job growth.
So far that strength in the job market has been lacking.

So what we really need to know is what happens to interest rate
policy in the event of a sharp rise in inflation in the absence of
that strong job growth.  You see, the rise in prices has not been
the result of increased demand for stuff.  It is all about the
demand for dollars due to their increasingly abundant supply.  But
all the same, it does seem like we're starting to see inflation
rear its head, despite efforts to keep problematic factors out of
the official reports.  This brings us back to where we started,
talking about the CPI release.

January's rise of 0.5% is currently being glossed over in the
mainstream press.  But let's engage in a bit of speculation.  What
if January's rise is the beginning of stronger gains in prices?
Let's assume we see roughly equivalent rises over the next several
months.  Wouldn't that mean that we're on course to an inflation
rate near 6% (12 x 0.5%)?  I think that would tell anyone that
inflation really IS a problem, don't you?  That brings me to the
issue of the PPI report, which was Missing In Action last week?
Why?  Could it be that it showed even stronger signs of inflation
and it was going to require more time to either massage them away
through some creative data manipulation, or that it was desired to
let the Fed Heads out on the speaking circuit again to assuage any
concerns before the report was released?  I won't say that is what
is happening, but I won't say it isn't possible either.

If we proceed under the assumption that inflation is creeping into
the official economic reports to the degree that it can't be
ignored, then the Fed will be faced with an interesting dilemma in
the months ahead.  Inflation over 5% would practically force a
rise in interest rates, whether or not the job growth is there to
support such a policy change.  Now if we really are seeing tepid
economic growth, and interest rates begin to rise, I hope those of
you that are my age or older will recognize what this is the
recipe for - stagflation.  We all got to "enjoy" it in the 1970s
and it wasn't a lot of fun.  Remember interest rates near 18% and
high inflation?

I know this is pure speculation here, but the background for the
speculation is sound.  The Fed knows that their policies of the
past couple years had to weaken the dollar and send us down this
path where we run the risk of reliving the 70s.  The reason
they've been so reticent to change any of their policies is that
achieving a repeat of that time period would actually be a
success, as opposed to letting the economy actually lapse into
deflation.  There are tools that can be used to fight inflation,
even in a weak economy.  But combine a weak economy with deflation
- it's even worse with a heavy debt load - and the potential
consequences are much more dire.  There are no monetary weapons
with which to combat deflation, an economic reality that Japan has
been grappling with for more than a decade.

As I said before, I have far more questions than answers, but I
think we are near a key inflection point for all asset classes
right now.  The violent move in the currency markets on Friday is
just one more piece of the puzzle that tells me others are
thinking the same thing.  It could take months for us to be
presented with any sort of closure as to whether any of these
trends are in the process of reversing, or if this is just a pause
before they go on to become even more extended.  For equity bulls,
I think we need to hope that when the PPI does get released, it
doesn't contain any surprises to the upside in terms of inflation.

My gut feel is that the sharp dislocation in the currency market
on Friday was a direct result of savvy traders figuring out that
the CPI was in fact hinting at rising inflation, which inevitably
will lead to rising interest rates, which will in turn cause the
dollar to strengthen.  I think it was anticipation of that
eventuality that finally caused a sharp reversal of the "bearish
dollar/bullish all other currencies" trend.  Whether it is a
short-term or sea change event is something that will have to be
answered after more water has passed under the bridge.  I don't
think I need to tell you that I think extreme caution is warranted
no matter what market you're playing in or whether you are aligned
bullish or bearish.  That's the nature of inflection points, isn't
it?

Alright, enough of my speculation on the direction of the many
disparate markets that have an influence on the direction of
equities.  I often find it useful to look outside that relatively
small box, to see what external factors we need to be aware of.  I
hope you've found it useful as well.  Now let's turn our attention
back to the near term and see how our list of plays fared in the
week just ended.

Portfolio:

SBUX - That was certainly an impressive jump in SBUX on Tuesday,
wasn't it?  Try as I might, I didn't see any company-specific news
that should have motivated such a sharp rise, but apparently that
didn't matter, as the stock rocketed just over $39 on huge volume
over 7 million shares.  The remainder of the week saw the stock
digesting those gains and falling back towards the $37 level.
Remember that we're targeting $40 as our final exit point from the
play and Tuesday's move got really close to that.  I view that
breakout as an opportunity to get more aggressive with our stop,
and I'm raising it to $36.50, which was the level from which
Tuesday's rally began.  If SBUX breaks below that level, then
we'll know there's a more significant round of profit taking in
store.  Otherwise, we'll look to exit the play when our $40 target
is reached.  Clearly, this close to our exit point, there's no way
I'd suggest new positions.

SMH - Semiconductor stocks are continuing to lose strength and
providing a steady drag on the overall Technology sector.
Thursday's failed rally looked particularly bearish, with the gap
higher being reversed to a loss by the close and producing another
close under that 50-dma.  More weakness into the close on Friday
certainly suggests that another test of the $40 level is in store,
after which we can look for the December lows near $38.50 to come
into play.  There's been a lot of volatility in the group in
recent weeks, and I'm not yet ready to tighten our stop.  But if
the NASDAQ closes under 2000 and the SMH breaks $40 on a closing
basis, then I think stops can be ratcheted down to $44, just over
Thursday's intraday high.  Our final target remains a drop down to
test strong support in the $34-35 area.

NEM - Once again, the price action in gold stocks is all about
what is happening with the dollar and there was a big reversal
there at the end of the week.  After being rejected at the 50-dma
resistance, NEM looks headed back down to take another shot at the
$40-42 support level, but that isn't really any cause for concern.
The stock is still working on putting in a bottom after pulling
back from its $50 highs earlier in the year.  Note that weekly
Stochastics have now dropped near oversold territory, and we ought
to see them turning back up in the next couple weeks.  The rebound
in the dollar that exacerbated the stock's decline last week is a
short-term effect that I would be surprised to see continue much
beyond the 88 level on the DX00Y.  Then there is major resistance
in the 91-92 area.  We could still see NEM weaken down into the
$38-40 area, but with the 200-dma now over $39, our $37 stop
should be safe.  I still like the prospects for new entries near
$40, if we can get it.

HD - We're not seeing a significant move in HD yet, but I do like
the weakness in price seen throughout last week.  Note that
Friday's low coincided almost exactly with the bottom of the short
term rising channel or bear flag, not to mention the 50-dma.  We
took our position as close to the top of the long-term descending
channel as we could and now we're waiting for enough weakness in
price to give us the tip over in the weekly Stochastics.
Everything looks good so far, and now we wait for price action to
prove the merits of our bearish stance.  Should we get another
failed bounce near the $37-38 level, that can be used for
continuation entries.

MLNM - It is so nice to know that all I had to do is raise our
entry target on MLNM in order to get enough of a pullback to let
us in!  The stock came down right into our revised entry zone on
Friday, so MLNM moves to the Portfolio this weekend.

Watch List:

QCOM - We've certainly seen a graphic demonstration of relative
strength from QCOM over the past few weeks.  Despite the weakness
in the NASDAQ, QCOM barely dropped at all, and is right back to
testing resistance at the $60 level.  Based on the PnF chart's
bullish price target of $67, I just can't justify entries at this
level and it may be that we end up dropping the play without ever
entering.  I'm not ready to do that just yet, but neither am I
willing to raise our entry target.  We need a decent spread
between where we enter and what our profit target is, and we
really need an entry no higher than where we currently have it set
to give the play an acceptable risk to reward ratio.  If QCOM
comes back to give us that entry we'll take it, but if it breaks
out over the January highs, then we'll have to say farewell.

SNDK - If you weren't expecting the split, you were clearly
surprised to see SNDK trading near the $25 level last week.  With
price solidly below all its moving averages and the 50-dma about
to cross below the 200-dma, I have to admit I am having some
concerns about this Watch List play.  Fortunately, it's just
sitting there on hold, so nobody should be getting into trouble
just yet.  Price action on the daily chart certainly suggests a
break to new recent lows is in store, so there's no need to get
worked up about entering the play any time soon.  Weekly
Stochastics are trying to form a bottom, but that could still take
some time.  My expectations are still for a drop to the $20 area
(post-split) to give us a viable entry, but we don't want to even
consider trying to catch the falling knife until we see some more
constructive price action.

CHK - Now that's more like it!  Last week, I expressed concerns
that CHK might take off without us.  But the reversal at the 50-
dma has the stock coming back towards support at $12 and our
targeted entry zone in the $11.50-12.00 area.  I still like that
area for entries, although we may have to deal with some near-term
weakness down near the $11 area until the weekly Stochastics reach
bottom in oversold and begin to turn up.  Natural gas should
continue to be a bullish area of the market, whether the broad
market heads north or south and CHK looks like one of the better
candidates to let us play that trend.

Radar Screen:

WMB - Traders obviously did not like what management had to say in
their earnings report, as concerns over the losses from the power
segment took center stage.  I view this as rather short-sighted,
with the company still in the process of exiting the energy
trading business.  Looking at the positive side, the company's
losses narrowed considerably due to the gains in the core natural
gas business.  That's where SMB shines and will continue to do so
over the long term.  Technically, it is really no surprise to see
the stock heading back down, as the first test of the bearish
resistance line on the PnF chart could be expected to be painful
for the bulls.  I'm not ready to put the stock on the Watch List,
with weekly Stochastics pointed strongly lower.  But I can
envision making that transition sometime in the next few weeks
when the stock reaches strong support.  Ideally, we'll get a shot
at an entry near $7, but we could see the stock hold support at a
higher level.  For now we wait and let the current weakness play
itself out.

LUV - As expected, the rebound attempt from just above $14 was
pretty feeble, and LUV appears to be rolling over once again.
Weekly Stochastics have bottomed, but that doesn't mean that the
price has done the same.  We can take our cue from the Transports
as a whole, with the TRAN still headed lower and likely to pull
the DOW in the same direction over the near term.  We'll hold out
for another drop to new recent lows and then look to try our hand
at a bullish play if we can get price down into the $11.50-12.50
area on a retest of the lows that have defined a bottom for the
stock over the past few years.

APA - Just as we should have expected from a technical
perspective, APA rebounded back to its 50-dma, rolled over and
appears headed back to test its early February lows near $37.
Weekly Stochastics are heading south, as the overbought condition
is methodically worked off, while price makes a controlled descent
back towards strong support in the $35 area.  That is also the
site of the 200-dma, which hasn't been touched in over a year.  As
noted previously, we're early to be looking for entries just yet,
and we'll take our cues from where the stock actually finds strong
support at the same time as the overbought condition is completely
worked off.  Then we can take a position ahead of a run at new
highs, as the stock continues to benefit from strong and growing
demand in the natural gas markets.

Closing Thoughts:
So far, we really haven't seen any significant changes in the
bullish equity landscape, although the action in the NASDAQ has
got to be causing the bulls a bit of heartburn.  I'll be watching
that area of the market closely from here on out, as a break of
strong support near 2000 could have bearish implications for the
rest of the market.  As noted above, it feels like we're at an
important inflection point, so I decided to hold off on adding any
other symbols to our menu this week.  But we'll have some fresh
appetizers next week, hopefully with a better gauge of what the
big picture holds.

Admin Notes:
I was a bit surprised by the lack of comments and questions
related to the new format for the Portfolio last week.  Either
I've gotten much better at writing clearly, or very few of you
actually tuned in last week!  GRIN  Seriously, I did get one
suggestion, which related to the readability of the Portfolio
table, and it came from three different readers.  Apparently, not
everyone likes the rigidity of the displayed grid from the
spreadsheet.  So in keeping with my policy of providing changes
(where possible) for those of you that request them, this week
we've yanked all those nasty gridlines, but other than that the
format is the same.  Be sure to chime in if you have any thoughts
or suggestions.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
QCOM   11/16/03   $53-54       JAN-2005 $ 55  ZLU-AK
                            CC JAN-2005 $ 50  ZLU-AJ
                               JAN-2006 $ 55  WLU-AK
                            CC JAN-2006 $ 50  WLU-AJ
                            PP APR-2004 $ 50  AAO-PJ
SNDK   12/21/03   HOLD         JAN-2005 $ 45  XWS-AK
                            CC JAN-2005 $ 40  XWS-AJ
                               JAN-2006 $ 45  YSD-AK
                            CC JAN-2006 $ 40  YSD-AJ
CHK    02/01/04   $11.50-12.00 JAN-2005 $ 12  XHV-AV
                            CC JAN-2005 $ 10  XHV-AB
                               JAN-2006 $ 12  WZY-AV
                            CC JAN-2006 $ 10  WZY-AB
                            PP APR-2004 $ 10  CHK-SB


PUTS:
None


New Portfolio Plays

MLNM - Millennium Pharmaceuticals $18.37  **Call Play**

It was starting to feel like MLNM was just going to break out and
keep on going without us, but fortunately, the broad market
weakness took the edge off the bullish enthusiasm towards the end
of the week.  We had raised our entry target to the $18.00-18.50
area last week and on Friday the stock dipped as low as $17.99
before rebounding right into the middle of our targeted entry
zone.  We could see a bit more weakness in the weeks ahead, but I
really expect the stock to continue its pattern of higher highs
and higher lows, enroute to its destiny with our final target up
near $28.50, which is the bullish price target from the PnF chart.
Simply put, MLNM has one of the best looking charts in the
Biotechnology space, primarily because its rise over the past year
has been measured and steady, actually adhering to things like
support and resistance levels, continuing its climb without
getting too carried away.  This sort of price pattern has the feel
of quiet accumulation ahead of potential product announcements
later in the year, which would have the effect of goosing the
stock significantly higher.  The pattern of higher highs and
higher lows has been unbroken for the past year, so we should
expect to see it continue, with solid support provided by the 50-
dma ($17.93) and much stronger support coming in at the rising
trendline at $16.75 and then the 200-dma at $15.65.  Note that all
of these levels could be tested without violating the overall
upward trend.  It would take a trade at $14 to break that trend,
so that's where we're setting our stop.  Traders still looking for
an entry into the play will want to take advantage of any
additional weakness down into the $16-17 area as a better entry
than we logged here on Friday.

BUY LEAP JAN-2005 $20 XVX-AD $ 2.50
BUY LEAP JAN-2006 $20 YDA-AD $ 4.00
BUY PUT  MAY-2004 $17 QMN-QW $ 1.20 **Protective Put**


New Watchlist Plays

None

Drops

None


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

The CPTI Rules!  We’re Back With A Vengeance
By Mike Parnos, Investing With Attitude

After a less-than-impressive January, our neutral strategies for
February were all winners!  This month we were both lucky and good
– the best possible combination.  The market took a breather,
stopped trending and all of our trades were closed profitably.
Money management skills proved important as we locked in profits
for very little a few days before expiration rather than allowing
ourselves to be exposed to market volatility for the last few
days.

The February option cycle was the third cycle in the second year
of tracking our Couch Potato Trading Institute portfolio.  With
our $5,085 profits, we’ve now accumulated a total of $9,480 in
four short months.

February P & L Summary
OEX Credit Spread Boogie:  $1,935 Profit!
MNX Iron Condor:  $1,000 Profit!
XAU Iron Condor:  $1,150 Profit!
OSX Iron Condor:  $1,000 Profit!
Total March Profit:  $5,085 dead presidents for the good guys!
Total maintenance held in the above positions:  $22,000.
That’s an over 30% hypothetical return on our hypothetical risk.
I’ll take that every month.  Wouldn’t you?
___________________________________________________________

RECAP OF FEBRUARY CPTI POSITIONS

Position #1 -- OEX – Credit Spread Boogie – 564.87
We sold 3 OEX February 565 puts, and bought 3 OEX February 540
puts for a total credit of $6.80 (x 3 contracts = $2,040).  Closed
trade for $.35 ($105).  Profit: $1,935.

Position #2 – MNX (mini NDX index) – Iron Condor – 148.21
We sold 10 MNX February 165 calls and bought 10 MNX February 170
calls for a net credit of $.40 x 10 contracts = $400.  Then we
sold 20 MNX February 150 puts and bought 20 MNX February 147.50
puts for a net credit of $.50 x 20 contracts = $1,000.  Closed
trade @ $.20 ($400).  Profit:  $1,000.

Position #3 – XAU (Gold/Silver Index) – Iron Condor -- $97.55
We sold 10 XAU February 90 puts and bought 10 XAU February 85 puts
for a net credit of about $.70 (x 10 contracts = $700).  Then we
sold 10 XAU February 110 calls and bought 10 XAU February 115
calls for a net credit of about $.45 (x 10 contracts = $450).
Maximum profit: $1,150.  All options expired worthless.  Profit:
$1,150.

Position #4 – OSX (Oil Service Sector Index) - $104.80
We sold 10 OSX February 105 calls and bought 10 OSX February 110
calls for a net credit of about $.45.  Then we sold 10 OSX
February 90 puts and bought 10 OSX February 85 puts for a net
credit of about $.75.  Our total net credit is about $1.20 (x 10 =
$1,200).  Maximum profit: $1,200.  Closed trade @ $.20 ($200).
Profit: $1,000.
____________________________________________________________

A Few Errors
That’ll teach you to get me up off the couch.  In my Thursday
column, I screwed up in a few places.  Nothing major.  CPTI
students should know what an Iron Condor is by now and what kind
of options make it up.  I cleaned it up and below is the corrected
version.
_____________________________________________________________

MARCH CPTI POSITIONS

Position #1 – OEX (S&P 100 Index) Iron Condor – 564.87
Sell 12 OEX March 595 calls and buy 12 OEX March 605 calls for a
credit of about: $.45 ($540).
Sell 12 OEX March 540 puts and buy 12 OEX March 530 puts for a
credit of about: $.75 ($900).
Total net credit: $1.20 ($1,440).  Maximum profit range: 540 –
595.  Maintenance:  $12,000 less $1,440 = $10,560.

Position #2 – RUT (Small Cap Index) Iron Condor – 579.89
Sell 8 RUT March 610 calls and buy 8 RUT March 620 calls for a
credit of about $1.55 ($1,240).
Sell 8 RUT March 550 puts and buy 8 RUT March 540 puts for a
credit of about $1.20 ($960).
Total net credit: $2.75 ($2,200). Maximum profit range: 550 - 610.
Maintenance: $8,000 less $2,200 = $5,800.

Position $3 – MNX (Mini-NDX Index) Iron Condor - $148.21
Sell 20 MNX March $157.50 calls and buy 20 XAU March $160 calls
for a credit of about $.45 ($900).
Sell 20 MNX March $142.50 puts and buy 20 MNX March $140.00 puts
for a credit of about $.45 ($900).
Total net credit of $.90 ($1,800).  Maximum profit range: $142.50
- $157.50.  Maintenance: $5,000 less $1,800 = $3,200.

Position #4 – BBH (Biotech Index) - Siamese Condor - $143.35
Sell 10 BBH March $145 calls and sell 10 BBH March $145 puts for a
credit of about $6.95.
Buy 10 BBH March $160 calls and buy 10 BBH March $130 puts for a
debit of about $.70.
Total net credit of about $6.25 ($6,250).  Our profit (safety)
range is $138.75 to $151.25.  These are also our bailout points.
The closer BBH finishes to $145, the more money we will make.
______________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $36.98
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We make
money by selling near term puts and calls every month.  Here's
what we've done so far:
October: Oct. $33 puts and Oct. $34 calls – credit of $1,900.
November: Nov. $34 puts and calls – credit of $1,150.
December: Dec. $34 puts and calls – credit of $1,500.
January: Jan. $34 puts and calls – credit of $850.
February: Feb. $34 calls and $36 puts – credit of $750.
March: Mar. $34 calls and $37 puts – credit of $1,150.
Total credit: $7,300.

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

ZERO-PLUS Strategy.  OEX – 564.87
In my Feb. 8th column, I outlined a strategy based on an initial
investment of $100,000.  $74,000 was spent on zero coupon bonds
that will mature in seven years at a value of $100,000.  In
essence, that guarantees the principal $100,000 investment.  We
are trading the remaining $26,000 to generate a “risk free” return
on the original investment.

We bought 3 OEX Jan. 2006 540 calls at a cost of $24,300.  Then we
sold 3 OEX March 2004 585 calls for a credit of $930.  We also put
on a bull put spread, selling three OEX March 535 puts an buying
three OEX March 525 puts for a credit of $330.  Our total credit
is $1,260.  Our current cash position is $2,960 ($1,260 plus the
unused $1,700).  This one is going to drag on for seven years, so
get comfortable.  We’re going to make some money.
_____________________________________________________________

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

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

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

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


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The Option Investor Newsletter                   Sunday 02-22-2004
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Understanding The Mechanics Of The Market
Naked Puts: Know Your Market! Know Your Issue! Know Your Strategy!
Spreads/Straddles/Combos: Market Bears Gaining Strength?


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

Trading Basics: Understanding The Mechanics Of The Market
By Mark Wnetrzak

A common question among new readers concerns the techniques used
by option specialists to "make a market" for retail traders.

The primary job of the options specialist is to maintain a fair
and orderly market in a particular security.  To ensure that
trading is efficient, with fluid price fluctuation, the options
specialist will occasionally need to step in against the market
trend.  The majority of strategies employed by these individuals
to cushion temporary imbalances and to avoid unreasonable price
variations are based on option pricing theory and probability.

The concept of put-call parity helps the specialist identify a
miss-priced relationship between call options, put options, and
the stock.  If the call is overpriced relative to the put, the
put is purchased and a synthetic put, made up of a short call
and long stock, is sold.  This technique is called a conversion.
If the call option is under-priced relative to the put, then the
call is bought and a short synthetic call, made up of a short put
and short stock, is sold.  The opposite of a conversion is often
called a reversal (reverse conversion).  Specialists also favor
box spreads; two call options with different strike prices and
two put options with strike prices equivalent to the calls.  Box
spreads are only initiated when the options are miss-priced on a
relative basis.

A covered-call writer has some leverage in the options market
because the most profitable transactions for specialists are
often deep-in-the-money calls and puts (these options usually
have large bid/ask spreads, due to the lack of liquidity).  An
example of the trade: If an individual places an order to sell a
deep-in-the-money call, then the floor broker uses a reversal, or
reverse conversion with a short synthetic call (short stock and
short put) to offset the purchased call.  If the bid-ask spread
is $1 and the specialist pays the retail trader bid price only,
the position will yield a profit.  Recall that the basis for this
transaction is the market-maker can buy the call at a discount
and, at the same time, sell the synthetic call at fair value to
generate a risk-free position.  Obviously, this assumes the put
option is fairly priced (which is generally the case when stock
is in a bullish trend) and the stock can then be sold short at
the current bid.  Any delay in the execution of the remaining
components will put the position at risk for the specialist.  If
the share price changes or the up-tick rule (in most cases, stocks
can be shorted only on an upward move) prevents the specialist
from selling (shorting) the stock in a timely manner, the profit
will quickly disappear.  Fortunately, there are no up-front funds
needed for this method, but because of the difficulty in shorting
stock, specialists occasionally do not receive all of the profit
from the initial transaction.  However, specialists have another
method of offsetting potential losses.  In the case of a reversal,
the funds received from the sale of the stock are placed in a
risk-free, short-term investment.  Thus interest rates, along with
the difference between the market prices and the fair value of the
options, and the amount of funds received in the short sale, all
have some effect on the eventual profitability of the position.

One thing to be aware of is that all option trades do not result
in a conversion or reversal.  Since the majority of retail traders
buy options, and since a large portion of these positions are
redeemed at a lower value (or expire worthless), market-makers
will often take a short position in these options.  Then they
wait until the option price declines, to purchase an offsetting
position.  In the case of a short call option, they may eventually
construct a long synthetic call (a much easier transaction, with
shorting of stock) to offset the sold position.  Regardless of the
situation or type of arbitrage, their basic goal is to profit from
disparities in option pricing and by trading inside the bid/ask
spread.

Trade Wisely!

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

SUMMARY OF PREVIOUS CANDIDATES

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

Note:  Margin not used in calculations.

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

MXT      5.89    5.70  FEB  5.00  1.05    0.16*   7.2%
ZIXI    10.93   12.06  FEB 10.00  1.80    0.87*   6.9%
NEOL    18.73   20.04  FEB 17.50  1.70    0.47*   5.9%
SIRI     3.15    2.88  FEB  2.50  0.80    0.15*   5.7%
AFFX    31.23   32.87  FEB 30.00  2.35    1.12*   5.6%
VXGN    10.92   10.01  FEB 10.00  1.40    0.48*   5.5%
ALVR    13.09   13.93  FEB 12.50  1.45    0.86*   5.4%
AKSY    10.87   10.40  FEB 10.00  1.10    0.23*   5.1%
NANO    20.14   18.72  FEB 17.50  3.20    0.56*   4.8%
IPXL    18.90   18.96  FEB 17.50  1.95    0.55*   4.7%
NEOL    19.10   20.04  FEB 17.50  2.30    0.70*   4.5%
TIVO    10.75   11.40  FEB 10.00  1.05    0.30*   4.5%
CREE    20.49   23.59  FEB 20.00  1.65    1.16*   4.5%
GSF     27.77   29.44  FEB 27.50  1.35    1.08*   4.4%
PAAS    16.10   17.13  FEB 15.00  1.95    0.85*   4.4%
CHINA   11.05   11.45  FEB 10.00  1.60    0.55*   4.2%
NANX    12.39   10.62  FEB 10.00  2.90    0.51*   3.9%
CLTK     8.54    7.96  FEB  7.50  1.35    0.31*   3.9%
ATSN    10.90   10.35  FEB 10.00  1.30    0.40*   3.7%
SEAC    18.40   18.04  FEB 17.50  1.75    0.85*   3.7%
WEBM    10.93   10.66  FEB 10.00  1.25    0.32*   3.6%
DDS     17.53   17.16  FEB 17.50  0.45    0.08    1.0%
ZIXI    14.67   12.06  FEB 12.50  2.70    0.09    0.8%
CNET    10.75    9.61  FEB 10.00  1.15    0.01    0.1%
ACLS    12.60   11.76  FEB 12.50  0.65   -0.19    0.0%
TKLC    20.35   18.73  FEB 20.00  1.20   -0.42    0.0%
LTXX    19.12   16.07  FEB 17.50  2.45   -0.60    0.0%

KERX    12.62   13.77  MAR 12.50  1.30    1.18*   9.3%
MWY      5.04    5.53  MAR  5.00  0.50    0.46*   9.1%
ASIA     7.80    7.58  MAR  7.50  0.90    0.60*   6.3%
GMST     7.67    7.35  MAR  7.50  0.80    0.48    6.3%
NEOL    20.08   20.04  MAR 17.50  3.60    1.02*   5.5%
TIBX     7.95    8.27  MAR  7.50  0.90    0.45*   4.6%
CRYP    16.38   16.46  MAR 15.00  2.00    0.62*   3.9%
SKX     11.38   12.09  MAR 10.00  1.75    0.37*   3.4%
PMSI     5.72    5.69  MAR  5.00  0.90    0.18*   3.3%
CNET    10.72    9.61  MAR 10.00  1.30    0.19    1.5%

* Stock price is above the sold strike price.

Editor's Comments:

Selling On Good News Could Be Bad News!

Still, the NASDAQ ended the week right at its 50-day MA.  Both
the DJ-30 and S&P-500 as well as the Russell-2000 are testing
their 30-day MAs.  Next week should be interesting indeed.  As
for the covered-call portfolio, a few February expiry positions
suffered from increased selling pressure the last couple days.
Time to re-evaluate your outlook and act accordingly: sell the
stock, sell new calls for next month (or longer time frame), or
maybe just hold the stock for a trade, etc.  Decisions!

Previously Closed: Centillum Communications (NASDAQ:CTLM), Ceina
(NASDAQ:CIEN), Sycamore Networks (NASDAQ:SCMR) and Adaptec
(NASDAQ:ADPT).

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

NEW COVERED-CALL CANDIDATES

Sequenced by Target Yield (monthly basis)
__________________________________________________________________

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

NFLD   10.65  MAR 10.00  DHQ CB  1.25  505     9.40  28   6.9%
VICL    7.60  MAR  7.50  VAQ CU  0.55  20      7.05  28   6.9%
MWY     5.53  MAR  5.00  MWY CA  0.80  1196    4.73  28   6.2%
NEOL   20.04  MAR 17.50  UOE CW  3.30  381    16.74  28   4.9%
OSTK   23.63  MAR 20.00  QKT CD  4.30  269    19.33  28   3.8%
WEBM   10.66  MAR 10.00  UUW CB  1.00  99      9.66  28   3.8%
BVSN    8.67  MAR  7.50  QVB CU  1.40  1153    7.27  28   3.4%


Legend (for play description below)

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

__________________________________________________________________

NFLD - Northfield Labs  $10.65  *** A Big Move! ***

Northfield Laboratories (NASDAQ:NFLD) is engaged in the development
of a safe and effective alternative to transfused blood for use in
the treatment of acute blood loss.  Its PolyHeme blood substitute
product is a solution of chemically modified hemoglobin derived
from human blood.  PolyHeme simultaneously restores lost blood
volume and hemoglobin levels and is designed for rapid, massive
infusion.  PolyHeme requires no cross-matching and is therefore
immediately available and compatible with all blood types.  It
has an extended shelf life compared to blood.  Northfield Labs
purchases indated and outdated blood from The American Red Cross
and Blood Centers of America for use as the starting material for
PolyHeme.  It uses a proprietary process of separation, filtration
and chemical modification to produce PolyHeme.  Northfield Labs
has rallied sharply higher over the last couple weeks and traders
who have done their due diligence on PolyHeme can use this position
to establish a "relatively" low-risk entry point in the issue.

MAR-10.00 DHQ CB LB=1.25 OI=505 CB=9.40 DE=28 TY=6.9%


__________________________________________________________________

VICL - Vical  $7.60  *** New Drug Speculation ***

Vical (NASDAQ:VICL) researches and develops biopharmaceutical
products based on its DNA delivery technologies for preventing
and treatment of serious or life-threatening diseases.  Vical also
has gained access to enhancing technologies through licensing and
collaborative agreements.  The company and its associates are
developing a number of vaccine and therapeutic protein product
candidates aimed at preventing and treating infectious diseases,
cancer, and cardiovascular diseases.  Its independent development
focus is on novel DNA vaccines for cytomegalovirus and anthrax,
as well as the cancer immunotherapeutic, Allovectin-7.  Traders
who wouldn't mind owning Vical near $7 can use this position to
speculate on the company's future share value.

MAR-7.50 VAQ CU LB=0.55 OI=20 CB=7.05 DE=28 TY=6.9%


__________________________________________________________________

MWY - Midway Games  $5.53  *** Rally Mode! ***

Midway Games (NYSE:MWY) develops and publishes interactive
entertainment software.  The company and its predecessors
have published over 400 titles.  It develops and publishes
games for play on new-generation home videogame consoles and
hand-held game platforms, including Sony's PlayStation 2
computer entertainment system, Microsoft's Xbox and Nintendo's
GameCube and Game Boy Advance.  The company's titles include
game genres such as action, adventure, driving, extreme sports,
fighting, role-playing, sports and strategy.  Mortal Kombat is
the company's most profitable videogame franchise, with over 20
million units sold.  Midway Games has also licensed two TV and
two film adaptations of Mortal Kombat and granted merchandising
licenses for toys, clothing, comic books, strategy guides and
other product lines.  Midway Games appears to be completing a
long-term bottom and recently has rallied higher on heavy
volume.  With earnings due on Wednesday, February 25, this
position offers investors a great method to target-shoot an
entry price with a favorable cost basis.

MAR-5.00 MWY CA LB=0.80 OI=1196 CB=4.73 DE=28 TY=6.2%


__________________________________________________________________

NEOL - NeoPharm  $20.04  *** Next Trading Range?  ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged
in the research, development and commercialization of drugs for
the treatment of various cancers.  The firm has built its drug
portfolio based on its novel proprietary technology platforms,
the proprietary NeoLipid liposomal drug delivery system and a
tumor-targeting toxin platform.  NeoPharm has several promising
compounds in various stages of development.  The company's lead
compound is IL13-PE38, a tumor-targeting toxin being developed
as a treatment for glioblastoma multiforme, a deadly form of
brain cancer.  NeoPharm appears to be moving up to a higher
trading channel after several months of activity near $16.  This
position offers favorable reward with a cost basis near technical
support.

MAR-17.50 UOE CW LB=3.30 OI=381 CB=16.74 DE=28 TY=4.9%


__________________________________________________________________

OSTK - Overstock.com  $23.63  *** On The Move! ***

Overstock.com (NASDAQ:OSTK) is an online "closeout" retailer
offering discount, brand-name merchandise for sale primarily
over the Internet.  The company's merchandise offerings include
bed-and-bath goods, kitchenware, watches, jewelry, electronics,
sporting goods and designer accessories.  Overstock offers its
customers an opportunity to shop for bargains conveniently,
while offering an alternative inventory liquidation distribution
channel to its suppliers.  The company typically offers around
5,000 non-media products and over 100,000 media products (books,
CDs, DVDs, video cassettes and video games) in seven departments
on its Websites, www.overstock.com, www.overstockb2b.com and
www.worldstock.com.  OSTK has been in a lateral trading range
for almost a year and has recently rallied above resistance near
$18 on heavy volume.  Now the stock has stepped up once again
on heavy volume to move above resistance around $20.  We simply
favor the technical support near the cost basis in this position
and investors who are interested in a long-term portfolio holding
in the Internet retail segment should consider this issue.

MAR-20.00 QKT CD LB=4.30 OI=269 CB=19.33 DE=28 TY=3.8%


__________________________________________________________________

WEBM - WebMethods  $10.66  *** Stage I Speculation ***

WebMethods (NASDAQ:WEBM) is a provider of software and services
for comprehensive end-to-end integration solutions.  WebMethods'
integration platform is a comprehensive solution for linking
business processes, enterprise and legacy application software
products, databases, human workflows and Web services within
and across business enterprises and government organizations.
In addition, the company offers a variety of software support
and maintenance options designed to meet its customers' varied
needs.  WebMethods has been forging a Stage I base for over a
year with a strong support area near $9.  Investors who believe
the company's share value will rally in the future can use this
position to profit from that outcome.

MAR-10.00 UUW CB LB=1.00 OI=99 CB=9.66 DE=28 TY=3.8%


__________________________________________________________________

BVSN - BroadVision  $8.67  *** Earnings Rally! ***

BroadVision (NASDAQ:BVSN) is a company that develops, markets
and supports enterprise portal applications that enable their
customers to unify their e-business infrastructure and conduct
both interactions and transactions with employees, partners
and customers through a personalized self-service model that
increases revenues, reduces costs and improves productivity.
The company also provides a full spectrum of global services
to help ensure success for businesses, including strategic
services, implementation services, migration services and
ongoing training and support.  BroadVision has been on a
steady volume-supported rally since its January earnings
report and has moved above its June high.  Investors can use
this position to establish a reasonable cost basis in a bullish
technology issue.

MAR-7.50 QVB CU LB=1.40 OI=1153 CB=7.27 DE=28 TY=3.4%




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

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

Sequenced by Target Yield (monthly basis)
__________________________________________________________________

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

AKSY   10.40  MAR 10.00  KQK CB  0.95  82      9.45  28   6.3%
GTW     5.13  MAR  5.00  GTX CA  0.40  11354   4.73  28   6.2%
BDY    24.20  MAR 22.50  BDY CX  2.90  1662   21.30  28   6.1%
KERX   13.77  MAR 12.50  QKY CV  1.90  154    11.87  28   5.8%
TIVO   11.40  MAR 10.00  TUK CB  1.90  1495    9.50  28   5.7%
OPSW    8.84  MAR  7.50  UWA CU  1.70  199     7.14  28   5.5%
INSP   36.57  MAR 35.00  IOU CG  3.20  184    33.37  28   5.3%
SWIR   26.87  MAR 25.00  IYQ CE  3.00  288    23.87  28   5.1%
DNDN   13.80  MAR 12.50  UKO CV  1.85  337    11.95  28   5.0%
CHINA  11.45  MAR 10.00  UIH CB  1.80  6493    9.65  28   3.9%
VISG    5.40  MAR  5.00  TUM CA  0.55  304     4.85  28   3.4%
PXLW   16.50  MAR 15.00  PUO CC  1.95  106    14.55  28   3.4%
CRYP   16.46  MAR 15.00  UFW CC  1.90  37     14.56  28   3.3%
NTES   49.98  MAR 45.00  NQG CI  6.30  5224   43.68  28   3.3%


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

Options 101: Know Your Market! Know Your Issue! Know Your Strategy!
By Ray Cummins

Wisdom gives someone the ability to evaluate a situation and choose
a superior course of action.  But, before you can have wisdom you
must have knowledge.

For traders, the only objective of participating in the market is
profit.  The easiest way to achieve this result is to form a view
that eventually proves to be accurate.  At the same time, one must
also be positioned to obtain the greatest return from the correct
forecast of future market trends.  That step requires a complete
mastery of trading techniques and the ability to correctly apply
a specific strategy to any particular situation.  With this simple
approach, the route to consistent profits is simply a matter of
identifying the trend and using a proven trading system to exploit
each position for maximum potential.

Before an investor can successfully initiate a position, there are
a number of factors to consider.  The most important being the
overall condition of the market and the economy in general.  What
types of indications are bonds, basic commodities and currencies
offering in relation to the outlook for equities?  Is the stock
market rebounding due to lower interest rates and when will the
Fed's prolonged battle to bolster the U.S. economy expend its
maximum effect?  Will the recent influence of the weakening dollar
significantly reduce profits in the leading American corporations
over the long-term and more importantly, will their bottom-line
growth be restored in the course of renewed demand and economic
expansion?  Finally, is all the available information reflected in
the current share values or is the market's recovery simply due to
the public's present interpretation of the most popular news items.
As you can see, a successful trader must possess a comprehensive
understanding of market fundamentals to interpret and act upon the
numerous statistical releases and ongoing analysis of financial
trends.

Technical and sentimental analyses are also very effective means
to determine the future direction of the market.  The key is to
identify situations in which the "trend is (really) your friend"
and conversely, when it is more appropriate to have a contrarian
approach.  Some questions that should be answered include: Is the
market currently in a strong trend and if so, how far can it go?
Has the ideal opportunity already passed or is it viable to enter
a new position at this time?  In short, how many traders have the
same outlook and have they previously acted on that assessment or
is there additional potential for favorable activity in the issue?
A common a rule of thumb is that when all the retail participants
finally begin to support the movement, it is generally a good time
to think about exiting the position.  One concept that cannot be
overlooked is the value of historical indicators.  Professional
traders pay serious attention to them and they have too great an
impact on equity markets to be disregarded.  All investors should
understand at least the basic chart patterns, such as support and
resistance and simple moving averages.  Complex indicators such as
Stochastics and Moving Average Convergence/Divergence (MACD) can
be used, as a trader gains experience, to help identify overbought
and oversold situations.  In addition, information sources need to
be studied as part of the process of market awareness.  Analysis
from well known gurus, screening services, charting products and
statistics and other related data can provide valuable assistance.
Stocks and their respective industries, and the overall condition
of the market are so intertwined that in most cases, the need to
remain in tune with current attitudes is paramount to success.

Determining the future direction of the market is only the first
step in profiting from a particular position.  Investors need to
consider a variety of issues that will affect the strategy used
to achieve the highest return from an accurate forecast of market
trends.  First, what is the time frame of the expected movement
and is it critical to enter the trade at specific point or can
the position be initiated gradually as the activity progresses?
What constitutes the ideal “buy” or “sell” signal and is there
a chance the indications will be incorrect?  What is the likely
size of the movement, and is the market expected to gap or move
slowly in the predicted direction?  Is there any limitation to
the magnitude of the movement (resistance/support) and are there
any upcoming events or circumstances that might cause a reversal
in the market?  If the position is based on technical analysis,
where should the stop-loss orders and profit targets be placed?
Will it be practical to exit the trade incrementally, achieving
some profit from future favorable movement, or will quick actions
and minimal exposure be more successful overall?  Finally, how
convinced are you that the outlook for the position is correct
and that the risk is worth the potential reward?

Good Luck!

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

SUMMARY OF PREVIOUS CANDIDATES

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

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

LSCP    19.53   23.56  FEB 17.50  0.40    0.40*   5.1%  14.1%
ADAT    16.80   17.35  FEB 12.50  0.40    0.40*   3.6%  11.6%
NVDA    22.76   24.14  FEB 20.00  0.30    0.30*   3.3%   9.8%
AMR     16.05   15.15  FEB 15.00  0.25    0.25*   3.7%   9.7%
RMBS    31.16   33.60  FEB 25.00  0.45    0.45*   2.7%   9.7%
ADAT    16.95   17.35  FEB 12.50  0.40    0.40*   3.0%   9.4%
SEPR    27.99   28.29  FEB 22.50  0.65    0.65*   2.7%   9.1%
XING    12.80   12.15  FEB 10.00  0.35    0.35*   2.6%   8.7%
IMCL    43.41   39.90  FEB 35.00  0.75    0.75*   2.4%   8.4%
ASKJ    22.82   21.00  FEB 20.00  0.25    0.25*   2.8%   8.3%
AZR     23.35   22.24  FEB 22.50  0.60    0.34    3.4%   8.1%
NEOL    18.26   20.04  FEB 15.00  0.40    0.40*   2.5%   8.1%
INSP    34.15   36.57  FEB 30.00  0.55    0.55*   2.7%   7.9%
OPWV    15.18   13.97  FEB 12.50  0.40    0.40*   2.4%   7.6%
PMCS    23.80   21.05  FEB 20.00  0.50    0.50*   2.3%   7.2%
SEPR    27.25   28.29  FEB 22.50  0.65    0.65*   2.2%   6.9%
ASKJ    23.83   21.00  FEB 20.00  0.60    0.60*   2.2%   6.9%
SINA    45.69   43.17  FEB 35.00  0.45    0.45*   1.9%   6.8%
MU      16.11   15.57  FEB 15.00  0.25    0.25*   2.5%   6.5%
IDCC    24.36   26.48  FEB 20.00  0.25    0.25*   1.8%   6.4%
BLTI    21.14   20.13  FEB 17.50  0.30    0.30*   1.9%   6.4%
NKTR    17.12   18.47  FEB 15.00  0.45    0.45*   2.2%   6.3%
TER     26.77   24.87  FEB 25.00  0.40    0.27    2.4%   6.3%
IDCC    24.46   26.48  FEB 20.00  0.50    0.50*   1.9%   6.2%
RMBS    34.60   33.60  FEB 25.00  0.50    0.50*   1.8%   6.0%
ERICY   23.01   27.93  FEB 20.00  0.25    0.25*   1.8%   5.6%
JNPR    22.00   25.53  FEB 20.00  0.55    0.55*   2.0%   5.4%
AFFX    28.29   32.87  FEB 25.00  0.50    0.50*   1.8%   5.2%
AFFX    28.40   32.87  FEB 25.00  0.40    0.40*   1.8%   5.2%
RDWR    30.73   27.52  FEB 25.00  0.35    0.35*   1.3%   4.5%
SPRT    16.40   12.35  FEB 12.50  0.25    0.10    0.7%   2.5%
NGEN    12.59    9.35  FEB 10.00  0.30   -0.35    0.0%   0.0%
BLUD    23.52   20.30  FEB 22.50  0.25   -1.95    0.0%   0.0%

ADAT    16.94   17.35  MAR 12.50  0.45    0.45*   3.3%  10.5%
IBIS    15.30   14.25  MAR 12.50  0.40    0.40*   3.0%   9.6%
LSCP    23.07   23.56  MAR 20.00  0.60    0.60*   2.8%   7.9%
CRYP    16.38   16.46  MAR 12.50  0.30    0.30*   2.2%   7.5%
DNDN    14.49   13.80  MAR 12.50  0.30    0.30*   2.2%   6.5%
WEBX    26.12   25.25  MAR 22.50  0.50    0.50*   2.0%   6.1%

* Stock price is above the sold strike price.

Editor's Comments:

Rally At An End?

Stocks drifted lower Friday as investors wrestled with inflation
prospects and valuation concerns.

Despite the broad retreat, the month of February was great for
market bulls and our portfolio enjoyed a large number of winners.
Among the "watch" list issues, Immucor (NASDAQ:BLUD) fared the
worst with Thursday's drop taking the position well into negative
territory.  Nanogen (NASDAQ:NGEN) also slumped Thursday after the
company posted a quarterly net loss on declining revenue.  All of
the March positions are holding up relatively well, however any
further selling pressure in the broader market will affect even
the most technically favorable stocks. (So keep your stops close!)
The new position in AT&T wireless (NYSE:AWE) was not available due
to the "gap-up" at the opening bell on Tuesday morning.

Positions Previously Closed: Wireless Facilities (NASDAQ:WFII),
United Therapeutics (NASDAQ:UTHR), Altiris (NASDAQ:ATRS), and
Retek (NASDAQ:RETK).

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

WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!

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


MARGIN REQUIREMENTS

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

For more information on margin requirements, please refer to:

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


MONTHLY YIELD: MAXIMUM & SIMPLE

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

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


NEW NAKED-PUT CANDIDATES

Sequenced by Maximum Yield (monthly basis)
__________________________________________________________________

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

OVTI   29.70  MAR 25.00  UCM OE 0.60 2577 24.40  28   2.7%   8.4%
BRKT   18.75  MAR 17.50  BUQ OW 0.50 17   17.00  28   3.2%   8.0%
CEGE   14.49  MAR 12.50  UCG OV 0.30 37   12.20  28   2.7%   7.9%
NKTR   18.47  MAR 15.00  QNX OC 0.30 10   14.70  28   2.2%   7.7%
WEBX   25.25  MAR 22.50  UWB OX 0.50 573  22.00  28   2.5%   6.9%
RMBS   33.60  MAR 25.00  BNQ OE 0.35 6177 24.65  28   1.5%   5.4%
SERO   18.51  MAR 17.50  HUS OW 0.30 25   17.20  28   1.9%   4.9%


Legend (for play descriptions below)

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

__________________________________________________________________

OVTI - OmniVision  $29.70  *** Post-Split Rally! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.  OVTI shares soared after the specialty chip
maker posted strong quarterly results, issued an earnings forecast
above consensus estimates and split its common stock 2-for-1.
Traders who like the outlook for Omnivision Technologies can use
this position to establish a cost basis below $25 in the issue.

MAR-25.00 UCM OE LB=0.60 OI=2577 CB=24.40 DE=28 TY=2.7% MY=8.4%


__________________________________________________________________

BRKT - Brooktrout  $18.75  *** Solid Earnings! ***

Brooktrout (NASDAQ:BRKT) delivers communications hardware and
software products that enable applications for the New Network;
a Network born through the marriage of the telephone and data
networks.  Brooktrout's primary mission is to collaborate with
its partners so they can bring innovative solutions to market
quickly, increase business and expand into new markets.  The
company believes that a solid focus on customers, significant
first-to-market products and key acquisitions are making it a
partner of choice for today's hottest communications service
and enterprise application providers.  Shares of BRKT rallied
Friday after the company reported fourth-quarter earnings above
consensus estimates and revenue above the company's guidance.
Brooktrout said its profitability and 26% revenue increase was
due to its continuous investment in technology and its service
and support initiatives.  Investors who believe the company's
recent success will continue can establish a conservative
cost basis in the issue with this position.

MAR-17.50 BUQ OW LB=0.50 OI=17 CB=17.00 DE=28 TY=3.2% MY=8.0%


__________________________________________________________________

CEGE - Cell Genesys  $14.49  *** A Big Day! ***

Cell Genesys (NASDAQ:CEGE) is focused on research, development
and commercialization of biological therapies for patients with
cancer.  The company is pursuing three cancer product platforms:
cancer vaccines, oncolytic virus therapies and antiangiogenesis
therapies.  Clinical trials of its GVAX vaccines are under way
in prostate cancer, lung cancer, pancreatic cancer, leukemia and
myeloma.  Clinical programs of oncolytic virus therapies include
CG7870 for prostate cancer.  Preclinical studies are in progress
for additional GVAX cancer vaccines, oncolytic virus therapies
and antiangiogenesis therapies for multiple types of cancer.  A
recent article in a medical journal that talked about how one of
the company's experimental cancer vaccines demonstrated dramatic
success in a small number of patients was the reason for Friday's
sharp rally.  With technical support near the cost basis, this
position offers favorable risk/reward for conservative traders.

MAR-12.50 UCG OV LB=0.30 OI=37 CB=12.20 DE=28 TY=2.7% MY=7.9%


__________________________________________________________________

NKTR - Nektar Therapeutics  $18.47  *** Entry Point? ***

Nektar Therapeutics (NASDAQ:NKTR) makes drug delivery products
based on its portfolio of technologies and expertise designed
to improve drug performance throughout the drug development
process.  The company has developed three distinct technology
platforms: Nektar Molecule Engineering, which uses advanced PEG
(polyethylene glycol)ylation and PEG-based delivery systems to
enable drug performance, Nektar Particle Engineering, which uses
the company's expertise in pulmonary particle technology and
supercritical fluids technology to design and manufacture optimal
drug particles and Nektar Delivery Solutions, which uses advanced
systems for pulmonary drug administration to improve therapeutic
outcomes.  On Wednesday, Merrill Lynch raised its rating on NKTR
to "buy" from "neutral" and the stock climbed to a new two-year
high.  Investors who wouldn't mind owning this speculative issue
can establish a cost basis below $15 with this position.

MAR-15.00 QNX OC LB=0.30 OI=10 CB=14.70 DE=28 TY=2.2% MY=7.7%


__________________________________________________________________

WEBX - WebEx Communications  $25.25  *** A New Trading Range? ***

WebEx (NASDAQ:WEBX) develops and sells services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video
services are available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and
deploying new services, expanding its marketing organizations
and deploying its global WebEx Media Tone Network.  The company
sells WebEx Meeting Center, WebEx Meeting Center Pro, WebEx
Training Center, WebEx Support Center, WebEx OnStage and WebEx
Enterprise Edition.  It also provides a service called WebEx
Business Exchange to existing customers.  WEBX moved to a new
trading range early in the month after the company reported
strong quarterly results and issued a favorable first quarter
profit outlook.  Investors who expect continued bullish activity
in WEBX should consider this position.

MAR-22.50 UWB OX LB=0.50 OI=573 CB=22.00 DE=28 TY=2.5% MY=6.9%


__________________________________________________________________

RMBS - Rambus  $33.60  *** Favorable Judgment! ***

Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products.  These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces.  Rambus'
memory interface products provide an interface between memory chips
and logic chips.  In addition, the firm's logic interface products
provide an interface between two logic chips.  Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone.  Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.
RMBS shares soared this week after the dismissal of an FTC antitrust
case against the firm for allegedly manipulating processes in the
memory market in order to promote its proprietary designs.  The
decision certainly improves Rambus' credibility on the legal front
and traders who believe that will lead to favorable results in
other ongoing litigation can speculate on that outcome with this
position.

MAR-25.00 BNQ OE LB=0.35 OI=6177 CB=24.65 DE=28 TY=1.5% MY=5.4%


__________________________________________________________________

SERO - Serologicals  $18.51  *** Biotech Speculation! ***

Serologicals (NASDAQ:SERO) is a global provider of biological
products and enabling technologies to life science companies.
The firm's operations are organized into three major segments:
biotechnology and molecular biology; diagnostic products and
life science reagents, and therapeutic products.  The current
activities of the biotechnology segment include the manufacture
and sale of cell-culture media components, as well as certain
research products and technologies for life sciences research
and in high-throughput drug screening.  The activities of the
diagnostic segment include Serologicals' monoclonal antibody
production facilities and certain human-sourced, polyclonal
antibodies, as well as blood protein products manufactured at
the company's facilities in Kankakee and Toronto.  SERO shares
moved higher after a positive quarterly report and some traders
say the stock is poised for a move to the $20 range.  Investors
who wouldn't mind owning a unique issue in the biotech segment
should consider this position.

MAR-17.50 HUS OW LB=0.30 OI=25 CB=17.20 DE=28 TY=1.9% MY=4.9%




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

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

Sequenced by Maximum Yield (monthly basis)
__________________________________________________________________

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

TIBX    8.27  MAR  7.50  PAV OU 0.25 1028  7.25  28   3.7%   9.7%
BLTI   20.13  MAR 17.50  BQF OW 0.50 910  17.00  28   3.2%   9.2%
SWIR   26.87  MAR 22.50  IYQ OX 0.50 87   22.00  28   2.5%   7.9%
MOT    17.67  MAR 17.00  MOT OR 0.50 4716 16.50  28   3.3%   7.9%
NFLX   35.38  MAR 30.00  QNQ OF 0.65 5257 29.35  28   2.4%   7.5%
ISPH   14.85  MAR 12.50  JPU OV 0.25 322  12.25  28   2.2%   7.1%
NEOL   20.04  MAR 15.00  UOE OC 0.25 252  14.75  28   1.8%   6.4%
SEPR   28.29  MAR 17.50  ERQ OW 0.30 22   17.20  28   1.9%   5.5%
OSTK   23.63  MAR 17.50  QKT OW 0.25 207  17.25  28   1.6%   5.5%
UPL    25.10  MAR 22.50  UPL OX 0.40 2192 22.10  28   2.0%   5.5%
NSCN   35.05  MAR 30.00  QKN OF 0.40 276  29.60  28   1.5%   4.6%

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

SEE DISCLAIMER IN SECTION ONE

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


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

Market Bears Gaining Strength?
By Ray Cummins

The major equity averages retreated Friday as mediocre earnings
from blue-chip stalwart Hewlett-Packard (NYSE:HPQ) pulled the
Dow lower and the NASDAQ fell for the fifth straight week.

The Dow Jones industrial average slipped 45 points to 10,619 with
Alcoa (NYSE:AA), General Motors (NYSE:GM), Caterpillar (NYSE:CAT)
and Walt Disney (NYSE:DIS) joining HPQ as the worst performers.
The NASDAQ, which dropped 8 points to 2,037, endured the largest
losses in semiconductor, data storage, computer peripherals, and
electronic manufacturing shares.  The broader market was plagued
by renewed selling pressure in gold, aluminum, homebuilding, and
auto manufacturing stocks.  The Standard & Poor's 500 Index fell
2 points to 1,144.  Volume on the options expiration for February
was moderate with 1.47 billion shares changing hands on the NYSE
and 1.91 billion shares crossed on the NASDAQ.  Declining shares
outpaced advancing issues 2 to 1 on the Big Board and 5 to 3 on
the technology exchange.  The bond market also slumped with the
10-year note closing down 16/32, bringing its yield up to 4.09%.


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 02/20/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

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

PUT-CREDIT SPREADS

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

OHP     46.69   45.79   FEB   40  42   0.30  42.20   0.30  Closed
NBR     44.11   45.91   FEB   37  40   0.30  39.70   0.30  Closed
BIIB    43.19   56.87   FEB   35  40   0.55  39.45   0.55  Closed
GENZ    54.26   53.10   FEB   47  50   0.30  49.70   0.30  Closed
AVE     73.00   77.26   FEB   65  70   0.45  69.55   0.45  Closed
DNA     96.40   95.32   FEB   85  90   0.70  89.30   0.70  Closed
ADI     47.85   49.34   FEB   40  45   0.60  44.40   0.60  Closed
KOSP    51.00   45.10   FEB   40  45   0.50  44.50   0.50  Closed
MSTR    62.40   60.22   FEB   50  55   0.55  54.45   0.55  Closed
CFC     85.54   88.15   FEB   75  80   0.50  79.50   0.50  Closed
NFLX    38.32   35.38   FEB   32  35   0.27  34.73   0.27  Closed
CERN    46.09   43.45   MAR   35  40   0.60  39.40   0.60   Open
DNA     98.25   95.32   MAR   85  90   0.70  89.30   0.70   Open
ESRX    70.58   66.95   MAR   60  65   0.65  64.35   0.65   Open
NBR     46.97   45.91   MAR   40  42   0.25  42.25   0.25   Open

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

Positions in Cigna (NYSE:CI), which ended the expiration period
at maximum profit, Cabot Micro (NASDAQ:CCMP) and Lam Research
(NASDAQ:LRCX) have previously been closed for small losses.
Express Scripts (NASDAQ:ESRX) and Genetech (NYSE:DNA) are now on
the "watch" list.


CALL-CREDIT SPREADS

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

ADBE    37.12   37.94   FEB   45  40   0.55   40.55   0.55  Closed
ABT     43.25   43.38   FEB   47  45   0.25   45.25   0.25  Closed
POWI    32.05   28.82   FEB   40  35   0.75   35.75   0.75  Closed
SCHN    45.90   45.94   FEB   60  55   0.50   55.50   0.50  Closed
OVTI    51.10   29.70   FEB   65  60   0.50   60.50   0.50  Closed
VSEA    45.27   41.80   FEB   55  50   0.55   50.55   0.55  Closed
OVTI    48.48   29.70   FEB   60  55   0.60   55.60   0.60  Closed
CYBX    27.04   25.12   MAR   35  30   0.65   30.65   0.65   Open
SOHU    29.05   27.56   MAR   40  35   0.60   35.60   0.60   Open
KLAC    54.24   55.19   MAR   65  60   0.60   60.60   0.60   Open
IACI    31.92   32.12   MAR   37  35   0.30   35.30   0.30   Open
NVLS    33.26   33.01   MAR   40  37   0.30   37.80   0.30   Open

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

Bearish positions in Timberland (NYSE:TBL), Eli Lilly (NYSE:LLY)
and Avocent (NASDAQ:AVCT), which finished the expiration period
at maximum profit, have previously been closed for small losses.


CALL-DEBIT SPREADS

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

BRCM    36.78  41.18   FEB   30  32   2.20   32.30  0.30  Closed
CREE    23.59  24.00   FEB   20  22   2.20   22.20  0.30  Closed
TEVA    61.75  64.72   FEB   55  60   4.45   59.45  0.55  Closed
INTU    50.37  45.39   FEB   45  47   2.20   47.20 (1.80) Closed
KSS     48.64  49.90   MAR   40  45   4.45   44.45  0.55   Open
SPF     49.75  48.76   MAR   40  45   4.45   44.45  0.55   Open
AA      37.01  36.83   MAR   32  35   2.25   34.75  0.25   Open

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

Intuit (NASDAQ:INTU), which was put on the "watch" list last week,
plunged after a mediocre profit forecast.  Traders who exited the
play during Wednesday's session achieved a smaller than published
loss.


PUT-DEBIT SPREADS

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

QLGC    47.16  42.93   FEB   55  50   4.20   55.80  0.80  Closed
NVLS    39.89  33.01   FEB   45  42   2.20   42.80  0.30  Closed
AVID    47.04  40.01   FEB   55  50   4.55   50.45  0.45  Closed
AMKR    15.92  15.21   MAR   20  17   2.20   17.80  0.30   Open

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

The position in Michael's Stores (NYSE:MIK) has previously been
closed to limit potential losses.


SYNTHETIC (BULLISH)

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

MXT      6.04   5.70   MAR      7      5     0.10    0.00   Open?
SKX      8.94  11.38   APR     10      7    (0.15)   2.30   Open?
NEOL    20.08  20.04   APR     25     17     0.20    0.50   Open

Neopharma (NASDAQ:NEOL) offered a favorable "early-exit" profit
for conservative option traders during Wednesday's brief rally.
Skechers (NYSE:SKX) was also a "big winner" for traders who chose
to buy call options (or the stock).  However, the issue did not
offer the suggested debit, on a simultaneous order basis, before
spiking 25% higher its recent rally.  The profitable position in
Cephalon (NASDAQ:CEPH) was closed after moving to a recent low on
heavy trading volume, but the issue eventually rebounded to a new
52-week high.  Previous plays in United Therapeutics (NASDAQ:UTHR)
and Visx (NYSE:EYE) also achieved profitability, however they were
eventually closed to limit losses.


SYNTHETIC (BEARISH)

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

DD      42.72  44.45   MAR     40    45     0.00     0.00   Closed

The bearish position in Dupont (NYSE:DD) has been closed to limit
potential losses.


CALENDAR & DIAGONAL SPREADS

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

AMHC    27.08  27.60   MAY-30C   FEB-30C   1.25    1.90    Open?
ABGX    15.60  15.20   APR-17C   FEB-17C   0.60    0.75    Open
MEDI    25.14  24.67   JUN-20C   MAR-25C   4.35    4.25    Open

Both American Healthways (NASDAQ:AMHC) and Fiserve (NASDAQ:FISV)
offered favorable "early-exit" opportunities for conservative
traders.  The speculative spread in Sonus Networks (NASDAQ:SONS)
has previously been closed.


DEBIT STRADDLES

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

MATK    65.74  60.90   MAR    65    65     9.40    9.00    Open?
BSC     84.10  85.72   MAR    85    85     5.25    6.10    Open?
FRX     74.49  72.75   MAR    75    75     6.50    6.30    Open?
LF      29.75  26.57   FEB    30    30     3.20    4.00   Closed
MNST    25.13  21.55   FEB    25    25     2.60    3.70   Closed
XMSR    22.86  21.68   FEB    22    22     2.15    2.15   Closed
CMOS    12.75  12.77   FEB    12    12     1.00    1.75   Closed
NTES    40.83  49.98   FEB    40    40     3.75   10.50   Closed
SRNA    22.12  20.93   FEB    22    22     1.00    2.00   Closed

The big winners this week were Serena Software (NASDAQ:SRNA) and
Netease.com (NASDAQ:NTES), both offering large potential gains.
Leapfrog (NYSE:LF) and Monster Worldwide (NASDAQ:MNST) provided
favorable profits, however XM Satellite Radio (NASDAQ:XMSR) was
not as volatile as expected after its earnings announcements.
Straddle plays in Nam Tai Electronics (NYSE:NTE) and Petrochina
(NYSE:PTR) were not available due to pre-market volatility on
the first trading day after the positions were offered.


CREDIT STRANGLES

No Open Positions


Questions & comments on spreads/combos to Contact Support

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

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance, and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

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

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

__________________________________________________________________

BSX - Boston Scientific  $41.94  *** Bullish Stent-Maker ***

Boston Scientific (NYSE:BSX) is a global developer, manufacturer
and marketer of less-invasive medical devices.  The firm's unique
products are offered by two major business groups, Cardiovascular
and Endosurgery.  The Cardiovascular segment focuses on products
and technologies for use in the firm's interventional cardiology,
interventional radiology, peripheral vascular and neurovascular
procedures.  The Endosurgery organization focuses on products and
technologies for use in oncology, vascular surgery, endoscopy,
urology and gynecology procedures.

BSX - Boston Scientific  $41.94

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-35.00  BSX-OG  OI=1124  ASK=$0.30
SELL PUT  MAR-37.50  BSX-OU  OI=2227  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$37.25


__________________________________________________________________

CEC - CEC Entertainment  $51.62  *** Food & Fun! ***

CEC Entertainment (NYSE:CEC) is engaged in the family restaurant
and entertainment center business.  The company operates Chuck E.
Cheese's restaurants, which offer a variety of pizzas, a salad
bar, sandwiches, appetizers and desserts, and feature musical
and comic entertainment by robotic and animated characters,
family-oriented games, rides and arcade-style activities.  The
restaurants are intended to appeal to families with children
between the ages of two and 12.  The company and its franchisees
operate in a total of 47 states and four countries.

CEC - CEC Entertainment  $51.62

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-45.00  CEC-OI  OI=269  ASK=$0.30
SELL PUT  MAR-50.00  CEC-OJ  OI=40   BID=$0.90
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$49.35


__________________________________________________________________

SNPS - Synopsys  $35.57  *** Uptrend Intact! ***

Synopsys (NASDAQ:SNPS) is a global supplier of electronic design
automation software to the electronics industry.   The company
offers customers a comprehensive suite of products used in the
logic synthesis and functional verification phases of chip design,
including a broad array of reusable design building blocks.  It
also offered a set of physical synthesis and physical design
products and a number of physical verification products.  The
company offers its customers products required to design a chip
from concept to the point at which the manufacturer begins the
fabrication process, as well as a wide array of design building
blocks.  It also offers professional services, including turnkey
design services, design assistance and methodology consulting.

SNPS - Synopsys  $35.57

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-30.00  YPQ-OF  OI=1643  ASK=$0.30
SELL PUT  MAR-32.50  YPQ-OZ  OI=3976  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$32.25


__________________________________________________________________

BBBY - Bed Bath & Beyond  $40.62  *** In A Trading Range? ***

Bed Bath & Beyond (NASDAQ:BBBY) is an operator of stores selling
predominantly better quality domestics merchandise and other home
furnishings typically found in better department stores.  The
company operates over 400 Bed Bath & Beyond stores in 44 states
and one territory.  Domestics merchandise includes bed linens and
related items, bath items and kitchen textiles.  Home Furnishings
include kitchen and tabletop items, fine tabletop and giftware,
basic house-wares and general home furnishings.

BBBY - Bed Bath & Beyond  $40.62

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-45.00  BHQ-CI  OI=1245  ASK=$0.15
SELL CALL  MAR-42.50  BHQ-CV  OI=1191  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$42.85


__________________________________________________________________

OSIP - OSI Pharmaceuticals  $31.39  *** Tarceva Speculation! ***

OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on
the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life
for cancer patients worldwide.  The company has established a
balanced pipeline of oncology drug candidates that includes both
next-generation cytotoxic chemotherapy agents and novel mechanism
based, gene-targeted therapies.  The company's most advanced drug
candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor
of the epidermal growth factor receptor (HER1/EGFR).  The protein
product of the HER1/EGFR gene is a receptor tyrosine kinase that
is over-expressed or mutated in many major solid tumors.

OSIP - OSI Pharmaceuticals  $31.39

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-40.00  GHU-CH  OI=4548  ASK=$0.30
SELL CALL  MAR-35.00  GHU-CG  OI=4552  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$35.60


__________________________________________________________________

NBIX - Neurocrine Biosciences  $51.95  *** Sell The News? ***

Neurocrine Biosciences (NASDAQ:NBIX) is a unique, product-based
biopharmaceutical company focused on neurological and endocrine
diseases and disorders.  Their product candidates address some
of the largest pharmaceutical markets in the world including
insomnia, anxiety, depression, diabetes, multiple sclerosis,
irritable bowel syndrome, eating disorders, pain, autoimmunity
and certain female and male health disorders.  The company has
a large number of programs in various stages of research and
clinical development.  Its lead clinical development program is
indiplon, a drug for the treatment of insomnia that is being
evaluated in Phase III clinical trials.  The company's other
products under clinical development are altered peptide ligand,
gonadotropin-releasing hormone antagonist, interleukin 4 fusion
toxin and corticotropin-releasing factor.

NBIX - Neurocrine Biosciences  $51.95

PLAY (aggressive - bearish/credit spread):

BUY  CALL  MAR-60.00  UOT-CL  OI=636   ASK=$0.40
SELL CALL  MAR-55.00  UOT-CK  OI=1715  BID=$1.20
INITIAL NET-CREDIT TARGET=$0.85-$0.90
POTENTIAL PROFIT(max)=20% B/E=$55.80



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

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

__________________________________________________________________

OVTI - OmniVision  $29.70  *** Earnings Surprise! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing unit called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.

OVTI - OmniVision  $29.70

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-20.00  UCM-CD  OI=565    ASK=$9.90
SELL CALL  MAR-25.00  UCM-CE  OI=10289  BID=$5.40
INITIAL NET-DEBIT TARGET=$4.45-$4.50
POTENTIAL PROFIT(max)=11% B/E=$24.50


__________________________________________________________________

IMDC - Inamed  $46.97  *** Next Leg Down?

Inamed (NASDAQ:IMDC) is a global medical device company that
develops, manufactures and markets a diverse line of products
that enhance the quality of people's lives.  The company has
three principal product lines: breast aesthetics, consisting
primarily of breast implants and tissue expanders sold largely
for use in plastic and reconstructive surgery; facial aesthetics,
consisting primarily of collagen and other dermal fillers sold
largely to dermatologists and plastic surgeons, and obesity
intervention, consisting of products for use in treating severe
and morbid obesity.  The company also offers collagen products
for use by medical manufacturers.

IMDC - Inamed  $46.97

PLAY (less conservative - bearish/debit spread):

BUY  PUT  MAR-55.00  UZI-OK  OI=5   ASK=$8.30
SELL PUT  MAR-50.00  UZI-OJ  OI=75  BID=$3.90
INITIAL NET-DEBIT TARGET=$4.35-$4.40
POTENTIAL PROFIT(max)=14% B/E=$50.60



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

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

__________________________________________________________________

SEPR - Sepracor  $28.29  *** Estorra Approval in 2004? ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products.

SEPR - Sepracor  $28.29

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  JUL-25.00  ERQ-GE  OI=2785   ASK=$6.80
SELL CALL  MAR-30.00  ERQ-CF  OI=20066  BID=$2.45
INITIAL NET DEBIT TARGET=$4.30-$4.35
INITIAL TARGET PROFIT=$0.55-$0.60



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

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

__________________________________________________________________

HOV - Hovnanian Enterprises  $74.99  *** Earnings Play ***

Hovnanian Enterprises (NYSE:HOV) builds and sells single-family
detached homes and attached condominium apartments and townhouses
in more than 196 new home communities in New Jersey, Pennsylvania,
New York, Virginia, Maryland, North Carolina, Texas and California.
The firm offers a wide variety of homes that are designed to appeal
to first-time buyers; first and second time, move-up buyers; luxury
buyers; active adult buyers, and empty nesters.  In addition, the
company provides financial services, including mortgage banking and
title services to the homebuilding operations' customers.  The firm
does not retain or service the mortgages that it originates, but
rather sells the mortgages and servicing rights to investors.

HOV - Hovnanian Enterprises  $74.99

PLAY (speculative - neutral/debit straddle):

BUY CALL  MAR-75.00  HOV-CO  OI=902  ASK=$3.70
BUY PUT   MAR-75.00  HOV-OO  OI=970  ASK=$3.70
INITIAL NET-DEBIT TARGET=7.20-$7.25
INITIAL TARGET PROFIT=$2.25-$3.90


__________________________________________________________________

SNP - China Petroleum & Chemical  $40.74  *** Probability Play ***

China Petroleum & Chemical Corporation (NYSE:SNP) is an oil and
energy company that, through its subsidiaries, is engaged in
fully integrated oil and gas and chemical operations in the
People's Republic of China.  Oil and gas operations consist of
exploring for, developing and producing crude oil and natural
gas; transporting crude oil, natural gas and products through
pipelines; refining crude oil into finished petroleum products,
and marketing crude oil, natural gas and other refined petroleum
products.  Chemical operations include the manufacture and sale
of various chemicals for industrial uses.

SNP - China Petroleum & Chemical  $40.74

PLAY (less speculative - neutral/debit straddle):

BUY CALL  APR-40.00  SNP-DH  OI=108  ASK=$3.30
BUY PUT   APR-40.00  SNP-PH  OI=109  ASK=$2.70
INITIAL NET-DEBIT TARGET=5.70-$5.80
INITIAL TARGET PROFIT=$2.00-$3.15


__________________________________________________________________

TTWO - Take-Two Int. Software  $32.03  *** Earnings Play ***

Take-Two Interactive Software (NASDAQ:TTWO) is an integrated
developer, marketer, distributor and publisher of interactive
entertainment software games and accessories for the personal
computer, PlayStation, PlayStation2, Nintendo Game Boy Color,
Nintendo GameCube, Nintendo Game Boy Advance and the Xbox.  The
company publishes and develops products through various wholly
owned subsidiaries including Rockstar Games, Rockstar Studios,
Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star
and under the Take-Two brand name.  The company maintains sales
and marketing offices in Cincinnati, New York, Toronto, London,
Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland.

TTWO - Take-Two Int. Software  $32.03

PLAY (speculative - neutral/debit straddle):

BUY CALL  MAR-32.50  TUO-CZ  OI=1006  ASK=$1.45
BUY PUT   MAR-32.50  TUO-OZ  OI=452   ASK=$1.90
INITIAL NET-DEBIT TARGET=3.10-$3.25
INITIAL TARGET PROFIT=$1.50-$2.35


__________________________________________________________________


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