Option Investor

Daily Newsletter, Tuesday, 02/24/2004

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The Option Investor Newsletter                 Tuesday 02-24-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: January 2003
Futures Markets: Dollar Slide
Index Trader Wrap: Lack of confidence and conviction
Market Sentiment: How many makes a trend?

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
      02-24-2004           High     Low     Volume Advance/Decline
DJIA    10566.37 - 43.30 10637.11 10521.70 1.92 bln   1631/1615
NASDAQ   2005.44 -  2.10  2018.07  1991.05 2.06 bln   1398/1786
S&P 100   563.69 -  0.89   566.19   561.29   Totals   3029/3401
S&P 500  1139.09 -  1.90  1144.54  1134.43
W5000   11075.48 - 14.60 11126.20 11034.24
RUS 2000  571.87 +  1.67   575.91   566.21
DJ TRANS 2859.31 +  4.50  2869.94  2836.48
VIX        15.90 -  0.39    16.76    15.77
VXO (VIX-O)15.82 -  0.11    16.72    15.47
VXN        24.68 +  0.30    25.27    24.36
Total Volume 4,330M
Total UpVol  1,658M
Total DnVol  2,568M
Total Adv  3413
Total Dcl  3902
52wk Highs  253
52wk Lows    34
TRIN       1.34
NAZTRIN    1.10
PUT/CALL   0.76

January 2003

That is how long it has been since the Dow and S&P have been
down five days in a row and that is what happened today. The
technical support levels are being hit left and right but in
reality nothing has changed.

Dow Chart - Daily

Nasdaq Chart - Daily

The two economic reports this morning did not help traders
confidence levels with Chain Store Sales down along with
Consumer Confidence. Chain Store Sales fell -0.2% for the
last week but that was only a very slight drop from the
strong gains for the prior two weeks. We averaged +1.6%
gains for each of the prior two weeks so the minor drop
today was a non-event. Year over year growth rose to +8.1%
and the best since May-1999. The majority of the gains
came from easy comparisons from severe weather last year.
Considering the slow employment and dropping sentiment
just holding the gains from the last three weeks is very

The biggest problem for the morning was a drop in the
Consumer Confidence to 87.3 from 96.4 in January. This
nearly -10 point drop was very significant and followed
drops in all the confidence/sentiment reports for the last
couple of weeks. The present conditions component fell to
73.1 and the lowest level since October. The expectations
component fell to 96.8 from 107.80 but the jobs component
dropped to only 11.8. Those expecting to buy a home rose
slightly but consumers expecting to buy a car or major
appliance fell. More consumers found that jobs were hard
to get and fewer found then plentiful. Sounds like the
same things but they are separate components. The decline
was stronger in the various expectation components and
that suggests the election mud slinging is having a
negative impact on consumer viewpoints. The magnitude of
the deficits and the constant harping on the lack of jobs
is producing consumer worry.

Also impacting the market weakness was the continuing
currency crisis with the dollar losing ground again.
John Snow went on record again as supporting a strong
dollar. Snow is rapidly losing credibility every time he
repeats that statement. We all know the administration is
happy with the dollar drop as a way to increase demand for
our exports and pressure imports.

The firing of the Russian Prime Minister and his cabinet
today by President Putin failed to rock the U.S. markets
as it was seen as an attempt to bolster his support. The
Russian Prime Minister is primarily responsible for the
economic policy. Putin said he wanted to avoid uncertainty
in the executive structure and was reshuffling the positions
to push stronger reforms. The PM was the last holdover
from the Boris Yeltsin era.

Greenspan took aim at FRE and FNM in front of the Senate
Banking Committee and pressed the need for increased
regulation. He said that the risk was great for companies
that big which needed to grow profits continually to
justify their stock price. While they are both GSE firms
their debt is not really guaranteed by the government.
Greenspan suggested a failure at either company could
send shock waves through the banking system and the
economy. Greenspan wants their subsidy removed so that
normal capital requirements would apply. He suggested
the size of their portfolios be limited to reduce risk
and unfair competition. Between them they control over
75% of all single-family mortgages worth more than $4
trillion. Because of their size they are able to control
market rates.

The SEC filed charges against divisions of Fleet Boston
for mutual fund trading practices. The SEC alleged the
companies allowed market timing in their trades.

The EU imposed a minimum one month ban on poultry and
poultry products from the U.S. after a much stronger
strain of bird flu turned up at a Texas farm. This was
the first highly pathogenic strain of avian flue found
in the U.S. in over 20 years. The fear from the rapidly
spreading strains of bird flu is that a new pandemic
could appear. The bird flu is a rapidly mutating type
of flu that can move to other animals and even humans.
Once the flu mutates in humans it can produce an
flu epidemic from which humans have no defense. The
last pandemic in 1918 killed more than 40 million
people and was started by an outbreak of bird flu like
we are seeing now. According to various reports over
100 million chickens have now been killed worldwide in
an effort to eradicate this current threat. Unfortunately
this threat has been recurring more frequently in recent
years and many health researchers suggest the next
pandemic event is not a question of "if" but "when" it
will occur. The impact is hotly debated with estimates
of human deaths from 10 million to 100 million. With
health controls and response times much better now than
in 1918 those in power suggest the massive deaths are
not probable. They are racing to produce a vaccine for
the current strain but it will not be available in even
limited doses for at least six months. Mad cow? Bird
flu? Soy burgers are looking better every day. Major
poultry suppliers are PPC, SFD, TSN and SAFM.

This was the first time in a year that the Dow and S&P
were down for five consecutive days. Sellers are still
taking profits but the volume was only moderate.
The Nasdaq fought to close over 2000 and managed to
regain 2005 after trading down to 1991 intraday. The
last time the Nasdaq closed under 2000 was Dec-26th.
The Nasdaq has been in a downtrend for the last five
weeks but it is still trading in the range we have been
discussing between 2000-2100. The drop is only now
beginning to appear risky for techs as the Nasdaq
nears its 100dma at 1986. Currently the Nasdaq has
broken the uptrend support and the support at the
50dma at 2044.

The Dow broke with its recent support at 10575 late
today and we saw a dip to 10521 before a late day rally
brought it back to close at 10566. The 50dma, which has
been strong support for the Dow since last April has
risen to 10479 and only 42 points from today's low.
The biggest market factor today was another drop in
the Dow due to a continued fall in UTX. The stock has
dropped -$6 (45 Dow points) in the last two days.

Despite the thought process that the world is coming
to and end for techs you might be surprised to learn
that INTC, MSFT, CSCO and IBM all closed in positive
territory. Each set new recent lows on Monday and
rebounded today in what could be a leading indicator
of a tech rebound in our future. The Russell and the
SOX both closed in positive territory as well.

The Russell seemed to find a bottom today at 570 with
a small break of its 50dma at 574. The Russell closed
at 572. The SOX appears to have found a bottom at 495
and closed just under 500 with its 100dma at 503. You
can easily see that they better find support quickly
or we are going to fall out of our current range.

Russell-2000 - Daily

SOX Chart - Daily

I have been suggesting that the major indexes would
trade in their ranges (10450-10700, 2000-2100) until
we got through the February consolidation period. I
think that is still a valid viewpoint as long as the
Nasdaq holds its 1986 100dma. The real key for the
current market is no longer the techs but the potential
for the Dow to hit its 50dma at 10479. This has been a
highly visible target since the end of November when it
was last tested.

Both the major indexes came very close to their critical
numbers today. (10479, 1986) The Russell and SOX appear
to be finding a bottom and the four biggest tech stocks
all closed positive for the day. Today was the fifth
down day for the Dow and S&P. All these factors are
coming together to suggest it is time for a bounce. In
circumstances like this there can be an explosive rebound
as shorts who are thinking new lows get caught off guard
and race each other to cover. It does not mean we are
done with the selling but any decent bounce would relieve
the oversold conditions and bring fresh money into the
markets. Nothing goes straight down or straight up and
a bounce is due. We could still see one more dip to
actually test those critical levels before that bounce
appears or we could simply move up at the open. I would
rather see the dip to conclude the current cycle and I
think a touch of the averages would attract stronger
buying. Should the current support level (1986) fail
for the Nasdaq the next support target is well below
at 1900.

I need at least one more dip so I can get an entry in
EBAY at $65. (grin) That stock just refuses to go down
despite a -25% drop in AMZN over the last month.

Despite the drop in confidence there is no real sign the
economy is slowing. Copper rose over $1 today and that
is a clear indication that manufacturing is increasing.
Oil closed at $34.58 and the market continues to ignore
it even when most U.S. corporate profits are based on
$22 oil. The Russian government layoff was ignored. The
Greenspan attack on FRE/FNM had little impact on the
broader market. This is a normal consolidation period
and during a consolidation markets focus on the negative
news rather than the positive. The S&P and Nasdaq lost
only two points each. No real fear there.

I have been telling you that we are going to trade in
this range for the last three weeks. I have been suggesting
that buying the dip was a valid strategy until conditions
changed. Until we close below 10479/1986 those conditions
have not changed and those tactics are still valid. We are
at the point where that could happen tomorrow so be
prepared. It will either be the best entry point of the
week or the beginning of a new trend or both. We will not
know the real answer until week is over.

Enter Passively, Exit Aggressively.

Jim Brown


Dollar Slide
Jonathan Levinson

The US Dollar Index gave back most of its gains since Friday
morning in a steep reversal.  The CRB, gold, silver and the
miners benefited, as did treasury bonds.  Equities bounced in the
last hour of trading but still closed in negative territory.

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

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

Chart of the US Dollar Index

The US Dollar Index got sold when Europe opened, again when
London opened, and then got bombed on the 10AM consumer
confidence data.  I made some cautionary comments last night
about not getting too smug about the reversal signals that
printed at the end of last week because of the prior predominant
price trends in place, and today provided a fine example of just
that.  The move in the USD Index reversed most of Friday's
substantial gains, and while it did not abort the new daily cycle
upphase, any further weakness will.  Most traders who tried to
play Friday's breakout since the early part of the move would now
be underwater in their positions.  Predictably, precious metals,
foreign currencies and the CRB were all up, while equities again
declined.  For the day, the CRB added 3.23 to close at 268.47,
buoyed by coffee, live cattle, cocoa, soybeans, silver and

Daily chart of April gold

Those who squinted to find yesterday's closing print will know
what to do in order to find today's:  a small upside gap followed
by a narrow trading range added 1.15% or 4.6 points to close at
404.20.  The move cleared recent 402 resistance but never came
close to 408 above, closing right on the 61.8% Fibonacci line.
Goldbugs won't be able to rest until the 412-414 resistance level
has been surpassed, as that price confluence now coincides with
descending trendline resistance off the multiyear high printed
last month.  For the day, HUI added 3.33% to close at 224.33, and
XAU gained 2.98% to close at 99.46.

Daily chart of the ten year note yield

Bond bears had to work for it today, as a strong open received a
huge boost from the disappointing 10AM consumer confidence data.
Ten year note yields (TNX) gapped down, broke the rising pennant
support line but dojied back up, closing in the middle of their
day range.  4.0% support held, and we recall 4.02% from sessions
past.  The TNX lost 2.1  bps to close at 4.029%, a .52% decline
Despite the breakaway gap to the downside, the buy signals on the
TNX were not negated, though any further weakness tomorrow could
do the trick.  Below today's support, 3.92% is the next and
current strong horizontal support level.

Daily NQ candles

NQ lost 3 points to close at 1463.50, a .2% move to complete a
choppy session that ranged nearly 25 points.   Opening weakness
bottomed with the release of the consumer confidence
disappointment at 10AM, followed by a run to the highs and then
an A-B-C decline that bottomed at 3PM at a slightly higher low.
The 10AM low took out Monday's low, and the subsequent high was
lower as well.  This gave us confirmation on the daily cycle sell
signals, and the support we saw today is attributable to
Bollinger support on the daily and oversold intraday cycles.  It
was an orderly session and support remains at 1440-1444, followed
by 1430.  Resistance is at 1465, 1477, 1482 and 1492.

30 minute 20 day chart of the NQ

The oversold intraday oscillators from yesterday corrected today,
with the 30 minute cycle oscillator peaking the afternoon and
beginning a weak decline that was showing all the signs of a
whipsaw on the final hour's ramp higher.  The daily cycle
downphase has so far been strong, and predicts that the 30 minute
cycles will top out at progressively lower lows.  That pattern
has been playing out on cue so far, but the bounce in the last
hour has the 30 minute Ketlner channel proxy flattened, which
shows up as a small uptick in the downphasing 300 minute
stochastic and the Macd.  Any strength at tomorrow's open should
whipsaw the cycle back up, and cause a wave of dismayed short
covering in the process.  A sustained break above 1466 could be

Daily ES candles

ES dropped 1 to close at 1139.  It too printed a lower low and
lower high, and completed its fifth consecutive losing session.
I've been discussing the tenacity of the 1130-36 area when it was
resistance, and it's so far delivering equally well as support
from above.  The daily cycle downphase remains the dominant them
here, with most of today's chop attributable to intraday cycles
only.  But viewed beyond the current vacuum, the weakness in ES
and its peers remains troublesome in light of the declining US
Dollar Index for the 2nd day in a row.  While we attributed the
divergent equity weakness yesterday to op-ex unwinding and
repositioning, today's continued selloff should not have occurred
alongside a falling dollar.  If the current weakness in equities
and the US Dollar Index is attributable to foreigners liquidating
US assets, then the recent lows on both the USD Index and the
equity indices should break easily, but that's the less likely
scenario for now.

20 day 30 minute chart of the ES

This chart is the bulls' best case currently, with a large
bullish oscillator divergence opposing declining price within a
bullish descending wedge.  The 30 minute cycle upphase was very
weak today, but the downphase that kicked off this afternoon was
even weaker.  While the 30 minute NQ chart could go either way,
the ES is set up far more bullishly on an intraday basis, and
looks like it wants to break to the upside.  A move above 1140
should seal it, but given the daily cycle downphase, I can only
guess that the breakout will bottom at a lower high, either in
the 1146 or 1151-3 levels.  The slope of the bullish oscillator
divergence looks impressive, but then, so does the daily cycle
downphase on the previous chart.  Support is at 1133, 1130, 1125,
1122, and then at 1115-18.

150-tick ES

The short cycle upphase topped at the close, conveniently right
below the upper resistance line on the bullish declining wedge
above.  A failure from here would imply a move back to the wedge
low around 1132, but the short cycle oscillators trend easily and
could follow a bullish price breakout if wedge resistance is
broken to the upside tomorrow morning.

Daily YM candles

YM was the weakest link for a change, declining .38% to close at
10565.  It's set up like ES, with support from 10500-10515.

20 day 30 minute chart of the YM

Today was another strong volume session with QQQ trading more
than 30M shares above its average daily volume, 129M for the day.
On an isolated basis, the charts are playing their usual games-
equities are lined up bearish on the daily, potentially bullish
on the 30 minute and potentially bearish on the short cycle
oscillators.  But on an intermarket basis, equities continue to
decline with a declining US Dollar.  Because dollar weakness /
equity strength was the theme for nearly all of the 2003 rally,
this recent change of trend is worrisome, and introduces an
element of further uncertainty into the charts we follow.  On a
trading basis, it means that more than usual, we have to expect
the unexpected and if a trade goes against you, stick to the plan
and respect your stops.  For whatever reason, the daily cycle
oscillators continue to favor a stronger dollar / weaker
equities, but the different markets are clearly in flux.  Until
they settle back into a reliable rhythm for us, we need stay
open-minded and nimble.  See you tomorrow.


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Lack of confidence and conviction

Today's economic data from the Conference Board showed consumer
confidence fell in February, with a lack of more robust job
growth weighing on consumer's thoughts toward not only the
present day situation, but also the future.

The S&P Retail Index (RLX.X) 390.53 -0.01% finished flat despite
weekly chain-store sales falling in the latest week after two
straight strong weekly gains.  The index fell 0.2% in the week
ending February 21.  However, it strengthened to an 8.1% year-
over-year increase, compared with a 7.5% year-over-year increase
the prior week.

Dow component Home Depot (NYSE:HD) $35.99 +1.72% rose $0.61 after
reporting fiscal Q4 earnings that rose above year-earlier levels
and exceeded Wall Street's expectations, while Federated
Department Stores (NYSE:FD) $50.95 +1.19% closed at a new 3-year
high, but off its best levels of $51.95 after raising its
February 2004 same-store sales growth estimates, while also
reporting fiscal Q4 earnings that beat analysts consensus

Market volumes were heavy in today's session with the NYSE
turning just over 1.5 billion shares, while NASDAQ saw 2.04
billion shares change hands.

While today's trade was choppy among the major indices, there
seemed to be little conviction among traders, where by the close,
most indices finished in the middle of the day's range.

Sector standouts were few.  A weaker dollar did have spot gold
lifting back above the $400.00 level, which then had the AMEX
Gold Bugs Index ($HUI.X) 224.33 +3.33% taking today's top spot
among sector winners.  The Oil Service Index ($OSX.X) 106.09
+1.84% retraced last weeks losses ahead of tomorrow's weekly U.S.
oil inventory report, where expectations are for decreases in
reserves with colder weather creating strong heating oil demand
in the northeast, while refiners also begin stockpiling oil in
order to meet peak summer driving demand.

Bloomberg reported that refiners have fallen behind on rebuilding
gasoline stocks, as greater focus has been given to meeting the
demand for heating oil.

Market Snapshot / Internals - 02/24/04 Close

Today's A/D line at the NYSE seesawed back and forth to finish
breakeven, and while the NASDAQ Composite (COMPX) 2,005.44
managed to close above the 2,000 level after a second-consecutive
day of probing this support level, decliners still outnumbered
advancers by a 3 to 2 margin by the close.

The smaller-cap Russell 2000 Index ($RUT.X) 571.87 +0.29% showed
a greater amount of bullish resiliency in today's session, but
was unable to reclaim its rising 50-day SMA by the close.

Russell 2000 Index ($RUT.X) - Daily Intervals

Unlike the larger-cap NASDAQ-100 Index (NDX.X) which has been
piercing below its February 4th and 5th relative lows, the
smaller caps of the Russell 2000 Index ($RUT.X) which comprise
smaller cap stocks listed at both the NYSE and NASDAQ have did
find buyers just above the February 4th low.  Since August, the
RUT.X has found bullish bounces within 3 or 4-day's time once the
50-day SMA has been tested, and may well be an index to be an
index that index traders should be monitoring closely the next
couple of days for SIMILARITY or DIVERGENCE to the past.

Pivot Matrix -

I've marked some of today's lows in PINK (INDU, OEX, BIX.X) as
well as the BIX.X's high where the INDU intra-day low came just
above its MONTHLY Pivot.  The OEX's intra-day low came just above
its WEEKLY S1, where in the WEEKLY Pivot is the only WEEKLY S1 we
haven't seen traded as it would relate to a major equity index.

While we can't expect the financials to hold a market up by
themselves as profit taking would likely build should losses
begin to mount in other sectors of the market, the BIX.X has
neared its WEEKY S2, where we could begin to tie some importance
to the BIX.X's WEEKLY S2 and OEX's WEEKLY S1.  Should the BIX.X
break below its WEEKLY S2, then next support level lower is the
MONTHLY Pivot, where roughly 3.5 points to the downside is a
meaningful move for what tends to be a slower moving sector.

Some work I did in last night's Market Monitor after finishing
the Monday evening Index Trader Wrap has be looking at the DAILY
S1s as somewhat of a moving line in the sand over the course of
the next several sessions, where I would only look for strength
above the DAILY S1s, but if traded, would certainly need to see
buyers offer intra-day support back at the DAILY Pivots.

I have come to this analysis from the following, which dates back
to some observations of trade in August of 2003, where current
market technicals look almost IDENTICAL to that found in July and
August of 2003.

NASDAQ Composite (COMPX) Chart - Daily Intervals

In Monday's 03:15 PM EST update I wanted to try and see if there
was any bearish divergence between the recent market internals
like the bullish % or NH/NL 10-day average ratio's, but could not
find any bearish divergence where the internals wouldn't have
confirmed the recent highs.  I went back through the data and
found current market internals, which do show weakening, were
VERY similar, but currently a little stronger, than the time
period found in the lower left corner of the above chart.  Note
some of the similarities with trend, as well as the moving

It is obvious now that a move above the 50-day SMA was perhaps
the signal for strength, where that strength was confirmed
further with a COMPX advance above the 21-day SMA, where that
advance was confirmed with a shoter-term downward trend, where
than advance was confirmed by a new 52-week high.

Oscillators today are also very similar to oscillator found back
in July/August.

As always.... History is no guarantee of the future, but provides
and EXCELLENT test for the future, where we would monitor for

I went one step further when I reviewed how the NASDAQ-100 Index
(NDX.X) traded on August 11, which in hindsight would have been
the first day of the rebound.  It was that day that the NDX
traded its DAILY R1 early in the session, then came back to just
undercut its DAILY Pivot by 1-point, to then close that session
back above its DAILY S1.  In a way, that up, down, up seemed to
be a coiling type action, which provided the springboard for the

This may be the action we want to be monitoring for in the near-

Hopefully you can see that a trader didn't need to "jump all
over" the trade immediately.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals

Today's volume in the QQQ was heavy once again, and in my
opinion, this can no longer be related to Friday's QQQ February
expiration.  The QQQ was very squirrelly today and while the QQQ
had been a tough intra-day trade for me in recent weeks, there
was little sense to today's intra-day swings.

After a big move up on Monday, Qualcomm (NASDAQ:QCOM) $61.08
-2.16% gave back some of Monday's gains, while MSFT +1.01%, INTC
+0.68%, CSCO +1.31% and AMAT +0.14% showed some of the more
heavily weighted stocks finding some gains.

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

The OEX closed below the lower end of my hand-drawn channel,
which is some divergence to the past where the OEX was able to
reclaim that trend by a close.  This may put greater emphasis on
the 560 level near-term where the WEEKLY S1 and MONTHLY pivot

Dow Industrials (INDU) Chart - Daily Intervals

The INDU popped to a session high at 10:30 AM EST, but once it
fell back below 10,600 and the 38.2% MONTHLY retracement (red
retracement) intra-day resistance was found.

I can't say that an unfavorable ruling against tobacco makers,
which did see Altria (NYSE:MO) $56.17 -0.81% fall rather quickly
from $56.50 to a session low of $55.71, comprise a late-afternoon
spat of selling in the INDU, but it certainly didn't help.
Still, buyers seemed to be lined up and ready to buy just above
the INDU's MONTHLY Pivot.

While MO has little to do with the NASDAQ Composite or NDX/QQQ,
their declines as the INDU made a session low was evident, and
may well suggest that investor confidence is fragile, where the
INDU can play a BIG role in investor psychology.

Jeff Bailey


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How many makes a trend?
- J. Brown

One or two days in a row may not make a trend but does five?
Stocks slid for their fifth straight session with the NASDAQ
hitting another new relative low under the 2000 level before a
market-wide afternoon bounce lifted stocks.  Throwing a wet
blanket on the markets today was the February consumer confidence
report.  Economists had been looking for a decline to 92.9 from
January's 96.8.  What we got was a drop to 87.3.  In spite of the
bad news investors' moods seemed to be nonchalant about the
report.  As one trader put it today's action was more of buyers
taking a break than seller's overwhelming demand.

Overall the session wasn't as bad as it seemed.  Sure there were
more sector losers than winners but market internals were mixed.
Advancing stocks edged past decliners 1459 to 1373 on the NYSE
and lost the race 1377 to 1697 on the NASDAQ.  Up volume did fall
behind down volume but it was nothing dramatic.

As a matter of fact by the end of the session some of the more
optimistic trader talk was suggesting the NASDAQ may bounce
tomorrow.  While not directly related the volatility indices all
traded lower, which means investors were feeling more bullish
than bearish.

Tomorrow we'll hear the existing home sales numbers and the
markets will digest any news from Fed governor Poole's speech in
N. Carolina.  However, the big event on Wednesday will be Alan
Greenspan's talk on his economic outlook.  This alone could keep
the major indices range bound.


Market Averages


52-week High: 10753
52-week Low :  7416
Current     : 10566

Moving Averages:

 10-dma: 10652
 50-dma: 10479
200-dma:  9640

S&P 500 ($SPX)

52-week High: 1158
52-week Low :  788
Current     : 1139

Moving Averages:

 10-dma: 1148
 50-dma: 1123
200-dma: 1037

Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  938
Current     : 1462

Moving Averages:

 10-dma: 1490
 50-dma: 1485
200-dma: 1352


Volatility continues to drop despite the profit taking across
most market sectors today.

CBOE Market Volatility Index (VIX) = 15.90 -0.39
CBOE Mkt Volatility old VIX  (VXO) = 15.80 -0.13
Nasdaq Volatility Index (VXN)      = 24.68 +0.30


          Put/Call Ratio  Call Volume   Put Volume

Total          0.76        816,858       623,121
Equity Only    0.65        708,377       462,156
OEX            1.25         18,213        22,791
QQQ            4.64         14,027        65,112


Bullish Percent Data

           Current   Change   Status
NYSE          76.2    - 1     Bull Confirmed
NASDAQ-100    63.0    - 5     Bear Confirmed
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       85.6    - 1     Bull Confirmed
S&P 100       87.0    - 2     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: 1.23
10-dma: 1.09
21-dma: 1.03
55-dma: 1.01

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1459      1377
Decliners    1373      1697

New Highs     200       170
New Lows       17        21

Up Volume    726M      877M
Down Vol.   1107M     1146M

Total Vol.  1869M     2033M
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


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


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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The Option Investor Newsletter                  Tuesday 02-24-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: AHC, APOL, DHI, DHR, EBAY, PD, QCOM, RJR, RNR
New Calls Plays: SLB, UNH
Put Play Updates: AVID, CTSH, MMM, WGO
New Put Plays: CHIR, IR


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






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Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for

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Amerada Hess Corp. - AHC - cls: 61.47 chng: +0.02 stop: 58.50

Continued strength in the Oil Patch has kept our AHC play
looking strong this week, despite the weakness seen in the rest
of the market.  After last week's rejection at the $62
resistance level, the stock is working off its near-term
overbought condition as price drifts sideways between $61-62.  A
pullback to test mild support near $60 still looks like the best
setup for new entries, although we might get lucky and see a
deeper dip near $59 support before the rebound gets underway.
Traders that would prefer to enter on strength can now target
entries on a move over last week's $62.29 intraday high.
Maintain stops at $58.50 for now.

Picked on February 10th at   $59.53
Change since picked:          +1.94
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =        970 K
Chart =


Apollo Group - APOL - close: 76.15 change: -0.43 stop: 74.00

It took a week of failed breakout attempts near the $79 level to
get the bulls to cool their heels a bit and let APOL pull back
towards support, as we've been hoping it would.  Recall that the
prior peak was seen near $75, and with the 30-dma ($75.19) just
crossing through that level, today's dip below $75.50 looked
like a solid entry into this bullish trend.  For traders that
may have missed that opportunity, another dip near $75 looks
good as an entry point ahead of the next bullish thrust.  We can
see how the stock has been working its way higher over the past
couple months and a test of the 30-dma was the key entry point
back in late January.  Until proven wrong, looking for a repeat
of that pattern should prove fruitful.  Maintain stops at $74,
as a solid break below $75 support would be the first sign that
perhaps the uptrend is weakening.

Picked on February 1st at    $77.44
Change since picked:          -1.29
Earnings Date               12/18/03 (confirmed)
Average Daily Volume =     1.60 mln
Chart =


D.R.Horton - DHI - close: 30.01 chg: +0.25 stop: 27.99

The close under $30.00 yesterday looked somewhat ominous for the
bulls but both DHI and the DJUSHB homebuilders index managed a
small bounce on Tuesday.  Unfortunately neither have broken their
short-term trend of lower highs and both have produced a new sell
signal in the MACD indicator.  In contrast their short-term
oscillators like their stochastics and RSI are suggesting a
potential short-term bottom.  As mentioned in earlier updates
traders can watch DHI for a bounce from the $29.00-29.50 levels
as potential entry points.  No change in our stop loss.

Picked on February 08 at $30.00
Change since picked:     + 0.01
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =


Danaher Corp - DHR - close: 90.90 cls: -0.24 stop: 90.00

This is it!  DHR is at a critical level.  Yesterday shares broke
down through technical support at its simple 50-dma.  Today there
was a quick rebound but the stock faded throughout the session
and almost hit our stop loss at $90.00.  Fortunately, there was a
late afternoon rally.  Even though DHR is above support at $90.00
we are very cautious on new positions and suggest only aggressive
traders look to buy a bounce here, especially considering this is
the first time DHR has closed under its 50-dma since last
September.  If the DJIA breaks the 10,500 level tomorrow we may
see DHR breakthrough the $90 level and stop us out.

Picked on January 30 at $91.01
Change since picked:    - 0.11
Earnings Date         01/29/04 (confirmed)
Average Daily Volume:      841 thousand
Chart =


eBay, Inc. - EBAY - close: 67.19 change: -0.54 stop: 66.50

That certainly isn't the way we expected our EBAY play to get
started.  Rather than breaking out over resistance, the stock
has started out the week with a bout of weakness, falling back
to the $67 support level and closing fractionally below the 30-
dma.  We're not ready to throw in the towel just yet, but things
don't look particularly encouraging for the play right here.
Fortunately, we used a trigger just over $70 resistance and
since that trigger hasn't been touched yet, it's only an
academic exercise to this point.  We would not advocate jumping
the gun and buying this dip.  Wait for the breakout before
playing.  If our $66.50 stop is violated, then we'll drop the
play, relegating it to the "what might have been" category.

Picked on February 22nd at   $69.26
Change since picked:          -2.08
Earnings Date               4/21/04 (confirmed)
Average Daily Volume =     6.89 mln
Chart =


Phelps Dodge - PD - close: 83.26 chg: +1.96 stop: 78.00

Another gain for copper futures helped PD added another 2.4% on
Tuesday.  The stock did bounce from the $80.00 level, which was
expected to be support.  However, if you were not brave enough to
go long at $80.00 again (we were cautious over the weekend) the
Tuesday move over $83.00 looks good too.  Today's gain has broken
the short-term trend of lower highs and both its RSI and
stochastics indicators look bullish.  If the recent pull back was
nothing more than a bull flag then we can probably expect PD to
breakout above the $90 level.

Picked on February 11 at $80.51
Change since picked:     + 2.75
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       1.6 million
Chart =


Qualcomm, Inc. - QCOM - cls: 61.08 chng: -1.35 stop: 58.00*new*

Denying us the ability to enter into the breakout move
yesterday, QCOM gapped sharply higher (and right through our
entry trigger) following the company's raised guidance before
the opening bell.  Citing strong demand for the company's mobile
station modem and radio frequency chips, the company raised its
Q2 EPS guidance from 34-37 cents to 48-50 cents.  The stock
exploded through resistance, hitting an early high of $63.65
before traders began taking profits.  The stock looked pretty
weak on Tuesday, falling as low as $60.62 before a slight
rebound into the close.  Since we didn't get an opportunity to
enter on the breakout, we're now left looking for entry on a
rebound from new-found support in the $59-60 area.  Look for a
fill of yesterday's gap to find strong buying support from
traders that missed yesterday's move.  That will be our cue to
initiate new positions.  With the initial breakout now
completed, let's raise our stop to $58, just below last Friday's
intraday low, as well as the 20-dma (now at $58.35).

Picked on February 17th at   $59.55
Change since picked:          +1.53
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     8.73 mln
Chart =


RJ Reynolds Tobacco - RJR - cls: 60.86 chg: -1.01 stop: 57.50

We have good news and bad news for RJR traders.  The good news
first...the stock rose strongly on Monday and surpassed Friday's
failed rally at the 60.60 level on strong volume.  Furthermore
its soon to be partner British American Tobacco announced
earnings today that showed a 4% rise in net profits for 2003.
BAT said that they expect stronger growth this year but issued
caution that if the dollar continues to be weak it will pressure
profits.  Now the bad news.  Late this afternoon news hit the
wires that a federal judge refused to dismiss claims against
Phillip Morris (MO), RJR and other American cigarette makers that
they specifically targeted children in their advertising to make
them customers as adults.  The claim is part of a 1999 case the
U.S. vs. Phillip Morris (and the rest of the industry) that
alleges the tobacco industry engaged in 50 years of "fraudulent
marketing practices that included manipulating nicotine levels,
lying about the risks of smoking and targeting ad campaigns at
tots." (source: Dow Jones Business News).  Two of the three main
charges have been dropped and the trial is expected to begin on
September 13, 2004.  Should MO and RJR lose this case the
government seeks a $280 billion (with a B) settlement as a
disgorgement of "ill-gotten" gains from the marketing practices.
Considering the potential impact of this case the $1.01 drop in
RJR actually looks bullish.  Traders can use the pull back to $60
as another entry point but might want to consider using a tighter
stop loss.

Picked on February 20 at $60.51
Change since picked:     + 0.35
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       699 thousand
Chart =


Renaissancere Ltd - RNR - close: 51.07 chg: +0.07 stop: 49.50

Insurance stocks as a group have continued their slow fade lower
but shares of RNR appear to have reached a short-term bottom near
$51.00.  Traders can still consider positions here but bounces
from a dip to $50.00 or a move back over $52.25 can also act as
alternative entry points depending on your preferred strategy.
Strengthening RNR's fundamentals was news today that Standard &
Poor's had raised RNR's credit rating.

Picked on February 15 at $50.83
Change since picked:     + 0.24
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =


Schlumberger Ltd - SLB - close: 64.47 change: +1.21 stop: 60.40

Company Description:
Schlumberger Limited is an oilfield services company that
supplies technology, project management and information
solutions that aim to optimize performance for customers working
in the international oil and gas industry.  The company is
comprised of two primary business units.  Schlumberger Oilfield
Services supplies a wide range of products and services that
support core industrial operational processes.  WesternGeco,
jointly owned with Baker Hughes, is a large seismic company that
provides advanced acquisition and data processing surveys.

Why we like it:
The current rally in SLB has been closely tied with the recent
rally in the overall Oil Service Sector (OSX.X), as stocks in
this area began responding to the rise in the price of Crude
Oil, following the rebound from the $29 level in late November.
In that time, the March Crude Oil contract (CL04H) has risen to
new contract highs above $36, the OSX has risen from $84 to $106
and SLB has rallied from $47 to $64.  All of these are
impressive moves already, but every one of these trends is still
looking strong, with new breakouts likely in the near future.
SLB seems to be a bit ahead of the OSX, actually breaking out to
new 2-year highs on Tuesday and the bulls are already setting
their sights on next resistance at $68.  A quick look at the PnF
chart shows the strength of this bullish trend, as it is on a
strong Buy signal with a bullish price target of $77.

It is unlikely that SLB can rally straight to that target
without one or two pauses along the way, so we'll work with some
targets that are a bit closer to reality.  Our first target will
be resistance at $68 and then we'll look for a continued rally
up to strong resistance in the $73-74 area.  Since we
technically got the breakout on Tuesday, we're not going to use
a trigger for the play.  Pullback entries can be considered on a
dip and rebound from near support in the $62-63 area, with that
support reinforced by the 20-dma ($62.61).  Traders looking to
enter on continued strength will want to open positions on a
break above $64.50, as SLB takes out today's intraday high.
Look for confirmation from the OSX, with a break over $107
giving the "all clear" for higher levels ahead.  We're initially
placing our stop at $60.40, just under the early February lows.

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

Longer Term: Aggressive longer-term traders can use the April
$70 Call, while the more conservative approach will be to use
the April $65 strike.  Our preferred option is the April $65
strike, which is at the money and should provide sufficient time
for the play to move in our favor.

BUY CALL MAR-65 SLB-CM OI=4359 at $1.40 SL=0.75
BUY CALL MAR-70 SLB-CN OI=2173 at $0.30 SL=0.00
BUY CALL APR-65*SLB-DM OI= 116 at $2.45 SL=1.25
BUY CALL APR-70 SLB-DN OI=  10 at $0.60 SL=0.30

Annotated Chart of SLB:

Picked on February 24th at   $64.47
Change since picked:          +0.00
Earnings Date               1/23/04 (confirmed)
Average Daily Volume =     3.51 mln
Chart =


UnitedHealth Group - UNH - close: 61.92 change: +0.71 stop:

Company Description:
UnitedHealth Group Inc. provides health and well-being products
serving more than 48 million Americans.  The company's revenues
are derived from premium revenues on risk-based products, fees
from management, administrative and consulting services and
investment and other income.  UNH conducts its business
primarily through operating divisions in four business segments:
Uniprise; Health Care Services, which includes UnitedHealthcare,
Ovations and AmeriChoice businesses; Specialized Care Services,
and Ingenix.

Why we like it:
There have been many times in the past couple years when the
bullish trend in UNH has looked like it was about topped out.
But every time, the stock pulls back to support and launches
itself to new highs.  Of course, it doesn't hurt that Health
Care is one area of the economy that continues to see robust
growth.  After rebounding from the 200-dma back in early
November, the stock has been moving steadily higher in a fairly
steep and tight ascending channel.  The most recent dip down to
the bottom of the channel near the 30-dma ($59.63) earlier this
month found plenty of eager buyers and over the past week
they've managed to propel the stock through resistance at $61.
Ignoring the broad market weakness on Tuesday, the HMO index
managed a small gain and UNH broke out to another all-time high.
The stock won't tear up the charts in volatile fashion, but
sometimes a reliable and consistent trend holds greater appeal.

Flipping over to the PnF chart, we can see where January's
breakout took the stock higher out of the 6-month consolidation
pattern, and the current bullish price target of $77 tells us
that the stock still has plenty of potential upside.  With
today's breakout, we don't need to use a trigger on the play and
can instead choose breakout or pullback entries as suits our own
personal trading style.  Momentum traders can enter on a
breakout over $62 (just over today's intraday high), while those
looking for a pullback entry will want to target a rebound from
the bottom of the rising channel just above $60.  Note that the
20-dma ($60.17) and the 30-dma should both reinforce that
support.  We'll start the play with our stop set at $58, which
is just below the early February intraday lows as well as the
50-dma ($58.35).

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

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 in the money
and should provide sufficient time for the play to move in our

BUY CALL MAR-60 UHB-CL OI=3422 at $2.75 SL=1.50
BUY CALL MAR-65 UHB-CM OI= 948 at $0.35 SL=0.00
BUY CALL APR-60*UHB-DL OI= 114 at $3.50 SL=1.75
BUY CALL APR-65 UHB-DM OI=  16 at $1.00 SL=0.50

Annotated Chart of UNH:

Picked on February 24th at   $61.92
Change since picked:          +0.00
Earnings Date               1/22/04 (confirmed)
Average Daily Volume =     2.54 mln
Chart =


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Avid Technology - AVID - close: 39.92 chg: +0.37 stop: 42.01*new*

The good news for our AVID put play was the early morning drop to
$38.43 was within our exit (profit target) range of $38.50 to
$38.00.  Unfortunately, we were holding out for a move to $38.00
and given today's rebound off the low AVID may make another
attempt toward descending resistance near $41.00.  In response
we're going to lower our stop loss to $42.00.  Another positive
sign for us is that Tuesday marks the second close in a row under
the psychological round-number of $40.00.  Given AVID's position
so close to our exit we are not suggesting new positions.

Picked on February 04 at $42.87
Change since picked:     - 2.95
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       612 thousand
Chart =


Cognizant Tech. - CTSH - cls: 46.77 chng: -1.04 stop: 50.50*new*

Sure enough, last week's failed rebound near the $50 level did
turn out to be a solid entry point, as CTSH rolled over from the
50-dma.  Just to reinforce the validity of that resistance
level, the bulls were rejected just below $50 yesterday morning,
before the stock fell back below $48 at the close.  With
Technology stocks weak again today, CTSH continued its slide,
posting its worst close since the end of December and closing
under the 100-dma ($46.93) for the first time since last June.
There's still likely to be some support found in the $45-46
area, so momentum entries on further weakness are not likely to
perform well, at least in the near term.  Our preferred strategy
is still to take advantage of failed bounces below the 50-dma to
establish new positions.  The more likely rejection point is now
probably at the 10-dma ($49.19), which today crossed under the
50-dma.  Lower stops to $50.50, which shouldn't be challenged
except in the case of a trend reversal.

Picked on February 19th at    $47.49
Change since picked:           -0.72
Earnings Date                2/10/04 (confirmed)
Average Daily Volume =      1.29 mln
Chart =


3M Company - MMM - close: 79.48 change: -0.96 stop: 82.00

The bulls continue to stubbornly buy each dip, keeping MMM from
breaking down as it should.  Still mired in the recent
consolidation pattern, the stock bounced yesterday and then was
sold back down near 100-dma ($79.61) support today.  While it is
somewhat disconcerting that the lows have been moving higher, it
is encouraging to see the highs on each bounce moving lower.
Each of the past 3 rebounds have seen the stock roll over below
the 30-dma ($80.85) and that pattern has held true so far this
week.  A break below $78.90 would take out last week's intraday
low and deliver the first crack in the pattern of higher lows
over the past 3 weeks.  Failed bounces below the 30-dma still
look like the best near-term entry, while traders looking to
enter on weakness will need to wait for the elusive break under
the $77.50 level on a break under the early February lows.
Maintain stops at $82 for now.

Picked on February 15th at    $79.68
Change since picked:           -0.20
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.72 mln
Chart =


Winnebago - WGO - close: 65.10 chg: +0.10 stop: 70.00

Wow! Shares of WGO are quickly moving towards our target.  The
stock dropped from $68.00 to less than $64.00 on Monday but closed
off its lows.  That afternoon bounce continued into Tuesday's
session but WGO rolled over again after hitting $66.00.  Remember
that we're targeting a move to $60-62.00.  If you choose to enter
on today's afternoon failed rally consider using a tighter stop
than our $70.00.

Picked on February 22 at $68.13
Change since picked:     - 3.03
Earnings Date          12/17/03 (confirmed)
Average Daily Volume:       276 thousand
Chart =


Chiron Corp - CHIR - close: 49.11 chg: +0.09 stop: 51.50

Company Description:
Chiron Corporation, headquartered in Emeryville, California, is a
global pharmaceutical company that leverages a diverse business
model to develop and commercialize high-value products that make
a difference in people's lives. The company has a strategic focus
on cancer and infectious disease. Chiron applies its advanced
understanding of the biology of cancer and infectious disease to
develop products from its platforms in proteins, small molecules
and vaccines. The company commercializes its products through
three business units: BioPharmaceuticals, Vaccines and Blood
Testing. (source: company press release)

Why We Like It:
CHIR reported Q4 earnings at the end of January and while results
were in-line with estimates they were dramatically improved over
last year.  Unfortunately for shareholders it wasn't enough to
spark any new buying interest and CHIR continued to fail at
overhead resistance in its 50-dma.  The last several sessions
have seen a new trend of lower highs and lower lows finally
blossom into a technical breakdown of support at its simple 200-
dma and the round-number psychological level at $50.00.  The
stock attempted a rebound today but failed again, this time at
the $50.00 level.  It's common to see previous support become new
resistance once broken and today's move provides traders a chance
to open bearish positions just under resistance.

CHIR's point-and-figure chart also shows the bearish breakdown
through support and points to a $44 price target.  We're going to
target a move to $45.00 and start the play with a stop loss at
$51.50 above its 200-dma.

Suggested Options:
Short-term traders can choose from the March or April strikes
but we're going to select the April 50 puts as our favorite.

BUY PUT MAR 50.00 CIQ-OJ OI=4692 at $2.10 SL=1.05
BUY PUT MAR 47.50 CIQ-OT OI=1135 at $1.00 SL= --
BUY PUT MAR 45.00 CIQ-OI OI= 477 at $0.45 SL= --
BUY PUT APR 50.00*CIQ-PJ OI=2880 at $2.85 SL=1.45
BUY PUT APR 47.50 CIQ-PT OI=2462 at $1.65 SL=0.85
BUY PUT APR 45.00 CIQ-PI OI= 232 at $0.90 SL= --

Annotated Chart:

Picked on February 24 at $49.11
Change since picked:     - 0.00
Earnings Date          01/28/04 (confirmed)
Average Daily Volume:       1.7 million
Chart =


Ingersoll-Rand - IR - close: 64.72 chg: -1.13 stop: 68.00

Company Description:
Ingersoll-Rand is a leading innovation and solutions provider for
the major global markets of Security and Safety, Climate Control,
Industrial Solutions and Infrastructure. The company's diverse
product portfolio encompasses such leading industrial and
commercial brands as Schlage locks and security solutions; Thermo
King transport temperature control equipment; Hussmann commercial
and refrigeration equipment; Bobcat compact equipment; Club Car
golf cars and utility vehicles; PowerWorks microturbines;
Ingersoll-Rand industrial and construction equipment; Dresser-
Rand turbomachinery and Kryptonite portable security products. In
addition, IR offers products and services under many more premium
brands for customers in industrial and commercial markets.
(source: company press release)

Why We Like It:
Shares of Ingersoll-Rand enjoyed a very strong 2003 and that
rally continued right through January up until its January 27th
earnings report.  IR reported great earnings that beat estimates
by 6 cents but they only reaffirmed future guidance inline with
estimates and investors sold the news.  In the last few weeks
investor confidence has flip-flopped multiple times over the Fed
and the fear of potentially rising rates negatively influencing
cyclical stocks like IR.

Renewed concerns that the market is just plain tired and stocks
like IR may be fairly valued have lead many investors to start
taking profits.  IR did bounce from its post-earnings selloff but
that bounced failed at the $68.00 level.  After six sessions of
trying to break through the $68 level the selling has begun
again.  Now IR has broken through support at $65.00 but more
importantly it has broken support at its long-term rising
trendline.  We're going to target an initial move to the $60.00
level but more diehard bears might want to consider a test of the
200-dma.  We'll start the play with a stop loss at $68.00.

For the bulls out there shaking their head saying cyclicals
should out perform given the improving economy, we agree.  But
short-term the trend is down and if IR can form a new bottom near
$60 or its 200-dma then all the better for a new run higher later
this year.

Suggested Options:
Short-term traders have March, April and June strikes to choose
from but the April strikes look pretty new.  We're going to pick
the April 65 as our favorite.

BUY PUT MAR 65 IR-OM OI= 262 at $2.05 SL=1.00
BUY PUT MAR 60 IR-OL OI= 212 at $0.50 SL= --
BUY PUT APR 65*IR-PM OI=  20 at $2.90 SL=1.50
BUY PUT APR 60 IR-PL OI=  20 at $1.10 SL=0.55

Annotated Chart:

Picked on February 24 at $64.72
Change since picked:     - 0.00
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       1.0 million
Chart =


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The Option Investor Newsletter                  Tuesday 02-24-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.

In Section Three:

Watch List: Short & Sweet


Short & Sweet

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.

Deluxe Corp - DLX - close: 38.78 change: -0.02

WHAT TO WATCH:  DLX may appear range bound between $37 and $43
over the last five months but the recent downtrend from late
January and the tight consolidation between $39-40 in February
may suggest something more ominous.  DLX has a very long-term
trend of rising lows on its weekly chart dating back to September
2001.  Shares are nearing this supporting trendline now.  Should
DLX break this trendline it would spell very bad news.  Short-
term bearish traders may want to consider jumping the gun on a
move under 38.50 but the trendline appears to be near the $38.00



Omnicom Group - OMC - close: 78.63 change: +0.69

WHAT TO WATCH:  The mid-February pre-earnings bounce to $85
failed right beneath its simple 50-dma.  This failed rally was
hastened by an earnings miss when OMC missed by a penny.  Now the
stock has dropped six sessions in a row before today's bounce
from its 200-dma.  The trend is still very much down but its
short-term technical oscillators are suggesting an oversold
bounce may be due.



Amazon.com - AMZN - close: 42.32 change: -1.65

WHAT TO WATCH:  The recent consolidation near its 200-dma turned
out to be nothing but a bear flag pattern.  It has since come to
fruition in another breakdown to new lows.  This may feel like a
chase but more aggressive bears may want to ride AMZN toward its
next support level near $38.  One caveat - AMZN has stalled right
at support on its P&F chart.



First Data Corp - FDC - close: 40.94 change: +1.12

WHAT TO WATCH:  Another stock trading at a critical P&F chart
level is FDC.  Shares have rebounded right back toward P&F
resistance.  Coincidentally it also happens to be its descending
trendline of lower highs on its daily and weekly chart.  We
happen to like the bounce from its 200-dma today and the intraday
action looks pretty tempting.  Consider a long over $41.00 or if
you need more convincing wait for a move over $41.75.  Target a
move to $45.00.



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