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Daily Newsletter, Wednesday, 02/25/2004

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The Option Investor Newsletter                Wednesday 02-25-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Oversold Bounce?
Futures Wrap: Dollar Reverses Tuesday's Decline
Index Trader Wrap: See Note
Traders Corner: Building A Better Mousetrap


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     02-25-2004            High     Low     Volume Advance/Decline
DJIA    10601.62 + 35.25 10615.56 10560.07 1.67 bln   1841/ 996
NASDAQ   2022.98 + 17.54  2024.20  2007.73 1.68 bln   1968/1091
S&P 100   565.86 +  2.17   566.74   563.64   Totals   3809/2087
S&P 500  1143.67 +  4.58  1145.24  1138.71
RUS 2000  579.04 +  7.17   579.09   571.56
DJ TRANS 2868.96 +  9.65  2873.27  2849.52
VIX        14.93 -  0.97    16.05    14.93
VXO        14.99 -  0.83    15.98    14.89
VXN        23.55 -  1.13    24.80    23.52
Total Volume 3,718M
Total UpVol  2,648M
Total DnVol  1,024M
52wk Highs     267
52wk Lows       21
TRIN          0.78
PUT/CALL      0.77
*******************************************************************

Oversold Bounce?
by James Brown

What felt like a rather slow day on Wall Street actually turned
into a rather bullish session.  Stocks ignored disappointing home
sales data and rising oil and gas prices to focus on positive
comments from Fed chairman Alan Greenspan.  Tech stocks actually
lead the bounce with chip and networking stocks posting strong
gains.  Overall the major indices turned things around to end the
recent losing streak.

Market internals were very bullish with advancing stocks sweeping
past declining issues 18 to 10 on the NYSE and 20 to 11 on the
NASDAQ.  Up volume was better than 2-to-1 over down volume on
both exchanges but total volume was light for the session.  If
you're feeling pessimistic this may look like an oversold bounce
after five days of consecutive losses but the rebound today was
very widespread.  The only sector to turn lower was the XAU gold
& silver index, which lost 1% and only due to the strength in the
U.S. dollar.  Gold futures dropped $8.70 to $396.10 an ounce
after the greenback rose against the euro and the yen.

The Dow Jones Industrial average traded in a relatively tight 50-
point range but remained above support and managed to close over
the 10,600 level.  This bodes well for tomorrow and its short-
term oscillators are suggesting a continuation of the bounce.
The rebound in the NASDAQ is probably more important.  It was
crucial that the tech-heavy NASDAQ hold support at the 2000 level
and today's move should send it back toward overhead resistance
at its 50-dma.

Chart of the DJIA:



Chart of the NASDAQ Composite:



Also noteworthy was the rebound in the Russell 2000 (RUT) and the
Semiconductor index (SOX).  The RUT broke support at its 50-dma
on Monday but never saw any follow through during Tuesday's
session. Today's bounce puts it back over the 50-dma and the
index has put in a new higher low compared to the earlier
February drop. The SOX also made an impressive turnaround with
today's 1.82% gain putting it back above its 100-dma and the 500
mark.  Boosting the SOX was news from the Gartner research group
who said that global semiconductor sales should rise 22.6% in
2004, the largest improvement since 2000.  What I find
interesting is that in Gartner's press release they call their
2004 forecast "deliberately conservative".

Chart of the Russell 2000:



Chart of the Semiconductor Index:



The economic data this morning turned out to be disappointing.
Economists were looking for a dip in existing homes sales to 6.27
million units, down from the previous month's 6.47 million annual
adjusted rate.  What we got was a 5.2% drop to 6.04 million
units.  It may have been this news that influenced early morning
weakness in the homebuilders even though these were existing home
sales and not new ones.  Tomorrow could be important for the
homebuilding sector as the new homes sales numbers are released.

The media was also buzzing about the strong gains in oil and gas
prices today.  Crude oil rose $1.10 to $35.68 and gas prices rose
3.45 cents to $1.0589 per gallon to hit their highest levels in
almost a year.  Driving the news was a report from the Energy
Department that unleaded gasoline inventories had dropped 1.6
million barrels last week to 203.4 million barrels, which is
below year-ago levels.  As mentioned in yesterday's wrap the high
price of oil is a major influence on multiple sectors in our
economy and the markets ability to ignore this rise has been
extraordinary.  Concerns over OPEC suggesting another production
cut at their April meeting has some analysts speculating that
we'll see drastically increased prices at the pump this summer.
The rise in oil is the major factor in the oil service sector's
three-month rally.

Hogging the spotlight again was Alan Greenspan's third appearance
this week.  This time Alan was speaking before the House Budget
Committee and shared his views on the U.S. economic outlook.
Greenspan stated that the Bush tax cuts had sparked the current
economic expansion and the Fed's accommodative stance (a.k.a. the
lowest interest rates in 40 years) had allowed the U.S. to move
from a "period of sub-par growth to one of more vigorous
expansion". He did issue strong caution on the rising deficit and
said Congress needs to address it while both congress and the
President need to curb spending.  Of course the real hot topic
today was Greenspan's comments on Social Security and his
proposals to "fix" Social Security by adjusting policy for
inflation and longer life expectancies.  More importantly for us
short-term were his comments that, "The most recent indicators
suggest that the economy is off to a strong start in 2004 and
prospects for sustaining the expansion in the period ahead are
good."

A few market pundits went on to speculate that Greenspan's
comments may re-ignite the rally in tech stocks.  Currently the
U.S. economy is expected to grow by 4.6% through 2004, well above
the 3.1% seen in 2003.  Many believe that tech stocks have
already priced in this rate of growth.  However, if the market
interprets Greenspan's comments today to mean that the economy
can grow even faster then there may be more room for stocks to
run again.

Given the rebound today I believe tomorrow should be bullish
assuming there aren't any huge negative surprises in the handful
of economic reports.  Before the opening bell we'll get the
weekly initial jobless claims, the durable goods orders for
January.  After the open we'll see the Help-wanted index and the
new home sales figures.  Plus, the markets will get to hear from
Ben Bernanke, one of the Federal Reserve governors, as he speaks
in Washington tomorrow.

Traders can also keep an eye on retail stocks.  Announcing before
the opening bell is American Eagle Outfitters (AEOS), The Limited
(LTD) and Liz Claiborne (LIZ).  Announcing later on Thursday will
be Kohl's (KSS) and the Gap (GPS).


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

Dollar Reverses Tuesday's Decline
Jonathan Levinson

The US Dollar Index bounced from its broken descending resistance
line, reversing yesterday's decline.  Precious metals declined
despite strength in the CRB, while treasuries and equities rose.


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 blasted higher today, putting in a higher low
and higher high to close back at last Friday's highs, holding at
87.25 after spikes above 87.30.  The move reaffirmed the daily
cycle upphase that kicked off last week and suggests a test of
Bollinger resistance in the 88.20 area.  We'll recall the
persistence of 88-90 support on the way down, and this is now the
level being considered from below.  The broken descending
trendline has been confirmed and is now first support.

Despite the dollar strength, the CRB advanced, led by heating
oil, crude, sugar and cocoa futures.  Crude oil closed at 35.70,
breaking powerfully higher earlier in the day.  For the day, the
CRB gained .66 to close at 269.17.


Daily chart of April gold


The one binary trade that continues like clockwork is in gold,
with the April contract dropping to a low of 393.40 (Friday's
low) and closing at 396.60, down 7.90 or 1.95%.  Just as the
strength in the US Dollar Index confirmed the new daily cycle
upphase, so did today's decline confirm the downphase on April
gold.  Support continues to 392, followed by 388 and 376.  HUI
and XAU got clocked as well but recovered in the final minutes of
trading, closing lower by 1.19% at 221.67 and 1.08% at 98.39
respectively.


Daily chart of the ten year note yield


Ten year note yields (TNX) dropped 1.4 bps to close at 4.015%, a
35% move for the day.  This strength in bonds occurred despite a
2B net drain from the Fed and the strong rise in the US Dollar
Index, and is most likely attributable to Greenspan's comments
and short term speculation that a rate hike is furthest from the
Fed's collective mind.  The decline in the TNX tested the rising
support line for the second consecutive session.  A break below
4% targets key 3.92% from which powerful bounces have resulted
since that test at the beginning of October.  Is it a descending
triangle or a triple bottom?  That will be the question if
current rising trendline support fails.


Daily NQ candles


The NQ printed narrow range day, but at least it was positive,
the first such session in five, closing higher by 9 at 1472.5, a
61% gain.  The bounce appears "technical", a sideways print
along daily Bollinger support.  The daily cycle downphase didn't
twitch, as the slightly higher high and lower high did nothing to
disturb the well-established daily downtrend.  The low at 1458
coincided with lower Bollinger band support, below which the
rising trendline just above 1440 is in play.

I've been wondering for several sessions about the fate of our
binary dollar trade for equities, and today saw equities rise,
albeit slightly, in the face of a large upward move in the US
Dollar.  I won't bother guessing at reasons for the intermarket
divergence from its primary trend for the past year, and for
trading purposes I suggest simply tuning it out on an intraday
basis.  Watch the individual charts, and simply wait for the next
trend to emerge.  Currently, equities appear weaker and the
dollar stronger, but they're not trading in lockstep the way they
did even a week ago.


30 minute 20 day chart of the NQ


The 30 minute NQ shows a narrowing grind higher that could be a
bearish rising wedge, a bullish rising triangle, or even a sloppy
reverse head and shoulders bottom.  The 30 minute cycle
oscillators indicate a halting trending move higher, and the
price action today revealed almost perfect confusion as to
whether the price would break to the upside or the down.  A move
below 1465 or above 1477 resistance should break the current
deadlock, but with support at 1460 and resistance at 1482,
there's little incentive for traders to chase moves, which most
likely accounts for the excruciating range that developed in the
afternoon.  On a cycle basis, the daily cycle downphase should
cap the 30 minute upphase that bought us today's advance, and
that 30 minute upphase has so far been weak.  I'd expect a
failure at lower resistance, perhaps 1477 or 1482, on the basis
of the current cycle setup.


Daily ES candles


ES rose 4.75 or .42% to close at 1143.25, bouncing from a higher
low of 1137 and failing at 1145.  This positive session was a
breath of fresh air and broke the losing streak at the primary
regression channel upper trendline.  As with the NQ, the move
didn't register on the daily cycle oscillators which remain
committed to their ongoing downphase.  That downphase kicked off
from lower oscillator highs, and the resulting bearish divergence
usually precipitates a steep selloff.  I don't believe we've seen
that occur yet on the ES, but until the rising channel breaks,
the general price trend will remain bullish and not bearish.


20 day 30 minute chart of the ES


We remarked on the light volume today, and the fact that such
occurred during the 30 minute cycle upphase is none too
encouraging to the upside.  However, narrowing formations are
usually characterized by declining volume, and so this isn't
necessary bearish.  The 30 minute upphase held through the entire
session, and, launching as it did from a premature end to the
preceding downphase from a higher oscillator high, portended a
strong price bounce.  That, and the bullish descending wedge
breakout suggested much more upside than we saw today.  The
bounce looks more like a rising wedge here than on the NQ, and,
to add to the confusion, the overall pattern of the past two and
half weeks is beginning to look like a rough head and shoulders
top, with today printing a right shoulder, neckline a 1135
fibonacci support.

As with the NQ, my reflex would be to watch for either a
trendline break to the downside confirmed with a move below 1141,
or a break of upside resistance above 1146.  The same problem
applies, however:  there's support at 1138, followed by 1133-6,
and resistance at 1149, followed 1151-3.  On a cycle basis, the
current 30 minute upphase should fail beneath the ongoing daily
cycle downphase.


150-tick ES


The short cycle oscillators were rolling over as of the close,
suggesting a retest of the 30 minute Keltner channel's support at
1140.75.


Daily YM candles


YM rose 34 to close at 10600, a .32% move.  The YM was again the
weakest of its peers, with GE, WMT and MSFT all finishing
comfortably in the red.  The blue chip weakness could be a
function of the Fed's repo drain today, but that's just a guess.
The cycle setup is identical to that of the ES.  Resistance is at
10620, support at 10560.


20 day 30 minute chart of the YM


As with the ES, the YM is also sporting a possible head and
shoulders top, with today's print forming the right shoulder,
neckline either at 10530 or 10555.  The cycle setup suggests a
failure either here or slightly above, with that failure point
defining the limit of the daily cycle downphase.

The ambiguity on the 30 minute charts added a great deal to the
rangebound confusion of this afternoon's trading.  The daily
cycle downphase within which it occurred suggests that the
uncertainty should resolve itself to the downside, but the level
from which that occurs is the question.  Provided that it's a
lower high on the 30 minute chart, the daily cycle will remain
intact and we'll look for lower 30 minute lows to follow.

With a number of economic reports due tomorrow, including initial
claims and the help-wanted index, as well as durable orders and
new home sales, the current narrowing range should break.  An
upside break should be a good opportunity for new shorts, whereas
a downward break will be trickier to play as we wait for a
possible last gasp in the 30 minute cycle upphase.  Either way
will be exciting- a vast improvement over this afternoon's long
dry spell.


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_022504_1.asp


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

Building A Better Mousetrap
by Mark Phillips
mphillips@OptionInvestor.com

Last week I broached the topic of developing an automated trading
system, highlighting some of the challenges inherent to such an
undertaking.  Few of us can resist the siren's song of building or
discovering a trading system that just spits out one winning trade
after another.  Afterall, with program trading taking up a larger
and larger percentage of the total volume on the major exchanges,
it is clear that many funds (both hedge and mutual) are relegating
their trading decisions to programs that reside in the computer.
I'm no different in that regard and with my technical background,
it should come as no surprise that I've dabbled in that arena from
time to time.  Actually that isn't an accurate statement -- I've
spent a lot of time in pursuit of that lofty goal.  While I
wouldn't say that I've found the Holy Grail just yet, I certainly
have learned a lot in the process.

One of the most important lessons I've learned has to do with
human nature.  First off, it's very difficult for us to trust a
system that we haven't built ourselves, where we know every nuance
of its behavior.  Secondly, as the eternal tinkerers that many of
us are (especially us engineers), it is truly challenging to
resist the urge to keep tweaking any given system in hopes of fine
tuning it just a bit more to improve its performance.  There's
nothing wrong with that desire, but there's a fine line between
letting the improving a system and getting in the way of its
performance.

It is this dynamic that drives many of us to seek a viable
automated trading system, as we know that our human frailties get
in the way of rigidly applying any set of trading rules that we
might choose as the basis for the trades we take.  If only we can
take ourselves out of the loop and let the computer make the
decisions based on the inputs and algorithm's we have provided,
perhaps we can avoid the trap of analysis paralysis that so often
compromises our trading performance.  Clearly it is essential that
we have a high degree of confidence in our system before we will
be able to trust the signal that it generates, especially
following a string of losses.

It should go without saying (that's why I'm going to say it
anyways) that before we can even consider embarking on this
adventure, we need a clearly defined and written business plan
that defines the basic parameters of our trading activity.  That
plan should encompass the strategies we'll employ such as what
vehicles we will trade (stocks, bonds, commodities, options,
futures, etc.), what direction we'll trade (long, short, neutral)
and most importantly, what is our money management plan (i.e. how
will we control risk and reward).

For the sake of our discussion here, let's say that we've opted to
trade a basket of 10 stocks that meet a list of criteria that are
contained in our business plan.  Additionally, let's also define
the holding time for our trades to be from 2 days to 2 weeks.
That defines our strategy as that of swing trading individual
equities.  Let's define our initial basket of stocks here as CSCO,
DGX, AMZN, IBM, TEVA, AGN, IGT, DHI, APA and ADI.  There's nothing
magical about any of these stocks.  What we've done is grab a
cross section of the market, representing a variety of sectors and
trading patterns.

This is the first batch of stocks that we'll use to test our
developing trading system and in the design and evaluation process
we'll inevitably find that some of these stocks don't belong in
the list and need to be replaced by others.  Also, even after
we've defined our final list of trading stocks and have a
finalized trading system, we'll find that we occasionally will
need to remove non-performing stocks and replace them with others
that are more conducive to trading through our system.  We want to
build a system that is robust enough to not start spitting out a
string of losing trades when a given stock ceases to move in a
favorable manner.  But if we know from past testing that our
system generates 1-2 trades per month for each of our selected
stocks and that one of our stocks hasn't generated a trade for 3
months, it would be prudent to remove that stock from future
consideration, don't you think?

By definition, any automated trading system will be entirely
technical in nature, since it is very difficult (if not
impossible) to define concrete trading rules on such subjective
things as breaking news and economic data.  Everything in our
system will boil down to price action in our chosen stocks along
with a combination of moving averages, oscillators and whatever
other technical indicators we find are effective in producing
those winning trades.  It sounds like a daunting task, doesn't it?
In reality, it is!  If it wasn't, then everyone would have created
their own automated trading systems and would be sitting on the
beach sipping Mai Tai's while their computer churned away day
after day, growing their accounts.  But it is that very desire
that motivates many of us in this pursuit.

So where do we start?  We've defined our timeframe, strategies and
trading vehicle.  Now 'all' that's left is to start programming
the computer with our list of trading rules, running backtests and
weeding out the wheat (viable trading rules) from the chaff (those
rules that don't work) as we work our way towards the goal of a
set of rules/algorithms that produce an acceptable win/loss and
profit ratio.

That brings up another issue though.  How will we know when we've
reached our goal?  When is the trading system sufficiently well
defined that we can turn it loose to actually generate trade
signals?  Needless to say, we must define those criteria before
proceeding with the design.  Here are the basic parameters I
believe are necessary in order to say we have viable system.

1. The system must perform well both historically (at least for
the past 12 months) and that performance must then translate into
comparable performance going forward.  That means that we must
achieve acceptable performance over the back-testing period and
then it must perform at roughly the same level when we start
feeding it live data and taking the trade signals (on paper) in
real time.  This test insures that we haven't "curve fit" our
system to work only with historical data to the detriment of
future performance.  We're making sure that we have a robust
system.

2. Secondly, we need a system that provides a smooth equity curve.
If we are to have faith in the system once we start following its
trade signals with real money, we need to know what the worst case
draw-down is.  If the system historically never causes an equity
decline in our account of more than 3%, while at the same time
growing by 8-10% on a monthly basis, I would call that a very
workable system.  Another way to define this is if we plotted the
historical account balance over the back-testing period, we should
see a rising trend of higher lows and higher highs.  In other
words, we want to see a bullish trend.

There's one other thing that is essential in this endeavor and
that is a program that is capable of processing the data, being
programmed with our set of trading rules and doing the actual
back-testing, finally spitting out detailed results so that we can
evaluate the performance and make the necessary changes for the
next iteration.  There are a number of programs on the market that
provide this ability, but Trade Station is the industry leader.
Among the other platforms that have sufficient flexibility for
this pursuit, I've also utilized Metastock and eSignal.  I don't
want to get bogged down in the details of which program to use or
how to use it, but for those of you that are interested in
pursuing this project on your own, any of those products should do
the job quite well.

I told you when we started this discussion that there was a lot
involved and that it would take some time to cover everything.
Unfortunately, I've once again used up my space for the day and
must wrap this up until next week.  I think we've covered all the
necessary groundwork for the process ahead and next week we can
start tinkering with the specifics of what works and what doesn't
and then set you loose, building your own mouse traps.

See you next week!

Mark


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The Option Investor Newsletter                Wednesday 02-25-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: PD
Dropped Calls: EBAY
Dropped Puts: None
Spreads, Combinations & Premium-Selling Plays: It's Definitely
    Time For A Bounce!
Watch List: More Three-lettered stocks to watch


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*****************
STOP-LOSS UPDATES
*****************

PD - call
 raise stop from 78.00 to 79.00


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

eBay, Inc. - EBAY - close: 67.20 change: +0.01 stop: 66.50

The play that never was.  EBAY failed to reach its entry trigger
above $70 before reversing course and taking out near-term support
near $67 this morning.  The stock did manage a feeble rebound to
close back over that level, but with our $66.50 stop tripped in
the early going, we have no choice but to drop it.  The stock is
still holding near its recent highs, and we'll keep our eyes
peeled for another opportunity to attempt playing the upside in
the near future.

Picked on February 22nd at   $69.26
Change since picked:          -2.06
Earnings Date               4/21/04 (confirmed)
Average Daily Volume =     6.89 mln



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

None


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

It's Definitely Time For A Bounce!
By Ray Cummins

Stocks rebounded Wednesday as wary investors were lured back into
the market by bullish comments from Federal Reserve Chairman Alan
Greenspan.

The Dow Jones Industrial Average finished up 35 points at 10,601
with the best performance coming from Eastman Kodak (NYSE:EK).
The NASDAQ Composite added 17 points to close at 2,022 with chip,
networking and computer hardware stocks posting some of the best
gains.  The S&P 500 index climbed 4 points to 1,143 as biotech,
electronic manufacturing services, broker/dealer, retail apparel,
utility, industrial, and healthcare issues moved higher.  On the
technology exchange as well as in the broader markets, advancers
roughly doubled decliners.  Total volume was 1.35 billion on the
NYSE and 1.7 billion on the NASDAQ.  In the treasury market, the
10-year note was up 4/32 with its yield falling to 4.01%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 02/24/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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

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

NAKED PUTS

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

IDCC     MAR    20    19.55   25.38    0.45   6.66%    2.30%
LSCP     MAR    17    17.10   24.25    0.40   6.20%    2.34%
PCLN     MAR    22    21.70   21.20   (0.50)  0.00%    3.69% *
AMLN     MAR    20    19.55   21.93    0.45   6.42%    2.30%
ATRX     MAR    22    22.05   26.70    0.45   6.79%    2.04%
BRCM     MAR    37    36.95   40.00    0.55   4.29%    1.49%
IDCC     MAR    22    22.10   25.38    0.40   5.88%    1.81%
OSTK     MAR    20    19.35   26.89    0.65  10.25%    3.36%
NEOL     MAR    17    16.95   20.59    0.55  10.48%    3.24%
RMBS     MAR    30    28.90   31.66    1.10  10.64%    3.81%
SMTC     MAR    22    22.15   24.45    0.35   4.58%    1.58%

The new position in Priceline.com (NASDAQ:PCLN) is a candidate
for "early exit" for conservative traders.


NAKED CALLS

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

AAII     MAR    25    25.40   16.66    0.40   7.47%    1.57%
CMTL     MAR    35    35.45   24.80    0.45   7.46%    1.27%
FLML     MAR    35    35.35   23.43    0.35   6.02%    0.99%
MHS      MAR    35    35.45   32.65    0.45   4.40%    1.27%


PUT-CREDIT SPREADS

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

GS     107.09 104.32   MAR  95 100   0.65  99.35   0.65   Open
MSTR    64.78  57.76   MAR  50  55   0.55  54.45   0.55   Open
MICC    22.06  21.16   MAR  18  19   0.12  18.63   0.12   Open
VIP     83.25  82.20   MAR  70  75   0.65  74.35   0.65   Open

Microstrategy (NASDAQ:MSTR) and Goldman Sachs (NYSE:GS) are on
the "watch" list.


CALL-CREDIT SPREADS

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

MGAM    38.65  39.62   MAR  50  45   0.50  45.50   0.50   Open
UTEK    26.28  24.55   MAR  35  30   0.60  30.60   0.60   Open
AMZN    44.87  42.32   MAR  55  50   0.50  50.50   0.50   Open
CTAS    42.77  43.25   MAR  50  45   0.60  45.60   0.60   Open


Questions & comments on spreads/combos to Contact Support

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

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

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

BULLISH PLAYS - NAKED PUTS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

ADEX - ADE Corporation  $22.02  *** Chip Sector Rally! ***

ADE Corporation (NASDAQ:ADEX) is engaged in the design, building,
marketing and service of production metrology and inspection
systems for the semiconductor wafer, semiconductor device,
magnetic data storage and optics manufacturing industries.  The
company's products have evolved from single instruments used in
offline engineering analysis to full, 100% inline, automated
metrology solutions throughout the wafer, semiconductor device
and hard disk drive manufacturing processes.  Its systems analyze
and report product quality at critical manufacturing process steps,
sort wafers and disks and provide manufacturers with certification
data upon which they rely to manage processes and accept incoming
material.  Semiconductor wafer, device and magnetic data storage
manufacturers use the firm's systems to improve yield and capital
productivity.

ADEX - ADE Corporation  $22.02

PLAY (sell naked put):

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

SELL PUT  MAR 20    QDE OD     74    0.45  19.55   8.2%   2.3% *
SELL PUT  MAR 22.5  QDE OX     32    1.50  21.00  18.4%   7.1%


__________________________________________________________________

ALXN - Alexion  $22.91  *** Drug Speculation! ***

Alexion Pharmaceuticals (NASDAQ:ALXN) develops pharmaceutical
products for the treatment of heart disease, inflammation, cancer
and diseases of the immune system.  The company's two lead product
candidates are genetically altered antibodies that target specific
diseases that arise when the human immune system induces undesired
1inflammation in the human body.  Alexion's product candidates are
designed to block components of the human immune system that cause
undesired inflammation while allowing beneficial components of the
immune system to remain functional.

ALXN - Alexion  $22.91

PLAY (sell naked put):

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

SELL PUT  MAR 20    XQN OD     70    0.30  19.70   6.1%   1.5% *
SELL PUT  MAR 22.5  XQN OX     10    1.05  21.45  14.2%   4.9%


__________________________________________________________________

APPX - American Pharma Partners  $36.10  *** Uptrend Resumes? ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
drug company that develops, manufactures and markets injectable
pharmaceutical products, focusing on the oncology, anti-infective
and critical care markets.  The company is one of the largest
producers of injectables, with more than 130 generic products in
more than 350 dosages and formulations.

APPX - American Pharma Partners  $36.10

PLAY (sell naked put):

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

SELL PUT  MAR 30    AQO OF    1220   0.30  29.70   4.6%   1.0% *
SELL PUT  MAR 35    AQO OG    1643   1.50  33.50  13.4%   4.5%


__________________________________________________________________

ATRX - Atrix Laboratories  $27.04  *** Entry Point? ***

Atrix Laboratories (NASDAQ:ATRX) is a specialty pharmaceutical
company focused on advanced drug delivery.  With five unique
patented technologies, Atrix is currently developing a diverse
portfolio of proprietary products, including oncology, pain
management, and dermatology products.  The firm also partners
with large pharmaceutical and biotechnology companies to apply
its proprietary technologies to new chemical entities or to
extend the patent life of existing products.

ATRX - Atrix Laboratories  $27.04

PLAY (sell naked put):

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

SELL PUT  MAR 22.5  OQF OX     69    0.30  22.20   6.0%   1.4% *
SELL PUT  MAR 25    OQF OE     42    0.90  24.10  12.3%   3.7%


__________________________________________________________________

MRVL - Marvell Technology  $43.13  *** In A Trading Range? ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.

MRVL - Marvell Technology  $43.13

PLAY (sell naked put):

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

SELL PUT  MAR 37.5  UVM OU    1164   0.40  37.10   4.4%   1.1% *
SELL PUT  MAR 40    UVM OH    4010   0.95  39.05   8.3%   2.4%


__________________________________________________________________

NEOL - NeoPharm  $21.10  *** Testing Recent Highs! ***

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.

NEOL - NeoPharm  $21.50

PLAY (sell naked put):

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

SELL PUT  MAR 17.5  UOE OW     219   0.20  17.30   5.2%   1.2% *
SELL PUT  MAR 20    UOE OD      40   0.95  19.05  15.2%   5.0%


__________________________________________________________________

OSTK - Overstock.com  $28.11  *** Mega-Rally Mode! ***

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 - Overstock.com  $28.11

PLAY (sell naked put):

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

SELL PUT  MAR 20    QKT OD     279   0.30  19.70   6.7%   1.5% *
SELL PUT  MAR 22.5  QKT OX     913   0.50  22.00  10.8%   2.3%


__________________________________________________________________

SEPR - Sepracor  $29.53  *** Pure Premium-Selling! ***

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  $29.53

PLAY (sell naked put):

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

SELL PUT  MAR 17.5  ERQ OW     959   0.25  17.25   5.4%   1.4% *
SELL PUT  MAR 20    ERQ OD   10996   0.55  19.45  11.3%   2.8%
SELL PUT  MAR 22.5  ERQ OX    5901   0.90  21.60  17.5%   4.2%



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

BULLISH PLAYS - CREDIT SPREADS

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

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

GDT - Guidant  $69.79  *** A New "Multi-Year" High! ***

Guidant Corporation (NYSE:GDT) pioneers lifesaving technology,
giving an opportunity for a better life today to millions of
cardiac and vascular patients worldwide.  The company, driven by
a strong entrepreneurial culture of more than 11,000 employees,
develops, manufactures and markets a broad array of products and
services that enable less invasive care for some of life's most
threatening medical conditions.

GDT - Guidant  $69.79

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-60.00  GDT-OL  OI=2127  ASK=$0.25
SELL PUT  MAR-65.00  GDT-OM  OI=3154  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$64.40


__________________________________________________________________

MTH - Meritage  $71.09  *** Testing "All-Time" Highs! ***

Meritage (NYSE:MTH) is a designer and builder of single-family
homes in the Sunbelt states of Texas, Arizona, California and
Nevada.  The firm operates in Texas as Legacy Homes, Monterey
Homes and Hammonds Homes; in Arizona as Monterey Homes, Meritage
Homes and Hancock Communities; in Northern California as Meritage
Homes, and in Nevada as Perma-Bilt Homes.  The company is actively
selling homes in over 120 communities, with base prices ranging
from $92,000 to $910,000.  The company is the general contractor
for projects and typically hires subcontractors to complete the
construction at a fixed price.  The company usually enters into
agreements with subcontractors and materials suppliers after
receiving competitive bids on an individual basis.

MTH - Meritage  $71.09

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-60.00  MTH-OL  OI=333  ASK=$0.30
SELL PUT  MAR-65.00  MTH-OM  OI=84   BID=$0.70
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$64.55



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

CECO - Career Education  $48.80  *** Profit-Taking Underway! ***

Career Education Corporation (NASDAQ:CECO)) is the world's largest
on-campus provider of private, for-profit postsecondary education
and has a rapidly growing presence in online education.  CEC's
Colleges, Schools and Universities Group operates 51 campuses in
the U.S., Canada, France, the United Kingdom and the United Arab
Emirates and offers master's degree, bachelor's degree, associate
degree and diploma programs in the career-oriented disciplines of
visual communication & design technologies, information technology,
business studies, culinary arts and health education.  The Online
Education Group's AIU Online Division offers master's degree,
bachelor's degree and associate degree programs in information
technology, business administration, visual communication and
education.

CECO - Career Education  $48.80

PLAY (sell naked call):

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

SELL CALL  MAR 55    CUY CK    1422   0.50  55.50   4.8%   0.9% *
SELL CALL  MAR 50    CUY CJ    1491   1.80  51.80  11.8%   3.5%


__________________________________________________________________

ECLG - eCollege.com  $19.08  *** E-Learning Sector Slump? ***

eCollege.com (NASDAQ:ECLG) is a provider of technology, products
and services that enable colleges, universities, primary and high
schools, grade schools and corporations to offer online classes
for distance, on-campus and hybrid learning.  The firm's unique
technology enables it's customers to reach students who wish to
take courses at convenient times and locations via the Internet.
Its customers can also use its technology to supplement on-campus
courses with an online environment.  In addition, the company
offers services to assist in the development of online programs,
including online course and campus design, development, management
and hosting as well as ongoing administration, faculty and student
support.

ECLG - eCollege.com  $19.08

PLAY (sell naked call):

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

SELL CALL  MAR 22.5  EGU CX     137   0.35  22.85  10.1%   1.5% *
SELL CALL  MAR 20    EGU CD     243   0.90  20.90  15.6%   4.3%


__________________________________________________________________

ESI - Itt Educational Services  $38.50  *** Subpoenaes Served! ***

ITT Educational Services (NASDAQ:ESI) is a provider of technology
oriented postsecondary degree programs in the United States.  The
company offers associate, bachelor and master degree programs and
non-degree diploma programs to more than 33,000 students.  The
company has 74 institutes located in 28 states and each of its
institutes is authorized by the applicable education authorities
of the states in which they operate and recruit, and accredited
by an accrediting commission recognized by the United States DOE.
The company currently offers a variety of degree programs as well
as several diploma programs in various fields of study.  All of
its institutes offer degree or diploma programs for information
technology and electronics, and the majority of institutes offer
a degree or diploma program involving design.

ESI - Itt Educational Services  $38.50

PLAY (sell naked call):

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

SELL CALL  MAR 50    ESI CJ      0    0.30  50.30   5.0%   0.6% *
SELL CALL  MAR 45    ESI CI     15    1.20  46.20  15.7%   2.6%



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

BEARISH PLAYS - CREDIT SPREADS

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

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

CCU - Clear Channel Comm.  $43.44  *** Mediocre Outlook? ***

Clear Channel Communications (NYSE:CCU) is a diversified media
company with three business segments, radio broadcasting, outdoor
advertising and live entertainment.  The firm owns, programs or
sells airtime for over 1,000 domestic radio stations as well as
international radio stations and its own national radio network.
In addition, the company has equity interests in various domestic
and international radio broadcasting companies.  The company is
also an outdoor advertising company and a diversified promoter,
producer and venue operator for live entertainment events, owning
or operating a large number of live entertainment venues.

CCU - Clear Channel Comm.  $43.44

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-50.00  CCU-CJ  OI=2451  ASK=$0.05
SELL CALL  MAR-45.00  CCU-CI  OI=9802  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$45.60


__________________________________________________________________

ICOS - ICOS Corporation  $37.53  *** Next Leg Down? ***

ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products
with significant commercial potential by combining its unique
capabilities in molecular, cellular and structural biology,
high-throughput drug screening, medicinal chemistry and gene
expression profiling. The firm applies its integrated approach
to erectile dysfunction and other urologic disorders, sepsis,
pulmonary arterial hypertension and cardiovascular diseases, as
well as inflammatory diseases. The company has established
collaborations with pharmaceutical and biotechnology companies
to enhance its internal development capabilities and to offset
a substantial portion of the financial risk of developing its
product candidates.

ICOS - ICOS Corporation  $37.53

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-45.00  IIQ-CI  OI=1148  ASK=$0.15
SELL CALL  MAR-40.00  IIQ-CH  OI=1112  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$40.50



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

SEE DISCLAIMER - SECTION 1

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


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

More Three-lettered stocks to watch
___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


Pulte Homes - PHM - close: 47.05 change: +0.59

WHAT TO WATCH:  After trading negative most of the session the
DJUSHB home builders index finally close in the green on
Wednesday.  With it was a strong bounce by PHM.  We like PHM
because shares broke through its descending trend of lower highs
two weeks ago along with resistance at its 50-dma and the $45.00
level.  Now the stock has been able to consolidate sideways
between 47.50 and 45.00.  Traders can choose to buy the bounce
from $45.00 today or wait for the breakout over $47.50.

Chart=


---

Eaton Corp - ETN - close: 59.70 change: +0.69

WHAT TO WATCH:  There doesn't appear to be any post-split
depression for ETN yet.  The stock split 2-for-1 yesterday and
the stock is holding up above technical support at its 40-dma.
This actually looks like a potential entry point for bulls but
ETN still has resistance at the $62.00 level.  Aggressive traders
may want to go long now with a tight stop.  The rest of us can
probably wait for a breakout over $62.00.

Chart=


---

Caterpillar - CAT - close: 77.18 change: +0.48

WHAT TO WATCH:  Shares of CAT are at an inflection point.  The
stock had been building what looked like a bear flag
consolidation pattern.  What appeared to be a breakdown from that
pattern has stalled while the Dow Industrials, of which CAT is a
component, is trying to bounce.  If the Industrials do bounce
then we can probably expect CAT to trade back toward resistance
at $80.00. If not, then bears should be watching for a breakdown
of CAT's new short-term trading range between $76 and $78.  We
would target the 200-dma near $70.

Chart=


---

United Technologies - UTX - close: 92.30 change: +0.47

WHAT TO WATCH:  After three days of steady declines UTX bounced
from the $90.00 region on Tuesday afternoon and pierced the
bottom of its recent trading range.  That bounce continued today
but the stock began to roll over again in the afternoon.  The
declines began due to a Pentagon decision to eliminate the $38
billion Comanche helicopter program of which UTX and BA were the
main contractors for.  UTX came out later and said there would be
no material effect on their earnings but still investors sold the
stock.  UTX's point-and-figure chart looks very bearish with a
new sell signal pointing to an $84 price target. We would watch
for a breakdown under the $90.00 mark.

Chart=



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

TROW $51.22 +0.36 - TRO W has been in a sideways trading range
since mid-January with shares oscillating between $50 and $54.
Aggressive traders may want to buy the most recent bounce from
$50 given rising support at its 50-dma.

TTC $53.80 +1.25 - Toro Co, the maker of lawncare equipment, is
extending its gains after yesterday's earnings blow out.  Volume
has been strong and the breakout looks tempting but we'd wait for
a pull back.

BZH $100.05 +0.35 - Another homebuilder, BZH also bounced from
its 50-dma and looks ready for another leg higher.  Volume was
decent at 583K for the session.  Use a tight stop under today's
low.


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with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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