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Daily Newsletter, Sunday, 02/29/2004

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The Option Investor Newsletter                   Sunday 02-29-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Battle Lines Drawn
Futures Market: CRB Rallies
Index Trader Wrap: A MIXED MARKET
Editor's Plays: Bubblemania
Market Sentiment: Is it over yet?
Ask the Analyst: It's head and shoulders above them all
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 02-27        WE 02-20        WE 02-13        WE 02-06
DOW    10583.92 - 35.11 10619.0 -  8.82 10627.8 + 34.82 +104.96
Nasdaq  2029.82 -  8.11 2037.93 - 15.63 2053.56 - 10.45 -  2.14
S&P-100  564.54 -  0.33  564.87 -  1.05  565.92 -  0.14 +  5.75
S&P-500 1144.95 +  0.84 1144.11 -  1.70 1145.81 +  3.05 + 11.63
W5000  11172.92 + 29.34 11143.6 - 30.42 11174.0 + 44.60 +100.20
RUT      585.56 +  5.67  579.89 -  5.25  585.14 +  1.07 +  3.31
SOX      502.26 -  7.99  510.25 -  0.80  511.05 -  8.30 +  5.43
TRAN    2902.19 + 10.01 2892.18 - 24.38 2916.56 + 22.20 +  8.40
VIX       14.57 -  1.47   16.04 +  0.46   15.58 -  0.41 -  0.64
VXO       14.76 -  1.49   16.25 +  0.62   15.63 -  0.35 -  1.07
VXN       22.87 -  1.25   24.12 -  0.02   24.14 -  0.49 -  0.43
TRIN       1.26            1.29            1.19            0.62
Put/Call   0.73            0.86            0.76            0.62
******************************************************************

Battle Lines Drawn
by Jim Brown

The Dow changed sides from offense to defense several times on
Friday with several strong moves in each direction but the end
result was a +3 point gain and a close at almost exactly the
same level that it started the week. The battle line continues
to be 10600 and the Dow crossed that line six times on Friday.
The Nasdaq rallied to 2045 before failing just below the 50ma
resistance at 2050 and closed near the top of the weekly range.
These indexes are fighting a perfect consolidation battle and
the battle lines did not change all week.

Dow Charts - Daily


Wilshire-5000 Chart - Daily


Nasdaq Chart - Converging Support/Resistance



Friday was a busy day for economic reports and it was a grand
slam for the bulls. The GDP revision led the day off with a
upward revision instead of a reduction in the Q4 estimates.
The Q4 GDP estimate rose to +4.1% and well over the +3.6%
estimates. This was a very positive revision with exports
up +21% and business investment up +9.6%. Inventories rose
for the first time in three quarters with a $14.9B gain. The
inflation pressures appeared to have eased with the PCE Price
Index up only +0.7% while the purchase price index rose at a
+1.1% rate. This was a strong revision for the GDP and it
caught everyone by surprise.

Also beating consensus estimates was the Chicago PMI at 63.6.
This was down slightly from January's 65.9 which was a nine
year high. An easing of the index had been expected from that
high. The component with the biggest surprise was the jobs
numbers with employment rising to 54.8 and the highest level
in five years. This was also the first time over 50 since
August 2003. Inventories rose to 46.5 from 37.4. All the
other components eased only slightly off the January highs.
Again, this was also a very strong report and a confirmation
of the recovery in progress.

The NY-NAPM broke out to a new high at 267.2. This is the
highest level since Sept-2001 and has now posted gains for
six consecutive months. The business conditions index has
jumped +17.6% since November and suggests business is
booming in the New York area. The financial services sector
in NY reported bonuses were +20% higher than the prior year
and the state comptroller said they were going to receive
an extra $57 million in taxes from these bonuses that they
had not expected. A little bull market never hurt anybody.

Rounding out the economic menu for Friday was the revised
Consumer Sentiment, which rose slightly from the advance
level. The sentiment rose to 94.4 and over consensus
estimates of 94.0 but this was down significantly from the
January number at 103.8. Traders were relieved it was
revised up instead of down given the fall in the various
other sentiment/confidence indicators over the last two
weeks. The preliminary February reading was only 93.1 so
the gain was appreciated.

The Dow displayed multiple personalities on Friday with a
sprint out of the gate to 10650 and a +60 point gain. This
lasted about 90 minutes before a serious sell program sent
the index to the lows of the day at 10563. This nearly
-90 point drop from the highs took less than 30 min and
left everyone in a state of uneasiness. After about an
hour at the lows the bargain hunters bought the dip and
took us back to 10633 for a +70 point rebound. Unfortunately
the gains did not hold and an end of day bout of profit
taking knocked it back under 10600 to end the day with only
a +3 point gain. Four major moves and a 90 point range and
we ended with only a +3 point gain. This is typical
consolidation type activity and it is more prevalent toward
the end of the consolidation period. This shows the sellers
are still lurking overhead but the buyers are becoming
stronger to be able to test the upper boundary of the
range.

The 50ma moved up to 10513 and remains the first level of
real support. Initial horizontal support is currently 10575
and 10550. These are very narrow ranges and they are rising
slowly. Nothing here rules out another retest of the lower
support but despite the flat close the overall bullishness
is increasing. If you look at the difference in the Wilshire
chart and the Dow chart at the top of this article you will
see a definite uptick in the Wilshire that is not seen in
the Dow. This is purely the impact of UTX, BA, MMM and GE
for the week that gave the impression of more market
weakness than really existed. Compare the charts, you will
be surprised.

The Nasdaq rallied back to the highs of the week at 2045
on the opening bounce and fought valiantly to hold its
gains. Unfortunately the morning sell program was tech
weighted and the damage was severe. The Nasdaq was knocked
for a -25 point intraday loss and back to 2018 before the
recovery began. The Nasdaq struggled back to close -3
for the day but remained at the high end of the weekly
range. This was the sixth week of losses for the Nasdaq
but I am betting the string ends here. We have seen four
straight days of uptrend on this index and we are starting
to see articles on positive April earnings expectations.
Nasdaq 2000 remains strong support and the 100ma has risen
to 1991. This makes the 1990-2000 level even more formidable
as support. The Nasdaq chart today was very exciting to
annotate. (You can tell I have no life) The converging
support and resistance lines are predicting an explosive
move very soon.

The strongest index for the day actually started off as
the weaker index. The Russell lagged the big cap indexes
until after the morning sell off then led the charge back
from the depths. The Russell closed up +1.70 at 585 and
at the high for the week. This is a very strong showing
especially when the SOX lost -7.58 (-1.48%). This is major
divergence and the Russell close at 585 is only a little
more than -10 points from the February highs. The Russell
is well over its 50ma and now over the 10ma which had been
near term resistance. Were it not for the SOX I would
advocate buying the Russell at the open on Monday.

Russell-2000 Chart - Daily



The SOX was the weakest index on Friday and contrary to
the other indexes it closed near its lows. This is very
disconcerting to me and I could not really find any
specific reason. Considering the SOX was up nearly +5%
from its Monday's lows it could have been simply profit
taking. Next Thursday Intel will provide its mid quarter
update and expectations are for some improved guidance
based on comments from Intel execs over the last couple
weeks. This makes it even more puzzling why the chip
stocks should sell off on Friday. Intel is expected to
affirm its higher capex spending and that should help
the chip equipment makers. Also, considering Monday and
Tuesday are normally bullish from month end cash inflows
there could be even more reason to buy Friday's dip. I
am still unconvinced and will want to see upward motion
before taking the positions.

SOX Index Chart - Daily



Helping techs on Friday was news from IDC that SUNW was
seeing gains in its sector and had seen +21% server
growth from the previous year. According to IDC SUNW
gained +15.5% in units and +3.1% in market share.
Marvel announced a profit in the 4Q compared to a prior
loss and announced a 2:1 split. The stock gained +7%
for the day. Oracle continued to fall as comments about
suing the Justice Dept on the PSFT acquisition continued
to surface. They also extended the tender offer period
in light of the Justice delay. Come on Larry, rein in
that ego and go sailing or something. The lawyers don't
need your money. Rounding out the stock news Autodesk
jumped +11% on much stronger than expected earnings and
raised guidance. ADSK jumped nearly +3 to $29.

UTX finally posted a winning day with a +2.23 gain after
a week of heavy losses. UTX used the 100ma at 89.25 as
a springboard to launch the rebound. Bargain hunters
were waiting with money in hand for that level to be
hit. Dow component CAT offset the gains in UTX with
a -2.20 drop (-16 Dow points) after announcing an
acquisition.

Mutual funds are continuing to see massive inflows of
cash according to ICI. In January stock funds had $43.7B
in cash inflows despite the continuing fund scandals.
This was the third highest monthly inflow since records
have been kept. The highest was $55B in Feb-2000 and
right at the top in the market. In the last week alone
nearly $3B flowed into stock funds. There is currently
over $4 trillion invested in stock funds.

The calendar next week starts out with a killer on Monday
morning. The ISM for February is expected to drop slightly
to 62.0 from the 63.6 two year high in January. This is
the key report for the beginning of the week and is the
key indicator of the current economy. This will help
confirm the recovery is still on track and help quiet
some of the concerns from several weak reports recently.
The middle of the week has several reports that will be
watched but are not really critical including the ISM
Services, Beige Book, Productivity and Factory Orders.
The Beige Book would be my pick for the most critical
of that bunch and it comes out on Wednesday.

The next biggest report for the week is the Employment
Report for February that comes out on Friday. Currently
the estimates are for a gain of +128,000 jobs but nobody
knows where those jobs are coming from. The Employment
report is done by survey in the week which contains
the 12th of the month. (Wonder who figured that out?)
The Jobless Claims for that week in February were -344K
and the prior week was -368K. This suggests we were not
seeing a booming job market when the survey was taken.
We will get a lot more in the way of analysis as the
report draws near but I would suspect we could see some
caution in the market as the week winds down.

I am still in buy the dip mode and when the markets
exploded out of the gate on Friday I thought maybe I
had been too patient trying to wait for some stocks to
come to me. This is where I have really mixed emotions.
I want to see the market ease back to its highs but I
would really like to see the Dow hit the 50ma first.
The longer we go without a cursory touch the more
likely the gains will be muted. We are still in a
consolidation mode but the increased volatility
suggests we could see another breakout attempt soon.
That attempt could still be in either direction.

For Monday I expect the ISM to be positive. From the
lack of a material rally into the month end I may be
the only one on the planet that feels that way. This
is good in a way as it means the expectations are not
already baked into the cake. A good ISM on Monday along
with some decent month end cash flows into funds could
help provide a boost to the first three days of the
week. The Intel update on Thursday should provide a
little advance worry and weakness but a positive
update Thursday night and a neutral to positive Jobs
report on Friday could produce a relief rally to close
the week. Obviously, there is a lot of speculation in
this paragraph but that is the way I see it today.
Check back with me on Tuesday night and see if the
picture changed.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

CRB Rallies
Jonathan Levinson

The US Dollar Index declined as the CRB rallied to new
multidecade highs.  Gold and treasuries advanced and equities
were mixed.  The daily downphase in ES, YM and NQ were slowed by
an early bounce off bear wedge breaks on ES and NQ in a wide-
ranging session that finished very close to where it opened.


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 jumped overnight and then fell for the
duration of Friday's session, bouncing from a low above 87.20 to
settle in the 87.30 area.  The upphase we've been following on
the daily USD futures remains intact, as does the apparently
corrective uptrend off the low, with Friday's action causing only
a slight twitch on the daily Macd.  Commodities advanced again,
with the CRB adding 1.35 to close at 274.73 on strength in
platinum, heating and crude oil (closed above 36), breaking above
yesterday's 20 year high.


Daily chart of April gold


April gold bounced to a high of 398.50 Friday but former support
acted as resistance.  Gold settled back to close higher by 1.10
at 396.70.  The daily candle gave us a higher low and higher
high, confirming the bullish hammer from Thursday as a potential
reversal of the recent downtrend, but so long as the oscillator
downphase continues, goldbugs have only hope and 388-90 support
on which to base their hopes.   For the day, HUI added .78% to
close at 224.81, and XAU rose .70% to close at 99.76.


Daily chart of the ten year note yield


Ten year treasuries had a stellar day, with ten year note yields
(TNX) breaking below both price confluence and trendline support
at 4% to close lower by 6.2 bps at 3.98%, a 1.53% decline for the
day.  The bullish signals on the daily cycle oscillators failed,
and next support is at 3.92%.  Playing a bounce (shorting ten
year treasury bonds) at that level looks as obvious to me as it
did in January, which makes wary.  The technical cause for
concern is that the whole formation for the past 6 months could
be a descending triangle, which would mandate a break of 3.92%
eventually.  On a fundamental basis, it's difficult to imagine
10-yr rates below 3.9%, but the chart pattern forces us to
consider the possibility.


Daily NQ candles


The NQ assumed a downside leadership role on Friday, replacing
the YM which had been the weaker of its peers during previous
sessions.  For day, NQ lost 3.50 to close at 1472, a .24%
decline.  The higher high and equal low did not impact either the
current downleg or the daily cycle downphase, but it did reaffirm
the broken support line at 1482.  Support remains 1440-1444,
followed by 1460.  Resistance is at 1482, 1486.50 (Friday's high)
and 1492.


30 minute 20 day chart of the NQ


The NQ broke decisively lower from its bear wedge and once again
put in an early 30 minute cycle bottom.  The lower Bollinger band
support was violated, and that was the clearest warning sign for
bears that the move would not deliver to its fullest.
Nevertheless, the pattern of higher oscillator lows was broken,
and the afternoon bounce was insufficient to regain the apex of
the wedge.  So long as the daily cycle downphase continues, bulls
should be wary of buying anything but sharp dips, while bears can
continue to short spikes.  But overall, the persistence of
support is making it look like the current daily cycle downphase
(previous chart) won't be delivering more than a move to the 1440
area.


Daily ES candles


The ES added 2 to close at 1145.25, the strongest of the equity
contracts.  The high printed at 1152, within the 1151-1153 I've
been discussing here.  The low was fractionally higher at
1140.50, and the slightly positive Macd twitch I mentioned on
Thursday is now a slight positive stochastic twitch as well.  The
upper regression channel line continues to provide support, and
the downward price trend isn't looking nearly as promising as it
did even on Thursday.  If that upper regression line doesn't
break on Monday, bears are going to be left holding a damaged
daily cycle downphase from a higher price and oscillator low.


20 day 30 minute chart of the ES


The afternoon bounce off the wedge breakout on the 30 minute
chart penetrated back into the apex but failed at the upper
resistance line, breaking back below at the cash close.  As on
the NQ, the 30 minute cycle trend of higher oscillator lows was
broken, but not with the same authority.  So long as the daily
cycle remains down, then we should be seeing the reverse here-
lower 30 minute cycle highs instead of higher lows.  Resistance
at 1151-53 is key before a move to the 1158-60 area, and the
daily cycle downphase is in danger of aborting.  1134 remains the
bear wedge target, but so far the ES bulls show no sign of
allowing even a return, let alone a test of that level.


150-tick ES


A short cycle downphase commenced in the final hour of trading on
Friday, and delivered most of its punch by the close.  Direction
is almost perfectly up for grabs here for Monday morning.  Look
for support at 1142 and resistance at 1146.50, followed by 1148.


Daily YM candles


YM closed at 10584, an 11 point gain.  It remains weaker than ES
on a cycle basis, but a higher low and higher high printed
Friday, and like the ES, another positive day could brighten the
picture considerably.  Resistance is at 10604, 10625 and 10650.
Support is at 10570, 10550 and 10530.


20 day 30 minute chart of the YM


The bear wedge on ES and NQ is a rough flag formation on YM, and
the pattern of higher 30 minute cycle lows did not get violated
on Friday.  An interesting divergence, but as can be seen on the
daily chart, YM continues to trade in lockstep with ES.


The US Dollar Index declined Friday and commodities, which had
moved higher all week against a rising dollar, advanced again.
Equities remain decoupled from the move in the dollar and have
been so for the first week I can remember in many months.
Treasuries advanced against the weak dollar, which conforms to
the pattern we've come to expect.  Only equities and commodities
have diverged, both bullishly so.  Traders should continue to
wait for a reliable pattern to emerge here and stay focused on
their individual charts in the meantime.  With commodities at 20+
year highs and equities not falling on a rising dollar, it's
possible to imagine a secondary rally kicking off as foreigners
chase what they hope to be a currency appreciation in the beaten
dollar.  I don't expect that to occur, but we've learned to keep
an open mind to all possibilities.


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

A MIXED MARKET
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
The market is more mixed than is suggested by the fact that the
Dow Jones has now been up for 3 straight months. If we judge the
market by what many individual investors and traders look at, the
Nasdaq market, the market has been falling significantly from its
January peak.

At best right now I see the Dow going sideways, the S&P 100 and
500 drifting moderately lower and the Nasdaq being vulnerable to
falling another 100 points (from recent lows around 2000) to
perhaps the 1900 area in terms of the Composite.

This mixed picture will likely continue until there is pick up in
the creation of new jobs as this would mark a substantial pick up
in the pace of the economic expansion from what has seen so far
in this recovery.

FRIDAY'S TRADING ACTIVITY –
Friday was a bit rough unless you like a choppy sea.  The
positive spin on things that buoyed the blue chip averages was
set by economic reports, especially the Gross Domestic Product
figure or GDP, which came in at a better than expected 4.1%
figure, well under the 8.2% growth reported for Q4 of course, but
expectations are always what drives the market that day.

The ever-popular game of figuring the consumer penchant for
spending, got a bullish spin with the University of Michigan's
latest tealeaf survey.  The U of M consumer sentiment index ran
up to 93.5 in late-February from 93.1 from earlier this month.
Of course, the bearish pundits could point to the fact that all
this is WELL under the 103.8 number reported in January.

Throw in any indication of a pick up in the beleagured
manufacturing sector and Friday was bound to have more of a
positive tone than negative.  The Chicago Purchasing Managers
Index, one of those that get looked at, was reported at 63.5
percent versus 65.9% in January - that figure was a multiyear
high.  The key thing is that readings over 50 are defined as
marking economic expansion.

The Dow at 10,583 was down about 1% on the week, but up slightly
on the month.  The S&P 500 Index (SPX) was roughly unchanged on
the day at 1145.  The Nasdaq was down about 3 points Friday,
putting it down only one tenth of one percent on the week with
its close at 2029 but this also puts this segment of the market
down some 6 weeks straight.

Pulling down the Nasdaq was the semiconductor sector as per
usual, with a still-anemic earnings picture gleaned from a
forecast from one chip stock (Novellus) and an under-expectations
quarterly revenue figure from another (Altera).

OTHER MARKETS -

The dollar turned down based on trader expectations that the U.S.
Administration will not try to stem the generally falling
greenback.  This led the Euro to close in New York trading at
1.248 - however, this figure while quite strong in terms of the
past two years, but which can also be seen as a fall off from the
highs in the 1.29 area earlier in the month. Of course, profits
are tempting to take if you have been a Euro bull, a dollar bear.

The bond market benefited from the still-pervasive perceptions
among bond holders that U.S. inflation will continue to be low.
It was noteworthy for the 10-year Treasury bond to close up
nearly half a point to yield only 3.98%, with 4% being a
benchmark figure.  This yield marked its lowest for recent weeks.

MY INDEX OUTLOOKS –

S&P 100 Index (OEX) – Daily chart:

The pattern that is noticable in the S&P 100 (OEX) trading is the
upward sloping lines connecting the relative highs and lows of
last trading.

A next move looks lower to me than what was seen recently.  I
think a good likelihood is for a downswing ahead that carries
back to the support suggested in the area of the dashed green
line around 558 - which is also near the intersection of the 50-
day moving average currently.  The 50-day average being a measure
of possible support and buying interest also.  R notes the
current "line" of resistance.




My trading playbook with the OEX is to continue to hold puts,
looking for at least one move to the bottom of my expected near-
term trading range as suggested by the upper and lower (dashed)
level lines I've put in on the chart above.

It would take a close above 572 to cause me to exit being short
(long puts) in this market.

As measured by the 14-day stochastic, this market has declining
momentum and not yet what could be said was an "oversold"
condition.

OEX – Hourly:

It becomes even clearer on the Hourly chart of OEX where the
conflicting trends are overlapping.  An uptrend is defined as
succeeding series of higher (new) highs and, after the market
drops back, lows that stop above the prior low of significance.

By that definition and as measured by this period we are looking
at on the hourly chart, the OEX remains in an uptrend until there
is a lower low or to below the point of its last low around 561.
If there is an hourly low under 561, the short-term trend turns
down.




What looks increasingly likely to me is a decline in OEX to the
lower end of a downtrend channel that may be emerging.  Down
toward what is marked as the support area: 560 - 558.

The resistance zone at 570-572 becomes clearer (as to where it
is) by use of the hourly chart and is noted on the chart.

The two stochastic model pairs I use, mostly on hourly charts, is
where "length" is set to 21 for the slower moving one and just at
5 for the faster moving one which is the topmost.

When each lines up above the red overbought line or drops to the
green oversold line, the direction of prices has often reversed
and that counter-trend has continued for a duration of 3-10
trading sessions. On this basis, price momentum ought to be on
balance lower for the next 2-3 days or over the course of the
coming week.

Dow Industrials (INDU) Daily & Hourly (DJ Index-DJX):

The Dow presents a picture of blue chips fairly valued in the
opinion of money managers - bids were not aggressive any longer
on the drive above 10700.  ON the other hand, as we were seeing
last week, there is underlying support or buying that is coming
in when the market falls.




However, it also seems that given the broken hourly uptrend, a
downside objective for the Dow Index is to around 104.60, as
marked by the "X" on the right hand hourly chart above. This area
between 104.50 and 105.0 is where the best buying interest will
likely surface again unless there is big new perceived negative,
like a poor job growth number or some other such shock.

The Dow has a tendency more than the other indices to go into a
relatively narrow trading range after the kind of strong advance
seen in Dec.-Jan.  Level lines through the lows and highs makes a
rectangular pattern often.  The significance of it then lies in
which direction prices take after its sideways crawl: above or
below the lines forming the "box". In which case trade in the
direction of this breakout type move.

Nasdaq Composite (COMP) Index  – Daily & Hourly:

While the trend may be more sideways in the S&P segment of the
market, it's clearly down over the past two months as measured by
the Nasdaq Composite index.

The pattern of a sharp selloff after the last advance to the 2100
area, well under the 2150 peak, has made for a bearish looking
chart.  The break of the 50-day average does so also.




The key now for the bulls is whether there is a close above 2150-
2160. I think the bears will be in charge for a while longer and
there will be at least one decline to 1900-1925 area.

Nasdaq Composite (COMP) Index  – Daily:

Another way to see how the trend in the COMPX has gone since its
intermediate rally peak in January is to look at price action
within a moving average envelope.  The center moving average
(magenta line) is 21-days.

When this index gets well above this closing average to the
extent that is 5-6% higher (red upper line in the chart below), a
reversal of trend often follows.

Use of the Moving Average Envelope Indicator was discussed in my
last week's Trader's Corner column, at -
http://www.OptionInvestor.com/traderscorner/tc_022604_2.asp





If subsequent rallies start to fail in the area of the moving
average, I first look for at least a move to the lower envelope
line (set at 3 and half percent under).  The percent figure will
change over time, but slowly.

What frequently happens in situations like what is being
suggested by the Moving Average Envelope study above, is that
prices continue to fall, but not steeply - this causes the fall
to seemingly "hug" the line.  Over time I look for a decline,
possibly to as low as the 1900 area, the region where the last
major rally began.

Nasdaq 100 tracking Stock (AMEX:QQQ)– Daily:

Last week's price action in QQQ took the stock to below its daily
uptrend price channel as is outlined below.  What was the lower
"support" trendline now may mark the opposite - an area of
selling interest/resistance.

This view suggests that key resistance is at 37 currently. As
long as the Q's stay under 37, I assess downside potential to be
35-35.50.




The noteworthy thing about the volume trend here is how it jumped
on the struggling rally attempts of last week.  This jump in
trading volume suggests active liquidation.  If there will still
a solid uptrend going on, we would expect to see these kinds of
volume spikes when the market was rallying strongly.

Nasdaq 100 tracking Stock (AMEX:QQQ)– Hourly:

The hourly chart below presents what I think is the bearish
downtrend channel that QQQ may continue in for the next week or
so.  The lower end of this channel intersects currently in the
35.5-35 area which is my downside objective for short positions
in the stock.  Conversely and in terms of my short exit point,
that is at the upper boundary as noted by the red arrow.




My current stop or exit point for short positions is at 37.7.  If
there is fall to the 36 area, lower to 37.1.  Take profits at or
under 35.5, if reached.

Good Trading Success!


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

Bubblemania

I do not understand the current bounce in Genentech stock.
DNA was trading at $36 when the first talk of an approval
of their cancer drug was first discussed in May. This
gave them a market cap of $18B. The resulting approval
fever pushed them steadily upward to $95 as the short
interest grew. At $95 they had gained +$30 billion in
market cap for a drug that had not yet been approved.

The spike on the approval from $95 to $110 added nearly
another $10 billion to the cap and pushed it to $57B.
+$40 billion in additional market cap on the approval
of a drug that has been expected for nearly a year. If
they made $1 billion a year in pure profit it would
take decades to justify the jump.

Let's review the facts. The drug, Avastin, has been
shown to increase the lifespan of colorectal cancer
patients by five months. The drug is VERY expensive
and runs about $44,000 per patient. Obviously not
everyone is going to rush to the doctor and beg for
the drug until the insurance companies decide if they
are going to pay or not. What is five more months of
life worth if you know you are already terminal? I
doubt anyone can put a price on that until it happens
to them but without insurance companies footing the
bill it would be a mute question for most people.

Analysts are predicting Avastin to become a blockbuster
drug with global sales of $1.6-$1.8 billion by 2008.
The generous consensus for this year is $300 million.
Even Genetech management continues to stress restraint
in terms of revenue and profit for the next couple of
years.

The hope is that it will eventually be prescribed for
other cancers like breast and lung cancer. The company
stresses that several years of testing will be needed
before any benefit can be determined.

DNA suggested that earnings "might" increase by 20%
once the drug is accepted and in general circulation.
At current prices that puts DNA at something in the
range of 90-100 PE based on forward earnings. Pretty
steep but what is an eventual cure for cancer worth?
Even if it does migrate into other cancer applications
it could be 2007-2008 before DNA sees any benefit from
the sales.

Considering that the stock has gone from $36 to $110
in a year it would appear that we have a very overpriced
stock in the SHORT TERM. I have no argument that DNA
could move higher eventually as they do have some more
drugs in the pipeline over the next several years. I
only suggest that the short covering has gotten out of
hand and DNA may need to rest before going higher.

The official short interest is only about 5% of the
float but that 5% has been really hammered over the
last two days. Volume on Friday was 14 million shares
and the YTD average is 2.5 million per day. Assuming
the same number on Thursday that is 28 million shares
and I would bet the majority of those were traded
several times a day. Why? Because 61% of the shares
outstanding are held by insiders. I doubt they could
sell them on the spur of the moment due to reporting
guidelines. That is 319 million shares. According to
Multex 42.39% are owned by institutions. That is 221.8
million shares. (I know the numbers don't add up but
bear with me.)The total of the insiders and
institutional ownership shows to be 540 million shares
and there are only 523 million outstanding. Obviously
there has been some changes to the holdings that have
not made the record books yet. The bottom line? There
are very few shares available to trade. Thus the
monster short squeeze.

This is where we come in. If you were an institution
and your $36 stock was suddenly trading for $110 the
odds are very good you would do the math then take
your money and run. Insiders are probably scrambling
to unload shares as soon as possible as well.

We have had two days of craziness and everyone who
was short got killed and everybody that wanted to
day trade it has gotten their chance. The decision
by institutions to sell was probably made on Friday
and the orders will start going out on Monday. That
will be five days after the announcement and everyone
will have had a chance to cool off. I would also bet
there will be a huge amount of new interest in shorting
the stock once the slightest weakness is seen.

Granted, with very little stock in the real float
there is still a chance for another spike but I am
counting on the excitement being over soon.

I am looking for a swift drop to something under $100
and a quick exit. Because of the volatility involved
and the high prices I am going to use March options.
If you are uncomfortable with the short fuse then
drop down a strike and play Aprils.

Buy March-$105 PUT DNA-OA closing price $2.40
or
Buy April-$100 PUT DNA-PT closing price $2.35

Obviously the prices are the same but you lose $5
in the strike and gain four weeks in time. It is
your call.

I would maintain a 50% stop loss on the options and
I would look for one last bounce on Monday morning
to enter your position. If no bounce then bite the
bullet and go for it.

I mentioned this play in my wrap on Thursday night
and in the Monitor on Friday and some readers emailed
me they got in at $109 on Friday. Good job! There is
still plenty of profit left for the rest of us but
congratulations are still in order.

I am not going to set a target on this below $100
but let your conscience be your guide. If we do get
a steady decline there is no reason to bail but once
we hit $100 I would set a stop to lock in a nice
profit. A patient trader might target a touch of the
50dma for an exit.

If disaster strikes and DNA moves over $110 I would
abandon the plan until weakness appears and I would
bet it is only a matter of time.

DNA Chart




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

Is it over yet?
- J. Brown

The month of February finally comes to a close as the broader
indices struggle with another week of consolidation above
support.  That's a good thing right?  Well we hope so.  The fact
that the DJIA and the S&P 500 have been consolidating gains in a
sideways manner might be interpreted as a lack of sellers.  No
one wants to sell because they believe stocks will go up again
and the consolidation this month has really been caused by buyers
taking a breather.  Sounds reasonable, right?

The NASDAQ has had a tougher time with its own consolidation but
then it out performed both the DJIA and the SPX so there is a lot
more profit taking to occur.  In reality the NASDAQ is holding up
pretty well.  We still haven't seen a 10% pull back from its
highs and given the bounce from its low under 2000 this past week
it may be a while yet before we do see such a correction.

Fundamentally this was a pretty bullish week for stocks.
Greenspan offered some very positive comments about the economy
and Q4 GDP estimates came in at +4.1% on Friday, above estimates.
The Gartner group raised their sales estimates for semiconductors
to +23% this year and investors are probably starting to look
towards April earnings even though the Q4 earnings season just
ended.

Market internals were also bullish on Friday with advancing
stocks outpacing decliners 18 to 9 on the NYSE and almost 17 to
14 on the NASDAQ.  Volume numbers were mixed with up volume doing
better than down on the NYSE and vice versa on the NASDAQ.

Looking across the various sector-specific indices we witnessed a
number of them putting in short-term bottoms this past week.
More encouraging were the number of new highs.  Oil stocks, oil
services, utilities, homebuilders and healthcare all saw their
indices hit new highs.  Also strong were banks, biotech and
retail stocks.

Now that February is over investors will be looking at March's
historical trends.  According to the Stock Trader's Almanac March
appears to be somewhat volatile with the first half of the month
more bullish than the second half.  However, the Dow has managed
to close higher in March five out of the last six years.



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  7416
Current     : 10583

Moving Averages:
(Simple)

 10-dma: 10624
 50-dma: 10513
200-dma:  9659



S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma: 1145
 50-dma: 1128
200-dma: 1040



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  946
Current     : 1470

Moving Averages:
(Simple)

 10-dma: 1480
 50-dma: 1489
200-dma: 1357



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

The VXO and VIX managed an intraday reversal both all three are
still pointing lower.  These low readings suggest very little
fear in the markets or in other words investors are very bullish.

CBOE Market Volatility Index (VIX) = 14.55 -0.25
CBOE Mkt Volatility old VIX  (VXO) = 14.76 +0.11
Nasdaq Volatility Index (VXN)      = 22.84 -0.26

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.72        624,138       448,697
Equity Only    0.59        528,027       313,869
OEX            1.38         19,559        26,998
QQQ            3.74          6,810        25,436


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.0    + 0     Bull Confirmed
NASDAQ-100    61.0    + 0     Bear Confirmed
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       85.6    + 0     Bull Confirmed
S&P 100       87.0    + 0     Bull Confirmed


Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  Readings above 70 are considered overbought, and readings
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


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

 5-dma: 1.12
10-dma: 1.12
21-dma: 1.03
55-dma: 1.00


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1849      1677
Decliners     969      1391

New Highs     206       116
New Lows        5         4

Up Volume   1052M      846M
Down Vol.    728M      969M

Total Vol.  1807M     1840M
M = millions


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

Commitments Of Traders Report: 02/24/04

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

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

S&P 500

No change for commercial traders.  They remain hedged either
direction.  Small traders haven't made many changes either
and remain bullish.


Commercials   Long      Short      Net     % Of OI
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%
02/24/04      417,490   416,502       988     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
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%
02/24/04      141,559    85,171    56,388    24.9%

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

We're seeing a lot more action in the e-minis than the large
contracts above.  Commercial traders are bearish but have
become slightly less so over the last week.  As is typical
the small traders moved the opposite direction and while bullish
became less so.


Commercials   Long      Short      Net     % Of OI
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%)
02/24/04      320,425   387,255    (66,830)  ( 9.4%)

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
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%
02/24/04     129,894     63,524    66,370    34.3%

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


NASDAQ-100

Not much change for the commercial traders in the NDX futures
this week but we are seeing a change in the small traders'
positions.  There appears to be a bullish reversal with a large
shift from shorts to longs.  Of course a contrarian will note
that the small trader is normally wrong so this could be a
bearish development for the markets.


Commercials   Long      Short      Net     % of OI
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%
02/24/04       47,266     40,452     6,814    7.8%

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
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%)
02/24/04       12,388     7,310     5,078    25.8%

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

DOW JONES INDUSTRIAL

Hmm... commercial traders have become more bullish on the
Dow in the last week.  Not much change from the little guys.


Commercials   Long      Short      Net     % of OI
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%
02/24/04       27,176    13,918   13,258      32.3%

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
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%)
02/24/04        6,509    14,919   (8,410)   (39.2%)

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

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


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

It's head and shoulders above them all

I'm relatively new to technical analysis and have been reading
some books.  I'd like to say that I think all of the analysts at
your company do a great job when explaining various technical
aspects of the market, and the added education is worth the price
of subscription.

The books that I've read haven't gone into the great detail as to
how or why a head and shoulders pattern is formed.

You've been pointing out a POTENTIAL head and shoulders top
formation in the SOX.  Does your using the word "potential" mean
you're not sure?

Do you, or do any of your fellow analysts know, why the head and
shoulders top pattern forms?

Is the conventional horizontal neckline pattern more reliable
than the ascending neckline?

Many times, I see comments in the market monitor regarding intra-
day head and shoulder patterns, where these patterns seem to have
a 50/50 chance of ever playing out to their objective, if not
actually negating the pattern altogether.

Is this pattern really that reliable?

Answers:

I've read some books, or chapters in books, regarding the head
and shoulders TOP and the REVERSE head and shoulders pattern.

I will say that I have my own thoughts on why the pattern is
created, but it is very simplistic and is directly related to
supply and demand, where the ownership of the stock "turns over"
to bullish (reverse h/s pattern) or bearish (h/s top) hands,
where an eventual price objective for the security is already
known, based on the eventual fundamentals.  That's right....
fundamentals.

The reason I have my own thoughts, which I will try and explain
in some detail, is that my readings on this topic, when back
tested, seem to have mixed findings.  Sometimes what one analysts
says it typical plays out, while at the same time, what an
analyst feels is a "must" for the pattern to work, never presents
itself, but the security will actually play out the pattern.

I haven't polled my fellow analysts, but would welcome their
response, should they wish to write an article, expressing their
thoughts and experiences on this subject.

Let me also tackle the question of the ascending neckline of a
head and shoulders top pattern, or descending neckline of a
reverse head and shoulders bottom pattern, being more or less
powerful than a conventional horizontal neckline.  It has been my
experience that the HORIZONTAL neckline pattern is more powerful,
or reliable, than the ascending/descending neckline patterns.

This is based on past experience, but may also be a factor of
trend.

For example.  The POTENTIAL head/shoulder top formation I've
discussed that is developing in the Semiconductor Index (SOX.X)
chart, shows an ascending neckline.  This is an UPWARD trending
neckline, and for that very reason, the upward trend depicts some
type of bullishness associated with the chart, as the pattern is
POTENTIALLY being developed.

Semiconductor Index (SOX.X) - Daily Intervals



Here is a chart of the SOX.X, which we've shown in the
OptionInvestor.com Index Trader Wraps.  I've marked in BLUE what
appears to be a left shoulder (12/01/03), head (01/12/04) and
right shoulder (02/19/04) developing, in a POTENTIAL head
shoulder top pattern, with an ascending neckline in GREEN.

Conventional retracement has been taken from a relative low of
468.20 (12/16/03) and high of 560.68 (01/12/04), where the 80.9%
retracement of 485.86 suspiciously marks an almost exact midpoint
of where a neckline and head would be identified, where the
midpoint needs to be observed in order to calculated the downside
price objective of the pattern.

Take general not of the dates on the above chart, as we're going
to use them later on in this article.

POTENTIAL versus CONFIRMED:

Why do I use the term POTENTIAL instead of a word like CONFIRMED?

Look at the above chart, and now I want to focus on the RED 50%
retracement.  After a technician has calculated a price objective
of the head and shoulder top pattern, sometimes it is helpful to
see if the pattern "makes sense" or is in play.

In my opinion, a head and shoulders top pattern is ONLY CONFIRMED
or stands GREATER PROBABILITY of being in play, when the NECKLINE
is BROKEN.

It is this thought, based on past observation, where I feel the
HORIZONTAL neckline pattern is more reliable than the ascending
neckline patter.

Focus on the RED 50% retracement and see if THIS MAKES SENSE.

Semiconductor Index (SOX.X) - Daily Intervals



Based on the head and shoulder top price objective calculation,
one technique I've discussed with retracement is to simply attach
retracement at the HEAD of the pattern, and pull the other end of
retracement to its objective.  By default, the 50% retracement
level should mark the neckline.  After all, the price objective
is derived by calculating the DIFFERENCE between the neckline and
the head, then adding that difference to the neckline to
establish the pattern's price objective.

Has the SOX.X been showing some technical trade that "makes
sense" to this retracement?  Certainly there are point of
inflection, where the MARKET has been buying and selling this
group of stocks.

Both of the shoulder areas show VERY suspicious price resistance
at the 19.1% retracement level (make not of this... 19.1% at
shoulder, 19.1% at shoulder, 19.1% at shoulder).

The above chart would currently have the pattern being CONFIRMED
on a SOX.X violation of the 486 level.

Do you also see how the ascending upward trend may also be
finding some bullish support?  While a BEARISH trader may
certainly feel, based on observation that the head/shoulder top
pattern is confirmed based on the obvious head/shoulder
formations observed, greater conviction among BEARS would build
toward the pattern on a break below 486.

At the same time, BULLS may then be showing less conviction
toward further price rise, should they admit defeat and begin
assessing downside risk to the 412 pattern objective.

What have we done so far?  We've looked at our security from the
OUTSIDE.  Just like a doctor will look at you if aren't feeling
that well.  A good doctor always looks, or tries to make
observations of the INSIDE of his/her patient, before further
diagnosing the health, or sickness of the patient.

Now I want you to focus on the above chart's 468.80 level, or
61.8% retracement.  This is the 12/16/03 relative low.  Let's
look at the INSIDE of the patient, and Dorsey/Wright and
Associates' Semiconductor Bullish % (BPSEMI) chart, which is
currently in "bear confirmed" status.  It is saying that the
internals aren't that healthy of late.  Remember.... 12/16/03.

Semiconductor Bullish % Chart - 2% box size



Once we analyze the OUTSIDE or the SOX.X itself, we want to
always look at the internals, or the bullish % indicator.
Dorsey/Wright and Associates has established a Semiconductor
Bullish % (BPSEMI) where they've thrown a bunch of semiconductor-
related stocks into a basket, and tabulated the number of stocks
that currently have a buy signal still associated with the point
and figure chart.

I've tried to associate some of the price inflection points of
the SOX.X, with the various bullish % readings.  A
trader/investor that begins to feel a head/shoulder top formation
is in play on the SOX, could very well be on the right track as
it relates to the SOX.  The internals have been VERY bullish with
readings above 70%, which are considered to be longer-term
"overbought" readings, where a current head/shoulder top price
objective of 412 isn't that outlandish, and could well be
achieved should the bullish % fall to an "oversold" bullish %
level of 30% or lower, as the Semiconductor Bullish % (BPSEMI)
did in August (blue 8) of 2002, October (blue A) of 2002, and
February (blue 2) and March (blue 3) of 2003.

Note:  When trying to make ANY type of price comparisons with ANY
bullish % indicator, it is STRONGLY ADVISED to only do so on
shorter-term basis of 2 or 3 months.  It SHOULD NOT BE the
analysis that a current bullish % decline to 30%, would equate to
a SOX price of 265 or 285 as found in February/March of 2003.

Hmmm... February/March 2003 the bullish % reversed up like a
rocket on fire, and now shows a topping pattern.  What can I do
to further analyze this observation?

Semiconductor Index (SOX.X) Chart - Daily Intervals



Here's a different look at the SOX, where I've now placed a
retracement bracket from the February/March 2003 lows to recent
high.  Suspicion is once again raised at 50% of that range is
409.61, which is pretty darned close to the head/should top
objective we've calculated.

I've outlined a bearish trading plan for the Semiconductor HOLDRs
(AMEX:SMH) $40.90, where very similar to the SOX, the SMH shows a
head/shoulder top formation.  Since we've been looking at a SOX
chart, I've simply used SOX price levels to outline the plan.

One note I've also made in the POTENTIAL head/shoulder top
pattern that developed in late 2002.  Think about the
Semiconductor Bullish % (BPSEM) and how "oversold" it was in
February/March of 2003.  Did that pattern make sense as it
relates to who (bulls or bears) having the greater degree of
risk?  Probably not, and why that pattern failed, and failed
miserably.

One important lesson when trading head/shoulder patterns is to
FOLLOW THE DARNED TECHNICALS!  Too many traders become
"convinced" the pattern will play out, and they continue to let a
right shoulder, or a second right shoulder grow higher.  Pretty
soon it becomes what I call a "hunch back" h/s pattern, where the
trader lets it grow to the ear.  Next thing you know, an excuse
is made that its normal for shoulders to be up to your hairline.
Then as the pattern continue to fail, it becomes normal for us
all to be walking around like orangutans with our right arms in
the air.

One word on head and shoulder patterns.  I'll let Stan
Weinstien's comments speak for me on this.  In Mr. Weinstein's
book "Secrets for Profiting in Bull and Bear Markets," he states
that "Novice technicians usually imagine them on every other page
of a chart book, just as a first-year medical student often
worries that he has contracted every disease that he studies."

This is where I would then make some comment as to the observing
of intra-day or shorter-term head/shoulder patterns.  I put VERY
LITTLE WEIGHT in the probability of success in these patterns.
While they can be used to try and determine a shorter-term price
objective, they would probably not be as reliable as a
head/shoulder pattern found on a DAILY, a WEEKLY or MONTHLY time
interval.

The REASON I believe indices, but more likely individual stocks
can reach objectives found in the head/shoulder pattern is
because there is enough time for traders to get on the WRONG SIDE
of the trade, where when the NECKLINE IS BROKEN, the realization
that the bull (head shoulder top) or bear (reverse head and
shoulder bottom) then sets in, and the trade unfolds in the
direction of the break.

When trading shorter-term h/s patterns, there may not always be
enough stock that has gotten on the wrong side of the trade, to
really make much of a difference.

Allow me to show a reverse head and shoulders pattern that I had
profiled in shares of Apache Corp. (NYSE:APA) back in December of
2001.  I'm also going to use the QCharts Float Turnover Channel
tool I showed in last weekend's Index Trader Wrap.  This should
drive home the "turnover" or WRONG SIDE OF THE TRADE thought
process.  The power of the head/shoulder pattern comes from us as
traders being on the RIGHT SIDE of the trade, when the other side
realizes their mistake, and caves into our correct analysis.

Apache Corporation (APA) - 12/28/01 breakout



We worked hard back in December of 2001 analyzing shares of
Apache Corporation (NYSE:APA).  Not only with our bar charts, but
also the point and figure charts.  There were so many things its
chart kept telling us, that this stock wanted to make a major
longer-term bullish move higher.

To drive home my thoughts of why the head/shoulder pattern can be
so powerful is the thought of getting supply/demand, where the
more successful outcomes of the pattern has either bulls or bears
being on the WRONG SIDE of the trade, when the pattern begins to
unfold at the neckline.  That's when one side realizes their
mistake, while the other side builds conviction toward their
correct analysis (fundamental and technical) and begins driving
the stock toward the pattern's objective.

Using the QCharts public float turnover channel tool, you see how
the entire public float was owned between $17.38 and $25.22 when
the neckline of the reverse head and shoulder pattern was broken,
and the pattern was confirmed?

Now, one thing I MUCH PREFER in regards to trading the
head/shoulder pattern with individual stocks, rather than an
index, is that I can monitor VOLUME, where VOLUME tells us about
interest among market participants.

If you've ever read a book on technical analysis, some analysts
say to look for volume patterns at the shoulders and the head.
There is skepticism among many analysts that there is a volume
pattern that shows up consistently at the head and shoulders.  I
agree, as my observations also show little consistency.

However, most analysts agree that when the break of the neckline
is found, a more bullish unfolding of the pattern finds VOLUME
INCREASING at the breakout.

Now... lets turn on the volume, and follow Apache's (APA)
progress.  I'm also going to leave my public float indicator on.

Apache Corporation (APA) - Pattern tests



When trading a head/shoulder pattern, tests should continually be
applied.  It is difficult for a trader to see a pattern begin to
unfold, especially early in a session, and have to try and make a
determination as to what the day's or follow day's VOLUME is
going to equate to.  The above chart of APA would have shown no
real sign that there was great interest among market participants
when APA broke above its neckline, and generated the triple-top
buy signal on its current point and figure chart.

Whether you are trading a reverse head and shoulder pattern like
that shown in APA, or the head and shoulder top pattern in the
SOX, the trend will usually be your friend.

The bulk of the time (I have to scientific evidence) the trend
from the head to the right shoulder should hold support, but it
is not uncommon on a light volume breakout, or even heavy volume
breakout, which does seen an near-term pullback, come back to the
first right shoulder.

A trader/investor that trades the head/shoulder pattern should
always be prepared to assess near-term risk in their trade back
to the first right shoulder.

If this create some type of trader/investor remorse when
considering this potential risk, then MITTIGATE that risk by
trading a SMALLER position when the neckline is broken.  A
trader/investor that has spent time analyzing the trade setup
should still participate in the break of the neckline, just in
case the stock really makes a powerful move on the break.

Well, I've got to get this into our HTML department, or they are
going to strangle me, but the trader had quite a few questions,
which I think I've covered them all.

Good questions, and a pattern that technicians like to trade.

Jeff Bailey


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

-----------------
Earnings Calendar
-----------------

Symbol  Co               Date           Comment      EPS Est

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

FRO    Frontline Ltd.        Mon, Mar 1  -----N/A-----        1.05
HOV    Hovnanian Enterprises Mon, Mar 1  After the Bell       1.74
HBC    HSBC Holdings plc     Mon, Mar 1  Before the Bell       N/A
KGC    Kinross Gold          Mon, Mar 1  -----N/A-----        0.03
PSO    Pearson plc           Mon, Mar 1  Before the Bell       N/A
STHLY  Stet Hellas Telecomm  Mon, Mar 1  -----N/A-----         N/A
TLD    TDC A/S               Mon, Mar 1  -----N/A-----         N/A


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

ALO    Alpharma              Tue, Mar 2  After the Bell       0.29
BNS    Bank of Nova Scotia   Tue, Mar 2  Before the Bell       N/A
BIIB   Biogen Idec Inc.      Tue, Mar 2  After the Bell       0.32
BJ     BJ's Wholesale Club   Tue, Mar 2  Before the Bell      0.65
CVC    Cablevision Sys Corp. Tue, Mar 2  Before the Bell     -0.45
CRHCY  CRH plc               Tue, Mar 2  Before the Bell       N/A
FL     Foot Locker, Inc.     Tue, Mar 2  -----N/A-----        0.45
GMST   Gemstar-TV Guide Intl Tue, Mar 2  After the Bell      -0.02
HSIC   Henry Schein          Tue, Mar 2  Before the Bell      0.78
MVL    Marvel Enterprises    Tue, Mar 2  Before the Bell      0.17
PSUN   Pac Sunwear CaliforniaTue, Mar 2  After the Bell       0.42
PLL    Pall Corp.            Tue, Mar 2  After the Bell       0.30
PETM   PetsMart              Tue, Mar 2  -----N/A-----        0.37
COO    The Cooper Companies  Tue, Mar 2  -----N/A-----        0.53


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

ABV    AmBev                 Wed, Mar 3  -----N/A-----        0.58
AZO    AutoZone Inc.         Wed, Mar 3  Before the Bell      1.00
BVF    Biovail Corporation   Wed, Mar 3  Before the Bell      0.29
CHS    Chico's FAS           Wed, Mar 3  After the Bell       0.28
COST   Costco Wholesale Corp Wed, Mar 3  -----N/A-----        0.47
EDP    Elec de Portugal, S.A Wed, Mar 3  During the Market     N/A
GLH    Gallaher Group PLC    Wed, Mar 3  Before the Bell      1.89
HOTT   Hot Topic             Wed, Mar 3  After the Bell       0.44
LFL    LAN Chile             Wed, Mar 3  -----N/A-----        0.34
MIK    Michaels Stores       Wed, Mar 3  After the Bell       1.32
KWK    Quicksilver Resources Wed, Mar 3  After the Bell       0.26
SKS    Saks Incorporated     Wed, Mar 3  Before the Bell      0.68
TLM    Talisman Energy       Wed, Mar 3  -----N/A-----        0.64
TS     TENARIS S A           Wed, Mar 3  -----N/A-----        0.41
TOY    Toys R Us             Wed, Mar 3  Before the Bell      1.05


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

AMI    ALARIS Medical, Inc.  Thu, Mar 4  Before the Bell      0.18
CZN    Citizens Comm Co.     Thu, Mar 4  Before the Bell      0.09
DLM    Del Monte Foods       Thu, Mar 4  -----N/A-----        0.26
HAVS   Havas Advertising     Thu, Mar 4  Before the Bell       N/A
KWD    Kellwood Company      Thu, Mar 4  After the Bell       0.46
MBG    Mandalay Resort Group Thu, Mar 4  After the Bell       0.31
MDZ    MDS Inc.              Thu, Mar 4  Before the Bell       N/A
NTLI   NTL INC               Thu, Mar 4  Before the Bell     -2.55
PBY    Pep Boys              Thu, Mar 4  Before the Bell      0.04
PKZ    PETROKAZAKHSTAN INC   Thu, Mar 4  During the Market    1.28
PT     Portugal Telecom SGPS Thu, Mar 4  Before the Bell       N/A
REXMY  REXAM PLC             Thu, Mar 4  Before the Bell      1.46
SPLS   Staples, Inc.         Thu, Mar 4  Before the Bell      0.41
SZE    Suez SA               Thu, Mar 4  -----N/A-----         N/A
SBL    Symbol Technologies   Thu, Mar 4  After the Bell       0.09
UPL    Ultra Petroleum Corp  Thu, Mar 4  Before the Bell      0.16
VRX    Valeant Pharm Intl    Thu, Mar 4  Before the Bell      0.20
HLTH   WebMD                 Thu, Mar 4  After the Bell       0.09


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

BFR    BBVA Banco Frances    Fri, Mar 5  -----N/A-----         N/A
SHR    Schering AG           Fri, Mar 5  -----N/A-----         N/A


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

Symbol  Co Name              Ratio    Payable     Executable


AME     AMETEK Inc                2:1      Feb  27th   Mar   1st
HCP     Hlth Care Prop Investors  2:1      Mar   1st   Mar   2nd
SJW     SJW Corp                  3:1      Mar   1st   Mar   2nd
FWFC    Washington FinancialCorp  5:4      Mar   1st   Mar   2nd
AVP     Avon Products Inc         2:1      Mar   1st   Mar   2nd
HCSG    Healthcare Services       3:2      Mar   1st   Mar   2nd
BFCF    BFC Financial Corp        5:4      Mar   1st   Mar   2nd
POG     Patina Oil & Gas Corp     2:1      Mar   3rd   Mar   4th
TRMB    Trimble                   3:2      Mar   4th   Mar   5th
CLFC    Center Financial Corp     2:1      Mar   5th   Mar   8th
WGO     Winnebago                 2:1      Mar   5th   Mar   8th
SSNC    SS&C Technologies, Inc    3:2      Mar   5th   Mar   8th
VAPH    Vaso Active Pharma, Inc   3:1      Mar   5th   Mar   8th
PII     Polaris Industries Inc    2:1      Mar   8th   Mar   9th
LWAY    Lifeway Foods, Inc        2:1      Mar   8th   Mar   9th
MPX     Marine Products Corp      3:2      Mar  10th   Mar  11th
FIC     Fair Isaac Corp           3:2      Mar  10th   Mar  11th
EXC     Exelon Corp               2:1      Mar  10th   Mar  11th
HWFG    Harrington West Finl Grp  6:5      Mar  11th   Mar  12th
CTX     Centex Corporation        2:1      Mar  12th   Mar  13th


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

Q4 Earnings are finally slowing to a crawl but investors are
more focused on economic news.  This week we have a boatload of
reports throughout the week.


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

----------------
Monday, 03/01/04
----------------
Personal Income (BB)       Jan  Forecast:    0.5%  Previous:     0.2%
Personal Spending (BB)     Jan  Forecast:    0.4%  Previous:     0.4%
Construction Spending (DM) Jan  Forecast:    0.3%  Previous:     0.4%
ISM Index (DM)             Feb  Forecast:    62.0  Previous:     63.6


-----------------
Tuesday, 03/02/04
-----------------
Auto Sales (NA)            Feb  Forecast:    5.6M  Previous:     5.2M
Truck Sales (NA)           Feb  Forecast:    8.0M  Previous:     7.8M


-------------------
Wednesday, 03/03/04
-------------------
ISM Services (DM)          Feb  Forecast:    64.0  Previous:     65.7
Fed's Being Book (DM)


------------------
Thursday, 03/04/04
------------------
Initial Claims (BB)      02/28  Forecast:     N/A  Previous:     350K
Productivity-Rev. (BB)      Q4  Forecast:    2.6%  Previous:     2.7%
Factory Orders (DM)        Jan  Forecast:    1.1%  Previous:     1.1%


----------------
Friday, 03/05/04
----------------
Nonfarm Payrolls (BB)      Feb  Forecast:    135K  Previous:     112K
Unemployment Rate (BB)     Feb  Forecast:    5.6%  Previous:     5.6%
Hourly Earnings (BB)       Feb  Forecast:    0.2%  Previous:     0.1%
Average Workweek (BB)      Feb  Forecast:    33.8  Previous:     33.7
Consumer Credit (DM)       Jan  Forecast:   $5.5B  Previous:    $6.6B


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


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The Option Investor Newsletter                   Sunday 02-29-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: More Stocks to Watch
Dropped Calls: None
Dropped Puts: IR


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

More 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.
___________________________________________________________________


American Standard Companies - ASD - close: 108.96 change: +0.89

WHAT TO WATCH:  The bullish trend continues for ASD with a steady
stream of higher lows.  The stock is approaching overhead
resistance in the $110-111 range and bulls will be watching for a
breakout.  Keep in mind that ASD recently announced a 3-for-1
split but it needs to be approved at the annual shareholder
meeting due in May.

Chart=


---

Netease.com - NTES - close: 53.03 change: +1.87

WHAT TO WATCH:  We've been following NTES in the MarketMonitor
and mentioned that traders should watch it for a breakout above
the $52.00 level of short-term resistance.  That breakout
occurred on Friday with rising volume the last couple of sessions
and the stock looks ready for its next leg higher.  NTES may
still have resistance at the $54 mark, which some traders may
interpret as the bottom of its gap down in October.  Once into
the gap it will probably try and test the $60.00 level.

Chart=


---

AutoZone - AZO - close: 89.70 change: -0.85

WHAT TO WATCH:  AZO remains stuck inside its sideways trading
range from $88 to $91.50.  Technicals are offering a mixed
picture but patient traders may want to watch it for a breakout
over $91.50-92.00.  More aggressive traders can try and time an
entry off the bottom of the current range at $88.00.

Chart=


---

Quest Diagnostic - DGX - close: 82.87 change: +0.72

WHAT TO WATCH:  DGX has essentially filled the gap from January
and is bouncing from this support, bolstered by its rising 40-
dma.  We are not the only ones who noticed the rebound as DGX is
up four days in a row.  Technicals are turning positive and the
stock looks ready to test overhead resistance at $86.00.  We'd
watch it for another dip, this time to $81.00.

Chart=



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

WFMI $77.31 +0.57 - Whole Foods continues its rebound from the
$74 level.  This could be a bullish play for aggressive traders.

PRX $62.39 +1.48 - PRX is still trying to put in a bottom near
its 200-dma and the $60.00 level.  Friday's attempt to break the
50-dma was thwarted but the stock may try again.

LEN $49.45 +1.69 - Lennar is another homebuilder with a strong
three-day trend.  It has broken its three-month trend of lower
highs and is approaching resistance at $50-51.

BWA $90.20 -0.75 - Borg Warner has been under performing for two
weeks and Friday is closed at support of $90.00 but under its 50-
dma.  Given the trend bears may want to watch it for a breakdown
under $90 and target the $85 level.


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

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


CALLS
^^^^^

None


PUTS
^^^^

Ingersoll-Rand - IR - close: 66.48 chg: +0.53 stop: 68.00

We're going to cut our losses early on IR.  The stock did fail
under its 50-dma on Friday as we expected it to but the rising
volume on the rebound is too intimidating.  We initially added IR
on a breakdown below very long-term support (its rising trendline
of higher lows).  The stock quickly recouped its losses the very
next day making it look like a bear trap.  If IR trades back
below the $64.00 level we'll consider new bearish positions
again.

Picked on February 24 at $64.72
Change since picked:     + 1.76
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       1.0 million
Chart =



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

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

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

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


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**********

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The Option Investor Newsletter                   Sunday 02-29-2004
Sunday                                                      3 of 5


In Section Three:

Current Calls: AHC, ATH, DHI, PD, QCOM, RJR, RNR, RYL, SLB, UNH
New Calls: AET, CFC
Current Put Plays: CHIR, CTSH, MMM, WGO
New Puts: None


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

Amerada Hess Corp. - AHC - cls: 64.35 chng: +2.03 stop:
60.75*new*

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

Why we like it:
With the price of crude oil breaking out on Friday, the Oil
sectors followed suit, with the OSX index reaching almost to the
$108 level.  But those moves paled in comparison to AHC's stellar
3.25% breakout, with the stock easily soaring over the $64 level
and holding most of its gains into the close.  That brings the
stock right up to our first target, and the close over the 200-
week moving average looks strongly bullish.  Prospects for a move
to $68 and then possibly into the low $70s look good from here.
But given the magnitude of Friday's move, a bit of consolidation
seems in order.  For traders that entered down near $60,
harvesting some gains near current levels would be a wise move.
There should now be strong support in the $61-62 area, so we're
raising our stop to $60.75, just above last week's intraday lows.
Look for a pullback near the $62 level to provide a solid point
for fresh entries, but we would not suggest new momentum entries
at this time.

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
money.

Longer Term: Aggressive longer-term traders can use the April $70
Call, while traders looking for more immediate movement will want
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-60 AHC-CL OI= 979 at $4.60 SL=2.75
BUY CALL MAR-65 AHC-CM OI= 332 at $1.05 SL=0.50
BUY CALL APR-65*AHC-DM OI=  95 at $1.80 SL=0.75
BUY CALL APR-70 AHC-DN OI=  20 at $0.50 SL=2.25

Annotated Chart of AHC:



Picked on February 10th at   $59.53
Change since picked:          +4.82
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =        945 K
Chart =


---

Anthem, Inc. - ATH - close: 85.95 change: +0.58 stop: 81.00

Company Description:
Anthem is a health benefits company serving over 7 million
members, primarily in Indiana, Kentucky, Ohio, Connecticut, New
Hampshire, Colorado and Nevada.  The company owns the exclusive
right to market its products and services using the Blue Cross
Blue Shield (BCBS) names in these states under license agreements
with the Blue Cross Blue Shield Association.  ATH's product
portfolio includes a diversified mix of managed care products,
including health maintenance organizations (HMOs), preferred
provider organizations (PPOs) and point-of-service (POS) plans,
as well as traditional indemnity products.  The company's managed
care plans and products are designed to encourage providers and
members to select cost-effective healthcare by utilizing the full
range of its medical management services.

Why we like it:
It looked like ATH just might stall out heading into the weekend,
with the stock unable to make any appreciable progress and
actually dipping back under the $85 level.  As it turned out,
that was just an entry point, as the bulls bought the dip and
then drove the stock as high as $86.60 before a slight pullback
at the end of the day.  Driving Friday's bullish action was news
that Federal regulators approved the merger with WLP.  This
certainly looks like a more convincing breakout than the one a
couple weeks ago, and the rising volume is just one piece of that
picture of strength.  Traders that took the breakout entry on
Friday appear to have gotten a good deal and pullbacks into the
$84-85 area should now be met with solid buying interest.  With
the stock once again closing at all time highs, a push above
Friday's high still looks like an acceptable momentum entry.
We'll raise our stop up to $82 this weekend, which is just under
the 30-dma ($82.02) and will look to raise it again early next
week if the bullish action continues.

Suggested Options:
Shorter Term: The March $85 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive longer-term traders can use the April $90
Call, while more conservative traders will want to use the April
$85 strike.  Our preferred option is the April $85 strike, which
is at the money and should provide sufficient time for the play
to move in our favor.

BUY CALL MAR-85 ATH-CQ OI=6473 at $2.45 SL=1.25
BUY CALL MAR-90 ATH-CR OI=1510 at $0.50 SL=0.25
BUY CALL APR-85*ATH-DQ OI= 132 at $3.80 SL=2.25
BUY CALL APR-90 ATH-DR OI=  24 at $1.50 SL=0.75

Annotated Chart of ATH:



Picked on February 26th at   $85.37
Change since picked:          +0.58
Earnings Date               4/28/04 (unconfirmed)
Average Daily Volume =     1.43 mln
Chart =


---

D.R.Horton - DHI - close: 31.79 chg: +0.84 stop: 29.25*new*

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

Why We Like It:
The home construction sector has been revived after the new home
sales numbers came in stronger than expected.  Given the current
low interest rate environment, which translates into low mortgage
rates and the upcoming spring-summer home shopping season
investors are once again looking for some P/E expansion.  We like
DHI because it has been a relative strength leader in the group.
Shares pulled back to toward the $29.00-29.50 level as expected
earlier this week, which presented traders with another chance to
buy the dip.  Now that we've seen a successful rebound from that
low we're going to raise our stop loss to $29.25.

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

BUY CALL MAR 25 DHI-CE OI= 238 at $7.00 SL=4.25
BUY CALL MAR 30 DHI-CF OI=1881 at $2.35 SL=1.15
BUY CALL MAY 30*DHI-EF OI= 733 at $3.30 SL=1.65
BUY CALL MAY 35 DHI-EG OI= 562 at $1.05 SL=0.50

Annotated Chart:



Picked on February 08 at $30.00
Change since picked:     + 1.76
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =


---

Phelps Dodge - PD - close: 86.26 chg: +1.07 stop: 79.99

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

Why We Like It:
Score another one for the technical traders out there who bought
the pull back to $80.00 last week.  PD bounced off old resistance
of $80.00 as support and has not looked back.  Another strong
week for copper prices certainly didn't hurt the stock either.
PD should continue to see buying interest since the improving
U.S. and global economies (especially China) has ramped up demand
for copper even as supply struggles to catch up.  Of course this
doesn't mean we won't see pullbacks in the stock price, like we
saw two weeks ago, but PD is likely to see traders continue to
buy the dips until there is a significant correction in copper
prices.  Fortunately, this may not happen for a while.
Contributing to PD's bullish Friday performance was news that
copper production in Chile, the largest producer on the planet,
fell 1.8% from year-ago levels (Reuters).  Estimates from one
Chilean producer are for a decline in production through the
first half of 2004 before conditions improve after June.

We were a little concerned on Thursday night after PD announced
late in the evening a correction to its Q4 earnings.  The company
had to restate earnings for an extra $9.3 million in taxes or
about 10 cents a share.  Fortunately, investors shrugged off this
news and sent PD to a new all-time closing high on Friday.  The
stock is up more than $5 from our entry price and it's probably
time that short-term traders begin to consider taking profits.
New positions might be considered on a pull back to $83-84.  We
will probably consider exiting around $88-89 since $90 is likely
to be short-term resistance.  Then we can re-enter on a pull
back.

Suggested Options:
We like the March and April strikes.  We're going to adjust our
recommended strike from the March 80s to the April 85s.

BUY CALL MAR 80 PD-CP OI=3223 at $7.10 SL=4.50
BUY CALL MAR 85 PD-CQ OI=2025 at $3.60 SL=1.80
BUY CALL APR 80 PD-DP OI=1147 at $8.80 SL=5.50
BUY CALL APR 85*PD-DQ OI=1879 at $5.40 SL=3.20
BUY CALL APR 90 PD-DR OI=1700 at $3.10 SL=1.50

Annotated Chart:



Picked on February 11 at $80.51
Change since picked:     + 5.75
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       1.6 million
Chart =


---

Qualcomm, Inc. - QCOM - close: 63.09 change: -0.61 stop: 60.50

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

Why we like it:
Friday's early rally attempt was just enough for QCOM to eclipse
Thursday's closing highs, but with the rest of the market,
particularly the NASDAQ under pressure for much of the day, the
stock just couldn't build on those early gains.  In light of the
lack of strength in the rest of the market, QCOM actually
performed quite well, closing above $63 again and it won't take
much to push the stock above its recent highs.  Pullbacks into
the $61-62 area still look attractive for new entries, and
aggressive traders can still chase the stock higher on a breakout
over the $64 level.  The rising 10-dma (now at $61.17) should
help to reinforce that $61-62 support level as next week
progresses, and we expect to see QCOM squeeze up towards our $67-
68 target.  Maintain stops at $60.50, just under last week's
intraday lows.

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

Longer Term: Aggressive longer-term traders can use the 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 $65 strike, as it should provide
sufficient time for the play to move in our favor.

BUY CALL MAR-60 AAO-CL OI=10412 at $4.10 SL=2.50
BUY CALL MAR-65 AAO-CM OI=10974 at $1.15 SL=0.60
BUY CALL APR-65*AAO-DM OI=10605 at $2.25 SL=1.00
BUY CALL APR-70 AAO-DN OI= 2413 at $0.80 SL=0.40

Annotated Chart of QCOM:



Picked on February 17th at   $59.55
Change since picked:          +3.54
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     8.72 mln
Chart =


---

RJ Reynolds Tobacco - RJR - cls: 61.73 chg: +0.45 stop: 57.50

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

Why We Like It:
We initially added RJR to the play list as a defensive play since
investors may see it as a safe haven should the rest of the
market begin to sell-off.  The breakout over $60.00 was our
trigger to go long after nearly three months of consolidation
under this level.  Unfortunately, the rally was halted soon after
the breakout due to more litigation news.  Investors seem a
little cautious over the upcoming trial in September where
government prosecutors plan to take MO and the rest of the
tobacco industry to court in an effort to seek $280 billion (with
a B) in damages over 50 years of fraudulent advertising.
Actually, the remaining charge in that case is racketeering.
Closer to home for RJR was a recent ruling in California where an
appeals court affirmed a lower court's ruling that RJR had indeed
targeted children in their ad campaigns.  However, the appeals
court said the $20 million fine needed to be recalculated.  That
means it could go either direction and prosecutors are obviously
going to try for a higher penalty.   This pending decision has
probably raised the risk level for bullish positions in RJR and
traders may want to reconsider their positions.  We're going to
keep the play open for a few more days and see what happens but
interested traders may want to check out larger rival MO.  Shares
of MO produced a similar breakout to RJR's but has been a lot
stronger throughout last week.  However, investors should note
that MO is quickly approaching overhead resistance at its all-
time highs near $59.

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

BUY CALL MAR 55 RJR-CK OI= 219 at $7.10 SL=4.00
BUY CALL MAR 60 RJR-CL OI=2672 at $2.30 SL=1.15
BUY CALL MAY 55 RJR-EK OI= 667 at $7.50 SL=4.10
BUY CALL MAY 60 RJR-EL OI=3047 at $3.90 SL=1.85

Annotated Chart:



Picked on February 20 at $60.51
Change since picked:     + 1.17
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       699 thousand
Chart =


---

Renaissancere Ltd - RNR - close: 52.95 chg: +0.90 stop: 49.99*new*

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

Why We Like It:
We initially added RNR to the call list because we were bullish
on the insurance sector.  RNR had pulled back to support at its
40-dma and the $50.00 level and was just beginning to bounce.  We
saw a quick pop higher but then shares consolidated again as the
IUX insurance index pulled back in some long overdue profit
taking.  The IUX is still in consolidation mode but is beginning
to hint that it may be over and we could see another move higher
soon.  Fortunately, we don't have to wait for RNR to follow the
sector's lead as the stock has already taken off with a strong
move in just the last two sessions.  To be honest we cannot
identify what caused the gap higher on Friday but the move has
produced a new bullish buy signal in RNR's MACD indicator.
Traders looking for new entries might try a bounce from the
$52.00 mark since RNR is likely to pull back and fill the gap
from Friday morning.  Conservative traders may want to inch up
their stop to $50.75, just under the recent consolidation but
we're going to raise ours to $49.99.

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

BUY CALL MAR 50 RNR-CJ OI= 19 at $3.30 SL=1.65
BUY CALL APR 45 RNR-DI OI=100 at $8.20 SL=5.75
BUY CALL APR 50*RNR-DJ OI=210 at $3.60 SL=1.80
BUY CALL APR 55 RNR-DK OI= 54 at $0.90 SL= --

Annotated chart:



Picked on February 15 at $50.83
Change since picked:     + 2.12
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =


---

Ryland Group - RYL - close: 85.72 chg: +1.76 stop: 79.95*new*

Company Description:
With headquarters in Southern California, Ryland is one of the
nation's largest homebuilders and a leading mortgage-finance
company. The Company currently operates in 27 markets across the
country and has built more than 215,000 homes and financed over
185,000 mortgages since its founding in 1967.
(source: company press release)

Why We Like It:
The homebuilding sector has been revived again with the better
than expected new home sales numbers this morning.  Economists
were looking for a dip to 1.06 million units and sales actually
came in a 1.11 million, a smaller than expected pull back.
Combine the strong home sales figures with Greenspan's comments
yesterday that the economy looks good and has moved into a
"vigorous expansion" and together investors have a favorable
outlook for homebuilders.  We like several stocks in the group.
Ryland, Centex (CTX), Beazer (BZH) and more all look like strong
bullish candidates.  We're choosing RYL for its bullish close
over the 50-dma and filling the gap from early January.
Furthermore RYL's P&F chart has produced a strong bullish
breakout and points to a $97 price target.

We're going to target a move to the old highs between $92-94 but
honestly we'd be happy with a rally to $90.00.  The breakout over
$83 looks like a decent entry point but if RYL offers a dip back
to $83 we'd probably take it.

WEEKEND UPDATE:
So far so good.  RYL added another 2% on Friday and confirmed the
bullish breakout over the 50-dma from Thursday.  Its P&F chart
looks even more bullish now.  Dips to $83-84 are still possible
entries.  We're going to raise our stop loss to $79.95.

Suggested Options:
Short-term traders can choose from the March or April strikes.
We like the April 85's but the April 80's may work on a dip.

BUY CALL MAR 80 RYL-CP OI= 1441 at $7.10 SL=4.65
BUY CALL MAR 85 RYL-CQ OI= 2791 at $3.60 SL=1.80
BUY CALL APR 80 RYL-DP OI=  738 at $8.40 SL=5.25
BUY CALL APR 85*RYL-DQ OI=  349 at $5.30 SL=3.00
BUY CALL APR 90 RYL-DR OI=  971 at $3.10 SL=1.65

Annotated Chart:



Picked on February 24 at $83.96
Change since picked:     + 1.76
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       746 thousand
Chart =


---

Schlumberger Ltd - SLB - close: 64.49 change: -0.27 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:
Given the strength in the price of crude oil, the failure of our
SLB to break out on Friday was a bit disappointing.  While it was
encouraging to see the early dip bought near the 10-dma ($63.86),
the stock appears like it may need to consolidate for a bit
before resuming its upward trek.  That makes dips near support
near $63 - reinforced by the 20-dma ($63.01) look good for
initiating new positions.  The rally attempt in the Oil Service
index (OSX.X) was a bit anemic as well, with the rally attempt
turned back just below the $108 level.  That lack of sector
strength can perhaps explain SLB's inability to put in a stronger
performance on Friday.  A further pullback to stronger support in
the $61.50-62.00 is still possible and would make for an even
better entry on a test of 30-dma ($61.35) support similar to that
seen in mid-January.  For traders preferring a momentum entry,
the line in the sand appears to be $65.10, just over Thursday's
intraday high.  Keep stops set at $60.50, 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
money.

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=4763 at $1.35 SL=0.60
BUY CALL MAR-70 SLB-CN OI=2393 at $0.25 SL=0.00
BUY CALL APR-65*SLB-DM OI= 390 at $2.10 SL=1.00
BUY CALL APR-70 SLB-DN OI= 361 at $0.65 SL=0.30

Annotated Chart of SLB:



Picked on February 24th at   $64.47
Change since picked:          +0.02
Earnings Date               1/23/04 (confirmed)
Average Daily Volume =     3.68 mln
Chart =


---

UnitedHealth Group - UNH - close: 62.00 change: +0.02 stop: 58.00

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:
Aside from Thursday's brief dip near the bottom of the rising
channel at $60.50, UNH had a pretty quiet week.  The stock
continues to wedge up under resistance (now at $62.30) in
preparation for the next breakout, while the pattern of higher
lows continues to confirm support along the bottom of the rising
channel.  Pullback entries near the bottom of the channel
($60.60) and the 20-dma ($60.48) make the most sense ahead of the
breakout.  But when UNH pushes through that resistance level,
breakout entries will be the order of the day.  Momentum traders
will want to see a push over $62.50 before playing.  One factor
that hints that a breakout is only a matter of time is the fact
that the HMO index broke out to a new all-time high again on
Friday, closing solidly above the $900 level.  But the dip if it
is offered, but don't be afraid of buying strength in UNH, as
long as the sector remains strong.  Maintain stops at $58 until
the breakout arrives.

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

Longer Term: Aggressive longer-term traders can use the 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
favor.

BUY CALL MAR-60 UHB-CL OI=3541 at $2.70 SL=1.25
BUY CALL MAR-65 UHB-CM OI= 969 at $0.30 SL=0.00
BUY CALL APR-60*UHB-DL OI= 158 at $3.50 SL=1.75
BUY CALL APR-65 UHB-DM OI= 290 at $0.90 SL=0.40

Annotated Chart of UNH:



Picked on February 24th at   $61.92
Change since picked:          +0.08
Earnings Date               1/22/04 (confirmed)
Average Daily Volume =     2.52 mln
Chart =



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

Aetna Inc. - AET - close: 80.79 change: +1.07 stop: 77.50

Company Description:
Aetna is one of the nation's leading providers of health care,
dental, pharmacy, group life, disability and long-term care
benefits, serving approximately 13.0 million medical members,
10.9 million dental members, 7.4 million pharmacy members and
12.3 million group insurance customers, as of December 31, 2003.
The company has expansive nationwide networks of more than
600,000 health care services providers, including over 362,000
primary care and specialist physicians and 3,626 hospitals.
(source: company press release)

Why We Like It:
Don't look at the weekly chart for AET as it may give you
vertigo.  Of course it is hard to deny the relative strength here
when the broader market indicts have been generally flat.
Driving the move in AET was its Feb. 12th earnings report.  The
company turned in $1.32 per share, 14 cents better than expected
on revenues much higher than estimated.  Plus AET raised its full
year estimates to $6.25-6.35 compared to Reuters consensus
numbers at $5.77 for the year.

Shares of AET immediately shot higher to the $80.00 region in
just a few days and managed to maintain its gains while
consolidating in a tight $78-80 trading range.  Once its 10-dma
caught up to it traders used it as a spring board to launch the
stock higher and AET broke out over resistance at $80.00 on
Friday with better than average volume.  We like the breakout and
believe AET can trade toward $85 or better.  Its P&F chart points
t an $89 price target.  We're going to start the play with a stop
loss at $77.50.  Keep your ears open for any news on March 4th
where AET will present at the Lehman Brothers Global Healthcare
conference.

Suggested Options:
Short-term traders can use the March or April calls.  We like the
April 80's.

BUY CALL MAR 75 AET-CO OI=3624 at $6.20 SL=4.00
BUY CALL MAR 80 AET-CP OI=2241 at $2.25 SL=1.10
BUY CALL MAR 85 AET-CQ OI= 136 at $0.45 SL= --
BUY CALL APR 80*AET-DP OI= 589 at $3.50 SL=1.75
BUY CALL APR 85 AET-DQ OI= 101 at $1.30 SL=0.65

Annotated Chart:



Picked on February 29 at $80.79
Change since picked:     + 0.00
Earnings Date          02/12/04 (confirmed)
Average Daily Volume:       1.2 million
Chart =


---

Countrywide Financial - CFC - cls: 91.63 chg: +3.56 stop: 86.99

Company Description:
Founded in 1969, Countrywide Financial Corporation is a member of
the S&P 500, Forbes 500 and Fortune 500. Through its family of
companies, Countrywide provides mortgage banking and diversified
financial services in domestic and international markets.
(source: company press release)

Why We Like It:
There seems to be no stopping shares of CFC.  Consumers continue
to buy homes given the historically low mortgage rates and the
refinancing boom has been declared dead more times than we can
remember but it continues to find new life.  Given the trend in
the 10-year bond we could see another round of lower mortgages
just in time for spring and summer, which is the prime home
buying season.

We like the bullish breakout over the $90.00 level for CFC and
there's an old market maxim that says stocks that break $90.00
(going higher) tend to hit $100.  Technicians will note that the
breakout was fueled by better than average volume and its P&F
chart is pointing toward a $115 price target.  We're going to
target the $100 level and initiate the play with a stop loss at
$86.99.

Suggested Options:
Short-term traders can choose from March and April calls.  Our
favorites are the April 90's.  Be careful.  There are some odd
option symbols floating around due to CFC's recent stock split.
Be sure you check the correct symbols with your broker.

BUY CALL MAR 90 CFC-CR OI=6229 at $3.70 SL=1.85
BUY CALL MAR 95 CFC-CS OI=2383 at $1.40 SL=0.70
BUY CALL APR 90*CFC-DR OI= 508 at $5.50 SL=3.25
BUY CALL APR 95 CFC-DS OI= 138 at $2.95 SL=1.50

Annotated Chart:



Picked on February 24 at $91.63
Change since picked:     + 0.00
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       2.3 million
Chart =



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CURRENT PUT PLAYS
*****************

Chiron Corp - CHIR - close: 48.91 chg: -0.40 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:
We really like the bearish technical breakdown in CHIR shares
below support at $50.00 and its 200-dma.  Adding to the bearish
environment is a breakdown in CHIR's P&F chart as well pointing
to a $44 price target.  CHIR is seriously under performing the
biotech index and the weakness on Friday suggests the stock is
ready for its next leg lower.

Contributing to that weakness on Friday was an article stating
that the government is going to review its 14-year old agreement
with CHIR that gave the company so much control over Hepatitis
research (-Associated Press).  The article states that scientists
have been complaining for years that CHIR has been hindering
their work.  While it is unknown when or what kind of decision,
if any, is made after the Feds review their agreement with CHIR
but we all know that the markets hate uncertainty.

We're targeting a move to the $45-44 range with a stop at $51.50.
More conservative traders might be able to make the trade with a
stop closer to $50.00, especially now that the simple 10-dma has
crossed both the 200-dma and the $50 level and should act as
short-term overhead resistance.


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=5726 at $1.95 SL=1.00
BUY PUT MAR 47.50 CIQ-OT OI=1154 at $0.75 SL= --
BUY PUT MAR 45.00 CIQ-OI OI= 493 at $0.25 SL= --
BUY PUT APR 50.00*CIQ-PJ OI=3074 at $2.65 SL=1.30
BUY PUT APR 47.50 CIQ-PT OI=2462 at $1.45 SL=0.75
BUY PUT APR 45.00 CIQ-PI OI= 232 at $0.75 SL= --

Annotated Chart:



Picked on February 24 at $49.11
Change since picked:     - 0.20
Earnings Date          01/28/04 (confirmed)
Average Daily Volume:       1.7 million
Chart =


---

Cognizant Tech. - CTSH - cls: 47.27 chng: -0.72 stop: 50.50

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

Why we like it:
As mentioned on Thursday, the rebound in shares of CTSH off of
the 100-dma ($47.22) was looking a bit anemic and Friday's price
action seems to bear that out.  We've seen the 10-dma ($48.51)
act as solid resistance on several occasions over the past month
and once again it served its desired function, with price being
rejected near that level and then declining to end right at the
low of the day.  That leaves price sandwiched between the 10-dma
as resistance and the 100-dma as support, and it seems likely
that something will have to give soon, with just over $1 of
separation between the two averages.  Based on the recent price
action, we're still expecting a breakdown, but are reticent to
suggest entries on the breakdown due to the strong support that
has been seen near the $46 level.  Failed bounces in the $48-49
area still look like the best entry strategy ahead of the break
below the recent lows near $46.  The only way breakdown entries
should be considered is on a drop through $46 on expanding
volume, not the anemic levels seen over the past several days.
Maintain stops at $50.50, which is still above the 50-dma
($49.87) and now above the 20da ($50.46).

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

BUY PUT MAR-50 UPU-OJ OI= 381 at $3.80 SL=2.25
BUY PUT MAR-45 UPU-OI OI=1662 at $1.20 SL=0.60
BUY PUT APR-45*UPU-PI OI= 812 at $2.40 SL=1.25

Annotated Chart of CTSH:



Picked on February 19th at    $47.49
Change since picked:           -0.22
Earnings Date                2/10/04 (confirmed)
Average Daily Volume =      1.30 mln
Chart =


---

3M Company - MMM - close: 78.02 change: -0.16 stop: 81.50

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

Why we like it:
Breaking under the 100-dma ($79.81) seems to have been the
directional key for shares of MMM, as once that support gave way,
the stock gave up some significant ground into the end of the
week.  Of course it is encouraging that the drop of the past few
days has come on rising volume, but at the same time, Friday's
afternoon rebound from the just above $77.50 leaves a bit of
uncertainty on the table.  This was the site of the lows from
early February, and we could see a double bottom form here, just
as easily as our expected breakdown.  Oscillators are clearly
voting in the bears' favor, but that doesn't mean they can't turn
up on a solid bounce from support.  This is why we've been
suggesting that momentum traders will need to see the break below
$77.50 (or even $77, which will generate that elusive PnF Sell
signal) before jumping into the play.  Up until now, the best
entries have been found on failed bounces below the 30-dma
($80.35) and now the 100-dma looms overhead as a likely
resistance point.  Traders looking to enter on a failed bounce
will now want to target a rollover near the $80 level.  We're
going to leave our stop in place at $81.50 until the PnF Sell
signal arrives, but more conservative traders may want to use a
tighter stop at $80.75, just over Tuesday's intraday peak.

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

BUY PUT MAR-80*MMM-OP OI=3982 at $2.60 SL=1.25
BUY PUT MAR-75 MMM-OO OI=5202 at $0.50 SL=0.25
BUY PUT APR-75 MMM-PO OI=3033 at $1.15 SL=0.60

Annotated Chart of MMM:



Picked on February 15th at    $79.68
Change since picked:           -1.66
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.73 mln
Chart =


---

Winnebago - WGO - close: 66.79 chg: +1.47 stop: 68.66*new*

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

Why We Like It:
We initially added WGO several days ago on its technical
breakdown below support near $69.00 and its 50-dma.  Shares
quickly fell lower and hits $64.00 before finally bouncing.
After three days of sideways churning WGO managed a strong early
morning rally on Friday with no discernable catalyst to fuel the
surge higher.  Whatever caused the rebound appears to have run
out of steam and WGO is once again presenting bears with an entry
point on this new failed rally under $69.00.  We're targeting a
move to $60-62.  Given the rollover Friday afternoon we're going
to lower our stop loss to $68.66.

FYI: don't forget that WGO has a 2-for-1 split on March 8th.

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

BUY PUT MAR 70 WGO-ON OI= 373 at $4.60 SL=2.30
BUY PUT MAR 65 WGO-OM OI= 327 at $1.65 SL=0.85
BUY PUT APR 70 WGO-PN OI= 172 at $5.60 SL=3.20
BUY PUT APR 65*WGO-PM OI= 965 at $2.70 SL=1.35

Annotated chart:



Picked on February 22 at $68.13
Change since picked:     - 1.34
Earnings Date          12/17/03 (confirmed)
Average Daily Volume:       276 thousand
Chart =



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

None


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The Option Investor Newsletter                   Sunday 02-29-2004
Sunday                                                      4 of 5


In Section Four:

Leaps: What's Going On At The Fed?
Traders Corner: Who Does A Bull Call When A Bull Calls?


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*****
LEAPS
*****

What's Going On At The Fed?
By Mark Phillips
mphillips@OptionInvestor.com

I can't ever remember seeing such a parade of propagandists in my
entire trading career.  It seems every day one or more of the Fed
heads are out on the speaking circuit, parroting some bit of
pabulum such as the economy is strong, jobs don't matter as
productivity is wonderful, interest rates will stay low until the
end of time, inflation is benign, quack, quack quack...

The Fed has been busy jawboning the markets for close to a year,
since before the bond traders called Greenspan's bluff about using
"unconventional means" to keep rates low and sent bonds tumbling
last June.  We've all heard the same sound-bites over and over so
many times, I'm actually surprised that Greenspan and his cronies
are able to move the markets at all anymore.  But the game seems
to be changing and we're starting to see the gloves come off in
some of the recent comments from the Fed Chief.  It's almost as
though he's breathing a huge sigh of relief, knowing that he's
pumped enough stimulus into the economy to last through the
election this fall and that he'll be able to retire with his halo
intact, at least in the eyes of the sheeple.

Knowing that he's managed to stave off the day of reckoning long
enough to shuffle off the stage riding high, it seems he's taking
advantage of his position and using it to point out the things
that are sever problems that the politicians must address or
'suffer the consequences'.  It seems to be a way of positioning
himself such that when things do go awry, he can say, "Don't look
at me.  I told you what needed to be fixed and you didn't take
care of it."  Let's talk specifics, shall we?

Last week, Fed Governor Bies was out on the speaking circuit and
her chosen topic was the issue of Housing and whether on not it is
a bubble.  Her position was nothing new, claiming it was not.  Big
surprise, huh?  But her rationale is specious.  First off, she
said housing couldn't be a bubble because it hasn't become
inflated to the degree the NASDAQ did in early 2000.  What?!?
Just because it hasn't lived up to the scale of the greatest
speculative bubble of modern times, it's not a bubble at all?  If
I had used logic like that in my critical thinking class, I would
have been flunked on the spot!  But it is the next line in her
prepared remarks that truly caught my attention.

The other reason she says we don't have a housing bubble is
because the financial industry has been so much more disciplined
about its lending practices.  With that one, I just lost it and
busted up laughing.  At that point it became clear that she was so
full of it that her eyes had turned brown!  More disciplined?!?
Hello?  Interest only mortgages?  When before now have those been
widely available?  And they are the majority of what is being
pushed in the refi industry.  Speaking separately, Greenspan
actually told Congress that it was a good idea for consumers to
use adjustable mortgages.  Maybe for now, but once rates begin to
rise, a lot of people will be in deep trouble if they get locked
into an adjustable rate that starts rising.  This is one of the
worst pieces of direct advice I've heard out of the Fed head.  The
only possible explanation I can come up with is that he knows the
Housing bubble is real and wants to add a bit more air to it
(stimulating more borrowing by encouraging adjustable loans), so
that it can't deflate before he exits the public stage at the end
of the year.

This ties in with some very interesting comments made by Greenspan
during his first day of testimony last week.  All we've been
hearing for months and months is how there isn't a Housing bubble
and while highly leveraged, FNM and FRE are not in any way poised
to cause an upset to the mortgage market.  Greenie threw his hat
in the ring by stating that FNM and FRE pose a credible threat to
the financial system and they need to lighten up on their
leveraged exposure.  With these two GSEs responsible for roughly
70% of all mortgage debt and Greenspan's admonishment that they've
gotten too highly leveraged, I have a hard time seeing how he
isn't warning us about at least a mortgage debt bubble.  It is
kind of like telling us, "There's no housing bubble", while at the
same time winking frantically and then later pulling us aside from
our peers and whispering in furtive tones, "Watch out, there
really is a housing bubble and here's where the weakest link is".

Finally, in his second day of testimony, Greenspan admonished
Congress for their profligate spending and warned them that the
budget deficit needs to be brought under control.  He then
attacked one of the budgetary sacred cows and recommended cutting
Social Security benefits.  But he did so in such a way as to be
politically expedient, stating that benefits should only be
reduced for future retirees.  To me, that is a warning to the Baby
Boomers that they're going to need to set aside more money on
their own if they hope to have a comfortable retirement in the
years ahead.  I believe that is a tacit approval of President
Bush's plans of privatizing Social Security, something he has been
reticent to do in the past.

There were other examples of inanity from the Fed last week, but I
am limited by time and space and can't cover them all.  Taken
together, this seems like a concerted and coordinated effort to
keep the housing bubble and the reinflated bubble in equities
growing long enough for Greenspan to manage a graceful exit at the
end of his current term.  Money is still being injected into the
economy at an astounding rate - in order to continue the inflation
of the housing, debt and equity bubbles - with M3 currently
growing at a $1.2 trillion annual rate!  In light of all this
credit growth, it is amazing how strongly the dollar rebounded
last week and I have a hard time viewing it an anything more than
a much-needed oversold bounce.  As I've stated before, I look for
the Dollar index (DX00Y) to break to new lows later this week and
I have my eye on the 74 level, which is the current price target
from the very bearish PnF chart.

Despite all of these profound statements last week and some less
than inspiring economic reports, the broad market barely flinched,
confined to a fairly narrow range.  The DOW barely exceeded a 100
point range for the entire week!  The S&P 500 was similarly
rangebound, hovering near the 1145 level throughout the week, as
the NASDAQ bounced from and then hovered just above key support
near 2000.  Complacency among market participants hit new highs as
the VIX dropped to new decade lows at 13.80 on Friday.

Inflation is still officially being called benign, but as I've
stated on numerous occasions, that is only because the of the way
the data is massaged.  Looking at the CRB index continues soaring
to new highs.  This is because the cost of virtually every basic
commodity is soaring to highs not seen in many moons.  Just one
example among many is the price of copper, which has soared to
$1.34, a pretty amazing rise from its base near $0.80 last summer.
How about soybeans?  This agricultural staple has soared from near
$5.00 last summer to $9.37 and a new high on Friday.  Inflation is
rampant but currently disguised, as I pointed out in last week's
discussion of the recent CPI report.

The price of virtually everything that isn't an importable
manufactured product is soaring, rising on the sea of Fed-
generated liquidity.  It isn't that things are necessarily
becoming more expensive.  It is just that the dollar is becoming
much cheaper in the open market and as it falls, products
denominated in that currency continue to rise in price.  That is
the classic definition of inflation -- your money is worth less
and less and subsequently buys less and less.  And we can expect
the Fed to keep re-filling the punchbowl as long as the music
keeps playing.

So that means the status quo should continue for a while longer,
quite possibly right through the election.  That means we can
expect the bullish trends in virtually everything to continue,
with the bearish trend in the dollar to resume once this current
oversold bounce runs its course.  The game will eventually change,
but determining when and due to what catalyst is a level of
prognostication that sadly I lack.  My approach is to continue
playing the game as it is currently structured, but when the music
stops, I'm going to make sure I can find a seat.

I'm sure by now you've gotten the picture that I see some ominous
storm clouds brewing, but for right now they are far enough in the
distance that they won't affect our current bullish picnic.  We'll
stick with the trend playing the long side where appropriate and
the short side where we're given an opportunity, but always
keeping one ear tuned to listen for the sound of approaching
thunder.  Let's now take a few minutes and peruse our play lists,
as there are some significant changes there.

Portfolio:

SMH - There are many things that can be said about the
Semiconductor stocks right here, but accusing them of strength
would not be high on that list.  It looks like a pending breakdown
could be looming on the horizon, with lower highs and support
continuing to be tested near $40 on the SMH.  Of course there's
still some work to be done to generate a PnF Sell signal, as that
will require a trade at $38.  That development will carry with it
a bearish price target of $30 and we'll really be off to the
races.  But until then, SMH is still caught in limbo, stuck below
resistance (first at $43, then at $44-45), but unable to break
support (first at $40 and then $38).  Failed bounces under the $43
level still look acceptable for entering the play, especially now
that weekly Stochastics are firmly bearish, having left behind
clear bearish divergence.  We'll keep our stop at $46 until we
finally get a firm break under $40 on a closing basis and then
we'll tighten that stop to $44, just over the most recent peak.

NEM - The bargain hunters were out in force last week, at least in
terms of the U.S. Dollar.  There was another powerful rebound in
the Dollar index (DX00Y), bringing it right back to the 88
resistance level.  What's interesting is that both gold and gold
stocks held their ground rather well, with NEM simply
consolidating all week between the $42 and $44 levels.  NEM is
above its 200-dma ($39.70) and strong support in the $38-40 area,
the XAU index is above its 200-dma ($92.09) and strong support in
the $90-92 area and gold (GC04J) is above its 200-dma ($379.46)
and strong support near $380.  As long as those levels hold as
support and the DX00Y fails to break out over $92, then the
bullish gold/bearish dollar trend remains intact.  Traders still
looking for entry into the play (or to add to current positions)
should use any dip near $40 to get on board.  Maintain stops at
$37, solidly below major support.

HD - Last week it looked like we were finally going to get the
breakdown from HD's bear-flag pattern, but the buyers did their
duty and stepped up to buy support right at the bottom of the
pattern and Friday's price action saw the stock once again testing
resistance near $37.  The upper channel line that we've been
watching has now dropped to the $37.50 level, so we're setting up
for an important test on that front.  And weekly Stochastics are
still reluctantly creeping higher, but looking like they could tip
over any day now.  A rollover in the $37-38 area still looks like
an excellent entry into the play.  Don't forget your insurance put
though, just in case HD heads a bit higher before heading back
down, as we expect

MLNM - We probably could have gotten a bit better entry on MLNM if
we had only waited a bit longer, but there's no use crying about
it.  The stock is still holding solidly above both the 100-dma and
the rising trendline of support.  Friday's strong selling volume
does cause some concern, but it may just be telling us that more
patient traders are finally going to get a shot at an entry near
the rising trendline, currently just under $17.  This is the right
area to be establishing bullish positions in anticipation of
positive product announcements later in the year driving price
into the mid-$20s.

Watch List:

SNDK - There's just nothing to get excited about in terms of our
SNDK watch list play.  Price action remains weak and the 50-dma
just crossed below the 200-dma for the first time in almost a
year.  I still feel like this will be a winner of a play once the
stock finds bottom, but at this point, it looks like we'll need to
see it trading down near $20 before an entry will make sense.
Weekly Stochastics have reached oversold territory, but so far are
showing no sign of turning up yet.  Leaving this potential play on
Hold is the only reasonable choice.

CHK - Don't you think getting within 5 cents is close enough for
an entry?  I do and CHK transitioned to the Portfolio on last
Tuesday's dip to just above the $12 level.

Radar Screen:

WMB - It was another interesting week for WMB, as traders
continued to favor the Sell side early in the week and then
switched to bargain hunting mode in the later half of the week,
pushing price back over the $9 level and the 200-dma by week's
end.  While we could see this level hold as support before a
resumption of the bullish trend due to the bullish natural gas
picture, I think we're still premature to be cuing up an order.
Weekly Stochastics are still heading down towards oversold
territory and we ought to wait for them to bottom and price to
reach a plateau (hopefully near $8) before officially adding the
stock to our Watch List.

APA - So much for our bargain of an entry point on APA.  Rather
than pulling back towards strong support, the stock reversed
course at the 100-dma again and shot up through the 50-dma.  It
looks like a test of the $43 resistance level will occur in the
near term and our prospects for a viable play look dim.  I have no
desire to chase the stock higher, but we'll keep it here on the
Radar Screen for another week, just in case we do see another
selloff down near the bottom of the long-term channel and the 200-
dma.

GM - You may think I'm crazy -- maybe I am -- but I'm starting to
have bearish thoughts about GM again.  The stock had quite the
bullish run over the past year, and the last euphoric push came
following the company's pronouncement that its pension plan
shortfall would no longer be a problem.  But there's still the
problem of the fact that the majority of the company's income is
generated from finance activities, not producing vehicles.
Technically, things are looking bearish again, as the stock rolled
over from the $55 level, right at the top of its 4-year declining
channel.  Hmmm...sounds a bit similar to our HD play, don't you
think?  Weekly Stochastics are already in full bearish decline, so
we'll want to look for a push back near the $53 area and then
enter on the rollover.  This week's note is just a heads up for
what we're looking for and GM is likely to find its way to the
Watch List next weekend.

TYC - Alright, I know we're late to this party, but TYC looks like
it still may have a ways to run and it's hard to argue with the
steady and deliberate price action as the stock has been working
its way higher in a rising channel for almost a year now.  Dips
near the bottom of the channel have proved to be solid entry
points, and that means we'll be wanting to look for a pullback
near the $26 level to let us in.  The PnF chart is currently off
the scales bullish, with a tentative price target of - get this -
$63!  There's no way I can believe the stock is going that high
without a major correction along the way, but I can see $35 as
being a reasonable near-term target and a rally to strong
resistance near $42 seems like a good level on which to set our
sights.  I'll be adding TYC to the Watch List next weekend,
despite the fact that weekly oscillators are still looking
extended and the stock's valuation is rich.

Closing Thoughts:
I'm sure your getting as tired of reading about the lack of
meaningful change in the overall market as I am about writing
about it, but when the DOW can trade in a 350 point range for 2
months and spend an entire week in a range of little more than 100
points, it's clear that the market is just marking time.  Earnings
are over and that means we have until April before the fun and
games begin anew.  I can't envision just what will shake up the
insane levels of complacency, but when the sea is this calm, I
can't help but wonder what storm is brewing just over the horizon.
It is definitely an environment in which to play with caution.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
SNDK   12/21/03   HOLD         JAN-2005 $ 20  XWS-AD
                            CC JAN-2005 $ 17  XWS-AQ
                               JAN-2006 $ 20  YSD-AD
                            CC JAN-2006 $ 17  YSD-AQ
                            PP JUL-2004 $ 17  SWQ-SQ
LUV    02/29/04   $12.50       JAN-2005 $ 15  ZUV-AC
                            CC JAN-2005 $ 12  ZUV-AV
                               JAN-2006 $ 15  WUV-AC
                            CC JAN-2006 $ 12  WUV-AV
                            PP JUN-2004 $ 12  LUV-RV


PUTS:
None


New Portfolio Plays

CHK - Chesapeake Energy $12.22  **Call Play**

Considering that weekly Stochastics are in full bearish decline,
shares of CHK have been holding up very well in recent weeks and
it all boils down to the fundamental picture.  Natural gas is
historically expensive and it doesn't look to get any less
expensive in the near future.  Demand is going up as its use for
power generation is virtually mandated in order to keep the air
clean.  At the same time, available supplies are dropping, as it
becomes harder and harder to find the gas at cost effective rates.
That's a gift to companies like CHK, which is heavily involved in
the production of this fuel source throughout the mid-continent
section of the United States.  With natural gas prices once again
on the move to the upside, it won't be long before CHK's price
once again rejoins the bullish party.  Last week's dip to just
above the $12 level may be the best we see for an entry into the
play, and the rally into the end of the week certainly looks
encouraging.  Of course, first we'll need to see the stock move
back over the 50-dma near $13 and then do battle with the bottom
of the broken channel near $13.50.  Only then will the stock be in
position to challenge the December highs near $14 and make its way
higher towards the $20 level.  We'd actually be happy with the
return seen on that move, but the PnF chart has an even more
aggressive bullish price target of $25.  To be fair, we pushed the
entry a bit last week, with the dip on Tuesday only hitting a low
of $12.05, but that seemed close enough for a stock that seems to
be building a new base here, before charging higher along with the
rest of the very strong sector.  Note that we're using an April
protective put here and setting a fairly wide stop at $9.  It
would take a trade at that level to create a PnF Sell signal and
change the current bullish picture.

BUY LEAP JAN-2005 $12 XHV-AV $ 1.50
BUY LEAP JAN-2006 $12 WZY-AV $ 2.25
BUY PUT  APR-2004 $10 CHK-SB $ 0.25 **Protective Put**


New Watchlist Plays

LUV - Southwest Airlines $13.81  **Call Play**

Despite an encouraging rebound in the Dow Transports from a
slightly higher low last week, the Airline index (XAL.X) is still
looking sickly, losing ground again on Friday and likely to
threaten its 200-dma support again in the near future.  So what am
I doing adding a bullish play on discount airline LUV, you ask?
Simply put, the company has one of the tightest ships in the
industry and is one of the few carriers that understands
passengers are to be treated as clients, not hostages.  But aside
from that fact, LUV is rapidly approaching the $12 area, which has
been very strong support for the past few years.  Taking a longer-
term view of the XAL index, we can see that the decline of the
past few months is not as bad as it might look in the near term.
After rallying from the $25 area to as high as $70 from last March
through October, the index has yet to even fall to its 38%
retracement.  In other words, this is a very mild pullback from
the 180% rally last year.  So odds are good that the XAL will find
solid support perhaps at the 200-dma, but definitely by the time
it reaches that 38% retracement.

LUV looks like a good way to play that rebound, as its weekly
Stochastics are well buried in oversold territory already and the
stock is fast approaching that firm support near $12.  If LUV
holds true to form, we can expect a rally to get underway sometime
in the April-May timeframe in anticipation of improving business
during the peak travel season this summer.  All we have to do now
is hope for the current downtrend to continue down to our entry
target at $12.50 before the rebound gets underway.  Note that
we're suggesting the use of a protective put (using June
expiration) to guard against the outside chance that LUV doesn't
hold support near the $12 level.  We'll place our stop at $10.50,
just below the lows of the past several years.  Bear in mind that
this is an aggressive play setup, as LUV's PnF chart is very
bearish right now and currently projects a downside target of $9.
But I'm reminded of a very similar chart pattern in mid-2002 that
forecasted a downside target of only $1, and then the stock found
support near $11 before working its way back up towards the $20
level late last year.  I'm betting on a repeat performance of that
pattern and I'm willing to play for a slightly less ambitious goal
and look for a rally back into the $18-19 area later this year.

BUY LEAP JAN-2005 $15 ZUV-AC
BUY LEAP JAN-2005 $12 ZUV-AV **Covered Call**
BUY LEAP JAN-2006 $15 WUV-AC
BUY LEAP JAN-2006 $12 WUV-AV **Covered Call**
BUY Put  JUL-2004 $12 LUV-RV **Insurance Put**


Drops

QCOM $63.09 It's time to pull the plug on QCOM.  The stock has
performed beautifully since we began watching it back in November,
just barely missing our desired entry point on more than one
occasion and it is now more than $20 higher.  With our expected
goal for the stock coming up in less than $5 at the $67-68 area,
there's no longer sufficient upside to make the play viable for
new longs.  While we're dropping coverage this weekend, it doesn't
imply a lack of faith in the stock, just an inability to make it
into a viable long-term play at this level.

SBUX $38.95 How does the saying go -- "Close enough for government
work"?  That's how I feel about SBUX.  As strong as the rally was
in the prior week, shares of the coffee chain jumped again on
Tuesday, continuing higher on Wednesday and hitting an intraday
high of $39.68 before pulling back to close just under the $39
level.  We've been talking for weeks about taking a targeted exit
at $40, and I'm not going to quibble about 32 cents.  Our play was
officially closed at the end of the day on Wednesday for a nice
triple digit gain.  Technically, SBUX still looks like it might
make another upward thrust, as last Thursday's drop due to the
company stating the obvious -- that they wouldn't be able to
repeat last month's strong 32% sales growth -- only caused a drop
back to the top of the bullish channel that the stock broke out of
in the middle of January.  Well, Duh!  The stock hasn't seen a
serious pullback since last April when the stock was trading near
$23 and it's getting a bit frothy here, if you'll pardon the pun.
The technical concern here is that the stock has been building a
pattern of bearish divergence in terms of Stochastics and MACD on
its daily chart for the past few weeks and Thursday's drop may be
signaling that the jig is up.  Traders willing to hold on for a
potential run up to actually hit that $40 target are welcome to
try, but please keep a firm stop in place.  We'd still recommend a
stop at $36.50, as that is below both Thursday's intraday low, as
well as the 30-dma.


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Who Does A Bull Call When A Bull Calls?
By Mike Parnos, Investing With Attitude

When you hear the words “bull” and “call,” what do you think?  It
depends if you live on a farm or if you trade options.  If you
live on a farm AND trade options, it can probably get pretty
confusing.  The best advice I can give you is to be careful where
you walk – although uneducated option traders have been known to
step in it on a regular basis.

There are a number of option strategies that we, at the CPTI,
don’t use very often.  However, we should know about them and have
them in our trading arsenal – just in case.
_________________________________________________________________

The Bull Call Spread
Today we’re going to examine a strategy called a “Bull-Call
Spread.” No, it’s not a new sandwich spread.  It’s a strategy
involving two options, in close proximity, working together to
limit risk and to position one for profitability.

Bull-Call Basics
The word “bull” means you have a bullish outlook.  The word “call”
simply means we’re going to be using calls to establish the
position.  A Bull-Call Spread consists of the purchase of a call
and the sale of another call at a higher strike price, both with
the same expiration month.

I want to emphasize that the example below is just that, and only
that – an example.  I picked IMCL because the numbers happen to
provide a good demonstration of how bull-call spreads works – and
because it’s Martha Stewart’s favorite.

There are a few different theories about the placement of Bull-
Call spreads.  First, let’s examine the more bullish scenario.

Example #1
IMCL is trading at $41.98.  We’ve done our research due diligence
and believe IMCL stock will appreciate about 15% in the next few
months.  How do we take advantage of this prognostication?

We don’t have a large trading account.   Maybe we’re being frugal
(or cheap), but it’s good money management skills that will keep
you in the game.  Can we find a blue-light special that will
enable us to participate in IMCL’s projected move up?  Where
there’s an option, there’s a way!

IMCL Option Chain – Trading @ $41.98
Stock     Exp.     Strike  Bid       Ask
IMCL     April     $35     8.00     8.10
IMCL     April     $40     4.40     4.50
IMCL     April     $45     1.85     1.95
IMCL     April     $50     0.75     0.85

Buy 1 contract of IMCL April $45 call for $1.95 ($195)
Sell 1 contract of IMCL April $50 call for $.75 ($75)
Total debit:  $1.20 ($120)

What Have We Done?
We purchased the right to buy $100 shares of IMCL at $45.  Then,
to reduce our costs, we sold the $50 call, obligating us to sell
100 shares at $50.  That’s fine because our research tells us that
IMCL will probably not go much higher than $50.  If we thought
IMCL had the potential to go much higher, we wouldn’t have sold
the $50 call.

So, our investment of $120 enables us to control 100 shares of
IMCL (a $4,200 value) for two months.  We’ve positioned ourselves
to make nice money if IMCL moves up and, most of all, we’ve
defined our risk.

Positives & Negatives
In the above scenario, the amount of potential profit is $380.
That is calculated by taking the difference between the strike
prices $5.00 ($45-$50) and subtracting the cost of putting on the
trade $120).

On the positive side of the ledger is the fact that our risk
reward ratio is 1:3.  We’re risking $120 with the potential to
make $380.   Potentially, that’s a return of 316%.  Also, our risk
is defined.  The very most we could lose on the trade is $120 –
even if IMCL goes to zero.  We won’t need sleeping pills for this
trade.

On the negative side of the ledger is the fact that our profit
potential is capped.  When we sold the $45 call, we limited the
amount we can make on the trade to $380.  That’s the price we pay
for being frugal.  It’s a business decision.   Also on the
negative side is that IMCL is going to have to make a substantial
move up (10%+) before we participate in any profits.

Show Me The Money!
When do the profits begin?  First, we have to determine our
breakeven point?  $46.20.  This is calculated by taking the strike
price of the long call ($45) and adding the cost of the trade
($1.20).   Easy enough.

When Do You Exit?
The options in a bull-call spread will achieve their maximum value
at expiration.  For the first weeks of the trade, even if IMCL
moves, the value of the spread will only participate to a point.
That’s why, if the opportunity presents itself, it’s a good idea
to exit the trade if you can take 75% of the profit.  It doesn’t
make sense to hold on, risking $75% while you waiting for the last
25%.

If IMCL goes the wrong direction, you should have a predetermined
exit point.  You will need to sell your long call and have to buy
back the short call.  With only $1.20 invested in the trade, you
can be patient.  However, let me reiterate that good money
management skills are essential.

Example #2
In the above example, IMCL would have to move in a particular
direction for us to be profitable.  Many traders, who aren’t good
at picking a direction (like me!), look for ways to construct a
more neutral scenario that improve one’s chance of success.  We
can use a Bull-Call spread by adjusting the strike prices.

IMCL trading at $41.98
Buy 1 contract IMCL April $35 call for $8.10
Sell 1 contract IMCL April $40 call for $4.40
Total debit: $3.70

What’s The Difference?
The most important difference is in what is (or isn’t) required of
the stock.  To collect the maximum profit, IMCL will have to
finish above $40.  With IMCL trading at $41.98, it’s already over
$40.  Both the long and short calls are already in the money.  The
percentages of success have increased dramatically.  IMCL can move
up, stay the same, or even move down $1.98 and we’d still make our
maximum profit.   The outlook for IMCL only needs to be neutral to
bullish and we still have a bit of a cushion if we’re wrong.

The tradeoff is in the amount of risk and the amount of profit.
The risk has increased to $3.70 and the amount of profit has been
reduced to $1.30.  Is it worth the added risk to make a smaller
reward?

Calculating The Return
Is $1.30 a good profit?  Get out your abacus and divide the risk
($3.70) into the profit ($1.30).  $1.30 is a 35% return on your
risk.  Not too shabby.
_________________________________________________________________

MARCH CPTI POSITIONS

Position #1 – OEX (S&P 100 Index) Iron Condor – 564.54
We sold 12 OEX March 595 calls and bought 12 OEX March 605 calls
(Bear Call Spread).  Then we sold 12 OEX March 540 puts and bought
12 OEX March 530 puts (Bull Put Spread).  The total net credit was
$1.20 ($1,440).  Maximum profit range: 540 – 595.  Maintenance:
$12,000.

Position #2 – RUT (Small Cap Index) Iron Condor – 585.56
We sold 8 RUT March 610 calls and bought 8 RUT March 620 calls
(Bear Call Spread).  Then we sold 8 RUT March 550 puts and buy 8
RUT March 540 puts (Bull Put Spread).  The total net credit was
$2.75 ($2,200).  Maximum profit range: 550 - 610.  Maintenance:
$8,000.

Position $3 – MNX (Mini-NDX Index) Iron Condor - $147.04
We sold 20 MNX March $157.50 calls and bought 20 MNX March $160
calls (Bear Call Spread).  Then we sold 20 MNX March $142.50 puts
and bought 20 MNX March $140.00 puts (Bull Put Spread).  The total
net credit was $.90 ($1,800).  Maximum profit range: $142.50 -
$157.50.  Maintenance: $5,000 less $1,800 = $3,200.

Position #4 – BBH (Biotech Index) - Siamese Condor - $147.90
We sold 10 BBH March $145 calls and sell 10 BBH March $145 puts
for a credit of about $6.95.  Then we bought 10 BBH March $160
calls and buy 10 BBH March $130 puts for a debit of about $.70.
The total net credit is $6.25 ($6,250).  Our profit (safety) range
is $138.75 to $151.25.  These are also our bailout points.  The
closer BBH finishes to $145, the more money we will make.
______________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $36.57
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We make
money by selling near term puts and calls every month.  Here's
what we've done so far:
October: Oct. $33 puts and Oct. $34 calls – credit of $1,900.
November: Nov. $34 puts and calls – credit of $1,150.
December: Dec. $34 puts and calls – credit of $1,500.
January: Jan. $34 puts and calls – credit of $850.
February: Feb. $34 calls and $36 puts – credit of $750.
March: Mar. $34 calls and $37 puts – credit of $1,150.
Total credit: $7,300.

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

ZERO-PLUS Strategy.  OEX – 564.54
In my Feb. 8th column, I outlined a strategy based on an initial
investment of $100,000.  $74,000 was spent on zero coupon bonds
that will mature in seven years at a value of $100,000.  In
essence, that guarantees the principal $100,000 investment.  We
are trading the remaining $26,000 to generate a “risk free” return
on the original investment.

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

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

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

Mike Parnos
CPTI Master Strategist and HCP
_________________________________________________________________

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


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The Option Investor Newsletter                   Sunday 02-29-2004
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading The Trend
Naked Puts: Strategy Selection
Spreads/Straddles/Combos: No Inspiration For Stock Buyers!


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

Trading Basics: Trading The Trend
By Mark Wnetrzak

Trading with the trend increases the probability of success in
almost every situation because by definition, a "trend" is more
likely to continue than to change.

In most cases, the trend is simply the general direction of the
market and the bias of any financial instrument will usually
persist until something occurs to change the balance of supply
and demand.  When a stock price moves above a recent channel or
trading range, it's an indication the character of the trend has
changed and successful traders go with the momentum of the issue,
not against it.  Those who trade in the direction of the primary
trend are following the market, rather than trying to predict it
and the probability of profit is much higher when you participate
in positions that benefit from the underlying issue's prevailing
tendency.

Most investors have heard the saying "The trend is your friend"
and using the trend to your advantage is certainly one of the
tried and true market principles.  This is a common approach
utilized by the majority of successful traders in the industry
and there are numerous advantages to systems that profit from
simply following the primary direction of the underlying issue.
One of the most important aspects is the virtually effortless
placement of profit targets and stop limits, which eliminate the
human elements of subjective judgment and emotion in determining
the future movement of the market.  Trading with the trend means
you will participate in liquid markets because volume generally
coincides with any definitive movement in a financial instrument.
The amount of trading activity is also an important component of
technical analysis and where there is high volume, there will be
stronger, more obvious trends.  Of course, active markets usually
provide better opportunities for traders because the increased
liquidity produces timely executions of orders and the technical
signals are much more accurate.

Defining primary trends and trading in the appropriate direction
is relatively easy, however it can be difficult to time the exit
for maximum return.  In addition, entering on the correct side of
the prevailing trend is important but if you don't know how to
close the play with a profit, there is little point in initiating
the trade.  Exploiting each portfolio position for the greatest
possible gain is a critical element of any profitable trading plan
and the technique must be mastered for consistent success.  If you
take profits too quickly on each trade, it will be difficult to
achieve long-term prosperity because the small capital gains will
rarely exceed the portfolio's overall losses.  A popular adage
suggests you should "let your profits run" and that maxim holds
true in almost every financial endeavor.  One way to ensure that
outcome is identify the price levels that will signal a change in
trend, giving you precise entry and exit points for each position.
In most cases, you should close any play in which the underlying
trend changes significantly, thus protecting current gains and
minimizing losses.

To be successful, a trader must be disciplined and act according
to the predetermined plan regardless of whether it "feels" right.
Unfortunately, losses are an inescapable part of trading and even
simple "trend-following" strategies endure a sizable percentage of
losing positions.  That's why it is so important to limit the size
of the these losses; so you will have adequate funds to capitalize
on the major trends when they occur.  Professional investors know
that taking losses is a necessary element of trading in the stock
market, however they are able to remove the biggest obstacles to
consistent returns (ego and other emotions) by adhering to profit
targets and stop-limits.  These traders also have confidence in a
systematic approach to profiting in the market and they evaluate
their performance based on many positions over an extended period
of time.  In short, they know the formula for successful trading:
a proven, well-defined strategy; the discipline to implement it
correctly and in a timely manner; and the patience to allow it to
profit over the long-term.

Trade Wisely!

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

SUMMARY OF PREVIOUS CANDIDATES

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

Note:  Margin not used in calculations.

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

KERX    12.62   13.73  MAR 12.50  1.30    1.18*   9.3%
NFLD    10.65   11.37  MAR 10.00  1.25    0.60*   6.9%
ASIA     7.80    7.55  MAR  7.50  0.90    0.60*   6.3%
MWY      5.04    4.85  MAR  5.00  0.50    0.31    6.1%
NEOL    20.08   21.02  MAR 17.50  3.60    1.02*   5.5%
NEOL    20.04   21.02  MAR 17.50  3.30    0.76*   4.9%
GMST     7.67    7.24  MAR  7.50  0.80    0.37    4.8%
TIBX     7.95    8.02  MAR  7.50  0.90    0.45*   4.6%
CRYP    16.38   16.68  MAR 15.00  2.00    0.62*   3.9%
CNET    10.72    9.92  MAR 10.00  1.30    0.50    3.8%
WEBM    10.66   10.60  MAR 10.00  1.00    0.34*   3.8%
OSTK    23.63   29.27  MAR 20.00  4.30    0.67*   3.8%
SKX     11.38   12.61  MAR 10.00  1.75    0.37*   3.4%
BVSN     8.67    8.11  MAR  7.50  1.40    0.23*   3.4%
PMSI     5.72    5.39  MAR  5.00  0.90    0.18*   3.3%
MWY      5.53    4.85  MAR  5.00  0.80    0.12    2.8%
VICL     7.60    7.14  MAR  7.50  0.55    0.09    1.4%

* Stock price is above the sold strike price.

Editor's Comments:

Major Averages Tread Water!

The Major Averages continue to consolidate with the DJ-30 and
the S&P-500 moving lateral while the NASDAQ trends lower.  Are
we forming a "top" or basing for the next leg higher?  As always,
next week should offer some clues.  As for the covered-call
portfolio, most issues are holding there own though a few may
require some close monitoring over the next couple weeks.
The following stocks could pull back towards their longer-term
support areas though overall the charts depict bullish signals:
Gemstar-tv Guide (NASDAQ:GMST), Tibco Software (NASDAQ:TIBX),
Cnet Networks (NASDAQ:CNET), Broadvision (NASDAQ:BVSN), Prime
Medical (NASDAQ:PMSI), and Vical (NASDAQ:VICL).  Investors were
not pleased with Midway Games' (NYSE:MWY) earnings report this
week and the stock has dropped right to the January high on heavy
volume.  A move towards $4.00 appears probable as the stock
continues to churn in a Stage I base.  We will show the
position closed if the 50-day MA (~ $4.50) fails to hold.

Note:  I will be on vacation for the next couple weeks.

Positions Previously Closed: None

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

NEW COVERED-CALL CANDIDATES

Sequenced by Target Yield (monthly basis)
__________________________________________________________________

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

OPWV   15.16  MAR 15.00  UMN CC  0.80  1403   14.36  21   6.5%
SKIL   10.01  MAR 10.00  QAG CB  0.40  167     9.61  21   5.9%
IIJIE   5.36  MAR  5.00  IQD CA  0.55  292     4.81  21   5.7%
ULBI   23.00  MAR 22.50  BMQ CX  1.35  300    21.65  21   5.7%
BRCD    6.96  MAR  7.00  BQB CJ  0.25  14514   6.71  21   5.4%
FORM   20.25  MAR 20.00  AFU CD  0.85  601    19.40  21   4.5%
NOVN   23.36  MAR 22.50  NPQ CX  1.45  56     21.91  21   3.9%


Legend (for play description below)

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

__________________________________________________________________

OPWV - Openwave  $15.16  *** Consolidation Phase ***

Openwave Systems (NASDAQ:OPWV) is the leading independent provider
of open software products and services for the communications
industry.  Openwave's breadth of products, including mobile phone
software, multimedia messaging software (MMS), email, location and
mobile gateways, along with its worldwide expertise enable its
customers to deliver innovative and differentiated data services.
The company also has a professional services group that supports
its products.  Openwave's customers are communication service
providers, including wireless and wireline operators, and handset
manufacturers worldwide.  Openwave is another issue "riding the
wave" of the wireless rally.  The stock appears to be successfully
testing its 50-day MA and traders who foresee more upside activity
in the group should consider this position.

MAR-15.00 UMN CC LB=0.80 OI=1403 CB=14.36 DE=21 TY=6.5%


__________________________________________________________________

SKIL - SkillSoft  $10.01  *** Upgrade = Rally ***

SkillSoft (NASDAQ:SKIL) is a global provider of comprehensive,
multi-modal e-learning content and software products for business
and IT professionals.  Multi-modal learning (MML) solutions offer
tools to support and enhance the speed and effectiveness of both
formal and informal learning processes.  MML solutions integrate
the company's in-depth courseware, learning management platform
technology and support services to meet customers' learning needs.
SkillSoft focuses on meeting the business skills and IT learning
needs of professionals in Global 5000 organizations through a
range of content-centered, e-learning solutions.  The integration
of its e-learning offerings delivers a comprehensive MML solution
that includes major content modalities such as Business Skills
Library, IT Skills and Certification Library, Online Mentoring
and Books24x7 Referenceware.  Banc of America Securities upgraded
SkillSoft to a "buy" from "neutral" on Tuesday which helped push
the stock up to another new 52-week high.  Our outlook is also
bullish, due to the technical strength and this position offers
a reasonable cost basis in the issue.

MAR-10.00 QAG CB LB=0.40 OI=167 CB=9.61 DE=21 TY=5.9%


__________________________________________________________________

IIJIE - Internet Initiative  $5.36  *** Cheap Speculation! ***

Internet Initiative Japan (NASDAQ:IIJIE) offers a range of Internet
access and network solutions to its customers in Japan.  Its main
services are access services, systems integration services and
value-added services, which includes data center services.  The
company's access services range from low-cost, dial-up access to
high-speed access through dedicated lines for both individual and
corporate customers.  Its systems integration services are tailored
to customers' requirements and it sells a significant amount of
network-related equipment to its these customers as part of its
provision of total network solutions.  The company's value-added
services include a variety of data storage and management options
for corporate customers, as well as network security and other
services.  IIJIE has been forging a Stage I base for the last
6 months with a support area near $4.  Traders who believe the
lateral trend will continue can use this position to profit from
that outcome.

MAR-5.00 IQD CA LB=0.55 OI=292 CB=4.81 DE=21 TY=5.7%


__________________________________________________________________

ULBI - Ultralife Batteries  $23.00  *** On The Move! ***

Ultralife Batteries (NASDAQ:ULBI) develops, manufactures and
markets a range of standard and customized lithium primary
(non-rechargeable), lithium ion and lithium polymer rechargeable
batteries for use in various applications.  ULBI has focused on
manufacturing a family of lithium primary batteries for military,
industrial and consumer applications.  Ultralife also supplies
rechargeable lithium ion and lithium polymer batteries for use
in portable electronic applications.  Ultralife Batteries has
enjoyed investor favor with positive earnings, several new
contracts, and investment banker upgrades.  The stock continues
to surge higher supported by high volume and this position offers
potential investors who believe the rally will continue a method
to target-shoot a conservative entry point in the issue.

MAR-22.50 BMQ CX LB=1.35 OI=300 CB=21.65 DE=21 TY=5.7%


__________________________________________________________________

BRCD - Brocade  $6.96  *** Bottom Fishing ***

Brocade Communications Systems (NASDAQ:BRCD) develops, markets,
sells and supports data storage networking products and services.
Brocade offers a line of intelligent storage networking products
and SAN management software that enables companies to implement
highly available, scalable, manageable and secure environments
for data storage applications.  Their products and services are
marketed, sold and supported worldwide to end users through
distribution partners, including OEM partners, value-added
distributors, systems integrators and VARs.  Brocade is a stock
that has been forging a Stage I base for about a year and
this position offers a conservative method for investors to
speculate on the company's future.  Target-shooting a lower net
debit in the position should is a viable way to lower the cost
basis and increase the potential yield.

MAR-7.00 BQB CJ LB=0.25 OI=14514 CB=6.71 DE=21 TY=5.4%


__________________________________________________________________

FORM - FormFactor  $20.25  *** Bottom Fishing: Part II ***

FormFactor (NASDAQ:FORM) is engaged in the design, development,
manufacture, sale and support of precision, high-performance,
advanced semiconductor wafer probe cards.  The company's wafer
probing solutions are driving wafer-level economies of scale in
semiconductor test, delivering the advanced performance and
efficiency needed to accommodate more complex, higher-pin-count,
finer-pitch, higher-density devices.  FormFactor introduced its
first wafer probe card based on the MicroSpring interconnect
technology in 1995.  It has established subsidiaries in Japan,
Korea and Germany that provide local design support, service
and sales.  The company has sales offices in the U.S., Germany,
Japan and Korea and has distributors and representatives in other
locations throughout Asia and Europe.  FormFactor is once again
entering an area of historical support and appears to be bracing
for a rally as the stock has edged above its 50-day MA.  Traders
can speculate on the near-term performance of the issue with this
position.

MAR-20.00 AFU CD LB=0.85 OI=601 CB=19.40 DE=21 TY=4.5%


__________________________________________________________________

NOVN - Noven  $23.36  *** Earnings Rally! ***

Noven Pharmaceuticals (NASDAQ:NOVN) is engaged in the development
and manufacture of advanced transdermal drug delivery products
and technologies and prescription transdermal products.  Noven's
principal commercialized products are transdermal drug delivery
systems for use in hormone replacement therapy.  The company's
first major product was an estrogen patch for the treatment of
menopausal symptoms marketed under the brand name Vivelle in the
United States and Canada, and under the brand name Menorest in
Europe and other markets.  Noven's second-generation estrogen
patch was launched in the United States under the brand name
Vivelle-Dot.  Noven also developed a dual estrogen/progestin
transdermal patch for the treatment of menopausal symptoms,
which is marketed under the brand name CombiPatch in the U.S.
and under the brand name Estalis in Europe and certain other
markets.  Noven rallied strongly this week after the company
announced better-than-expected quarterly earnings and a drug
partnership with Endo Pharmaceuticals (NASDAQ:ENDP).  Traders
who believe the rally will continue can profit from that
outcome with this position.

MAR-22.50 NPQ CX LB=1.45 OI=56 CB=21.91 DE=21 TY=3.9%




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

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

Sequenced by Target Yield (monthly basis)
__________________________________________________________________

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

EMIS    7.54  MAR  7.50  MTQ CU  0.45  443     7.09  21   8.4%
AKAM   15.08  MAR 15.00  UMU CC  0.90  3036   14.18  21   8.4%
UAIR    5.09  MAR  5.00  UWS CA  0.35  301     4.74  21   7.9%
PAAS   17.67  MAR 17.50  USP CW  1.05  2181   16.62  21   7.7%
AVCI   20.51  MAR 20.00  UQE CD  1.45  131    19.06  21   7.1%
NTPA   13.19  MAR 12.50  NQD CV  1.25  951    11.94  21   6.8%
MVIS   10.09  MAR 10.00  QMV CB  0.50  527     9.59  21   6.2%
PPCO   16.69  MAR 15.00  OGQ CC  2.10  210    14.59  21   4.1%
NKTR   19.05  MAR 17.50  QNX CW  2.00  4349   17.05  21   3.8%
IBIS   14.49  MAR 12.50  UIB CV  2.30  267    12.19  21   3.7%
ADEX   21.80  MAR 20.00  QDE CD  2.30  355    19.50  21   3.7%
INGN    8.52  MAR  7.50  IUZ CU  1.20  128     7.32  21   3.6%


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

Options 101: Strategy Selection
By Ray Cummins

Few traders sell LEAPS on a regular basis but those who have a
bullish market outlook and excess portfolio collateral should
consider the naked-put strategy with long-term options.

Put writing allows the trader to collect a premium (the price
of the option) for accepting the obligation to buy a stock at a
specific price.  Traders who use the strategy understand that it
can complement a conservative stock portfolio because it offers
a great method for generating profits: collecting premium with
the sale of out-of-the money options at the risk of acquiring a
stock at a reduced cost basis.

Long-term Equity AnticiPation Securities, or LEAPS, are options
with a much longer outlook than traditional equity derivatives.
Stock-related LEAPS may be call or put options, meaning that the
owner has the right to purchase (or sell) shares of the stock at
a given price on or before a specific date.  Since LEAPS offer
expiration dates up to three years in the future, strategies
involving the sale of LEAPS differ very little from those using
shorter-term options.  LEAPS can be sold against collateral or
other positions just like short-term options and the standard
margin requirements are similar.  The obvious difference is that
a trader who sells LEAPS will take in a substantial premium when
compared to shorter-term options, thus he will have a much larger
return on investment with respect to the collateral requirement.
The larger premium is due to the length of contract and it also
produces a significantly lower break-even price for the overall
position.

The idea of a larger option premium and a lower cost basis seems
like a great combination, but there is a catch.  Recall that the
most significant theoretical difference in LEAPS is the slow rate
of time decay.  These long-term options retain time-value premium
even when they are substantially in- or out-of-the-money and this
unique characteristic will severely affect a traders ability to
adjust or roll-down (or out) of a position because the option is
relatively expensive to buy back.  With that in mind, it's very
important to consider the potential downside in a specific issue
when it is a candidate for a long-term "naked" put.  If there is
little chance of a severe decline, and the stock would fit well
in your portfolio, it is probably a good prospect for a "naked"
LEAPS put.  In all cases, it is crucial to compare the difference
in annualized returns generated from the sale of LEAPS, versus
those which can be earned from repeatedly writing shorter-term
options.  Then you can decide if the (relatively) large initial
reward justifies the potential risk of such a long-term position.

Good Luck!

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

SUMMARY OF PREVIOUS CANDIDATES

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

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

ADAT    16.94   15.89  MAR 12.50  0.45    0.45*   3.3%  10.5%
IBIS    15.30   14.49  MAR 12.50  0.40    0.40*   3.0%   9.6%
OVTI    29.70   28.25  MAR 25.00  0.60    0.60*   2.7%   8.4%
BRKT    18.75   19.51  MAR 17.50  0.50    0.50*   3.2%   8.0%
LSCP    23.07   23.90  MAR 20.00  0.60    0.60*   2.8%   7.9%
CEGE    14.49   14.12  MAR 12.50  0.30    0.30*   2.7%   7.9%
NKTR    18.47   19.05  MAR 15.00  0.30    0.30*   2.2%   7.7%
CRYP    16.38   16.68  MAR 12.50  0.30    0.30*   2.2%   7.5%
WEBX    25.25   25.57  MAR 22.50  0.50    0.50*   2.5%   6.9%
DNDN    14.49   13.79  MAR 12.50  0.30    0.30*   2.2%   6.5%
WEBX    26.12   25.57  MAR 22.50  0.50    0.50*   2.0%   6.1%
RMBS    33.60   32.39  MAR 25.00  0.35    0.35*   1.5%   5.4%
SERO    18.51   18.62  MAR 17.50  0.30    0.30*   1.9%   4.9%

* Stock price is above the sold strike price.

Editor's Comments:

No Joy In Mudville!

Even with mighty Greenspan at the bat, there was no "irrational
exuberance" in the stock market this week.

The major equity averages drifted lower Friday, in spite of some
encouraging economic data, and that may be a sign of "things to
come" as investors try to decide whether stocks are fairly valued
at the current levels.  Some analysts believe the market's upside
is limited at this point and it's obvious that a major catalyst
will be needed to provide any measure of renewed buying pressure.
There are no specific issues to "watch" this week, but another
round of downside activity in the technology segment would not be
favorable for the majority of positions in the portfolio.

Previously Closed Positions: None

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

WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!

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


MARGIN REQUIREMENTS

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

For more information on margin requirements, please refer to:

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


MONTHLY YIELD: MAXIMUM & SIMPLE

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

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


NEW NAKED-PUT CANDIDATES

Sequenced by Maximum Yield (monthly basis)
__________________________________________________________________

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

MSO    14.53  MAR 10.00  MSO OB 0.25 2446   9.75  21   3.7%  11.5%
NEOL   21.02  MAR 17.50  UOE OW 0.30 234   17.20  21   2.5%   8.4%
ENZN   17.05  MAR 15.00  QYZ OC 0.25 286   14.75  21   2.5%   7.2%
ATRX   27.08  MAR 22.50  OQF OX 0.25 69    22.25  21   1.6%   5.6%
ALXN   22.87  MAR 20.00  XQN OD 0.25 70    19.75  21   1.8%   5.5%
ENDP   24.27  MAR 22.50  IUK OX 0.30 22    22.20  21   2.0%   5.3%
INSP   36.35  MAR 30.00  IOU OF 0.30 355   29.70  21   1.5%   5.1%


Legend (for play descriptions below)

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

__________________________________________________________________

MSO - Martha Stewart Living  $14.53  *** Litigation Speculation! ***

Martha Stewart Living Omnimedia (NYSE:MSO) is an unique content
and commerce company that creates "how-to" content and domestic
merchandise for homemakers and other consumers.  The company's
products are generally sold under brand labels incorporating the
Martha Stewart brand name, which it leverages across a range of
media and retail outlets.  MSO primarily focuses on the domestic
arts, providing consumers with ideas, information, merchandise and
other resources.  Shares of Martha Stewart's company stock, which
have slumped in the wake of her legal woes, soared this week after
a judge threw out the government's securities fraud charge because
prosecutors did not show enough evidence to support the accusation
that Stewart misled investors.  The securities fraud charge was
the most serious allegation facing the home decorating maven and
the only one related to her conduct as CEO of MSO.  Traders who
think the stock will continue to recover as the trial winds down
should consider this position.

MAR-10.00 MSO OB LB=0.25 OI=2446 CB=9.75 DE=21 TY=3.7% MY=11.5%


__________________________________________________________________

NEOL - NeoPharm  $21.02  *** 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 resumed its recent bullish activity in early
February, after reaching an agreement with the FDA on the design
of a Phase III study for a drug designed to battle recurring
cancerous brain tumors.  Now the stock is testing an area of
resistance near a two-year high and traders who believe the
outcome will be favorable should consider this position.

MAR-17.50 UOE OW LB=0.30 OI=234 CB=17.20 DE=21 TY=2.5% MY=8.4%


__________________________________________________________________

ENZN - Enzon Pharmaceuticals  $17.05  *** New 52-Week High! ***

Enzon Pharmaceuticals (NASDAQ:ENZN) is a biopharmaceutical firm
dedicated to the discovery, development and commercialization of
therapeutics to treat life-threatening diseases.  The company
works towards this goal on its own and through various strategic
partnerships.  Enzon currently markets four human therapeutic
products through two specialized sales forces: ABELCET, ONCASPAR,
ADAGEN, and DEPOCYT.  It also receives royalties on sales of PEG
-INTRON, an enhanced version of Schering-Plough's alpha-interferon
2a product, INTRON A, which uses Enzon's PEG technology, as well
as a share of certain revenues received by Nektar Therapeutics
(NASDAQ:NXTR) on sales of Hoffmann-La Roche's PEG-enhanced version
of alpha-interferon 2b, PEGASYS.  Shares of ENZN are in a strong
bullish trend and traders who believe the momentum will continue
in the near-term should consider this position.

MAR-15.00 QYZ OC LB=0.25 OI=286 CB=14.75 DE=21 TY=2.5% MY=7.2%


__________________________________________________________________

ATRX - Atrix Laboratories  $27.08  *** Drug Speculation! ***

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.  Atrix recently
announced that the company has submitted a New Drug Application
to the U.S. FDA for Eligard, a novel six-month sustained release
product for hormone-sensitive advanced prostate cancer.  The stock
rallied on the news and traders who believe the upside activity
will continue in the near-term should consider this position.

MAR-22.50 OQF OX LB=0.25 OI=69 CB=22.25 DE=21 TY=1.6% MY=5.6%


__________________________________________________________________

ALXN - Alexion  $22.87  *** Entry Point? ***

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 shares rallied in early
February after the company announced that one of its experimental
drugs significantly helped patients with a rare blood disease that
destroys red blood cells and often causes fatal blood clots.  The
stock is trading near multi-year highs and investors who wouldn't
mind owning the issue at a cost basis below $20 should consider
this position.

MAR-20.00 XQN OD LB=0.25 OI=70 CB=19.75 DE=21 TY=1.8% MY=5.5%


__________________________________________________________________

ENDP - Endo Pharmaceuticals  $24.27  *** A Big Day! ***

Endo Pharmaceuticals (NASDAQ:ENDP) is a fully integrated specialty
pharmaceutical company with market leadership in pain management
products.  The company researches, develops, produces and markets
a broad product offering of branded and generic pharmaceuticals,
meeting the needs of healthcare professionals and consumers alike.
Endo Pharmaceuticals shares jumped higher Friday in sympathy with
Noven Pharmaceuticals (NASDAQ:NOVN), which received an upgrade by
Deutsche Bank after Endo agreed to license from Noven its U.S. and
Canadian rights to the company's developmental transdermal fentanyl
patch.  The strong upside activity in the issue suggests further
upside potential in the coming sessions.

MAR-22.50 IUK OX LB=0.30 OI=22 CB=22.20 DE=21 TY=2.0% MY=5.3%


__________________________________________________________________

INSP - InfoSpace  $36.35  *** Favorable Earnings Outlook? ***

InfoSpace (NASDAQ:INSP) develops and delivers a wireless and
Internet platform of software and application services to a range
of customers that span each of its wireline, merchant and wireless
business units.  Many of the company's products and application
services are offered to its customers, which, in turn, offer these
products and application services to their customers as their own
solutions.  InfoSpace also provides its services across multiple
platforms, including personal computers and non-PC devices.  INSP
has been "on the move" since late January, when the company posted
fourth-quarter results that were well above expectations and issued
a positive first-quarter outlook.  The company also enjoyed its
second-straight profitable quarter after an extensive period of
losses and investors were pleased with the news.  The stock appears
to be comfortably established in a new bullish trend with near-term
support above the cost basis in this position.

MAR-30.00 IOU OF LB=0.30 OI=355 CB=29.70 DE=21 TY=1.5% MY=5.1%




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

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

Sequenced by Maximum Yield (monthly basis)
__________________________________________________________________

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

OSTK   29.27  MAR 25.00  QKT OE 0.70 1273  24.30  21   4.2%  12.5%
BRLI   18.94  MAR 15.00  BJQ OC 0.30 0     14.70  21   3.0%  10.6%
MICC   22.39  MAR 21.25  CQD OS 0.55 72    20.70  21   3.8%   9.5%
ARIA   10.52  MAR 10.00  UAQ OB 0.25 146    9.75  21   3.7%   9.2%
NFLX   34.40  MAR 30.00  QNQ OF 0.60 12247 29.40  21   3.0%   8.7%
SHFL   41.68  MAR 40.00  SFQ OH 0.70 1186  39.30  21   2.6%   6.5%
ERES   30.94  MAR 26.63  DBO OT 0.35 48    26.28  21   1.9%   6.0%
OVTI   28.25  MAR 25.00  UCM OE 0.35 3663  24.65  21   2.1%   6.0%
SWIR   27.39  MAR 22.50  IYQ OX 0.25 172   22.25  21   1.6%   5.7%
PCLN   23.02  MAR 20.00  PUZ OD 0.20 1290  19.80  21   1.5%   4.5%


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

SEE DISCLAIMER IN SECTION ONE

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


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

No Inspiration For Stock Buyers!
By Ray Cummins

Another round of positive economic reports did little to motivate
investors as technology issues kept a lid on upside activity in
the broader equity markets.

The Dow industrial average finished 3 points higher at 10,583 on
strength in defense and aviation companies Boeing (NYSE:BA) and
United Technologies (NYSE:UTX).  Meanwhile, the technology-laden
NASDAQ Composite Index shed 2 points to 2,029 amid weakness in
biotech and semiconductor issues.  Standard & Poor's 500 Index
closed unchanged as gains in homebuilding, casino gaming, food
distributor, defense, and department store shares were unable to
keep the major market sectors in positive territory.  Trading was
moderate, with 1.5 billion shares changing hands on the New York
Stock Exchange while 1.9 billion shares were traded on the NASDAQ.
Advancers outnumbered decliners 2 to 1 on the NYSE and 6 to 5 on
the technology exchange.  U.S. bond prices moved higher with the
benchmark 10-year note up 15/32, while its yield fell to 3.98%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 02/28/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

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

PUT-CREDIT SPREADS

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

CERN    46.09   44.76   MAR   35  40   0.60  39.40   0.60   Open
DNA     98.25  107.89   MAR   85  90   0.70  89.30   0.70   Open
ESRX    70.58   72.99   MAR   60  65   0.65  64.35   0.65   Open
NBR     46.97   47.35   MAR   40  43   0.25  42.25   0.25   Open
BSX     41.94   40.85   MAR   35  38   0.25  37.25   0.25   Open
CEC     51.62   54.57   MAR   45  50   0.55  49.45   0.55   Open
SNPS    35.57   29.62   MAR   30  33   0.35  32.15  (1.45) Closed

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

Synopsys (NASDAQ:SNPS) was the big surprise this week, plunging
over $5 after the firm issued a mediocre profit outlook and said
it would acquire Monolithic System Technology (NASDAQ:MOSY) for
almost double its current market value.  Monday's sharp sell-off
was certainly ominous but traders who ignored the bearish signal
were left with few alternatives after the "gap-down" opening on
Tuesday.  The loss posted in the summary reflects the cost of
closing the position at the end of that session (2/24/04).


CALL-CREDIT SPREADS

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

CYBX    27.04   24.37   MAR   35  30   0.65   30.65   0.65   Open
SOHU    29.05   28.12   MAR   40  35   0.60   35.60   0.60   Open
KLAC    54.24   52.71   MAR   65  60   0.60   60.60   0.60   Open
IACI    31.92   32.57   MAR   38  35   0.30   35.30   0.30   Open
NVLS    33.26   32.15   MAR   40  38   0.30   37.80   0.30   Open
BBBY    40.62   40.93   MAR   45  43   0.30   42.80   0.30   Open
OSIP    31.39   32.74   MAR   40  35   0.55   35.55   0.55   Open
NBIX    51.95   55.60   MAR   60  55   0.75   55.75   0.15  Closed

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

Neurocrine Biosciences (NASDAQ:NBIX) rallied unexpectedly Friday
after the company announced it had acquired Wyeth's (NYSE:WYE)
interest in their experimental insomnia drug, indiplon, for $95
million.  The bullish trend reversal suggests an "early exit" in
the position.  OSI pharmaceuticals (NASDAQ:OSIP) is now on the
"watch" list.


CALL-DEBIT SPREADS

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

KSS     48.64  51.50   MAR   40  45   4.45   44.45  0.55   Open
SPF     49.75  52.31   MAR   40  45   4.45   44.45  0.55   Open
AA      37.01  37.47   MAR   32  35   2.25   34.75  0.25   Open
OVTI    29.70  28.25   MAR   20  25   4.50   24.50  0.50   Open

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


PUT-DEBIT SPREADS

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

AMKR    15.92  15.32   MAR   20  17   2.20   17.80  0.30   Open
IMDC    46.97  47.90   MAR   55  50   4.40   50.60  0.60   Open

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

Inamed (NASDAQ:IMDC) is on the "watch" list after Friday morning's
upside activity.


SYNTHETIC (BULLISH)

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

NEOL    20.08  22.01   APR     25     17     0.20    0.50   Open?

Neopharma (NASDAQ:NEOL) has previously offered a favorable "early
exit" profit for conservative option traders.


CALENDAR & DIAGONAL SPREADS

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

AMHC    27.08  28.09   MAY-30C   MAR-30C   0.80    1.00    Open?
ABGX    15.60  14.71   APR-17C   MAR-17C   0.40    0.30    Open
MEDI    25.14  25.69   JUN-20C   MAR-25C   4.35    4.25    Open
SEPR    28.29  28.31   JUL-25C   MAR-30C   4.40    4.25    Open

American Healthways (NASDAQ:AMHC) has already offered a favorable
"early-exit" opportunity for conservative traders.


DEBIT STRADDLES

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

MATK    65.74  59.46   MAR    65    65     9.40    9.00    Open?
BSC     84.10  87.84   MAR    85    85     5.25    6.10    Open?
FRX     74.49  75.48   MAR    75    75     6.50    6.30    Open?
HOV     74.99  80.69   MAR    75    75     7.00    7.60    Open
TTWO    32.03  31.30   MAR    32    32     3.20    3.00    Open
SNP     40.74  41.57   APR    40    40     5.70    5.70    Open

Traders with straddles expiring in March should consider initiating
an "early-exit" strategy in the next two weeks to preserve existing
capital.


CREDIT STRANGLES

No Open Positions


Questions & comments on spreads/combos to Contact Support

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

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

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

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

__________________________________________________________________

ONXX - Onyx Pharmaceuticals  $36.80  *** Next Leg Up? ***

Onyx Pharmaceuticals (NASDAQ:ONXX) is engaged in the discovery
and development of novel cancer therapies utilizing two primary
technology platforms, small molecules that inhibit the proteins
involved in excess growth signaling, and therapeutic viruses
that selectively replicate in cells with cancer-causing genetic
mutations.  The firm is developing a new small molecule compound,
BAY 43-9006, in collaboration with Bayer Pharmaceuticals.  Using
its proprietary virus technology, the company is also developing
ONYX-411, a second-generation product that targets cancers with
abnormal function of the retinoblastoma tumor-suppressor gene,
and is developing Armed Therapeutic Virus products.

ONXX - Onyx Pharmaceuticals  $36.80

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-30.00  OIQ-OF  OI=562  ASK=$0.10
SELL PUT  MAR-35.00  OIQ-OG  OI=546  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$34.45


__________________________________________________________________

OSTK - Overstock.com  $29.27  *** 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  $29.27

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-22.50  QKT-OX  OI=1091  ASK=$0.40
SELL PUT  MAR-25.00  QKT-OE  OI=1273  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$24.70


__________________________________________________________________

RYL - The Ryland Group  $85.72  *** On The Rebound! ***

The Ryland Group (NYSE:RYL) is a homebuilder and mortgage-finance
company.  The firm has built more than 200,000 homes during its
35-year history.  Ryland homes are available in hundreds of new
communities in various markets across the U.S.  In addition, the
Ryland Mortgage company has provided mortgage financing and other
related services for thousands of homebuyers.  The firm's various
operations span all the significant aspects of the home-buying
process, from design, construction and sale to mortgage financing,
title insurance, settlement, escrow and homeowners insurance.

RYL - The Ryland Group  $85.72

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-75.00  RYL-OO  OI=1006  ASK=$0.35
SELL PUT  MAR-80.00  RYL-OP  OI=1378  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$79.40


__________________________________________________________________

LLTC - Linear Technology  $40.03  *** In A Trading Range? ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military
and space systems.

LLTC - Linear Technology  $40.03

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-45.00  LLQ-CI  OI=2423  ASK=$0.10
SELL CALL  MAR-42.50  LLQ-CV  OI=3486  BID=$0.30
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$42.75


__________________________________________________________________

PIXR - Pixar  $65.76  *** Merger Speculation Fading? ***

Pixar (NASDAQ:PIXR) is a digital animation studio with the creative,
technical and production capabilities to create a new generation of
animated feature films and related products.  The firm's objective
is to create, develop and produce computer-animated feature films
with a three-dimensional appearance.  Since its inception, Pixar
has created and produced a number of full-length animated feature
films, Toy Story, A Bug's Life, Toy Story 2, Monsters, Inc., and
Finding Nemo, most of which were marketed and distributed by The
Walt Disney Company.

PIXR - Pixar  $65.76

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-75.00  PQJ-CO  OI=220   ASK=$0.20
SELL CALL  MAR-70.00  PQJ-CN  OI=4762  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$70.55


__________________________________________________________________

SFNT - SafeNet  $37.96  *** Near A Trading-Range Top? ***

SafeNet (NASDAQ:SFNT) designs, manufactures and markets network
security technology and systems.  The firm operates through two
security business units, the Embedded Security division and the
Enterprise Security division.  The Embedded Security division is
comprised of hardware, chips, software and intellectual property
designed and manufactured in the United States and Europe for
sale to companies that will embed SafeNet's products into their
products for ultimate sale to end users.  The Enterprise Security
division includes hardware, software and network security systems
designed and manufactured in the United States for direct sales
to end users.

SFNT - SafeNet  $37.96

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-45.00  UUI-OI  OI=778   ASK=$0.25
SELL CALL  MAR-40.00  UUI-OH  OI=1335  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$40.55



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

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

__________________________________________________________________

MRVL - Marvell Technology  $45.75  *** Solid Earnings! ***

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  $45.75

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-40.00  UVH-CH  OI=2258  ASK=$5.90
SELL CALL  MAR-42.50  UVH-CT  OI=4419  BID=$3.70
INITIAL NET-DEBIT TARGET=$2.20-$2.25
POTENTIAL PROFIT(max)=11% B/E=$42.25


__________________________________________________________________

IMCL - ImClone Systems  $42.15  *** Erbitux Excitement Easing? ***

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

IMCL - ImClone Systems  $42.15

PLAY (less conservative - bearish/debit spread):

BUY  PUT  MAR-50.00  QCI-OJ  OI=1109  ASK=$7.90
SELL PUT  MAR-45.00  QCI-OI  OI=5109  BID=$3.50
INITIAL NET-DEBIT TARGET=$4.35-$4.40
POTENTIAL PROFIT(max)=14% B/E=$45.60



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

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

__________________________________________________________________

AMX - America Movil  $35.66  *** A Reader's Play! ***

America Movil, S.A. de C.V. (NYSE:AMX) is a provider of wireless
communications services in Latin America.  Through its Mexican
subsidiary, Radiomovil Dipsa, S.A. de C.V., the company provides
cellular telecommunications service in throughout Mexico, with a
network covering approximately 34% of the geographical area of
the country, including all major cities, and approximately 90% of
Mexico's population.  The company also has subsidiaries in the
telecommunications sector in Brazil, Guatemala, Colombia, Ecuador,
Argentina, the United States, Uruguay and Nicaragua.

AMX - America Movil  $35.66

PLAY (speculative - neutral/debit straddle):

BUY CALL  MAY-35.00  AMX-EG  OI=1273  ASK=$2.20
BUY PUT   MAY-35.00  AMX-QG  OI=157   ASK=$1.55
INITIAL NET-DEBIT TARGET=3.50-$3.60
INITIAL TARGET PROFIT=$1.25-$2.10


__________________________________________________________________

CCMP - Cabot Microelectronics  $44.55  *** Probability Play! ***

Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high
performance polishing slurries used in the manufacture of advanced
integrated circuit (IC) devices, within a process called chemical
mechanical planarization (CMP).  CMP is a polishing process used
by IC device manufacturers to planarize or flatten many of the
multiple layers of material that are built upon silicon wafers
and necessary in the production of advanced ICs.  Planarization is
a polishing process that levels, smoothes, and removes the excess
material from the surfaces of these layers.  CMP slurries are
liquid formulations that facilitate and enhance this polishing
process and generally contain engineered abrasives and proprietary
chemicals.  CMP enables IC device manufacturers to produce smaller,
faster and more complex IC devices with fewer defects.

CCMP - Cabot Microelectronics  $44.55

PLAY (speculative - neutral/debit straddle):

BUY CALL  APR-45.00  UKR-DI  OI=961  ASK=$2.85
BUY PUT   APR-45.00  UKR-PI  OI=962  ASK=$3.30
INITIAL NET-DEBIT TARGET=5.85-$6.00
INITIAL TARGET PROFIT=$2.35-$3.25




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