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Daily Newsletter, Tuesday, 03/02/2004

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The Option Investor Newsletter                 Tuesday 03-02-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Dollar Dominates
Futures Markets:
Index Trader Wrap:
Market Sentiment: Super Tuesday? Not on Wall Street


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      03-02-2004           High     Low     Volume   Adv/Dcl
DJIA    10591.48 - 86.70 10678.36 10568.88 1.87 bln 1416/1807
NASDAQ   2039.66 - 18.10  2064.40  2039.66 1.87 bln 1236/1920
S&P 100   565.86 -  3.57   569.71   565.02   Totals 2652/3727
S&P 500  1149.10 -  6.87  1156.54  1147.31
W5000   11225.44 - 64.00 11297.80 11213.94
SOX       510.24 -  2.90   521.15   509.97
RUS 2000  591.06 -  3.71   596.22   590.96
DJ TRANS 2896.90 - 19.70  2923.86  2894.80
VIX        14.86 +  0.42    14.89    14.18
VXO (VIX-O)14.60 +  0.42    14.60    14.03
VXN        22.42 -  0.12    22.93    21.97
Total Volume 4,061M
Total UpVol  1,303M
Total DnVol  2,716M
Total Adv  3053
Total Dcl  4205
52wk Highs  705
52wk Lows    16
TRIN       1.36
NAZTRIN    1.35
PUT/CALL   0.71
************************************************************

Dollar Dominates

Greenspan must be irritable lately because every time he takes
the stage he takes aim at the status quo. The shot heard around
the world today sent the dollar to the largest one day gain
against the Euro ever. Those short the dollar were not happy
traders today. The ramifications from Greenspan's currency
talk reverberated through all the markets, stocks, bonds and
commodities.

Dow Chart - Daily


Nasdaq Chart - Daily



The economics today were mostly positive with Chain Store
Sales flat but up from last weeks -0.2% rate. The most
positive report was the Challenger Layoff Survey for
February. The headline number showed a -34% drop in layoffs
from the January level with only 77,250 in February. This
was the lowest level in five months but the recent average
is still in the 100,000 per month range. The level prior to
the recent recession was averaging only 50,000 per month.
The drop in the headline number was very encouraging. The
components showed the majority of the cuts were in the
food services, financial services and industrial goods and
layoffs in techs and telecom have dropped substantially.

This was a positive report but the Greenspan comments far
overshadowed the markets and economics were quickly forgotten.
Greenspan took aim at the huge amount of U.S. debt owned by
Japan and China and pulled the "gotcha" card out of his deck.
He said Japan owned $650B in treasuries and China $450B. He
said they bought these securities to keep their currency
inline with the dollar and maintain the current favorable
trade rates. Today, Greenspan said further intervention by
these countries was unsustainable at the current rates.
Eventually they would have to let the market forces work
and sell much of the debt they currently owned. This would
produce a stronger dollar and higher interest rates. Oops!

Suddenly the ever declining dollar was rebounding due to the
light at the end of the tunnel and those short the dollar
were scrambling to cover. Also helping support the dollar
was rumors of a ECB rate cut in the wings. This would remove
another reason not to own the dollar and helped to provide
even more incentive to cover. The dollar rose nearly +2%
against the Euro and it was the biggest one day gain since
the Euro began. The Euro fell to a two month low against
the dollar. Ironically a rising dollar reduces the need
for Japan and China to buy more treasury debt and that
also reduces the demand for debt paper.

On the bond front treasuries plummeted on the prospect of
less buying from Japan and China and yields rocketed. The
ten-year yields soared to close at 4.05% from the 3.94% low
on Monday. With the prospect of a strong dollar returning
equities saw some serious sell programs as funds lightened
the load on interest sensitive issues and techs. The banking
sector saw some heavy selling as did some of the home builders.

In the question and answer session Greenspan was asked
directly about the coming Fed rate policy. He responded with
a grin that "we have said repeatedly that the current policy
is accommodative and eventually we will be forced to remove
that accommodation." His elaboration to that initial reply
was a clear warning that the Fed patience may be wearing
thin and there were rate hikes in the future. He did not
indicate how far in the future and it is likely several
more months or even as long as next year. He bluntly stated
that hikes were coming to put the bond market on notice that
the honeymoon was not going to last forever. Nobody expected
it to but the recent list of weaker than expected economic
reports had more analysts going on air to suggest the Fed was
on hold until 2005. Greenspan cannot let that thought process
continue. He has to keep the markets off balance to avoid
a disaster should something unexpected come up. He has to
keep the markets always on the edge to prevent traders from
loading up portfolios with lopsided rate risk.

The equities market was faced with the potential for higher
rates sooner than expected and possibly inside the six month
window and some institutions decided to take profits. The
market typically discounts all events for six months in
advance. With the general outlook of no rate cuts until 2005
there was little rate risk built into the next six months of
earnings expectations. What happened today was the addition
of some rate risk back into the current expectations.

Another problem weighing on the markets is the price of oil.
On Monday it hit the $37 level and closed today at $36.70.
It is normally reported that every $1 increase in the price
of oil costs U.S. consumers around $7 billion a year. Most
budget estimates assume a historical average oil price in
the $22-$25 range. We are currently $12 over that range and
that is an $84 billion hit to our economy. Obviously it will
hurt companies that depend on oil much more than those who
don't but the end result is the U.S. consumer will end up
footing the bill and that is real cash out of our pockets.
This problem has been mostly ignored for the last couple
months but the closer we get to $40 the more press it is
going to get.

Other commodities are also shooting through the roof. Copper
is exploding, platinum just hit a 40 year high and even
soybeans have been hitting daily contract highs. Prices for
goods made with these raw materials have to rise to cover
the increased costs. Again, these costs will be passed on
to consumers but in a weak economy with no pricing power
there has to be some earnings pressure. Corn prices just
rose to a six year high and this is pressuring the livestock
industry to the point where the little guys are beginning
to give up. Hogs are currently trading for $45 per cwt and
it costs over $42 to produce them. In 1998 hogs were selling
for $8 per cwt. Corn is up +50% per bushel from last year
and soymeal is up +57% over last year. The bottom line for
me is that the cost of everything is spiraling up but the
pricing power of the producer has not yet returned. This
suggests that earnings six months from now may suffer.

I got sidetracked on this thought while discussing oil and
its pressure on stock prices but there are broader problems
in our future. Fortunately the drop in the Euro and the gain
in the dollar had a depressing impact to commodities today.
It seems hedge funds had been buying commodities to hedge
the falling dollar and the trades started coming unwound.
Using a falling dollar to buy a rising commodity like gold,
oil or soybeans makes sense as long as the divergence
continues. Once the dollar begins to rise the divergence
collapses. The CRB fell -3.78 today as 14 of its 17
component commodities dropped on the news. The biggest
losers were cotton, platinum, silver and soybeans which
fell -3.24%. Obviously there is a mixed message here and
it may take sometime for the stock market to figure it out.

The fallout from all the currency gyrations was a Dow that
gave back nearly all of Monday's gains with a -86 point loss.
What was so promising near 10700 on Monday evaporated and
knocked the index back to support at 10580. We actually
came very close to the 50dma currently at 10533. For a few
minutes I thought the dip to 10568 was going to hold and be
close enough for a test of that average but another bout of
selling at the close killed the afternoon rebound. The
negative close across all the averages sets up another
potential retest of that average at tomorrow's open.

The Nasdaq traded up in early trading to a high of 2064 and
appeared determined to rescue the Dow from its weakness. The
SOX helped support the Nasdaq at the open by quickly adding
points to yesterday's gains. Unfortunately the Greenspan
currency talk and the prospect of higher rates was bad news
for tech stocks and the bottom fell out quickly. Once support
at 2050 was broken it never recovered. The Nasdaq did not
give up all its gains from Monday but the close was very
negative with concentrated selling. XLNX and STX provided
mid quarter updates after the close and traders were not
happy with either. The Nasdaq closed back under its 50dma
once again and we are faced with the potential for another
retest of the bottom of our range at 2000. I hate it, you
hate it but it is a fact of life that Greenspeak ruined a
perfectly good rally once again.

The best thing I can say about Tuesday is that the Russell
and SOX did not sell off to the same extent as the Nasdaq
and Dow. There were buyers taking advantage of the dips and
they held the Russell well above its recent support and to
only a -3.71 loss for the day. Were it not for the selling
right at the close the loss would have been less than two
points. The Russell is +12 points above its 50dma and it
not in danger of a serious drop unless conditions change
drastically.

SOX Chart -Daily


Russell-2000 Chart - Daily




The SOX gained nearly +12 points on Monday and gave back
only -2.87 today. Considering the market this is remarkable.
At one point today the SOX was well above its 50dma at 517
and was the strongest index on the board. The SOX closed
-11 points off its highs but nearly flat for the day. On
Wednesday it might not be so strong. The XLNX and STX
updates were not exciting and chip stocks sold off slightly
in after hours. The good news and we hope it is good news
is the Intel update on Thursday night. This normally
provides a market boost in advance and sometimes after
the update. Many times it is the trigger for the quarterly
earnings run to begin. If there was ever a quarter where
we needed Intel to produce a bounce this is it. Should the
SOX open down tomorrow the next real support is 507 and the
100dma and then horizontal support at 500.

Today the Wilshire 5000, the broadest measure of the
market, came within three points of a new post 9/11 high.
The Wilshire has struggled to shake off the Dow anchor
for two months and today's attempt was the highest level
since Feb-19th hit 11302 and the current high. On the
surface I feel this is the best indication that a rally
was in progress and a breakout imminent. How the Greenspan
speech will eventually impact the indexes remains to be
seen.

Wilshire-5000 Chart - Daily



We all know that the first reaction is the worst and is
typically a knee jerk reaction and not necessarily the real
direction for the market. Unfortunately we have a Fed meeting
on March 16th and the scuttlebutt will be flowing freely for
the next two weeks. Real worry will be absent because the
level of new jobs has yet to rise high enough for the Fed
to act. However that will not keep traders from being
nervous until the meeting statement is read.

Wednesday morning we will get the ISM Services report and
while no surprises are expected we can not afford to be
complacent. The regular ISM on Monday fell slightly but
the rising employment index was the key to the Monday
bounce. In the ISM Services index the employment component
has fallen the last two months. This does not set a good
precedent for tomorrow considering the headline number is
already expected to drop a couple points.

The rest of the week rests on the Intel update Thursday
night and the Employment Report on Friday morning. There
is no real whisper number for the Jobs report this month
and the official estimate of +125,000 jobs is pretty
much what is expected. Analysts have been so wrong over
the last couple months that they are afraid to second
guess the announcement. This sets up the Thursday close
and Friday open as very volatile sessions. On Thursday
we will have fear of both Intel and Jobs going into the
close and we could see some weakness. On Friday morning
we will have reaction to both and hopefully both will be
positive. That could produce a significant relief rally.

The risk here is the XLNX update tonight. They said revenue
would be up +9% to +10% for the quarter which was basically
a raising of the lower end of the range. It was an upgrade
from the +7% to +10% range they had previously given. The
lack of material improvement did not excite traders. The
stock was down -3% in after hours. This is my greatest
fear about Intel. If they just affirm guidance the street
will not be pleased. If they raise the bottom end only
slightly the street will not be pleased. There is a lot
of risk and very little expected reward. Seagate, STX,
also updated guidance tonight and they said first quarter
disk drive orders were weaker than expected. They also
expected first quarter units to decline by 5 to 6 million
units. STX primarily makes disk drives for desktop PCs
and a drop of five million desktop PCs would be drastic
for Intel's projections. Obviously we hope somebody else
got the business such as Maxtor and this is just a Seagate
problem but until Intel's update we do not have a clue.
Remember, Intel was already downgraded by JPM based on
channel checks showing a drop in notebook sales. Either
way Thursday night is going to be interesting.

So, where are we going tomorrow? That is the $64 question
tonight and I am afraid I do not have a satisfactory answer.
With the STX/XLNX guidance we could start with a negative
bias for techs. With the ISM Services that bias could be
erased or enhanced depending on the employment component.
I would like to think the 2020-2030 level would hold on
the Nasdaq but it depends on the SOX and what traders
decide to do before Thursday night. Either way I would
expect 2000 to hold unless disaster strikes.

On the Dow we are entering a congestion zone between 10620
and 10550. The 10550 level should hold especially as the
50dma at 10533 is rising to support it. I am expecting
500 to hold on the SOX and by extension 580 to hold on
the Russell. When I say hold I am thinking about Wednesday.
Until we see what fallout we have tomorrow from the bonds
and techs it will be impossible to predict the rest of the
week. I am still in buy the dip mode and while I would
love to see another retest of Nasdaq 2000 to pickup one
last bargain I would rather not face the possibility that
a retest may not hold. I start getting nervous when we
near that level. I feel like our ace in the hole is the
50dma on the Dow. Once that is hit it could act as an
electric fence and repel the average back higher. It has
held every test since April-2003 and while that should
comfort me it actually worries me. Eventually it will
fail and I just hope this is not that test.

Technically nothing has changed. We are still trading in
the same range we have seen for the last six weeks (10450-
10700 2000/2100) and until that range breaks we just need
to keep buying the dips and selling the highs.

Enter Passively, Exit Aggressively.

Jim Brown
Editor


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

Greenspasam
By Jim Brown




Monday could have been a wonderful dream and Tuesday was a
terrible nightmare. Our problem is to decide which one is
real and which one is temporary.

The Greenspan speech crushed bonds and commodities and
prompted a huge spike in the dollar versus the Euro. The
key here is determining if this was a knee jerk reaction,
the beginning of a new trend or just a blip in the total
scheme of things. Soybeans dropped over -3%, gold fell -$5
and 14 of the 17 commodities in the CRB lost ground for
the day. The problem it seems is that hedge funds have
been buying rising commodities to hedge a falling dollar.
Instead of leaving cash in the bank to lose buying power
they parked it in things like oil, copper, gold, platinum,
corn and soybeans which were rising daily. This is good
business as long as each trend continues but once the
trend changes you have to exit quickly to avoid the rush.

The dip in commodities we saw on Tuesday may just be the
tip of the iceberg or it could have just been a temporary
reaction to a speech that did not tell us anything we did
not already know. Everybody knew Japan and China were going
to go broke eventually trying to maintain the exchange
rate artificially. Everybody knew commodities were due for
a rest. Only nobody knew when these things were going to
happen.

The currency fluctuations from the surging dollar were all
the more critical because the dollar had been rising slightly
for a couple weeks and was at resistance. The blowout today
triggered buy stops on traders that had been short and that
accelerated the move. The Dollar rose more against the Euro
in one day than in any other single day since the Euro began,
around +2%.

Dollar Index - Chart - 120 min




This jump in the dollar and resulting crash in bonds is
what tanked our equities markets. Tech stocks and actually
stocks in general are priced on the expectations for earnings
over the next six months. With analysts suggesting there
would be no rate increases until 2005 stocks were priced to
perfection. His comments about future rate hikes and the
implied higher rates caused by the crashing bond markets put
some rate fear back into stocks.

Financials, techs and interest sensitive issues bore the
brunt of selling. Tomorrow we could see some follow through
but I am more worried about the impact to the chip sector
from the XLNX and STX updates after today's close. This
suggests we need to be ready for another leg lower on
the small cap and tech indexes.


ES04H S&P Futures

The ES retested yesterday's high at 1156.75 and held the
1154-1156 level until noon. Once the speech hit a sell
program knocked the supports out and the ES fell to 1146.50.
This level held into the close and we are holding at 1149
in overnight trading.

The key for Wednesday is the 1140 level. We have already
fallen out of the uptrend channel on the 15 min chart and
are at risk of breaking the uptrend support on the daily
with a trade under 1140. There is horizontal support at
1135 but we really need to hold the higher level.

A problem for the internals for Tuesday was the increased
volume. There was significantly higher volume on a down
day than we saw on the Monday gain.

For Wednesday I would be a buyer at 1144 and a seller at
1156. I doubt we will have to worry about the 1156 number
and if we did reach it I would definitely want to see some
weakness before taking a short position. Should 1144 fail
I would be a buyer at 1140. Should we stay in the middle
of the range in the 1148-1153 level I would remain flat.
This could be a rocky day punctuated by a quick dip.

Short 1156
Long 1144
Long 1140

ES04H Chart - Daily



ES04H Chart - 15 min



ES04H Chart - 500 Tick




YM04H Dow Futures

The Dow futures crashed at the open and never recovered. On
the 233 tick chart they stayed below the midline the majority
of the day. The late afternoon recovery made a valiant effort
to hold over 10600 but the late day selling was too strong.

The 50dma is currently 10523 and the horizontal support is
holding at 10550. This suggests we should have a tough time
breaking through that level and I would be a buyer on a touch
of 10550. The longer term uptrend on the 15 min chart was
broken on the dip but the YM recovered to close right on
the line. I personally doubt it will hold at the open and
I feel reasonably sure we will see 10550 unless the ISM
Services report is strongly bullish. Should we break the
50dma at 10523 I would look to be short with a potential
retest of the horizontal support at 10400. This would be
a drastic break of the trend and I would not expect it
without some external event.

Long at 10550
Short at 10650
Short under 10500

YM04H Chart - Daily


YM04H Chart - 15 min


YM04H Chart - 233 tick




NQ04H NDX Futures

The NQ Futures have a negative bias and I am projecting a
retest of the 1460 level on Wednesday. The short term uptrend
support at 1474 on the 30 min chart coincides with the longer
term uptrend support on the daily chart. If this breaks we get
one chance at horizontal support at 1460 an a break there
could get ugly, all the way to 1400.

I was hoping the Intel update would provide a bullish bias
this week but the Greenspeak and the less than expected
guidance from STX and XLNX is pressuring the Russell futures
tonight. If they fall they will take the NQ with them. I
would look to try a long at 1460 with a stop at 1450 and
under 1450 I would go short.

Long 1460, stop 1450
Under 1450 remain short.

NQ04H Chart - Daily



NQ04H Chart - 30 min



NQ04H Chart - 500 Tick





ER04H/MR04H Russell Futures

The Russell stood up to the abuse better than the other
indexes primarily due to the strength in the SOX.
Unfortunately the damage eventually caught up with it
and we saw a minor pullback.

I reported yesterday that the Russell had strong resistance
at 595-597 and expected a tough time breaking that level.
The high today was 596 and although it failed it was not
due to simple selling but the Greenspan event. I think
without him we would have had a good chance at chipping
away that level.

The Russell did not drop very far and we have two levels
of support just below us at 585 and again at the 50dma
at 577. I am still bullish on the Russell and would not
hesitate to go long on any rebound from those levels.
I would not short it at this time. I think the potential
for a bounce at any moment could make it too risky. That
is probably my bias speaking but you choose for yourself.

Long 585
Long 577
No short

MR04H (ER) Chart - Daily


MR04H Chart - 30 min


MR04H (ER) Chart - 233 Tick




Outlook

For Wednesday I am expecting a rocky day. The Russell futures
are down in overnight trading and the Nikkei is flat. I suspect
the damage is not over and we will have a negative bias at the
open. I have given several long entry points for the various
contracts above and I would use them with caution.

This could turn into a rough week and the Intel update on
Thursday is far less certain to produce a bounce than I would
have thought on Monday.

The ISM Services tomorrow could also spoil the party if the
employment component is negative. If we get an economics dip
I would probably be even more cautious about entering any
longs.


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

Did you feel the strength?

Could you feel the strength in today's trade?  Did you see that
bullish leadership?  That's what bulls wanted to see after
Monday's strong session.

If you're wondering what the heck I'm talking about, then keep
reading, because I (Jeff Bailey) didn't feel much strength, nor
see much bullish leadership, and this has the BULLISH side of me
alert for DIVERGENCE to the mid-August rebound I was looking and
monitoring for.

There was strength to be found in today's session, and if your
purchasing habits find you often-times hungering for European-
made goods, then you may have gotten a boost for your dollar, as
the dollar surged higher in today's session, where I think it
is/was the fast rate, and not necessarily the rising dollar that
had stocks reversing early session gains.

It is arguable that a rising dollar could be a fundamental
negative for U.S.-based corporations that export products to
overseas markets when a rising U.S. dollar then makes the export
more expensive for a consumer in Europe, Japan, or any other
country whose currency is buying the U.S. product.

You and I can perhaps understand how a market (a global market)
can get used to such an even, if the move is slow, or methodical,
but when the change is sharp and abrupt, that's when markets
(stock, bond, commodity) can react to that change just as quick.

Market Snapshot / Internals - 03/02/04 Close



The NYSE Composite ($NYA.X) 6,717.13 -0.73% has been a notably
stronger, or leadership index relative to the also very broad
NASDAQ-Composite ($COMPX) 2,039.65 -0.88%, but a simple look at
the hourly time line shows that while the NYSE Composite has been
closing in on it recent 52-week highs, the top-of-the-hour time
lines showed little bullish leadership from 1, 2 and 3-lettered
stocks of the NYSE.

The often-thought of "stodgy" components of the Dow Industrials
(INDU) 10,591.48 -0.81% never saw a tick above yesterday's highs,
and while a bull shouldn't demand a higher high each and every
day when testing for a market rebound, I'm still testing things
pretty harshly for bullish leadership, and I didn't see much from
the EXTERNALS in today's session.

The advance/decline lines were nothing for a little bull to be
writing home about, and the deterioration seen throughout the day
was rather slow at the NYSE, where the NASDAQ showed a slightly
faster pace of decline, as if the selling was orderly and rather
methodical.

I'm not going to show the same table I did in last night's Index
Trader Wrap of the NH/NL indications, but will quickly not their
ratios as of today's close, and those interested can compare them
to the table from last night's wrap.

The NYSE DAILY NH/NL ratio was 98.7% (yesterday 98.9%) the 5-day
ratio is 98.1% (yesterday 96.6%) and the 10-day ratio is 96.5%
(yesterday 96.5%).

The NASDAQ Comp. DAILY NH/NL ratio was 95.5% (yesterday 97.9%)
the 5-day ratio is 95.5% (yesterday 92.9%) and the 10-day ratio
is 92.8% (yesterday 92.8%).

If I closed my eyes and imagined myself on a roller coaster ride
over the past 6 or seven sessions, I'd have to say I've come out
of a trough, feel a sense of weightlessness, and seem to be
bracing myself for a move lower.  But always prepared for another
quick lift higher, that would otherwise catch me by surprise.

I feel like I'm on the Disney Land roller coaster ride, which I
think is called "Space Mountain" where I'm on the roller coaster,
that whips around in complete darkness.  The worst thing you can
do is try and anticipate what the next few seconds has in store,
and instead, hold on tight and try and enjoy the ride until its
time to get off.

As it relates to investing or trading, be alert that we're
probably going to see some wild gyrations in the coming sessions,
and be disciplined with your stops and targets.

Pivot Analysis Matrix -



Note:  AFTER I marked some of the correlative support resistance
levels in the Pivot Matrix, I'm just now seeing that I forgot to
color the Daily closes red for the Dow Indu, dia, SPX, spy, OEX,
NDX, qqq, SOX.X and BIX.X.

As further note, only the North American Telecom Index (XTC.X)
651.22 +0.46%, Oil Service Index (OSX.X) 110.63 +0.3%,
Biotechnology Index (BTK.X) 546.06 +0.3% and Health Provider
Index (RXH.X) 373.08 +0.03% showed equity-based sector gains in
my U.S. Market Watch today.

I don't want to hang on day after day and try to make believe
that today's trade wasn't DIVERGENT from the mid-August rebound,
where during that time, it WAS a day after day type of rise once
the COMPX broke back above its 21-day SMA.  As such, I'm going to
draw a line at tomorrow's DAILY S1 as a defined level where I
would certainly have to come to grips with the fact, that if
these markets are going to show mid-August SIMILARITY, then the
DAILY S1s would be the likely near-term support level.

The Semiconductor Index (SOX.X) 510.24 -0.55% traded its WEEKLY
R1 of 513.47 with a session high of 521.75, after a major broker
upgraded shares of Micron Technology (NYSE:MU) $15.83 +3.12% and
Texas Instruments (NYSE:TXN) $31.28 +0.83%.  While the SOX.X
reversed a negative morning trade yesterday to finish higher 2%
higher after some weaker industry data set a negative tone early,
today's trade was just the opposite, where chips started out
strong, but the bounce faded as the session wore on.

U.S. Dollar Index (dx00y) - Daily Intervals



One critique of using history as a guide is that some
traders/investors believe strongly that "things change," and
there are always different dynamics taking place between current
day, and "what was."  I can't argue with that line of thinking,
but having traded markets over the years, you NEVER know for
certain what was at play, unless you make various observations,
and test against the past.

Maybe the dollar has found its bottom, and maybe it spells "doom"
for stocks.  I made some notes on the above U.S. Dollar Index
(dx00y) chart from June 15, 2003 (a Sunday) to August 25, 2003 at
some inflection points for the Dollar Index, where I quickly took
the closes of some of the major market averages.  Over the course
of a 2.5-month period, the general trend for the major indices
was higher.  Note the two green upward trends where the darker
trend is more vertical, and the light green trend more gradual.

I think today's rather SHARP and BOLD break above 88.00 might
have been somewhat startling to market participants, where the
immediate, and perhaps wise reaction is to take a "wait and see
approach" to trading stocks, bonds and commodities.

10-year Treasury YIELD ($TNX.X) Chart - Daily Intervals



Anytime we see a sharp move in a currency, we'd expect some
reaction from the bond market.  But let's put things in
perspective.  It is only tonight that I note that the 3.911%
YIELD level, which the 10-year YIELD seems to like to "kiss" as
support was the closing value on July 15, which you and I can
perhaps now tie back with our study period we've been monitoring
in recent sessions.

What was happening?  I believe the bond market was reacting to
the realization of a ROBUST economy beginning to unfold, which
found a heavy selling from YIELD lows not seen in over 40-years!

Right now, we see a bond market that is VERY orderly, and rather
calm, which at this time, seems to be "comfortable with the way
things are."

The one alert I do think broader market equity bulls would be
more concerned with is if YIELDS started falling during a dollar
rise, which in my opinion would be more of a "defensive" signal
from the markets.  I will certainly have to test against equities
should we start seeing a strong amount of buying that had the 10-
year YIELD ($TNX.X) falling below 3.871%.

The main thing I think equity traders are monitoring right now,
more than anything is SUDDEN or SHARP rates of change in either
direction.

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



If looking for bullish leadership, or LACK of bullish leadership,
the OEX isn't tipping its hand as to direction right now.  Think
about it.  The OEX is comprised of LARGE CAP stocks, that
represent so many parts of the U.S. economy and even the GLOBAL
economy.

Since early January, it has really been a pattern of modestly
lower highs, and perhaps a stronger pattern of higher lows.

While we've seen some slippage in the S&P 100 Bullish % ($BPOEX)
the past week, with a net loss of about 3 stocks to point and
figure sell signals, I will tell you that there are stocks that
have been generating consecutive (not reversing upward) point and
figure buy signals.

The OEX, being such a large-cap index, and comprised of so many
different sector bellwethers, seems to suggest that the equity
market isn't in any type of unison right now.  In other words,
there isn't enough bullish or bearish leadership at this point to
really get a discernable trend.

However, the NASDAQ has shown a greater ability for weakness, and
that's were bulls should be more cautious and disciplined.

Tomorrow, I think I'm going to take some "time off" in the market
monitor, and really try and get some different sector charts
placed in the intra-day updates.  There are a lot of things going
on that I want to cover, that I think we should be alert to.

Jeff Bailey


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

Super Tuesday? Not on Wall Street
- J. Brown

In a very disappointing session the Industrials erased most of
Monday's gains and the NASDAQ pulled back significantly closing
back under the 2050 level and its simple 50-dma.  On Monday the
markets felt pretty confident with strong internals and very
strong up volume numbers inspired by the ISM report.  What was
truly encouraging was the ISM's manufacturing employment
component, which signaled job growth and sparked excitement over
this Friday's  unemployment/jobs report.  Now suddenly there were
comments today that a strong jobs report might give the Fed a
reason to raise rates sooner than expected.

The reversal today is certainly discouraging but it did not match
the bullish enthusiasm from Monday.  Declining stocks outnumbered
advancers 16.5 to 12 on the NYSE and 19 to 12 on the NASDAQ.
Down volume was twice up volume across both exchanges.

Tomorrow's ISM services index and the Fed's Beige book report
will take center stage and likely drive market direction.  I
would expect the semiconductor sector to churn sideways in
anticipation of Intel's Thursday night mid-quarter update and
this could mute any big moves in the NASDAQ.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  7416
Current     : 10591

Moving Averages:
(Simple)

 10-dma: 10616
 50-dma: 10533
200-dma:  9688



S&P 500 ($SPX)

52-week High: 1158
52-week Low :  788
Current     : 1149

Moving Averages:
(Simple)

 10-dma: 1146
 50-dma: 1131
200-dma: 1042



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  946
Current     : 1473

Moving Averages:
(Simple)

 10-dma: 1478
 50-dma: 1492
200-dma: 1360



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

True to form the VIX and VXO turned higher with the market's
weakness today but oddly the VXN churned sideways.

CBOE Market Volatility Index (VIX) = 14.86 +0.42
CBOE Mkt Volatility old VIX  (VXO) = 14.60 +0.42
Nasdaq Volatility Index (VXN)      = 22.42 -0.12

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.71        699,614       495,954
Equity Only    0.51        597,318       305,438
OEX            0.91         24,720        22,494
QQQ            1.93         37,266        71,796


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.1    + 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       86.0    - 1     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: 1.01
10-dma: 1.12
21-dma: 1.04
55-dma: 0.98


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1196      1160
Decliners    1653      1904

New Highs     252       151
New Lows        7         6

Up Volume    648M      577M
Down Vol.   1154M     1255M

Total Vol.  1820M     1849M
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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The Option Investor Newsletter                  Tuesday 03-02-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: WGO
Call Play Updates: AET, AHC, ATH, CFC, DHI, QCOM, RJR, RNR, RYL,
   SLB, UNH
New Calls Plays: CDWC
Put Play Updates: CHIR, CTSH, MMM
New Put Plays: None


****************
PICKS WE DROPPED
****************

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


CALLS:
*****

None


PUTS:
*****

Winnebago - WGO - close: 68.75 chg: +1.65 stop: 68.66

The rebound late last week in WGO didn't stop and shares have
continued higher.  Granted we did turn cautious over the weekend
and its weekly candle did look like a "hammer" reversal pattern
but we were expecting the rally to just be an oversold bounce.
It still could be an oversold bounce since WGO remains under
resistance at its 50-dma and the $69-70 level.  However, we had
lowered our stop to reduce our risk and today's move stopped us
out.  Bearish traders can still watch WGO for a roll over under
$70.00.  Bulls may want to give it another glance if it closes
over 70.50-71.00.  FYI: don't forget that WGO has a 2-for-1 split
on March 8th.

Picked on February 22 at $68.13
Change since picked:     + 0.62
Earnings Date          12/17/03 (confirmed)
Average Daily Volume:       276 thousand
Chart =



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

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

Aetna Inc. - AET - close: 80.89 change: +0.52 stop: 77.50

We haven't seen much movement in shares of AET the last couple of
days and that may be a good thing given the volatility in the Dow
Industrials this week.  Fortunately for the bulls AET has
maintained its position above the $80.00 level, which was
resistance last week.  Remember that tomorrow AET will present at
the Lehman Brothers Global Healthcare conference and they might
offer some positive news to get the stock moving again.

Picked on February 29 at $80.79
Change since picked:     + 0.10
Earnings Date          02/12/04 (confirmed)
Average Daily Volume:       1.2 million
Chart =


---

Amerada Hess Corp. - AHC - cls: 64.91 chng: -1.30 stop:
63.00*new*

Following the powerful breakout in shares of AHC on Friday and
Monday, it is only natural to expect a round of profit taking to
appear and that's precisely what materialized today, with the
stock dropping back on disturbingly high volume.  But on the
positive side, the stock did remain above the bottom of
yesterday's intraday range, even though it did close near the
bottom of the day's range.  After a 4-day $5 rally, we shouldn't
be surprised to see this weakness.  The question now is whether
there's more upside in store, or if the brief foray over $66
defined the top for the move.  Initiating new positions at this
point does not seem to be prudent until we've seen a bit more
consolidation, so our attention should be focused on managing
open positions.  Our initial target of $64 was easily achieved
late last week, so conservative traders have had ample
opportunity to harvest some gains.  We'll now want to see if the
10-dma ($63.00) once again provides support for a rally to new
highs.  With the OSX index once again pushing to new recent
highs, the odds look good for the bulls.  Note that our stop
rises to $63 tonight, and we'll continue to ratchet it higher,
keeping it just under the 10-dma until stopped our or our next
target at $68 is reached.

Picked on February 10th at   $59.53
Change since picked:          +5.38
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =        949 K


---

Anthem, Inc. - ATH - close: 86.31 change: -0.52 stop: 82.50*new*

The bullish move in ATH is still looking solid, despite a slight
pullback on Tuesday.  In light of the broad market weakness,
we're pretty happy with the slight retracement after hitting a
high of $87.40 this morning.  It is disappointing to see the
stock end at its low of the day and this could very well be a
near-term top, requiring a pullback to test support in the
$84.50-85.00 area.  Traders looking for new entries will want to
look for a rebound from that level, which is reinforced by the
10-dma ($84.83) before taking a position.  Momentum entries
don't look that appealing right here, as the stock has made a
better than $5 vertical move from last week's lows.  The best
bet now is to enter on the next pullback to support, looking for
a subsequent resumption of the bullish trend.  Raise stops to
$82.50, which is now solidly below the 30-dma ($82.62)

Picked on February 26th at   $85.37
Change since picked:          +0.94
Earnings Date               4/28/04 (unconfirmed)
Average Daily Volume =     1.43 mln


---

Countrywide Financial - CFC - cls: 90.61 chg: -2.64 stop: 86.99

While we're not excited to see the 2.83% drop in CFC today it may
turn out to be another entry point for the bulls.  A bounce from
$90 would be a great entry but if the Industrials continue to
slip then CFC might retest support in the $88-89 region.  Of
course a rebound from this lower level would be a better entry
point. Keep an eye on CFC's simple 21-dma.  Shares bounced at
this technical level last week.  Currently the 21-dma is
approaching the $88 level.  CFC doesn't have any new headlines
and we're not going to make any changes to our stop loss.

Picked on February 24 at $91.63
Change since picked:     - 1.02
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       2.3 million
Chart =


---

D.R.Horton - DHI - close: 32.89 chg: +0.02 stop: 29.99*new*

Wow!  The homebuilders have been on fire the previous three
sessions and we're amazed that there was almost zero profit
taking today despite the Dow's 86 point drop.  There looks like a
complete lack of sellers, which certainly bodes well for the
future of this group.  We're going to raise our stop loss to
$29.99 just under round-number psychological support at $30.00.
Traders looking for a new entry on this play can look for DHI to
slip back toward the $32 level.  This was resistance in mid-
February and it should now become new short-term support.  DHI
announced today that its management would be presenting at the
Citigroup Global Industrial Manufacturing Conference on Tuesday,
March 9th.

Picked on February 08 at $30.00
Change since picked:     + 2.89
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =


---

Qualcomm, Inc. - QCOM - close: 62.01 change: -0.74 stop: 60.50

The initial excitement surrounding QCOM's breakout over the
$60.50 level has faded somewhat in recent sessions, in large
part due to the fact that the NASDAQ is having a hard time
getting back over its 50-dma and back into its rising channel.
After hitting a high near $64 last week, the stock has been
heading lower on declining volume, giving the appearance of
normal consolidation.  Closing at its low of the day is not an
encouraging sign, and it appears the 10-dma ($61.56) will be
tested as support, quite possibly tomorrow.  A rebound from the
10-dma or even as low as $61 can be used for continuation
entries, but bear in mind it is now a more aggressive entry than
it was last week.  Daily Stochastics have once again tipped over
from overbought territory, leaving in place bearish divergence
and there is the possibility that the near-term uptrend has run
its course.  We've thought this before though, so we'll let
price action dictate our actions.  Should price break under $61,
our stop at $60.50 is likely to be tested and if it breaks below
there, QCOM will be vulnerable to a continued pullback to the
$59.50 level.  We've still got our eye on the $67 PnF target,
and breakout entries over $64 still make sense for aggressive
traders looking to make a quick hit and run play.

Picked on February 17th at   $59.55
Change since picked:          +2.46
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     8.87 mln


---

RJ Reynolds Tobacco - RJR - cls: 63.25 chg: +0.65 stop: 59.00*new*

Major tobacco stocks like Phillip Morris (MO) and RJR continue to
climb higher after last week's major technical breakout above
resistance from their three-month consolidation pattern.  Credit
Suisse First Boston reiterated their "out perform" rating on MO
today and raised their price target from $62 to $67.  This is
above MO's all-time high at $59.50, which it is quickly
approaching (MO closed at $58.13 today).  The CSFB "upgrade" is
due to their belief that the litigation environment is improving
for tobacco companies and they reduced their estimated litigation
risks by half.  Shares of RJR followed MO higher on the news and
hit new 20-month highs.  RJR is approaching what might be
resistance in the $63.75 region followed by additional resistance
in the 67.25 area.  Short-term traders may want to already be
planning their exits as RJR approaches the $65 level.  We'll be
considering ours if it approaches $67.00.  We're going to raise
our stop toward the simple 50-dma and place it at $59.00.

Picked on February 20 at $60.51
Change since picked:     + 2.74
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       699 thousand
Chart =


---

Renaissancere Ltd - RNR - close: 54.06 chg: -0.26 stop: 50.83*new*

We're very impressed with the relative strength in shares of RNR,
which have soared higher the last few days while the IUX
insurance index has continued to consolidate sideways.  The
catalyst for the improved-volume powered rally to new highs in
RNR remains a mystery but we're not complaining.  We're also
encouraged by the lack of true profit taking during Tuesday's
session while the Industrials erased most of Monday's gains.
We're going to raise our stop loss to breakeven at $50.83.  More
conservative traders might be able to reduce their risk even
further with a stop under $52.00 since 52.25-52.50 should be new
support.  Traders looking for new entries may do well to wait for
a pull back toward the $53-52.50 region.  Short-term traders can
probably begin to plan their exit strategies as RNR approaches
the $55 level.  We'll consider our own exits if RNR trades near
$56-57.00.

Picked on February 15 at $50.83
Change since picked:     + 3.23
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =


---

Ryland Group - RYL - close: 87.64 chg: -1.08 stop: 81.75*new*

Wow! The homebuilders have been making some pretty exciting moves
lately.  The DJUSHB index is at new all-time highs and RYL is
trying to catch up with gains in four out of the last five
sessions.  Today's profit taking was relatively mild and shares
came within 80 cents of hitting our short-term goal at $90.00
today.  What we find very encouraging is the strong volume during
the rally from Thursday through Monday, which indicates strong
buying interest.  If the homebuilders dip again look for an entry
point in the $85 region.  Short-term traders can begin planning
their exits as RYL approaches $90.  We'll consider our own exits
if RYL can reach the $92-94 region.  In the mean time we're going
to raise our stop loss to $81.75.

Picked on February 24 at $83.96
Change since picked:     + 3.68
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       746 thousand
Chart =


---

Schlumberger Ltd - SLB - close: 66.36 change: -0.11 stop: 62.75

With a breakout in the Oil Services index (OSX.X) on Monday, it
was really no great surprise to see SLB delivering its own
breakout, running as high as $66.50 by the end of the session.
The bulls tried to follow through with more gains on Tuesday,
but the broad market weakness was just too much to handle.  That
said, we really like how well SLB held onto the lion's share of
yesterday's gains, and it looks poised to deliver more upside if
the price of crude oil and the OSX continue pushing to new
highs.  New entries look attractive both on a breakout over
$66.50 or on a pullback and rebound from the $65 area,
confirming that former resistance as new support.  Note that our
stop is now at $63.50, just under the 20-dma ($63.52).  The
stock is in an aggressive bullish trend and a break of the 20-
dma would signal that the bullish run is over or at least is
taking a rest.

Picked on February 24th at   $64.47
Change since picked:          +1.89
Earnings Date               1/23/04 (confirmed)
Average Daily Volume =     3.59 mln


---

UnitedHealth Group - UNH - cls: 61.28 chng: -0.36 stop:
59.00*new*

After banging its head on the $62 resistance level for more than
a week, it seems the UNH bulls have decided they need to rest up
for another assault on that barrier.  UNH lost ground during
Monday's broad market rally and then drifted lower today as
well, finding support again at the bottom of the rising channel
near $61.  A dip and rebound from the $60.50-61.00 area looks
like the best bet for new entries, but there's nothing wrong
with breakout entries over $62.30.  Note that in addition to
support at the bottom of the channel, UNH has dual support from
the 20-dma ($60.58) and the 30-dma ($60.31).  The 50-dma (59.06)
is now moving over the bottom seen on the last pullback, so it
seems safe to raise our stop to $59.  A break of the 50-dma
would signal a significant change in sentiment in the stock and
we'd want to be out of the play if that happened.

Picked on February 24th at   $61.92
Change since picked:          -0.64
Earnings Date               1/22/04 (confirmed)
Average Daily Volume =     2.54 mln



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

CDW Corp. - CDWC - close: 72.43 change: -1.91 stop: 66.00

Company Description:
CDW Corporation is a direct marketer of multi-brand computers
and related technology products and services in the United
States.  The company offers multi-brand computers and related
technology products, including hardware and peripherals,
software, networking and communication products and accessories,
for use with microcomputers based on a variety of operating
platforms, including Microsoft, Apple, Linux, Novel, Oracle and
others.  CDWC offers more than 80,000 products that include a
range of product types from manufacturers including Cisco,
Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba.  With
this selection of products, the company can provide its
customers with fully integrated, multi-branded technology
solutions and the convenience of one-stop shopping.

Why we like it:
Just under a month ago, we played CDWC in anticipation of a
breakout over the $70 resistance level.  That bullish move never
materialized, with the stock instead drifting down towards its
50-dma ($65.89) and we decided to step aside and wait for more
bullish price action before pounding the table on the stock
again.  Well, that breakout arrived yesterday and it did so on
strong volume (more than 50% over the ADV).  The stock
skyrocketed through the $70 resistance level and stretched as
high as $74.43 by the end of the day, on an apparent lack of
significant news.  Yesterday's breakout generated another strong
PnF Buy signal, and reinforces the feasibility of the $93
bullish price target.  Looking at the weekly chart, the $80
level looks like strong resistance though, so we don't want to
start out with our expectations too lofty.

The bulls apparently decided that yesterday's breakout move may
have been a bit too much too soon and decided to harvest some
gains today.  That plays right into our hands.  We don't want to
chase such a strong bullish move, but a pullback to confirm
support near $70 would set up an ideal entry.  The 10-dma
($69.85) should reinforce that support and we could see eager
bulls buying the dip already this afternoon, as the stock
bounced smartly from just above $71.  Aggressive traders can
look to enter on another dip near the $71 level, while those
willing to exercise more restraint may be able to get an entry
on a pullback near the $70 level.  A continued breakout over
$74.50 could work for momentum traders but we're not excited
about that option due to the difficulty in setting a reasonable
stop.  Because we're attempting to enter on a pullback to
support, we'll use a wide initial stop at $66, which is at
support from last week's lows and will be under the 50-dma
($65.89) by tomorrow.

Suggested Options:
Shorter Term: The March $70 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 April
$75 Call, while the more conservative approach will be to use
the April $70 strike.  Our preferred option is the April $70
strike, which is in the money and should provide sufficient time
for the play to move in our favor.

BUY CALL MAR-70 DWQ-CN OI=733 at $3.40 SL=1.75
BUY CALL MAR-75 DWQ-CO OI=981 at $0.90 SL=0.40
BUY CALL APR-70*DWQ-DN OI=729 at $4.70 SL=2.75
BUY CALL APR-75 DWQ-DO OI=122 at $2.00 SL=1.00

Annotated Chart of CDWC:



Picked on March 2nd at       $72.43
Change since picked:          +0.00
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     1.26 mln



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Chiron Corp - CHIR - close: 49.19 chg: +0.08 stop: 50.51*new*

CHIR made some headlines on Monday with news that it had entered
into a collaboration agreement with Xoma Ltd (XOMA) to research
and develop cancer treatments.  CHIR and XOMA will split the cost
and potential revenues 70-30 with CHIR shouldering 70% of the
costs.  The markets failed to react to the news just as CHIR's
stock failed to react to news out today that it would be
discussing its upcoming Phase III trials for Tifacogin, a
treatment for severe community-acquired pneumonia.  There was
also another article out today over the previously announced
review by the Feds into complaints that CHIR has inhibited
research over Hepatitis treatments. Unfortunately, there weren't
many new details.  Checking the action in the stock price we see
CHIR continuing to consolidate under resistance at the $50.00
mark while buyers are supporting it near $48.80.  Reviewing the
weekly chart we see that CHIR has found support at its 50-week
moving average.  Cautious traders may want to wait for CHIR to
break the $48.50 level before initiating new positions.  We're
going to try and reduce our risk by lowering our stop to 50.51.

Picked on February 24 at $49.11
Change since picked:     + 0.08
Earnings Date          01/28/04 (confirmed)
Average Daily Volume:       1.7 million
Chart =


---

Cognizant Tech. - CTSH - cls: 45.96 chng: -1.65 stop: 49.00*new*

We've been expecting to see some renewed weakness from CTSH
after last week's rebound began to weaken and rollover just
below the 10-dma ($47.91).  Yesterday's feeble rally attempt
confirmed our suspicions and sure enough, the stock broke down
to new recent lows on Tuesday, closing well below its 100-dma
($47.35) and just barely below the $46 support level that
provided a bounce last week.  We're not convinced the stock
won't attempt another rebound before continuing down towards its
$41 target, but based on the strong volume on today's selloff,
it looks good for the bears.  That said, we're not enthusiastic
about entering new positions on continued weakness due to the
significant congestion between $44-46.  The best entries will
continue to be found on failed rebounds below the 10-dma.  With
today's break to new lows, let's lower our stop to $49, just
above the $48.75 peak from last Friday.

Picked on February 19th at    $47.49
Change since picked:           -1.53
Earnings Date                2/10/04 (confirmed)
Average Daily Volume =      1.31 mln


---

3M Company - MMM - close: 78.31 change: -0.47 stop: 81.50

Although the stock continues to look weak, MMM's inability to
break under the $77.50 level is definitely a point of concern
for the bears.  As noted in prior updates, we expected to see
that support level defended, as a trade at $77 will create a
fresh PnF Sell signal and change the tone in the stock from one
of mild weakness and consolidation to outright bearishness.  In
light of the strong gains in the overall market yesterday, MMM's
rebound looked pretty weak and it was encouraging to see price
once again roll over today, this time without getting anywhere
near the $80 resistance level.  Note that the 30-dma ($79.93) is
about to cross under the 100-dma ($79.91) and that level should
now be very strong resistance.  Rebound failures below $80 still
look like the best entry opportunity until MMM breaks under $77,
at which time momentum entries will make the most sense.  Our
target now looks like $74, as the 200-dma has risen to $73.77.
Maintain stops at $81.50 for now, a level that will be below the
50-dma ($81.57) by tomorrow.

Picked on February 15th at    $79.68
Change since picked:           -1.37
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.79 mln



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

None


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The Option Investor Newsletter                  Tuesday 03-02-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: A Brief List for Wednesday


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

A Brief List for Wednesday

___________________________________________________________________

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.
___________________________________________________________________


Kohl's Corp - KSS - close: 50.75 change: -0.51

WHAT TO WATCH:  If you're looking for a short candidate keep an
eye on KSS.  The stock broke out of its five-month descending
channel in February and ran straight for its 200-dma in a
momentum driven earnings run.  That earnings run is over and the
stock appears to have created a big failed rally with that
intraday spike over the 200-dma.  Its MACD is rolling over from
overbought and it's probably no coincidence that the rally ended
at the 50% retracement of the September to January drop.  If KSS
breaks $50.00 it will look like a bearish candidate with weakness
back to $45.00 but conservative traders may want to be patient
and look for a breakdown under minor support at $49.00.

Chart=


---

eBay Inc. - EBAY - close: 67.95 change: -1.28

WHAT TO WATCH:  The Internet index was one of today's biggest
losers and shares of EBAY eventually gave into this peer
pressure.  However, bulls are probably watching to see if EBAY
can keep its trend of higher lows intact, especially with its
simple 50-dma rising up as support.  We're watching it for a
breakout over the $70.00 mark but aggressive traders might want
to consider a bounce from the 50-dma.

Chart=


---

Robert Half Intl - RHI - close: 22.85 change: +0.60

WHAT TO WATCH:  The relative strength in RHI today looks pretty
tempting considering its 2.69% gain was a bounce off the $22
level.  Shares found support at its 200-dma last week and the
rebound has turned its MACD back into a fresh buy signal.  Also
encouraging was the strong volume supporting today's move.  RHI
does have overhead resistance at its 50-dma and the $24.00 level
but technical traders might consider bullish positions with a
stop under $22 and a target near $25-26.00.

Chart=


---

United Technologies - UTX - close: 90.30 change: -1.90

WHAT TO WATCH:  The bounce didn't get very far in this Dow
component.  Shares of UTX fell out of its recent trading range
last week but managed to bounce from its rising 100-dma.  That
rebound rolled over today and UTX is starting to look like a
short candidate if it trades under $90 again.  More conservative
traders may want to wait for it to take out last week's low at
$88.92 and target the $85 level (or the 200-dma near $82.50).

Chart=



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