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Daily Newsletter, Monday, 03/08/2004

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The Option Investor Newsletter                  Monday  03-08-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap:
Futures Wrap: See Note
Index Trader Wrap:


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     03-08-2004            High     Low     Volume Advance/Decline
DJIA    10529.48 - 66.07 10634.29 10526.89 1.55 bln   1108/1744
NASDAQ   2008.78 - 38.85  2058.25  2008.78 2.03 bln   1017/2051
S&P 100   563.67 -  4.78   569.98   563.53   Totals   2125/3795
S&P 500  1147.20 -  9.66  1159.94  1146.97
RUS 2000  592.51 -  7.03   603.12   592.34
DJ TRANS 2868.65 - 24.42  2894.23  2859.31
VIX        15.79 +  1.31    15.83    14.54
VXO        15.33 +  0.53    15.35    14.49
VXN        24.08 +  2.00    24.11    22.82
Total Volume 3,997M
Total UpVol    909M
Total DnVol  2,872M
52wk Highs     704
52wk Lows       12
TRIN          1.70
PUT/CALL      0.82
*******************************************************************

Singing The Monday Blues
by James Brown

The markets struggled to find direction on Monday for most of the
session as investors peered through a post-jobs report hangover.
Last Friday the major indices all performed relatively well
despite the abysmal jobs number but now that Wall Street has had
the weekend to think about it investors seem a little more
apprehensive.  What was a divided market this morning turned into
a market-wide rout lead by steep losses in Dow components Intel,
General Electric and Eastman Kodak.

Foreshadowing today's loss in the U.S. exchanges was a failed
rally in the Japanese NIKKEI index.  The NIKKEI rallied to a new
high hitting levels not seen since the summer of 2002 before
reversing sharply and closing down 34 points to 11,502 about 140
points off its highs for the session.  In contrast the Chinese
Hang Seng index added 118 points to close at 13,573.

European stocks were mostly higher as the dollar fell against the
euro for the second session in a row.  Boosting buying pressure
in German stocks were rumors that J.P.Morgan (JPM) might be
interested in buying Deutsche Bank.  These rumors followed
similar speculation last week that Citigroup may be interested in
the German firm.  Speaking of Deutsche Bank the firm upgraded
their earnings outlook for mobile-phone maker Nokia (NOK).  Both
NOK and rival Ericsson (ERICY) had broken out to new two-year
highs last week and despite the Deutsche news neither NOK or
ERICY could build on last week's gains.  The Gartner research
group estimates that handset sales could surge to 560 million
phones in 2004, a 10% increase above last year's record-setting
510 million units.

Today's losses in the Dow Industrials (-66 points) and the NASDAQ
Composite (-38.8 points) do not bode well for the rest of the
week.  The Dow closed under its simple 50-dma, a level of
technical and psychological support, for the first time since
last November.  For many traders this is a major test of
confidence and if the Dow fails to rebound in the next couple of
sessions it may be their signal to sell.  Fortunately, the Dow
has bounced from short-term support above 10,520 twice in the
past couple of weeks and there is additional support in the
10,400-10,500 range.  Too bad the short-term trend of lower highs
doesn't inspire a lot of confidence.

Chart of the Dow Jones Industrials:



The pull back in the NASDAQ today had a lot more sting to it.
The index lost 1.89% lead by heavy losses in semiconductors and
the rest of the tech sector.  Intel is the major villain in this
story.  The chip giant (INTC) broke through major technical and
psychological support at its simple 200-dma today.  Technicians
will note that today's 4.45% drop was fueled by twice the average
volume, which suggests the decline isn't over yet.  A lot of
traders forgot about Intel on Friday as the markets reacted to
the jobs report but memories of last Thursday's disappointing
mid-quarter update came flooding back as investors turned
cautious ahead of Texas Instruments and TriQuint's updates after
the bell this evening.  Intel is a Dow component, a NASDAQ-100
component and a SOX component so its decline was a huge drag on
the markets.

Chart of Intel:



Tomorrow will be a critical day for tech traders as the NASDAQ
tests the 2000 level again and its simple 100-dma.  Many
investors were optimistic that the NASDAQ's gain last week,
breaking a six-week losing streak, was the beginning of its next
leg higher.  Unfortunately, last week's failure at its simple 50-
dma overhead looks pretty ominous and sets another lower high in
its consolidation pattern.  Even its MACD indicator, which had
produced a new buy signal late last week has reversed again back
into bearish territory.

Chart of NASDAQ:



Overall market internals were pretty negative but that's not a
big surprise given the widespread declines.  The advance-decline
numbers were positive early on but by the closing bell losers
outnumbered winners 17 to 11 on the NYSE and 2 to 1 on the
NASDAQ.  Down volume was more than double up volume on the NYSE
and almost four times up volume on the NASDAQ.  Total volume was
light at 1.55 billion on the NYSE but over 2 billion on the
NASDAQ.

Bullish broker calls for cyclical stocks and Dow components
Caterpillar (CAT) and United Technologies (UTX) help boost both
stocks to early gains and the two were some of the best
performers in the Dow.  Prudential upgraded CAT from "under
weight" to "neutral weight" and raised its price target to $86
while upping their earnings estimates for 2004 and 2005.
Meanwhile SG Cowen suggested that investors buy UTX ahead of its
March 18th analyst meeting.  Unfortunately, these gains faded by
the close leaving both stocks with rather unappealing failed
rally patterns.  Contributing to the overall bearish tone were
defensive comments from both Merrill Lynch and Smith Barney.  The
latter told clients that they expect the S&P 500 to close near
1,025 by the end of 2004 - an 11% drop from Friday.  Merrill
Lynch's defensive comments suggested investors turn toward more
traditional safe haven stocks like health care and drugs.

Intel was not the only drag on the Dow Industrials.  Hefty
declines from General Electric and Eastman Kodak sapped the
strength from any rebound attempts and the two look almost
guaranteed to weigh on the index tomorrow.  Driving the drop in
shares of GE was the company's announcement to issue another 118
million shares of stock worth about $3.8 billion in order to pay
for its deal to buy Vivendi's entertainment assets.  GE already
has 10.08 Billion shares outstanding so another 118 million isn't
that big of an increase but investors still don't appreciate it
when a corporation dilutes the value of their stock.  Once the
deal is complete GE's NBC television network will own the Bravo
channel, CNBC, MSNBC, Telemundo, the Sci-Fi channel, and the USA
channel in addition to Vivendi's Universal theme parks.  The bad
news for shareholders is that today's drop looks pretty damaging.
The 2.86% decline was powered by 27.4 million shares, well above
the norm, and the move broke through support at $32.00.  If I had
to speculate a test of the 200-dma near $30.00 would not be out
of the question.

The drop in shares of Eastman Kodak is investor's response to EK
lowering their 2004 earnings outlook after purchasing the digital
print division of Heidelberger Druckmaschinen A.G.  EK now
expects to earn $2.05 to $2.35 a share in 2004, down from $2.25
to $2.55 per share even though the Heidelberg unit should boost
revenues by $175 million for the year.  EK tried to soften the
news by reaffirming their earnings estimates of $3.00 a share for
2006 but traders weren't buying it and sent the stock lower by
3.45% on very strong volume to test its simple 200-dma.

One stock that hasn't seen its simple 200-dma in several months
is Berkshire Hathaway (BRK.A and BRK.B).  Berkshire and its
widely admired CEO Warren Buffett were making headlines on Monday
after the second richest man in the world (He's worth about $42
billion) released his annual letter to shareholders over the
weekend.  Berkshire profits almost doubled in 2003 but you would
not have expected it if you read the Oracle of Omaha's letter
last year.  Summarizing last year's letter after Berkshire
reported record earnings and revenues in 2002 Buffett said that
it was a "banner year" but called the (2002) results abnormal and
not to expect it next year.  This year's letter is remarkably
similar with Buffett still echoing his mantra that he can't find
anything exciting to invest in (regarding stocks).  Furthermore
Buffett said that his stock's performance "will fall far short of
what it has been in the past."  It looks like investors are on to
his ruse of under promising and over-delivering as shares of
Berkshire's Class A stock rose $1,000 to $94,000 a share, just
under its recent all-time highs last month near $96,000.

Medical device makers also made the headlines today after a
federally sponsored study showed that ICD's were very successful
in reducing the risk of death for a "wide range of heart failure
patients".  The National Institute of Health launched the study
back in 1997 with more than 2500 patients.  At $25,000 per
device, ICD's are implantable cardiac defibrillators that zap the
heart back to normal after detecting any irregular heartbeats
that could prove fatal.  The top three manufacturers of ICD's,
Medtronic (MDT), Guidant (GDT) and St. Jude Medical (STJ), were
all halted prior to the report and all three traded higher
afterwards.  The study's findings are likely to double the number
of potential customers for ICD treatment.

It wouldn't be a Monday without some merger news and today is no
different.  The biggest deal today was BellSouth's (BLS)
agreement to sell its stake in 10 Latin American mobile phone
businesses to Spanish telecom Telefonica SA for $4.2 billion in
cash and $1.5 billion in assume debt.  A close second was
Extended Stay America's (ESA) deal to be acquired by the
Blackstone Group for $3.1 billion.  Coming in third was
J.M.Smucker's (SJM) announcement to buy International Multifoods
(IMC) for $500 million plus $340 million in assumed debt.  Last
but not least is Corvis, an optical networking equipment
producer, who announced plans to buy Focal Communications for
$101 million in stock.

Overshadowing all the merger news were the after hours mid-
quarter updates from Texas Instruments and TriQuint
semiconductor.  After last Thursday's bomb from Intel investors
were leery that TXN and TQNT might disappoint.  TXN had
previously guided Q1 earnings to the 16 to 22 cent range on
revenues of $2.72 to $2.95 billion.  In tonight's conference call
they tightened earnings to 19 to 22 cents, which is essentially
above the 19-cent consensus reported by Thomson Financial.  TXN
also tightened their revenue guidance to $2.84-2.95 billion above
average estimates at $2.85 billion.  TQNT followed suit by
raising their revenue guidance from $81-83 million to $85-87
million but reaffirmed their earnings guidance for a loss of 1-
to-2 cents per share.  Hopefully this is enough to stem the blood
flowing from the SOX semiconductor sector, which many technicians
believe tends to lead the NASDAQ.

Tomorrow will be all about testing support and whether or not the
major indices can remain within their recent trading ranges or
whether we see a new relative low.  Hopefully the chain store
sales numbers, the Redbook retail sales report and the Richmond
Fed manufacturing index, all reporting tomorrow will do their
share to boost investor morale and reverse today's losses.


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

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


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

Buffett begets buyers boycott

The major indices finished near their lows of this session, with
some notable technical damage done to the NASDAQ and broader
technology as the Oracle of Omaha, Warren Buffett, said he finds
little value in the current market environment, and warned
investors in Berkshire Hathaway (NYSE:BRK.A) $94,209.99 +1.3%
that results in future years will most likely be worse than in
past years.

While Mr. Buffett's comments usually catch an investor's ear, Mr.
Buffett's continued prognostications since the early 1990's have
shown checkered results, especially in 2003 where Mr. Buffett
found little value.

Even Berkshire Hathaway defied Mr. Buffett's predictions.  For
2003, earnings nearly doubled to $3,531.32 per share and its book
value increased by 21% the same year.

Mr. Buffett's comments regarding valuations, and his having a
difficult time finding bargains that made sense, has Buffett and
his shareholders sitting on roughly $44.2 billion in cash, just
waiting for the right opportunities to invest.

Buyer among technology seemed disappointed in Mr. Buffett's "hard
to find value" comments, where the Semiconductor Index (SOX.X)
485.27 -3.76%, Disk Drive Index (DDX.X) 127.26 -3.04% and
Networking Index (NWX.X) 284.81 -2.29% paced sector declines,
where by session's end, only the Oil Index (OIX.X) 341.08 +0.27%
finished the day with a gain.

Market Snapshot/Internals - 03/08/04 Close



Today's volume on the NASDAQ of 2.013 billion shares was brisk,
and heaviest since February 24th, when the NASDAQ Composite
(COMPX) 2,008.78 -1.9% traded 2.04 billion shares, and traded its
most recent relative low of 1,991.05.  Today's trade and close
was definitely DIVERGENCE from the mid-August timeframe we have
been making comparisons against.

NASDAQ Composite (COMPX) Chart - Daily Intervals



The COMPX looks to undercut our upward trend, which should be
stronger than the shorter-term RED downward trend from the
January 26th high.  However, weakness in the Semiconductor Index
(SOX.X) and large-cap NASDAQ-100 Index (NDX.X) 1,441.12 -2.16%
provide an alert that the COMPX's upward trend is vulnerable to
being broken to the downside.

Semiconductor Index (SOX.X) - Daily Intervals



My profiled swing trade short in the Semiconductor HOLDRs
(AMEX:SMH) $39.57 -4.07% came very close to being stopped out on
Friday at $41.85, when the SMH traded a session high of $41.80,
but sector bears find the lower low in both the SMH and SOX.X a
sign of weakness.  In this weekend's Ask the Analyst column, the
Semiconductor Bullish % (BPSEMI) was "bear confirmed" and today's
trade saw the bullish % fall further to 57.25%.  As a sector
bullish % benchmark; when the SOX fell to approximately 470 in
December, the Semiconductor Bullish % (BPSEMI) from Dorsey/Wright
and Associates fell to approximately 54%.  I'm currently looking
for some bearish swing trade profits in the SMH should the SOX
trade 475, where we might look for a near-term bounce back higher
to SOX 495 for another short entry, especially if the
Semiconductor Bullish % (BPSEMI) has registered a 52% reading.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals



The SOX and QQQ begin to look very similar, and have a dragging
effect on the broader NASDAQ Composite, which is also comprised
of mid and small-cap stocks.

S&P 500 Index (SPX.X) Chart - Daily Intervals



The SPX set a new multi-year high on Friday, so I find it
difficult to say there is technical weakness.  Still, it is
somewhat apparent that large-cap technology may be having
negative impact on the SPX, where I would have to view the
MONTHLY Pivot of 1,142 as an important near-term support level,
where support buying at that level could find the SOX.X and NDX.X
firming on a near-term basis.

Dow Industrials (INDU) Chart - Daily Intervals



After rebounding above the 10,500 level in early February, the
INDU went on to trade a new multi-year high of 10,750, but last
week's slip below the mid-point of our regression and short-term
downward trend has 10,650 a more formidable level of near-term
resistance, as well as the MONTHLY Pivot of 10,590 and WEEKLY
Pivot of 10,605.

While 6 of the 10 highest price Dow Components saw fractional
gains, it was a 1.92% decline in IBM (NYSE:IBM) $94.59 (second
highest priced) and 1.25% decline in 3M (NYSE:MMM) $77.67 -1.25%
that left the "head" of the Dow inchworm trying to grab hold, as
the "tail," or smaller priced components suffered with 9 losers
and just 1 winner, with the tail slipping notably.  INTC -4.31%,
EK -3.45%, GE -2.86%, MSFT -1.97% and HON -1.31%.

Pivot Matrix -



This morning's highs in the SOX.X and NDX.X found suspicious
selling at their respective MONTHLY Pivots, and in my mind,
becomes a rather formidable level of resistance, which may have
the major indices gains limited until broken.

Jeff Bailey


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The Option Investor Newsletter                   Monday 03-08-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Watch List: Sagging Semiconductors


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

Sagging Semiconductors

Mercury Interactive Corp. - MERQ - close: 44.75 change: -1.69

WHAT TO WATCH: Semiconductor stocks weren't the only pocket of
weakness on Monday, as Software stocks got pummeled as well.  MERQ
finally gave a convincing breakdown under its 200-dma on expanding
volume, and it looks like lower levels are in store.  While there
could be some mild support in the $42-43 area at the site of the
October and November lows, MERQ will have to fall to at least $40
and quite possibly $38 before finding strong support.  A failed
bounce below $46 will provide the best entries.

Chart=


---

International Bus. Machines - IBM - close: 94.59 change: -1.86

WHAT TO WATCH: After failing to sustain a move over $100, Big Blue
fell back under the $97.50 level, which has served as a firm
ceiling for the past two weeks.  That consolidation broke to the
downside, with IBM falling under the $95 level on expanding volume
on Monday and a continued slide to next support near $90 (also the
site of the 200-dma) looks probable.  Breakdown entries below
today's low should work nicely, but keep an eye out for a
potential near-term bounce until   IBM breaks under $93.50.

Chart=


---

Avid Technology Inc. - AVID - close: 41.76 change: -1.68

WHAT TO WATCH: The recent oversold bounce in shares of AVID seems
to have run its course, and the stock rolled over this morning
without even touching the $45 resistance level.  Reinforcing the
bearish tone, volume picked up considerably and a retest of last
month's low near $38.50 seems likely.  Looking a bit further down
the chart, $35 seems like a reasonable target.  Optimal entries
will be found on another rejection from below $44.  Use a stop
just over the converged 50-dma and 200-dma.

Chart=


---

MGIC Investment Corp. - MTG - close: 64.50 change: -1.41

WHAT TO WATCH: With the continued strength in the Housing sector,
MTG has been looking strong the past couple months, but that
changed on Monday.  The stock was pressured lower with the rest of
the market, breaking the 50-dma and breaking horizontal support
near $65.50 in the process.  This moves the stock into the fast-
move area left behind following the January gap.  Play for a drop
to fill the gap near $60, with potential for a drop to the 200-dma
just over $56.

Chart=


---

===================
On the RADAR Screen
===================

ADBE $35.83 - ADBE has been trading in a bearish manner for the
past few months, while the price declines have come in a grudging
manner.  But today's drop back to support just over $35 looks bad
for the bulls, especially with the 50-dma about to cross under the
200-dma and price below both averages.  A break below $35 looks
like a solid entry ahead of a decline down towards the $30 support
level.

INVN $40.54 - It looks like the shorts got squeezed on Monday, as
shares of INVN plowed higher by more than 7% on very heavy volume.
The fact that this breakout to new 52-week highs occurred in a
weak market is particularly encouraging and it looks like the run
at next resistance at $45 is underway.  Entries near current
levels look attractive for an aggressive play, but we'd suggest a
tight stop just under the 50-dma.

COF $74.41 - Looking at today's price action in COF, you wouldn't
know that it was a down day in the markets.  The stock held very
near its recent highs and is still poised for a breakout to new
highs.  Use a trigger at $75 and target $80.


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

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

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


**********
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**********

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