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Daily Newsletter, Tuesday, 03/09/2004

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The Option Investor Newsletter                 Tuesday 03-09-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Trend Change!
Futures Markets: See Note
Index Trader Wrap:
Market Sentiment: 2004 Has Turned Negative


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      03-09-2004           High     Low     Volume   Adv/Dcl
DJIA    10456.96 - 72.50 10529.70 10424.07 1.87 bln 1215/2031
NASDAQ   1995.16 - 13.60  2011.83  1987.29 2.10 bln 1022/2171
S&P 100   560.90 -  2.77   563.77   558.88   Totals 2237/4202
S&P 500  1140.58 -  6.62  1147.32  1136.84
W5000   11147.30 - 73.30 11220.62 11147.30
SOX       486.37 +  1.10   488.04   479.65
RUS 2000  585.95 -  6.56   593.26   584.31
DJ TRANS 2834.30 - 34.40  2869.63  2826.65
VIX        16.60 +  0.81    16.74    15.56
VXO (VIX-O)16.37 +  1.04    16.89    15.93
VXN        24.70 +  0.62    24.86    24.03
Total Volume 4,318M
Total UpVol    999M
Total DnVol  3,214M
Total Adv  2569
Total Dcl  4749
52wk Highs  380
52wk Lows    16
TRIN       1.08
NAZTRIN    2.42
PUT/CALL   0.97
************************************************************

Trend Change!

I have been telling you for the last six weeks to keep
buying the dip and selling the highs as long as we stayed
in our range. That range was 10450-10700 on the Dow and
2000-2100 on the Nasdaq. Boys and girls the stress moved
up a couple notches today with the Dow closing at 10456
and the Nasdaq 1997. We have not fallen off the cliff yet
but we can definitely see over the edge.

Dow Chart - Daily



Nasdaq Chart - Daily



What the heck happened to the rally? Friday the Dow hit
10643 AFTER the negative jobs report and closed positive
for the day. Monday we jumped to 10634 again and then the
bottom fell out. The Nasdaq hit 2068 on Friday, 2058 on
Monday then bottomed at 1988 today. Where did all the
buyers go?

There are multiple reasons for the dip. In no particular
order the first major cause was a deluge of new stock coming
to market. Today alone there was over $6 billion according
to TrimTabs.com. $3.8 billion of that came from GE and was
their first major stock sale since 1962. GE made this
announcement without warning before the open on Monday and
the largest market cap stock on the Dow dropped from $32.80
on Friday to 31.31 today. This was a major depression for
the Dow, not just because of the stock drop but for the
blow to sentiment by seeing the stock drop to a two month
low. Analysts thought GE was cheap already considering
their growth prospects but they were unprepared for the
$16 billion drop in market cap from the sudden decline.

Adding to the Dow decline was a -2.11 drop in Intel from
the closing levels last Thursday when they posted weaker
than expected guidance. Not only did Intel lead the
semiconductor decline but they damaged sentiment once
again when they fell below their 200 dma at 28.37. This
is a normal sell signal for funds and with volume at 92
million shares today there was obviously a lot of
institutional selling.

With GE and INTC headlining the selling on the Dow it
appears there was a lot of sympathy selling as well. UTX,
IP, DD, GM, AA, BA and IBM all dropped sharply. There was
no common cause other than the drop in bullish sentiment.
The sentiment drop began on Friday with the jobs report.

The soaring bonds exceeded expected gains and just continued
to rocket higher. They continued rising today with the yields
on the ten-year dropping to 3.71% and the lowest level since
July 2003. Analysts are scratching their heads for the reason
why. Sure the Fed is on hold for the foreseeable future but
that should not have impacted bonds so strongly. Some are
now speculating that we are seeing some asset allocation
programs on fears of a weakening recovery. The terms recession
and deflation are starting to make it back into the press.
If the campaign wars are going to depress consumer sentiment
and the recovery appears to be stalling then fears of a 2nd
recession start to creep into the investor consciousness.
Stocks have been on an extended rally since March of 2003
and with the second half of election years not know for
strong gains maybe it is time for funds take profits and
move into the safety of bonds. At least that is the current
thought process.

On the technical side a lot of the Nasdaq weakness was due
to the drop in the SOX that was led by Intel. After hitting
a high of 560 in January the SOX has been fighting a long
and protracted battle to hold its gains. This week the Intel
slide helped push it from 510 on Monday to a low of 480 today.
This -30 point drop, nearly -6%, in only two days was very
destructive for the Nasdaq as chips normally lead techs.

We are on the verge of serious technical damage across the
various indexes. The Dow is on the absolute edge of the
cliff at 10450 with only one more minor support level
left at 10400 before facing a serious drop. Today was the
first time since March-14th 2003 that the Dow failed to
trade above or at least touch its 50dma. This is very bad
for sentiment even though it only missed by 30 points. It
has been support for so long that a failure here suggests
substantial weakness. I have discussed this many times over
the last couple months. Recently I have explained that the
Dow had not dropped to the 50 but the 50 had risen to the
Dow. Whether this is material to the actual feeling in the
market is unknown. Discounting the 50dma for a moment the
Dow did pull back to very strong support at 10425-10450 and
managed to hold its ground. It is extremely critical that
this level holds with 10400 the self destruct trigger.

The Nasdaq traded within 6 points of its 100dma back on
Feb-24th and recovered to trade nearly 80 points higher.
Today that average was broken at 1999 and the index closed
at 1995. This is not only under the average but also below
the psychological 2000 level. Granted it is only a couple
points and a quick rebound tomorrow will erase the memory
of the break very quickly. The danger we face here is a
new leg down and the next dip could take us all the way to
1900. This is a critical turning point for the Nasdaq.

The major reason for the Nasdaq drop was the SOX as I
previously mentioned. The SOX broke its 100dma at 497
yesterday as well as critical support at 495. The good
news was a positive close on Tuesday after a double bottom
intraday at 480. Traders will be cheering tomorrow if the
SOX can hold that level and begin a move to higher ground.
Support levels below us would be 475 and then 450 but
nobody wants to consider that risk. Aiding the drop today
was the IBD Chip Index report which fell a couple points
to 54.5.

SOX Chart - Daily



Unfortunately the Russell has fallen and can't get up. The
Russell dropped to 586 and showed almost no rebound at the
close. The small caps are getting dumped along with big
caps and this suggests the selling is very broad based and
heavy. The 50dma is currently 583 and we came very close
today. It has been support since March and was touched
twice in February. The 50ma is way above horizontal support
at 566 and trust me, we don't want to go there.

Russell Chart - Daily


Wilshire Chart - Daily



Our index of last resort is the Wilshire-5000 and it
followed the other indexes down today. Fortunately the
horizontal support at 11076 and the 50ma at 11084 are not
only very close together but still below the close at
11147. This suggests the light selling we are seeing in
the Wilshire may not be able to push through this support.

To recap how we closed today:

Dow 10456, support 10400-10425
Nasdaq 1997, support 1999-2000 (critical)
Wilshire 11147, support 11075-11100
S&P 1140, support 1137
SOX 486, support 480
RUT 586,support 583

Clearly we are at critical levels AND at the bottom of the
range we have traded for the last two months. This is the
edge of the cliff. Whether we are either here to just enjoy
the view or investors are preparing to jump should be known
over the next couple days. Volume did spike today to the
highest level since Feb-19th and declining volume was 3:1
over advancing. 3:1 is strong but is was far from a blowout
day of 5:1 or greater. Higher volume on a down day is bad
but at this level it is only an early warning sign to be
watched for signs of an increase.

Also impacting sentiment today were things like the Nasdaq
all time high anniversary. On March-10th 2000 the Nasdaq
posted its all time closing high of 5048. Traders with
large profits on the table tend to remember milestone
events with fears of a repeat. Also coincidentally it was
announced today that the assets of all stock mutual funds
last week exceeded the highs set in that same March 2000
time frame after three years of declines. Everybody is
back in the market at or near the top. The oracle of
Omaha, Warren Buffet, also said the market is overvalued
and he expects no new purchases until stocks settle some.
Of course as a value investor it is in his best interest
to try and talk it down so he can buy cheaper. Smith
Barney lowered their end of year S&P target to 1025. It
closed today at 1140 and that would be a -10% drop. MER
suggested traders take a more defensive posture. Caution
is breaking out all over.

The biggest fear appears to be lack of jobs. TXN updated
guidance last night to the high end of prior estimates
and failed to impress buyers. This suggests we are faced
with simple profit taking on fears that the recovery may
be slowing. Add in the published survey today that Bush
is behind Kerry in the polls and suddenly the outcome of
the election is in doubt. The locked in tax cuts may not
be as locked in as investors thought and the economic
future is starting to cloud over. Interest rates may be
falling and the Fed may be stable but suddenly that may
not be the biggest cloud on the horizon. The current
rally was built on lower taxes, higher spending and the
promise that better things were to come. If the regime
making that promise is in danger of being deposed then
that promise may be in danger. While I do not think Kerry
will win it is not what I think or you think that matters.
It is fear of the unknown that matters and the market is
definitely afraid of the rising economic uncertainty.

Where do we go from here? As I showed you above we are at
critical levels in the markets. We are right at the bottom
of the trading range that has held since Dec-30th. We have
been buying this level and selling the highs for two months.
Has sentiment changed significantly enough to modify that
plan? I would say yes. I am not saying run for the sidelines
but I do recommend caution. I would not hesitate to buy the
dip if I see any indication of strength at tomorrows open.
However I would not hesitate to switch sides and short the
market on a Dow break below 10400. We are at the bottom of
the swing and the rubber band is stretched to the breaking
point. We are about to either rebound in stunning fashion
or that band is going to break and there is a serious drop
ahead of us. The signal is clear. Stay long over 10400 and
flat or short under 10400. Any continued drop from here
could be signaling that there will be no April earnings
run and the election year decline has started. I have been
projecting mid April for that event but the jobs report and
the lowered Intel guidance may have turned the tide early.

Enter Passively, Exit Aggressively.

Jim Brown
Editor


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

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



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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_030904_1.asp


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

2004 Has Turned Negative
- J. Brown

Uh-oh!  The NASDAQ's close under technical and psychological
support at the 2000 level looks pretty discouraging.  The two-day
sell-off has finally erased the last remaining gains for 2004 and
suggests we could see even more weakness ahead.  The 10%
correction that some market pundits have been calling for these
last several weeks (and months) would put the NASDAQ at 1937.
Considering the slow pace of the market's decline over the last
seven weeks the NASDAQ's simple 200-dma might just climb to 1937
in time to meet up with the index.  Wouldn't that be a
coincidence.

However, I'm not predicting that NASDAQ is heading toward its
200-dma just yet.  While the recent drop in the NASDAQ and the
close under 10,500 in the Dow Industrials is pretty demoralizing
for many traders there are still plenty of investors that have
been looking for the right entry point, the right pull back to
initiate new positions.  There have been plenty of analysts
predicting a pull back ahead of the Q1 earnings season and they
follow up with their expectations that strong profits will re-
ignite the rally.  We'll have to wait and see.  Short-term I
wouldn't be surprise to see the NASDAQ bounce tomorrow.  Looking
at the intraday charts the rebound in the last half hour looked
promising and any rally attempt on Wednesday could be lead by the
semiconductors.

The SOX was one of two sectors that managed to close in the green
today, thanks to positive mid-quarter updates from TXN and TQNT
on Monday night.  Looking closer at the SOX we see it found
support twice today at the 480 level and was rebounding higher
into the close.  Now maybe this move is only a short-term bounce
in what could be a new descending channel for the SOX but it can
still inspire a bounce in the NASDAQ.

Tomorrow holds the dubious honor of marking the absolute top in
the markets way back on March 10th, 2000 when the NASDAQ closed
at 5048.  Wow, what a journey it has been these last four years!



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  7416
Current     : 10456

Moving Averages:
(Simple)

 10-dma: 10579
 50-dma: 10558
200-dma:  9738



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  760
Current     : 1140

Moving Averages:
(Simple)

 10-dma: 1148
 50-dma: 1137
200-dma: 1047



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  946
Current     : 1437

Moving Averages:
(Simple)

 10-dma: 1167
 50-dma: 1495
200-dma: 1368



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

The volatility indices all produced pretty big moves higher today
as the broader indices broke various support levels.  However,
they remain within their long-term descending patterns so we
have yet to see a change in trend.

CBOE Market Volatility Index (VIX) = 16.60 +0.81
CBOE Mkt Volatility old VIX  (VXO) = 16.37 +1.04
Nasdaq Volatility Index (VXN)      = 24.70 +0.62

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.97        830,649       803,092
Equity Only    0.86        637,026       545,759
OEX            0.92         44,054        40,475
QQQ            1.33         80,712       107,594


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

Bullish Percent Data

           Current   Change   Status
NYSE          75.9    + 0     Bull Confirmed
NASDAQ-100    51.0    - 9     Bear Confirmed
Dow Indust.   86.6    - 3     Bull Confirmed
S&P 500       84.4    - 1     Bull Confirmed
S&P 100       87.0    + 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: 1.27
10-dma: 1.18
21-dma: 1.54
55-dma: 1.04


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     985       996
Decliners    1862      2072

New Highs     125        75
New Lows        8         4

Up Volume    299M      625M
Down Vol.    652M     1104M

Total Vol.  1815M     2077M
M = millions


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

Commitments Of Traders Report: 03/02/04

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

In spite of a decrease in long positions by Commercial traders
they still remain relatively neutral on the large S&P contracts.
Small traders remain steadfastly bullish.


Commercials   Long      Short      Net     % Of OI
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%
03/02/04      411,932   418,936    (7,004)   (0.1%)

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
02/10/04      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%
03/02/04      148,383    84,135    64,248    27.6%

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

Commercials did put some money to use this last week and we
see an increase in long positions but they remain net bearish.
In contrast small traders reduced their longs and upped their
shorts but remain net bullish.


Commercials   Long      Short      Net     % Of OI
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%)
03/02/04      344,805   395,112    (50,307)  ( 6.8%)

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
02/10/04     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%
03/02/04     119,382     67,453    51,929    27.8%

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 here in Commercial traders' positions.
and the same can be said for the small traders.


Commercials   Long      Short      Net     % of OI
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%
03/02/04       49,959     41,059     8,900    9.8%

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
02/10/04        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%
03/02/04       11,605     7,128     4,477    23.9%

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

Commercial traders remain asleep in the Dow futures with
almost zero change and small traders are following suit.


Commercials   Long      Short      Net     % of OI
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%
03/02/04       27,594    14,166   13,428      32.2%

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
02/10/04        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%)
03/02/04        6,898    15,874   (8,976)   (39.4%)

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 03-09-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: UNH
Dropped Puts: None
Call Play Updates: AET, AHC, ATH, CDWC, CFC, EBAY, GS, MHK, QCOM,
                   RNR, SLB
New Calls Plays: None
Put Play Updates: CHIR, CTSH, MMM
New Put Plays: UTX


****************
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:
*****

UnitedHealth Group - UNH - cls: 61.41 chng: -1.04 stop: 60.50

Breaking out to new highs on Friday, UNH looked like it was
finally going to deliver the next bullish move that we've been
waiting for.  Unfortunately, the market had a different idea and
that breakout was reversed on Monday, bringing price right back
to the $62.50 level.  But with solid support at that level, there
was no cause for concern.  But today's price action is a
different matter.  UNH broke down out of its rising channel and
with the daily oscillators now turning bearish, it looks like we
can expect more near-term weakness.  Rather than wait for our
stop to be hit, we're pulling the plug tonight, while the loss is
still small.

Picked on February 24th at   $61.92
Change since picked:          -0.51
Earnings Date               1/22/04 (confirmed)
Average Daily Volume =     2.58 mln
Chart =



PUTS:
*****

None


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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: 81.55 change: +0.13 stop: 77.50

The insurance sector as a whole has continued to drift lower the
last three trading sessions but not AET.  The stock has held up
pretty well maintaining support at the $80.00 level.  The very
narrow trading range over the last several sessions has probably
reduced some of the option premium traders might pay.  We remain
encouraged by AET's relative strength the over all market
environment this week makes us cautious about initiating new
bullish positions.

Picked on February 29 at $80.79
Change since picked:     + 0.76
Earnings Date          02/12/04 (confirmed)
Average Daily Volume:       1.2 million
Chart =


---

Amerada Hess Corp. - AHC - cls: 66.26 chng: -0.67 stop: 64.00

Considering the magnitude of the rally in AHC over the past
month, the profit taking over the past two days has been quite
mild and it looks like the stock is setting up to provide another
continuation entry later this week.  Friday's breakout actually
saw a bit of follow-through yesterday, but with the weakness in
the rest of the market, there just wasn't enough enthusiasm to
keep driving price higher.  A bit more profit taking arrived on
Tuesday, but that 1% decline was mild, even compared to the Oil
Services sector (SOX.X), which lost more than 1.5%.  Solid
support at $65 is now reinforced by the 10-dma at $65.07 and a
rebound from that level will provide the next solid entry into
the play.  We're not enthusiastic about fresh momentum entries
above yesterday's high and would instead suggest harvesting gains
on a move near $68.  Maintain stops at $64, just under last
week's intraday lows.

Picked on February 10th at   $59.53
Change since picked:          +6.73
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =        932 K
Chart =


---

Anthem, Inc. - ATH - close: 87.63 change: -1.14 stop: 85.70

Hindsight being what it is, exiting our ATH play on Friday's
failed rally above $90 would have been a good move.  The stock
tried to get back over that level yesterday, but was turned back,
as thee was insufficient bullish enthusiasm with essentially the
entire market turning negative.  That selling pressure continued
on Tuesday and the stock shed another 1.3%, coming to rest just
over the 10-dma ($87.08).  Despite our concerns that the stock
may fall back to support near $85, we're keeping the play alive
on the thought that another bounce from the 10-dma just might be
the next solid entry point.  To be fair, this is a more
aggressive approach, especially with the daily Stochastics just
turning bearish.  But that PnF chart tells us significantly
higher levels are in store, so we'll stick with the trend for
now.  Because of the way Friday's rally was turned back, momentum
entries should be discouraged.  Either manage open positions with
a tight stop or buy the next rebound from support.  If the 10-dma
does fail as support, it is a pretty safe bet that ATH will be
headed back towards strong support near $84-85, so honor your
stops.

Picked on February 26th at   $85.37
Change since picked:          +2.26
Earnings Date               4/28/04 (unconfirmed)
Average Daily Volume =     1.44 mln
Chart =


---

CDW Corp. - CDWC - close: 71.18 change: -0.29 stop: 67.00*new*

It would be hard to know that the broad market has been selling
off sharply the past two days if one were to look at CDWC's price
chart.   The stock has continued its asymptotic decline towards
the $70-71 support area, with consistent support being found at
the 10-dma (currently $70.88).  Should the 10-dma be breached
there is more strong support in the $69.00-69.50 area, which is
the site of former resistance, as well as the 20-dma ($69.43).
The shape of the decline on the daily Stochastics has a bullish
feel and a turn up would give confirmation that the rebound is
getting under way.  This period of consolidation is giving us an
attractive opportunity to get on board with bullish entries
anywhere in the $69-71 area in anticipation of another breakout
to new highs.  If CDWC does have the potential to run up to break
out again, the 50-dma ($67.06) should not be threatened, so we're
tightening our stop to $67 tonight.

Picked on March 2nd at       $72.43
Change since picked:          -1.25
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     1.26 mln
Chart =


---

Countrywide Financial - CFC - cls: 94.52 chg: +0.49 stop: 90.00

CFC is also holding up pretty well considering the market wide
sell-off this week.  The stock has been slipping backward to fill
its gap higher from last Friday and the gap is almost closed.
Supporting mortgage lenders like CFC is the rising bond market,
which pushes bond yields lower and lowers mortgage rates.  This
morning Prudential reiterated their "over weight" outlook for the
stock.  Plus, CFC issued a press release this morning stating
that February's monthly funding volumes beat January's by 13% and
their average daily applications rose by 11%.  CFC also noted
that their pipeline of short-term funding is very strong.  We
feel that traders can still look to dips in the $93.00-93.50
range as a potential entry point as we target a move to the $100
level.

Picked on February 24 at $91.63
Change since picked:     + 2.89
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       2.3 million
Chart =


---

eBay Inc - EBAY - close: 70.09 chg: +0.26 stop: 66.50

Shares of EBAY surged higher on Monday continuing the rally from
Friday's session and actually pierced the $72.00 level before
finally fading back under the market-wide sell-off.  The move
triggered our play at $70.05 but the close under $70.00 was a
concern making Monday's session look like a failed-rally or bull
trap pattern.  Fortunately, that does not appear to be the case.
EBAY announced on Monday that its PayPal unit had settled with
the New York Attorney General's office for $150,000 over charges
that it may have misled customers over refunds for online
transactions that may have involved fraud.  PayPal is still under
investigation from the FTC due to customer complaints.  EBAY made
headlines again today by announcing a deal with Pitney Bowes that
allows users to immediately select U.S. Postal Shipping options,
labels and more.  Pitney Bowes says the service has been
available for a month and they've already shipped over 300,000
items.  EBAY still looks bullish and this may prove to be another
entry point but given the market's weakness the last two days
more conservative traders may want to wait for EBAY to trade
above the $70.75 level before re-evaluating an entry.

Picked on March 09 at $ 70.05
Change since picked:   + 0.04
Earnings Date        04/20/04 (unconfirmed)
Average Daily Volume:     7.0 million
Chart =


---

Goldman Sachs - GS - close: 109.05 chg: +0.53 stop: 104.00

The XBD Broker-dealer index was one of Tuesday's worst performing
sectors with a 1.64% loss.  This followed Monday's downturn after
the group had rallied towards its all-time highs last week.  The
sector still has support at its rising simple 50-dma but it may
take another day or two of minor declines to reach it.  Meanwhile
shares of GS followed the group lower on mild profit taking that
allowed the stock to retest support at the $105.00 level late in
the day.  This could prove to be a very advantageous entry point
for new bullish positions but we're cautious given the market-
wide sell-off for two days straight and the major indices closing
under support.  Look for the bounce that began in the last hour
for GS to continue tomorrow before considering new positions.

Picked on March 04 at $108.52
Change since picked:   + 0.53
Earnings Date        03/23/04 (confirmed)
Average Daily Volume:     3.2 million
Chart =


---

Mohawk Industries - MHK - cls: 83.18 chng: -1.13 stop: 79.50

With the second consecutive day of heavy selling in the broad
market and the Housing stocks seeing a bit of weakness again on
Tuesday, it's really no surprise to see MHK pulling back this
week.  Fortunately, the selling volume has been light, suggesting
that this is simply normal profit taking.  After dipping near the
$82.50 level today, MHK found some late-day buying interest just
over the 20-dma ($82.39) and it was nice to see support hold just
above the lows from a week ago.  Connecting a trendline between
the 2/06 and 2/25 lows shows that any dip that finds support
above $81.75 can be viewed as an entry point.  Remember to wait
for the rebound first, though.  If buying strength is your
preference, then you'll need to wait for MHK to make another
breakout move over $85.80 before playing.  As long as we don't
see a pickup in selling in Housing stocks, we can expect MHK to
continue its upward trend of higher highs and higher lows.
Maintain stops at $79.50.

Picked on March 4th at       $84.53
Change since picked:          -1.35
Earnings Date               2/05/04 (confirmed)
Average Daily Volume =        342 K
Chart =


---

Qualcomm, Inc. - QCOM - cls: 63.75 chng: +0.13 stop: 62.00*new*

The broad market decline this week has been led by Technology
shares, but you sure wouldn't know it to look at QCOM's price
action.  Rather than seeing any significant selling, the stock
has continued wedging up under the $64 resistance level giving a
graphical example of what relative strength means.  The last
viable entry point was on last week's rebound from the 10-dma
(now $62.66) and aggressive traders can still consider entries on
another successful test of that average.  Alternatively, breakout
entries over $64.50 still make sense for a quick run up to our
final target in the $67-68 area.  Remember that $67 is the
bullish price target from the PnF chart, so the play should be
exited for a nice gain if that level is reached later this week.
On the off chance that QCOM finally succumbs to the selling
pressure in the rest of the market, let's tighten our stop to
$62, which is solidly below the 10-dma as well as the rising
trendline connecting the 2/24 and 3/03 lows.

Picked on February 17th at   $59.55
Change since picked:          +4.20
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     8.52 mln
Chart =


---

Renaissancere Ltd - RNR - close: 53.58 chg: -1.17 stop: 52.00

Ouch!  After days of holding up very well above the $54 level
shares of RNR finally suffered some profit taking with a 2.13%
loss.  Tuesday's drop actually closed under the simple 10-dma and
the short-term technicals naturally look pretty bearish at this
point.  We could very easily see RNR pull back toward its rising
21-dma and support in the $52.00-52.50 region.  If you're not
prepared to wait it out it might be beneficial to close bullish
positions now and buy the next bounce again.  Traders still
looking to initiate positions can look for the bounce above
$52.00.

Picked on February 15 at $50.83
Change since picked:     + 2.75
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =


---

Schlumberger Ltd - SLB - close: 64.78 change: -0.35 stop: 62.75

We sure would have liked to see more follow-through on SLB's
breakout early last week, but the subsequent mild pullback has
all the earmarks of a fresh entry point.  Drifting slowly
downwards over the past week, SLB is now nearing what should be
solid support near $64, with support provided both by the prior
highs and the 20-dma ($64.44) and the 30-dma ($63.49).  In light
of the 1.5% slide in the Oil Services sector (OSX.X), SLB's 0.5%
drop on Tuesday looks pretty encouraging.  With daily Stochastics
nearing oversold and crude oil remaining near its highs, entries
on a test of that support look like a solid entry point.  Traders
preferring to enter on strength will need to wait for a fresh
breakout over last week's $66.75 high before playing.  Maintain
stops at $62.75, just under the late February low.

Picked on February 24th at   $64.47
Change since picked:          +0.31
Earnings Date               1/23/04 (confirmed)
Average Daily Volume =     3.53 mln
Chart =



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

None


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Chiron Corp - CHIR - close: 48.35 chg: -0.15 stop: 50.05*new*

The failed rally on Friday at CHIR's descending 21-dma looked
pretty convincing but just for kicks the stock produced a bearish
engulfing candlestick with Monday's session.  Tuesday followed up
with another relative low and the best (actually worst) close
under $48.50 quite some time.  We're going to lower our stop loss
to $50.05.  Traders can use today's weakness as an entry point or
look for another failed rally under $50.00, but after this much
consolidation we'd prefer to see some follow through on the
declines.

Picked on February 24 at $49.11
Change since picked:     - 0.76
Earnings Date          01/28/04 (confirmed)
Average Daily Volume:       1.7 million
Chart =


---

Cognizant Tech. - CTSH - cls: 43.32 chng: -1.38 stop: 46.00*new*

It certainly took long enough, but CTSH is finally delivering on
the bearish promise we saw nearly a month ago.  As we noted over
the weekend, Friday's rebound near the 10-dma (now at $45.98) was
either a prelude to a trend reversal or the setup for a fresh
entry point.  Fortunately it turned out to be the latter, and the
stock kissed the 10-dma yesterday morning and then fell back to
support before breaking down today in the midst of more
Technology weakness.  CTSH is now close enough to our $41 target,
that we should not be considering new entries.  From here on out
it is about maximizing gains.  Any drop into the $41-42 area
should be viewed as an invitation to exit the play with a nice
gain.  We're lowering our stop to $46.00 tonight, which is just
over the 10-dma.

Picked on February 19th at    $47.49
Change since picked:           -4.17
Earnings Date                2/10/04 (confirmed)
Average Daily Volume =      1.31 mln
Chart =


---

3M Company - MMM - close: 77.85 change: +0.18 stop: 79.60*new*

Is the third time going to be the charm?  The downtrend in MMM
has been slow but persistent, as price has worked its way back
down to critical support at $77, all the while posting a series
of lower highs.  This bearish triangle should break down soon if
it is going to do so and once $77 is traded, we'll have that
elusive PnF Sell signal.  Today's intraday low marked a slight
violation of the February lows, but the bulls managed to hold on
and post a slight rebound into the close.  This suggests that
perhaps we'll have one more test of resistance at the descending
trendline, 20-dma and 30-dma, all clustered near $79.30-9.40
before the breakdown occurs.  A rollover near that measure of
resistance can still be used for entry, while breakdown entries
can be taken below $77.  Lower stops to $79.60, just over
resistance, as well as last week's intraday highs.

Picked on February 15th at    $79.68
Change since picked:           -1.83
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.78 mln
Chart =



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

United Technologies - UTX - cls: 88.75 chg: -1.71 stop: 91.50

Company Description:
Based in Hartford, Conn., United Technologies Corp. provides high
technology products and support services to the commercial
building and the aerospace industries through its seven
companies: Otis Elevator, Carrier heating and air conditioning,
Chubb security, UTC Power, Pratt & Whitney jet engines, Hamilton
Sundstrand aerospace systems and Sikorsky helicopters.
(source: company press release)

Why We Like It:
We always recommend that readers follow up with their own
research on any of our suggested plays and what you'll probably
find on UTX is the following.  Most analysts are pretty bullish
on the stock given the improving economy and UTX's cyclical
nature and strong defense business.  Plus, the company recently
reaffirmed its earnings numbers.  Honestly we're surprised that
more brokers didn't reiterate their positive outlooks after
shares of UTX fell strongly on news that the Pentagon would be
cutting the Comanche helicopter program, which was primarily run
by UTX and Boeing.  UTX even came out and said that it would not
have a material impact on earnings but shares fell from $98 to
under $90 in just a few days.  There was an attempt at a bounce
but traders seemed focused on using the news as an excuse to sell
and take profits after UTX's very strong run in 2003.

UTX actually rallied early on Monday this week on some positive
broker comments but that rally failed at its simple 10-dma with
the broader markets in sell-off mode.  Today's drop under $90.00
and very minor support at $89.00 looks like a signal that the
profit taking isn't over yet especially with the Dow under
support at 10,500.  UTX's daily chart looks pretty bearish but
its P&F chart looks even worse.  The P&F chart points to an $80
price target near P&F support.  We're not quite that enthusiastic
and plan to target a move to the simple 200-dma near $83.00.
Short-term traders might want to consider an exit near the $85
mark, which could prove to offer round-number psychological
support.  We'll start the play with a stop loss at $91.50.

Suggested Options:
Short-term traders can probably benefit using the April or
May strikes.  Our choice is the April 90's.

BUY PUT APR 85 UTX-PQ OI= 757 at $1.35 SL=0.65
BUY PUT APR 90*UTX-PR OI= 621 at $3.40 SL=1.70
BUY PUT APR 95 UTX-PS OI=  90 at $6.90 SL=4.25
BUY PUT MAY 90 UTX-QR OI=1198 at $4.50 SL=2.25
BUY PUT MAY 85 UTX-QQ OI=1853 at $2.25 SL=1.13

Annotated chart:



Picked on March 09 at $ 88.75
Change since picked:   - 0.00
Earnings Date        01/20/04 (confirmed)
Average Daily Volume:     2.3 million
Chart =



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The Option Investor Newsletter                  Tuesday 03-09-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Trending Bearish


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

Trending Bearish

___________________________________________________________________

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.
___________________________________________________________________


XL Capital - XL - close: 76.47 change: -1.27

WHAT TO WATCH:  Heads up!  XL looks ready to move lower and
quickly.  The stock bounced from the $74 level a couple of weeks
ago but that rebound quickly failed and multiple times at its 50-
dma (near its 200-dma).  Today's drop looks pretty bearish but
we'd consider using a trigger under $76.00.  It's too early to
tell but that could be the beginning of a new declining channel
on XL.

Chart=


---

Ingersoll-Rand - IR - close: 64.89 change: -1.09

WHAT TO WATCH:  We strongly considered adding IR to the put list
again but after five weeks of consolidation between $64 and
$68.50 we decided to watch list it for a breakdown under $64.00.
More aggressive traders can use a trigger at this level and
target a move to the $60 mark or its 200-dma near $58.00.

Chart=


---

General Dynamic - GD - close: 89.13 change: -0.65

WHAT TO WATCH:  The sell-off in GD continues as the stock
produces a new relative low almost daily the past week.  Traders
are currently using the simple 10-dma as the point to sell but
the close under $90.00 may hasten the profit taking.  There
"should" be some support at $87.50 and $85.00 given their
previous history as past resistance but we don't feel too
confident about them here.  It wouldn't surprise us to see GD
trade toward its 200-dma near $83.00.

Chart=


---

NTL Inc - NTLI - close: 62.03 change: -1.46

WHAT TO WATCH:  NTLI is a TV/broadcasting company and the stock
has been stuck in a trading range between $60.00 and 71.50 for
the last few weeks.  The recent drop has brought it back toward
the bottom of this range.  Brave-hearted bulls can try and buy a
bounce from this support near $60.00 while bears can be waiting
patiently for the breakdown under support.  Should the breakdown
occur we'd look for a move toward its 200-dma near $53.00.

Chart=



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DISCLAIMER

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

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