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Daily Newsletter, Wednesday, 03/10/2004

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The Option Investor Newsletter               Wednesday  03-10-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Markets Implode on Anniversary
Futures Wrap: See Note
Index Trader Wrap: Stocks extend losing streak


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     03-10-2004            High     Low     Volume Advance/Decline
DJIA    10296.89 -160.07 10473.86 10284.67 1.99 bln    622/2242
NASDAQ   1964.15 - 31.01  2007.25  1963.13 2.13 bln    690/2362
S&P 100   552.80 -  8.10   561.38   552.01   Totals   1312/4604
S&P 500  1123.89 - 16.69  1141.45  1122.53 
RUS 2000  575.01 - 10.94   589.78   574.56
DJ TRANS 2788.48 - 45.82  2838.08  2786.61
VIX        18.67 +  2.07    18.07    16.11
VXO        18.80 +  2.43    19.23    16.75
VXN        26.05 +  1.35    26.07    24.41
Total Volume 4,626M
Total UpVol    833M
Total DnVol  3,690M
52wk Highs     335
52wk Lows       22
TRIN          2.46
PUT/CALL      0.91
*******************************************************************

Markets Implode on Anniversary
by James Brown

Ka-BOOM!  The major stock indices have stretched this week's 
declines to three in a row.  Both the Dow and the NASDAQ are 
negative for the year and that noise you heard was all three 
indices, including the S&P 500, breaking major support today.  
All of this comes on the March 10th anniversary of the NASDAQ's 
all-time closing high at 5048 back in 2000.  It also happens to 
be near the one-year anniversary of the market's bottom in March 
2003.  The S&P closed at 800.73 on March 11th, 2003, dipped to an 
intraday low of 788.90 the next day but rebounded sharply as the 
Iraq war began.  

This week's decline has been very wide spread affecting every 
sector with virtually zero pockets of strength.  Those industries 
hit hardest today were gold, oil services, drugs, broker-dealers, 
semiconductors, internets, airlines and homebuilders.  The 
hardware group did try and buck the trend but eventually 
succumbed to the sell-off as it picked up speed this afternoon.  
Strengthening the PC makers was a survey from International Data 
Corp, which revealed that global PC shipments are expected to 
climb by more than 10% in 2004 and 2005 and shipment value is 
expected to rise more than 5% over the next two years.  

U.S. markets weren't the only ones in the red.  Asian stocks were 
lower as the Japanese NIKKEI lost almost 99 points to close at 
11,433 and the Chinese Hang Seng lost 183 points to close at 
13,214.  The British FTSE managed to close positive at 4545 with 
a 3-point gain.  Meanwhile the German DAX slid more than 42 
points to 4044.  

What bulls should find disturbing about today's breakdown are the 
internals.  Both the NYSE and the NASDAQ reported that declining 
stocks outnumbered advancing issues by nearly 3-to-1.  This was 
the weakest advance/decline reading since October 2002.  New 52-
week highs have withered to just 178 between the two exchanges.  
Furthermore the down volume trampled up volume by more than 6-to-
1 on the NYSE and close to 3-to-1 on the NASDAQ.  Volume breached 
more than 2 billion shares on both exchanges and was growing as 
the sell-off gained speed into the afternoon.  

The 160-point drop in the Dow Industrials to 10,296 crashed 
through what should have been support at 10,400.  The next hope 
for support is the simple 100-dma near the 10,200 level.  
Coincidentally the 10,200 level also happens to be a 5% 
correction from the recent top and traders trying to pick a 
bottom might help support the markets there.  Personally, I 
wouldn't be surprised to see the Industrials retest the 10,000 
level before the end of March.  

Chart of the Dow Industrials:

 

The tech-heavy NASDAQ Composite looks a lot worse.  The NASDAQ 
has lost about 90 points (4.3%) in the last four sessions and 
closed near its low for the day.  The breakdown under the 2000 
level was bad enough on Tuesday but today's decline really 
confirms the move and will play havoc on investor sentiment.  
Optimistic traders can hope that the NASDAQ might find support 
near 1935, which would be a 10% correction from its 2150 highs 
but I would agree with Jim's assessment that the next true 
support level is probably the 1900 level.  Any rally back towards 
2000 is probably going to be seen as a chance to short the market 
since broken support tends to become resistance.  

Chart of the NASDAQ Composite:

 

The S&P 500 index lost 1.46% today and closed under its simple 
50-dma for the first time since last November.  The good news is 
that the S&P 500 is still green for 2004 but those gains are in 
danger of vanishing.  The sell-off today managed to pause as the 
SPX approached its late January support near 1120.  Whether or 
not this level will hold is the real question.  The bad news is 
that today's drop in the markets was finally echoed by a surge in 
the volatility indices.  In the recent past the market declines 
saw spikes in volatility but each time the spike only proved to 
be a new lower high.  This time the VIX and the VXO (old VIX) 
have produced a new higher high, breaking the descending 
trendline.  There are a lot of traders, both big and small, that 
follow the VIX/VXO, which has not been much help lately.  Today's 
rally in the VIX shows a sharp increase in investor fear that 
suggests this pull back is "for real" this time.  

Chart of the S&P 500:

 

Chart of the VIX/VXO:

 

Wednesday's only major economic report was the January trade 
deficit numbers.  Economists had been expecting the trade gap to 
shrink in January to $41.9 billion.  Unfortunately the Commerce 
Department announced that the trade gap hit a new record high at 
$43.1 billion, above last March's $43 billion.  One of the main 
culprits were meat and chicken exports, which shouldn't be a 
surprise.  Exporters are still dealing with the mad cow scare and 
the recent bouts of bird flu that prompted bans on U.S. poultry.  
The export numbers showed beef and chicken products dropped 40% 
to their lowest levels since November 1993.  

The trade gap report undermined investor sentiment, which was 
already weak given the two days of profit taking and the 
technical breakdown in the NASDAQ yesterday.  A sign that 
traders' attitudes have changed was the reaction to positive 
news.  Rockwell Automation Inc (ROK) issued a positive earnings 
pre-announcement saying its March quarter would be higher than 
expected.  Analysts consensus estimates were 33 cents a share and 
ROK now expects earnings in the 35 to 38 cent range as sales in 
the first two months of the year have beaten forecasts.  ROK 
gapped higher at the open but eventually faded into the afternoon 
painting a discouraging failed-rally pattern and closing under 
its simple 200-dma.  

Investor reaction was even worse for Danaher Corp (DHR).  DHR 
raised its Q1 earnings guidance to 81-86 cents a share above its 
prior guidance of 76-81 cents and above consensus estimates at 80 
cents.  Shares of DHR quickly shot higher at the open and traded 
above its simple 10-dma briefly before promptly falling on strong 
volume to a new five-week low at its 100-dma (87.99).  There is 
some support at the $88.00 level but given the trajectory of this 
afternoon's sell-off traders are probably betting on a test of 
the $85 level.  

It's not hard to imagine that if investors are reacting this 
poorly to good news how would they react to bad news?  Just look 
to shares of Krispy Kreme Doughnuts (KKD) to answer that one.  
The stock dropped $3.94 to $34.22 on more than seven times the 
average volume after reporting earnings that were in line with 
analysts' estimates at 26 cents a share.  Revenues were up more 
than 35% but margin pressures cratered investor confidence.  KKD 
said operating margins at company-owned stores plummeted from 
20.3% to 17.4%.  JP Morgan reiterated their "under weight" on the 
stock and investors decided to exit.  

Other notable decliners today were BRL, THC and GLBC.  Barr 
Pharmaceuticals, previously Barr Labs (BRL), dropped more than $5 
to $73.90 after management failed to raise their earnings 
forecast at the company's analyst conference today.  Tenet 
Healthcare (THC) dropped more than 14% to $10.06, a five-year 
low, as investors fled over concerns that the company is running 
out of cash.  Meanwhile shares of Global Crossing (GLBC) 
collapsed for an $11 loss or 38% to $17.78 as investors reacted 
to its first earnings report after returning from Chapter 11 
bankruptcy.

Tomorrow should prove interesting.  Markets don't usually move in 
a straight line for very long.  Even though the indices looks 
terrible right now it wouldn't surprise me to see an oversold 
bounce tomorrow, especially at the 10,200 level for the Dow.  I'd 
like to think that Tech Data Corp's (TECD) positive earnings 
report tonight after the bell might inspire some sort of rebound 
in the tech sector but that could be wishful thinking on my part.  
The next two days are overflowing with economic reports.  
Tomorrow will bring the weekly initial jobless claims, 
import/export prices, the February retail sales numbers, and the 
natural gas inventory report.  The big report on Friday will be 
the preliminary Michigan sentiment number unless of course the 
government chooses to surprise us by publishing the long-awaited 
PPI index.  On top of it all Greenspan will be speaking at two 
separate engagements but don't expect him to say anything about 
monetary policy.  

Overall it looks pretty ugly out there.  The last three sessions 
have broken major support in numerous sectors and an untold 
number of stocks.  This could be the beginning of the Q1 
correction we were expecting about 7 or 8 weeks ago.  Watch those 
stop losses and think twice about initiating any new bullish 
positions.  


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

Stocks extend losing streak

What seemed to be a "no response" in the first half of today's 
session to economic data that showed the U.S. trade gap widening 
to $43.1 billion in January, and wholesale inventories rising a 
tepid 0.1% turned into a route of selling into the close, where 
only the dollar found buyers, while safe-haven sectors also 
traded lower.

Market Snapshot / Internals - 03/10/04 Close

 

I will admit that I was a bit surprised to see the NASDAQ-100 
Tracker (AMEX:QQQ) $35.19 -1.32% sport an early morning gain, 
when the NYSE Composite ($NYA.X) 6,591.72 -1.59% showed little 
sign of strength early, and while a slow, but methodical drift 
lower began to form at lunchtime, when yesterday's lows failed to 
hold support, a major buyers boycott developed, where the major 
indices double their intra-day losses in the final hour of trade.

U.S. Market Watch - 03/10/04 Close

 

The "dragging effect" really seemed to show up in today's trade, 
as well as 5-day and 20-day net change comparisons, where we've 
been monitoring the weaker NASDAQ Composite (COMPX) against the 
NYSE Composite ($NYA.X).  

I've marked the 4 financial sectors, which have been an important 
element for the SPX/OEX, where losses begin to show up in the 5-
day percentage column, when compared to the 20-day percentage 
column suggests that even the strong sectors are succumbing to 
selling, which isn't that unusual when losses begin to mount in 
other parts of investors portfolios.

The Dow Jones Home Construction Index (DJUSHB) 666.03 -2.34% is 
perhaps a prime example of this, and I would urge sector bulls to 
be protecting gains in the sector.

After a couple of very bullish sessions for Treasuries, even 
their perceived safety found some profit taking in today's trade, 
with the benchmark 10-year YIELD ($TNX.X) rising 1.6 basis points 
to 3.735%.

Pivot Analysis Matrix -

 

I counted just 3 sell program premium alerts on a 5-minute bar 
chart in today's trade, and the slicing, or violation of pivot 
levels indicates to me that there were few willing buyers in 
today's trade.  Only the S&P Banks Index (BIX.X) 352.10 -1.33% 
have yet to see trade at their WEEKLY S2, and should that level 
be violated, next step lower is correlative MONTHLY S1 and DAILY 
S2.  A daily decline to 348.44 would be equivalent to today's 
4.78-point decline in the BIX.X, where at that point, I would be 
very alert for an oversold bounce to take hold.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

 

Volume levels were once again building in the QQQ to the 
downside, and suggests that the near-term bottom has not yet been 
found.  I've placed tomorrow's DAILY S2 on the QQQ chart, to try 
and get a feel for downside should the MONTHLY S2 be violated.  
For informational purposes only, and a scenario to be alert to, 
I'm noting that the current March option expiration (next Friday 
03/19/04) Max Pain level is $36.00.  Traders might be alert to a 
near-term trade where the QQQ undercuts the $35.00 level, where 
the QQQ might try and gravitate back toward the $36.00 level by 
next Friday.  

Traders can take note of today's NASDAQ-100 Volatility Index 
(VXN.X) 26.05 +5.46% reading, and be alert for any type of sharp 
reversal lower, combined with a stabilizing QQQ, or rising QQQ, 
to have max pain $36.00 being in play.

S&P 500 Index Chart - Daily Intervals

 

How can the SPX slice below its correlative MONTHLY S1 and WEEKLY 
S1 like it wasn't there?  I looked at an intra-day chart of the 
SPX and it fell through that 1,135 level like it wasn't even 
there, and any institutional computers set for buying had been 
turned off.  December expiration "max pain" was 1,125, as is this 
quarterly expiration.

Dow Industrials (INDU) Chart - Daily Intervals

 

While the SPX simply sliced below its correlative WEEKLY S2 and 
MONTHLY S1, the INDU did find some intra-day support around the 
10,434 level, but when the relative low was violated, the INDU 
dropped quickly, and I would have to view 10,500 as a building 
level of resistance.  We've seen past rebounds from similar 
technicals shown today, but I would caution bullish traders to be 
disciplined with stops, as we've been seeing DIVERGENCE to past 
history, and something isn't right.

Jeff Bailey


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The Option Investor Newsletter                Wednesday 03-10-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: CTSH, MMM, UTX
Dropped Calls: GS
Dropped Puts: None
Spreads, Combinations & Premium-Selling Plays: Option Trading 
    Fundamentals: Choosing The Right Strategy
Watch List: Lots of Red Ink


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

CTSH - put play
Adjust from $46.00 down to $44.00

MMM - put play
Adjust from $79.60 down to $78.25

UTX - put play
Adjust from 91.50 down to 90.50

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

Goldman Sachs - GS - close: 103.55 chg: -2.21 stop: 104.00

The sell-off really began to pick up steam today and the broker-
dealer sector, a previous industry of strength in the markets, 
took it on the chin with a 2.21% drop in the XBD index.  The XBD 
actually closed under its simple 50-dma for the first time in 
weeks.  We were cautious yesterday in our Tuesday update for GS 
and there was no continuation of the last hour bounce this 
morning.  Once shares of GS broke under the $104.50 level in the 
last hour the selling really began to cascade and volume shot 
through the roof.  We are stopped out at $104.00.  

Picked on March 04 at $108.52
Change since picked:   - 4.97
Earnings Date        03/23/04 (confirmed)
Average Daily Volume:     3.2 million    
Chart =



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

None


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

Option Trading Fundamentals: Choosing The Right Strategy
By Ray Cummins

The key to success in options trading is to utilize strategies
that provide reasonable profit potential while maintaining an
acceptable amount of risk.


The Spreads/Combos editor is on vacation, so there will be no
new candidates today.  However, with the recent volatility and
indecision in the market, we have a great opportunity to review
the fundamentals of option trading and strategy selection.


Success Requires A Methodical Approach

There are many types of investors and no single strategy can work
for all of them.  By definition, trading is a risky venture but
you know there are people who profit regularly in this business.
What do these successful traders have in common?  As a group, they
all conform to the same fundamental plan.  They develop sound and
sensible methods for participating in the market, using strategies
that work best for each particular situation.  They also acquire
the proper tools for accurate analysis of their candidates and
potential plays, and they construct positions with regard to the
appropriate risk-reward attitude of their financial situation.

Options: Basic Strategies

There are a number of ways to be successful in the options market.
The primary uses of options are speculating and portfolio hedging.
Both of these practices involve the management of risk, with each 
strategy approaching the potential for loss in a different manner.
Fund managers and institutional traders reduce risk by offsetting
a portion of their holdings with option positions.  Many of them
purchase Put options to insure their equity portfolios while others
use option writing techniques, selling Puts and Calls to improve
returns from their long-term investments.  Speculative strategies
include buying and selling options outright and in most cases,
traders use these techniques to generate additional leverage in
existing equity positions.  Professionals know that ownership of
an option can produce large profits when the underlying instrument
moves as expected and on those occasions when their forecast is
incorrect, the loss is limited to the initial cost of the position.

Another popular approach, spread (or combination) trading, seeks
to produce option positions with less risk than the speculative
strategies.  The majority of spread techniques involve buying and
selling simultaneous but opposing positions in different option
series.  Common spread strategies include calendar spreads, price
(or vertical) spreads, and various combinations of the two.  The
calendar spread (also known as a horizontal spread) involves the
purchase of an option with one expiration date and the sale of
another option at the same price but a different expiration date.
The philosophy for using calendar spreads is that time will erode
the value of the short-term option at a faster rate than it will
the long-term option, providing a profit if the underlying issue
remains in a relatively small (target) range.  Traders who attempt
to forecast the future direction of specific issues generally use
price spreads.  These positions consist of a long (bought) option
and a short (sold) option, where both options are of the same type
(calls or puts) and expire at the same time.  Vertical spreads are
commonly used by traders who want to use options to take advantage
of a directional market move.  The benefit of this technique is
that it is aptly suited to situations where the underlying issue's
trend is relatively well established and option pricing concerns
are of secondary importance.  One of the most commonly utilized
neutral-outlook strategies is the debit (or long) straddle.  The
debit straddle involves the simultaneous purchase of both call and
put options and the position benefits from a large movement in the
underlying issue.  Based on the size and timeliness of the move,
the technique can generate large profits, however in most spread
and combination strategies, the returns are far smaller than those
generated by speculative positions in exchange for reduced risk.


Options: Advantages & Pitfalls

There are two primary benefits of derivatives.  They can be used
to generate large (relative) profits on correctly forecast market
activity and alter the risk profile of a portfolio.  A trader who
purchases calls can profit from an increase in the price of the
underlying asset and the maximum loss from buying the option is
limited to its initial cost.  The potential gains in this type of
position are restricted only by the future price change in the
underlying issue.  Since the asset's price is the most important
factor affecting an option's value, the success of directional
strategies is primarily based on an accurate assessment of future
market movement.  Technical and fundamental analyses are typical
procedures used to identify potential direction and magnitude of
movement in the underlying issue.  Once a group of candidates has
been identified, time frame and leverage become primary factors
in selecting a specific position.  Obviously, the major drawback
for options is they are a wasting asset; the extrinsic value of
the option falls as the expiration date approaches.  Timing is a
critical concern with derivatives because the initial premium for
time value can be larger than any profit resulting from favorable
movements in the underlying instrument.  In addition, the future
potential (implied volatility) of an option is often difficult to
assess and that particular concept may be overwhelming for novice
market players.  The most common result is that an investor will
correctly forecast the movement of the underlying instrument but,
having paid an excessive premium for the option, will eventually
experience a loss in the position.  Leverage, which is sometimes
characterized by a term describing ratio of change (such as "move
to double") is also an important component of option trading as it
allows an investor to achieve large profits with a relatively small
cash investment.
 
The most prevalent failure among new traders is the inability to
assess the suitability of a specific position in terms of its
risk and profitability characteristics, and the basic lack of
theoretical option-pricing knowledge.  In addition, many novice
option traders base their selection of plays on the potential for
return rather than the appropriate position or strategy for each
combination of market direction and volatility.  Retail option
buyers are a great example.  They consistently purchase options
that are "out-of-the-money" with only a short period remaining
before they expire.  They usually avoid theoretical option-pricing
models due to their confidence concerning the future movement of
the underlying issue and their distorted assumptions about profit
potential.  In fact, many investors partake in the options market
without paying any attention to fair value and implied volatility.
As a result, they purchase overpriced options and fail to profit
even when they are correct about the direction or character of the
underlying issue.


Combination Positions: A Great Way To Limit Risk

Options possess characteristics that differ from other financial 
instruments.  These unique attributes provide option traders with
advantages unavailable to the majority of market participants.
Although the initial learning curve can be difficult to overcome,
the evidence concerning spread trading suggests that a structured
plan with strategies for limiting losses and maximizing gains can 
produce favorable portfolio growth in the long-term.  The majority
of experienced traders utilize spreads to reduce the cost and the
risk of option ownership.  They construct combination plays with 
partially offsetting option positions to reduce the potential for 
capital loss.  Spreads can also be designed to generate return
diagrams of almost any character.  For the investor who is not
familiar with spread and combination strategies, this type of
approach also offers a great opportunity to learn the basics of
derivatives trading in a low risk environment.  The fundamental
concepts are relatively easy to understand and once established,
most positions can usually be managed with little difficulty.  The
occasional adjustments also provide the necessary background for
more advanced techniques.  Those who enjoy aggressive, directional
trading can construct combination positions to fit their style as
well.  Although the potential for upside profit is reduced, the
limited downside exposure provides a favorable risk/reward ratio
for the majority of investors.


Knowledge: A Prerequisite For Consistent Profits

Of course, many novice traders participate in complex strategies
before they have the proper background and knowledge of pricing
theory.  Even though the most common techniques are sound and can
be very profitable if implemented and monitored properly, problems
can generally emerge when inexperienced traders combine multiple
positions without fully understanding the profit/loss dynamics or
the potential implications of margin and collateral requirements.
In addition, many conservative investors are drawn to more complex
strategies because of the apparent favorable odds.  However, most
participants fail to realize that positions with low risk usually
have limited potential.  In contrast, the techniques which appear
most favorable from a probability standpoint (premium-selling is
a popular example) often have unlimited risk, if the market moves
too far in one direction.

There are several things to consider before entering into complex 
trading strategies.  First, regardless of what you have heard (or
read), there is no such thing as “risk-free” trading in the retail
options market.  I repeat, there are no option-trading strategies,
simple or complex, available to the general public, that guarantee
profits, no matter how favorable the odds!  With option trading,
everything is relative and mathematical.  Pricing and potential
outcomes are based on statistics and historical probability.  For
example, a trader can purchase short-term, out-of-the-money options
for increased leverage but the probability of profit will be small.
In contrast, he can write deep-out-of-the-money options with a high
expectation of a relatively small return in exchange for virtually
unlimited risk.  While entering a position with a high probability
of success can be very comforting, the most important concept that
new traders overlook is not the likelihood of a successful outcome
but rather the extent of risk associated with an unexpected move in
the underlying issue.

To be successful with combination positions, a trader must be able
to accurately assess their individual experience level and avoid
those strategies that are too complex.  The primary considerations
in evaluating a particular position are relatively simple.  First,
what is your reason for entering the trade?  Second, what is the
expected profit and the probability of achieving it?  Third, how
much downside potential does the strategy entail and what is the
likelihood that maximum loss will occur?  Finally, will the play
need adjustments and if so, what type and at what point will they
be initiated?  If you cannot answer these simple questions before
entering the trade, then the position should be avoided, no matter
how attractive it appears.  There are many intriguing techniques
but when you enter a trade in which you are not fully aware of the
potential outcomes or you are unprepared to deal with the negative
consequences, you are using a strategy that is too sophisticated.


The Complete Option Player

The options market offers a number of tools and techniques that
can help the astute trader construct a powerful portfolio; one
which possesses a high degree of safety with consistent returns.
Through the use of combinations, an individual has a vehicle to
pursue a wide variety of strategies.  The complete option player
can profit with both bullish and bearish plays, in situations
that dictate either aggressive or conservative positions.  With
an understanding of the risk/reward relationships between long
and short options at different prices in varying time periods, he
can benefit from the most advanced techniques available in the
derivatives market.  Based on the E-mail I have received in recent
weeks, spread and combination trading is a very popular approach
among our readers and one we will continue to promote in future
editions.

Good Luck!


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

Lots of Red Ink

___________________________________________________________________

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.
___________________________________________________________________


Danaher Corp - DHR - close: 87.99 change: -1.07 

WHAT TO WATCH:  Ouch!  The sell-off continues for DHR despite 
raising its Q1 and full year estimates today.  DHR raised its Q1 
earnings guidance to 81-86 cents a share, above Reuters estimates 
at 80 cents.  The stock ran up toward its simple 10-dma (near 
$91) and rolled over.  Currently shares are barely holding 
support at its 100-dma and the historical support near $88.00, 
where it bounced four times in January this year.  Another 
breakdown here and DHR might be headed for its 200-dma near 
$80.00.

Chart=


---

Intel Corp - INTC - close: 27.31 change: -0.67

WHAT TO WATCH:  Intel was one of the leading drags on both the 
Dow and the NASDAQ this Monday and it continues to be a weight on 
the market today.  Shares produced another failed rally, this 
time under its simple 200-dma on strong volume.  Influencing the 
stock may have been news that INTC might not meet the June 1st 
deadline set by China for compliance issues regarding Intel's 
Centrino line of chips.  INTC's P&F chart looks very ugly and 
points to a $21 price target. This could be another opportunity 
to short the chip giant.

Chart=


---

Caterpillar Inc - CAT - close: 73.51 change: -2.89

WHAT TO WATCH:  Shares of CAT got skinned today as the Dow 
component fell 3.78% and broke major support at the $75 mark.  
Volume was very strong at 4.7 million shares and a test of 
support at its 200-dma near $71.50 looks imminent.  CAT's P&F 
chart looks even worse with a sell signal pointing to the $66 
level near its P&F support.  If you can somehow ignore the 200-
dma this might be a bearish entry point.  Alternatives are to 
look for a failed rally under $75.00.  

Chart=


---

Sealed Air Corp - SEE - close: 48.25 change: -1.40

WHAT TO WATCH:  The late February rally in SEE has failed under 
its 50-dma and today's drop under its 200-dma on stronger than 
average volume looks pretty bearish.  Its MACD is rolling over 
again into a bearish sell signal while short-term technicals are 
already pointing lower.  Its P&F chart is pointing toward a $39 
price target.  We feel that a move to $40-42 is not out of the 
question but look for some support in the $45-46 range.

Chart=



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

GLW $11.61 -0.53 - Heads up for the technical traders out there!  
GLW broke support at its 50-dma yesterday and broke the $12.00 
level today.  Shares pierced but did not close under its very 
long-term supporting trendline dating back to October 2002 on 
Wednesday.  Bears might want to short a move under today's low 
(carefully) while bulls can look for a bounce back above $12.00 
or $13.00 if you'd like some momentum.

ITW $74.77 -1.66 - The sell-off in ITW is picking up speed and 
the stock broke support at $75 today.  Shares are quickly 
approaching their long-term supporting trendline of higher lows, 
which happens to coincide with its simple 200-dma.  

BWA $86.06 -1.34 - BWA has been a common candidate on our watch 
list and it continues to follow through on the recent breakdown 
under $90.00.  There is some support in the $85 region but at 
this point it looks headed for the $82 level.  Should we see a 
bounce look for a failed rally under $89-90.

GDW $114.80 -0.96 - Shares of GDW have been exceptionally strong 
lately but they're starting to show signs of weakness.  This is 
the third test of its rising 10-dma in six trading days.  A 
breakdown under $114 might lead to a test of the $110 level and 
possibly the 50-dma near $107.  Its MACD indicator is very 
overbought and starting to roll over.


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