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Daily Newsletter, Monday, 03/15/2004

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The Option Investor Newsletter                  Monday  03-15-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Anymore Questions?
Futures Wrap: See Note
Index Trader Wrap: Markets dislike uncertainty


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     03-15-2004            High     Low     Volume Advance/Decline
DJIA    10102.89 -137.19 10241.11 10092.47 1.90 bln    675/2160
NASDAQ   1939.20 - 45.53  1977.78  1939.20 1.71 bln    594/2453
S&P 100   542.26 -  7.66   549.92   541.67   Totals   1269/4613
S&P 500  1104.49 - 16.08  1120.57  1103.36
RUS 2000  566.95 - 15.89   582.96   566.87
DJ TRANS 2790.53 - 72.56  2860.42  2789.81
VIX        21.13 +  2.83    21.39    18.86
VXO        21.38 +  2.66    21.64    19.22
VXN        27.13 +  1.83    27.30    26.07
Total Volume 4,025M
Total UpVol    398M
Total DnVol  3,598M
52wk Highs     170
52wk Lows       36
TRIN          2.82
PUT/CALL      1.05
*******************************************************************

Anymore Questions?
by James Brown

Last Friday's rally eased the pain from a brutal week in the
markets but the question investors were left with over the
weekend was, "Is it an honest reversal or just an oversold
bounce?"  Monday's 137-point loss answered that question.  New
evidence over the weekend linking the Madrid bombings to Al Qaida
renewed terrorism fears around the globe and investors erased all
of Friday's gains.  Positive comments from GE and Wal-Mart were
not enough to inspire investor confidence and mixed economic data
only added to the turmoil.

Over the weekend Spanish officials reported that a videotape left
in a trash can outside a mosque in Madrid held a message from an
alleged Al Qaida spokesperson claiming responsibility for the
train station bombings last Thursday.  Officials were originally
blaming the Basque separatist group Eta but when rumors surfaced
late Thursday that Al Qaida may be involved the U.S. markets
immediately tanked.  Concerns that Al Qaida is still alive and
well and planning attacks here at home have immediately put
investors on the defensive.  It didn't help that authorities in
Pakistan found a bomb-laden car parked outside the U.S. consulate
this morning or news that Greek officials discovered a bomb near
a Citibank branch in Athens.

As if the terror threat issues weren't enough the surprise win by
the Socialist party in Spain's general election on Sunday is a
damaging blow to President Bush's global support network for the
war in Iraq.  The new Prime minister-elect has vowed to bring
home Spain's 1300 troops in Iraq by June 30th.  The combination
of these variables sent the European markets staggering lower.
The French CAC 40 index lost 2.4% or almost 88 points to close at
3573.  The German DAX index lost 2.67%, a triple-digit loss, to
close at 3810.  The British FTSE slipped 1.22% to 4412.  The
picture was a little different across the Pacific with the
Japanese NIKKEI adding 155 points to close at 11,317 and the
Chinese Hang Seng only losing 12 points to 12,919.  Most analysts
believe the NIKKEI's gain was a reflection of our own rebound
from Friday but with today's loss in the U.S. markets we could
see Asian stocks retreat tomorrow.

One of my biggest concerns today is the market internals.  One
would expect them to be bearish with the major indices in the red
but they're starting to get a little extreme.  Declining stocks
outnumbered advancing stocks 3-to-1 on the NYSE and 4-to-1 on the
NASDAQ.  New highs have all but evaporated during the recent
sell-off.  We were used to seeing new highs in the 400 to 800
range.  Today there were only 131 new highs.  What's really
disturbing are the up and down volume numbers.  Down volume was
almost 9 times up volume on the NYSE and down volume did hit 10-
to-1 levels versus up volume on the NASDAQ.  Last week I
commented on the upside breakout in the volatility indices and
how the surge higher broke their longer-term down trends
suggesting this sell-off was "for real".  We're seeing another
surge today on the VIX, VXO and the VXN.

The Dow Industrials did manage to close at the 10,100 level but
today's drop was another new relative low and suggests the index
is headed for the 10,000 mark.  Currently the Dow is down 6% from
its February highs, so we've satisfied those technicians crying
out for a 5% pull back but the 10K mark has now become a magnet
where bulls will wait to buy the dip to support and short-term
bears cover positions for a profit.  The S&P 500 index is
mirroring the Dow's decline with another new relative low itself
but it should find some support at its rising 100-dma near the
1100 mark just four points away.  Currently the SPX is down 4.6%
from its recent highs, which may be enough to satisfy those
investors looking to buy after a correction.  The NASDAQ
Composite out performed both the Dow and the S&P 500 during the
2003 rally so it's no surprise that it's under performing during
the pull back.  Today's 2.29% loss is a new relative low and also
happens to be extremely close to a 10% correction from the
NASDAQ's January highs.  Unfortunately, I wouldn't expect it to
stop here.  The 1900 level is the next real support level and its
200-dma near 1877 could also become a magnet pulling the index
lower.

Chart of the Dow Jones Industrials:



Chart of the S&P 500:



Chart of the NASDAQ Composite:



Monday's economic reports were mixed.  Lately we've been seeing a
very steady trend.  Economists have been expecting dips in a
large number of economic survey's following some recent highs.
Almost every time the dip has been deeper than expected, which is
throwing doubt over the economic recovery.  Case in point this
morning's New York Empire State Manufacturing index showed up
with a reading of 25.3 when economists were only expecting a dip
to 38.7 from February's record setting 42.1 reading.  Readings
above zero indicate economic expansion and the Empire State Mfg
index has been above 30 for the last five months in a row.  New
orders slipped from 34.9 to 23.5.  What are really disturbing
numbers were the employment component dropped from 16.5 to 9.7
and the workweek component dropped from 26.5 to 11.9.  Later in
the session the Federal Reserve reported that February's
industrial production rose 0.7%, which was better than the
expected 0.4% rise.  Plus the country's capacity utilization
numbers hit 76.6% in February, up from 76.1 in January and near
pre-9/11 levels.  This helped soften the blow from the New York
readings but couldn't help stem the tide of selling.

Investors also chose to ignore positive comments from Dow
component General Electric (GE).  The massive conglomerate told
investors it was confident that its Q1 and Q2 earnings numbers
will come in at the high end of its range.  That puts GE's
earnings estimates at 32 cents for the first quarter and 39 cents
for the second quarter, which is about a penny above analysts'
estimates.  Considering the market's renewed concerns over
terrorism it was apropos that GE announce its plans to acquire
InVision Technologies (INVN) for $900 million or $50 a share.
INVN is well known as one of the leading manufacturers of bomb
detectors for U.S. airports.  Separately INVN announced that it
has received an order from the Transportation Security
Administration worth $105 million.  Investors have been bullish
on the stock after President Bush's proposed budget called for a
20% increase in airport security.  Shares of INVN gapped higher
and ended the session up 19.7% to $49.30.

Another Dow component to issue good news today was Wal-Mart
(WMT).  The retail titan said March same-store sales were coming
in at the high end of its 4%-6% range.  Sales were being driven
by an increase in the number of tax refund checks their stores
were cashing.  WMT believes that retailers should do well in the
first two quarters of 2004 due to larger tax refunds for
consumers.  Yet another Dow component in the headlines was United
Technologies (UTX).  Deutsche Bank upgraded the stock to a "buy"
from a "hold" and told clients that the recent weakness was a
buying opportunity.  Analysts are bullish on the company's
defense-related businesses and an estimated increase in
commercial aircraft maintenance.  Shares of UTX added 55 cents to
close at $87.90 and was the only Dow component to close in the
green in today's widespread sell-off.

I'm actually surprised that the DFI defense index didn't see a
gain today with investors focused on terrorism concerns.  What is
not a surprise was the 7% drop in the XAL airline index.  What
probably started out as weakness related to terrorism concerns
was exacerbated by an earnings warning from Delta Airlines (DAL).
The company had already warned that it would lose between $300
and $350 million this quarter but now DAL is estimating its
losses will be closer to $400 million.  The airline cited sharply
higher fuel costs but mentioned that weaker customer demand also
played a role.  Shares of DAL fell 12.2% to $7.76 and rival
Continental Airlines (CAL) followed it with an 11.92% drop to
$12.27.  DAL's announcement shouldn't come as a surprise.  We've
mentioned before that the rising cost of oil would wreak havoc on
the airlines.  A quick glance at the charts for DAL and CAL and
you can see that investors have been rotating out of the group
for weeks.  This problem is likely to spread with oil still
rising.  Crude oil futures jumped more than 3% today and closed
above $37 a barrel.

Investor confidence is also suffering from a revival in corporate
accounting concerns.  Nortel Networks (NT) took the lead in
today's parade of accounting calamities after announcing that
they had put their CFO and Controller on paid leave of absence
pending an independent review of the company's financials.  You
might remember last week that NT said it would delay filing its
annual 10-K report because the company would probably have to
restate its past results.  J.P.Morgan downgraded the stock to
"neutral" and shares of NT fell 18.5% to $5.24.  NT's drop lead
the NWX networking index to a 3.41% decline.

Software stocks were also trading lower led by a 6% decline in
shares of Veritas Software (VRTS).  The company said it would
restate its results for 2001 and 2002 while delay filing its 2003
10-K as it dealt with various accounting errors.  Management said
that its delay would prompt a NASDAQ delisting notice but they
would take the appropriate steps to come under compliance before
any delisting deadline.

Investors were probably thankful to hear the closing bell this
afternoon and put a halt to the market's decline but that didn't
stop the bad news.  P.F. Chang's China Bistro (PFCB) announced
that it would be restating its financial results for the previous
three years as it accounted for its partnership program.  The
company said it would take an $11.5 million charge in its Q1
earnings report and the stock dropped some 8% in after hours
trading.

Fortunately not all the after hours news was bad.  3M (MMM)
joined fellow Dow component GE and issued an upside pre-
announcement for its Q1 earnings.  MMM is raising its Q1 earnings
guidance from 80-82 cents a share to 86-88 cents and raising its
full year estimates from $3.46-3.52 to $3.52-3.62.  Analysts'
estimates had been 82 cents and $3.52 respectively.  MMM said its
industrial-related businesses were seeing strong growth trends
and that currency effects were adding about 5% to its Q1 sales
numbers.

Hopefully MMM's upside earnings guidance, combined with the
underlying affects of GE's upside guidance and WMT's positive
same-store sales guidance will start to sink into the collective
investor mindset and stall the sell-off.  If not we still have
the FOMC meeting tomorrow afternoon to occupy traders' focus.  No
one really expects the Federal Reserve to alter interest rates
but what and how they comment on the country's current economic
status will have an impact on how we finish the week.

Keep an eye on the broker-dealers tomorrow.  Lehman Brothers
(LEH) reports earnings tomorrow morning before the opening bell.
Estimates are for $1.66 per share compared with $1.15 from a year
ago.  Bear Stearns (BSC) will report on Wednesday and Morgan
Stanley (MWD) will report on Thursday.  The group has been flying
past the estimates lately but that hasn't stopped traders from
"selling the news".  You'll also want to watch the homebuilders.
The group has been weathering the recent downturn extremely well
but we'll get the latest housing starts and building permit
numbers tomorrow morning before the open.


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

Markets dislike uncertainty

Surprising election results out of Spain, where a Socialist party
victory in that country's general election on Sunday dealt a blow
to President Bush's global support for the war on terrorism.

Spain's new prime-minister-elect pledged to bring the country's
troops home from Iraq by June 30 and sent shockwaves through
global markets.

The election results out of Spain were a surprise, where last
week's terrorist bombings in Madrid are thought to have swayed
voters toward the Socialist ticket.

"Clearly, the Socialist victory is not a plus for any exchange in
Europe," said Lex Werkheim of brokerage Eureffect in Amsterdam.
"The rough tone that the new prime minister is taking, in
withdrawing troops, is creating more political instability in the
European bloc."

The change in sentiment out of Spain left some political analysts
here in the U.S. saying the political landscape in the U.S.
becomes much more uncertain, with President Bush's tax cuts,
which had helped boost consumer spending and economic growth, be
at risk, should voter sentiment, which many see as 50/50 as it
is, see a swing to Democratic challenger John Kerry.

In addition, there was mixed economic data to contend with as a
better-than-expected reading on February's industrial production
was set against disappointing data on manufacturing activity in
the New York area over the past month.

Market Snapshot / Internals - 03/15/04 Close



The major indices started today's session in negative territory
and while there was a slight lift just prior to 01:00 PM EST on
un-sourced news that the Bank of Japan may quit their incessant
intervention in the currency markets.  However, another late
session round of selling in equities had the major indices
closing at their lows of the session.  Friday's trade did see the
NASDAQ's NH/NL 10-day average ratio reversing to "bear confirmed"
status at 90.8%%, and deteriorating further to 89.4% in today's
trade, which becomes a longer-term signal that bullish leadership
in the NASDAQ continues to fade.

Pivot Matrix



The Federal Open Market Committee (FOMC) meets tomorrow and many
expect the Fed to keep its target for fed funds at 1.0%, where
anemic jobs growth remains one of the economic indicators for the
Fed to not be tightening.

After rebounding back near, or above their MONTHLY S2s, all major
market averages closed back below their MONTHLY S2s in today's
trade, where some tentative resistance (dashed red) builds for
the NDX/QQQ at MONTHLY S2 and DAILY Pivot, while correlative
support levels for the DIA/SPX/OEX and BIX.X are present at newly
calculated WEEKLY S1s.

Dow Industrials Components - Sorted by Price



Dow breadth was decidedly negative by the close, where 5-day
percentage gain/loss shows indiscriminate selling the past 5-
sessions.  Over the past 20 sessions, bulls have had a 1-in-10
chance of finding profits, while double-digit percentage losses
have been found in Boeing (NYSE:BA), Honeywell (NYSE:HON), Intel
(NASDAQ:INTC) and Eastman Kodak (NYSE:EK).

After today's closing bell, 3M (NYSE:MMM) $74.87 -1.77, which saw
intra-day trade at its rising 200-day SMA ($74.48) saw its shares
rise to $76.94 in Instinet trade after saying it now sees Q1
(March) EPS of $0.86-$0.88, which is above the company's prior
guidance of between $0.80-$0.82 and consensus estimates of $0.82,
and fiscal 2004 (December) EPS of $3.52-$3.62 versus consensus
estimates of $3.52.

Dow Industrials (INDU) Chart - Daily Intervals



Spain's election results and a weaker than forecasted New York
Empire State Index for March found the INDU quickly below the
10,210 level.  A stronger than forecasted February Industrial
Production gain of 0.7% did see the INDU edge back near the
10,210 level, but that was it for any sign of strength.

Before the bell, February housing starts (forecast 1.94 million
annual rate versus prior 1.903 million) and February building
permits (forecast 1.90 million versus prior 1.920 million) are
scheduled for release.  Later in the day, the FOMC's brief
statement is scheduled for release at 02:15 PM EST.

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



The SPX has traded down 5 of its last 6 sessions, and while I
keep expecting a bounce, it has yet to form.  In Friday morning's
09:00 AM EST update, I showed my MARCH e-mini S&P futures (es04h)
chart with fitted retracement, and while the June contract is the
current contract most futures traders are trading, that fitted
retracement technique, along with the above chart of the cash
market should show some correlative near-term support around the
1,095 area.

Financials have been weak in recent sessions, and I would
currently have to tie the S&P Banks Index (BIX.X) 346.45 -1.19%
WEEKLY S1 of 344.23 with the SPX's WEEKLY S1.  Should the BIX.X
break below its lower MONTHLY S2 of 343.29, then the SPX becomes
further vulnerable to its WEEKLY S2 of 1,074.72.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals



The Semiconductor Index (SOX.X) 471.74 -2.75% broke below last
week's lows of 473.75, which were found on Thursday, and if there
was any sign of "strength" in the QQQ, it was that today's low of
$34.81, didn't break below Thursday's low of $34.81.  I hesitated
to trade the QQQ bearish, but with the SOX.X giving up Thursday's
lows, I decided late today that it might be worth the bearish
risk to short the QQQ back below its MONTHLY Pivot, but use a
very tight stop at $35.10, just in case some type of bounce takes
the QQQ back higher to its option expiration "Max Pain" level of
$36.00.

Jeff Bailey


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The Option Investor Newsletter                   Monday 03-15-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: AET, CHIR
Dropped Calls: None
Dropped Puts: None
Watch List: Taking It Back


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

AET - Call
Raise stop from 79.95 to 81.50

---

CHIR - Put
Lower stop from 49.40 to 49.00

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

None


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None


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

Taking It Back

QLogic Corp. - QLGC - close: 41.18 change: -1.34

WHAT TO WATCH: With the Semiconductor index (SOX.X) breaking to
new recent lows below $475, it's no surprise that QLGC was under
heavy selling pressure again on Monday and it appears key support
at $40 will be tested soon.  If that level breaks, the breakdown
can be used for triggering new bearish positions with a goal of a
decline down to next solid support near $36.

Chart=


---

Symantec Corp. - SYMC - close: 43.59 change: -1.05

WHAT TO WATCH: Despite heavy selling in the rest of the market,
shares of SYMC are holding up better than we might have expected.
Despite the broad market breaking to new lows for the year on
Monday, SYMC gave back only a small portion of its strong gains
from last Thursday and Friday, suggesting that a breakout to new
highs could be near.  Use a trigger above $45 and look for a rally
towards the $50 level.

Chart=


---

Apache Corp. - APA - close: 42.25 change: +0.97

WHAT TO WATCH: Helped by the continued rise in the price of
natural gas, APA has recovered from its February selloff and with
the gains of the past two sessions, is on the verge of breaking
out to new all-time highs.  Use a trigger at $43.50 and then look
for a rally into the $47-48 area.

Chart=


---

Quest Diagnostic - DGX - close: 82.12 change: +0.32

WHAT TO WATCH: While not able to completely avoid the weakness in
the broad market, shares of DGX are holding up very well,
continuing their tight-range consolidation above $80 support and
the 50-dma.  Use intraday dips towards this level to establish
bullish positions ahead of the next upward leg, which should
challenge last month's highs near $86.

Chart=


---

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

HD $35.41 - Monday's selloff finally cracked the bottom of the
bear flag that HD has been tracing for the past 3 months and it
looks like the only thing standing in the way of a significant
decline is the 200-dma near $34.40.  Look to enter bearish
positions on a rejection from the bottom of the broken flag near
$36 and target a decline down to strong support near $32

SPW $42.58 - The rebound in shares of SPW following the big
selloff late last month appears to be failing and today's drop
hints at a test of critical support at $41.50.  If that support
fails, SPW won't have any meaningful support until reaching $37.

IGT $39.95 - IGT stands out from much of the market over the past
week, as it hasn't yet broken any significant levels of support.
Price is coming back to test what should be strong support near
$38, just over the 50-dma.  A rebound from that area can be used
for establishing bullish positions ahead of a return to the highs
near $43.


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

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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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