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Daily Newsletter, Monday, 03/22/2004

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The Option Investor Newsletter                   Monday 03-22-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Stocks Sink Worldwide on Terror Concerns
Futures Wrap: See Note
Index Trader Wrap: See Note


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     03-22-2004            High     Low     Volume Advance/Decline
DJIA    10064.75 -121.85 10186.15 10012.16 1.76 bln    602/2242
NASDAQ   1909.90 - 30.57  1929.28  1897.63 1.96 bln    645/2485
S&P 100   536.10 -  7.58   543.68   532.91   Totals   1247/4727
S&P 500  1095.40 - 14.38  1109.78  1089.49
RUS 2000  558.99 - 11.75   570.74   557.94
DJ TRANS 2750.80 - 36.03  2791.95  2746.30
VIX        21.58 +  2.43    22.67    20.61
VXO        21.43 +  2.27    22.66    20.41
VXN        27.15 +  1.16    27.79    27.06
Total Volume 4,218M
Total UpVol    430M
Total DnVol  3,740M
52wk Highs     159
52wk Lows       76
TRIN          3.32
PUT/CALL      0.97
*******************************************************************

Stocks Sink Worldwide on Terror Concerns
by James Brown

Mondays have been pretty rough for the markets this month but
this time the selling was felt globally.  Early morning news that
the Israeli military had killed a key Hamas leader in Palestine
sent stocks lower around the globe on heightened terror concerns
for retaliation.  Airlines stocks were key leaders to the
downside followed by biotech and tech-related stocks.

Last Friday the markets were focused on a heated battle between
the Pakistani military and several hundred suspected Al Qaeda
militants just outside the Afghanistan border.  It was rumored
that Osama Bin Laden's right-hand man, Ayman Al-Zawarhi, was
cornered and the reason for such stiff resistance.
Unfortunately, by Monday Pakistan was downplaying who might be
found when the fighting eventually ends after discovering that
any high-value targets may have escaped through a series of
tunnels from the rebel hideouts.

Investors were also focused on the Taiwan general election held
Saturday after Friday's shocking assassination attempt on the
current President and Vice President.  The two were shot and
injured on Friday while campaigning but neither were seriously
injured.  Now that the election is over and the incumbents won by
a very narrow margin the opposition leader Lien Chen is fighting
for a recount among allegations that the President may have faked
the assassination attempt.

The real story responsible for today's stock market weakness was
news that the Israeli government had eliminated Sheikh Ahmed
Yassin.  Yassin was considered the spiritual leader of the Hamas;
which is an extreme Islamic fundamentalist group in Palestine
whose purpose is the destruction of Israel.  Not surprisingly the
U.S. State Department has labeled Hamas as a terrorist
organization.  Some even referred to Yassin as the godfather of
the suicide bombings that have been plaguing the region for
years.  The global concern is that terrorists organizations
around the world will "retaliate" against their local
governments, U.S. interests and or the U.S. itself.  Israel has
denied the allegations that it informed the U.S. of its plans but
that has not stopped Islamic groups from pointing fingers at the
U.S. and saying we must take responsibility for the attack.  CNN
said that one Islamic website published a statement from Al Qaeda
saying they would seek revenge against the U.S.

With the Madrid bombings still fresh in everyone's memory the
natural reaction was to sell stocks and sell they did.  Asian
stocks were hit hard with the Japanese NIKKEI down 100 points to
11,318.  The Chinese Hang Seng fell 239 points to 12,550.  The
Taiwan exchange's main index fell 6.7%, its biggest decline in
eight years.  European stocks were hit hard as well.  The British
FTSE dropped 1.9% to 4333.  The French CAC fell 2.05% to 3539 and
the German DAX dropped 2.35% to 3729.  According to Bloomberg all
17 of the Western European markets closed lower and 46 of the 59
world indices they track traded lower on Monday.

The Dow Jones Industrials dropped almost 122 points to close at
10,064 up from its lows near 10,012.  The NASDAQ Composite
slipped more than 30 points to 1909 but it too rebounded from its
lows near 1897.  The S&P 500 index declined 14 points to 1095
closing under key support at the simple 100-dma and the 1100
mark.  As one would expect market internals were very bearish.
Declining stocks outnumbered advancers 22 to 6 on the NYSE and
more than 4-to-1 on the NASDAQ.  Down volume completely
overshadowed up volume by more than 12-to-1 on the NYSE and about
7-to-1 on the NASDAQ.  It was just last Monday (3/15/04) that we
witnessed heavy down volume of 9-to-1 and 10-to-1 extremes.

These are very bearish extremes and they don't bode well for the
future.  The bounce from the 10,000 level in the Dow today might
offer us a chance at an oversold rebound but I don't have a lot
of confidence on how high it can go - not with new resistance
near 10,325.  The NASDAQ produced a similar bounce from its test
of the 1900 level but odds of a rebound here are stronger with
the simple 200-dma at 1886.  Of course the NASDAQ hasn't hit this
technical support just yet so it may remain weak until it does.
The bad news/good news for tech stocks is the semiconductor
sector (SOX).  It closed under its simple 200-dma (bad news) but
it bounced from historical price support near 450 (good news).
Maybe the SOX bouncing from 450 can help the NASDAQ bounce from
1900.

What's really disturbing is the breakdown in the S&P 500 index.
It has broken support at both the 1100 mark and the simple 100-
dma.  Yes, the afternoon bounce from its lows looks like it might
continue to rebound tomorrow but this index looks like a short
with some support at 1075 and more support near its 200-dma at
the 1050 level.  One potential saving grace is the fact that the
S&P 500 is now down 5.4% from its highs.  A lot of investors have
been waiting for a "correction" from the highs in the market to
jump back in.  The S&P 500 is considered to be "the market" more
than the Dow or the NASDAQ.  The only problem is that a
correction tends to be 5% to 10%.  This is the first 5%
correction for the S&P in a year.  Meanwhile the Dow is down 6.3%
and the NASDAQ is down 11.3% from its recent highs.  The only
challenge I see here is that new terrorism fears are a growing
concern that will impact investor eagerness to buy the pull back.

Chart of the Dow Industrials:



Chart of the NASDAQ Composite:



Chart of the S&P 500:



Renewed terror concerns are no stranger to the airline stocks and
the combination of the Madrid bombings, today's event in Israel
and the rising cost of oil has sent them to new relative lows.
The XAL airline index dropped 3.2% to levels not seen since early
August 2003.  Terror concerns aside the rising price of fuel is
killing the sector.  It is estimated that for every $1 jump in
crude oil prices that the airlines lose about $500 million a year
in profits.  Right now oil is near 13-year highs in the $37-38
range and expectations are for oil to hit $40.00 a barrel soon.
This has lead both Lehman Brothers and Merrill Lynch to issue
some negative comments on the sector this morning, which only
added to the selling pressure.  One analyst suggested that the
airline industry will report a loss of more than $2 billion in
2004 instead of the previously estimated $600 million loss.
Hopefully the recent rumors that OPEC may actually postpone their
planned April production cuts are true and we'll see a pull back
in the price of crude oil; which would benefit the entire
economy.

Speaking of the economy Wal-Mart (WMT), the world's largest
retailer, seems to be doing well.  The Dow component said its
March same-store sales are still tracking near the high end of
its 4% to 6% growth range.  In their update this morning WMT said
seasonal items for Easter along with food and electronics were
their strongest categories.  WMT wasn't alone when it came to
issuing good news.  Another big cap retailer, the Limited (LTD),
pre-announced stronger earnings after the bell this evening.
Analysts had been expecting LTD to turn in 9 cents a share but
the company now sees earnings in the 11 to 13 cent range.
Boosting performance have been strong results from its Bath &
Body Works and its Victoria's Secret stores, which recently
launched a new bra line earlier this month (-Reuters).

Another Dow component making headlines was Microsoft (MSFT).  The
EU has finally decided to fine MSFT 479 million euros or $613
million for its antitrust practices.  That in and of itself is
not a big deal.  MSFT has been hoarding cash and currently sits
on more than $50 billion.  Of course MSFT doesn't believe it
should be fined at all and plans to appeal the decision.  What
concerns the market is how the EU might punish MSFT with new
regulations on how to do business in Europe.

Tomorrow could be interesting for traders.  Will the major
indices continue the feeble afternoon bounce from critical
support levels at 10,000 for the Dow and 1900 for the NASDAQ?
Will the S&P 500 rebound back over the 1100 level?  Or has the
Hamas leader elimination in Palestine already set the tone for
the week?  Tuesday is empty of any economic reports but we will
hear earnings reports from Goldman Sachs (GS) in the morning and
Red Hat (RHAT) after the closing bell.  Wednesday brings the
Durable Goods Orders and the New Home Sales numbers.  Meanwhile
it may not make the news but there will be at least three Federal
Reserve governors (Guynn, Minehan and Parry) speaking across the
country on Wednesday as well.


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_032204_1.asp


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The Option Investor Newsletter                   Monday 03-22-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: ETN, SLAB
Dropped Calls: EBAY, JNPR
Dropped Puts: CHIR
Watch List: Yanking The Rug


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

ETN - put
Adjust from $58.75 down to $57.80

SLAB - put
Adjust from $55.75 down to $55.10


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

eBay Inc - EBAY - close: 66.04 chg: -2.26 stop: 67.24

Ouch!  The sell-off today really hit hard in the Internet sector.
The INX index dropped 2.98% lead by a 4.55% decline in AMZN.
EBAY followed with a 3.3% sell-off of its own on better than
average volume.  The breakdown under support at the 50-dma
doesn't look very good but EBAY pared its losses and bounced from
the $65.00 level late in the afternoon.  We were stopped out soon
after the open at $67.24.

Picked on March 09 at $ 70.05
Change since picked:   - 4.01
Earnings Date        04/20/04 (unconfirmed)
Average Daily Volume:     7.0 million
Chart =


---

Juniper Networks - JNPR - close: 23.49 chg: -1.37 stop: 23.64

The NWX networking index was one of the worst performers during
Monday's market-wide sell-off.  Unfortunately, JNPR's 5.5%
decline outpaced the NWX's 3.2% drop.  Shares of JNPR gapped
lower with the market open and quickly traded below the $24.00
level and our stop loss at $23.65.  The new relative low looks
bearish and the weakness will probably continue as the NWX aims
for the 200-dma.

Picked on March 14 at $ 25.81
Change since picked:   - 2.32
Earnings Date        04/21/04 (unconfirmed)
Average Daily Volume:    15.7 million
Chart =



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

Chiron Corp - CHIR - close: 45.10 chg: -0.80 stop: 48.30

Here's a play where the market weakness helped us out.  CHIR
gapped lower to open at $44.85.  That's below our official exit
at $45.00 and gives us an extra 15 cents.  A quick rebound from
the opening low failed and CHIR slowly traded lower throughout
most of the session.  Contributing to its weakness, besides the
general sell-off and 2.9% decline in the BTK biotech index was a
downgrade from Piper Jaffray.  PJ lowered their outlook from "out
perform" to "market perform" and sliced their price target from
$61 to $53.  We're closing the play as planned.

Picked on February 24 at $49.11
Change since picked:     - 4.01
Earnings Date          01/28/04 (confirmed)
Average Daily Volume:       1.7 million
Chart =



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Brokerage Group, addressing the demand for personalized,
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Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
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**********
Watch List
**********

Yanking The Rug

Research In Motion Ltd. - RIMM - close: 90.40 change: -5.99

WHAT TO WATCH: Holding up much better than the rest of the
Technology sector until today, RIMM got hit for more than a 6%
loss and fell to close right on its 50-dma on very heavy volume.
This average is key support and if it gives way, the stock could
have a long ways to fall.  This is an aggressive play, but a break
below today's low ($88.65) could really whet the bears' appetite.
Look for possible support near $87 on the way down to stronger
support in the $83-84 area.  If that support breaks, the next help
for the bulls is a long ways down there near $70.

Chart=


---

S P X Corp. - SPW - close: 42.82 change: -0.68

WHAT TO WATCH: Another failed bounce at a lower low and SPW is on
its way down for another test of key support at $41.50.  If that
level fails to contain the selling, then we can look for a drop to
next solid support near $36.  Use a trigger just below $41.50.

Chart=


---

Johnson Controls Inc. - JCI - close: 56.90 change: -0.58

WHAT TO WATCH: Bucking the trend in the overall market, JCI has
managed to hold above key support near $56.  But today's close
below the 100-dma does not look good.  The stock could still
bounce from support, so use a trigger under $56 to confirm
weakness before playing.  Target a drop to the 200-dma near $52.

Chart=


---

Newmont Mining Corp. - NEM - close: 44.59 change: +0.21

WHAT TO WATCH: The price of gold pushed right to the edge of the
past couple months of resistance on Monday and while unable to
hold its intraday gains, NEM looks poised to break its own
resistance near $45.50.  Use a trigger at $45.75 and target a
rally back to the early January highs near $50.

Chart=


---

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

NFLX $29.25 - Since topping out just below $40, it has been a
steady road south for shares of NFLX, with the 20-dma providing
consistent resistance as the stock has continued to trace a
pattern of lower highs and lower lows.  Price didn't even make it
to that average before tipping over on Friday and today's nearly
5% slide has the stock close to another breakdown.  Use a trigger
at $28.50 and look for a continued drop to strong support near
$26.

DNA $102.14 - Will support hold again?  The 50-dma propped up DNA
before the meteoric rise in late February.  Will the stock find
support there or slice right on through.  A rebound from the 50-
dma could be good for a quick pop back to the $105-106 area.  On
the other hand, if the 50-dma is broken, look for a swift drop
back to the $95 level and quite possibly $90.


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