Option Investor

Daily Newsletter, Sunday, 03/28/2004

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The Option Investor Newsletter                   Sunday 03-28-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Fear Factor!
Futures Market: See Note
Index Trader Wrap: BIG WEEK
Editor's Plays: Catch the Rocket?
Market Sentiment: Not Convinced
Ask the Analyst: Breaking down .... the Dow Industrials
Coming Events: Earnings, Splits, Economic Events

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 03-26        WE 03-19        WE 03-12        WE 03-05
DOW    10212.97 + 26.37 10186.6 - 53.48 10240.1 -355.47 + 11.63
Nasdaq  1960.02 + 19.55 1940.47 - 44.26 1984.73 - 62.90 + 17.81
S&P-100  543.52 -  0.16  543.68 -  6.24  549.92 - 18.53 +  3.91
S&P-500 1108.06 -  1.68 1109.74 - 10.83 1120.57 - 36.29 + 11.91
W5000  10840.18 - 12.80 10852.9 -115.20 10968.2 -346.24 +141.50
SOX      479.25 + 15.90  463.35 - 21.75  485.10 - 19.15 +  1.99
RUT      572.92 +  2.18  570.74 - 12.10  582.84 - 16.70 + 13.98
TRAN    2835.90 + 49.07 2786.83 - 76.26 2863.09 - 29.98 -  9.12
VIX       17.33 -  1.82   19.15 +  0.85   18.30 +  3.82 -  0.09
VXO       17.21 -  1.95   19.16 +  0.44   18.72 +  3.92 +  0.04
VXN       23.04 -  2.95   25.99 +  0.69   25.30 +  3.22 -  0.79
TRIN       0.89            1.93            0.44            1.40
Put/Call   0.77            1.03            1.05            0.79

Fear Factor!
by Jim Brown

Was it the end of the bounce or just fear of weekend event
risk that sent the indexes plummeting at Friday's close? We
will have to wait for Monday's open to tell if the highs set
Friday afternoon will be surpassed. Considering the big gains
from Thursday a simple positive close would have been bullish
and it looked like a sure thing until 3:PM. Traders capped a
very boring consolidation day with a dramatic plunge back to
negative territory. Sounds bad but it wasn't despite what the
talking heads said. The indexes ended down only single digits
and the bulls will gladly take a single digit loss for every
triple digit gain.

Dow Chart - 180 min

Nasdaq Chart - 180 min

For what it is worth the economic calendar on Friday was
relatively light. The Personal Income for February rose
by +0.4% compared to estimates for only +0.3% with upward
revisions in several components for January. This report
was generally positive although spending slowed to its
lowest rate since October. Savings were up +1.9% and that
is a product of weakening consumer sentiment in February.

The final Michigan Consumer Sentiment for March was also
released and it jumped to 95.8 from 94.4 in February and
recovered from a weaker initial number two weeks ago. This
could be seen as a consumer rebound now that the economy
appears to be getting over its February blahs. The initial
campaign blasts are history and voters are beginning to
glaze over with the claims and counter claims. Jobs still
appear to be getting stronger and there was no follow on to
the Madrid attacks. Americans have a very short memory when
it comes to things happening outside the country and this
jump in sentiment proves that. The majority of the gains
were in the present conditions component which jumped from
103.6 to 106.8 while the future expectations component was
barely changed at 88.8 from 88.5. That expectations
component is down from 100.1 in January but as I have said
before it is likely due to candidates trashing the economy
in their speeches.

There were a couple of notable stock events on Friday and
one was the jump in GE stock. GE rose $1.25 intraday after
a Merrill Lynch analyst put the stock on its Focus One list.
He said the pressure on the stock over the last several
weeks was artificial due to acquisition pressures. GE issued
nearly $4B in new stock on March 8th to cover the Vivendi
acquisition and stock has trended down almost daily since
then. That was not the extent of the problem. GE has also
agreed to buy Amersham for $9.5B in stock and that deal is
expected to close on April 8th. The Merrill analyst said
that up to 50% of the Amersham stock, representing about
150 million GE shares, is in the hands of arbitragers. He
expects about 15 million shares of GE to be shorted daily
for the next two weeks as the arbitragers continue to
hedge their Amersham position.

If you owned a share of Amersham stock worth $30 today and
you were going to be given a share of GE stock in two weeks
for every share you owned then you have the risk that GE
stock will decline during that period. Since the acquiring
company normally declines as the exchange date approaches
you can hedge your long position by shorting the GE stock.
If it was worth $30 at the announcement and you short it
at $30 then you don't care if it drops to $25 before the
exchange. You get your new GE share at $25 in exchange for
your Amersham share and you cover your short at the same
time on the market. You now have a GE share at $25 and $5
in cash and odds are good your GE will now rise with the
acquisition pressure off.

What surprised everyone was the +$1.25 jump intraday. With
the 150 million share overhead supply the upgrade from
Merrill probably caught a lot of shorts unprepared. If
the stock was going to move up over $30 then they don't
want to be hedged with shorts. See the problem? 68 million
shares of GE changed hands and while existing shorts were
running for cover those that wanted to short higher were
eagerly jumping on the wagon. The stock ended up only 40
cents but there was plenty of excitement.

On the Nasdaq the big winners from Thursday were the
losers on Friday just as you would have expected. The
majority of the losses occurred at the close and appeared
to be just normal profit taking. The biggest weakness for
the day was the Semiconductor Index which remained positive
for only about 30 min at the open and was weak the rest of
the day. The index tried to make a run to positive territory
at 4:15 but closing selling quickly sent it to the low of
the day.

The Russell was by far the strongest index with the small
caps leading the charge from the opening bell and never
looking back until the profit taking at the close. The
Russell rebounded to 575 before stalling and that is
almost exactly the resistance level where it failed the
prior week. The Dow rallied to 10250, also the beginning
of last weeks resistance and tried valiantly to break out
but was unsuccessful. The Nasdaq rallied to 1977 and only
three points below the 1980 resistance I mentioned on
Thursday night.

This is exactly what I hoped would happen only I wanted
the indexes to close in positive territory. The closing
profit taking was sharper than most expected given the
intraday gains. We wanted to move closer to resistance
and be prepared for a continuation move on Monday as
end of quarter window dressing increases. Those bulls
faced with rising indexes Friday afternoon were pleased
to see the closing drop. In hindsight I think we cleared
some intermediate sell stops on the afternoon bounce and
the drop at the close set us up for a better entry point
on Monday. The bullish viewpoint is looking for window
dressing, expecting quarter end fund flows and the
potential for positive economic reports to convince
investors the economy is growing and the correction is
over. That requires faith and it is just one viewpoint.
It also may not be a long-term view and just a potential
a trading bounce.

If that was the bullish case there is also a bearish
side. The bearish side is more technical and would point
to all the critical resistance levels ahead. The bears
would see the negative close as lack of follow through
and evidence that the resistance levels will hold. I
put those resistance levels on the charts below and you
can quickly see that moving higher will not be that easy.

Current resistance levels and Friday's close:

Resistance - close
Dow 10300 - 10219
Nasdaq 1980 - 1962
NDX 1430 - 1419
S&P 1120 - 1108
R2000 575 - 572
SOX   490 - 480

Nasdaq Chart - 45 min

Dow Chart - 45 min

S&P Chart - 45min

SOX Chart - 45min

Russell Chart - 45min

NDX Chart - 45min

The bulls expect the market to move up on Monday and I
would agree with that analysis as long as we have no
weekend events. I think the end of quarter window dressing
and fund flows will help start the week with a positive
spin. I also think the potential for a positive jobs
report on Friday will give us a positive bias. The
problem remains the resistance just overhead and the
barrage of economic reports midweek. The market has
been short term oversold and the rebound on Thursday
remedied that and the intraday bounce on Friday was
definite follow through in my view. I expected selling
into the close, just not so severe. It is that weekend
fear factor that caused profits to be booked.

I have netted out the opposing viewpoints above with
this scenario. I could see a positive Monday as we again
test resistance. That sets us up for the real test. There
will be no specific need to sell as the profit taking
already occurred on Friday. If we get to those resistance
levels above then we will see if the rebound has legs.
Another positive jump in Consumer Confidence on Tuesday
could help build investor confidence but the NAPM, PMI
and Factory Orders on Wednesday will have to confirm.
Holding at resistance until those Wednesday reports will
be tough unless the rally is real. If the bulls have
decided the bottom is behind us then all of this will
be mute and we will forge ahead regardless of the news.
Even then the bulls have an uphill battle ahead and it
is not going to be easy.

Thursday and Friday will be critical turning points
with the ISM and Jobs. The consensus estimate for the
ISM is only 60.5 and that would be the second consecutive
monthly decline. A better than expected ISM number might
really help quiet the bears. The Jobs report on Friday
is expected to produce 100,000 jobs and after seeing
estimates trounced soundly for the last several months
the pundits are being very quiet. Eventually we are
going to see a change in this number. We have had
positive job creation for the last six months despite
the actual numbers being lower than expected. While a
100K gain would sure make politicians breath better a
negative number would not be a disaster. We have put up
with the less than expected news and the outsourcing
debate for so long that a slightly negative number would
not be the end of the world. Remember the drastic drop
in the Mass Layoff report, the better than expected Help
Wanted Index and the continuing downtrend in Jobless
Claims? They could actually be signaling a real
improvement in jobs. This is what investors will be
hoping for as they decide to buy or sell stocks at
resistance next week.

There was a new threat beginning to appear on the horizon
that investors will eventually have to face. The Fed
fielded six speakers this week and more than one analyst
saw the implied warning in their speeches. The subtle
new message starting to creep into the tone of their
words is "rates have been too low for too long." They
have not come right out and said there is a change in
the wind but they appear to be prepping the bond market
to be ready. Bonds saw their biggest one-day drop for
the month on the new Fed tone.

We are at a critical turning point. A move over these
resistance levels next week for whatever reason would
be very bullish. We could see some strong short covering
and the improvement in bullish sentiment could drag buyers
back from the sidelines. We have seen the bearish sentiment
surge over the last three weeks as it does with every
correction. The gloom and doom preachers are trotted
out for every news program to do battle with the perma
bulls. The bulls have the opportunity to send them back
into hibernation for several more weeks if they can only
break through last weeks ceiling. We have ringside seats
to the greatest show on earth and next week could signal
the direction for weeks to come. Is the correction over
or just getting started? This week should provide the

Enter Very Passively, Exit Very Aggressively!

Jim Brown


Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.


By Leigh Stevens

A big week for the Indexes - they sold off sharply of course into
mid-week then rebounded strongly.  The tip off that stocks might
be bottoming came from the fact that they couldn't take em lower
after 3 days where intraday lows were being made in the same
approximate area.

Hey, it they can't take em down, there's no where else to go when
the bargain hunters come in – who is going to sell em when the
indices are already driven so far down from their peaks. The S&P
100 for example retraced nearly 2/3rds of the it's last upswing.
Retracements of 62 to 66% is as much as I expect and still have
it be a "retracement" – rather than a complete return to the
prior lows.

The bottom line is that, while I had some still-lower price
objectives, taking a look (below) at the same charts and looking
some of the factors favoring an upside reversal leads me to the
conclusion that the correction has mostly run its course.  This
is not to say that the market will resume a very strong upward
course as before, but given an ok to good jobs number, good
earnings reports coming up, etc. the market will be poised for
some more upside.


Stocks ended a bit lower Friday as an earlier rally faded and
selling, mostly seen as profit taking, brought the Indexes down
on the day.  There was not much appetite, by short-term traders
at least, to hold positions over the weekend after a volatile
week.  Profit-taking was the preferred action.

Traders were also slightly jittery about terrorism after the
inflamed situation in the mid-east after and around Israeli
actions in killing the Hamas leader.  Plus the 9/11 commission
meetings were in the headlines all week as well.

The Standard & Poor's 500 (SPX) closed at 1108, down 1.1.  For
the week SPX was unchanged. The Dow (INDU) was off 5.8 points at
the close – it was up 26 points on the week after its 170 point
rally of Thursday.

The Nasdaq Composite (COMPX) was down 7 points to 1960 and up on
the week by nearly 20 points or approximately 1%.

Stocks got a boost early from the U of M (University of Michigan)
consumer sentiment index – it rose to 95.8 from 94.4 in February,
in its final reading for this month. The expectations were for a
bit lower than this. For March, the index rose to 106.8 from
103.6 in February.

Airlines were up, as were financial stocks, gold, utilities,
internet and networking.  The SOX semiconductor index was down
over a percent on profit taking type selling and this seemed to
be the major factor in a late Nasdaq decline.

GE was up over a percent, after Merrill Lynch featured the
company on its focus list – well, I remember this list from my
days at Mother Merrill.  On the downside, MMM (3M) fell over 1
percent as did Intel (INTC), with another Dow stock, McDonald's
off some 2% - of course this has to be seen against the strong
trend the stock has been in, rallying even when the rest of the
Dow was declining recently.

All in all, Friday was not an eventful day and the volume was
lackluster, especially when compared to Thursday's fireworks.

Gains in the market this past week, cut into bond demand for
which seemed expensive - yields TOO low – if we are to believe
the stock market trend and the expectations for good economic

In currencies, the euro fell slightly against the dollar, on
speculation that the European Central Bank will move to cut
interest rates


S&P 500 Index (SPX) – Daily chart:
Key resistance in the S&P 500 (SPX) still looks to be 1125 per
the chart below.

I thought that the break of the 1100-1105 area could lead to a
further fall to 1080, maybe 1060 at some point.  NOT! My trading
envelopes told the story.  The second "touch" to the lower
trading band and to the trendline drawn from the Aug-Sept lows
PLUS a bullish RSI divergence was more suggestive of a reversal
back to the upside.  And forget the idealized price targets.
I'll show the bullish RSI divergence on the Dow chart further on
– this divergence shows up on all the NYSE-related indices.

There is one further indicator that is worth noting here with the
SPX chart however – my Call to Put indicator which got as low as
it typically goes ahead of a rebound did bottom some 6 trading
days ahead of the low.  It was only a day late!  Typically, there
is a next tradable bottom that occurs after low readings like can
be seen below, within more like 1-5 days. Pretty much on
"schedule" however – certainly with the cluster of lows that
occurred mid week.  Such advance warning means that we have to
then zero in on factors that will pin down the reversal more
closely than 1-5 days!

S&P 500 Index (SPX) – Weekly chart:
I thought to also revisit the weekly chart for the bigger
picture.  And on a weekly closing basis I can better this that
SPX is still within its broad uptrend channel. This is the case
however, ONLY if weekly closes turn up from here.  I would also
note that the decline of last week has again pulled the 8-week
RSI momentum indicator lower and it is suggesting that this
market is approaching an oversold condition.  This of course only
implies some further rally potential. At least we can figure that
the probability for further sharp declines is lessening.

S&P 100 Index (OEX) – Daily chart:

Key overhanging resistance appears on the chart as 558-560.
Major support is at 525. The correction has now completed a
Fibonacci 62% retracement of the November to January advance.
This is a good indication that a bottom may be in place.  Stay
tuned on that.

I suggested last week that OEX could be pulled to 530 or a bit
lower – 527 was a target I had.  We could still get there but the
low made last week looked pretty convincing – this is not to say
that there won't be some backing and filling for a time ahead of
the release of Q1 2004 earnings.

The main note is the oversold stochastic.  Rally potential is
suggested.  As long as the recent lows hold, OEX has potential
for call buyers for sure.  More can be seen next on the hourly

S&P 100 Index (OEX) – Hourly chart:
I suggested last week a point to take profits on puts was at or
below 540.  The move "gave" more than that.  Still a heck of a
profit if you got in anywhere around resistance implied by the
top end of the hourly downtrend channel.

Minor support looks now to be 538 per the notation on the hourly
chart.  Resistance is at 552.  I anticipate support developing on
any decline to the 535-538 area.  Key trendline support is in the
530 area. I would watch for the next retreat and an oversold
hourly stochastic on a 21-hour setting to judge a possible entry
point for calls.  If you bought on the last decline when OEX went
sideways around 535 and bit under, showing the support in that
area, it looks good to hang in with calls.

Dow Industrials (INDU) Daily:
As could be anticipated by the big fat even round number at
10,000, the Dow held fast.  And, a significant RSI divergence set
up as this indicator did not fall to a new low along with the Dow
Average. A divergence like is suggesting a solid upside reversal
and so far that is what it looks like happened. 10,400 is key
overhanging resistance.  Any pullback to the 10,000-10,101 area
now looks like a place to add to DJX calls.  Stay tuned.

Nasdaq Composite (COMP) Index  – Daily:
I've long thought and been saying that 1900 would be as low as
the Composite would go and I may be proven RIGHT!  Right?

1920-1925 is the area to watch for support.  Support, at the
lower end of the hourly downtrend channel is at 1920, then 1900.
1980 is where I have highlighted near resistance as we see
repeated hourly highs in this area.  2000 is key resistance as
implied by this being at the top end of the broad hourly
downtrend channel.

There is some way to go to now get the longer of my two
stochastic models back to the lower extreme.  I would watch this
indicator for when it does.  If this occurs in the 1920-1925 area
or even back in the low-1900 area, it seems favorable for buying
the Nasdaq calls again.

Nasdaq 100 (NDX) Index:
I suggested last week support looked to around 1400, then at
1380. I also favored call purchases bought on a decline into
support, with an exit at 1370 –  the Wednesday low was 1368 and
the weekly close, 1415. Go figure - and hard to figure this kind
of entry ahead of the fact.

If holding calls with an entry in the 1380-1400 area, the exit
point technically where the further rally potential is called
into question would be if NDX closed below 1380. I should also
note that from the 1380 area to the Friday high at 1430 was a 50
point move and I was looking only for a 40 point trading

As to the chart, I prefer taking a look just at the QQQ tracking
stock for the Nas 100 this week.

Nasdaq 100 tracking Stock (AMEX:QQQ)– Daily & Hourly:
I've been thinking that QQQ might get back to the 34 area (or a
bit under) and it did – imagine that.  But that is where the
support was suggested based on prior lows and the low end of the
hourly trend channel and so on.

QQQ does have a habit of trading fairly predictably within its
hourly trend channel.  The stock is being turned back around 35.5
right now.  Resistance at the upper boundary of this channel is
at 36.  Buy dips, such at back to 34.5 and under, with an exit
point or sell stop at 33.8.

For those short the stock or holding puts held from week before
last, my advice from last week's column was to take the profits
and run if QQQ got to the $34 area – I hope you cashed in!

My past week's article (3/23/04) was on technical patterns that
were seen at or after the prior top – namely, a rounding top
formation on the Dow as well as a Head & Shoulder's top pattern
and the "bear flag" that formed ahead of last week's sharp
See –

Please e-mail on any question(s) related to trading/technical
analysis tools of interest.

Good Trading Success!

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Editor's Plays

Catch the Rocket?

Last week it looked like we were going to be able to buy
SYMC at the bottom of the uptrend channel at $42. The tech
correction was in full swing and even the super stars were
being taken to the cleaners.

What a difference a week makes! SYMC did pull back to $42,
actually just under $41 on the Monday massacre and then
rocketed to new highs before the week was out at $46.50.
If you had the patience to wait for the targeted $42 entry
and the courage to buy the dip in the face of a market
meltdown then you were handsomely rewarded.

SYMC was one of my end of year stock suggestions and I
had to chase it for all of January before finally biting
the bullet at $39. The recommended option was the Jan-05
$40 call at $4.75. It is $9.90 today and I have big hopes
for it by January-2005.

Symantec Chart - Daily


DNA traded down to $100.45 this week from its $114 high.


Instant Replay

We did not even come close to triggering the DJX puts
at Dow 10300 last week. Monday gapped down about -100
points and that was the end of that scenario.

However it appears we may get another chance at the
same play. The Dow rebounded to 10271 on Friday before
selling off at the close. If we do not have any negative
events over the weekend I expect another rally attempt
on Monday.

The 10325 level remains very strong resistance and we
probably will not make it through on the first attempt
if at all. I want to leave last weeks potential put
play active and let's see what happens.

I want to target 10300 as an entry point to buy the April
$102 DJX puts. I would estimate they would cost $1.00 with
the Dow at 10300.

The stop loss would be Dow 10400 and the profit target
will be Dow 10100.

This is a slight change from last week with a higher
profit target. However, if we do head south again I would
not be eager to jump out at 10100 as a lower low could be
in our future. If we do break through the 10325 level
then our 10400 stop should be just a short covering burst

I am still using April options as there will be an almost
immediate resolution of either outcome so time is not a

Dow Chart - 45 min


Not Convinced
- J. Brown

Whether you're a bull or a bear you have to admit that Thursday's
rally was pretty impressive.  It was very widespread and market
internals were strongly bullish.  Tech stocks really bounced
sharply.  It seemed like the Monday through Wednesday test of
support for the major averages had suddenly satisfied everyone's
need for a correction (with the Dow & S&P down more than 5% and
the NASDAQ down 11%) and AMAT's positive comments on Wednesday
night waved the big green "go" flag.   What was truly impressive
was that the markets were mildly positive through most of Friday
and only closed in the red with single digit losses in a last
hour sell-off.  But the real question is whether or not this is a
true turnaround or just an oversold bounce.

I get the feeling that many traders are not yet convinced.
They're cautiously optimistic and would like to buy the bounce
but the new background of geopolitical risk may call for a bit
more courage than they're used to summoning.  The rise in gold to
new 2 1/2 month highs over the $420 level is a sign of traders
seeking a safe haven both from terrorism risk and poor economic
data.  Now odds are that once earnings season starts all eyes
will focus on corporate profits and many of the so called experts
believe this could re-start the rally at least into early summer.
Right now I agree with them, although it's been a little
disappointing to see all the positive pre-announcements fail to
generate more good will than they have.  However, the immediate
focus is the Friday jobs report.  All the clues are suggesting it
should be positive but we've been let down so many times now no
one wants to get their hopes up (or stick their neck out).

Keep your ears open for the consumer confidence numbers on
Tuesday.  A positive reading there could help soothe investor
fears and prime the pump for a stronger launch into the earnings


Market Averages


52-week High: 10753
52-week Low :  7929
Current     : 10212

Moving Averages:

 10-dma: 10167
 50-dma: 10481
200-dma:  9820

S&P 500 ($SPX)

52-week High: 1163
52-week Low :  843
Current     : 1108

Moving Averages:

 10-dma: 1106
 50-dma: 1134
200-dma: 1056

Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1014
Current     : 1415

Moving Averages:

 10-dma: 1402
 50-dma: 1471
200-dma: 1382


Volatility indices took a deeper drop than you might have
expected given the major averages closing in the red on Friday.
The culprit may be investor attitudes that the worst is behind
us and we've seen the correction everyone was looking for.

CBOE Market Volatility Index (VIX) = 17.35 -0.53
CBOE Mkt Volatility old VIX  (VXO) = 17.21 -0.55
Nasdaq Volatility Index (VXN)      = 23.04 -0.66


          Put/Call Ratio  Call Volume   Put Volume

Total          0.77        584,342       449,027
Equity Only    0.62        482,828       300,893
OEX            1.04         21,297        22,126
QQQ            1.97         17,771        34,951


Bullish Percent Data

           Current   Change   Status
NYSE          70.4    + 0     Bull Correction
NASDAQ-100    38.0    + 0     Bear Confirmed
Dow Indust.   76.7    + 0     Bear Confirmed
S&P 500       72.6    + 1     Bear Confirmed
S&P 100       77.0    + 0     Bull Correction

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: 0.84
10-dma: 0.87
21-dma: 0.84
55-dma: 0.87

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1484      1546
Decliners    1346      1504

New Highs      87        79
New Lows       14        15

Up Volume    897M      737M
Down Vol.    701M      789M

Total Vol.  1610M     1546M
M = millions


Commitments Of Traders Report: 03/23/04

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

Commercial traders pared back their positions in both long and
short plays but they remain next short, which is a change in
sentiment over last week.  Small traders significantly altered
their short positions but remain net long.

Commercials   Long      Short      Net     % Of OI
03/02/04      411,932   418,936    (7,004)   (0.1%)
03/09/04      418,394   433,237   (14,843)   (1.7%)
03/16/04      454,635   449,505     5,130     0.6%
03/23/04      401,456   418,732   (17,273)   (2.1%)

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
03/02/04      148,383    84,135    64,248    27.6%
03/09/04      155,947    88,317    67,630    27.7%
03/16/04      159,054   115,023    44,031    25.3%
03/23/04      130,648    89,943    40,705    18.5%

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

Commercial traders chopped off a large chunk of open positions
from both their longs and shorts and what was left behind is
their most bullish reading in weeks.  Small traders are still
bullish too.

Commercials   Long      Short      Net     % Of OI
03/02/04      344,805   395,112    (50,307)  ( 6.8%)
03/09/04      431,623   485,268    (53,645)  ( 5.9%)
03/16/04      472,809   574,241   (101,432)  ( 9.7%)
03/23/04      268,647   294,930    (26,283)  ( 4.7%)

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
03/02/04     119,382     67,453    51,929    27.8%
03/09/04     135,233     76,558    58,675    27.7%
03/16/04     192,136     96,691    95,445    33.0%
03/23/04     131,879     59,210    72,669    38.0%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


We see the same reduction in outstanding positions in the NDX
futures but commercial traders have become more bullish on
the NASDAQ while small traders have become bearish.

Commercials   Long      Short      Net     % of OI
03/02/04       49,959     41,059     8,900    9.8%
03/09/04       57,368     46,082    11,286   10.9%
03/16/04       68,285     54,899    13,386   10.9%
03/23/04       52,014     34,017    17,997   20.9%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  13,386   - 03/16/04

Small Traders  Long     Short      Net     % of OI
03/02/04       11,605     7,128     4,477    23.9%
03/09/04       15,533     8,070     7,463    31.6%
03/16/04       27,859    18,333     9,526    20.6%
03/23/04        9,884    12,887    (3,003)  (13.2%)

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02


Ouch! Commercial traders have switched from bullish to almost
bearish with a large drop in long positions and a big jump
in shorts.  Meanwhile small traders have moved from strongly
bearish to bullish.

Commercials   Long      Short      Net     % of OI
03/02/04       27,594    14,166   13,428      32.2%
03/09/04       26,867    12,845   14,022      35.3%
03/16/04       32,317    17,514   14,803      29.7%
03/23/04       23,048    22,119      929       2.1%

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
03/02/04        6,898    15,874   (8,976)   (39.4%)
03/09/04        7,053    19,159  (12,106)   (46.2%)
03/16/04       10,002    20,970  (10,968)   (35.4%)
03/23/04        8,344     6,734    1,610     10.7%

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03


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Breaking down .... the Dow Industrials

This week we saw further deterioration in the various major
market bullish % indicators, and this has my e-mail full of
various questions regarding what stocks may be viable put or
short candidates, as well as questions on how far we might begin
looking for the major markets to decline.

In order to try and answer several questions with one article,
we'll start with "what we know" and work from their.

In the OptionInvestor.com Index Trader Wrap from 03/22/04, we
took a look at the Dow Industrials (INDU) 10,212.97 point and
figure chart, and this weekend, I'm going to use the Dow
Industrials as an example of how a trader/investor can begin what
may be an important exercise in assessing downside risk, where we
begin to see more internal damage taking place in the various
bullish percent indicators.

I've chosen the Dow Industrials as my example index, as it is a
rather simple index to keep track of, with just 30 stocks
comprising this major market average.

Let's first start with "what we know" or some preliminary
technicals, where for the first time since this great bull market
took hold in March of 2003, the Dow Industrials has done
something it hasn't done since March of 2003, where we have seen
two consecutive point and figure sell signals.  This is
DIVERGENCE from the past, and should have traders and investors
taking a more defensive approach to investing or trading in their
investment accounts.

Dow Industrials (INDU) - 50-point box scale

I've marked a few details on the INDU's point and figure chart,
where the BOLD RED CIRCLES at 10,400 and 10,050 mark two
consecutive point and figure sell signals.  Those
traders/investors that would like to view a point and figure
chart can do so for FREE at www.stockcharts.com.

There are TWO basic DOWNSIDE RISK assessments that traders and
investors may be making at this point.  ONE downside risk
assessment is the current bearish vertical count of 9,400, which
was generated by the long column of Os from 10,700 to 10,100.
While bearish vertical counts can be exceeded, but sometimes
never met, a bearish vertical count is a good starting point to
begin assessing downside risk.

Since bearish counts are sometimes never achieved, a SECOND
downside risk assessment can be made to the INDU's rising bullish
support trend (BLUE +), where should the INDU's point and figure
chart see a 3-box reversal, with a trade at 10,100, would have
the bullish support trend at 9,700.

It would be inaccurate to assume that a Dow Industrials decline
to 9,700, or 9,400 could then be translated to either similar
percentage declines in the S&P 100 (OEX.X), S&P 500 Index
(SPX.X), or the more volatile and tech-heavy NASDAQ-100 Index
(NDX.X), but one could begin to sense that a Dow Industrials
decline to either the 9,700 level or 9,400 level would most
likely find other major market averages seeing a decline.

Again... the INDU is a good index to begin breaking down, as a
trader/investor can more easily comprehend and review 30 point
and figure charts, than they can 100 charts (OEX and NDX) or 500
charts (SPX).

Once a trader/investor has started assessing downside risk, with
potential lower levels of trade and the bearish vertical count,
they can also begin to understand RISK, along with internal
strength or weakness as depicted by the Dow Industrials Bullish %

Before we move on, traders and investors should understand that
the Dow Industrials is a very general representation of the U.S.
markets, but 30 stocks can by no means be a full representation
of an overall market containing more than 10,000 stocks listed on
the three major exchanges here in the U.S.

With that said, the INDU still gives us a very simplistic, or
easy way of beginning to grasp what has taken place, and what we
can begin looking, or monitoring for, in the future.

Dow Industrials Bullish % ($BPINDU) - 2% box scale

Some traders/investors had questions regarding the bullish %
indicators, and one of the most simplistic ways to understand the
6 market stages, which the bullish % charts hopes to describe, is
to think of a roller coaster ride.  Lets begin with the with the
March 2003 lows, where in BROWN, I've marked an entry at the
beginning of March (RED 3 on a point and figure chart) where the
Dow Industrials Bullish % had fallen to roughly 12%, which meant
that of the 30 Dow components, only 4 stocks had their point and
figure charts still showing a buy signal associated with the
chart.  In early March, the INDU Bullish % reversed up from "bear
confirmed" status to "bull alert" status at 16%.  As time passed,
we see the INDU bullish % rising further, as more and more stocks
began generating point and figure buy signals, as demand (X)
began outstripping supply (O).  By mid-May (after RED 5) the INDU
Bullish % achieved "bull confirmed" status at roughly 52%, when
16 of the 30 Dow components' point and figure charts were showing
point and figure buy signals.  As demand (X) really started to
outstrip supply, the INDU Bullish % continued to rise as more and
more stocks were generating point and figure buy signals.

Despite the extremely high levels of RISK (levels above 70% are
deemed higher levels of bullish risk) the INDU bullish % went
through several gyrations when reversing to "bull correction",
then back up to "bull confirmed," then back down to "bull
correction," then back up to "bull confirmed," then back down to
"bull correction," and just recently we observe DIVERGENCE, or a
CHANGE, when the INDU Bullish % now reads "bear confirmed," and
at a high level of BULLISH RISK.

I circles all six phases from "bear confirmed" to "bull
confirmed" on the INDU Bullish % chart, where trader/investors
can begin to see, feel, and understand the 6 stages of market
condition, while also observing time intervals between the
stages, which can be quick, and sometimes long-lasting.

Stock market analysis can be complex when we begin trying to
analyze all the reasons "why" bullishness or bearishness is
occurring.  However, a trader/investor, maybe Rip Van Winkle, who
has been asleep for sometime and wasn't aware of what
geopolitical events, or economic cycles have been experienced,
could probably look at a bullish % chart, and begin to understand
how a market will rise as demand outstrips supply, and how a
market will decline as supply overtakes demand.

A very simplistic approach to these cycles is the belief that a
market accurately anticipates good news as stocks rise, and once
a markets value is deemed appropriate, or excessive, then supply
from selling and profit taking sets in, and markets then fall to
an appropriate value for whatever reason, which is usually fully
realized at a bottom.

Traders and investors that have been monitoring the markets the
past three months have seen the markets rise in January, but then
begin declining in February and March.

Is something wrong?  Does the MARKET know something about the
future that is yet to be revealed?  Or are market participants
just looking to take profits, and systematically begin removing
BULLISH RISK after a massive amount of gains have been
accumulated in the past year?

Let's begin to look at the some of the Dow 30 components, and
begin to try and comprehend what has taken place.  Here we will
try and truly get a "feel" for what has started to take place,
but in chronological order.

Since the INDU Bullish % ($BPINDU) has reversed lower to "bear
confirmed" status after signaling bullishness since March of
2003, I will be focusing more on the BEARISH activity that has
taken place, which has the INDU Bullish % reversing into its
"bear confirmed" market condition.

Dow Industrials Table - 03/26/04 Close

What I've done with the above table, is sorted at the top, the 7
Dow components, that currently have a point and figure sell
signal associated with their supply/demand chart.  AT&T (NYSE:T)
$19.99, gave a reversing lower point and figure sell signal back
in October of 2003, and since that time, has not been able to
generate a reversing higher point and figure buy signal.

Since we are really trying to focus on what has been taking place
the past couple of months, I really wanted traders/investors to
begin to feel, and observe what is taking place, when Caterpillar
(NYSE:CAT), Intel (NASDAQ:INTC) and United Technologies
(NYSE:UTX) generated sell signals.

Before we do this, I want to explain some things in the above

I've listed the bearish vertical counts (COLUMN E) of the 7
stocks that have generated point and figure sell signals.  Those
in BLUE are bearish vertical counts that are currently under
construction, where a 3-box reversal back higher, would then have
the bearish vertical count fully constructed.  Please note that
United Technologies (NYSE:UTX) has already exceeded its bearish
vertical count of $88.

One thing I learned recently, is that for every $1 decline in a
Dow component (the INDU is PRICE weighted) that $1 decline
equates to roughly 7 Dow points (7.4100 to be exact).  At the
bottom of the table, I totaled all of the Dow components' closing
prices, multiplied by 7.41, which equals 10,214.24, and very
close to Friday's close of 10,212.97.

What this information can allow us to do, is begin to understand
the potential downside implications of the 6 stocks (exclude UTX
for now) to their currently calculated bearish vertical counts,
should they be achieved.  In COLUMN F, I subtracted current price
(COLUMN D) from the bearish count (COLUMN E) and multiplied by
7.41 to get a sense for what impact these 6 stocks alone may have
on the INDU.  In COLUMN F:ROW 11, these bearish vertical counts,
if achieved would have negative impact of 386.14 Dow points.

We should understand that a 386.14 decline assumes the remaining
23 components, along with UTX, which already exceeded its bearish
vertical count, remained unchanged.  Still, with this observation
alone, we can begin to sense, observe some potential downside, in
a "bear confirmed" market environment.

I also tabulated those Dow components bullish vertical counts,
where point and figure buy signals are still associated with the
supply/demand charts (ROWS 12-34: COLUMN G) and when subtracting
COLUMN D from COLUMN G and multiplying by the scale factor of
7.41, can tabulate potential BULLISH implications of those stocks
that have not yet achieved their current bullish vertical counts,
which remain in play, until a negating point and figure sell
signal is generated.

Here we can begin to once again utilize the INDU Bullish %
($BPINDU) and begin to understand that there is probably a high
probability at this point, as the bullish % begins to decline
from a high level of BULLISH RISK, that we will most likely see
more stocks generating point and figure sell signals.

For ROWS 12-34 : COLUMN B, I placed the price level where those
stock still showing a point and figure BUY signal associated with
the chart, would generate a SELL signal on the respective stock's
supply/demand chart.  Those stock in ROWS 12-34 were then sorted
as to which stocks were CLOSEST to FURTHEST from generating a
reversing point and figure sell signal, as of 03/26/04 close.

In a "bear alert" or "bear confirmed" market environment,
assessing DOWNSIDE RISK to a point and figure sell signal is
essential for a trader/investor that may be LONG/BULLISH a stock,
where no bearish vertical count is available.

Let's now take a look at Caterpillar (CAT), Intel (INTC) and
United Technologies (UTX) and make some chronological
observations of how market internals can weaken, where a trader,
especially a bearish trader, begins to try and uncover trading
opportunities for shorting stocks, when using some recent
deterioration, to then carry over to other trading opportunities.

Caterpillar (CAT) - $1 box scale

Caterpillar (CAT) is perhaps an excellent stock to tie in with
the INDU Bullish % ($BPINDU) when trying to grasp the concept of
the various phases of a market cycle, while also making some
observations as to how the bullish % can depict a HIGH level of
BULLISH risk, and LOW level of bullish risk.

Beginning in the lower left corner, CAT gave a triple top buy
signal at $48, and was perhaps one of the first stocks to
generate a buy signal, which helped the INDU Bullish % reverse up
to "bull alert" status.  BULLISH RISK was LOW, and the stock was
saying "buy me."  CAT's bullish vertical count column hinted at a
bullish target of $69, even though the U.S. was at war with Iraq.

As you can see, CAT achieved its bullish vertical count of $69,
before it generated a "sell signal" at $68, when in September
(after RED 9) the INDU Bullish % was in "bull correction" status.

The more extreme amounts of bullishness may have had CAT
generating a reversing upward point and figure buy signal, and
once again establishing a bullish vertical count of $99.

However, on January 28, 2003, CAT generated a reversing lower
point and figure sell signal, which negated the bullish vertical
count.  Is something wrong with CAT?  Or has BULLISH RISK simply
become too HIGH, and the market is removing that BULLISH RISK in
the form of profit taking, where supply (O) has began to outstrip

We could assume either, but history suggests that BULLISH RISK is
currently being removed, and could continue to the current
bearish vertical count of $66.00.

Traders/investors can study the point and figure chart of CAT,
and begin to understand how a stock will decline to a point, then
rally, then decline, and begin to say to themselves, "if I had
sold at a certain price level, then this was the eventual

For those that have a FREE trial with www.dorseywright.com or
have a subscription to their point and figure charting site, CAT
is classified as belonging to the "Machinery and Tools" Bullish %
(BPMACH), which similar to the INDU Bullish % is currently in
"bear confirmed" status at 66%.  One begins to associate some
MARKET and SECTOR weakness at a high level of BULLISH RISK.

Intel (INTC) - $0.50 & $1.00 box scale

Intel (INTC) has been the 3rd most recent Dow Component (behind T
and CAT) to generate a reversing lower point and figure sell
signal.  Here too we see in March of 2003, INTC generated a point
and figure buy signal, constructed a bullish vertical count that
hinted at $27.50, and being one of the earlier stocks to generate
a reversing higher buy signal, it too achieved and exceeded its
bullish vertical count.  On February 23, 2004, INTC has exhibited
its first sign of meaningful weakness when it generated a double
bottom sell signal at $29.

According to www.dorseywright.com, they classify INTC as
belonging to the Semiconductor Bullish % (BPSEMI), which is
currently "bear confirmed" status at 36%.

Here we can make a rather important observation as it relates to
BULLISH RISK, as well as sector weakness when comparing the
Machinery and Tools group to the Semiconductors group.  There is
GREATER WEAKNESS in the Semiconductors, but there may be a HIGHER
DEGREE of BULLISH RISK still to be found in the Machinery and
Tools group.

United Technologies (UTX) - $1 box scale

Once again traders/investors can begin to see great similarity in
the supply/demand chart of UTX with those we looked at above.
UTX is perhaps more similar to that of CAT than INTC, but
observations as to the INDU Bullish % ($BPINDU) at HIGH LEVELS of
BULLISH RISK, and the earlier weakness in UTX, as well as the
lower lows and lower high distribution pattern become somewhat

Stockcharts.com has calculated what I call a "secondary bearish
vertical count," which point and figure chartists will sometime
calculate if a stock achieves and exceeds its initial bearish
vertical count.  This is often done in the EARLY stages of a
bullish % reversal, when there may still be a HIGH LEVEL OF
BULLISH RISK still found in a market, where as that risk is
removed in the form of lower price, that pickup of broader
selling can have stocks that have lead the decline, falling
further, as most market participants become less willing to step
in front of the broader market decline, instead looking for a
sign of strength to then begin bullish buying.

Dorsey/Wright and Associates classifies UTX as belonging to its
Aerospace Airline Bullish % (BPAERO) which is currently "bear
alert" status at 52% and after reversing straight up from a very
oversold level of 20% in March of 2003, would currently take a
reading of 18% to achieve "bear confirmed" status.

This is just a starting point, but begins to lay some groundwork
for traders and investors to build on.

Again.... you can view FREE point and figure charts at
www.stockcharts.com, or try a 2 week FREE trial subscription at

I don't have enough time to review all of the Dow components in
this article, but traders and investors can begin studying other
charts, make some ties with the various market bullish %
indicators, to get a better feel for the markets.

Jeff Bailey


Earnings Calendar

Symbol  Co               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

EN     Enel S.p.A.           Mon, Mar 29  -----N/A-----        N/A
SCS    Steelcase Inc.        Mon, Mar 29  After the Bell     -0.05

------------------------- TUESDAY ------------------------------

BNG    Benetton Group        Tue, Mar 30  -----N/A-----        N/A
KMX    CarMax, Inc           Tue, Mar 30  Before the Bell     0.21
ELP    Co Paran Energia      Tue, Mar 30  After the Bell       N/A
MBT    Mobile Telesystems    Tue, Mar 30  -----N/A-----        N/A
SCO    Scor                  Tue, Mar 30  -----N/A-----        N/A

------------------------ WEDNESDAY -----------------------------

AM     American Greetings    Wed, Mar 31  Before the Bell     0.65
ATYT   ATI Technologies      Wed, Mar 31  Before the Bell     0.16
BBBY   Bed Bath & Beyond Inc.Wed, Mar 31  After the Bell      0.44
BBY    Best Buy Co., Inc.    Wed, Mar 31  Before the Bell     1.39
CC     Circuit City Stores   Wed, Mar 31  Before the Bell     0.36
CIG    Co Energ Minas Gerais Wed, Mar 31  -----N/A-----       0.90
E      ENI SpA               Wed, Mar 31  -----N/A-----       1.71
MON    Monsanto Company      Wed, Mar 31  Before the Bell     0.56

------------------------- THUSDAY -----------------------------

GUC    Gucci Group NV        Thu, Apr 01  Before the Bell     1.17
MSM    MSC Industrial Direct Thu, Apr 01  -----N/A-----       0.25
PIR    Pier 1 Imports, Inc.  Thu, Apr 01  -----N/A-----       0.54

------------------------- FRIDAY -------------------------------


Upcoming Stock Splits In The Next Two Weeks...

Symbol  Co Name              Ratio    Payable     Executable

WGA     Wells-Gardner Elect Corp 21:20     Mar  26th   Mar  29th
HOV     Hovnanian Ent, Inc        2:1      Mar  26th   Mar  29th
MVL     Marvel Enterprises        3:2      Mar  26th   Mar  29th
APH     Amphenol Corp             2:1      Mar  29th   Mar  30th
XTEX    Crsstx nrg co, L.P.       3:2      Mar  29th   Mar  30th
GGG     Graco Inc                 3:2      Mar  30th   Mar  31st
IDSA    Industrial Services of    3:2      Mar  30th   Mar  31st
PHX     Panhandle Royalty Co      2:1      Apr   1st   Apr   2nd
TACT    TransAct Technologies Inc 3:2      Apr   2nd   Apr   5th
CACB    Cascade Bancorp           5:4      Apr   2nd   Apr   5th
UUU     Universal Security        4:3      Apr   5th   Apr   6th
DKS     Dicks Sporting Goods, Inc 2:1      Apr   5th   Apr   6th
FCFS    First Cash Finl Serv Inc  3:2      Apr   6th   Apr   7th
CRDN    Ceradyne, Inc             3:2      Apr   7th   Apr   8th
DWCH    Datawatch Corp            2:1      Apr   8th   Apr   9th
FOSL    Fossil, Inc               3:2      Apr   8th   Apr   9th
GBTS    Gateway Finl Holdings    21:20     Apr   8th   Apr   9th

Economic Reports This Week

All eyes are on Friday's non-farm payrolls (jobs) report.
Potentially a market mover is the consumer confidence number
on Tuesday and the Factory orders & Chicago PMI on Wednesday.
The April earnings season is just around the corner!


Monday, 03/29/04

Tuesday, 03/30/04
Consumer Confidence (DM)   Mar  Forecast:    86.0  Previous:     87.3

Wednesday, 03/31/04
Factory Orders (DM)        Feb  Forecast:    1.4%  Previous:    -0.5%
Chicago PMI (DM)           Mar  Forecast:    61.0  Previous:     63.6

Thursday, 04/01/04
Initial Claims (BB)      03/27  Forecast:     N/A  Previous:     339K
Auto Sales (NA)            Mar  Forecast:    5.5M  Previous:     5.3M
Truck Sales (NA)           Mar  Forecast:    7.9M  Previous:     7.7M
Construction Spending (DM) Feb  Forecast:   -0.1%  Previous:    -0.3%
ISM Index (DM)             Mar  Forecast:    59.8  Previous:     61.4

Friday, 04/02/04
Nonfarm Payrolls (BB)      Mar  Forecast:    100K  Previous:      21K
Unemployment Rate (BB)     Mar  Forecast:    5.6%  Previous:     5.6%
Hourly Earnings (BB)       Mar  Forecast:    0.2%  Previous:     0.2%
Average Workweek (BB)      Mar  Forecast:    33.8  Previous:     33.8

Not on the calendar but worth noting is the February PPI report that
has yet to be given a release schedule from the government.

PPI (NA)         Date TBA  Feb  Forecast:     N/A  Previous:     0.6%
Core PPI (NA)    Date TBA  Feb  Forecast:     N/A  Previous:     0.3%

DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 03-28-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Another Mixed Bag
Dropped Calls: None
Dropped Puts: IVGN, RIMM


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Watch List

Another Mixed Bag


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.

Cigna Corp - CI - close: 57.43 change: +0.75

WHAT TO WATCH: Some of the health-related insurance stocks have
been rather strong lately.  We think CI might be a bullish
candidate if it can breakout over the $58.00 level.  Technical we
do need to worry about resistance with the gap down in February
and the gap up in January but the general trend has been bullish
the last several weeks.  We would also watch Aetna (AET).  AET
has been very strong and rather resistant to profit taking.



Beazer Homes - BZH - close: 105.93 change: +1.28

WHAT TO WATCH: Homebuilders have been very strong and a lot less
volatile than the rest of the market.  The orderly pull back in
shares of BZH appears to be ending and traders are buying the dip
to its 40-dma.  Bulls might want to target a move back toward its
highs near $112.50 with a stop loss near $103.  Currently its P&F
chart bullish target id $114.00.



DST Systems - DST - close: 45.08 change: +0.27

WHAT TO WATCH: Here's another stock where we see traders buying
the dip toward the 40-dma.  Of course this time it happens to
coincide with price support and previous resistance at the $44.00
mark.  DST's MACD is close to producing a new bullish signal and
the stock appears to be climbing higher in an ascending channel.
Immediate resistance is the $47.00 mark but we'd target $50.00.



Capital One Financial - COF - close: 73.65 change: +1.45

WHAT TO WATCH: We would keep an eye on COF.  It would appear like
the stock is forming a relatively flat reverse head-and-shoulders
pattern.  Look for a bullish breakout over $75.00 (or 75.10)
before targeting a move to $80.00. Although if this is an H&S
pattern then we should be able to target $82.00.


RADAR SCREEN - more stocks to watch

IP $41.58 +0.63 Intl Paper and MWV, another paper player, have
both been moving in a wide trading range over the last few
months.  Both appear to have hit the bottom of their range and
are bouncing higher.  MWV does look a little more bullish with a
higher low versus IP's lower low.

TM $73.01 +1.95 - If you don't mind a lot of gap opening each
morning then Toyota Motor Corp might be a play for you.  The
stock rallied to new three-year highs on Friday with big volume.

JCI $58.90 +0.70 - JCI looks stuck in a trading range under
resistance at $60.00.  If the range is still in effect then the
next stop should be $56.50.  Otherwise look for a bullish
breakout over the $60 mark.

ADBE $39.49 -0.55 - We're still looking for a convincing breakout
over resistance at $40.00 for this software maker.

JHF $42.60 +0.34 - The relative strength in JHF is pretty
impressive and its MACD's new buy signal looks good too but we
need to see a new relative high.  A close over $43.50 might work.


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Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.




Invitrogen - IVGN - close: 69.04 chg: +0.30 stop: 70.01

We struggled with the decision on whether to keep IVGN or not.
As of Thursday's close we were ready to drop it and had planned
to exit on a Friday dip to reduce our losses.  So why consider
keeping it on when it traded higher on Friday?  Well for one
thing the stock confirmed that the $70.00 level is resistance
when it traded toward $70 twice and failed both times.  IVGN now
has both its 21-dma and its 100-dma converging near the $70 mark
to strengthen resistance there.  On top of it all the last hour
sell-off in the markets looks very tempting if you're feeling
bearish but we believe it's just profit taking from Thursday's
rally.  Our confidence is also eroded by the bullish MACD signal,
which takes longer to form than the short-term RSI and
stochastics.  We're going to close the play here maybe look for a
move under the $66.00 mark, which would make the recent
consolidation look more like a bear flag pattern.

Picked on March 11 at $ 67.26
Change since picked:   + 1.78
Earnings Date        02/12/04 (confirmed)
Average Daily Volume:     910 thousand
Chart =


Research In Motion - RIMM - cls: 89.68 chg: +0.46 stop: 90.01

This looks like a case of setting the stop loss too tight.  We
knew RIMM was volatile but we weren't expecting it to rally past
the $90.00 level again.  Unfortunately, after Thursday's market-
wide ramp up RIMM got some good news after settling with Good
Technology.  The new license agreement between the two companies
will dismiss the pending lawsuits they have against each other.
RIMM shot up to $91.20, just under resistance at its 10 & 50-
dma's before sinking again.  If the stock closed under the $89
level more aggressive traders might want to use the recent pop as
an entry point for new bearish positions but keep an eye on the
NASDAQ.  If the market continues to rally shorting RIMM is
probably not a profitable move.

Picked on March 23 at $ 86.64
Change since picked:   + 3.04
Earnings Date        04/07/04 (confirmed)
Average Daily Volume:     6.1 million
Chart =


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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The Option Investor Newsletter                   Sunday 03-28-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: LXK, MGG
New Calls: AVID, NEM
Current Put Plays: ETN, SLAB
New Puts: LTR



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Lexmark Intl. - LXK - close: 89.40 change: -0.91 stop: 87.25

Company Description:
Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and dot
matrix printers for the office and home markets.  The company is
also the exclusive source for new print cartridges for the laser
and inkjet printers it manufactures.  Additionally, LXK provides
supplies for IBM printers and offers after-market laser
cartridges for the large installed base of a range of laser
printers sold by other manufacturers.

Why we like it:
Thursday's broad market rally sent LXK up to close above $90 for
the first time ever and the early strength on Friday gave the
appearance of bullish continuation.  That bullish thought only
lasted about as long as the sound of the opening bell and the
stock was pushed back under $90.  One more rally attempt before
lunch and then the stock headed lower into the end of the day.
Nothing severe, mind you.  But it does make one wonder if the
stock will ever be able to sustain a breakout over $90.  The
first likely support is at the 10-dma (currently $88.71) and then
last ditch support resides at roughly $87.50, near last week's
double bottom. If those lows are broken, then it's a safe bet
that LXK's uptrend will break and we'll want to exit post haste.
That's why our stop is so tight at $87.25.  Either LXK breaks out
with conviction or takes us out of the play for a small gain.
Should a strong rebound from support set up early next week, that
can be used for new entries, but keep in mind that pullback
entries at this point in the rally carry greater risk.  The more
conservative approach to new entries would be to wait for a
breakout over $91.10, providing evidence that the rally still has
some legs.

Suggested Options:
Shorter Term: The April $90 Call will offer short-term traders
the best return on an immediate move, as it is just slightly out
of the money.

Longer Term: Aggressive longer-term traders can use the May $95
Call, while the more conservative approach will be to use the May
$90 strike.  Our preferred option is the April $90 strike, which
is near the money and should provide sufficient time for the play
to move in our favor.

BUY CALL APR-90*LXK-DR OI=2348 at $2.15 SL=1.00
BUY CALL APR-95 LXK-DS OI=1234 at $0.65 SL=0.35
BUY CALL MAY-90 LXK-ER OI=1127 at $4.20 SL=2.50
BUY CALL MAY-95 LXK-ES OI= 197 at $2.15 SL=1.00

Annotated Chart of LXK:

Picked on March 14th at      $85.77
Change since picked:          +3.63
Earnings Date               4/19/04 (unconfirmed)
Average Daily Volume =     1.04 mln
Chart =


MGM Mirage - MGG - close: 45.65 change: -0.04 stop: 43.25

Company Description:
MGM MIRAGE, one of the world's leading and most respected hotel
and gaming companies, owns and operates 12 casino resorts located
in Nevada, Mississippi, Michigan and Australia, and has
investments in two other casino resorts in Nevada and New Jersey.
The company is headquartered in Las Vegas, Nevada, and offers an
unmatched collection of casino resorts with a limitless range of
choices for guests. Guest satisfaction is paramount, and the
company has approximately 40,000 employees committed to that
result. Its portfolio of brands include AAA Five Diamond award
winner Bellagio, MGM Grand Las Vegas -- The City of
Entertainment, The Mirage, Treasure Island ("TI"), New York-New
York, Boardwalk Hotel and Casino and 50 percent of Monte Carlo,
all located on the Las Vegas Strip; Whiskey Pete's, Buffalo
Bill's, Primm Valley Resort and two championship golf courses at
the California/Nevada state line; the exclusive Shadow Creek golf
course in North Las Vegas; Beau Rivage on the Mississippi Gulf
Coast; and MGM Grand Detroit Casino in Detroit, Michigan. The
Company is a 50-percent owner of Borgata, a destination casino
resort at Renaissance Pointe in Atlantic City, New Jersey.
Internationally, MGM MIRAGE also owns a 25 percent interest in
Triangle Casino, a local casino in Bristol, UK. (source: company
press release)

Why We Like It: (Original Write up from Thursday)
Casino stocks have been one of the strongest sectors of the
market this year.  MGG alone is up 22% YTD and doesn't show any
signs of slowing down.  Recently Merrill Lynch raised its 2004
earnings estimates for MGG and lifted their price target from $44
to $53.  A lot of the Vegas hotel chains have been turning in
some impressive numbers in their room pricing power, which is up
significantly from last year.  Add a little bit of consumer fears
about traveling overseas and major players in Vegas and Atlantic
City should continue to see an increase in customers above and
beyond what they might see from an improving economy.
Coincidentally, Bank of America reiterated their "buy" rating the
same day Merrill did.

We like the bull flag breakout today combined with a turnaround
in MGG's short-term technicals.  This is a new all-time closing
high for the stock and we're going to target the $50 level, which
is well below the $61 price target forecasted by its P&F chart.
Should MGG see a pull back traders can look to buy the dip to
$45.00-44.50.  We're going to stick our stop loss at the 40-dma
where MGG found support earlier this week.

Weekend Update:
We were sort of looking for a pull back and suggested traders use
a dip to the $45.00-44.50 level as an entry point but MGG's low
on Friday was only $45.34.  We still suspect MGG might pull back
a bit more so it might pay to be patient here and time your entry

Suggested Options:
Earnings are coming up less than three weeks from now and we
don't plan to hold over the report.  That means we can probably
get away with using April calls, which expire two days after MGG
reports.  More conservative traders may feel more comfortable
using May or June calls.

BUY CALL APR 40 MGG-DH OI= 136 at $5.70 SL=3.75
BUY CALL APR 45*MGG-DI OI=2689 at $1.80 SL=0.95
BUY CALL MAY 45 MGG-EI OI= 103 at $2.65 SL=1.30

Annotated Chart:

Picked on March 25 at $ 45.69
Change since picked:   - 0.04
Earnings Date        04/14/04 (unconfirmed)
Average Daily Volume:     597 thousand
Chart =


Avid Technology - AVID - cls: 46.15 change: +0.21 stop: 42.99

Company Description:
Avid Technology, Inc. is the world leader in digital nonlinear
media creation, management, and distribution solutions, enabling
film, video, audio, animation, games, and broadcast professionals
to work more efficiently, productively, and creatively.
(source: company press release)

Why We Like It:
With the markets setting up for a rebound from their recent lows
we felt that AVID might offer a great way to play the bounce.
Brokers have grown more bullish on the stock this last month with
Piper Jaffray upgrading AVID from "market perform" to "out
perform" and raising their price target from $55 to $60.  Roth
Capital followed suit several days later and upgraded AVID from
"buy" to "strong buy" with their price target set at $64.  Both
analysts are bullish about AVID's prospects in the second half of
this year.

We also like the technical picture on AVID's daily chart.  Shares
have put in a "W" style double bottom and is challenging
resistance in the $45-46 range.  We like its bullish P&F chart as
well, which appears to have set a strong foundation and currently
points to a $54 price target.  The stock does have some
significant overhead technical resistance at its 100 & 200-dma's
so we are going to use a TRIGGER at $47.35 to open the play for
us on a breakout above resistance.  Until then we'll be content
to watch.  More aggressive traders who might consider buying a
dip can look for a bounce above the $44 level or maybe its 50-dma
near $44.50.  We'd like to target price resistance at the $55
mark as our exit strategy but watch the descending trendline on
the chart below.

Suggested Options:
AVID's earnings are expected on or around April 15th.  That only
gives us just under three weeks.  For some traders that may not
be enough time, especially since we don't plan to hold over the
announcement.  April options expire on the 16th, which add more
risk should AVID move south.  We're still going to suggest the
April calls but the May or June calls are available.

BUY CALL APR-45*AQI-DI OI=645 at $3.10 SL=1.55
BUY CALL APR 50 AQI-DJ OI= 85 at $0.90 SL= --
BUY CALL MAY 45 AQI-EI OI= 86 at $4.50 SL=2.25

Annotated Chart:

Picked on March xx at $ xx.xx <-- see trigger
Change since picked:   + 0.00
Earnings Date        04/15/04 (unconfirmed)
Average Daily Volume:     663 thousand
Chart =


Newmont Mining - NEM - close: 46.15 change: +0.94 stop: 43.00

Company Description:
Newmont Mining Corporation is a holding company and is
principally engaged in gold mining.  As of the end of 2002, the
company had gold reserves of 86.9 million equity ounces and an
aggregate land position of approximately 63,000 square miles.
NEM has operations in North America, South America, Australia,
New Zealand, Indonesia, Uzbekistan and Turkey.  In 2002, the
company obtained more than 69% of its equity gold production from
politically and economically stable countries, namely the United
States, Canada and Australia.

Why we like it:
After more than 2 months of consolidating its impressive bull
run, it looks like the gold sector is ready to resume its upward
trend.  The April futures contract broke out over two months of
resistance at $420 last week and shares of NEM followed suit on
Friday.  Gapping open above $46, it actually looked like the
stock was just going to gap and go until the bulls had their
enthusiasm curbed, first by the news that the company was
delaying a shipment of 30,000 ounces due to a 3 week shutdown at
a Nevada plant.  It quickly became clear this news was
inconsequential though, as the company still left the full-year
gold sales guidance at 7.0-7.2 million ounces.  After reading the
full press release, investors decided the news didn't really
matter and went back to buying before the end of day selling
knocked the legs out from everything, even the miners.  To its
credit, NEM managed to hold above the opening gap and the
breakout still looks solid.

What's so significant about the breakout is that for the first
time since January, NEM is on a PnF Buy signal.  That signal was
created as NEM pushed through $46, which was also horizontal
resistance from the past couple months.  Thursday's rally was
pretty strong as well, with price bouncing from the area of the
20-dma ($43.49) and 30-dma ($43.54) and just above the 50-dma
($43.27).  This combination of moving averages should now prove
to be very strong support on any pullback.  Recall the PnF Buy
signal?  It gives a new bullish price target of $55, so once
again the stock has room to run.  That said, we're not real
excited about chasing the stock higher at this point.  At a
minimum, NEM should retrace to fill in Friday's gap and we could
easily see a dip into the $44.00-44.50 area.  Such a dip would
make for the ideal entry point.  We'll initially target a return
to the $50 resistance level and should a breakout materialize,
$55 looks like a reasonable goal.  Place initial stops at $43.

Suggested Options:
Shorter Term: The April $45 Call will offer short-term traders
the best return on an immediate move, as it is currently at the

Longer Term: Aggressive longer-term traders can use the April $47
Call, while the more conservative approach will be to use the May
strikes.  Our preferred option is the May $47 strike, as it is
currently near the money and should provide sufficient time for
the play to move in our favor.

BUY CALL APR-45 NEM-DI OI=13903 at $2.10 SL=1.00
BUY CALL APR-47 NEM-DW OI= 6431 at $0.85 SL=0.40
BUY CALL MAY-47*NEM-EW OI=  886 at $1.90 SL=1.00
BUY CALL MAY-50 NEM-EJ OI= 3052 at $1.10 SL=0.50

Annotated Chart of NEM:

Picked on March 28th at      $46.15
Change since picked:          +0.00
Earnings Date                2/04/04 (confirmed)
Average Daily Volume =     6.27 mln
Chart =

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Eaton Corp. - ETN - close: 54.27 change: -0.23 stop: 56.60*new*

Company Description:
Eaton Corporation is a global diversified industrial manufacturer
with businesses in fluid power systems, electrical power quality,
distribution and control, automotive engine air management and
fuel economy and intelligent truck systems for fuel economy and
safety.    The principal markets for the company's Fluid Power,
Automotive and Truck segments are original equipment
manufacturers and after market customers of heavy-, medium- and
light-duty trucks, passenger cars, off-highway vehicles,
industrial equipment, and aerospace products and systems.  The
principal markets for the company's Industrial and Commercial
Controls segment are industrial, construction, commercial,
automotive and government customers.

Why we like it:
Oversold rebounds tend to be a violent affair and that was
certainly the case on Thursday, as ETN hitched a ride on the
northbound train that was the rest of the market.  Bouncing from
the intraday low of $52.74, the stock pushed as high as $74.75 by
the end of the day.  Friday's action was largely forgettable due
to the light volume and the very small range, but it did show
that there wasn't enough conviction to continue Thursday's rally.
The $55-56 level is now shaping up as strong resistance, with the
first hurdle being the 10-dma ($55.04).  In this steady decline,
we can expect to see short-term rebounds in the path of lower
highs and lower lows, and the failed rebounds will be the best
opportunity for fresh entries.  Resistance at $56 is really the
key, as that level was a real price magnet on the way down and we
shouldn't see the stock able to close back over that level as
long as this downtrend is intact.  Our target at the 200-dma
($49.97) still looks reasonable.  Lower stops to $56.60, which
should be above the 20-dma ($56.80) on Monday.

Suggested Options:
Aggressive short-term traders can use the April 55 Put.
Aggressive traders looking for more insulation against time decay
will want to utilize the July 52 strike.  There are May strikes
available , but not at the $52 level, so our suggestion for
longer-term traders is to stick with the July strikes.  Our
preferred option is the April 55 strike, as it is currently in
the money and should provide ample time for the play to move in
our favor.

BUY PUT APR-55*ETN-PK OI= 204 at $2.00 SL=1.00
BUY PUT APR-52 ETN-PX OI=  80 at $1.00 SL=0.50
BUY PUT JUL-52 ETN-SX OI= 130 at $2.55 SL=1.25

Annotated Chart of ETN:

Picked on March 11th at       $54.82
Change since picked:           -0.55
Earnings Date                1/21/04 (confirmed)
Average Daily Volume =         589 K
Chart =


Silicon Labs. - SLAB - close: 52.21 change: +0.08 stop: 54.00

Company Description:
Silicon Laboratories designs, manufactures and markets
proprietary high-performance mixed-signal integrated circuits
(ICs) for the wireless, wireline and optical communications
industries.  The company initially focused its efforts on
developing ICs for the personal computer modem market and is now
applying its mixed-signal and communications expertise to the
development of ICs for other high growth communications devices,
such as wireless telephones and optical network applications.

Why we like it:
If the Semiconductor sector (SOX.X) is the leader for the overall
Technology market, then Friday's price action told us a lot.
While the rest of the market tried to build on Thursday's gains,
the SOX languished in negative territory and then led the final-
hour selloff.  There wasn't any significant technical damage
done, but it does tell us that at best the SOX is still searching
for a bottom.  There's no doubt that the early rally in shares of
SLAB had us a bit nervous, especially when the stock was hitting
its high of $53.89, just under our $54 stop.  But the reversal
from that high looks very bearish on the daily chart and
congratulations go out to those that took advantage of the failed
rally to enter the play.  More conservative players can look for
a drop back under $52 as bearish confirmation and an opportunity
to open new positions.  By Monday, the 20-dma ($54.17) should be
under $54 and will help to protect our stop.  Watch the action in
the SOX for confirmation that SLAB is heading lower.  We now know
there is solid support in the $49-50 area, but once it gives way
it should be a fairly swift trip down to the 200-dma just over

Suggested Options:
Aggressive short-term traders will want to use the April 50 Put.
Those with a more conservative approach will want to use the
April 55 put.  Aggressive traders looking for more insulation
against time decay will want to utilize the May strike.  Our
preferred option is the April 50 strike, as it is currently near
the money and should provide ample time for the play to move in
our favor.

BUY PUT APR-55 QFJ-PK OI= 817 at $4.00 SL=2.50
BUY PUT APR-50*QFJ-PJ OI=1920 at $1.40 SL=0.75
BUY PUT MAY-50 QFJ-QJ OI=  79 at $3.10 SL=1.50

Annotated Chart of SLAB:

Picked on March 21st at       $51.35
Change since picked:           +0.86
Earnings Date                1/26/04 (confirmed)
Average Daily Volume =      1.50 mln
Chart =


Loews - LTR - close: 58.08 change: -0.49 stop: 59.25

Company Description:
Loews Corporation, a holding company, is one of the largest
diversified financial corporations in the United States. Its
principal subsidiaries are CNA Financial Corporation (NYSE: CNA),
Lorillard, Inc., Diamond Offshore Drilling, Inc. (NYSE: DO),
Loews Hotels, Bulova Corporation, and Texas Gas Transmission,
LLC. (source: company press release)

Why We Like It:
It could be tough surfing ahead for conglomerate LTR.  Back on
March 11th all the major tobacco players took a dive after
Prudential downgraded the biggest producer Phillip Morris (a.k.a.
the Altria group) due to concerns over increased litigation risks
for the industry.  Further depressing tobacco companies is the
uncertainty over the Presidential election.  Bush has been
focused on more pressing issues but Kerry has made it no secret
that he plans to raise taxes on cigarettes by at least $1 per
pack.  Compounding LTR's problems is its exposure to the oil
service sector with its Diamond Offshore business.  Investors
have been rotating out of oil stocks the last several days now
that many suspect we've seen the top in oil prices.  While it
remains to be seen if oil's bullish run is over the relative
weakness in shares of LTR is pretty evident.

The stock has broken support at the $60 mark, at the $59 level
that held up in late February, at its 40-dma and is just barely
holding support at $58 and its 50-dma.  The lack of bounce and
the failed rally on Friday look pretty bearish.  However, we are
going to use a TRIGGER to open the play for us.  Our entry price
will be $57.74, which would require LTR to breakdown below its
low on Wednesday near $57.80 and its 50-dma currently at $57.75.
If we are triggered we'll start the play with a stop loss at

Suggested Options:
Since LTR isn't expected to announce earnings until May we feel
more confident suggesting the May and June puts versus the April
puts that expire in three weeks.  The May 60's look good but they
don't have much open interest.  Try the June 60's.

BUY PUT MAY 55 LTR-QK OI= 20 at $1.15 SL=0.60
BUY PUT MAY 60*LTR-QL OI=  0 at $3.30 SL=1.65
BUY PUT JUN 60 LTR-RL OI= 70 at $3.80 SL=1.90

Annotated Chart:

Picked on March xx at $ xx.xx <--- see trigger
Change since picked:   + 0.00
Earnings Date        02/12/04 (confirmed)
Average Daily Volume:     421 thousand
Chart =

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The Option Investor Newsletter                   Sunday 03-28-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Where Has All The Fear Gone?
Option Spreads: So You Want To Go Dancing On A Minefield?
Traders Corner: Spotting Index Tops and Bottoms


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Where Has All The Fear Gone?
By Mark Phillips

Last week I made no secret of my belief that the bear has returned
and that he's hungry.  We've definitely seen an inability for any
lasting rally attempt over the past week, but the broad market is
trying to put in a near-term bottom.  The DOW managed a close back
over 10,200 on Friday, the NASDAQ is back over 1950 and the SPX
almost closed over 1110.  But here's the real problem.  All of
those closes are below key resistance that must be broken through
to reignite a bullish trend in the near term.

Just to completely confuse everyone, I'll state that I think each
of those resistance levels will be broken as we head into the
April earnings cycle and the primary reason for that conviction is
that bullish sentiment (or the "Buy the Dip" compulsion) is still
very strong.  Nowhere is that reality more evident than in the
action of the VIX last week.  The fear started to seep out of the
market before the closing bell rang on Monday and despite a slight
drop in the market on Tuesday and Wednesday, the VIX was already
dropping significantly.  Translation: No fear of the downside.
The VIX plunged on Thursday (as we should expect with such a
strong broad market rally), but Friday's continued slide in fear
makes little sense, as the market actually lost ground.

Let's look at it a little differently.  The VIX is right back
where it was on March 11th, the day the SPX plunged to 1106 at the
close.  The SPX is right back at that level this weekend, but
we've clearly suffered some significant technical damage since
then in the form of some breaks of key support levels and Bullish
Percent readings, which we'll get to in a bit.  Bullish sentiment
is still strong and what we're seeing is a rapid dissipation of
fear as investors buy the dip.  To me, one key is the
Semiconductor sector and unless the SOX can close well above the
$510 level (the site of its descending trendline), it is going to
be very difficult for the broad market to sustain any rally.

The DOW Theory Bear Confirmed signal is still in place and we
shouldn't be quick to dismiss it.  That said, I suspect that we're
going to see a renewed bullish thrust into the April earnings
cycle, after which the bears will likely become more aggressive,
taking advantage of the "Sell in May and Go Away" trend that is
likely to reassert itself.  We can't underestimate the potential
impact to investor sentiment of the indecision regarding who will
control the White House following the November election and the
terrorism issue is having a pronounced effect as well.  Enough
about those nebulous issues though, let's see what has happened on
the technical front in the past week.

First up is our view of the Bullish Percent charts and the DOW is
flashing a warning flag, with its reading dropping to 76.67% and
changing the status to Bear Confirmed.  That's the first bearish
signal from that index in over a year.  The BP reading on the SPX
gave its own bearish signal last week, dropping to 72.6% and
making the transition to Bear Confirmed.  With the NDX Bullish
Percent slipping below 40%, we now have all three of the major
indices in Bear Confirmed and the DOW and the SPX have a lot of
room to fall.

Looking at the PnF charts of the 3 major indices, we can see that
the DOW is still on a Sell signal with its 9400 target still
intact.  The worry is that a trade over the 10,350 level will have
the DOW back on a PnF Buy signal.  It is this potential that kept
me from adding a new Put play on the DJX this weekend.  I still
think the downside is the best way to play for the longer term,
but I want to see cleaner technicals before taking that plunge.
Clearly, we're still a long ways from seeing a PnF Sell signal on
the SPX chart, but last week's drop did create a High Pole
warning, which puts the bulls on notice that perhaps conditions
are changing.

The PnF chart of the NDX is rather interesting, as the 1390 price
target was easily exceeded and then we got a snapback rally to the
1430 level, right on the edge of reversing to a Buy signal.  My
view on this index is that we're likely to see that buy signal,
but the new bearish resistance line at 1460 is liable to be a very
tough nut to crack.  It lines up nicely with the bearish
resistance line on the COMPX, which is currently at 2010.
Speaking of the COMPX, it is also on a Sell signal and achieved
its bearish price target of 1900 last week.  It would take a rally
to 1990 to give a new PnF Buy signal, but then the bulls will have
to contend with the bearish resistance line.  Looking at the
Bullish Percent chart, the COMPX is (as we should expect) also in
Bear Confirmed status at 59.56%.

I don't know about you, but that's an awful lot of information
that is pointing to a very clear return of the bear.  Even if the
PnF charts of the major indices are able to generate new Buy
signals, I'll be suspicious of them having much upside
continuation due to the Bullish Percent charts, the DOW Theory
Bear Confirmed signal and a lack of strength from the market-
leading Semiconductor sector.

What About The Dollar?

I get a lot of questions concerning the action in the dollar,
especially with it continuing to try to mount a credible rebound.
I think the key picture we need to keep in mind is this view of
the US Dollar index (DX00Y), which shows the price action of the
dollar relative to a basket of other paper currencies

Weekly Chart of the US Dollar Index (DX00Y)

That's a pretty clear picture to me!  We're seeing a rebound in
the DX00Y, not so much because of renewed strength in the dollar,
but because the other currencies it is compared to in this index
have been undergoing some much needed profit taking.  Remember,
this index doesn't tell us anything about absolute value.  It is a
measure of our fiat currency against the other major fiat

If looking for a real measure of value, it will be found in
looking at tangible assets and my personal favorite for that study
remains the price of gold.  We've talked for months now about the
reality that the rise in gold is related to the fall in the dollar
and the fact that we haven't really seen any significant upside in
the dollar relative to other major currencies like the Euro.  We
know that gold broke out above significant resistance on Friday,
but at the same time, we see the DX00Y moving up.  That seems to
be a disconnect.  But when we understand what is happening below
the surface, it becomes easier to understand the big picture.

The dollar strengthened against foreign currencies last week and
that's what we see on the chart above.  What we don't see is that
it wasn't the value of the dollar actually rising, but the value
of those other currencies falling that created the big green
candle last week.  What we're starting to see right now is the
VERY early stages of the next leg of the bull market in gold, as
all currencies are starting to weaken against the one currency
(gold) that can't have its value destroyed through monetary

We aren't there yet, as gold has yet to notch new highs against
the Euro, Swiss Franc, Australian Dollar or even the Canadian
Dollar.  But it is making significant progress in that direction.
The one that caught my attention this weekend was the chart of the
continuous Gold Futures contract vs. the Canadian Dollar.

Weekly Chart of Gold vs. the Canadian Dollar

The breakout to its best levels in over a year is encouraging, but
I would be surprised to see much more upside without a bit of
retracement, as the chart is now running into resistance at the
rising trendline.  But it is an early sign that the bull market in
gold is gaining traction once again.  We should keep a sharp eye
on this ratio chart, especially as it approaches the early 2003
highs.  Note that similar tests will be occurring against many of
the major currencies near the same time.  When gold breaks out to
new multi-year highs against multiple currencies in addition to
the dollar, the gold bulls will be frolicking to their hearts'
content.  At the same time, we can be assured that the US Dollar
Index will more than likely be trading significantly below its
recent lows.  I'll be keeping a close watch on this developing
story and let you know as it becomes more mature.

Remember we've been talking about the need for Gold to gain
traction against other currencies in order to kick off the next
powerful leg of the gold bull market.  But we have other ways of
viewing the picture in the near-term while we wait for that major
development.  Last week's new PnF Buy signal on the Continuous
Gold Futures contract is one such metric.  With the breakout over
$420, gold issued a new PnF Buy signal, and the new bullish price
target is $492.  I've seen a lot of talk about the $500 level
being a pivotal level for gold and based on the new picture on the
PnF chart, I think we'll see that objective tested in the months

I think that's enough talk on the big picture issues for this
week. Now let's turn our attention to our list of active plays and
see what excitement occurred in the week just past.


SMH - Despite a strong rebound in the Semiconductor sector in the
middle of last week, the SMH is still on course towards lower
lows.  The initial break of the 200-dma did find renewed buying
interest, but it seemed to stall near the $40 resistance level on
Friday.  Despite the tight range of Friday's session, the reversal
from resistance and close at the low of the day does not give the
bulls a warm feeling.  SMH is still in its 3-month descending
channel and it would take a move above the top of the channel at
$41 to suggest a trend change.  Of course, the 50-dma is lying in
wait just above that level to reinforce that resistance, so any
bullish reversal is going to have an uphill battle.  That reality
is clearly conveyed by the strong Sell signal on the PnF chart,
which now has a bearish price objective of $28, right at the
bullish support line.

NEM - As noted in the Market Monitor on Friday, NEM finally made a
very bullish move with its breakout over the $46 level, resistance
that had been turning back each rally attempt over the past couple
months.  This breakout generated a new PnF Buy signal along with a
tentative bullish price target of $55.  Obviously the near-term
objective will be for a move back to the recent highs near $50 and
we can expect significant resistance near that level.  But the
price action in the price of gold is similarly encouraging, with
last week's breakout over the $420 level suggesting a move to at
least the recent highs near $430.  Last week's move through $420
puts the PnF chart for gold on a new Buy signal as well, with the
tentative price target at $492.  Support for NEM should now be
strong in the $43 area, so traders still looking for entries into
this play should target dips into the $44-45 area.  Note that with
last week's breakout, we've raised our stop to $40, which is below
the consolidation lows and the 200-dma.

HD - There's still no resolution to the tight range consolidation
that HD has been mired in for the past several months, but it is
rather disconcerting to see the stock holding up so well in light
of the recent bout of selling in the broad market.  Once again on
Friday, the stock closed right up against the top of its long-term
descending channel and we can't rule out a move above that level.
Key resistance above that point comes in near $38 and then at the
200-week moving average just over $39.  As noted before, we're
bucking the trend on the PnF chart with this play, as we wait for
resolution of the tight consolidation.  Keep stops in place at $41
and watch for a weekly close under $35 as confirmation that the
bears are gaining the upper hand.

MLNM - With continued weakness in most of the broad market last
week, the action in shares of MLNM has not been particularly
encouraging, with the stock having now broken below both the
rising trendline and the 100-dma.  Key support now is at the 200-
dma near $16 and as long as the stock can remain above that level,
our bullish bias remains intact.  The one concern right now is the
fact the PnF chart is on a Sell signal, with a downside target of
$14, right at the location of our stop.  For now, we wait for this
consolidation to run its course, hopefully with the stock able to
hold above the 200-dma until the weekly Stochastics reach oversold
and turn back up.  Traders looking for new entries should wait for
at least an upturn in the weekly Stochastics and preferably for a
close back over the 50-dma.

CHK - Considering the still strong action in the price of Natural
Gas, the weakness in shares of CHK is a bit perplexing.  Last
week, the stock broke down out of the lower channel we had been
watching and the weekly Stochastics are looking rather week midway
in their cycle towards overbought.  At the same time, support is
holding firm near $12 and the stock is still bullish on its PnF
chart.  In addition to that support, there is the 200-dma, which
is now over the key $11.50 level.  It would take a break below
$11.50 to turn the picture bearish, as that would constitute a new
PnF Sell signal, as well as a break of the 200-dma.  In order to
reinforce the bullish picture, we need to see a solid breakout
over the $13.50 level, which capped the rally in early March.
Right now, we're right in the middle and that suggests continued
consolidation until the next catalyst arrives to break the range.
In the meantime, bounces from above $12 look good for continuation
entries, but keep those stops in place at $11.

SNDK - While it would have been nice to see the stock hold onto
all its intraday gains on Friday, I must say it was a very
encouraging week for our SNDK play.  The stock began to bounce
strongly on Wednesday and then soared through near-term resistance
at $27.40 and the 50-dma on Thursday.  That's a nice start, but
the first real test of the stock's strength will come near $30, at
the early March highs and the 200-dma ($30.30).  Beyond there is
the bottom of the January gap and the 100-dma near $31.  It won't
be an easy road, but SNDK appears to be starting to make progress
towards reversing its downtrend of the past several months.  Note
that the descending trendline from the November highs crosses
right at $30 right now, so that increases the significance of the
stock's reaction when it reaches that level.  Raise stops to $23,
which is just under the late February low.

LUV - Clearly our entry was a bit premature, but the tail end of
last week provided some encouraging price action.  LUV finally
rebounded from the $13.25 area and actually moved through the top
of the falling channel.  Of course it looked a lot more
encouraging early on Friday, with price holding near the $14.20
level and the end of day selloff is a bit discouraging.  Next
week, we need to see a closing breakout over the 50-dma and then
we can set our sights on next resistance in the $15.50-16.00 area.
LUV isn't likely to be a fast mover, but Friday's more than 2%
rally in the XAL index along with the $TRAN closing in positive
territory are a couple of encouraging developments.

Watch List:

TYC - Watching the rally in shares of TYC on Thursday, I was
beginning to have second thoughts about being so stingy with our
entry point at $26.  But the weakness seen on Friday renewed my
resolve to wait for the exact pitch we're seeking.  The bottom of
the channel is currently just over $26, with the 100-dma at
$26.24.  I think we still have to wait for a test of the $26 level
before taking a position.

EBAY - There's no question that our EBAY play is one of the more
aggressive plays we've listed of late, but that case could have
been made at several points along its steady rally over the past
year.  Last week's selloff provided the entry point we were
looking for and for better or for worse, EBAY moves to the
Portfolio this weekend.

Radar Screen:

WMB - We continue to see WMB in a broad consolidation pattern as
it builds a wedge, which is due to break in the very near future.
Resistance is being found at the 100-dma and support at the 200-
dma and weekly Stochastics are giving the nod to the bulls with a
slight upturn in the oscillator.  It may be that this is the place
to put on a bullish position, but since it isn't a position I
would take with my own money at this time, I obviously can't
suggest that you do so by moving it to the Watch List.  Let's
watch a bit longer and wait for this wedge to resolve itself.

APA - Once again, APA was rejected near its highs, but the trend
of higher lows is still intact as well.  Natural Gas prices
continue to support a bullish play, but doing so near all-time
highs does not seem a wise decision.  The PnF chart looks quite
bullish, but also very extended so far above its bullish support
line.  I suspect we'll see a more significant pullback before we
can really make a case for a long-term bullish play.  The problem
with that approach right now is that a drop below $39 will create
a PnF Sell signal.  This is not the place to enter a bullish play
and I still think a pullback into the $35-36 area will provide the
best setup for bullish entries.  Definitely, wait and see is the
best approach right now.

GM - With the DOW trying to build a new base above 10,000, GM is
trying to build a new bottom of its own right here near $45.  With
weekly Stochastics bottoming in oversold territory, the odds of a
bounce are looking pretty solid and we'll want to see how that
bounce plays out before seriously considering a bearish play on
GM.  There should be strong resistance in the $48-50 area and then
the top of the long-term descending channel is lying in wait up
near $53.  We definitely need to wait for a better technical setup
for a downside play, but GM is still firmly on that bearish Radar

DJX - Second thoughts.  I was all ready to add a new Watch List
play on the DJX until I took a look at the PnF charts this
weekend.  My bearishness was based on the PnF Sell signal on the
DOW, with the price target of 9400.  I was looking for an entry in
the 10,400-10,500 area.  The problem is that a trade at that level
would negate the current Sell signal with a new Buy signal.  Also,
I noted that the DJX has yet to issue a Sell signal or even a 3-
box reversal into a column of O's.  I still have a bearish view
for the broad market, but I can't make a good technical case for a
long-term bearish play on the DJX, at least not here.  So let's
leave this one on the Radar Screen until we can see more clarity.

Closing Thoughts:
I hope I haven't confused anyone this week, with my talk of near-
term strength in the broad market, within the context of a
developing bearish outlook for the remainder of the year.  At the
heart of what we should expect in the near term is still-strong
bullish sentiment.  A single decent-sized correction isn't going
to change investor sentiment, especially after a year of the
market's going up.  It will take time, more broken support levels
and a developing trend of lower highs and lower lows before the
public's appetite for stocks begins to cool.  For now, we can
still expect the dips to be bought, but with less enthusiasm,
resulting in that pattern of lower highs.  If the SOX really is
the market-leading sector, we can see how grudgingly the bulls
have given up ground in recent months.  If the broad market
follows suit, we can expect the nature of the coming decline to be
of a similar nature -- two steps down and one step up.

Failed rallies can be used to initiate bearish positions, and at
least for a bit longer, selloffs (in the right stocks) can be used
for initiating bullish positions.  Keep a sharp eye on the VIX as
a measure of when bullish sentiment really starts to fade.  When
we see the broad market snap back from oversold conditions, but
the VIX fail to drop as quickly as we've seen lately, that will
tell us that the excessive bullish optimism is starting to cool.

Have a great week!


LEAPS Portfolio

Current Open Plays

LEAPS Watchlist

Current Possibles


TYC    03/07/04   $26          JAN-2005 $ 30  ZPA-AF
                            CC JAN-2005 $ 25  ZPA-AE
                               JAN-2006 $ 30  WPA-AF
                            CC JAN-2006 $ 25  WPA-AE
                            PP JUL-2004 $ 25  TYC-SE


New Portfolio Plays

EBAY - eBay Inc. $66.24  **Call Play**

When we put EBAY on the Watch List a couple weeks ago, I hope I
sufficiently conveyed the reality that this is a more aggressive
bullish play.  Last week's price action is precisely why it
carries greater risk.  The stock has been VERY strong for years
and with the strong price performance in recent months, there's no
reason to expect that trend to reverse anytime soon.  At the same
time, if sentiment does reverse, EBAY has a long ways to fall.  We
were looking for a dip to the $66 level to provide a bullish entry
point.  Unfortunately, the stock sliced right through that level,
almost hitting $64 before subsequently rebounding back through our
$66 trigger on Thursday.  I was really torn about adding it to the
Portfolio following that rebound, primarily because the dip and
rebound left a fresh PnF Sell signal in its wake.  Along with that
Sell signal comes a new price target down at $57.  That's not what
we want to see.

But looking at the Sell signals in recent months, I see that both
of them resulted in an almost immediate rebound and rally to new
highs.  Since we can see that PnF Sell signals on EBAY have not
been working for anything except to signal high-odds bullish entry
points, we're going to plow forward with our entry and hope for
the best.  Should this sell signal actually stick, we're protected
by our protective put.  If the pattern of the past several months
holds true, then we can expect a rally to new highs in the weeks
ahead.  For the record, our entry was taken on Wednesday, as the
stock closed back over the $66 level.  We need to see a close back
over the 50-dma and then continuation over the $70 level to
provide the reassurance that the bulls are still in charge.  We'll
set our stop initially at $62, which is just below the lows of the
past few months, as well as the 100-dma.

BUY LEAP JAN-2005 $70 ZQX-AN $ 6.40
BUY LEAP JAN-2006 $70 YEU-AN $11.10
BUY PUT  JUL-2004 $60 XBA-SL $ 2.50 **Protective Put**

New Watchlist Plays





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Option Spread Strategies

So You Want To Go Dancing On A Minefield?
By Mike Parnos, Investing With Attitude

The only thing more dangerous than skydiving is a new option
trader with a checkbook.  It’s been said that a fool and his
parachute are soon parted.  Let’s see if we can pull in the reins
on that checkbook before the money takes flight.

CPTI students have written asking about why we buy the out of the
money wings on our Iron Condors and Siamese Condor trades.  It’s
called self-preservation.  However, for those who like to walk on
the wild side, there are ways to head off disaster.  Catastrophes
– we can’t control.  But, we can dodge a small caliber bullet or
two, if we have to.  But, trading uncovered options is like taking
a knife to a gunfight.

The Short Strangle
The Short Strangle consists of the sale of a put and a call with
different strike prices, but the same expiration month.  The
objective is for the stock to finish, at expiration, between the
sold strikes.  The two options will then expire worthless, you’ll
keep all the credit and live happily ever after.

The Short Strangle is really the Iron Condor’s evil twin.  Our old
friend, the Iron Condor, is simply a Short Strangle that has
protection in the form of long puts and calls purchased one strike
further out-of-the-money respectively.

Let’s look at an example.  Keep in mind that this example is
hypothetical and for educational purposes only.  It is NOT
intended as a recommendation.

PDLI closed Friday at $22.93.  It has support at about $20 and
resistance at about $25.  For this example, we’ll use a 10-
contract position.

Putting On The Trade – This is the easy part.  The only
requirements are that you’re breathing, have a checkbook and are
two sandwiches short of a picnic.   Plus, you must have the
highest trading approval level from your brokerage firm to trade
“uncovered” options.  Brokerage firms usually assign this level
only to traders who have extensive experience and who have
substantial assets.

Sell 10 contracts of the PDLI May $25 calls @ $.90 = $900
Sell 10 contracts of the PDLI May $20 puts @ $.60 = $600
Total amount of credit taken in = $1,500

Your Exposure –
Both the sold puts and calls are uncovered.  The puts (and you)
are exposed from the sold strike ($20) down to zero while the
calls have unlimited exposure from the sold strike ($25) to the
moon.  Now that sounds a little melodramatic, but technically it’s
true.  That’s why brokerage firms are careful about handing out
“uncovered” approval levels.  Inexperienced traders are less
likely to know how to make necessary adjustments when an
“uncovered” option strike is threatened or violated.

There are horror stories about traders who lost six figures
trading naked options.  Then, they turned around and sued the
brokerage firms who allowed them to trade – and WON!
Unbelievable!  There are plenty of slip-and-fall-give-me-a-call
attorneys who now specialize in stock market cases.

If you are able to put on the Short Strangle trade, your brokerage
firm will want to hold some money, or assets, in your account for
their (and your) protection.  The stock price is part of the
equation, so the requirement will vary daily as the stock price
moves.  This is money you will need to leave in your brokerage
account in the form of cash or other marginable securities.

The Formula
Here is how to calculate the maintenance requirement for naked
positions.  PDLI at $22.93.  To simplify our calculations, we’ll
round this off to $23.

The initial margin requirement for the transaction is 20% of the
underlying stock plus the credit received, less the amount out of
the money.
20% of the value of the underlying ($23) = $4.60
Add premium received from the May $25 call: $.90
Total:  $5.50 ($4.60 + $.90)
Subtract amount out-of-the-money: $2.00 = $3.50 ($5.20 - $2.00)
Margin Requirement: $3.50 x 100 = $350 per contract
For a 10 contract position:  $350 x 10 contracts = $3,500

Since we’re putting on TWO uncovered positions, we have to
calculate both sides and the maintenance held is the HIGHER of the
two figures.  The maintenance amount will vary day to day as the
underlying (PDLI) moves up and down.  If PDLI moves against you,
the brokerage firm will require additional funds for maintenance.

Also, if the calculated results are less than 10% of the value of
the underlying ($23), the maintenance figure will default to 10%.

When the stock is about to violate one of the sold strikes or an
important support or resistance level, you have to be prepared to
act.  This is your first line of defense.  You can (using the
short call as an example):
1.  Close out the short position by buying back the short call.
2.  Roll the short call out to a later month at a higher strike.
You may have to increase the number of contracts to make up the
3.  Close out the short call position and sell an additional
number of puts to make up the deficit.
4.  Buy an appropriate number of shares of stock to cover the
short call.
5.  Buy a deep in-the-money call to cover the short call.

Well, there it is -- the Short Strangle.  For all its glory, it’s
risky, but if you have the approval level, and you find a stock
with a nice wide trading range, you can generate a nice monthly
cash flow.

Whatever you do, think it through.  Know the strategy inside and
out.  Write me if you have questions.  Whatever you decide, have a
plan in place for either outcome.   If the trade moves against
you, you’ll be prepared.  If it works, you can afford to stay at
home for the next three days and watch the Home Shopping Network –
and maybe even buy something.

APRIL CPTI POSITIONS (From Thursday’s Column)

April Position #1 – SPX Iron Condor – 1108.06
We sold 4 SPX April 1075 puts and bought 4 SPX April 1050 puts for
credit of: $2.50 (x 4 contracts = $1,000).  Then we sold 10 SPX
April 1170 calls
And bought 10 SPX April 1180 calls for a credit:  $1.40 (x 10
contracts = $1,400).  Total net credit and potential profit of
about $2,400.  Maximum profit range is 1075 to 1170.  Safety range
is about 1072.60 to 1177.40.  Maintenance: $10,000

April Position #2 – RUT Iron Condor – 572.92
We sold 10 RUT April 530 puts and bought 10 RUT April 520 puts for
a credit of  $1.10.  Then sold 10 RUT April 610 calls and bought
10 RUT April 620 Calls for a credit of $1.15.  Total net credit of
about $2.25.  Potential profit: $2,250.  Maximum profit range: 530
to 610.  Safety range: 527.75 to $612.25.  Maintenance: $10,000.

April Position #3 – XAU Iron Condor - $102.54
Sold 10 XAU April 95 puts and bought 10 XAU April 90 puts for a
credit of  $.85 (x 10 contracts = $950).  Sold 10 XAU April 110
puts and bought 10 XAU April 115 puts for a credit of $.55 (x 10
contracts = $550).  Total net credit: $1.40.  Potential profit:
$1,400.  Maximum profit range $95 to $110.  Safety range: $93.60
to $111.40.

April Position #4 – OSX Calendar Spread Plus – $100.82
OSX is the Oil Index.  This is a play on the common belief that
oil prices will continue to move up over the next month or two.
Bought 10 OSX June $115 calls (36 delta) and sold 10 OSX April
$115 calls (23 delta) at a cost of  $2.15 ($2,150).

We also put on an April $100/$90 bull put spread and took in an
extra $.70 ($700) to reduce the cost basis to $1.45 ($1,450).

QQQ ITM Strangle – Ongoing Long Term -- $35.22
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We make
money by selling near term puts and calls every month.  Here's
what we've done so far:
Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts
and calls – credit of $1,150. Dec. $34 puts and calls – credit of
$1,500.  Jan. $34 puts and calls – credit of $850.  Feb. $34 calls
and $36 puts – credit of $750. Mar. $34 calls and $37 puts –
credit of $1,150. Apr. $34 calls and $37 puts – credit of $750
Total credit: $8,050.

Note:  We haven't included the proceeds from this long term QQQ
ITM Strangle in our profit calculations.  It's a bonus!  And it's
a great cash flow generating strategy.

ZERO-PLUS Strategy.  OEX – 543.52
In my Feb. 8th column, I outlined a strategy based on an initial
investment of $100,000.  $74,000 was spent on zero coupon bonds
maturing in seven years at a value of $100,000.  The principal
$100,000 investment is guaranteed.  We’re trading the remaining
$26,000 to generate a “risk free” return on the original

Long Term: Bought 3 OEX Jan. 2006 540 calls @ $81 (x 300 =
March: Sold 3 OEX 585 calls @ $3.10 (x 300 = $930)
March: 535/525 Bull Put Spread for credit of $1.10 (x 300 = $330).
Bought back 3 OEX March 585 calls for $.10 & sold 3 of March 560
calls for $1.35.  A credit of $1.25 x 300 = $375.00.  Bought back
March 560 calls for $.15, locked in profit of $120 x 3 = $360.

April: New Positions
OEX Bull Put Spread - $544.31.  We sold 5 OEX April 515 puts and
bought 5 contracts of April 505 puts for credit of  $.90 (x 5
contracts = $450).
We sold calls against long 540 calls. Sold 5 OEX April 570 calls
for $1.35 (x 5 contracts = $675).

New cash position is $2,640 plus unused $1,700 = $4,340.

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational plays or our strategies?  To find
past CPTI (Mike Parnos) articles, first look under "Education" on
the OI home page and click on "Traders Corner."  For more recent
columns, you can look under “Strategies” and click on
“Combinations.”  They're waiting for you 24/7.

Happy Trading!
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In
trading, as in life, it’s not the cards we’re dealt. It’s how we
play them. Your questions and comments are always welcome.

Mike Parnos
CPTI Master Strategist and HCP

Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the
numbers represented here may have been achieved or beaten by our
readers, we make no representation that any individual investor
achieved these exact results. The tracking for the plays listed in
this section uses closing prices for the day the newsletter is
published and it is not meant to imply that any reader actually
received those prices or participated in these recommendations.
The portfolio represented here is hypothetical and for investment
education purposes only. It is only an illustration of what type
of gains a knowledgeable investor might receive utilizing these


Leigh Stevens is a weekly contributor to OptionInvestor.com and is
the author of Essential Technical Analysis from John Wiley & Sons
(www.essentialtechnicalanalysis.com).  He is former PaineWebber
Senior Technical Analyst with both a futures and equities
background.  Leigh covered Stock Index futures at PaineWebber, now
UBS. After managing technical analysis products for Dow Jones
Telerate, he authored a stock market column for CNBC.com while
serving as a Cantor Fitzgerald Vice President, working with the
Equities Trading Division.

Spotting Index Tops and Bottoms
By Leigh Stevens

Simple but powerful techniques exist to spot intermediate to major
tops setting up in the Stock Indexes.  Three patterns involve 1.)
Moving Average Envelopes, 2.) Price/Oscillator Divergences (using
the RSI), and 3.) a 10-day average of NYSE daily Up Volume for
bottoms. The first two work with all Indices and the third is used
for the S&P and Dow.

There are two principle ways of trading stock indexes in a
leveraged way: using stock index futures and using stock index
options, such as the S&P 500 (SPX), the S&P 100 (OEX) and the Dow
Jones Index (DJX) options.  The futures markets do not offer as
much leverage as the stock index options can involve (plus offers
limited risk) but avoids problems inherent in dealing with the
time premiums involved in buying stock index calls and puts.  The
fact that premiums for index options get quickly inflated in a
strongly trending and/or volatile market means that astute market
timing tends to be even more critical.  It is common to be right
on the trend in index options but not make any money if inflated
index options premiums erode faster than the market moves in the
direction chosen.

I found early on that in index futures like the S&P I could buy
and sell (short) breakouts and make money but lose on the trade
when buying call or put options like the OEX, after the breakout
move occurred.  I learned that to make a consistent and optimal
profit I needed to anticipate the price and time frame when the
market was making a significant top or bottom and buy index
options ahead of market reversals.  This way the premiums were
reasonable and I could more comfortably hold a position for some
time when a move was especially strong.

I share three situations with technical indicators that may not be
seen frequently, but when they do occur, are highly advantageous
for purchasing index call and put options.  This is not the only
way to trade or the only techniques I use to spot market trends or
reversals, but the following three do often highlight high
potential trades ahead of trend reversals.

These techniques are quite simple and actually offer a protection
against them being "over-used" so to speak.  There is a tendency
not to believe overly simple techniques.  Does everyone do what
Warren Buffet does?  Most of us don't have the patience for
waiting just for the right time and price (cheap) that he does.
Yet it's not that complex, but he does to buy and sell ahead of
the crowd – you buy em when nobody wants em or mostly so.

1. Stock Indexes and Moving Average Envelopes -
I am speaking about simple moving average trading envelopes or
"bands".  John Bollinger, in his Bollinger Bands, factors in
volatility and standard deviation, but I primarily use what is
called the "envelope" study or indicator.  A simple moving average
(not smoothed) of the close is selected as a value against which
is plotted an upper and lower line set at some percentage above
and below that average.  I've found over many years that the S&P
indices [both the 500 (SPX) and the 100 (OEX)], as well as the Dow
Industrials will tend to trade around 3-4 percent above or below a
21-day moving average on the Daily charts.

I use a 21 "length" setting for the moving average and don't use
the envelope technique on hourly or intraday time frames – I have
used it for the bigger trend picture.  The stock market, as
represented by the S&P 500 Index in an “average” market cycle or
in a normal trend period, will tend to see prices fluctuate in a
range that is approximately 3-4 percent above or below the 21-day
moving average. As we are interested in also seeing the high and
low extremes relative to the envelope lines, bar or candlestick
charts are used exclusively.

In a strong trend, the band or envelope parameters will expand to
4-5% or more to contain within the envelope lines most of the
highs and lows.  I demonstrate and use moving average envelopes
for the Indexes only.  The technique works for the Nasdaq also,
especially the Composite, but the envelopes are typically wider,
such as 5-6%. Due to the bouts of volatility associated with
earnings, business developments, etc., moving average envelopes in
individual stocks tend to work less consistently than for the
indexes, which "smooth" out the individual stock "hiccups" and

Seven characteristics categorize the tendencies of market action
and behavior that are commonplace relative to moving averages and
their upper and lower envelopes in the stock indexes:

1. Determination of what moving average to use was found by what
“works” in indexes most often.  The biggest variation is with the
percentages above and below this line.  I use a 21-day moving
average for daily charts in all stock indexes.  21 is part of the
Fibonacci number series: 1,3,5, 8, 13, 21, etc.

2. A common starting point for the index envelope percentage is 3%
in the S&P and Dow.  The envelope size varies from trend to trend
and market to market.  For an envelope size that “works” – for
example, the percent figure that contains within it 90% of the
price swings above and below the moving average -- start with 3%
and expand or contract the envelope size as is appropriate for the
dominant trend.

3. If the last high was 3% above the moving average, I anticipate
the next significant downswing low as being 3% under the average
as will be seen in my chart example.  The upper and lower lines
also suggest the price area is where the market is at an extreme
relative to how it trades a majority of the time, during periods
of low volatility and in a trading range market.

4. If prices cross above the moving average, assume that this line
may act as support on pullbacks and the next rally will have the
potential to advance to the upper envelope line. If the stock or
other item is in an uptrend, the envelope line may act as a rising
line of resistance for multiple rallies – the rally tops will
often then hug or move up along the upper envelope line. However,
the rate of increase will typically slow at that point - the index
will not always reverse on a move to or above the upper envelope

5. If prices cross below the center moving average, assume that
this line will act as resistance on any rebounds and that downside
potential is to the lower envelope line.  If the trend is down,
the envelope line may act as a falling support line and there may
be multiple downswings that touch or hug and move down along the
lower envelope line.

6. In an uptrend, look for confirming reasons to buy declines when
the lower envelope line is reached – this area will both define
where the stock or other item is both "oversold" and the specific
price area that offers a opportune buying opportunity.  If in a
downtrend, sell advances to the upper envelope line – this area
will help define where the market is both "overbought" and the
specific price area that may be most opportune as a selling point.

7. Even if there is an extension of a price swing to above or
below the envelope lines, the probability for a significant
further move in that direction is limited, especially if the price
swing is a counter-trend move relative to the dominant trend.  At
a minimum, there should be a reaction (a countertrend move) once
prices are above or below the envelope line in question.

A trader looking for initial or additional entry buy points in
index calls often improve their risk to reward trade potential if
they wait for prices to dip to the lower envelope line, especially
when other key indicators line up to confirm that the market is
ripe for a trend reversal.  Put buyers should do the reverse and
be watchful for signs of rally failures or resistance when the
index approaches to or above the upper envelope, especially when
other key indicators are suggesting a possible trend reversal as
we will be seen next in Figure 1 –

Number one in my analysis of the trend and market condition for
the Stock Indexes is to study the moving average envelope
indicator, such as shown in Figure 1 of the S&P (SPX) chart. The
envelope percentage is set at 3.5%.  After the first advance to
the upper envelope line in early-2004, SPX repeatedly hit
resistance in the 1155-1160 area and did not again advance to the
upper envelope line, suggesting waning upside momentum.

The subsequent formation of a "line" of resistance and a possible
double and triple top was not enough to convince most market
pundits that the market was ripe for a fall.  The sideways trading
range could also be viewed as a consolidation before a next up
leg. Something more was needed on a technical basis which is my

2. Oscillator and Price Confirmations and Divergences –
Remember the Dow Theory?  Charles Dow suggested that the averages
should "confirm" each other – if the Industrials went to a new
high, the Transportation average should also and vice versus on
new lows being made by either average.  If they both didn’t move
to a new high or low, a market reversal might be setting up.

Today we have the idea that certain indicators, especially
oscillator type indicators like the RSI, should also move to a
peak or new low along with prices. If not, a bullish or bearish
"divergence" was suggested which could be occurring as a
forewarning of a trend reversal.

That the repeated S&P rally failures of late-January through
early-March (2004) were put buying opportunities, was strongly
suggested by an ongoing and bearish price/RSI "divergence": With
each high in the same area (or marginally higher), the RSI was
trending lower, as can be seen in the Figure above as highlighted
by the downward sloping trendline drawn though the RSI peaks.

The reverse situation then developed with the lower downswing low
occurring in late-March – the RSI makes a slightly higher high to
form a bullish price/RSI divergence.  The fact that the SPX was at
a second touch to its lower envelope line was a compelling related
confirmation of this index being at an extreme – not only showing
an oversold condition like a Stochastic or RSI oscillator might
suggest but also giving an idea of an opportune price area for
buying S&P Index calls.

3. Up Volume Indicator –
Volume will often "precede" price.  For example, before a market
gets to or near a price area that will be perceived as offering
“value”, especially a market that is in transition, there will be
a contraction of trading activity (volume) to a similar and
reoccurring level and this occurrence will tend to precede the
most substantial and sustained market rallies.

The most significant volume figure is up or advancing volume –
this is a count of all shares bought on upticks, or at a price
higher than the preceding transaction.  Up volume is a true test
of buying interest as it reflects willingness to "pay up" for
stocks.  I use a 10-day moving average of advancing volume for
both NYSE and Nasdaq.  What is shown on the Figure above is for
the NYSE.

There is a tendency for any multimonth or multiyear period for
there to be a "base" line for this contraction of Advancing or Up
Volume (UVol) on a 10-day average (blue line in the lower part of
the chart in the Figure) that will tend to be associated with
market bottoms.  In Figure 1, this baseline figure is when the 10-
day NYSE Up Volume average dips to around 525-550 million shares.
This baseline level varies from time to time depending on the
market cycle - the number itself is not a constant, only the
tendency for a contraction to a similar reoccurring area that
occurs just ahead of or concurrent with significant lows.

Particular levels of declining volume on a 10-day average basis,
is not especially predictive for market tops, nor does the market
peak as reliably at a particular level of up volume, unlike the
case for market bottoms.  However, a key consideration is to
distrust repeated rally attempts or failures to surmount
resistance that occur along with declining Up Volume average for
the exchange involved.  At tops, when the 10-day advancing volume
line turns down and then keeps declining on balance, the downward
trend of the line is a good secondary indication that prices will
also fall at some point, as was the case when the S&P finally
broke sharply in March as seen in the Figure above.

Note the strong and sustained advance that developed after the 10-
day Up Volume average  declined to the baseline area defined by
the green level line in the chart above, in late-November 2003,
when it also made an approximate double bottom low relative to the
month before  – looking for confirmation by multiple indicators
and patterns is my timing and trading motto.


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The Option Investor Newsletter                   Sunday 03-28-2004
Sunday                                                      5 of 5

In Section Five:

Naked Puts: A Few Bullish Naked Puts
Spreads/Straddles/Combos: A Lackluster Finish...


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Stock Option Principals





Stock   Strike Strike Cost   Current   Gain    Max    Simple
Symbol  Month  Price  Basis   Price   (Loss)  Yield   Yield

APPX     APR    32    32.48   41.07    0.90   5.98%   2.77%
NEOL     APR    15    14.65   18.19    0.35   5.57%   2.39%
OSTK     APR    25    24.30   29.82    0.70   7.25%   2.88%
APPX     APR    33    32.73   41.07    0.65   5.76%   1.99%
ASKJ     APR    25    24.15   34.53    0.85   9.04%   3.52%
CLZR     APR    11    11.07   12.96    0.17   4.72%   1.54%
JNPR     APR    22    21.85   25.37    0.65   7.82%   2.97%
NEOL     APR    15    14.65   18.19    0.35   6.74%   2.39%
PDII     APR    22    21.80   24.80    0.70   8.31%   3.21%
SWIR     APR    22    22.15   33.81    0.35   5.03%   1.58%
APPX     APR    33    33.03   41.07    0.35   4.71%   1.06%
BRCM     APR    35    34.55   38.86    0.45   4.64%   1.30%
ELN      APR    15    14.65   19.65    0.35   9.84%   2.39%
OSTK     APR    22    22.25   29.82    0.25   4.47%   1.12%
PCLN     APR    20    19.75   26.00    0.25   4.90%   1.27%
SYMC     APR    40    39.40   46.26    0.60   4.89%   1.52%
XMSR     APR    25    24.40   27.63    0.60   7.74%   2.46%
YHOO     APR    40    39.40   47.13    0.60   5.13%   1.52%
APPX     APR    35    34.45   41.07    0.55   6.27%   1.60%
ASKJ     APR    25    24.55   34.53    0.45   7.51%   1.83%
CMC      APR    30    29.60   30.77    0.40   4.72%   1.35%
CSGS     APR    15    14.65   16.52    0.35   7.65%   2.39%
ECLG     APR    17    17.20   20.26    0.30   6.26%   1.74%
JILL     APR    17    17.15   19.91    0.35   6.38%   2.04%
MGAM     APR    22    22.05   25.52    0.45   6.80%   2.04%
PBY      APR    25    24.50   26.70    0.50   5.97%   2.04%
SUPG     APR     7     7.15   12.68    0.35  16.86%   4.90%
AGI      APR    30    29.55   33.45    0.45   5.39%   1.52%
ASKJ     APR    25    24.60   34.53    0.40   6.62%   1.63%
ENDP     APR    20    19.75   22.67    0.25   4.98%   1.27%
NFLD     APR    12    12.15   15.00    0.35  12.17%   2.88%
PBY      APR    25    24.55   26.70    0.45   6.18%   1.83%
PLMO     APR    15    14.65   18.65    0.35   9.66%   2.39%
RSAS     APR    15    14.55   16.75    0.45  10.23%   3.09%
SHFL     APR    40    39.60   47.06    0.40   4.13%   1.01%
SYMC     APR    40    39.35   46.26    0.65   5.79%   1.65%

Positions in Amylin (NASDAQ:AMLN) and Nektar (NASDAQ:NKTR),
although positive, have been closed to limit potential losses.


All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.


The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


ASCA - Ameristar Casinos  $33.58  *** Hot Sector! ***

Ameristar Casinos (NASDAQ:ASCA) is a multi-jurisdictional owner,
developer, and operator of casinos and hotel and entertainment
facilities in local markets.  The company owns six properties in
five markets located in Missouri, Iowa, Mississippi and Nevada
catering to customers primarily residing within a 100-mile radius
of its properties.  These properties are Ameristar St. Charles,
Ameristar Kansas City, Ameristar Council Bluffs, Ameristar
Vicksburg and The Jackpot Properties, which are comprised of
Cactus Pete's Resort Casino and The Horseshu Hotel & Casino.

ASCA - Ameristar Casinos  $33.58

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 30    UWT PF     25    0.30  29.70   4.7%   1.0% *


ASKJ - Ask Jeeves  $34.53  *** Another 2004 High! ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search,
providing consumers with authoritative and fast ways to find
relevant information to their everyday searches.  Ask Jeeves
deploys its search technologies on Ask Jeeves (Ask.com and
Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com).
In addition, to its internet sites, Ask Jeeves syndicates its
monetized search technology and advertising units to a network
of affiliate partners.  The company is based in Emeryville,
California, with offices in New York, Boston, New Jersey, Los
Angeles, London and Dublin.

ASKJ - Ask Jeeves  $34.53

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 30    AUK PF    1760   0.60  29.40   9.7%   2.0% *


ERJ - Embraer-Empresa  $31.53  *** Technical Break-Out? ***

Embraer-Empresa Brasileira de Aeronautica SA (NYSE:ERJ) has grown
from a government-controlled company established to develop and
produce aircraft for the Brazilian Air Force into a firm engaged
in the development, production and marketing of aircraft and
aviation-related structural parts, components and equipment.  The
company focuses primarily on the manufacture of regional aircraft.
It produces aircraft for commercial aviation, military aviation
and corporate aviation and is organized based on the products and
services it offers.  Under this organizational structure, Embraer
operates in four principal segments: regional aircraft, defense
aircraft, corporate jet and other related businesses.

ERJ - Embraer-Empresa  $31.53

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 30    ERJ PF     66    0.60  29.40   8.2%   2.0% *


IMM - Immtech International  $18.50  *** Drug Speculation! ***

Immtech International (NYSE:IMM) is a pharmaceutical company
focused on the development and commercialization of oral drugs
to treat fungal, parasitic, bacterial and viral diseases.  The
company has development programs that include fungal infections,
malaria, tuberculosis, hepatitis, pneumocystis carinii pneumonia
and tropical medicine diseases, including the African sleeping
sickness (a parasitic disease also known as trypanosomiasis) and
leishmaniasis (a parasitic disease that destroys the liver).  One
of its most significant research developments was the discovery
of oral drug delivery technology for dication drugs.  This unique
proprietary technology temporarily masks the positive charges of
the dication, enabling the active compound to move easily across
digestive membranes into blood circulation.

IMM - Immtech International  $18.50

"SPECULATIVE" PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 15    IMM PC     175   0.30  14.70  11.4%   2.0% *
SELL PUT  APR 17.5  IMM PW      60   1.00  16.50  21.6%   6.1%


INSP - InfoSpace  $36.45  *** New Acquisition = Rally! ***

InfoSpace (NASDAQ:INSP) develops and delivers a wireless and
Internet platform of software and application services to a
range of customers that span each of its wireline, merchant
and wireless business units.  Many of the company's products
and application services are offered to its customers, which,
in turn, offer these products and application services to
their customers as their own solutions.  InfoSpace provides
its services across multiple platforms, including personal
computers and non-PC devices.

INSP - InfoSpace  $36.45

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 30    IOU PF    570    0.30  29.70   5.7%   1.0% *


MICC - Millicom Cellular  $19.90  *** Telecom Sector ***

Millicom International Cellular S.A. (NASDAQ:MICC) is a global
telecommunications investor with cellular operations in Asia,
Latin America and Africa.  The company has a number of cellular
operations and licenses in countries around the world and the
group's cellular operations have a combined population under
license of over 500 million people.  In addition, MIC operates
a GSM clearing house, provides high-speed wireless data services
in various countries and has a licenses to develop high speed
wireless data services in other areas.  MIC also has a major
interest in Tele2 AB, an alternative pan-European telecom firm
offering fixed and mobile telephony, data network and Internet

MICC - Millicom Cellular  $19.90

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 17.5  CQD PW    1449   0.60  16.90  15.6%   3.6% *
SELL PUT  APR 18.5  CQD PR     164   0.80  17.95  16.8%   4.5%


MNST - Monster Worldwide  $24.55  *** On The Rebound! ***

Monster Worldwide (NASDAQ:MNST), formerly known as TMP Worldwide,
is a global provider of career solutions.  The company, through
its flagship Interactive product, Monster (www.monster.com), is
engaged in online career management. Monster Worldwide is also a
worldwide recruitment advertising agency through its Advertising
& Communications division and a yellow pages advertising agency
through its Directional Marketing division.  On March 31, 2003,
the company completed the spin-off of the common stock of Hudson
Highland Group, previously the eResourcing and Executive Search
divisions of Monster Worldwide.

MNST - Monster Worldwide  $24.55

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 22.5  BSQ PX     406   0.30  22.20   6.0%   1.4% *
SELL PUT  APR 25    BSQ PE     186   1.30  23.70  18.0%   5.5%


TKTX - Transkaryotic Therapies  $18.10  *** A Big Day! ***

Transkaryotic Therapies (NASDAQ:TKTX) is a biopharmaceutical
firm developing therapeutics for the treatment of rare genetic
diseases caused by protein deficiencies.  TKTX has received
approval to market and sell Replagal (agalsidase alfa), an
enzyme replacement therapy for the long-term treatment of
patients with Fabry disease, in 25 countries, principally in
Europe.  Among the products the company has developed or is
developing are therapeutics for the treatment of rare diseases
such as Hunter Syndrome and Gaucher Disease.  Another product,
Dynepo for annemia related to chronic renal failure, has been
approved for European marketing.

TKTX - Transkaryotic Therapies  $18.10

"SPECULATIVE" PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  APR 15    UFT PC     152   0.50  14.50  17.3%   3.4% *
SELL PUT  APR 17.5  UFT PW      25   1.45  16.05  28.7%   9.0%



A Lackluster Finish...
By Ray Cummins

The broader equity markets ended the week almost unchanged as
investors sold for profits in the wake of Thursday's rally.

The Dow Jones Industrial Average slid 5 points to close at 10,212
while the NASDAQ Composite fell 7 points to 1,960.  Both indices
were affected by losses in technology giants Intel (NASDAQ:INTC)
and Microsoft (NASDAQ:MSFT).  The Standard & Poor's 500 Index was
a point lower at 1,108, with oil-related shares among the biggest
drag on the market.  Trading was light, with 1.32 billion shares
changing hands on the New York Stock Exchange while 1.58 billion
shares were traded on NASDAQ.  Advancers outnumbered decliners 6
to 5 on the Big Board, however breadth was roughly even on the
technology exchange.  Bond prices drifted lower with the 10-year
note down 8/32 while its yield rose to 3.73%.


The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.



Stock   Strike Strike Cost   Current   Gain    Max    Simple
Symbol  Month  Price  Basis   Price   (Loss)  Yield   Yield

SEAC     APR    20    20.40   14.80    0.40   7.86%   1.96%
CECO     APR    55    55.65   55.16    0.49   4.22%   1.17% *
ERES     APR    35    35.30   28.31    0.30   4.73%   0.85%
FARO     APR    30    30.40   22.54    0.40   7.33%   1.32%
AFCI     APR    25    25.50   21.66    0.50   8.84%   1.96%
FLSH     APR    22    22.75   19.50    0.25   5.62%   1.10%
ADTN     APR    35    36.30   29.93    0.80   9.56%   2.20%
DISH     APR    35    35.65   33.70    0.65   6.34%   1.82%
MTLM     APR    40    40.60   34.65    0.60   9.68%   1.48%
NIHD     APR    35    35.30   33.90    0.30   4.43%   0.85%

Conservative traders should consider closing the position in
Career Education (NASDAQ:CECO) to limit potential losses.  NII
Holdings (NASDAQ:NIHD) is on the "watch" list.


Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L   Status

APOL    77.82  85.94   APR  65  70   0.60  69.40   0.60   Open
KBH     78.71  78.71   APR  65  70   0.55  69.45   0.55   Open
COF     73.50  73.65   APR  60  65   0.50  64.50   0.50   Open
SYMC    44.64  46.26   APR  37  40   0.35  39.65   0.35   Open
DNA    106.82 103.64   APR  90  95   0.60  94.40   0.60   Open
FDX     71.59  72.79   APR  65  70   0.85  69.15   0.85   Open
LLL     56.67  57.92   APR  50  55   0.50  54.50   0.50   Open
TASR    61.80  68.98   APR  45  50   0.60  49.40   0.60   Open

L/P = Long Put  S/P = Short Put  CB = Cost Basis  G/L = Gain/Loss

Hughes Supply (NYSE:HUG) has previously been closed limit losses.
Beazer (NYSE:BZH) remains on the "watch" list.


Symbol  Pick   Last   Month L/C S/C Credit  C/B    G/L   Status

DISH    35.50  33.70   APR  42  40   0.30  40.30   0.30   Open
NVLS    31.15  30.97   APR  37  35   0.35  35.35   0.35   Open
VSEA    40.85  40.09   APR  50  45   0.60  45.60   0.60   Open
COGN    29.54  32.32   APR  35  32   0.35  32.85   0.35  Closed
SFA     31.96  31.69   APR  40  35   0.55  35.55   0.55   Open
BBBY    39.04  39.39   APR  45  42   0.25  42.75   0.25   Open
MSTR    52.64  52.01   APR  65  60   0.60  60.60   0.60   Open
NTLI    53.12  55.05   APR  65  60   0.60  60.60   0.60   Open
SINA    35.96  37.59   APR  45  40   0.70  40.70   0.70   Open

L/C = Long Call  S/C = Short Call  CB = Cost Basis  G/L = Gain/Loss

The bearish spread on Adobe (NASDAQ:ADBE), although positive, has
been closed to limit losses.  Cognos (NASDAQ:COGN) is a candidate
for "early exit" after Friday's earnings-related rally.


Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

GLBC    13.86  16.90   APR    15    12     1.80    2.50    Open?
SNP     40.74  36.44   APR    40    40     5.70    5.70    Open
CCMP    44.55  44.39   APR    45    45     5.90    5.75    Open
AMX     35.66  38.23   MAY    35    35     3.65    4.30    Open
AIG     74.28  70.19   MAY    75    75     5.60    7.00    Open
SLB     65.13  61.47   MAY    65    65     6.75    6.50    Open

Global Crossing (NASDAQ:GLBC) "gapped" higher at the open on the
first day after the play was offered, however traders who paid a
slightly larger price to enter the straddle were rewarded with a
small short-term gain.  Prices for the new positions in American
International (NYSE:AIG) and Schlumberger (NYSE:SLB), as well as
any potential gains (max. value) for existing straddles, will not
be accurate this month as I did not monitor the portfolio during
my recent absence from the market.


This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.



These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.


DE - Deere & Company  $68.23  *** All-Time High! ***

Deere & Company (NYSE:DE), together with its subsidiaries, makes
and distributes a line of agricultural equipment, a variety of
commercial and consumer equipment and a range of equipment for
construction and forestry.  With its financial services segment,
Deere also finances sales and leases by John Deere dealers of new
and used agricultural, commercial and consumer and construction
and forestry equipment.  It also provides wholesale financing to
dealers of the foregoing equipment, provides operating loans and
finances retail revolving charge accounts.  John Deere is also
engaged in special technologies operations and provides managed
healthcare plans.

DE - Deere & Company  $68.23

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-60.00  DE-PL  OI=1570  ASK=$0.20
SELL PUT  APR-65.00  DE-PM  OI=1820  BID=$0.70
POTENTIAL PROFIT(max)=12% B/E=$64.45


FFIV - F5 Networks  $31.87  *** The Uptrend Resumes! ***

F5 Networks (NASDAQ:FFIV) provides a range of integrated products
and services to manage, control and optimize Internet traffic.
FFIV's core products, the BIG-IP Controller, the 3-DNS Controller
and the BIG-IP Link Controller, help manage traffic to servers
and network devices in a way that maximizes availability and
throughput.  The company's iControl Architecture integrates its
products and also allows its customers to integrate them with
other third-party products.  FFIV's solutions address elements
required for successful Internet/Intranet business applications,
including high availability, high performance, intelligent load
balancing, fault tolerance, security and efficient manageability.

FFIV - F5 Networks  $31.87

PLAY (less conservative - bullish/credit spread):

BUY  PUT  APR-25.00  FLK-PE  OI=557   ASK=$0.20
SELL PUT  APR-30.00  FLK-PF  OI=1512  BID=$0.95
POTENTIAL PROFIT(max)=17% B/E=$29.25


MRVL - Marvell Technology  $42.67  *** In A Trading Range? ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.

MRVL - Marvell Technology  $42.67

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-37.50  UVM-PU  OI=782   ASK=$0.25
SELL PUT  APR-40.00  UVM-PH  OI=2450  BID=$0.55
POTENTIAL PROFIT(max)=14% B/E=$39.70



Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.


The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.


BRL - Barr Laboratories  $46.65  *** Next Leg Down? ***

Barr Laboratories (NYSE:BRL) is a specialty pharmaceutical firm
primarily engaged in the development, manufacture and marketing
of generic and proprietary prescription pharmaceuticals.  The
company manufactures and distributes more than 100 different
dosage forms and strengths of pharmaceutical products in core
therapeutic categories, including oncology, female healthcare
(hormone replacement and oral contraceptives), cardiovascular,
anti-infective and psychotherapeutics.  In addition, the company
has a proprietary, novel vaginal ring drug delivery system it is
using to develop products intended to address a variety of female
health issues and unmet medical needs.

BRL - Barr Laboratories  $46.65

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  APR 50    BAW DJ     104   0.40  50.40   4.1%   0.8% *
SELL CALL  APR 47.5  BAW DV     154   1.70  48.33  13.4%   3.5%


SCHN - Schnitzer Steel  $28.15  *** Premium-Selling Only! ***

Schnitzer Steel Industries (NASDAQ:SCHN) collects, processes and
recycles metals by operating a metals recycling business in the
United States.  The company also owns a chain of self-service
auto parts stores in the United States, operating under the name
of Pick-N-Pull, and is also a maker of finished steel products at
its technologically advanced steel mini-mill.  As a result of its
vertically integrated business, Schnitzer is able to transform
obsolete or wrecked auto bodies and other unprocessed metals into
finished steel products.  In addition, it is a partner in joint
ventures that are either in the metals recycling business or are
suppliers of unprocessed metals.  The company owns interests in
five joint ventures that are engaged in buying, processing and
selling primarily ferrous metal.  Another joint venture is an
industrial plant demolition contractor that dismantles industrial
plants, performs environmental remediation and sells recovered
metals and machinery.

SCHN - Schnitzer Steel  $28.15

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  APR 33.37 SNQ DV      0    0.30  33.68   7.6%   0.9% *
SELL CALL  APR 30    SNQ DF      0    0.80  30.80  12.5%   2.6%



All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.


AFCO - Applied Films  $27.85  *** Sell-Off In Progress! ***

Applied Films (NASDAQ:AFCO) is a provider of thin-film deposition
equipment to the flat panel display industry, the architectural,
automotive, solar glass and web packaging industry.  The firm's
high-volume, large-area deposition systems are used by customers
to deposit thin-films that enhance the material properties of the
base substrate.  These thin-films provide conductive, electronic,
reflective, filter, barrier and other properties that become
critical elements of the composition of its customers' products.
Additionally, Applied Films sells coated glass substrates to the
FPD industry.  These products are used as a component in the
manufacturing of liquid crystal displays.

AFCO - Applied Films  $27.85

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-35.00  UOF-DG  OI=117  ASK=$0.25
SELL CALL  APR-30.00  UOF-DF  OI=44   BID=$0.75
POTENTIAL PROFIT(max)=12% B/E=$30.55


CAM - Cooper Cameron  $43.90  *** Oil Service "Bears" Only! ***

Cooper Cameron (NYSE:CAM) is an international manufacturer of oil
and gas pressure control equipment, including valves, wellheads,
controls, chokes, blowout preventers and assembled systems, for
oil and gas drilling, production and transmission used in onshore,
offshore and subsea applications.  Cooper also makes centrifugal
air compressors, gas compressors and turbochargers.  Its primary
operations are organized into three segments: Cameron, Cooper
Cameron Valves and Cooper Compression.

CAM - Cooper Cameron  $43.90

PLAY (less conservative - bearish/credit spread):

BUY  CALL  APR-50.00  CAM-DJ  OI=33    ASK=$0.15
SELL CALL  APR-45.00  CAM-DI  OI=1101  BID=$0.75
POTENTIAL PROFIT(max)=15% B/E=$45.65


Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.


BSTE - Biosite  $30.63  *** Probability Play ***

Biosite (NASDAQ:BSTE) is a provider of novel, rapid medical
diagnostics that improve a physician's ability to diagnose
critical diseases and health conditions.  The company focuses
on disease categories that are in need of improved diagnosis
and monitoring, and has adopted a strategy that encompasses the
diagnostic continuum from protein validation to point-of-care
diagnostics.  Through combined expertise in diagnostic discovery
and commercialization, Biosite is able to select large market
opportunities, access potential markers of disease, identify
proteins with high diagnostic utility, apply validated disease
markers to advanced testing platforms, bring products to market
and educate physicians and other clinicians on new approaches
to diagnosis, thereby benefiting patients.

BSTE - Biosite  $30.63

PLAY (speculative - neutral/debit straddle):

BUY CALL  JUL-30.00  BQS-GF  OI=520  ASK=$3.40
BUY PUT   JUL-30.00  BQS-SF  OI=356  ASK=$2.80


MKSI - MKS Instruments  $23.10  *** Earnings Speculation ***

MKS Instruments (NASDAQ:MKSI) is a provider of instruments,
components and subsystems that measure, control, power and
monitor critical parameters of semiconductor and other advanced
manufacturing process environments.  The company is organized
into three product groups: Instruments and Control Systems,
Power and Reactive Gas Products and Vacuum Products.  The
company's products are derived from its core competencies in
pressure measurement and control; materials delivery; gas and
thin-film composition analysis; vacuum technology; power and
reactive gas generation; and control and information management.
The company's quarterly earnings report is due April 20, 2004.

MKSI - MKS Instruments  $23.10

PLAY (speculative - neutral/debit straddle):

BUY CALL  JUL-22.50  QQB-GX  OI=48  ASK=$2.85
BUY PUT   JUL-22.50  QQB-SX  OI=73  ASK=$2.10






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