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Daily Newsletter, Monday, 03/29/2004

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The Option Investor Newsletter                   Monday 03-29-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Two out of Three
Futures Wrap: See Note
Index Trader Wrap: Back to March's "Max Pain"


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     03-29-2004            High     Low     Volume Advance/Decline
DJIA    10329.63 +116.66 10350.45 10212.91 1.65 bln   2139/ 710
NASDAQ   1992.57 + 32.55  1996.23  1975.43 1.69 bln   2232/ 899
S&P 100   550.46 +  6.94   551.65   543.52   Totals   4371/1609
S&P 500  1122.47 + 14.41  1124.37  1108.06 
RUS 2000  583.39 + 10.47   583.47   572.92
DJ TRANS 2885.91 + 50.01  2891.38  2837.86
VIX        16.50 -  0.83    17.17    16.29
VXO        16.23 -  0.98    16.70    15.80
VXN        23.16 +  0.12    23.66    22.74
Total Volume 3,761M
Total UpVol  3,197M
Total DnVol    506M
52wk Highs     359
52wk Lows       28
TRIN          0.36
PUT/CALL      0.67
*******************************************************************

Two out of Three
by James Brown

Buyers returned refreshed and ready for a new week and sent the 
Dow Industrials to their second triple-digit gain in the last 
three sessions.   The NASDAQ and the S&P 500 joined the rally 
with the S&P moving back into the green for 2004.  Fueling the 
fire was another round of upgrades for blue chip stocks and more 
merger and acquisition news.  

The rally was fairly widespread.  Oil service and homebuilders 
were the only groups to turn lower and then only with mild 
losses. The buying was very strong in tech-related sectors.  The 
GHA hardware index charged higher for a 2.35% gain after Hewlett 
Packard (HPQ) got some positive coverage from Barron's magazine 
over the weekend.  HPQ, a Dow component, jumped 3.6% on the 
session as investors speculated that the company would use its 
$6.5 billion in cash to bump up its cash dividend or its stock 
buyback program.  Networking stocks (NWX +1.92%) enjoyed a strong 
session after President Bush pledged to "universal, affordable 
access" to Internet broadband by 2007.  His rival Kerry has 
hinted at similar ideas.  

The semiconductor sector continued its bullish push higher with a 
1.73% gain in the SOX after the CEO for STMicroElectronics (STM) 
told the press he expects worldwide chip sales to jump 20% in 
2004.  This is not a new prediction.  The Semiconductor Industry 
Association is forecasting 19% growth and the Gartner group is 
forecasting more than 20% but it doesn't hurt investor sentiment 
to hear the positive forecast again.  Unfortunately, while Monday 
was a strong session the SOX remains just under resistance at the 
490 level.  

Tech stocks were also boosted by a 6.2% rally in Qualcomm (QCOM).  
The $3.85 jump to $65.61 sent QCOM to new 2 1/2 year highs after 
Schwab SoundView upgraded the stock from "neutral" to "out 
perform" and raised their price target from $55 to $75.  Schwab 
believes that QCOM has significantly improved its position in the 
handset market and is gaining on the industry leader Nokia (NOK).  
Meanwhile blue chips enjoyed a number of positive upgrades with 
General Electric (GE) sent higher after UBS raised their outlook 
for the stock.  Beverage-maker Coca-Cola (KO) was upgraded to 
"out perform" by Bear Stearns while Prudential upgraded Citigroup 
(C) to "overweight".  

It wouldn't be a Monday without some merger news and today didn't 
disappoint.  Lyondell Chemical (LYO) declared that it would buy 
Millennium Chemicals (MCH) for $1 billion in stock.  According to 
the news this would make the combined company the No 3 chemical 
producer in N. America behind Dow Chemical (DOW) and DuPont Co 
(DD).  Shares of LYO dropped 3.45% while MCH gapped higher to end 
the day with a 20% gain.  

Amgen Inc (AMGN), the biggest component in the BTK biotech index, 
also got in on the M&A activity when it announced it would buy 
the remaining 79% of Tularik (TLRK) it didn't already own.  AMGN 
will spend $1.3 billion in stock, which values TLRK at $25 per 
share.  Tularik doesn't currently have any drugs on the market 
but is in the late stage clinical trials in a treatment for liver 
cancer.  Shares of TLRK rallied 44% to $24.53.  AMGN added 2.5% 
by the close and the BTK rose 2.32% while the DRG drug index 
climbed 1.47%. 

Overall it was a very positive session.  Market internals for the 
U.S. exchanges showed advancing stocks sprinting past decliners 
3-to-1 on the NYSE and 22-to-9 on the NASDAQ.  Up volume was very 
strong over down volume at 7.7-to-1 on the NYSE and 6.6-to-1 on 
the NASDAQ.  European stocks also reported a very strong day with 
bullish trifecta in the British FTSE, German DAX and the French 
CAC indices.

Technical traders should also be excited to see the bullish 
breakouts over horizontal resistance in the NASDAQ Composite, the 
NASDAQ-100 (NDX) and the Russell 2000.  Now if we can just get 
the NASDAQ composite back above the 2000 level we might really 
send the bears back into hibernation for spring.  Today's rally 
also pushed the GHA hardware index, the INX Internet index and 
the BKX banking index above their 50-dma's.  Currently trading 
right under resistance at their own 50-dma's is the Dow 
Transports (TRAN), the GSO software index, the BTK biotech index, 
the CYC cyclical index and the IUX insurance index.  

The late day bounce from the 10,300 level in the Dow Industrials 
is pretty encouraging.  It would also be great to see the S&P 500 
breakout over the 1125 level.  However, even if we see a little 
bit of profit taking tomorrow, which should not be a surprise 
after the bounce from last week's lows, I think the stage has 
been set for an up week.  Investors are focusing on what should 
be a positive jobs number on Friday and what should be another 
positive earnings season that begins in two weeks.

Chart of the Dow Industrials:

 

Chart of the NASDAQ Composite:

 

Chart of the S&P 500 Index: 

 

Tuesday might be a little quiet with very little corporate 
earnings news and only the Consumer Confidence number that comes 
out after the opening bell.  As long as the confidence number 
isn't a disaster the bullish tone should remain.  Wednesday 
brings the Factory Orders and the Chicago PMI report. 


************
FUTURES WRAP
************

Futures wrap is not emailed due to the excessive number of charts.  
It may be read on the website at this address. 
http://www.OptionInvestor.com/indexes/futureswrap.asp


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

Back to March's "Max Pain"

Stocks extended their recent rebound gains in broad fashion, 
where renewed merger activity and several brokerage upgrades gave 
lift to large cap names like Caterpillar (NYSE:CAT) $79.48 +2.635 
and Citigroup (NYSE:C) $51.32 +2.51%.

Market Snapshot / Internals - 03/29/04 Close

 

Some slight selling before the close still left the major indices 
near their highs of the session, with volume levels at both the 
NYSE and NASDAQ brisk.  The Semiconductor Index (SOX.X) 487.57 
+1.74% started out hot, but seemed to lose some of its bullish 
enthusiasm at mid-session, and was the only equity-based index in 
our WEEKLY Pivot Matrix to not trade its WEEKLY R1.  

Pivot Analysis Matrix - 

 

All equity-based indices saw trade at their WEEKLY R1's with the 
exception of the Semiconductor Index (SOX.X) 487.57 +1.73%.  If I 
were looking for "one sign" in the Pivot Matrix for the current 
bounce to stall, it would be the SOX's inability to trade its 
WEEKLY R1, as it was perhaps the sector to really get the NDX/QQQ 
turning higher last week.  While the QQQ did slip back below its 
WEEKLY R1 by the close, we've been seeing some last-minute 
weakness like this in recent sessions, which really hasn't been 
much of a near-term signal for weakness in the following session.  
If we were to see any short-term profits being taken, then SOX 
Daily S2 and WEEKLY pivot would most likely be support.

Dow Ind. Components - Sorted by PRICE (03/29/04)

 

It seemed like it took forever to write this weekend's Ask the 
Analyst column, but I've highlighted the Title and Symbol of 
those Dow stocks where we looked at their point and figure 
charts.  Those components' Symbols that are squared in PINK are 
those components currently showing a point and figure sell signal 
with their chart.

Intel (INTC) $27.69 +1.13%, which has bounced from an intra-day 
low of $26.03 last Monday, couldn't quite hold a close above its 
still trending lower 21-day SMA in today's trade, but has been 
the biggest percentage gainer among the Dow components the past 5 
trading sessions (5-day Net %).

Caterpillar (NYSE:CAT) $79.48 +2.63% got a strong boost in 
today's trade after broker Baird said it sees significant upside 
to CAT's current quarter.  Baird expects CAT's Q1 EPS to easily 
exceed current consensus of $0.67 per share, with Baird raising 
its estimate to $0.86 from $0.71.  Baird did issue caution on the 
stock, noting that the UAW (United Auto Workers) contract 
deadline is midnight Wednesday, and would hesitate to be a buyer 
of the stock in front of this event.  It may have been the UAW 
note that kept CAT from trading $80.00, which would have been a 
reversing higher point and figure buy signal.

Of those stocks currently showing a sell signal on their point 
and figure charts, CAT has really been the best bullish 
performer, or leader of those that has shown some technical 
weakness, while the 5-day and 10-day percentage changes for Intel 
(INTC) still suggest a stock that may be seeing gains from a 
near-term oversold condition.

Dow Industrials (INDU) Chart - Daily Interval

 

In this weekend's Ask the Analyst column we looked at a point and 
figure chart of the Dow Industrials, where today's trade at 
10,350.00 and session high of 10,350.45 was just enough to negate 
the INDU bearish vertical count of 9,400.  We also looked at 
Caterpillar's (NYSE:CAT) $79.48 +2.63% point and figure chart, 
which looked very similar to the INDU.  If not for Baird's 
caution regarding Wednesday's deadline for the UAW contract, CAT 
may have also been able to trade a reversing higher point and 
figure buy signal.  

It would probably be a stretch to say that the Dow's fortunes for 
further gains hinges on CAT giving a point and figure buy signal, 
but if looking for some type of demand strength from a Dow 
component, then CAT is a good stock to monitor, as it is closest 
to giving a PnF buy signal of those currently having a sell 
signal associated with its chart.

S&P 100 Index (OEX.X) Chart - Daily Intervals

 

Both the OEX and SPX have come back to close VERY near their 
March index expiration "Max Pain" levels of 550 and 1,125 
respectively.  It was the day after their Thursday expiration 
that buyers just seemed to evaporate, and could have tomorrow's 
trade being a make-or-break session for the OEX's current bullish 
momentum.  Financials had a strong session with Citigroup 
(NYSE:C) $51.32 +2.51% (component of BKX.X) trading a new 52-week 
high after Prudential raised its rating on the stock to 
"overweight" from "neutral," while Bank of America (NYSE:BAC) 
$81.04 +1.17% (component of BKX.X and BIX.X) rose back above its 
21-day SMA ($80.60) after RBC Capital Markets raised its rating 
on BAC to "outperform" from "sector perform."

The money-center KBW Banks Index (BKX.X) 100.63 +1.49% did trade 
and close above its 21-day SMA of 100.41, while the more regional 
S&P Banks Index (BIX.X) 347.20 +1.15% still finds its 21-day SMA 
higher at 350, while the Broker/Dealer Index (XBD.X) 700.11 
+1.60% is close to challenging its trending lower 21-day SMA at 
702.35.  

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

 

All indices except for the Oil Service Index (OSX.X) 100.28
-0.53% and Dow Jones Home Construction Index (DJUSHB) 661.30
-0.16% finished with gains in today's session, and has the SPX 
right back at its March's "Max Pain" expiration level of 1,125, 
where the following Friday, it seems as if all buyers had 
vanished for the spring.  

The VIX.X did trade and close back under the 16.78 level today, 
and I think bears that have been looking for a point to initiate 
a bearish put position should be looking to do so when volatility 
is back lower after rising as high as 22.67 last week, when I 
thought put premiums were outrageous.  I would stress partial 
positions at this point, which can always be added to in the 
future.  

The S&P 500 Bullish % ($BPSPX) saw a net gain of 2 stocks to 
point and figure buy signals today, but still reads "bear 
confirmed" status.  If looking for first sign of weakness to 
establish a put trade, I would suggest SPX weakness back below 
1,108.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

 

I thought the QQQ was a good short today, only with the 
observation that the semiconductors (SOX.X), which has been the 
sector that lead the QQQ bounce from the recent lows of $34.00.  
I wanted to be rather protective with a fairly tight stop at 
$36.10 as a move above that level could bring in some short-
covering to $36.43, but where a move back below $35.74 could have 
some "bounce bulls" pulling the plug after a nice rebound from 
the recent lows.

Jeff Bailey


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The Option Investor Newsletter                   Monday 03-29-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: AVID (See Note)
Dropped Calls: None
Dropped Puts: SLAB
Watch List: Bullish Continuation


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

AVID - call play
 No change in our stop but we have been TRIGGERED 
 on the strong early morning rally higher.  The
 bad news is AVID could NOT close above resistance
 at its 200-dma.  Traders might want to wait for
 AVID to rebound again before initiating positions.


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

None


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

Silicon Labs. - SLAB - close: 52.64 change: +0.43 stop: 54.00

Another failed rally was what SLAB had to offer on Monday, with 
the early surge clearly squashed by the close.  Unfortunately, 
this failed rally moved too high for us to hold our stop.  The 
stock blasted higher at the open, spending the bulk of the morning 
trying to hold the $54 level, but in the end fell back, once again 
closing under the 50-dma.  SLAB is still pinned beneath its 
descending trendline (now at $55) and aggressive traders might 
consider holding with a stop just over that level.  But we 
couldn't justify such a wide coverage stop after last week's close 
under $50.

Picked on March 21st at       $51.35
Change since picked:           +1.29
Earnings Date                1/26/04 (confirmed)
Average Daily Volume =      1.50 mln


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

Bullish Continuation
 
Quest Diagnostic - DGX - close: 83.54 change: +1.44

WHAT TO WATCH: Too late for our closed play, DGX finally caught 
fire over the past two sessions and surged through the $83.50 
resistance level on Monday, helped along by the continued strength 
in the broad market.  This looks like a good entry for those still 
watching the stock.  Next resistance will come in near the 
February highs ($85-86), and then we can look for a breakout and 
run towards $90.  Use a stop at $80.50, just under last week's 
low.

Chart=


---

Cardinal Health Inc.  - CAH - close: 68.65 change: +1.30

WHAT TO WATCH: After driving right to the $68 resistance level on 
Friday, shares of CAH continued their strong bullish move today, 
blasting through resistance on solid volume.  This move paves the 
way for a run at next resistance near $71 and possibly the 2001 
highs near $75-76.  Optimal entries will come on a slight pullback 
to test the $67.50-68.00 area as newfound support.  Use a tight 
stop at $66, just under Friday's intraday low.

Chart=


---

Johnson Controls Inc. - JCI - close: 59.70 change: +0.80

WHAT TO WATCH: The past several weeks have seen shares of JCI 
bouncing within its $56-60 trading range, but today's gain has the 
looks of a pending breakout.  Use a trigger over $60 for new 
entries and a stop at $56.  There is the potential for resistance 
to be found at the January highs near $62, but a continued 
breakout above that level will have the stock in new high 
territory.  Target a rally to the $65-66 area.

Chart=


---

Invitrogen Corp. - IVGN - close: 71.02 change: +1.98

WHAT TO WATCH: It looks like we dropped IVGN from the Put list 
just in time, as the stock broke out from its bottom formation on 
Monday and with conviction.  Today's breakout sets the stage for a 
run back to the 50-dma and quite possibly resistance in the $75 
area.  Ideally entries will be taken on a slight dip back to 
confirm new support in the $69-70 area.

Chart=



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

LLY $65.60 - There certainly wasn't any flight to the normally 
defensive Drug stocks in the latest market downturn, and LLY got 
pummeled below strong support at $68, as well as its 200-dma.  A 
bit of a rebound got underway on Monday and this could be setting 
up a nice bearish trade later in the week.  Look for a rollover 
from the $68 level to signal the entry point and target a drop to 
next strong support at $62.

SPW $45.35 - Back and forth, SPW has been bouncing between support 
and resistance for the past month, but it looks like things could 
be set for a bullish resolution.  Monday's rally helped the stock 
clear the mid-March highs and now the only remaining obstacle is 
the top of the first bounce following the gap near $46.75.  Use a 
trigger over that level and target a rally towards the 50-dma and 
200-dma, which are converging near $50.


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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**********

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