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Daily Newsletter, Tuesday, 03/30/2004

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The Option Investor Newsletter                 Tuesday 03-30-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Sleep Walking
Futures Markets: See Note
Index Trader Wrap: A renewed sense of bullishness
Market Sentiment: Window Dressing


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      03-30-2004           High     Low     Volume   Adv/Dcl
DJIA    10381.70 + 52.10 10387.26 10306.15 1.63 bln 2059/1066
NASDAQ   2000.63 +  8.10  2000.68  1981.44 1.60 bln 1893/1205
S&P 100   552.53 +  2.07   552.74   548.91   Totals 3952/2371
S&P 500  1127.00 +  4.53  1127.60  1119.66 
W5000   11037.06 + 54.50 11039.40 10956.20
SOX       487.03 -  0.50   487.57   478.22
RUS 2000  589.40 +  6.01   589.41   582.14
DJ TRANS 2883.64 -  2.30  2885.77  2862.04   
VIX        16.28 -  0.22    16.80    16.13
VXO (VIX-O)15.99 +  0.03    16.92    15.96
VXN        23.18 +  0.02    23.70    23.04 
Total Volume 3,541M
Total UpVol  2,293M
Total DnVol  1,107M
Total Adv  4433
Total Dcl  2575
52wk Highs  362
52wk Lows    22
TRIN       0.87
NAZTRIN    0.91
PUT/CALL   0.61
************************************************************

Sleep Walking
by Jim Brown

The markets woke up with a hangover this morning after triple
digit gains on Monday and promptly went back to sleep. The
minor wandering movements for the majority of the day could
be seen as traders sleep walking through the session while 
waiting for the floor show to begin tomorrow. With the 
economic calendar light for Mon/Tue the economic overdose 
begins in earnest on Wednesday. 

Dow Chart - Daily

 
Nasdaq Chart - Daily

 

The minor economics for the day included the Chain Store
Sales Snapshot which came in a -1.9% for the week compared
to a minor gain of only +0.2% the week before. Analysts
claim the constantly rising price of gasoline is taking
a painful amount of money from the pockets of consumers. 
This cash drain is hitting retailers where is hurts, right
in the spring product changeover. That extra energy tax
does not appear to be disappearing any time soon. Oil 
closed at $36.12 again after rebounding off the $35 
support level we have seen over the last month. The bounce
was due to conflicting claims that OPEC was still committed
to production cuts to be announced at their meeting on
Wednesday. With global consumption continuing to rise any
production cuts would guarantee even higher prices for oil.
Retailers will have to hold out for the wave of tax refunds
to boost their sagging business and offset this undeclared
energy tax. We will have earnings from Best Buy and Circuit
City before the bell on Wednesday. This could give us a
clue for the present trend but retailers in general have
been upgrading guidance over the last couple weeks. WMT
and TGT both affirmed the high end of guidance just last
week. 

Oil Chart - Daily

 

The only other economic report today was the Consumer
Confidence for March. The consensus had been for a drop to
85.8 from 87.3 in February. The headline number came in 
higher at 88.3 but the really good news was an unusually 
large number of revisions to prior months. February was
revised up +1.2, January +1.2 and December +3.1. These
back month revisions are not really important on a current
basis but it is comforting to see such broad improvements.
With the revisions the March number ended up nearly unchanged
and better than expected. The present situation component
rose just under a point and the future expectations fell
just under a point. Clearly consumers have shaken off the
Madrid bombings and the drop in the market and are holding
their current levels of optimism. Considering the political
mud slinging about the state of the economy this is actually
a bullish sign. It suggests consumers are already glazing
over from the mud fight and may not let the comments depress
them further. Those planning to buy a home rose slightly due
to the lower interest rates but those planning to buy an
auto dropped substantially from 7.2 to 5.1. This is the
lowest level since 1995. 

The positive Consumer Confidence report provided the only
real excitement for the morning and helped pull the markets
back from an opening slump. The bounce was minimal and brief
but it did help erase the negative bias from the Chain Store
Sales. Unfortunately the markets were unable to retain any
momentum and slipped back in their rut to wait for the rest
of this weeks reports. After a triple digit gain on Monday
and an overall bullish tone for the prior three days just 
consolidating at the highs and in positive territory was a
very good sign.

The Dow stagnated just under resistance at 10350 and Nasdaq
seemed to fixate on 1990 as the price magnet for the day. 
The Dow was never in danger but the Nasdaq was crippled
from the opening bell due to weakness in the semiconductor
index. The SOX was down -8.75 or -1.8% at midday on weakness
in INTC and AMAT and others. Semis lead techs and techs lead
rallies but the reverse is also true on sell offs. Without
the SOX to lead the Nasdaq was in trouble. The NDX was also
challenged with strong resistance at 1445 and that level
held until well after the 3:PM rebound had started. The
NDX has strong resistance at the 50dma at 1455 and again
at horizontal resistance at 1460. Moving higher is still
going to be a challenge but a break over those levels 
should generate some serious short covering. 

SOX Chart - Daily

 
NDX Chart - Daily

 

The strongest index for the day was the Russell 2000 with
the RUT rebounding to the 590 level and showing almost no
weakness all afternoon. This is very encouraging because
strength in the Russell normally means mutual funds 
entering the market. The Russell broke through resistance
at its 50dma at 582.50 and closed at the high of the day
only 11 points from the magic 600 level. This is a very
key indicator for any broad market rally and suggests the
buyers are back in control on the mutual fund level. ICI
made the formal announcement today that February fund
flows had fallen to only $26.2 billion from January's
$43B. We already knew there was a drop in flows and we
also know there were negative flows two weeks ago. That
suggests March is going to be well under February. This
is even more important when you look at the Russell gains
over the last four days. It bottomed out at 555 last
Wednesday and now it is closing in on 600. As of the close
today we have already rebounded +6.3% from last weeks lows.
For me this is a lot of conviction that this rally has legs
and the funds are behind it. This suggests the negative
cash flows from two weeks ago are history and funds are 
eagerly anticipating a big flow of retirement cash now
that the quarter is over. 

Russell Chart - Daily

 

Another index jumping out in the lead today was the 
Internet Index. The $IIX and the $DOT both broke out of
their January downtrends on leadership by YHOO and EBAY.
This helped offset some of the Nasdaq weakness from the
SOX. The move today capped four days of strong gains and
suggests many shorts got caught by surprise. 

$IIX Internet Index Chart - Daily

 

While the rally continuation today was encouraging there
were still signs that it was primarily window dressing 
and today was the final markup of prices. Now all they 
have to do is hold them at these levels into Wednesday's
close. They will probably try to push them a little higher
tomorrow to get the Dow back into positive territory for
the year. The Dow closed 2003 at 10453 and we are still 
about -72 points below that level. The Nasdaq closed 2003
at 2003 and we are VERY close to going positive for the 
year with today's close at 2000. The S&P-500, the index 
of choice for comparison of mutual fund performance closed
2003 at 1112 and the 1127 print today pushed that index 
back into a gain for the year. The Russell is still the 
winner now up +6% from the 2003 close at 556. 

Bonds started the day stronger on multiple fronts including
short covering in front of Japan's fiscal year end tomorrow.
Traders are afraid of any last minute window dressing in
the currency markets to try and clean up the massive amount
of dollars Japan has been spending to support the Yen. The
Yen is on the verge of hitting a three-year high against 
the dollar and suggests that the intervention suspension
talk may have more truth than Japan would admit. Also
helping bonds were some negative comments about the lack of
jobs on the wires. Bernanke upheld the party line in his
Fedspeak for the day. He said we are 2.5 years into the
recovery but job growth was still distressingly slow. He
also said he expects jobs to recover before year end. This
has been their expectation for quite come time and it has
yet to come to pass. Bonds ended the day selling off their
gains and the ten-year yield closing nearly flat for the 
day. Traders are facing a mountain of economic reports for
the rest of the week and there were adjustments of positions
on both sides. 

Ten-Year Yields - Daily

 


Bonds are set for a volatile session on Wednesday despite
any equity market manipulation by the big money to close
the first quarter in the green. The economic reports on
tap are the Mortgage Application Survey and no surprises
are expected there with interest rates still low. The 
first stumbling block for bonds will be the NY-NAPM. The
report has shown sharply accelerating business conditions
in New York for the last three months. Last months report
hit a new high but there were several components with the
early stages of a reversal. Traders will be looking for 
those to rebound again and hopefully not be worse. The
NY-NAPM number for Feb was 267.2 and there is no estimate
for March. 

Next up is the Chicago PMI and it also dropped in Feb from
a nine year high in January. Nobody complained about the
drop considering the record high in January but another 
continuation of that drop in March could have trader
worry resurfacing that the economic rebound has already 
peaked. Factory Orders are expected to climb +1.5% from
the -0.5% drop in February. Again, a rebound here will 
bring a sigh of relief where another dip or minimal gain
will bring back those recovery fears. 

These reports are small potatoes compared to the ISM on
Thursday and the Jobs report on Friday. The ISM is expected
to drop nearly a point for the second consecutive monthly
decrease and we could really use a positive surprise here.
This is a key indicator of overall economic activity and
two down months will not be greeted warmly. 

The report with the biggest focus for the week is the 
Employment Report for March, which is due out on Friday. 
We all remember the estimate games that have been making
the rounds for the last four months. The general consensus
estimates have been in the 150K range and they have yet
to come close. In recent months whisper numbers have 
risen to the ranks of the insane with up to 350K being
tossed about. Last month it was a little more reserved
with many of the big guessers a little too ashamed to 
show their faces back on the air after missing the mark
so badly for the prior three months. 

Their back! Yes, whether it is the spring weather, warm
sunshine or just an infection of March Madness the numbers
making the rounds are quickly reaching astronomical 
proportions again. The official "consensus" number is 
+100,000 but the official "whisper" number is +125K and
easing toward 150K. The bigger names are shaping up like
this. Lehman has targeted +95K, Goldman Sachs +160K, 
Wachovia +225K, TheStreet.com +250K and the winner at 
+350K was an analyst at Prudential. He said he would 
raise his official estimate to 350K but too many of his
clients were already laughing at him at +175K. Wise move. 

Continuing to raise your public estimates to multiples
of the official consensus after being publicly humiliated
for multiple consecutive months has got to hurt your
credibility. It is like betting on a coin flip and always
calling heads. It will eventually end up heads but you
could lose a lot of money waiting. In Vegas I have seen
fortunes lost on red/black bets on the roulette table. 
I once saw a string of 37 reds spins. Gamblers were 20
deep around the table all trying to bet their bankroll 
on black because it just "had" to hit. That is the way
I see the jobs numbers. Eventually they will be right
but it may not be this month. The proliferation of high
whisper numbers has the potential to depress the market
more than impress it. Once everyone begins to expect a
blowout anything else is a letdown. This is what I expect
for Friday. Even if we hit the official +100K number the
majority of traders will be disappointed. It could be
just like an inline earnings report for Intel. Yawn! 
Is that all?

A four-day rally with the Dow +370 points above last weeks
lows is begging for some consolidation. The abundance of
economic reports ahead should give traders plenty of
excuses for that consolidation. Whether the porridge is
too hot, too cold or just right the expectations are 
already priced into the market. Much of the impact of 
those expectations was aided by the end of quarter window
dressing. Those artificially inflated gains also came on
very low volume where the recent sell offs have been on
stronger than normal volume. On Tuesday the NYSE and
the Nasdaq barely broke 1.6B shares each. This is very
light, almost holiday volume and the third consecutive day
for volume across all exchanges to barely reach 3.5B shares.
This is not a good sign technically. We are also seeing 
an increase in put buying with the index put/call ratio
rising to 1.45 today. This is actually good since it 
shows a level of fear in the marketplace that is not 
being reflected in the VIX which has fallen to 16.29.

This is definitely shaping up to be an exciting week. 
That would be a definite improvement over the Tuesday
sleep walk. If we do manage to go higher from here the
Dow has only minor resistance at 10400 which develops
into major resistance in the 10450-10475 range. This is
exactly where the Dow needs to be to close the quarter
in the green. The Nasdaq is at critical resistance at
2000. It must move higher to break the current downtrend
since January and there is plenty of resistance to battle.
Helping the Nasdaq will be a little breathing room on the
SOX before it hits downtrend resistance just under 500.
An even bigger help to the Nasdaq would be a Russell move
over 590 resistance giving it a clear run to 600. This
more than anything could provide the breakout bias to 
all the indexes. If the funds have already finished 
their end of quarter small cap shopping then extending
the Russell rally could be a challenge. Let's hope they
saved some pocket change to dress the tape at Wednesday's
close.  

With all the economic potholes ahead I would be very leery
of opening any new long positions. We need to see some
consolidation of the current gains and digest the economic
news before moving higher. Next week is plenty of time to
join the party if the rally has legs. Of course economic
blowouts across the board could push us higher but after
four days of our coin turning up heads do your really want
to bet heads again? 
            
Enter Passively, Exit Aggressively. 

Jim Brown
Editor


***************
FUTURES MARKETS
***************

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



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

A renewed sense of bullishness

While there a probably more technical indicators suggesting a 
resumption of recent weekly declines should take place soon, 
observations made during today's trade, right up to the close, 
gives me the sense of renewed bullishness into Friday's nonfarm 
payroll numbers.

Friday's nonfarm payroll number, where for the most part the 
number of job gains has been well shy of what many economists and 
even some Federal Reserve Governors have been looking for in 
recent months, seems to be creating an atmosphere of upbeat 
enthusiasm among market participants, enthusiasm, or hope, that 
you'd be hard pressed to find in many gaming parlors ahead of 
this weekend's NCAA Basketball finale, let alone the widely 
followed "Frozen Four," where the underdog University of Denver 
Pioneers march toward the NCAA Hockey Championship after beating 
North Dakota on Saturday.

What does any of this have to do with the stock market?

Despite modes gains in today's trade, there seems to be a renewed 
sense that the correction is over, and a turning point is at 
hand.

Not everyone has been glued to their TV sets during the NCAA 
tournaments, but there are games when one team looks to be well 
on their way to victory, when at some definitive point in the 
game, the "loosing team's fans" sense they might be able to 
snatch victor from the hands of defeat.

NASAQ Composite (COMPX) Daily Intervals

 

Good gravy!  What are YOU doing back here at 2,000 and just 3-
points away from breakeven on the year?  You were supposed to 
just go way, fade into the sunset when the NASDAQ Composite 
Bullish % ($BPCOMPQ) finally turned "bear confirmed."  While 
there's work to be done at that downward trend and falling 50-day 
SMA, the ability for the NASDAQ Composite to reclaim the 2,000 
level may have some bears saying.... "it isn't over till its 
over!"  

Market Snapshot / Internals - 03/30/04 Close

 

The recently resurgent Semiconductors (SOX.X) 487.03 -0.11% 
showed some sign of starting to resume weakness after scrapping 
back from their recent lows 453, and brief violation of their 
rising 200-day SMA (465.79) last week.  At 01:00 PM EST, SOX.X 
and NASDAQ bulls looked to be setting up for defeat as the A/D 
line went negative, but a renewed sense of bullishness took hold 
late in the session, with the major indices closing at their 
highs by the close.

What took the Dow Industrials (INDU) 10,381.70 +0.50% nearly 5.5 
hours to do (gain 28 points) by 03:00 PM EST was nearly doubled 
in the final hour of trade, and as if followed from script, 
Caterpillar (NYSE:CAT) $80.00 +0.65% mustered enough strength to 
see a reversing point and figure buy signal buy the close, with a 
session high trade of $80.04.

Pivot Analysis Matrix - 

 

For an SPX/OEX trader, my end of session observation would be 
that today's highs and lows, and perhaps tomorrow's are currently 
bound by BIX.X support at WEEKLY R1, and SPY resistance at 
MONTHLY S1.  For two straight sessions, the OEX has dipped below 
its WEEKLY R1 of 549.93 (just before yesterday's close) and then 
again today, just before 01:00, where for no news that I could 
find, a renewed sense of bullish enthusiasm was found and 
trader's in New York returned from lunch.

NASDAQ-100 Heatmap - 03/30/04 Close (www.nasdaq.com)

 

Breadth for the NASDAQ-100 Index (NDX.X) 1,445.25 +0.2% and its 
Tracking Stocks (AMEX:QQQ) $35.91 +0.33% was positive at 65:35, 
but among the 6-most heavily weighted components, only Cisco 
Systems (NASDAQ:CSCO) $23.93 +0.33%, which is staring at a 
curling lower 50-day SMA ($24.20) was able to muster a gain in 
today's trade.  

Marvel Technology (NASDAQ:MRVL) $45.19 +4.77% was today's NDX/QQQ 
percentage gainer, and after giving a reversing lower point and 
figure sell signal at $40.00 (and testing its rising 200-day 
SMA), MRVL's shares have rallied back and threaten to challenge a 
52-week high of $46.63 set on November 4, 2004, where a trade at 
$47, would have MRVL's PnF chart back on a buy signal.  While not 
a "key stock" or heavyweight in the NDX/QQQ, MRVL is a good stock 
for all NDX/QQQ traders to keep an eye on, as just one stock to 
try and get a feel for some of the internals at the NDX/QQQ.  

In PINK, I've squared the six-most heavily weighted components 
for the NDX/QQQ, which aside from CSCO showed little sign of 
bullish enthusiasm from bulls.  "Value" investors may be 
scratching their heads when they see Yahoo! Inc. (YHOO) +2.31% 
and eBay Inc. (NASDAQ:EBAY) +2.12% not only among NDX/QQQ 
percentage gainers, but closing in on new highs.

It is IMPOSSIBLE to follow a lot of stocks closely, but as I look 
at stocks like CAT and now MRVL on their point and figure charts, 
there seems to be enough looming demand, when even as many 
indicators might suggest a resumptions of selling, I can only 
think this Friday's nonfarm payroll data still has bulls sticking 
around to see what Friday's nonfarm payroll data has in store.

I mention much of the above, mostly as it relates to the BEARISH 
side of me (my trade weighted philosophy right now would be 60% 
BEARISH and 40% BULLISH) NOT liking some of the bullish 
observations, or lacking of follow through BEARISHness.

Much of this centers around what I've seen in the bullish % 
indicators of late, where despite internals weakening, the recent 
rebound, which may be anticipatory ahead of Friday's nonfarm 
data, should be a bit unnerving, or of concern to bears.

NASDAQ-100 Tracking Stock (QQQ) - 15-minute intervals

 

I thought I'd take a look at the 15-minute interval chart, which 
gives us a chance to look at the QQQ on somewhat of an intra-day 
basis, but also allows for several days of observation.  I've 
marked the various major MONTHLY and WEEKLY pivot analysis levels 
for the QQQ, where today's close comes above WEEKLY R1, which in 
my opinion, takes some bullish enthusiasm, if not lack of 
selling.

The downward trend you see at the top of the chart, at WKLY R2, 
that certainly looks to be "in play" right now, where the only 
levels of pivot matrix resistance would come from the DAILY 
Pivots.  

The WKLY and MONTHLY levels should be finding more resistance 
selling in my opinion, and I'd have to say that they aren't.  
Almost as if the big players are willing to play a wait and see 
game into Friday's nonfarm data.

While we can see today's low in the QQQ found buyers at what 
would have been Friday's congestion high, it was also somewhat 
correlative to Tuesday's DAILY S1.  

S&P 100 Index Chart (OEX.X) - 15-minute Intervals

 

While support for the QQQ may have come at its DAILY S1 in 
today's trade (Tuesday), I'm starting to see some action in the 
OEX, where the MONTHLY S2, which found little resistance selling 
on Monday, starts to look like a level of support, where when 
traded, turns on the computers for buying, as if the zone between 
549.26 and WEEKLY R1 549.93, which are very close to March's 
Triple Witch expiration "Max Pain" of 550.00 have become less 
significant all of a sudden.  S&P 500 Index (SPX.X) 1,127.00 
+0.40% can perhaps make a similar observation, with 1,125.00, 
which was March's Triple Witch expiration.

Dow Industrials Chart (INDU) - 15-minute intervals

 

Not all that unlike the intra-day 15-minute chart of the OEX, we 
see some Monday and Tuesday pullback low buying when the INDU has 
traded, then fallen below its WEEKLY R1 of 10,320.  I placed a 
"whack!" and "smack" annotation at the MONTHLY S2, where that was 
an obvious "sell" point into the weekend, but either had no sell 
programs lined up for Monday, or buyers were too strong as if a 
renewed sense of bullish enthusiasm was taking hold into Friday's 
nonfarm payroll numbers.

Jeff Bailey


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****************
MARKET SENTIMENT
****************

Window Dressing
- J. Brown

It's been a pretty impressive week thus far.  The bulls have 
managed to orchestrate an encore performance on top of 
yesterday's big gains.  It is encouraging to see the NASDAQ close 
above 2000, the Wilshire 5000 index close above the 11,000 mark 
and the GHA hardware index, the CYC cyclical index and the OIX 
oil index all close above their 50-dma's.  However, my concern 
now is that not only are we short-term overbought but this could 
be nothing more than end-of-the-quarter window dressing by mutual 
funds.  

However, this time we may not see any window un-dressing until 
after the Jobs report on Friday.  Right now Wall Street is once 
again cautiously optimistic for the non-farms payroll report 
despite being let down again and again.  Hope springs eternal but 
it will have to endure a number of economic reports this week 
before Friday's jobs report.  Tomorrow is the Factory Orders and 
Chicago PMI while Thursday brings the weekly initial jobless 
claims, the auto and truck sales numbers for March (which are 
expected to be positive), the construction spending numbers and 
the ISM index.  


-----------------------------------------------------------------

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  7929
Current     : 10381

Moving Averages:
(Simple)

 10-dma: 10210
 50-dma: 10472
200-dma:  9832



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  843
Current     : 1127

Moving Averages:
(Simple)

 10-dma: 1110
 50-dma: 1134
200-dma: 1058



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1014
Current     : 1445

Moving Averages:
(Simple)

 10-dma: 1410
 50-dma: 1467
200-dma: 1384



-----------------------------------------------------------------

As investors buy the "correction" the volatility indices are 
shooting back toward their multi-year lows.  No surprises here.

CBOE Market Volatility Index (VIX) = 16.28 -0.22
CBOE Mkt Volatility old VIX  (VXO) = 15.99 +0.03
Nasdaq Volatility Index (VXN)      = 23.18 +0.02

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume

Total          0.61        685,330       418,968
Equity Only    0.46        581,353       267,971
OEX            1.17         15,746        18,486
QQQ            0.30         98,732        29,389


-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          70.9    + 0     Bull Correction
NASDAQ-100    39.0    + 1     Bear Confirmed
Dow Indust.   80.0    + 3     Bear Confirmed
S&P 500       73.4    + 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: 0.74
10-dma: 1.20
21-dma: 1.42
55-dma: 1.17


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
points.


-----------------------------------------------------------------

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1903      1831
Decliners     915      1223

New Highs     159       110
New Lows       10         7

Up Volume   1155M      893M
Down Vol.    444M      573M

Total Vol.  1614M     1582M
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


NASDAQ-100

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

DOW JONES INDUSTRIAL

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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The Option Investor Newsletter                  Tuesday 03-30-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: ETN
Call Play Updates: AVID, LXK, MGG, NEM
New Calls Plays: CAT, KBH, NSM
Put Play Updates: LTR
New Put Plays: UTSI


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

Eaton Corp. - ETN - close: 56.40 change: +0.60 stop: 56.60

We certainly gave ETN plenty of chances to make good on its 
promises of a significant breakdown, but the bears never pressed 
their advantage.  The stock did make a convincing move under the 
$54.50 level and it looked like a solid break of support.  But 
the bulls stepped in and bought the dip and over the past few 
days, it is looking like the downtrend has been broken.  With our 
stop only 20-cents above today's close and ETN ending at its high 
of the day, it seems a foregone conclusion that our stop will be 
tripped in the morning.  Let's beat the rush and exit the play 
now.  Should we be so fortunate as to see a drop in the morning, 
take it as a gift of a better exit point.

Picked on March 11th at       $54.82
Change since picked:           +1.58
Earnings Date                1/21/04 (confirmed)
Average Daily Volume =      1.21 mln
Chart =



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option* and futures traders. The combination of the proven Man 
Financial global presence and the convenience of one group for 
all trading needs provide customers with the tools needed for 
success.

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********************
PLAY UPDATES - CALLS
********************

Avid Technology - AVID - cls: 46.31 change: -0.41 stop: 42.99

The big rally on Monday helped send AVID to a new two-month high 
above technical resistance at its simple 200-dma and its simple 
100-dma.  Unfortunately the early morning run to $48.12 faded 
throughout most of the session but it was more than enough to 
open the play with our TRIGGER at $47.35.  There was no specific 
headline or catalyst to blame for the pop higher and now we're 
concerned that the Monday-Tuesday pattern is starting to look 
like a failed rally.  We suggest bullish traders be patient and 
look for new entries on a bounce from $45.00 or even the $44.00 
level if this dip continues. 

Picked on March 29 at $ 47.35
Change since picked:   - 1.04
Earnings Date        04/15/04 (unconfirmed)
Average Daily Volume:     663 thousand   
Chart =


---

Lexmark Intl. - LXK - close: 91.71 change: +1.11 stop: 87.25

Like the Little Engine That Could, LXK finally broke over that 
pesky $91 resistance level today and that sets the stage for a 
continued rally towards our $95 target as April earnings season 
gets underway.  As noted over the weekend, the most recent 
pullback entry came on the test of the 10-dma (now at $89.52) and 
a breakout over $91.10 could have been used for new momentum 
entries.  The $90 level afforded major resistance on the way up, 
so we can rightly expect it to now act as support.  Target new 
entries on a pullback near $90, with that support reinforced by 
the 10-dma.  Should the bulls really get moving to the upside, we 
could see our $95 target reached by the end of the week.  With 
the initial push over the $91 level, our tentative bullish price 
target from the PnF chart has been extended all the way to the 
$112 level.  Clearly, there's still some significant upside 
potential for LXK.  Maintain stops at $87.25 for now, just under 
the intraday lows from last week.

Picked on March 14th at      $85.77
Change since picked:          +5.94
Earnings Date               4/19/04 (unconfirmed)
Average Daily Volume =     1.01 mln
Chart =


---

MGM Mirage - MGG - close: 45.23 change: -0.77 stop: 43.25

There we are.  We've been looking for a bit of a pull back in 
shares of MGG and we got just such a drop today with MGG find 
some support at the $45.00 level.  While this should be round-
number support it wouldn't surprise us to see it dip a little 
more.  Fortunately, the rising 21-dma should also act as support 
near $44.70.  In the news MGG may have hit a snag wit hits $500 
million offer to buy the British dog track operator Wembley.  A 
British merger panel said MGG's recent comments that it "might" 
improve its offer without actually doing so was against the 
rules.  Currently MGG is bidding against BLB Investors who 
offered $522 million for Wembley.

Picked on March 25 at $ 45.69
Change since picked:   - 0.46
Earnings Date        04/14/04 (unconfirmed)
Average Daily Volume:     597 thousand   
Chart =


---

Newmont Mining - NEM - close: 46.71 change: +0.66 stop: 43.00

Traders that sold into Friday's gold rally thinking it was 
another failed rally were in for a rude awakening today, as the 
price of the yellow metal shot right back over the $420 level and 
the gold stocks played a bit of catch up as investors are 
starting to believe in the renewed gold rally.  The XAU index is 
now solidly above the $103 level and actually tested the $105 
level on Tuesday.  The HUI index is also looking better as it 
continues to distance itself from its broken descending 
trendline, now down at $228.  NEM's breakout over the $46 level 
last Friday was tested yesterday, with the stock dipping just far 
enough to fill the gap down to $45.20 before a strong end of day 
rebound that continued today, resulting in a test of the $47 
level early in the day.  At this point, any dip into the $45-46 
area looks viable for new entries ahead of the expected move up 
towards strong resistance at $50.  Maintain stops at $43 for now.

Picked on March 28th at      $46.15
Change since picked:          +0.56
Earnings Date                2/04/04 (confirmed)
Average Daily Volume =     6.38 mln
Chart =



**************
NEW CALL PLAYS
**************

Caterpillar - CAT - close: 80.00 change: +0.52 stop: 77.49

Company Description:
For more than 75 years, Caterpillar Inc. has been building the 
world's infrastructure and, in partnership with its worldwide 
dealer network, is driving positive and sustainable change on 
every continent. With 2003 sales and revenues of $22.76 billion, 
Caterpillar is a technology leader and the world's leading 
manufacturer of construction and mining equipment, diesel and 
natural gas engines and industrial gas turbines. More than half 
of all sales were to customers outside of the United States, 
maintaining Caterpillar's position as a global supplier and 
leading U.S. exporter. The company employs nearly 70,000 people 
around the world. (source: company press release)

Why We Like It:
It doesn't hurt to be a Dow component when the Industrials are in 
rally mode.  As of Tuesday's close the Dow is up 330 points in 
the last four days.  This market strength has helped CAT breakout 
over price resistance in the $78.00-78.50 range and its simple 
50-dma on rising volume.  However, it's also noteworthy that CAT 
just had its earnings guidance upgraded yesterday for the second 
time in a month.  CAT isn't due to report earnings until late 
April so there's plenty of time for an earnings run.  On top of 
yesterday's earnings news another analyst at CSFB said the 
construction equipment cycle was in the beginning of a strong 
(and lengthy) growth phase due to the global recovery.  

Now this play isn't without risk.  First of all the Dow is up 
more than 300 points in a short time frame.  It's arguable that 
we're short-term overbought and due for a dip.  Plus, any new 
interest rate concerns are likely to create volatility here since 
construction equipment stocks suffer as rates rise.  However, the 
bigger risk is CAT's ongoing negotiations with the UAW union.  
Discussions began on December 10th and they've still not come to 
an agreement.  The United Auto Works union said their members are 
prepared to strike if CAT and the UAW don't come to terms and 
right now the deadline is midnight on March 31st (that's 
tomorrow).  Conservative traders might just want to wait until 
Thursday before considering any positions here.  In the mean time 
we see two entry points for bullish plays on CAT.  Buy a dip to 
$78.00 or look for a breakout over today's high at $80.04.  We're 
going to choose the latter.  If CAT can trade at $80.05 or higher 
we'll open the play and target a move to $85.00, which was strong 
resistance in December and January.  We'll use a relatively tight 
stop at $77.49.  FYI: Point-and-figure chart readers will note 
that CAT just produced a new double-top breakout buy signal today 
with an upside target of $95.00.

Suggested Options:
We're going to suggest the May options since Aprils are due to 
expire in three weeks.  Our favorite would be the May 75s if you 
can afford them.  Otherwise the May 80s.

BUY CALL MAY 75 CAT-EO OI=2084 at $6.40 SL=3.75
BUY CALL MAY 80 CAT-EP OI=5131 at $3.00 SL=1.50

Annotated Chart:

 

Picked on March xx at $ xx.xx
Change since picked:   + 0.00
Earnings Date        04/22/04 (unconfirmed)
Average Daily Volume:     2.5 million  
Chart =


---

KB Home - KBH - close: 80.88 change: +2.05 stop: 76.95

Company Description:
Building homes for nearly half a century, KB Home is one of 
America's premier homebuilders with domestic operating divisions 
in some of the fastest- growing areas of the country including 
Arizona, California, Colorado, Florida, Georgia, Illinois, 
Nevada, New Mexico, North Carolina, South Carolina and Texas. 
Kaufman & Broad S.A., the company's majority-owned subsidiary, is 
one of the largest homebuilders in France. In fiscal 2003, the 
company delivered homes to 27,331 families in the United States 
and France. It also operates a full-service mortgage company for 
the convenience of its buyers. Founded in 1957, KB Home is a 
Fortune 500 company. (source: company press release)

Why We Like It:
It's no secret that we've been bullish on the builders for 
months.  The low interest rates have been good for the builders 
and the low mortgage rates are good for consumers.  The boom in 
the builders has been a big plus for the economy.  We're fast 
approaching the prime-time building and home buying season and 
the Federal Reserve appears to be on hold for the rest of the 
year.  Yet even if the Fed did surprise us with a cut most of the 
builders have said that they have such a backlog of homes to 
build they're business wouldn't be affected.

After our last couple of successful plays in the group we've been 
waiting for the right entry point to jump back in.  KBH's bullish 
breakout over resistance at $80.00 looks like the right ticket.  
KBH is out performing the vast majority of its peers and hit new 
all-time highs with today's rally.  Volume was double the norm, 
which indicates conviction on the part of the buyers.  

KBH's P&F chart is very bullish and points to a $104 price 
target.  While KBH might be able to reach triple digit prices it 
may take awhile.  Our short-term goals are a bit more reasonable.  
True short-term traders can probably target a move to $85.  We're 
going to target a move to the $88-90 range.  We'll start the play 
with a stop loss at $76.95.  This is about $1.00 under its rising 
21-dma, which has been short-term support for the stock.

Suggested Options:
We believe that the homebuilders could run for several weeks to 
we're going to suggest the May or July options.  Right now our 
favorites would be the May 80's even though the Aprils have more 
open interest.

BUY CALL MAY 75 KBH-EO OI= 97 at $8.10 SL=5.25
BUY CALL MAY 80 KBH-EP OI= 94 at $4.80 SL=2.45
BUY CALL MAY 85 KBH-EQ OI= 58 at $2.55 SL=1.35

Annotated Chart:

 

Picked on March 30 at $ 80.88
Change since picked:   + 0.00
Earnings Date        03/16/04 (confirmed)
Average Daily Volume:     1.0 million    
Chart =



---

National Semiconductor - NSM - cls: 44.43 chng: +0.58 stop: 40.50

Company Description:
National Semiconductor Corporation designs, develops, 
manufactures and markets an array of semiconductor products, 
including a line of analog, mixed-signal and other integrated 
circuits (ICs).  These products address a variety of markets and 
applications, including amplifiers, personal computers, power 
management, local and wide area networks (LANs and WANs), flat 
panel and cathode ray tube displays and imaging and wireless 
communications.  The Company's operations are organized in five 
groups: the Analog Group, the Displays Group, the Information 
Appliance and Wireless Group, the Wired Communications Group and 
the Custom Solutions Group.

Why we like it:
Following its rollover from the $560 level, the Semiconductor 
sector (SOX.X) has been acting pretty sickly these past couple 
months and even with the strength of the broad market rebound 
from its lows last Wednesday, the SOX is still struggling with 
resistance near $490 and once again failed to make any upward 
progress today.  Against that backdrop, the price action in NSM 
has been downright impressive.  After pulling back and putting in 
a double bottom near the $36 support level, the stock has been in 
the process of tracing out higher highs and higher lows for the 
past 2 months.  That is a clear point of bullish divergence with 
respect to the SOX.  Last Thursday saw NSM break ou8t over the 
$42 resistance level on strong volume and this week more 
resistance near $43.40 has fallen, with the stock inching its way 
back up towards its December high of $45.25.  

The PnF chart is looking pretty encouraging as well, with the Buy 
signal from early January still in force along with its bullish 
price target of $58.  Reinforcing that bullish view, NSM just 
completed a Bullish Catapult formation and it looks like the 
upside move is starting to unfold.  We'll use a trigger at 
$45.40, which is just above the December highs.  Breakout entries 
look inviting, but the more conservative approach will be to wait 
for a subsequent pullback to test support in the $44-45 area 
before continuing the upward trek.  While the PnF chart says the 
$58 level is a possibility, we can see that the weekly chart has 
significant resistance near the $50 level, so that will be our 
initial target for the play.  Depending on the strength seen at 
that level, we may decide to hold on for a push up to higher 
levels.  Initial stops should be placed at $40.50, which is just 
under the low from last Thursday, as well as the 20-dma ($40.57).

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 
money.  

Longer Term: Aggressive longer-term traders can use the May $50 
Call, while the more conservative approach will be to use the May 
$45 strike.  Our preferred option is the May $45 strike, as it is 
currently near the money and should provide sufficient time for 
the play to move in our favor.  

BUY CALL APR-40 NSM-DH OI=11989 at $4.90 SL=3.00
BUY CALL APR-45 NSM-DI OI=10021 at $1.50 SL=0.75
BUY CALL MAY-45*NSM-EI OI= 8544 at $2.85 SL=1.40
BUY CALL MAY-50 NSM-EJ OI= 2118 at $1.05 SL=0.50

Annotated Chart of NSM:

 

Picked on March 30th at      $44.43
Change since picked:          +0.00
Earnings Date                5/25/04 (unconfirmed)
Average Daily Volume =     3.97 mln
Chart =



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*******************
PLAY UPDATES - PUTS
*******************

Loews - LTR - close: 58.95 change: +0.10 stop: 59.25

We remain untriggered in this potential put play but that's not a 
surprise given the strength in the markets these last two days.  
Shares of LTR continue to build on what appears to be a bear flag 
pattern.  Currently LTR is challenging overhead resistance near 
$59, which was support back in late February.  This time the $59 
level is bolstered by its 40-dma and the 10-dma.  Should LTR 
continue to churn higher more aggressive traders might want to 
consider shorting a failed rally under the $60.00 mark.  We still 
plan to wait for a move under our trigger at $57.74.  It is 
challenging to find effective bearish candidates with the markets 
in rebound mode and LTR's technical oscillators are starting to 
curl higher after three weeks of consolidation.  Be patient and 
wait for the right entry.

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 =



*************
NEW PUT PLAYS
*************

UTStarcom, Inc. - UTSI - close: 29.38 change: -1.49 stop: 32.25

Company Description:
UTStarcom, Inc., headquartered in Alameda, California, is a 
global provider of wireless and wireline access and Internet 
protocol (IP) switching solutions.  The company designs, 
manufactures, sells and installs an integrated suite of future-
ready access network and next-generation switching solutions.  It 
enables wireless and wireline operators in fast-growth markets 
worldwide to offer voice, data and Internet access services 
rapidly and cost effectively by utilizing their existing 
infrastructure.  UTSI's products provide a seamless migration 
from wireline to wireless, from narrowband to broadband and from 
circuit- to packet-based networks by employing next-generation 
network technology.  The company's customers include public 
telecommunications service providers that operate wireless and 
wireline voice and data networks in rapidly growing 
communications markets worldwide.

Why we like it:
Something is very wrong with shares of UTSI, as it has been 
wholly unable to participate in the recent rebound in the 
Networking sector.  The stock has been in a protracted downtrend 
since topping out near $42 in early January and the resulting 
slide has pushed the price below all of its key moving averages 
and the 50-dma is now well below both the 100-dma and the 200-
dma.  UTSI did managed to bounce with the rest of the market last 
Thursday, but that rebound was short-lived, with the stock 
rolling over just below the 30-dma ($32.05) yesterday and 
continued its sharp slide today, as it lost nearly 5% on volume 
that nearly doubled the ADV.  UTSI saw a similar selloff earlier 
in the month which halted just above $29 before a sharp short-
covering rebound.  That rebound appears to have lost its bite 
though and price is once again approaching that key level of 
support.  A quick look at the PnF chart shows the trouble the 
bulls are in, as the stock is currently on a Sell signal, below 
the bullish support line and with a bearish price target of $23.

Should the stock break below $29 (as we expect), there is little 
in the way of historical support until the $23-24 area, so $23 
seems like a reasonable target to shoot for.  There is some 
slight support just below $28 and then again near $26, but it is 
unlikely to produce more than a weak bounce before UTSI continues 
down towards our target.  We want to see proof before plunging in 
though, so we're going to set our entry trigger at $29.  Entries 
on the initial breakdown look favorable, but more conservative 
traders may want to wait for a subsequent failed rebound in the 
$29-30 area before playing.  The $32 level looks like very strong 
resistance now with the rejected rebound at that level and the 
30-dma reinforcing resistance there.  We'll set initial stops at 
$32.25.

Suggested Options:
Aggressive short-term traders will want to use the April 30 Put.  
Those with a more conservative approach will want to use the May 
30 put.  Aggressive traders looking for more insulation against 
time decay can use the May 25 strike.  Our preferred option is 
the May 30 strike, as it is currently at the money and should 
provide ample time for the play to move in our favor.

BUY PUT APR-30 UON-PF OI=5565 at $1.50 SL=0.75
BUY PUT MAY-30*UON-QF OI=6451 at $2.40 SL=1.25
BUY PUT MAY-25 UON-QE OI=2969 at $0.65 SL=0.30

Annotated Chart of UTSI:

 

Picked on March 30th at       $29.38
Change since picked:           +0.00
Earnings Date                4/27/04 (unconfirmed)
Average Daily Volume =      3.48 mln
Chart =



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**********

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ADVERTISING INFORMATION

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Contact Support
The Option Investor Newsletter                  Tuesday 03-30-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three: 

Watch List: Mortgages, Auctions, Oil and more!


**********
WATCH LIST
**********

Mortgages, Auctions, Oil and more!
___________________________________________________________________

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.
___________________________________________________________________


Countrywide Financial Corp - CFC - close: 94.32 change: +1.49

WHAT TO WATCH: Heads up!  This looks like a decent bullish entry 
point for traders looking to catch a run toward the $100 mark.  
CFC spent most of last week consolidating above support at the 
$90 level but we're seeing signs of life again.  We didn't hear 
anything from their annual shareholder meeting today but what 
more could they say?  Analysts have been raising estimates.  The 
stock is set to split 3-for-2 on April 13th and CFC is due to 
report earnings at the end of April. 

Chart=


---

eBay Inc - EBAY - close: 69.86 change: +1.45 

WHAT TO WATCH: We strongly considered adding EBAY back to the 
play list again.  The powerful bounce from the $65 mark and its 
breakout over the 50-dma looks tempting.  Today's 2.11% gain was 
fueled by positive analyst comments.  We would still consider 
using a trigger to go long on a breakout above the $70.00 level 
but be aware that shares are probably short-term overbought and 
last time the rally over $70 failed very quickly.  

Chart=


---

Apache Corp - APA - close: 42.96 change: +0.87

WHAT TO WATCH: Oil and oil service stocks have seen a lot of 
volatility lately and APA is no different even though a large 
chunk of its business is natural gas.  Yet despite the volatility 
the trend of higher lows is easy to see, so is the overhead 
resistance at $43.50.  We'd consider bullish plays if APA can 
breakout above this resistance and target a move to $47.50 or 
higher.  Keep in mind that the impending decision from OPEC on 
whether or not to follow through with their previously announced 
production cuts are a headline risk for the entire group although 
probably less so for APA.

Chart=


---

Inamed Corp - IMDC - close: 51.49 change: +1.77

WHAT TO WATCH: After weeks of consolidation IMDC is on the move 
again.  Shares recently tested support at its simple 200-dma but 
what got the stock moving again was a press release that its lap-
band system offered similar results to gastric bypass surgery 
with less of a health risk and a shorter hospital stay.  
Considering the obesity problem in this country and the growing 
number of surgical procedures to deal with it this could be big 
news for IMDC.  Volume has been above average on the rally and 
shares hit a new relative high.  We would target a move to $55.

Chart=


---

Lehman Brothers - LEH - close: 83.19 change: -0.80

WHAT TO WATCH: It may seem like heresy to suggest a bearish play 
in what was one of the strongest sectors over the last several 
months but the recent action in LEH looks suspicious.  More to 
the point it looks like a failed rally under resistance at $85.00 
and its simple 50-dma.  Now we hesitate to recommend bearish 
plays here and that's why LEH is on the watch list.  The stock 
has support near the $80 level, which should be underpinned by 
its simple 100-dma.  Now if LEH breaks down under the $80 mark, 
well then we can target a move toward the $75 level. 

Chart=



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

COF $75.78 +1.09 - We put COF on the weekend watch list for a 
breakout over $75 and we got it today.  Its MACD has produced a 
new buy signal and traders might want to target a move to $80.

WFMI $72.98 -1.03 - Wow! There's been very little participation 
in the recent market from WFMI.  The stock has broken down to new 
relative lows and broke its simple 50-dma in Tuesday's trading.  
Next stop is probably the 100-dma near $70.00.

Keep an eye on the homebuilders. The group looks ready to move.  
A few stocks to follow: RYL, HOV, PHM, CTX, TOL, DHI, MTH.


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