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Daily Newsletter, Monday, 04/26/2004

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The Option Investor Newsletter                   Monday 04-26-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Stocks Suffer Monday Blues
Futures Wrap: See Note
Index Trader Wrap: See Note


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     04-26-2004            High     Low     Volume Advance/Decline
DJIA    10444.73 - 28.11 10512.79 10418.12 1.57 bln   1121/1705
NASDAQ   2036.77 - 13.00  2059.08  2031.75 1.68 bln   1283/1786
S&P 100   554.62 -  2.18   559.15   553.29   Totals   2404/3491
S&P 500  1135.53 -  5.07  1145.08  1132.91
RUS 2000  589.45 -  1.26   596.41   588.67
DJ TRANS 2970.21 - 31.50  3020.81  2966.25
VIX        14.77 +  0.76    15.22    14.39
VXO        14.89 +  0.67    15.26    13.91
VXN        21.83 +  1.15    22.39    21.28
Total Volume 105.2M
Total UpVol   38.0M
Total DnVol   65.7M
52wk Highs     224
52wk Lows      114
TRIN          3.20
PUT/CALL      0.66
*******************************************************************

Stocks Suffer Monday Blues
by James Brown

Stocks edged lower on Monday after their bullish start faded
quickly into a sluggish session.  Sparking the early morning
strength was big news in the biotech sector and a big contract
win for Dow-component Boeing.  Unfortunately, a red-hot new home
sales number rekindled investors' inflation fears and caution
overruled optimism.  This is still a big earnings week for Wall
Street but the next round of economic reports could hog the
spotlight.

The Commerce Department released the new home sales numbers for
March about 10 o'clock ET and the results were very strong.
Sales rose nearly 9% to a seasonably adjusted rate of 1.23
million.  This broke the previous record of 1.2 million from last
June.  Investors chose to interpret the news as yet another
potential catalyst for the Federal Reserve to hike rates sooner
than expected.   I know this subject has been beaten to death so
I won't belabor the issue but a 1/4-point or 1/2-point rise is
not going to kill the economic rebound.  However, with the next
Fed meeting on Tuesday, May 4th this will remain a staple for
analysts and media to discuss ad nauseam.

Investor sentiment also took a blow when UBS announced its
monthly Index of Investor Optimism for April slipped 12 points
from 85 to 73.  This was the lowest level since October and
continues a steep decline from its recent high in January at 108.
Speaking of sentiment the volatility indices, usually seen as a
measure of investor fear and confidence, shot higher today with
the VIX adding 5.4%, the VXO adding 5% and the VXN jumping 5.5%.
These may seem like big moves considering the generally mild
losses in the major indices but all of them were near multi-year
lows and remain so.

Global markets were mixed today.  The Japanese NIKKEI added 43
points to close at 12,163 while its Chinese counterpart, the Hang
Seng index, lost 251 points to close at 12,132.  European stocks
were also muddy.  The English FTSE was virtually unchanged at
4571.   The German DAX jumped 22 points to 4125 while the French
CAC lost 25 to 3785.  Here at home the Dow Industrials slipped 28
points to 10,444.  The NASDAQ Composite fell 13 to 2036 and the
S&P 500 index dropped 5 points to 1135.

The worst performers were semiconductors, homebuilders,
healthcare stocks and tech-related issues.  The best performers
were biotechs, defense, energy and gold, although gold stocks
retreated strongly from their highs of the session.  Gold futures
have rallied for three days in a row now but gold bugs appear to
be struggling to get the precious metal back above the $400 an
ounce level.  Noteworthy has been the action in the U.S. dollar.
The greenback hit a new relative high this morning and pierced
its simple 200-dma before falling back into its recent trading
range.  If the dollar turns south then we should see the rise in
gold continue.  Likewise if the dollar breaks out then gold will
most likely sink lower again.  I also want to mention some of the
energy stocks.  Some of the larger players like CVX and COP
closed at or near new highs.  Fueling the move was a jump in
crude prices that closed just under $37 a barrel.  The suicide
boat attacks in Iraq two days ago have renewed fears over supply
disruptions and considering the growing global demand oil prices
will probably remain relatively high.

Market internals ended the session with a bearish tone.
Declining stocks out paced advancers 17 to 11 on the NYSE and
almost 18 to 13 on the NASDAQ.  Likewise down volume swamped up
volume almost 2 to 1 on the NYSE and 5 to 3 on the NASDAQ.

Chart of the Dow Industrials:



Chart of the NASDAQ Composite:



Monday's big story was OSI Pharmaceuticals (OSIP) and its Tarceva
treatment for lung cancer.  OSIP has been co-developing Tarceva
with Genentech (DNA) and Roche, a Swiss healthcare company.  OSIP
announced this morning before the opening bell that its Phase III
trials for Tarceva had hits its primary and secondary "end
points" for improving survival in non-small cell lung cancer
patients.  Investor reaction was overwhelming.  OSIP closed at
$38.14 on Friday and opened Monday morning at $84.60.  Intraday
the stock soared to $98.70 and closed up more than 140% at
$91.10.  OSIP's good fortune also boosted shares of DNA, which
gapped higher and ended at $131.99, up 11.6%.  What you may find
interesting is that OSIP hasn't even released the clinical trial
data yet.  That's not expected to happen until the June meeting
of American Society of Clinical Oncologists.  A few analysts are
skeptical and believe the reaction could be overdone.  Merrill
Lynch chose to downgrade the stock from "buy" to "neutral".  If
the drug is eventually approved it could launch in early 2005 and
may hit sales of more than $900 million in the U.S. of which half
go to Genentech.  We are always super cautious about shorting
biotech stocks for reactions like today's jump in OSIP can be
extremely hazardous to your financial health.

Another big story today was a drug merger in France between
Aventis (AVE) and French rival Sinofi-Synthelabo (SNY).  The move
was strongly encouraged by the French government who feared they
would lose AVE to Swiss-based Novartis (NVS) when AVE rejected a
hostile bid by SNY earlier this year in January.  If AVE and SNY
had failed to merge many believed that SNY would become a
takeover candidate from drug giants Pfizer or GlaxoSmithKline.
The new deal, announced on Sunday, was a larger all cash offer
and would create the world's third-largest drug producer.  SNY
will pay close to $65 billion, which is a 14% increase from its
previous offer.  Unfortunately, it was only a 4% premium from
AVE's close on Friday and both AVE and SNY traded down on the
news.

Closer to home was news that Dow-component Boeing (BA) had
secured its first contract for its new 7E7 airliner.  And what a
contract!  Japan's All Nippon Airways ordered 50 of the new
planes, the first new model from BA since 1990.  The value of the
deal is said to be worth $6 billion at the list price of $120
million per plane but it's widely known that major airliners tend
to negotiate significant discounts.  It's a major win for BA who
has been fighting with archrival Airbus.  BA hopes to win more
deals from airliners seeking to cut costs since the E in the 7E7
stands for efficiency.   The new passenger jet is said to have
larger windows and wider aisles but will be made with lighter
materials and use new, better fuel-efficient engines.  Fuel is
the second biggest expense next to labor for the airline industry
so a projected 15% to 20% reduction in fuel is a huge cost
savings.  BA was the Dow's best performer up 1.86% to $43.24.

There were a handful of other Dow components making headlines.
Wal-Mart (WMT) failed at its descending trendline of resistance
and dropped 1.4% to $58.14 after announcing that its April same-
store sales would be at the low end of its 4-6% forecasts.
General Motors (GM) also failed at resistance at the $50.00 mark
despite gapping higher on an upgrade and positive analyst
comments from Lehman Brothers.  LEH raised its outlook on GM,
Ford and DaimlerChrysler.  MSFT was also a drag on the Dow with a
1% decline.  The move was probably just profit taking after
Friday's huge rally.  You may have heard that MSFT signed a
multi-year deal with JDAS to develop the .Net platform but odds
are this news was overshadowed by MSFT's investment in Google.
Wall Street has gone Google-crazy and it doesn't matter where you
look people are talking about when the search engine company will
finally IPO.

Personally I'm getting tired of hearing about Google's potential
IPO since regular every day investors will probably have little
chance of securing any shares prior to its first trade.  If
you're curious why the financial media is buzzing over Google's
IPO plans you'd have to turn to a decades-old regulation stating
that privately held companies with more than 500 security holders
and more than $10 million in assets have to open their books
within 120 days of the end of their fiscal year when they surpass
these thresholds (source: the Associated Press).   Evidently
Google has issued stock options to a large chunk of their 1,000-
plus employees and the deadline to file their annual report is
this Thursday.  Of course the Wall Street Journal reported this
afternoon that Google had chosen CSFB and Morgan Stanley to lead
the underwriting for an IPO.  While that settles the question of
"if" they will IPO Wall Street is still salivating for the
"when".

There was additional merger news after the closing bell, which
could sent healthcare stocks higher Tuesday.  UnitedHealth Group
(UNH), a healthcare insurer, announced it would buy Oxford Health
Plans (OHP) for close to $5 billion in cash and stock.  The news
leaked out within the last 30 minutes of trading and shares of
OHP spiked higher on the news.  Since we're talking about
insurance stocks the group could also get a boost from Chubb's
positive earnings report after the bell this evening.  Estimates
were for $1.42 a share and Chubb reported $1.61.  The company
said they were on their way to meeting or beating its full-year
estimates but traders might not react well to its revenue
numbers, which were just shy of expectations.

Tech investors will also be eager to note that chip stock Silicon
Labs (SLAB) reported earnings after the bell that were 4 cents
better than expectations.  Revenues soared more than 78% to
$113.6 million; which was also above estimates.  The company
followed up by guiding higher on its second quarter revenues.
Hopefully this will be a positive catalyst for the SOX
semiconductor sector tomorrow.  The SOX was one of today's worst
performers and broke down below its simple 200-dma while closing
just above support near the 470 level.

Tomorrow will be pretty busy on the earnings front.  A few of the
larger companies that report before the opening bell tomorrow
are: DuPont (DD), ImClone (IMCL), Level-3 Communications (LLL),
PACCAR (PCAR), R.J.Reynolds (RJR) and Verizon (VZ).  Wall Street
will also digest the latest Consumer Confidence numbers for April
and the Existing Home sales numbers.


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

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


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_042604_1.asp


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The Option Investor Newsletter                   Monday 04-26-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: QLGC, COF, BWA, ZBRA
Dropped Calls: None
Dropped Puts: None
Watch List: Earnings Catalyst


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

QLGC - put
Adjust from $28.75 up to $27.50

---

COF - put play -
We have been triggered in this put play now that COF has
broken support at its 100-dma and the $68.00 level.
Lower the stop from $70.58 to $70.01.

---

BWA - call play -
We urge extra caution on this new call play.  The stock
appears to have produced a failed rally at $90.00 and the
close under $88.00 and its 50-dma is bearish.
No change in stop!

---

ZBRA - call play -
Remember that we are closing ZBRA at Tuesday's close.
Earnings are Wednesday morning.  No change in stop


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

None


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DROPPED PUTS
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None


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

Earnings Catalyst

American International Group - AIG - close: 73.03 change: -0.93

WHAT TO WATCH: Looking to buy the dip?  After last week's earnings
report, AIG appears headed for a test of major support near $70.
With a Buy signal on the PnF chart and a price target above $90,
this dip could turn out to be a very attractive longer-term
bullish entry point, especially if interest rates don't head up as
quickly as many market participants are currently expecting.

Chart=


---

Allergan Inc. - AGN - close: 91.44 change: +1.09

WHAT TO WATCH: Earnings are coming and from the recent price action it
appears AGN investors are expecting good news.  The stock broke out to
new multi-year highs on Monday and with a PnF price target of $108,
there's room to run.  But with earnings set to be released on Friday,
playing the stock right now seems a bit too risky.  Stick it in your
tickler file and look for a post-earnings bounce from the $89-90 area,
which should now behave as support.

Chart=


---

NTL Inc. - NTLI - close: 62.43 change: +2.43

WHAT TO WATCH: Ready for a quick earnings play?  NTLI is set to
report its quarterly results next Tuesday and today's strong
breakout suggests a run back towards strong resistance near $70
ahead of the report.  Look for entries on a near-term retest of
the 50-dma (broken on strong volume today) and then look for a run
to at least $65 and quite possibly $70 ahead of the report.

Chart=


---

Invitrogen Corp. - IVGN - close: 76.57 change: +1.83

WHAT TO WATCH: Between Friday's earnings report and today's strong
move in the BTK index, IVGN finally gave a convincing bullish
move, breaking back over the $75-76 resistance zone.  The stock
ought to now make a run back towards the February highs near $82.
A mild pullback to test the $75-76 level as new support will
provide for the most palatable entry.

Chart=


---

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

ADI $46.06 - It was another negative weekly start for the
Semiconductor stocks, with the SOX once again slipping beneath its
200-dma.  ADI appears to be offering up a solid bearish entry
point, but we need to wait for the breakdown under the 200-dma and
$44 before playing.  Note that the PnF chart is already on a Sell
signal with a $37 price target.

INFY $86.53 - Over the past six weeks, shares of INFY have been
working gradually higher in an ascending channel, drawing nearer
to strong resistance at $90.  We're expecting the stock to break
down from this bear flag pattern though and retest strong support
near $75.  Use a trigger below the 50-dma, as that will also
assure a breakdown from the bear flag pattern.


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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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