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Daily Newsletter, Wednesday, 06/16/2004

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The Option Investor Newsletter                Wednesday 06-16-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Stocks Snooze Despite Strong Economic Data
Futures Wrap: See Note
Index Trader Wrap: Subtle change


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     06-16-2004            High     Low     Volume Advance/Decline
DJIA    10379.58 -  0.85 10393.42 10355.51 1.43 bln   1580/1634
NASDAQ   1998.23 +  2.63  2002.07  1990.57 1.38 bln   1228/1384
S&P 100   553.43 +  0.64   554.38   552.07   Totals   2808/3018
S&P 500  1133.56 +  1.55  1135.28  1130.55
RUS 2000  570.07 +  2.15   570.15   566.64
DJ TRANS 3059.24 + 19.40  3059.24  3035.21
VIX        14.79 -  0.26    15.22    14.48
VXO        14.66 -  0.34    15.35    14.48
VXN        20.39 -  0.49    21.38    20.13
Total Volume 3,038M
Total UpVol  1,470M
Total DnVol  1,485M
52wk Highs     184
52wk Lows      103
TRIN          1.15
PUT/CALL      0.69
*******************************************************************

Stocks Snooze Despite Strong Economic Data
by James Brown

Wednesday's market action can be summed up in one word: boring.
The major averages traded sideways with the Dow Jones Industrials
in a 40-point range, the NASDAQ in a 12-point range and the S&P
500 index in a 5-point range for the day.  Some traders expressed
frustration that today's economic reports, which showed the
economy was improving, couldn't get a rally going.  Others were
surprised that sabotage in Iraq failed to spike oil prices.  The
overall feeling among professional investors is that there is
little impetus for people to buy stocks ahead of the June 30th
FOMC meeting and Iraq handover.

There were a handful of economic reports out today.  Traders were
looking for a lead on the interest-rate sensitive homebuilders
when the housing starts and building permit data came out.  The
Commerce Department reported that May's housing starts slipped
0.7% to an adjusted rate of 1.97 million from April's 1.98
million.  This was ahead of economists' forecasts.  Meanwhile
builder permits surged to new 31-year highs.  Economists were
expecting builder permits to slip due to higher interest rates
but they came in up 3% at an adjusted rate of 2.077 million
permits.  Unfortunately, the DJUSHB home construction index
closed lower by 1% despite the positive news for the sector.

The Federal Reserve was busy today with its report on May
industrial output and capacity utilization.  Economists were
forecasting that output would rise 0.8%.  U.S. factories and
mines actually pushed out a 1.1% gain to 116.9 on the Fed's
output index, which was the biggest one-month surge in six years.
The capacity numbers were also a surprise.  Economists were
looking for capacity utilization to jump from 77.1% to 77.4% in
May.  The Fed reported that utilization hit 77.8%, the best
number since May 2001.

This afternoon the Federal Reserve released its Beige book
report, named for the color of its outside cover.  The report
unveiled that retail sales in most districts were "generally
positive".  The Beige book also confirmed that manufacturing
activity rose across all twelve districts in April and May.  The
report stated that inflation was tame, business was up and the
labor market was improving as business continued to hire at a
stronger pace.  For the full report click here:
http://www.federalreserve.gov/fomc/beigebook/2004/20040616/default.htm

Counteracting all this positive economic news has been a new wave
of violence in Iraq.  President Bush reiterated today that the
next few weeks would be tough as our enemies in Iraq stepped up
the intensity level ahead of the June 30th handover.  Terrorists
have been targeting Iraqi leaders in the new government as well
as kidnapping Westerners.  Last Saturday Iraq's Deputy Foreign
Minister was gunned down in Baghdad.  On Sunday one of Iraq's
education ministers was shot dead.  Today Iraq's security chief
for its northern oil fields was murdered in the city of Kirkuk.
Today also marked the second explosion on one of Iraq's major
pipelines in its port city of Basra.  The latest bomb is said to
have caused a large amount of damage and will shut down all
exports for the next seven to ten days.  The shutdown is
estimated to cost the Iraqi people $60 million a day in crude oil
sales.

Most market pundits were surprised that the oil export shutdown
in Iraq, which had grown to 1.6 million barrels a day, did not
send oil futures higher.  July contracts for crude actually
slipped lower midday but rebounded to close up 23 cents to $37.65
a barrel.  Saudi officials asked non-OPEC members to raise
production to offset the Iraq closure but most experts believe
it's just talk.  The vast majority of oil producers, OPEC or not,
are already pumping at or near maximum production levels.  The
situation was not lost on oil and oil service stocks.  The OIX
oil index rose 1.43% as it neared new three-year highs.  The OSX
oil services index soared 2.68% to become the best performing
sector on the session.  The XNG natural gas index also rose more
than 1% to hit new three-year highs.

Oil stocks weren't the only ones moving higher.  Defense stocks,
represented by the DFX index hit new all-time highs.  Plus,
biotech stocks (BTK.X) gained 1.44%.  The BTK broke through its
simple 200-dma and closed above the psychological, round-number
500 level.  Overall market internals were mixed to positive.
Advancing stocks outnumbered decliners 3-to-2 on the NYSE and 8-
to-7 on the NASDAQ.  Up volume outweighed down volume on the NYSE
but it was reversed on the NASDAQ.  Overall volume was extremely
low at less than 2.8 billion shares on both exchanges.

Chart of the Dow Industrials:



Chart of the NASDAQ Composite:



There were several high profile earnings announcements in the
last 24 hours.  At the top of the list was software giant Oracle
(ORCL).  ORCL reported last night and beat estimates by a penny
while edging past revenue expectations.  Wall Street's reaction
was mostly positive with a handful of brokers reiterating their
"buy" rating for the stock.  Unfortunately, ORCL proved to be a
drag on the NASDAQ and the GSO software index as the stock sunk
more than 3% to close at $11.35.  Comments out today reflected
concerns over some of its licensing revenues, which were softer
than expected.

Wall Street firm Bear Stearns (BSC) announced earnings this
morning and beat analysts' estimates of $2.23 by 26 cents.
Revenues jumped almost 18% from $1.5 billion to $1.72 billion,
bypassing estimates at $1.57 billion.  BSC said its fixed-income
and bond trading business helped push results past the street's
expectations.  The company also announced that it has received a
notice from the SEC that the regulators were considering action
against BSC for its involvement in the mutual fund scandal.
Shares of BSC gapped lower but managed to close positive by 72
cents at $80.15.

Consumer electronics retailer Best Buy Co (BBY) reported earnings
of 34 cents per share, which bested estimates by a penny.
Revenues climbed more than 17% to hit $5.47 billion, also above
estimates.  Overall the quarter reflected a 65% jump in earnings
over the same period a year ago lead by strong sales of digital
cameras and flat-panel TVs.  Analysts raised concerns over BBY's
"reward zone" plan for loyal customer discounts and this lead to
BBY's 2% decline to $52.

Wednesday's big winner was Cyberonics (CYBX).  The stock soared
78% to close at $34.81 after an FDA advisory panel voted 5-2 in
favor of CYBX's VNS system as a treatment for depression.  The
VNS system, already in use for some epilepsy patients, is a
medical device surgically implanted to send electrical current to
the vagus nerve.  The FDA normally follows decisions made by its
advisory panels and Wall Street expects this to open up the
massive depression market for CYBX.  Contributing to the 78% jump
in price was CYBX's small 16.6 million share float and the stocks
high short interest, which was close to 20% of the float.

A few after hours headlines that traders will want to follow come
from Ford and Jabil Circuit.  Ford Motor Co (F) raised its Q2
earnings forecast to 45-50 cents per share based on strong growth
in its financing arm.  Consensus estimates were at 42 cents per
share.  Meanwhile Jabil Circuit (JBL) reported its Q3 earnings
that were inline with estimates at 26 cents per share.
Unfortunately, the company issued Q4 guidance that was below
analysts' estimates and the stock sank 10% in after hours
trading.

The late Wednesday news above might produce a bifurcated market
tomorrow.  Blue chips could creep higher on the Ford news while
tech stocks are likely to sink on the JBL news.  All the while
Wall Street will be wading through more economic data.  Thursday
brings the weekly initial jobless claims, the leading economic
indicators for May, the Philly fed survey and the Semi Book-to-
Bill report.  Yet overshadowing them all will be the delayed May
Producer Price Index (PPI).  If that's not enough we're also
expected to hear from Federal Reserve governor Moskow as he
speaks on the economy.

Hopefully the upward drift we saw in stocks Wednesday afternoon
will blossom into a new surge higher tomorrow but don't bet on
it.  Friday is options expiration and stocks will probably
gravitate to their nearest strike price.  One thing that
continues to concern us are the volatility indices.  The lower
they creep the closer we get to our next sell-off.


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

Subtle change

It's a good thing that both the NYSE and NASDAQ decided to quote
and trade stocks in increments of a penny a couple of years ago,
as the major indices and most stock traded in a very tight range
despite a seemingly nonstop bombardment of economic data.

Sectors that gained more than 1% had the Oil Service Index
(OSX.X) 104.57 +2.7% leading the list of sector winners after
Deutsche upgraded select names in the sector (BJS, CAM, ESV, MVK,
NBR, RDC, SLB and WHQ) to "buy" from "hold."

Other sector up more than 1% had the Oil Index (OIX.X) 351.40
+1.43% being lead by Dow component Exxon/Mobil (NYSE:XOM) $44.73
+1.47%, which closed at a new 52-week high, the Biotechnology
Index (BTK.X) 501.49 +1.44% being spurred higher after non-index
component Cyberonics (NASDAQ:CYBX) $34.81 +76.97% surged on FDA
approval of its VNS system to treat drug refractory chronic
depression.

Making a new 52-week high was the Defense Index (DFX.X) 215.44
+1.14% with Dow component Boeing (NYSE:BA) $49.90 +1.31% closing
at a new 52-week high, while Raytheon (NYSE:RTN) $34.87 +1.04%, a
stock I highlighted on June 9 in the 11:00 AM EDT intra-day
update link
powered itself to a new closing high.

Only the Dow Jones Home Construction Index (DJUSHB) 563.28 -1.03%
sunk more than 1% where a decline in May housing starts combined
with the Mortgage Bankers Association saying that the average
rate for a 30-year fixed rate mortgage rose to 6.34% last week,
weighed on the sector.  The MBA also said that its seasonally
adjusted Mortgage Applications Index rose 5.6% to 600.6 for the
week ended June 11, its first gain in 5-weeks.

Market Snapshot / Internals - 06/14/04 Close



Market internals finished rather strong where we did see some
expansion of new highs at both the NYSE and NASDAQ, but at
today's close the NASDAQ Composite's 10-day NH/NL Average Ratio
slipped back into "bear alert" status as it slips lower from
above 70% to below as we'd chart a 3-box (6%) reversal at 66%.

NASDAQ Composite 52-week NH/NL Chart - 2% box



After "rocketing" up from a recent low reading of 24%, today's 3-
box reversal for the NASDAQ's 10-day NH/NL ratio isn't a "sell
the market" type of reversal, but does suggest some meaningful
loss of bullish leadership among 4 and 5-lettered stock symbols
has taken place.  We'll take a look at the NASDAQ Composite's
($COMPX) 1,998.23 +0.13% point and figure chart on an
unconventional 10-point box scale to try and put things in
perspective.  Remember the blue 1-9 mark entries near the
beginning of months January-September, while letters A-C are for
October-December.

NASDAQ Composite ($COMPX) - 10-point box



I wanted to look at a 10-point box, as it would show two decent
tie points where the COMPX would have generated triple top buy
signals (green circles) while the NASDAQ 10-day NH/NL ratio was
in a column of "X".  While the first sign of any meaningful
technical weakness on the COMPX chart would come at 1,960, I
would currently begin tying in the current reversal lower in the
NH/NL 10-day, with the COMPX at 2,020.

I've noted an area of PAST supply/demand trade, where after
reversing from a much more overbought level on the NH/NL chart,
the COMPX did move lower to trade right back to 1,990, where it
had given the prior triple top.  Should similar trade be found
again with the current NH/NL reversal, my eye is drawn to a
potential downside target of 1,940, where the COMPX recently gave
the triple-top buy signal.

Now, let's look at our bar chart of the COMPX, where in past
updates, we looked at a weekly interval, but lets zoom in a bit
and take a look at things.  In past updates, we looked at the
COMPX with a HUGE retracement from the all-time highs to the
October 2002 lows and I've left the only visible 19.1%
retracement (COMPX has retraced more that 19.1% of that total
decline), but I'm going to add another conventional retracement
to slice things up a bit.

NASDAQ Composite (COMPX) Chart - Daily Intervals



The recent reversal in the NASDAQ NH/NL indications have us alert
to potential weakness, and the closer look at our COMPX chart
shows downward trend once again having some impact, or technical
merit after the COMPX briefly pierced above this trend last week.
While we're alert to some internal weakness, or loss of bullish
leadership, its rather obvious that the 200-day SMA has been a
level of support.

I've marked the recent two inflection points of 2,023.53 (that's
2,020 on the PNF chart) and 1,963.48 (that's the recent column of
"O" on the point and figure chart at 1,970).  In essence, its
really going to have to take a violation of the rising 21-day SMA
1,963.49, or 1,960.00 for the EXTERNALS of the COMPX to give
price confirmation of what the internals are hinting at.

Pivot Analysis Matrix -



Today's tight range for the major indices leaves an even tighter
range for tomorrow's DAILY Pivot matrix.  It would really appear
that the market is "narrowing in" on the WEEKLY Pivots for the
major indices as this week's Triple Witch nears an end.

I've been hit with three power outages tonight and it has been a
battle to get what I've gotten written at this point as power has
been sporadic at best, and I want to get what I've gotten written
to my HTML department in case I lose power for good (lighting
storms in South Denver).

The Semiconductor Index (SOX.X) 469.29 -0.42% continues to draw
some attention that it just isn't getting the job done from the
bullish side right now.  It's difficult to say that there's
"something wrong," as its trade may be highly influenced by
option expiration.

While a day like today, a rather quiet day of trade for the major
indices may lull traders into complacency, don't be complacent
and be alert for a sharp and sudden move.  As hard as I've tried
to look for any option-related trade activity to hint of any
unraveling (bullish or bearish) I'm not able to see anything at
this point, and if we're going to see a greater amount of
volatility than what we've seen the past couple of days, it will
most likely come very quick, with little notice.

Jeff Bailey


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The Option Investor Newsletter                Wednesday 06-16-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: CCMP, KSS, SYMC
Dropped Calls: None
Dropped Puts: None
Watch List: Biotechs, Natural Gas and Tractors


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

CCMP - put play -
lower stop from $30.45 to $30.00.

---

KSS - put play -
lower stop from $49.01 to $48.51

---

SYMC - Put Play
Lower stop from $45.50 to $43.00


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

None


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

None


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

Biotechs, Natural Gas and Tractors

___________________________________________________________________

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.
___________________________________________________________________


ImClone Systems - IMCL - close: 81.70 change: +2.54

WHAT TO WATCH: The BTK biotech index is up two days in a row and
Wednesday's 1.44% gain pushed the index through resistance at its
200-dma and the 500 level.  Helping lead the BTK higher is IMCL.
Shares of IMCL rallied 3.2% and closed over round-number
psychological resistance at $80.00.  Bulls might consider giving
this stock another look.  IMCL appears headed for the $90 level
but be careful with your stops.  The stock has been somewhat
volatile.

Chart=


---

Energen Corp - EGN - close: 45.44 change: +0.24

WHAT TO WATCH: We mentioned EGN in the MarketMonitor today.  The
XNG natural gas index is breaking out to new relative highs and
so is EGN, except EGN is hitting new all-time highs.  The chart
of EGN also happens to paint what appears to be a cup and handle
formation.  These technical patterns are not that common so when
they appear investors like to follow them.  EGN's cup-and-handle
pattern projects a $50 price target.  Given the breakout over $45
in the last two days this could be an entry point.

Chart=


---

Deer Co - DE - close: 68.05 change: -0.60

WHAT TO WATCH: DE is trading in a pivotal area.  We should see DE
either breakout over resistance at $70.00 or roll back over to
retest its 200-dma. Bears probably need to look for a move
through the $66 level but that doesn't give you a lot of room to
target a move to its 200-dma near $63.  Bulls can look for a move
through the $70.00 mark.  DE's P&F chart is bullish with a
double-top breakout buy signal and an $84 price target.

Chart=


---

Amgen Inc - AMGN - close: 54.40 change: -0.46

WHAT TO WATCH: In contrast to IMCL, shares of AMGN, the largest
component in the BTK biotech index, is steadily moving lower.
AMGN has been failing at its simple 40-dma for weeks and shares
are rolling over again.  Short-term technicals look weak and its
MACD is about to produce a new sell signal.  Its P&F chart
displays a very bearish triangle breakdown pattern.  Patient
bears might be able to target a move to $50.

Chart=



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

EBAY $87.87 +0.42 - We're still watching EBAY.  The stock is
trying to breakout from its bull flag pattern.  Look for a move
over $88.25.  Momentum traders can wait for a move over $90.

GS $89.98 -0.23 - GS is poised for a breakdown.  The stock closed
under crucial support at $90.00 and its MACD is very close to
producing a new sell signal.  The only problem is GS' earnings
report next Tuesday.  We would not hold over the announcement but
a straddle might work.

TXN $24.16 -0.47 - TXN has slipped back to support at $24.00
again and it looks ready to break it.

CW $51.30 +0.70 - We mentioned CW in the monitor today.  After
five months of consolidating sideways suddenly the stock is on
fire with three days of gains on strong volume.  Yet oddly there
is no news to explain what caused the move.


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