Option Investor
Newsletter

Daily Newsletter, Wednesday, 06/23/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Wednesday 06-23-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: A Day for Breakouts
Futures Wrap: See Note
Index Trader Wrap: The uneasy feeling as the second leg begins


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     06-23-2004            High     Low     Volume Advance/Decline
DJIA    10479.57 + 84.50 10486.87 10359.46 1.77 bln   2007/ 810
NASDAQ   2020.98 + 26.83  2023.23  1990.78 1.78 bln   2016/1029
S&P 100   557.80 +  4.33   558.30   551.72   Totals   4023/1839
S&P 500  1144.06 +  9.65  1145.16  1131.73
RUS 2000  580.15 +  8.26   580.79   571.23
DJ TRANS 3139.27 + 61.44  3139.27  3073.52
VIX        13.98 -  0.33    14.82    13.75
VXO        13.63 -  0.47    14.56    13.37
VXN        18.98 -  0.31    19.71    18.78
Total Volume 3,894M
Total UpVol  3,168M
Total DnVol    667M
52wk Highs     314
52wk Lows      108
TRIN          0.41
PUT/CALL      0.83
*******************************************************************

A Day for Breakouts
by James Brown

Express courier Fedex got us started on the right foot when the
company announced earnings this morning and raised its earnings
guidance for the next quarter.  Unfortunately, the markets
continued to trade inside its three-week trading range - that is
until the last hour.  Suddenly, volume surged and stocks, lead by
technology issues, charged into the last hour and broke through
the top of the trading range.  The Dow and the NASDAQ Composite
actually closed positive for the year with the Industrials at new
two-month highs and the NASDAQ at new two-week highs above the
pivotal 2000 mark.

Jim was on the right track yesterday when he said the market felt
like it wanted to go higher and that traders were getting nervous
that stocks could rally without them.  We have been staring at
the June 30th deadline non-stop for the last three weeks so
everyone who wanted to sell to avoid any event risk certainly had
their chance.  Now that the June 30th-fever has broken there is a
lot of money on the sidelines that could really lend some
momentum to today's gains.

I noticed a number of significant breakouts across the board with
stocks and sector indices hitting new highs or breaking through
technical resistance like their 50-dma's.  Dow theory fans will
point out that the Dow Transports are partly to blame for today's
gains.  The transports soared another 2% to breakout over
resistance at the 3100 level to hit new three-year highs.  The
move in transports was boosted by a down tick in crude oil prices
to $37.57 a barrel.  Yet this failed to stall the rally in energy
stocks.  The OIX oil index and the XNG natural gas index soared
to new all-time highs while the OSX oil services index hit new
two-month highs.

Chart of crude oil (August contract):



While we still have the Russell shuffle ahead of us the Russell
2000 still managed to hit new two-month highs.  More importantly
the Dow Industrial's 84-point gain broke through resistance in
the 10,440 area.  The NASDAQ's 26.8-point or 1.34% rally pushed
the index back through the 2000 mark and confidently back above
its descending trendline of resistance and its simple 100-dma.
The S&P 500 index also managed a new relative high.

Chart of the Dow Industrials:



Chart of the NASDAQ Composite:



Chart of the S&P 500 index:



Overall it was a very widespread rally with every sector-specific
index closing higher.  The largest gains were seen in networking
stocks, semiconductors, Internets, biotechs, airlines, and
homebuilders.  Meanwhile defense stocks managed to hit new all-
time highs again.  The rally in the networkers was fueled by
yesterday's news that telecom giant SBC Communications (SBC) was
discussing plans to spend $4B to $6 billion over the next five
years on a new fiber-optic network.  Gains for the several
networking stocks have been substantial as traders speculate on
who might win such a lucrative contract.  Over the last two days
Lucent (LU) has rallied 8.5%, Juniper Networks (JNPR) has soared
15% and JDS Uniphase (JDSU) is up 18%.

Market internals were strongly bullish as you might expect.
Advancing stocks outnumbered decliners 5-to-2 on the NYSE and 2-
to-1 on the NASDAQ.  Up volume was approximately three times
stronger than down volume on both exchanges.  More importantly
overall volume was relatively strong at 3.5 billion across both
exchanges.  This is a significant improvement to what we've
experienced over the past couple of weeks and adds a little bit
more confidence to today's rally.

Fedex (FDX) deserves some credit for both improving investor's
moods with their positive earnings forecast as well as
contributing to the rally in transports.  The company reported
earnings this morning of $1.36 per share, which was above
estimates at $1.33 and well above last year's 92 cents for its
fourth quarter.  FDX's revenues jumped more than 20% to $7.04
billion compared to just $5.8 billion a year ago.  FDX now sees
next quarter (Q1) falling in the $0.90-to-$1.00 range compared to
analysts' estimates at 80 cents per share.  Shares of FDX jumped
more than 2% to close at $80.05 - a new all-time high.  Don't
look now but the closer FDX edges toward $100 the closer we are
to hearing another stock split announcement.  Its last 2-for-1
split was back in May of 1999.

RJ Reynolds Tobacco (RJR) made headlines today after the FTC gave
its approval last night to the company's long-awaited merger with
Brown & Williamson, a division of British Tobacco (BTI).  The
newly formed company will be the No 2 cigarette maker behind
Phillip Morris.  Shares of Phillip Morris, now Altria Group (MO),
added 1.3% and helped lift the Dow Industrials.  Meanwhile RJR
received a credit upgrade from "negative" to "stable" from Fitch.

There were plenty of tech stocks hitting new highs but none of
them performed quite as well as Salesforce.com (CRM).  The
company's IPO came to market today with 10 million shares at $11
per share.  This was above the expected offering price in the $9
to $10 range.  CRM's claim to fame allows customers to truly use
their application software "on demand" for as much or as little
as they need.  The stock soared 56% to close at $17.20 per share
on volume of 10.89 million.

Alas the day was not without its losers.  Mylan Labs (MYL) lost
about 7% to close at $20.86 after the FDA chose to extended JNJ's
patent protection on its Duragesic pain relief patch by another
six months.  MYL had planned to offer a generic version.  The
company plans to fight the decision and sue the FDA.  Meanwhile
Career Education Corp (CECO) plummeted another 24.7% to $44.11
after the company confirmed that the SEC had formalized its probe
into the ongoing scandal involving falsified student records.
Merrill Lynch and Bear Stearns downgraded the stock to "neutral"
and "peer perform", respectively. I wonder how BAC and
ThinkEquity feel after the two firms reiterated their "buy" and
"strong buy" ratings on CECO in the previous two sessions.

AT&T was making headlines after the closing bell when the company
lowered its financial outlook for fiscal year 2004.  T is
lowering its revenue outlook from $31-32 billion for the year to
$29.5-30.5 billion.   AT&T separately announced it would stop
selling local and long distance services in seven states as it
continued to fight with competition from the regional Bells.
Existing customers would be allowed to keep their current
service.  AT&T (T) was trading down more than 4% in after hours
markets.

Tomorrow should prove interesting.  Now that the major indices
have broken through the tops of their trading ranges will we see
any follow through?  The Dow could struggle with the 10,500 level
but I suspect it will be the 10,550-10,600 region that will be
the next hurdle.  The NASDAQ has plenty of overhead resistance
but the strength in the two-day rally should encourage investors
who have been sitting on the sidelines to jump on the bullish
bandwagon before they "miss" the rally.  Thursday does bring a
few economic reports.  Before the opening bell will be the May
durable goods orders.  Economists are looking for a small gain of
1.5% after April's 3.2% loss.  We'll also get the weekly initial
jobless claims before the open.  After the bell will be the May
new home sales.  The economic data continues on Friday with the
final Q1 GDP numbers, the chain deflator numbers, existing home
sales and the Michigan sentiment index.

Finally, let me leave you with a word of caution.  The breakout
today looks great.  I believe we should trade what we see.
However, the volatility indices are waving huge red flags as they
drop back to the low end of their trading range or to new all-
time lows like the VXN.  Traditionally, these would be huge sell
signals but one thing we've learned over the past 18 months is
that the volatility indices can continue to slip lower than we
would normally imagine.


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

The uneasy feeling as the second leg begins

I usually don't mention, or talk about what I "feel," as a
trader's feeling's, when unverifiable, usually have little impact
on what direction the markets usually take.  While I feel a
pullback is in order, there's no doubt in my mind that the
second leg of the bull market took hold today.

The reason I have an uneasy feeling that a pullback is in order,
is that things look way too bullish at today's close.  But the
fact that things look so bullish can't be a mistake.  The market
is never wrong, it's saying something.

"The second leg of the bull market began today.

U.S. Market Watch - 06/23/04 Close



The Dow Transports (TRAN), the CBOE Oil Index (OIX.X), the
Natural Gas Index (XNG.X) and the Defense Index (DFX.X) all trade
new 52-week highs in today's session.

The CBOE Internet Index (INX.X) is closing in on a 52-week high,
the S&P Retail Index (RLX.X) is near its recently set all-time
high, the Oil Service Index (OSX.X) is closing in on its 52-week
high, and the Morgan Stanley Cyclical Index (CYC.X) is another
day like today's trade away from a 52-week high.

Market Snapshot / Internals - 06/23/04 Close



Strong gains across the board for the major indices.  Bulls lit
the fuse late in the session where at 03:15 PM EDT a buy program
premium alert came about 15-minutes after an upside alert I had
set on NYSE Composite ($NYA.X) 6,602.34 +0.74% at 6,575.

New highs at both the NYSE and NASDAQ expanded to their highest
numbers since the mid-May lows.  I did leave the NYSE 10-day
NH/NL ratio green.  If carried to the second decimal it would
still be 74.02%.

The NASDAQ's NH/NL indications would show the NH/NL 5-day average
moving back above its 10-day NH/NL average, which is still
falling at 57.50-day.

Traders and investors may have noted this morning's 09:00 AM EDT
update, where the S&P 500 Bullish % ($BPSPX) reversed up to "bear
correction" status after Tuesday's trade.

The MAIN thing I would want to be careful of as an OVERLY
aggressive bull at this point, is to get the FEEL for what the
NH/NL indications have been doing.  Remember when they "bottomed
out" at what I'm calling the "Biggs Bottom" (when Barton Biggs
said "these markets are the most oversold I've seen in 20 years).

The NH/NL ratios are faster moving, now we start to see some more
meaningful signs of strength from the bullish %.  For it to
continue, a bull wants to see the NH indications build further,
and preferably find the new lows drying up.  While the NH are
building, the NL at both the NYSE and NASDAQ are steady, thus my
sense that we're still seeing some "stretch" at both ends, where
things could still snap.

After a pretty good move up from the mid-May lows, my uneasy
feeling at this point is some type of giveback of gains.

VOLUME returned to the NASDAQ with over 1.8 billion shares
changing hands.  That's impressive and shows sudden renewed
interest from market participants, most likely brought on by some
bearish capitulation on breaks above downward trend(s).

Pivot Analysis Matrix -



Fresh trades at WEEKLY R1s and some MONTHLY R1s were found in
today's trade.  Of the major's its will be the S&P 100 Index
(OEX.X) that closes right at/near its WEEKLY R1.

Wilshire 5000 Total Market Index ($WLSH) - Daily Intervals



Fact:  The broadest of broad major indices has the Wilshire 5000
Index ($WLSH) braking firmly above trend, and with MACD
oscillator kicking higher, the 10,500 lows are in, the $WLSH will
likely trade 11,280 before it trades back below 10,900, and with
hindsight being 20/20, every bull and bear that didn't get some
buying done on that test of the longer-term 200-day SMA, which is
as good a representation of upward trend as we should need, will
be chomping at the bit to do so in the future.  If ever given a
chance.

Dow Transportation Average (TRAN) - Weekly Intervals



Oil prices have been at record highs in recent months.  The Fed
will be raising interest rates soon.  Somebody needs to tell the
transports this as they're breaking out despite these "negative"
catalysts.

Prediction:  The TRAN will trade 3,442 before it trades 2,800
again.  Depending on how things go after the turnover of Iraq,
TRAN might trade 3,800 before it trades 2,800 again.

S&P 100 Index Chart - Daily Intervals



Gulp!  Bulls defended WEEKLY S1s on Tuesday, now its time to see
how much conviction bears have, or lack of conviction bulls have,
with the Transports (TRAN) breaking to new highs.  I don't think
bears will defend tomorrow, not here.  The late session gains
Tuesday and then again today gives me the feeling bulls went home
long, and the distribution point is most likely at the 560 to 561
level, and that distribution may run well into next week.

One reason I made note of some indices that were within reach of
52-week highs was so I could set some alerts at those levels, and
if triggered, will be able to get a sense for further bullish
enthusiasm.

One thing I really need to do tonight is go back and read some of
the Index Trader Wraps from April 2-13, make some notes, as I'm
sure things were looking very bullish as the OEX was trading the
current WEEKLY R2.

NASDAQ-100 Tracker (QQQ) Chart - Daily Intervals



I profiled some bullish stock plays today, but having gone home
short the QQQ at last night's close, I couldn't get myself to
close out a bearish trade TWO TIMES as the QQQ came down and
kissed its WEEKLY Pivot.  Mom used to beat me over the head with
an iron skillet when I was a kid, and its starting to take its
toll.

As I look at tonight's chart of the QQQ, I'm a bit surprised that
QQQ didn't build on yesterday's volume, especially considering
today's 1.8 billion at the NASDAQ.  Are bears a little
complacent?  Surely that recent June 8 relative high of $37.19 is
going to find sellers.

That's probably enough reason for the QQQ to find a bid at WEEKLY
R1 tomorrow, then a finishing drive higher toward MONTHLY R1 and
WEEKLY R2.  That will find some volume for sure.

Jeff Bailey


************************Advertisement*************************

Stock Option and Futures Brokerage

OneStopOption teams the best trading technology with varying
levels of professional assistance at very competitive prices.
Commission costs are comparable to discount brokerage and
tailored to individual customer needs.

The power of one brokerage group with experience and expertise
in the Securities* and Futures Markets offers unprecedented
convenience for traders.

Access To All Futures Markets            Toll Free 888-281-9569
Stock Option Principals

www.OneStopOption.com

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


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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support


The Option Investor Newsletter                Wednesday 06-23-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: AHC, DHR, EASI
Dropped Calls: None
Dropped Puts: None
Watch List: Brokers to Networking and more!


************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade ket Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

AHC - call
Adjust from $71.75 up to $73.85

---

DHR - call
Adjust from $47.00 up to $48.00

---

EASI - call play -
 Raise stop from $54.50 to $55.50


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

None


************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
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.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

None


************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
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.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

Brokers to Networking 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.
___________________________________________________________________


Legg Mason - LM - close: 90.17 change: +1.75

WHAT TO WATCH: Earnings from MWD and GS have been pretty strong
this week and they have helped ignite a new rally in the broker
stocks.  We like the breakout over $90.00 and the 50-dma in LM.
With earnings on July 15th it's possible that LM could see a pre-
earnings run up.  The P&F chart is bullish and points to a $104
price target.

Chart=


---

Harman Intl Industries - HAR - close: 90.65 change: +2.22

WHAT TO WATCH: Yes, HAR is overbought and up several weeks in a
row but it's hard to argue with its relative strength.  The stock
bounced off its simple 10-dma yesterday and today's gain put it
above round-number psychological resistance at $90.00.
Aggressive traders could try bullish positions but we'd suggest
relatively tight stops.

Chart=


---

Juniper Networks - JNPR - close: 23.35 change: +2.49

WHAT TO WATCH: Whoa!  JNPR soared almost 12% today on more than
double its average volume.  The rally broke through resistance at
$22.00, its 40, 50 and 200-dma's.  Looks like the shorts were in
a hurry to cover with the NWX networking index and the NASDAQ
index in rally mode.  (JNPR had short interest near 9% of its
float.)  Some of the networking stocks have been rising lately
due to news that SBC is planning to build a new network worth $4B
to $6 billion over the next five years.  We like the breakout but
we wouldn't chase it.  Look for a dip back to $22.00-22.50 and
buy a bounce.

Chart=


---

Varian Medical Systems - VAR - close: 79.70 change: +0.16

WHAT TO WATCH: We find it very interesting that VAR failed to
participate in the market-wide rally today.  The stock has been
consolidating sideways near the $80 mark after its recent
declines.  The P&F chart is very bearish with a triple-bottom
breakdown sell signal and a P&F target of $73.00 but it's
fighting with P&F support near $78.00.  This might turn out to be
a bearish candidate after all just remember that VAR does split
2:1 in August.

Chart=



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

YHOO $33.97 +1.43 - YHOO helped lead the INX internet index to
new gains with a 4.39% gain of its own.  YHOO's breakout from its
three-week old consolidation but there could be 5-year old
resistance at the $35 level.

EBAY $88.35 +1.14 - Heads up EBAY lovers.  The stock has broken
out of its bull flag pattern and looks ready to move.  Aggressive
bulls consider this your entry point with a $100 target.

DE $69.30 +0.24 - Yup, still waiting for the breakout over $70.

ITT $85.62 +0.37 - ITT still looks bullish with its eight-week
old up trend.  The recent two-week consolidation between $84 and
$86 could be coming to an end soon.  Watch for the breakout.


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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support



DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives