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Daily Newsletter, Tuesday, 06/29/2004

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The Option Investor Newsletter                 Tuesday 06-29-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Watch Your Language!
Index Trader Wrap: Gold below $400 + Oil at $36 = Fed raising 25 bp
Market Sentiment: One Down, Two to Go


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      06-29-2004           High     Low     Volume   Adv/Dcl
DJIA    10413.43 + 56.30 10429.13 10341.68 1.68 bln 1667/1592
NASDAQ   2034.93 + 15.10  2037.60  2017.35 1.60 bln 1826/1281
S&P 100   552.51 +  2.03   553.58   549.78   Totals 3493/2873
S&P 500  1136.20 +  2.85  1138.26  1131.81
W5000   11084.47 + 28.80 11099.92 11045.09
SOX       480.45 + 10.00   480.80   469.64
RUS 2000  587.83 +  3.73   590.07   583.72
DJ TRANS 3184.71 +  6.70  3189.05  3172.15
VIX        15.47 -  0.60    16.28    15.22
VXO (VIX-O)15.37 -  0.23    16.45    15.37
VXN        20.15 -  0.44    20.52    19.90
Total Volume 3,512M
Total UpVol  2,247M
Total DnVol  1,217M
Total Adv  3923
Total Dcl  3293
52wk Highs  223
52wk Lows    96
TRIN       0.82
NAZTRIN    0.56
PUT/CALL   0.87
************************************************************

Watch Your Language!
by Jim Brown

That is what the investor community is saying to Greenspan
tonight. While the actual rate decision may be anticlimactic
tomorrow the language of the announcement is the key to the
reaction. The market rallied on Tuesday on the hopes the
"measured pace" clause is retained but the rally was muted
on fears hikes could be accelerated. The fears kept us from
testing the 10480+ level for the second consecutive day.

Dow Chart - Daily


Nasdaq Chart - Daily


SOX Chart - Daily



The morning started out with a minor dip but it was quickly
erased as anticipation about the Consumer Confidence filtered
through the markets. The Russell spiked substantially before
the announcement and then led again after the release.

Consumer Confidence rose to 101.9 in June from 93.1 in May.
This was well over the consensus estimates at 95.0 and was
attributed to falling gas prices and a rise in employment.
This was the highest level for the index in two years. The
present conditions component soared from 90.5 to 104.8 and
the expectations component rose to 100.0 from 94.8. Those
thinking jobs are plentiful rose to 18.0 from 16.6, not
necessarily a rousing rebound. Those planning to buy homes
FELL to 3.6% from 4.1% and those planning to buy a car fell
slightly. These surveys are impacted greatly by employment
surveys and we have a new Jobs report due out on Friday. As
long as we continue to see jobs added to the economy these
confidence surveys will improve. We have seen the result of
this expanding confidence in the home sales numbers over the
last week. Both new homes and existing sales set records.

The only other economic report for the day was Chain Store
Sales and at -1.2% it echoed the data we have been seeing
from the big retailers. Rising consumer confidence has not
translated into higher retail sales. Wal-Mart and Target
have both warned this week that sales would be weak and
that has been reflected in this report. Analysts have
attributed the slow sales to cooler than normal weather
and heavy rains in many areas. This was the biggest drop
in sales in three months and I have a hard time blaming
that big a drop on the weather. I suspect it is more of
a combination hit from weather, high gas prices and the
end of buying fueled by tax refunds. We are right in the
middle of the summer doldrums and consumer debt is at
record levels. Confidence may be rising but consumer
cash is still stretched to the breaking point.

I mentioned on Sunday that earnings warnings have been
very quiet and traders were left to trade on their own
optimistic assumptions. Well the dam broke this week. In
just the first two days we have had warnings of weak sales
or earnings from TGT, GM, WMT, T, WM and HAL to name a
few. I have not heard any news about raised guidance from
anyone. If this is the beginning of a new trend we could
be in trouble. July is typically the best month of the
3Q and it is not shaping up as a barn burner if this is
a clue to the future.

The markets were less than inspiring today despite being
positive for the day. The Dow battled 10400 for most of
the morning and then used 10400 as support for most of
the afternoon. The Dow traded in a 25-point range after
12:00 and closed right in the middle at 10413. Overhead
resistance is still 10450-10500 and we are still stuck
in the broader three week range from 10300-10490. Last
week the Dow made a concerted effort to break out of
that range to no avail.

The Nasdaq did manage to move back to near its recent
highs at 2040 on strength in the semis and the small
caps. The SOX gained nearly +10 points to move back to
interim resistance at 480. With much stronger resistance
at 490 we could see one more day of help from the SOX
before the Nasdaq has to make it on its own. That would
translate to about 2050 on the Nasdaq and it would be
a new high for the week.

What is going to skew all the support/resistance levels
is the Fed decision due out at 2:15 on Wednesday. The
widely expected rate hike will be met strong buy/sell
activity regardless of what they say. It is a program
trade event on both sides. This should easily violate
the current resistance levels and I am actually counting
on it.

After all the cussing and discussing over the last two
months we are finally down to the last tick on the event
clock and that occurs at 2:15 on Wednesday. Iraq has
passed with no material news events and the end of the
quarter buying has failed to materialize. The Russell
shuffle is behind us and we are left with only the Fed
decision before June expires. That decision is not
really in doubt but the language will be hotly debated.
Most feel they will keep the "measured pace" descriptor
for future rate hikes but there is a growing group of
analysts that expect that terminology to disappear by
August.

The real fear has always been that we would see a 1994
rate hike scenario where the Fed ran out of control with
an unprecedented series of hikes. The Fed has tried to
express that calm will prevail and the recent economic
reports suggest the Fed is right in that claim. We have
seen numerous weaker than expected reports over the last
month suggesting the economy is growing slower than hoped
and the Fed is not behind the curve as many have claimed.
In fact the Fed has claimed that it will be patient in
removing the economic stimulus of low rates until they
actually see a substantial increase of inflation. So far
they continue to claim that the excess capacity in the
economy will keep inflation at reasonable levels for the
rest of the year. Just in case they are wrong the Fed
has said they will not hesitate to act aggressively if
the pace of inflation increases.

This is the key language traders will be looking for
tomorrow. If the Fed retains the "measured pace" comment
then we should rally despite the size of the rate hike.
If they change the language to make it conditional
to the inflation rate then we could see a strong
negative reaction.

The majority of traders claim that any Fed rate hike
has already been factored in and most feel the language
will be neutral. Currently there is only about a 40%
chance of more than a 25 point hike. Regardless of the
decision and the language we should have some strong
moves and everyone should remember the first move is
not normally the one that sticks.

This leaves us with a vast number of trading possibilities
for Wednesday. Add in the multiple earnings warnings and
lowered guidance and suddenly the outcome does not look
so exciting. I still have a positive bias but I am not
as convinced as I was last week. I think the gains in
the Nasdaq are the key. As long as techs are finding
buyers the rest of the market will probably muddle
ahead. We are still seeing some positive movement in
the Russell despite some dumping by speculators of
stock nobody wanted last Friday. There was a strong
program bounce at the open and the close indicating
not all funds have filled their rebalance needs.

I studied a lot today trying to decipher the various
reactions we could see tomorrow and more importantly
for Thursday and Friday. It is not a simple problem.
We will have four of the five major issues resolved
by tomorrows close but there is still a major roadblock
in our future. This roadblock is the Friday Jobs Report.
The estimate of +275,000 jobs is very high in my opinion
based on the weak employment components we have seen
in various surveys over the last month. This may be
borne out by the almost complete lack of any high
profile analysts making higher estimates or even
talking about Jobs so far this week. I am sure we are
seeing the focus on the Fed decision take precedence
over the Jobs number but you can bet that focus will
change in a heartbeat once the Fed decision has passed.
We have to assume the Fed will know the Jobs number in
advance and that will be part of their decision. How
they word their statement should be based in part on
how strong Jobs were in June.

This looming report could keep a cloud over the market
after the Fed decision. Assuming a positive statement
I think the cloud will be minimal but still a cloud.
The worst-case scenario would be a runaway rally on
Thursday with a complete collapse on a Job implosion
on Friday. This fear should keep the big buyers from
making any sizeable commitments prior to Friday. The
keyword is "should" and we all know how that tends to
cause trouble. Since it is widely assumed that the market
will rally after the Fed decision, uncertainty will have
vanished, there is always the possibility we could see
some portfolio allocation programs hit that tape in
hopes post Fed volume will dilute the impact of their
selling.

In short, there is simply no way to deduce the eventual
outcome once the smoke clears. As I said before July is
normally the best month in the 3Q and this is an election
year which normally increases the odds of a better than
average month. However, with the election now a dead
heat it could be a hindrance to progress rather than
a positive. I am going on the assumption that the flurry
of earnings warnings was a fluke and we will still see
a positive pre/post holiday bounce. Once we exit next
week all bets are off and our direction will be related
to real earnings. Until those earnings begin to appear
buyers will be hesitant to increase their positions.

If you are in the market after the Fed decision keep
Dow 10500 resistance firmly in mind because that is the
next key level to be broken. I would be very surprised
to see that happen on Wednesday. Fed decision days are
normally best used to take your spouse shopping. It
is cheaper than trying to second and third guess the
extreme post decision volatility. Don't forget there
are other economic reports tomorrow, NAPM-NY, Chicago
Fed NAI and PMI. Any strength/weakness there will only
increase the post Fed volatility. Keep your focus on
the language and not on the hike.

Enter Passively, Exit Aggressively.

Jim Brown
Editor


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

Gold below $400 + Oil at $36 = Fed raising 25 bp

The major indices recouped yesterday's losses and looked rather
content to trade either side of their MONTHLY R1s, where an $8.60
shellacking in December Gold futures (gc04z) $395.40 -2.12% and
August Crude oil futures (cl04q) $35.62 -1.71% should have the
Fed content to raise its target for Fed funds by 25 basis points
to 1.25%.

December Gold Futures (gc04z) - Daily Intervals



If gold says anything back below $400, its that the market feels
the Fed is doing a good job with its monetary policy as a recent
look above $400 sees a rather sharp reversal in today's session,
where more than likely, dollar strength ahead of tomorrow's
conclusion to the two-day FOMC meeting comes in anticipation of a
long-awaited rate hike.

If the Fed holds true to its more recent FOMC meetings, where a
gradual increasing of rates has been eluded to, then a 25-basis
point rate hike looks in order.

I'm showing the December Gold futures tonight, as it gives us an
interest rate sensitive commodity, away from equities to keep and
eye on.  In my opinion, a more "disappointing" reaction from
gold, which could spill into equities would be a further and
sharp decline in gold below the 388 level, where the gold market
may then be saying.... "no, no, no.... too tight too soon!"

It wasn't until the FOMC started changing its tune toward
potential Fed tightening, when nonfarm payrolls began ramping,
that gold fell sharply from the $431 level, to recent lows of
$378.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals



In today's Market Monitor, I posted this chart of the AMEX Gold
Bugs Index ($HUI.X) 185.36 -2.49%.  In March, when gold (the
commodity) was challenging its December highs, the $HUI.X was
well below its December highs and trading the 240 level.  It has
been my observation for sometime that gold stocks tend to be a
"leading indicator" for the commodity itself, and while I'd keep
a close eye on GOLD $388, more importantly may be $HUI.X 183.

Now I want to take a quick look at a chart, which for a couple of
weeks now has been looking somewhat similar to the Gold Bugs
($HUI.X).  Strong, but similar.  It's bullish % indications have
also bee similar, and Dorsey/Wright and Associates sector bullish
% also rather similar.

Semiconductor Index (SOX.X) - Daily Intervals



I'm showing the same chart of the SOX.X we put together back in
the February 29 Ask the Analyst column "It's head and shoulders
above them all."  I've also overlaid the June MONTHLY S1, and
this week's WEEKLY R1.  I tell you what, if the MARKET is trading
this chart, then SOX.X looks set to trade WEEKLY R1 soon.

I think we know that the $HUI.X is the weakest of sectors, and it
certainly looks like it wants to test upward trend, similar to
the SOX.X recent test and successful holding of its MONTHLY S1
and upward trend.

Note the SOX.X WEEKLY Pivot of 469.53 being very similar to the
head/shoulder top 61.8% retracement.  To me, this gives the SOX.X
a BULLISH look above 468.

Things may get "wild" and a bit confusing with the Fed about to
raise rates for the first time in 3-years, and I want us to have
a couple "definitive" levels of support to monitor.

WEEKLY/MONTHLY SOX.X notes:  I would currently show a "zone of
resistance" in the SOX.X WEEKLY/MONTHLY from 487 (weekly 19.1%)
to 489 (weekly R1) and a "zone of support" from 469 (weekly
pivot) to 471 (monthly pivot).

In this weekend's Ask the Analyst" column, we looked at
Dorsey/Wright and Associate's equity sector bell curve.  I noted
that the $HUI.X had eased up from the 0-14% level.  The
Semiconductor Bullish % (BPESEMI) had turned up from the 16%-20%,
and today it saw a net gain of 1.47%, getting another "X" on its
bullish % chart to 30%, with a current reading of 30.88%.

Analysis:  Based on the SOX.X pattern of higher lows, I would
have to think SOX.X finds gains to WEEKLY R1 pretty soon.  This
would then begin a pattern of higher lows and equal highs.  From
a supply/demand perspective, this leans toward the bullish side
of things.

Market Snapshot / Internals - 06/29/04 Close



Speaking of some bullish improvement in bullish % indications,
today's trade and prior 10-day's trade has the NASDAQ NH/NL 10-
day average ratio reversing up, as a needed reading of 64% has
been achieved.  While the NASDAQ NH/NL breadth looks to play
catch up with the NYSE, the NYSE now looks to be taking a
breather with daily percentage changes leveling out.

Pivot Analysis Matrix -



The S&P 100 Index (OEX.X) 552.51 +0.36% is the only major index
below its WEEKLY Pivot, and tomorrow, a test for early strength
comes at correlative WEEKLY Pivot/DAILY R1.

The INDU, DIA, SPX were sloppy at either side of their WEEKLY
Pivots, which are very correlative with tomorrow's DAILY Pivots.
Almost acting as a center line, or point of equilibrium into
tomorrow's FOMC meeting.

Since we were "sloppy" at these levels today, a shorter-term
trader might want to watch and see if they find significance in
tomorrow's intra-day session as support or resistance, to see if
they can sense any type of "determination" from institutional
computers into tomorrow afternoon's FOMC announcement.

S&P 500 Index Chart - 60-minute intervals



I overlaid Keene Little's upward trend as well as labeled points
"A" and "C" from Thursday evening's Index Trader wrap, where that
trend taken from the early June lows would tie in with our Pivot
Matrix WEEKLY 61.8% retracement level, but also tomorrow's DAILY
S2.  OK... significant support.  Let's also associate that with
SOX.X 468.

How about some resistance?  I count 1, 2, 3, 4 overlapping levels
tomorrow at SPX 1,040.  Overlapping WEEKLY/MONTLY retracement (1
and 2) throw in the MONTHLY R1 (that's 3) and for good measure,
the DAILY R2.

What I'd look for as it relates to STRENGTH tomorrow.

Understand perhaps that GOLD the COMMODITY got a little ahead of
itself (relative to the HUI.X), so AFTER the FOMC announcement,
I'd keep an eye on GOLD the COMMODITY.  For BROADER MARKET EQUITY
STRENGTH, watch for the $HUI.X (equity gold) to bid, watch for
BROADER EQUITIES to bid, but for GOLD COMMODITY to stay
relatively unchanged!

Jeff Bailey


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

One Down, Two to Go
- J. Brown

The first of this week's three big events was Monday's surprise
handover of power in Iraq.  Tomorrow will bring about the second
big event, the FOMC's decision on interest rates.  Of course the
actual announcement is likely to be anti-climatic since the whole
world expects the Fed to only raise rates by 1/4 of a point.
Cautious investors are likely still on the sidelines for fear of
a surprise 1/2-point hike or a "sell the news" reaction by
traders.  Quite honestly, I'm not sure which direction the market
is headed.  The obvious direction is sideways.  The Iraq news
failed to inspire any big moves and we remain stuck in the
market's trading range.  Thus news of a 1/4-point hike isn't
likely to spark any big moves either.  No, the true event
tomorrow is not the bump in rates but the FOMC's comments and
bias toward future hikes.  Right now stocks are unlikely to rally
because it is believed the Fed needs to offer more aggressive
comments to give them room to raise rates more quickly should
inflation continue to rise.

Additional factors contributing to a sideways market is Friday's
non-farm payroll report and the upcoming Fourth of July holiday
here in the States.  If the jobs report comes in strong and we
escape the weekend without any major "event" then I believe
stocks are set up for a rally higher into the Q2 earnings season.

At least most stocks look poised to trade higher into earnings.
Retail stocks have been taking a beat, especially today.  Retail
giant Target (TGT) warned that June's same-store sales would
likely come in at the low end of their range.  This is an echo of
Monday's comments from retail titan WMT about June same-store
sales.  The whole group took a dive today.

An earnings warning from Washington Mutual (WM) last night
undermined strength in financials and mortgage lenders.  However,
offsetting the bad news was a stronger than expected consumer
confidence report and a continued drop in oil prices.  Overall
the market was generally bullish with advancers beating decliners
15 to 13 on the NYSE but failing 11 to 12 on the NASDAQ.  Up
volume outweighed down volume on both exchanges.

In addition to the conclusion of the two-day FOMC meeting we'll
also get the Chicago PMI report after the opening bell.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8871
Current     : 10413

Moving Averages:
(Simple)

 10-dma: 10388
 50-dma: 10253
200-dma: 10147

S&P 500 ($SPX)

52-week High: 1163
52-week Low :  962
Current     : 1136

Moving Averages:
(Simple)

 10-dma: 1135
 50-dma: 1119
200-dma: 1097

Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1180
Current     : 1505

Moving Averages:
(Simple)

 10-dma: 1481
 50-dma: 1449
200-dma: 1441

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

CBOE Market Volatility Index (VIX) = 15.47 -0.60
CBOE Mkt Volatility old VIX  (VXO) = 15.47 -0.13
Nasdaq Volatility Index (VXN)      = 20.15 -0.44

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.87        589,137       511,491
Equity Only    0.77        500,659       386,514
OEX            1.23         12,133        14,895
QQQ            1.26         30,867        38,776


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

Bullish Percent Data

           Current   Change   Status
NYSE          67.4    + 0     Bear Confirmed
NASDAQ-100    49.0    + 4     BULL ALERT
Dow Indust.   66.7    + 0     Bear Confirmed
S&P 500       65.8    + 1     Bear CORRECTION
S&P 100       64.0    + 1     Bear Confirmed



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: 0.95
10-dma: 1.00
21-dma: 0.98
55-dma: 1.04


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    1503      1121
Decliners    1339      1232

New Highs      92        58
New Lows       25        21

Up Volume    947M     1121M
Down Vol.    716M      435M

Total Vol.  1677M     1567M
M = millions


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

Commitments Of Traders Report: 06/22/04

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

It looks like commercial traders are hedging all their bets
by bringing them close to parity.  If the "smart money" doesn't
know what direction the S&P is going to go after June 30th
how are the "little folk" supposed to know? *grin*  Evidently,
the retail trader isn't listening.  They reduced their shorts
to leave them strongly bullish on stocks.


Commercials   Long      Short      Net     % Of OI
06/01/04      406,665   421,681   (15,016)   (1.8%)
06/08/04      397,294   452,904   (55,610)   (6.5%)
06/15/04      428,905   444,197   (15,292)   (1.8%)
06/22/04      407,842   415,462   ( 7,620)   (0.9%)

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
06/01/04      137,100    79,583    57,517    26.5%
06/08/04      158,373    92,794    65,579    26.1%
06/15/04      169,595   115,336    54,259    19.0%
06/22/04      124,985    89,934    35,051    16.3%

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

Wow! Maybe commercial traders are just ignoring the large
S&P contracts and focusing on the e-minis.  They reduced their
positions in both longs and shorts but they almost cut their
longs in half.  That's VERY bearish for the market.  Likewise
small traders are lockstep in unison going the opposite direction.


Commercials   Long      Short      Net     % Of OI
06/01/04      325,865   325,274        591     0.0%
06/08/04      367,191   409,246    (42,055)   (5.4%)
06/15/04      440,867   522,546    (81,679)   (8.5%)
06/22/04      229,290   446,974   (217,684)  (32.2%)

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
06/01/04      111,484     90,625    20,859    10.3%
06/08/04      140,191     84,649    55,542    24.7%
06/15/04      216,759    147,247    69,512    19.1%
06/22/04      243,444     58,389   185,055    61.3%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Commercial traders are reducing their positions in both longs
and shorts for the NDX and bringing them closer to break even.
Small traders are following suit bring their shorts and longs
close to even.  Looks like no one knows what direction the
NASDAQ is going.


Commercials   Long      Short      Net     % of OI
06/01/04       59,944     34,784    25,160   26.6%
06/08/04       64,747     41,178    23,569   22.3%
06/15/04       78,542     54,341    24,201   18.2%
06/22/04       40,397     37,413     2,984    3.8%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  25,160   - 06/01/04

Small Traders  Long     Short      Net     % of OI
06/01/04        9,755    30,025   (20,270)  (51.0%)
06/08/04        9,716    29,594   (19,878)  (50.6%)
06/15/04       15,794    35,880   (20,086)  (38.9%)
06/22/04        9,311     9,950      (639)  ( 3.3%)

Most bearish reading of the year: (20,270) - 06/01/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Hmm... oddly enough commercial traders are turning more bullish
on the Dow Industrials.  Looks like they like the upside breakout.
Small traders are more pessimistic here.


Commercials   Long      Short      Net     % of OI
06/01/04       23,397    24,393   (  996)     (2.0%)
06/08/04       24,636    25,821   (1,185)     (2.3%)
06/15/04       30,438    24,766    5,672      10.3%
06/22/04       26,808    19,752    7,056      15.2%

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
06/01/04        9,000     6,021    2,979     19.8%
06/08/04        8,325     6,431    1,894     12.8%
06/15/04       13,942    20,953   (7,011)   (20.1%)
06/22/04        5,626     7,798   (2,172)   (16.2%)

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 06-29-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: ESRX, KSS
Call Play Updates: AHC, CAT, DHR, MERQ, ETN, EBAY
New Calls Plays: MMM, QCOM
Put Play Updates: GCI, OMC, SLAB
New Put Plays: None


****************
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:
*****

Express Scripts - ESRX - close: 78.16 chg: +1.92 stop: 77.51

It looks like ESRX doesn't want to play with us.  We've been
waiting for the stock, currently in a bearish P&F signal, to
breakdown under support at $75.00 and its simple 100-dma.
Instead shares of ESRX have rallied through the top of its two-
week trading range and broke through technical resistance at all
of its short-term moving averages.  ESRX still has overhead
resistance at $80.00 but we're going to drop this play from the
put list.

Picked on June xx at $ xx.xx <-- see Trigger
Change since picked:  - 0.00
Earnings Date       04/27/04 (confirmed)
Average Daily Volume:    733 thousand
Chart =


---

Kohl's Corp - KSS - close: 42.29 change: -1.46 stop: 44.35

Target achieved!  We've been waiting for KSS to hit the $42.00-
41.00 region and mentioned on Sunday that if the stock hit $42
we'd consider closing the play.  Yesterday KSS ticked higher
after Barron's issued some positive comments on the company over
the weekend but it wasn't enough to push KSS through the top of
its three-week descending channel.  Today's 3.33% decline on
strong volume was fueled by an earnings warning from retail giant
Target (TGT).  KSS dropped to $41.80 intraday and spent most of
the session consolidating just above the $42.00 level.  We're
going to call it quits here.  The downtrend is still very much
intact but the suggested options have ballooned in value and we
don't want to be too greedy.  Those traders not willing to call
it quits can keep the play open and monitor their stops tightly.
We would look for a bounce back to the top of the channel near
$43.50 before KSS rolls over again.

Picked on June 06 at $ 47.45
Change since picked:  - 5.16
Earnings Date       05/13/04 (confirmed)
Average Daily Volume:    3.7 million
Chart =



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

Amerada Hess Corp. - AHC - cls: 77.23 chng: +1.77 stop:
75.00*new*

Our expectations for AHC to find support near the $76 level
proved to be a bit too optimistic, as Monday's drop saw the stock
slice through that level and fall right to the 10-dma (currently
$75.57) by the end of the session.  But that proved to be a great
entry point for traders brave enough to take it, as the stock
launched higher this morning, erasing almost all of yesterday's
losses by the close.  Today's rebound came on much stronger
volume than the recent bout of profit taking, so yesterday's low
should represent a local low and we should be looking for a fresh
breakout in the near future.  Traders looking for breakout
entries need to wait for a blast through last week's $79.10 high
before playing, and momentum entries will necessarily be shorter-
term, as we're looking to exit on a test of next resistance in
the $82-83 area.  Raise stops to $75, just under both the 10-dma
and yesterday's low.

Picked on June 17th at       $74.15
Change since picked:          +3.08
Earnings Date               4/28/04 (confirmed)
Average Daily Volume =     1.11 mln
Chart =


---

Caterpillar, Inc. - CAT - close 78.82 change: +1.34 stop: 76.00

We were hoping for a pullback near $77 to provide a solid entry
point into our CAT play and the market obliged yesterday with the
stock dropping all the way to $77.15 by the end of the day.
Traders that waited until today before entering got another shot
at the dip, as CAT fell just slightly to $77.05 before rebounding
strongly from the 10-dma ($77.21).  We expected a solid rebound
from that area due to the solid support represented by not only
the 10-dma, but also the 50-dma ($76.70) and the 200-dma
($76.84).  The next likely entry point will come on a breakout
over last week's highs as the stock pushes above $79.40.  Of
course, with the volatility that is likely to surround tomorrow's
FOMC decision on interest rates, it is possible that another
opportunity at buying a dip near $77 may present itself.  We'll
maintain our stop at $76, which is now below almost all of the
major moving averages.

Picked on June 24th at       $79.10
Change since picked:          -0.28
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.37 mln
Chart =


---

Danaher Corp. - DHR - close 51.40 change: +1.00 stop: 49.75*new*

Like the Energizer Bunny, shares of DHR haven't missed a beat.
After a few days of consolidation near its recent all-time highs
(just under $51), the stock broke out strongly today, ending well
above the $51 level and easily in new high territory again.
While there could be some volatility surrounding tomorrow's
decision on interest rates, the stock appears destined for higher
levels in the very near future.  To protect against a large (and
unexpected) downdraft, we've raised our stop to $49.75 tonight,
which is right on the 10-dma ($49.75).  A dip back into the
$50.50-51.00 area can be used for new entries tomorrow, but only
once the stock shows signs of rebounding from that support.
Momentum traders can consider breakout entries over today's high,
but should aggressively seek a profitable exit from the play as
price approaches our $53-54 target.

Picked on June 20th at       $48.74
Change since picked:          +2.66
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     1.55 mln
Chart =


---

Mercury Interactive - MERQ - cls: 49.85 change: +0.08 stop: 48.50

After last week's bullish move through the $50 level, we were
expecting shares of MERQ to see a bit of profit taking ahead of
tomorrow's announcement on interest rates and we haven't been
disappointed.  Both of the past two days have seen the stock
unable to hold onto the north side of $50, but showing very
little inclination to drop much below there as investors hold
their breath ahead of the FOMC.  Note that the increasing volume
that accompanied the stock's rise last week has dried up
considerably this week, indicating that this is just normal
consolidation. Ideally we'd like to see a dip back near the $49
level to provide for new entries before the next breakout
attempt.  Note that the last dip consolidated just above the 20-
dma (currently $48.75) before last week's bullish move.  We'd
like to see a repeat performance, with the 10-dma ($49.26) and
20-dma offering key support.  Aggressive traders can consider
adding new positions above $51, but only if targeting a rally to
our more aggressive target near $54.  More conservative traders
will be looking to exit the play near $52.  Maintain stops at
$48.50, which is just under the 20-dma.

Picked on June 6th at        $47.56
Change since picked:          +2.29
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.04 mln
Chart =


---

Eaton Corp - ETN - close: 63.45 chg: +0.58 stop: 59.95

Shares of ETN continue to consolidate above broken resistance,
now new support at $62.00 while the stock tries to breakout above
the $64.00 level. News remains relatively quiet and our strategy
is unchanged.  Traders can buy bounces above $62.00 with a target
at $70.00, just under the H&S pattern target of $71.  However,
keep in mind that ETN is expected to report earnings on July
15th.  That only gives us two weeks for ETN to make another run
higher because we don't plan on holding over the announcement.
We're thinking about raising our stop loss to $61.95 but we'll
keep it at $59.95 for now.

Picked on June 18 at $ 62.05
Change since picked:  + 1.40
Earnings Date       07/15/04 (confirmed)
Average Daily Volume:    1.0 million
Chart =


---

eBay Inc - EBAY - close: 91.82 change: -0.99 stop: 87.50 *new*

EBAY started the week off with a bang as the stock soared to
$94.13 on Monday after Prudential reiterated their "over weight"
outlook.  EBAY's management was also quoted as saying they see no
more acquisitions in the near future as they continue to
consolidate their PayPal merger and focus on growth in Asia.
EBAY's chart looks strong with the breakout over $90.00 and the
new MACD buy signal.  The 1% pullback on Tuesday might be an
entry point but there's a chance we could see EBAY dip a little
closer to $90.00.  Any pull back and bounce above $90.00 looks
like a bullish entry point to us.  We're going to raise our stop
loss to $87.50.  We now have three weeks left before EBAY's next
earnings report.

Picked on June 27 at $ 90.72
Change since picked:  + 1.10
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    8.3 million
Chart =



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

3M Co - MMM - close: 89.80 change: +1.11 stop: 87.49

Company Description:
Every day, 3M people find new ways to make amazing things happen.
Wherever they are, whatever they do, the company's customers know
they can rely on 3M to help make their lives better. 3M's brands
include icons such as Scotch, Post-it, Scotchgard, Thinsulate,
Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in
more than 200 countries around the world, the company's 67,000
people use their expertise, technologies and global strength to
lead in major markets including consumer and office; display and
graphics; electronics and telecommunications; safety, security
and protection services; health care; industrial and
transportation. (source: company press release)

Why We Like It:
The Dow Jones Industrials may be stuck in a sideways trading
range but that's not hampering the bullish march higher for MMM.
This Dow-component recently broke through resistance at $88.00
and now after a week of consolidation looks ready to breakout
above stronger, round-number psychological resistance at $90.00.
We're not the only ones who are bullish on MMM.  This morning
Deutsche Bank (DB) issued some positive comments on MMM saying
the conglomerate was heading into the second half of 2003 with
very strong momentum.  DB also raised their 2004 and 2005
earnings outlook for MMM as well as raising their 12-month price
target to $105.  MMM's P&F chart is even more bullish with a $115
price target.

We like MMM's relative strength and we're willing to bet that the
stock can breakout over $90 and make a run toward $100 (although
we may have to settle for a move to $95) before its July 19th
earning date (currently unconfirmed).  However, we are going to
use a TRIGGER above resistance at $90.11 to open the play for us.
Until MMM trades at or above $90.11 we'll wait on the sidelines.
If triggered we'll start the play with a stop loss at $87.49.

Suggested Options:
More aggressive players can try and trade the July options that
expire on July 16th because we do not plan to hold over MMM's
Monday, July 19th earnings report.  However, for the rest of us
we're suggesting the August calls.  The August 90s look good.

BUY CALL AUG 85 MNZ-HQ OI= 109 Current Ask $5.90
BUY CALL AUG 90 MNZ-HR OI=1846 Current Ask $2.35
BUY CALL AUG 95 MNZ-HS OI=2753 Current Ask $0.55

Annotated Chart:



Picked on June xx at $ xx.xx <-- see TRIGGER
Change since picked:  + 0.00
Earnings Date       07/19/04 (unconfirmed)
Average Daily Volume:    2.5 million
Chart =


---

QUALCOMM - QCOM - close: 71.55 change: +2.88 stop: 67.75

Company Description:
QUALCOMM Incorporated (www.qualcomm.com) is a leader in
developing and delivering innovative digital wireless
communications products and services based on the Company's CDMA
digital technology. Headquartered in San Diego, Calif., QUALCOMM
is included in the S&P 500 Index and is a 2003 FORTUNE 500.
company. (source: company press release)

Why We Like It:
QCOM has been consolidating under resistance at the $70.00 mark
for three months.  Today shares finally broke out above this
crucial resistance level.  The move is being attributed to
positive comments coming from a Bank of America analyst Tim Long.
Long believes that phone companies are going to be turning to
QCOM's chips as they upgrade to faster, high-speed Internet and
other third-generation services (source: Reuters).  His comments
produced a 4% rally on more than twice the average volume.  We've
been highlighting QCOM in the MarketMonitor and on recent watch
lists because a move through $70.00 is a bullish quadruple-top
breakout buy signal on its P&F chart.  Its P&F price target is
now $84.00.  We want to target a move to the $77.50-80.00 range
but QCOM needs to do it before its July 21st earnings report,
which we do not plan to hold over.

Suggested Options:
We're going to suggest the August calls even though we plan to
close the play before QCOM's July 21st earnings report.  Our
favorites are the August 70s.

BUY CALL AUG 70 AAO-HN OI= 3083 Current Ask $4.10
BUY CALL AUG 75 AAO-HO OI= 2428 Current Ask $1.75

Annotated Chart:
Chart =



Picked on June 29 at $ 71.55
Change since picked:  + 0.00
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    8.8 million
Chart =



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

Gannett Co - GCI - close: 85.22 change: -0.18 stop: 86.05

Wow!  Shares of GCI have been pretty volatile in the last couple
of sessions.  Monday morning the stock rocketed higher and
pierced the $87.00 mark and its simple 40-dma before falling back
to close with a small gain.  The move on Monday looked like a
very sharp failed rally.  Today's bounce higher was a little less
extreme.  GCI rallied toward the 86.00 region and its simple 200-
dma before failing.  Looks like traders are selling each show of
strength.  This is good news for the bears.  Currently OI is
still UNTRIGGERED while we wait for GCI to trade at $83.95 or
lower.  More aggressive traders might want to use today's
rollover under its simple 200-dma as an aggressive entry point.

Picked on June xx at $ xx.xx <-- See TRIGGER
Change since picked:  - 0.00
Earnings Date       07/13/04 (confirmed)
Average Daily Volume:    957 thousand
Chart =


---

Omnicom Group - OMC - close: 76.10 change: -0.50 stop: 79.00*new*

In light of the price action so far this week, last week's
oversold rebound in shares of OMC is looking pretty anemic.
After popping up to test the 10-dma (currently $76.80) on Friday,
the stock rolled over below that average and appears to be making
a beeline back towards that $75 support level.  If (as we expect)
that support level gives way, then it should be a quick trip down
towards the $70-71 area.  We had actually expected a bit of
continuation to last week's rebound attempt to give us a better
rollover entry near the $78.00-78.50 level, and the fact that the
stock couldn't manage it simply points out how weak it is.
Another failed bounce below the 10-dma looks like a viable entry
opportunity, while momentum traders will want to focus on a break
below the March low at $74.65.  Note that we've slightly lowered
our stop to $79, which is just above the $78.00-78.50 resistance
zone, as well as the 20-dma ($78.63) and 30-dma ($78.90).

Picked on June 20th at        $77.14
Change since picked:           -1.04
Earnings Date                4/27/04 (confirmed)
Average Daily Volume =      1.09 mln
Chart =


---

Silicon Labs. - SLAB - close: 46.23 change: +0.72 stop: 48.50

On two occasions late last week, our SLAB play narrowly avoided
tripping our stop and as it plunged back towards support
yesterday afternoon, we were feeling pretty good about the play.
Of course, with SLAB rebounding from the site of yesterday's lows
this morning, we were having second thoughts.  That's the kind of
thought process that normally arises with a stock that is
behaving in such a volatile manner, as each day presents a
different technical picture.  For now, the downtrend is still
intact, but the stock appears to be trying to build a new base
near $45 in anticipation of a real direction emerging after
tomorrow's decision on interest rates.  That decision should have
a direct impact on the Semiconductor sector (SOX.X) -- we just
don't know which way it will be, with the sector vacillating
between support and resistance.  Aggressive traders could look to
enter on another failed rebound below the 20-dma (currently
$47.61) or on a fresh break under the $45 level, but in either
case, watch out for support again near the $43 level.  Maintain
stops at $48.50.

Picked on June 20th at        $44.99
Change since picked:           +1.24
Earnings Date                4/26/04 (confirmed)
Average Daily Volume =      1.15 mln
Chart =



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

None


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**********

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The Option Investor Newsletter                  Tuesday 06-29-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Technology stocks head the list
Spreads & Straddles: Stocks Trudge Higher As Fed Meeting Begins!
Premium Selling Plays: Naked Puts & Calls
Traders Corner: Dow Theory & Technical Analysis: Uno

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

Technology stocks head the list

___________________________________________________________________

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.
___________________________________________________________________


Lexmark Intl - LXK - close: 95.69 change: +1.64

WHAT TO WATCH: We've been following the consolidation in LXK
under resistance at $96.00 for several days now.  The short-term
trend of higher lows appears to be coiling for a bullish
breakout.  We'd consider new bullish positions on a move above
$96.00-96.25.  More conservative traders looking for more
momentum might want to wait for a move through $96.50-97.00.
Keep in mind that its P&F chart target is only at $102, but then
again P&F vertical counts aren't stop signs either.  Earnings are
expected on July 19th.

Chart=


---

United Technology - UTX - close: 90.53 change: +1.39

WHAT TO WATCH: Dow-component UTX has been flirting with the
$90.00 level for several days now.  The stock finally broke
through and confidently closed above resistance at $90 today.
The move looks like an entry point for new bullish positions.
Considering the cyclical nature of the company UTX should be
doing big business with the economy on the rebound.  The stock
could produce an earnings run with the announcement still three
weeks away.  Our only complaint would be the lack of volume on
today's rally and potential resistance in the $91.00-91.50 range.

Chart=


---

Intl Business Machines - IBM - close: 88.29 change: -0.42

WHAT TO WATCH: IBM is significantly under performing its peers in
the technology group.  The stock has been suffering under
resistance at $91.00 for the last couple of weeks and is now
beginning to fail.  IBM's P&F chart is bearish and points to a
$77.00 price target.  Its daily chart looks bearish too with the
recent drop through the $89-90 levels and its 40 and 50-dma's.
Technically IBM's MACD indicator has produced a new sell signal.
We'd consider bearish plays on IBM but the company only has two
weeks left before it announces earnings and we would not hold
over the announcement.

Chart=


---

Research In Motion - RIMM - close: 59.38 change: +1.61

WHAT TO WATCH: Look out for some volatility tomorrow in RIMM.
The company reported earnings after the closing bell and beat
expectations.  We've been following RIMM in the MarketMonitor and
mentioned a few days ago and today that a straddle play might be
a way to play the expected post-earnings volatility.
Unfortunately, a straddle at the $60 strike was rather expensive
at close to $7.00.  This afternoon we suggested buying a $65 call
and a $55 put for about $3.50, that way RIMM only had to move
more than $3.50 to make the trade profitable.  So far RIMM is up
more than $5.00 and trading above the $65.00 mark in after hours
trading.

Chart=



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

GS: $94.00 +0.74 - GS is looking bullish with the strong rebound
from last week's lows but it's struggling with the simple 50-dma.

BLL: $71.55 +0.61 - BLL is near its all-time highs and has held
support above $70.00.  Shares continue to look strong albeit
overbought.

CFC: $69.32 -2.18 - An earnings warning from rival WM has sent
CFC under short-term support at $70.00 and its simple 10-dma.
The failure to close over $70.00 and its overbought status and
new MACD sell signal all add up to what could be an extended pull
back.

BRCM: $46.49 +1.54 - BRCM continues to rally after its recent
breakout above $44.00.  We still like the stock for bullish
plays.

GD: $100.54 +1.10 - GD has been flirting on either side of $100
for days now but the trend is up.

KMRT: $68.22 -3.41 - After an incredible 7-week rally KMRT is
finally seeing some profit taking.  Next stop $62-60??


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*******************
SPREADS & STRADDLES
*******************

Stocks Trudge Higher As Fed Meeting Begins!
By Ray Cummins

U.S. equity values increased Tuesday ahead of the FOMC's
much-anticipated decision on interest rates.

The open market committee meeting is likely to produce the
first interest rate increase in four years on Wednesday, and
a 25 basis-point hike is the consensus expectation of analysts.
The Dow Jones Industrial Average advanced 56 points to 10,413,
with cyclical, drug, and tobacco stocks performing well.  The
NASDAQ Composite Index tacked on 15 points to end at 2,034 as
computer hardware shares continued to enjoy buying pressure.
The S&P 500 Index rose 2 points to close at to 1,136, despite
broad weakness in retail shares.  Trading volume reached 1.37
billion on the New York Stock Exchange and 1.54 billion on the
NASDAQ.  Breadth was barely positive on the Big Board, however
winners outpaced losers 6 to 5 on the technology exchange.  In
the bond market, the 10-year note was up 11/32 while its yield
fell to 4.69%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 06/27/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT-CREDIT SPREADS

Stock   Pick   Last   Month L/P  S/P Credit   CB     G/L   Status

AMZN    50.95  51.80   JUL   42  45   0.30   44.70   0.30   Open
YHOO    31.87  34.91   JUL   25  27   0.30   27.20   0.30   Open
CFC     69.15  71.09   JUL   60  63   0.35   63.03   0.35   Open
QCOM    69.86  69.08   JUL   60  65   0.45   64.55   0.45   Open
SWIR    33.83  34.31   JUL   25  30   0.90   29.10   0.90   Open
CTSH    24.25  25.93   JUL   20  22   0.27   22.23   0.27   Open
NUE     69.54  75.85   JUL   60  65   0.75   64.25   0.75   Open
SII     53.26  55.99   JUL   47  50   0.30   49.70   0.30   Open
MXIM    51.62  52.03   JUL   45  50   0.70   49.30   0.70   Open
RJR     65.90  66.84   JUL   55  60   0.35   59.65   0.35   Open

L/P = Long Put  S/P = Short Put  CB = Cost Basis  G/L = Gain/Loss


CALL-CREDIT SPREADS

Stock   Pick   Last   Month  LC  SC  Credit   CB     G/L   Status

APPX    34.03  30.26   JUL   45  40   0.50   40.50   0.50   Open
GENZ    41.93  47.06   JUL   47  45   0.30   45.30  (1.76) Closed
INSP    34.71  35.96   JUL   45  40   0.65   40.65   0.65   Open
WMS     28.75  28.52   JUL   35  30   0.65   30.65   0.65   Open
GS      90.21  94.55   JUL  100  95   0.70   95.70   0.70   Open
SYMC    42.42  42.14   JUL   50  45   0.65   45.65   0.65   Open
FRX     56.32  58.46   JUL   65  60   0.60   60.60   0.60   Open

L/C = Long Call  S/C = Short Call  CB = Cost Basis  G/L = Gain/Loss

The position in Genzyme (NASDAQ:GENZ) should have been closed last
Wednesday, when the issue moved through the sold (call) strike,
for a smaller than published loss.  Goldman Sachs (NYSE:GS) is on
the "early-exit" list and Forest Labs (NYSE:FRX) is one to "watch"
closely in the coming sessions.  The Oil Service Holdrs (AMEX:OIH)
position has previously been closed to limit potential losses.


DEBIT STRADDLES

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

GRMN    32.60  34.66   JUL    35    30     2.15    2.35    Open?
SNDK    22.90  21.93   JUL    22    22     3.40    3.60    Open
GDT     56.02  56.40   JUL    55    55     4.80    4.50    Open
DNA     54.60  54.50   JUL    55    55     4.25    4.10    Open
OVTI    15.50  17.03   JUL    15    15     2.70    2.75    Open

Omnivision (NASDAQ:OVTI) and Sandisk (NASDAQ:SNDK) have achieved
small profits, and there may be hope for Garmin (NASDAQ:GRMN) as
it has once again become active in recent sessions.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

AMZN - Amazon.com  $53.71  *** Approaching 2004 Highs! ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.

AMZN - Amazon.com  $53.71

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-47.50  ZQN-SW  OI=13720  ASK=$0.30
SELL PUT  JUL-50.00  ZQN-SJ  OI=21371  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$49.70


__________________________________________________________________

PLT - Plantronics  $42.39  *** Rally Mode! ***

Plantronics (NYSE:PLT) is a worldwide designer, manufacturer and
marketer of lightweight communications headsets for phones and
cellphones, telephone headset systems, accessories and related
services for business and personal use.  In addition, the firm
manufactures and markets specialty products, such as telephones
for the hearing-impaired and other related products for people
with special communications needs and headset solutions for the
aviation market.

PLT - Plantronics  $42.39

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-35.00  PLT-SG  OI=2   ASK=$0.20
SELL PUT  JUL-40.00  PLT-SH  OI=35  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$39.50



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CECO - Career Education  $44.45  *** SEC Probe Continues! ***

Career Education Corporation (NASDAQ:CECO) is a provider of
private, for-profit, postsecondary education, with 78 campuses
throughout the United States, Canada, France, the United Kingdom
and the United Arab Emirates.  The company also offers online
education programs through its Online Education Group, which
includes American InterContinental University Online and also
Colorado Technical University Online.

CECO - Career Education  $44.45

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-55.00  CUY-GK  OI=4398  ASK=$0.20
SELL CALL  JUL-50.00  CUY-GJ  OI=4754  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$50.55


__________________________________________________________________

RYL - The Ryland Group  $75.80  *** Sector Slump! ***

The Ryland Group (NYSE:RYL) is a homebuilder and mortgage-finance
company.  The company has built more than 200,000 homes during its
35-year history.  Ryland homes are available in more than 275 new
communities in many markets across the United States.  In addition,
the Ryland Mortgage company has provided mortgage financing and
related services for thousands of homebuyers.  The company's major
operations span all the significant aspects of the home-buying
process, from design, construction and sale to mortgage financing,
title insurance, settlement, escrow and homeowners insurance.

RYL - The Ryland Group  $75.80

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-85.00  RYL-GQ  OI=1310  ASK=$0.15
SELL CALL  JUL-80.00  RYL-GP  OI=1687  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$80.60



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.
__________________________________________________________________

No straddles or strangles today...

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


*****************************************
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
*****************************************

All of these issues have robust option premiums and favorable
technical indications.  However, current news and events as
well as market sentiment, will have an effect on these stocks
so review each position thoroughly and make your own decision
about its outcome.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 06/27/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NAKED PUTS

Stock   Strike Strike Cost   Current   Gain    Max    Simple
Symbol  Month  Price  Basis   Price   (Loss)  Yield   Yield

CVTX     JUL    15    14.60   16.73    0.40   5.63%   2.74%
DITC     JUL    17    16.80   24.61    0.70   8.40%   4.17%
SYNA     JUL    17    16.85   19.96    0.65   7.48%   3.86%
PTIE     JUL     7     7.15    9.18    0.35   9.89%   4.90%
BCC      JUL    35    34.25   37.36    0.75   5.12%   2.19%
JILL     JUL    20    19.45   24.44    0.55   6.72%   2.83%
LSS      JUL    20    19.50   27.30    0.50   6.07%   2.56%
OI       JUL    15    14.65   16.78    0.35   5.64%   2.39%
NVTL     JUL    15    14.65   25.13    0.35   7.34%   2.39%
PDII     JUL    25    24.70   30.30    0.30   3.91%   1.21%
RSAS     JUL    17    17.05   20.92    0.45   6.22%   2.64%
STLD     JUL    25    24.45   28.49    0.55   5.33%   2.25%
UPL      JUL    30    29.55   37.77    0.45   4.14%   1.52%
USG      JUL    15    14.15   18.00    0.85  13.32%   6.01%
ATI      JUL    12    12.20   15.62    0.30   7.44%   2.46%
BJS      JUL    42    41.70   46.02    0.80   4.75%   1.92%
LCAV     JUL    25    24.35   28.98    0.65   6.85%   2.67%
NCRX     JUL    27    26.80   32.02    0.70   7.30%   2.61%
NVTL     JUL    17    17.05   25.13    0.45   8.97%   2.64%
SSYS     JUL    23    22.20   28.40    0.30   4.41%   1.35%
SWIR     JUL    30    28.85   34.31    1.15  10.66%   3.99%
SYNA     JUL    17    16.90   19.96    0.60   8.98%   3.55%
YHOO     JUL    30    29.20   34.91    0.80   6.80%   2.74%
AMHC     JUL    22    21.80   26.60    0.70   9.36%   3.21%
CTSH     JUL    22    22.20   25.93    0.30   4.34%   1.35%
CYBX     JUL    30    29.25   35.65    0.75  10.31%   2.56%
ERES     JUL    22    21.85   26.88    0.65   9.03%   2.97%
HLEX     JUL    15    14.65   16.78    0.35   7.40%   2.39%
NINI     JUL    20    19.65   26.29    0.35   5.89%   1.78%
NFI      JUL    30    29.30   37.95    0.70   9.77%   2.39%
PTIE     JUL     7     7.25    9.18    0.25  11.96%   3.45%
RIMM     JUL    50    49.15   60.69    0.85   6.57%   1.73%
SGTL     JUL    22    22.25   29.13    0.25   4.25%   1.12%
BRCM     JUL    40    39.30   45.41    0.70   6.43%   1.78%
CSGP     JUL    40    39.60   45.41    0.40   3.49%   1.01%
DHB      JUL    12    12.20   14.94    0.30   8.97%   2.46%
DY       JUL    25    24.65   27.53    0.35   4.63%   1.42%
ERES     JUL    22    22.20   26.88    0.30   4.97%   1.35%
FWHT     JUL    20    19.60   22.83    0.40   6.89%   2.04%
GVHR     JUL    22    22.20   26.48    0.30   5.07%   1.35%
IMH      JUL    20    19.75   22.50    0.25   4.41%   1.27%
NVTL     JUL    17    16.90   25.13    0.60  15.07%   3.55%
PLMO     JUL    25    24.55   33.08    0.45   7.28%   1.83%
USG      JUL    15    14.70   18.00    0.30   7.05%   2.04%


NAKED CALLS

Stock   Strike Strike Cost   Current   Gain    Max    Simple
Symbol  Month  Price  Basis   Price   (Loss)  Yield   Yield

ASKJ     JUL    45    45.55   37.97    0.55   6.50%   1.21%
AMLN     JUL    25    25.35   22.32    0.35   5.29%   1.38%
ICOS     JUL    30    30.45   28.81    0.45   5.26%   1.48%
OIIM     JUL    17    17.80   15.98    0.30   5.50%   1.69%
INSP     JUL    40    40.50   35.96    0.50   6.88%   1.23%
RHAT     JUL    25    25.60   22.23    0.60   9.08%   2.34%
XMSR     JUL    27    27.75   25.50    0.25   4.34%   0.90%
CECO     JUL    65    65.90   44.97    0.90   7.19%   1.37%
ESI      JUL    45    45.50   37.54    0.50   5.47%   1.10%
FMT      JUL    20    20.40   18.02    0.40   8.75%   1.96%
NBIX     JUL    55    56.10   51.94    1.10   8.21%   1.96%
SLAB     JUL    50    50.75   47.62    0.75   6.39%   1.48%
AGIX     JUL    20    20.45   19.29    0.45   9.16%   2.20%
LEND     JUL    30    30.55   29.63    0.50   6.63%   1.64%

Special (Tuesday) Note: A new stock on the "early-exit" list
is XM Satellite Radio (NASDAQ:XMSR), which has reversed course
during the last few sessions and appears to be "bullish" in
the near-term.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NEW NAKED-PUT CANDIDATES

Stock  Last    Option    Option Last  Open Cost  Days Simple Max
Symbol Price   Series    Symbol Bid   Int. Basis Exp. Yield  Yield

AMED   32.51  JUL 22.50  CQW SF 0.50    24 22.00  17   4.1%  12.8%
NKTR   19.80  JUL 17.50  QNX SW 0.35  1107 17.15  17   3.7%  10.5%
NFLX   34.18  JUL 30.00  QNQ SF 0.55  5515 29.45  17   3.3%   9.8%
MU     15.24  JUL 15.00  MU  SC 0.30  7102 14.70  17   3.7%   8.7%
ISRG   18.99  JUL 17.50  AXQ SW 0.25   134 17.25  17   2.6%   7.0%
XMSR   26.95  JUL 25.00  QSY SE 0.35  5158 24.65  17   2.5%   6.8%
CIMA   32.73  JUL 30.00  UVK SF 0.40  2566 29.60  17   2.4%   6.7%
ERES   27.37  JUL 25.00  UDB SE 0.30   499 24.70  17   2.2%   6.0%
SWIR   36.41  JUL 30.00  IYQ SF 0.25  1290 29.75  17   1.5%   5.3%
NSM    21.53  JUL 20.00  NSM SD 0.20 36006 19.80  17   1.8%   4.9%

__________________________________________________________________

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).

__________________________________________________________________

AMED - Amedisys  $32.51  *** New All-Time High! ***

Amedisys (NASDAQ:AMED) is a multi-state provider of home health
and nursing services.  The company operates home care nursing
offices and has corporate offices in the southern and southeastern
United States.  The firm's wholly owned subsidiaries are Amedisys
Arkansas, Cypress Health Services and Amedisys LA Acquisitions.
The services provided in home healthcare include four primary
categories: home health nursing services, infusion therapy,
respiratory therapy and home medical equipment.

AMED - Amedisys  $32.51

JUL 22.50 CQW SF LB=0.50 OI=24 CB=22.00 DE=17 TY=4.1% MY=12.8%


__________________________________________________________________

NKTR - Nektar  $19.80  *** Consolidation Complete?  ***

Nektar Therapeutics (NASDAQ:NKTR) makes drug delivery products
based on its portfolio of technologies and expertise designed
to improve drug performance throughout the drug development
process.  The company has developed three distinct technology
platforms: Nektar Molecule Engineering, which uses advanced PEG
(polyethylene glycol)ylation and PEG-based delivery systems to
enable drug performance, Nektar Particle Engineering, which uses
the company's expertise in pulmonary particle technology and
supercritical fluids technology to design and manufacture optimal
drug particles and Nektar Delivery Solutions, which uses advanced
systems for pulmonary drug administration to improve therapeutic
outcomes.

NKTR - Nektar  $19.80

JUL 17.50 QNX SW LB=0.35 OI=1107 CB=17.15 DE=17 TY=3.7% MY=10.5%


__________________________________________________________________

NFLX - Netflix  $34.18  *** Pure Premium-Selling! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.

NFLX - Netflix  $34.18

JUL 30.00 QNQ SF LB=0.55 OI=5515 CB=29.45 DE=17 TY=3.3% MY=9.8%


__________________________________________________________________

MU - Micron  $15.24  *** Entry Point Only! ***

Micron Technology (NYSE:MU) manufactures and sells semiconductor
products with a variety of packaging and configuration options,
architectures and performance characteristics to meet customer
needs.  Micron's principal products are dynamic random access
memory products (DRAMs), Flash memory products and complementary
metal-oxide semiconductor (CMOS) image sensors.

MU - Micron  $15.24

JUL 15.00 MU SC LB=0.30 OI=7102 CB=14.70 DE=17 TY=3.7% MY=8.7%


__________________________________________________________________

ISRG - Intuitive Surgical  $18.99  *** Testing 2004 Highs! ***

Intuitive Surgical (NASDAQ:ISRG) designs, manufactures and sells
the da Vinci Surgical System.  In addition, the company designs,
manufactures and markets a variety of smart disposable EndoWrist
instruments.  The company's principal products are the da Vinci
Surgical System, EndoWrist Instruments and products offered by
Computer Motion.  Intuitive Surgical's da Vinci Surgical System
consists of a surgeon's console, a patient-side cart, a high
performance vision system and proprietary wristed instruments.

ISRG - Intuitive Surgical  $18.99

JUL 17.50 AXQ SW LB=0.25 OI=134 CB=17.25 DE=17 TY=2.6% MY=7.0%


__________________________________________________________________

XMSR - XM Satellite Radio  $26.95  *** Trend Reversal! ***

XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio
service with over 1 million subscribers.  Broadcasting live daily
from Washington, DC, New York City and Nashville, Tennessee at the
Country Music Hall of Fame, XM provides its loyal listeners with
over 100 digital channels of choice: 70 music channels, more than
35 of them commercial-free, from hip hop to opera, classical to
country, bluegrass to blues; and 31 channels of premiere sports,
talk, comedy, kid's and entertainment programming.  Compact and
stylish XM satellite radio receivers for the home, the car, the
computer and even a "boom-box" for on the go are available from
retailers nationwide.

XMSR - XM Satellite Radio  $26.95

JUL 25.00 QSY SE LB=0.35 OI=5158 CB=24.65 DE=17 TY=2.5% MY=6.8%


__________________________________________________________________

CIMA - Cima Labs  $32.73  *** Cephalon Merger: A "Done" Deal? ***

Cima Labs (NASDAQ:CIMA) develops and manufactures fast-dissolve
and enhanced-absorption oral drug delivery systems.  OraSolv and
DuraSolv, the firm's proprietary technologies, are oral dosage
forms that dissolve in the mouth without chewing or the need for
water.  The company manufactures six pharmaceutical brands using
its DuraSolv and OraSolv fast-dissolve technologies: three major
prescription brands and three over-the counter brands.

CIMA - Cima Labs  $32.73

JUL 30.00 UVK SF LB=0.40 OI=2566 CB=29.60 DE=17 TY=2.4% MY=6.7%


__________________________________________________________________

ERES - eResearch Technology  $27.37  *** Another 2004 High! ***

eResearch Technology (NASDAQ:ERES) is a provider of technology and
services that enable the pharmaceutical, biotechnology and medical
device industries to collect, interpret and distribute cardiac
safety and clinical data more efficiently.  The company offers a
range of products and services, including Diagnostics Technology
and Services and Clinical Research Technology.  Their Diagnostics
Technology and Services include centralized diagnostic services
and clinical research operations, including clinical trial and
data management services.  Their Clinical Research Technology and
Services include the developing, marketing and support of clinical
research technology and services.

ERES - eResearch Technology  $27.37

JUL 25.00 UDB SE LB=0.30 OI=499 CB=24.70 DE=17 TY=2.2% MY=6.0%


__________________________________________________________________

SWIR - Sierra Wireless  $36.41  *** The Recovery Continues! ***

Sierra Wireless (NASDAQ:SWIR) is a leader in delivering highly
differentiated wireless solutions that enable our customers to
improve their productivity and lifestyle.  Sierra Wireless
develops and markets AirCard, the industry-leading wireless PC
card line for portable computers; embedded modules for OEM
wireless applications; the MP line of rugged vehicle-mounted
connectivity solutions and Voq, a line of professional phones
with secure, easy-to-use, products for mobile professionals.

SWIR - Sierra Wireless  $36.41

JUL 30.00 IYQ SF LB=0.25 OI=1290 CB=29.75 DE=17 TY=1.5% MY=5.3%


__________________________________________________________________

NSM - National Semi  $21.53  *** Chip Sector Speculation! ***

National Semiconductor (NYSE:NSM) designs, develops, manufactures
and markets a wide array of semiconductor products, including a
broad line of analog, mixed-signal and other integrated circuits.
Its unique analog and mixed-signal devices include amplifiers and
regulators, image sensors, power monitors and line drivers, radio
frequency, audio amplifiers, display drivers and signal processors.
NSM's other products with digital-to-analog or analog-to-digital
capability include products for local area and wireless networking
and wireless communications, as well as products for personal
systems and communications.

NSM - National Semi $21.53

JUL 20.00 NSM SD LB=0.20 OI=36006 CB=19.80 DE=17 TY=1.8% MY=4.9%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

IPXL - IMPAX Laboratories  $19.02  *** Downtrend Resumes? ***

IMPAX (NASDAQ:IPXL)) is a unique, technology-based pharmaceutical
firm focused on the development and commercialization of generic
and brand name pharmaceuticals, utilizing its controlled-release
and other in-house development and formulation expertise.  In the
generic pharmaceuticals market, IMPAX is primarily focusing its
efforts on selected controlled-release generic versions of brand
name pharmaceuticals.  The firm is also developing other generic
pharmaceuticals that present one or more competitive barriers to
entry, such as difficulty in raw materials sourcing, complex
formulation or development characteristics, or special handling
requirements.  In the brand-name pharmaceuticals market, IMPAX is
developing products for the treatment of central nervous system
disorders.

IPXL - IMPAX Laboratories  $19.02

"SPECULATIVE" PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JUL 20    UPR GD    1523   0.40  20.40  10.2%   2.0%


__________________________________________________________________

PSFT - PeopleSoft  $18.68  *** Oracle Merger Drags On... ***

PeopleSoft (NASDAQ:PSFT) designs, develops, markets and supports
enterprise application software products for use throughout large
and medium-sized organizations worldwide.  These organizations
include corporations, educational institutions and national,
state, provincial and local government agencies.  The company
provides enterprise application software for customer relationship
management, human capital management, financial management and
supply chain management, each with a range of industry-specific
features and functions.

PSFT - PeopleSoft  $18.68

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JUL 20    PQO GD    44737  0.25  20.25   7.0%   1.2%


__________________________________________________________________

WM - Washington Mutual  $38.47  *** Earnings Warning! ***

Washington Mutual (NYSE:WM) is a financial services firm serving
small and mid-sized businesses.  The company accepts deposits
from the general public, originates, purchases, services and
sells home loans, makes consumer loans and commercial real estate
loans (primarily loans secured by multi-family properties) and is
engaged in other commercial banking activities, such as providing
credit facilities and cash management and deposit services.  The
company also originates, purchases from correspondents, sells and
services loans to higher-risk borrowers through its specialty
mortgage finance program.

WM - Washington Mutual  $38.47

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JUL 40    WM GH     17511  0.30  40.30   3.8%   0.7%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


**************
TRADERS CORNER
**************

Dow Theory & Technical Analysis: Uno
By Leigh Stevens
lstevens@OptionInvestor.com

Well, what does Dow Theory have to say to option traders or do
with option trading?  Answer: not a lot, but maybe one thing
coming up. I say this because it (Charles Dow's theory) concerns
itself only with the very long-term trend in the Market – one
that is more of investment concern as in 'should I be invested in
the market?'

However, there may be time coming when Dow Theory will suggest
that the current market advance goes into a "confirmed" status
for a bull market or not.  This is because of something that
happened recently, when the Dow Transportation Average went to a
new closing high –




Now, contrast this with what has been happening with the
currently mis-named Dow "Industrial" average, which is no longer
composed of mostly industrial type stocks; call em the Dow 30 –




Not only is the recent close in the Dow 30 (INDU) far below its
prior closing high (Dow theory considers the close only) in
February, but this average appears to be struggling even to get
back up to re-test the cluster of prior highs from March-April.

A LITTLE BACKGROUND PLEASE -

Charles Dow didn't consider his ideas on the market as a
"theory", he just thought he was making some observations on how
the market behaved or would behave in terms of the averages he
invented.

What came to be known as "Dow Theory" is not a system of market
timing really but more of a forecaster of the major or “primary”
trend (over many months and often years)and a predictor
recessions.

Back in the 1880’s and 1890’s, Charles Dow (who, along with
Edward Jones formed Dow Jones & Co.) came up with the first stock
market averages, which became, over time, the Dow Jones
Industrials (now 30 stocks) and the Transportation average
(Symbol: TRAN and now 20 stocks) – as well as a Utility stock
average (now 15 stocks).

As I noted, the Dow Industrials might be better called the "Dow
30" as these stocks have become more technological,
communication, manufacturing and service oriented and less
"industrial", unlike the case of the heavy industry stocks like
U.S. Steel that were part of the early Dow.

BY THE WAY –
This average of 30 stocks is not capitalization weighted, as is
the case of the Standard and Poor 500 or Nasdaq Composite index.
Dow stocks of companies that have become price laggards, even if
they’re much smaller companies than say General Electric or
Microsoft, can have more of a dragging effect in the PRICE
weighted Dow 30 average than indexes that give more weight to the
biggest companies with far more shares outstanding as in the S&P
500(SPX).

Only the Dow Industrials and Dow Transportation (then a group of
railroad stocks) averages are used in what became known as “Dow
theory”.

In a second part to this next week I can cover the main tenets of
Dow’s observations on market behavior, which is a lot more than
just how these two averages behave.

One of Dow's most important contributions was the idea that
"confirmation" of the primary trend occurs by the actions of BOTH
the Industrial and Transportation averages.  A related aspect to
this, really the flip side of it - is the concept of
"divergence". Dow spoke mostly about confirmation – divergences
between averages and between prices and volume or between price
action and indicators is mostly what came in this century by
various technical analysts.

Dow said that if the Industrials moved to a new closing high or
low, without the Transportation average following suit at some
point (within a few months usually) and fail to "confirm" the new
high or low – or, if the Transportation Average (TRAN) goes to a
new peak or new low, without the same action in the Industrials –
we should be on alert for a possible change or reversal of the
primary trend.

The reasons for this are simple but was a very astute observation
on Dow’s part.  Take the example where industrial/manufacturing
activity is strong and the Dow 30 average continues to move
higher because of it.  But, at the same time, orders for those
goods are slowing.  This situation results in a build up of
inventories.  Where such a slowdown would show up however, is in
transportation activity as there is less shipping business for
these companies.  Slowing orders in the transportation sector
will tend to result in a fall off of company earnings.  Astute
followers of these stocks would notice this and selling would
start to show up in these stocks, either keeping a lid on stock
prices or actually driving them lower.

Conversely, manufacturing could start picking up but might not be
at first reflected in a pick up in those stocks as earnings tend
to lag orders – however, an increase in shipping might be noticed
more readily and cause transportation stocks to begin rising.
During this period the Dow Industrials might fall to a new low,
but not the Dow Transportation average.

Therefore, a new high or low in the Industrial average, not
confirmed by the Transportation average is suspect. In the case
of a new high not confirmed by the Transportation stocks it may
indicate that the same slowing of earnings and hence stock
prices, will show up later on in the Dow Industrials.

I think it was in my book (Essential Technical Analysis) that I
used an example of a major blockbuster type Dow signal that could
have put anyone on the right track in terms of getting into
stocks big time as a new low in the Transports was not confirmed
by a new low in the Industrials -




We can assume that manufacturing was holding relatively steady –
perhaps there was not a big build up of inventories - but
transportation stocks were suffering more relative to the heavy
volume and good earnings that they were experiencing in the prior
year(s).

A MORE RECENT AND SIMILAR EXAMPLE –
What was happening in terms of Dow Theory that would have gotten us
into the market again as investors at the 2003 bottom?  PLENTY!

I rest my case and the picture tells the story here -



Ok, I'll say something about this but the signal in terms of Dow
Theory should be pretty clear – opps, that is if I've done my job
of explaining this theory property.  The fall to a new low in the
Transportation average was not confirmed by a similar new low in
the Dow 30 average.

The lower relative high made by INDU was the initial indication
to get into stocks.  A confirmation of this initial action would
have then been when both averages took out their prior weekly
closing highs in the second quarter of last year.

Notice that the Dow Transportation average went to a new relative
high earlier than the Industrials – this is what we would expect
in terms of Dow's observations; e.g., that shipping at some point
could be picking up even faster than the manufacturing.  Shipping
tends to be pay as you go and manufacturing is a longer cycle
before earnings reflect earlier manufacturing.  Once a recovery
gets going, a pickup in orders can flow faster to transportation
companies' earnings and the rise in their stock prices can be
faster because of it.


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