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Daily Newsletter, Sunday, 07/04/2004

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The Option Investor Newsletter                   Sunday 07-04-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Much Ado About Nothing
Futures Market: See Note
Index Trader Wrap: SUMMERTIME BLUES
Editor's Plays: Verge of a Crash?
Market Sentiment: Mixed Emotions
Ask the Analyst: Like a bunch of Elephants!  Treasury yields and stocks
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
***************************************************************
MARKET WRAP  (view in courier font for table alignment)
***************************************************************
        WE 7-02         WE 6-25         WE 6-18         WE 6-11
DOW    10282.83 - 89.01   10371 - 44.57   10416 +  6.31 +167.18 
Nasdaq  2006.66 - 18.81 2025.47 + 38.74 1986.73 - 13.14 + 21.25 
S&P-100  547.17 -  2.58  549.75 -  5.06  554.81 -  0.09 +  7.82 
S&P-500 1125.38 -  9.05 1134.43 -  0.57 1135.00 -  1.47 + 13.97 
W5000  10997.55 - 76.05   11073 + 39.48   11034 - 11.83 +109.64 
SOX      457.31 - 21.60  478.91 + 25.83  453.08 - 23.20 +  5.37 
RUT      582.72 -  4.98  587.70 + 17.16  570.54 +  1.42 +  1.37 
TRAN    3146.17 - 18.01 3164.18 + 95.61 3068.67 + 43.96 + 32.43 
*************************************************************** 

 
Much Ado About Nothing
by Jim Brown

Multiple major events came and went and the markets yawned
with indifference. End of quarter window dressing turned 
into a strip search as weak economics and earnings warnings
started to chip away at investor confidence. Still, despite
a return to the bottom of our recent range the markets did
not appear concerned. 

Dow Chart - Daily

Dow Chart - 90 min

Nasdaq Chart - Daily

SOX Chart - Daily

Ten-year Yield Chart


Friday was no different from the rest of the week with the
Nonfarm Payrolls coming in weaker than expected at only
+112,000 and well under the consensus estimates of 275,000.
This was the third monthly drop since the March high of 
353,000 and the smallest gain in four months. April was 
revised down from 346K to 324K for a drop of -22,000 jobs.
Adding this drop to the this months gain represents only a
net gain of +90,000. This is still positive and the tenth
consecutive month of job additions but the trend is not 
healthy. The net gain was only 1/4 of the March number and
suggests the August payrolls could be flat or even negative
if the trend continues.  

Manufacturing employment fell -11,000 in June and was the
first decline in five months. The companion household 
employment survey showed a gain of +259,000 for June but 
this is a very volatile survey with wide swings. It is 
used as a confirmation of the Nonfarm Payroll numbers. 
This suggests more employees are switching to contractor
status or becoming self employed. Average workweek and
manufacturing workweek hours both dropped suggesting a
continuing weakness in the workplace. This would also
suggest next months employment numbers could be weaker. 
The number of unemployed workers rose +45,000 for the 
month to 8.248 million. This was the second consecutive
month of gains in the total unemployed. The economy must
add +150,000 jobs per month just to stay even with the 
number of new workers coming into the workforce. As you
can see we actually lost ground last month.  

The smaller than expected job gain sent the bond market
reeling with a drop in the ten-year note yields to 4.44%
and a two month low. Considering this was only two days
after the Fed began a rate hike cycle this is simply
amazing. While I doubt this will deter the Fed from 
its next hike the weak economics and the drop in bond
yields will undoubtedly keep the Fed on a slow and
measured pace for future hikes. The Fed funds futures
immediately removed a 25 point hike from the current 
end of year scenario and reduced the potential for a
50 point hike in August to almost zero. The equity market
did not like the weak jobs numbers but the drop in rates
should help smooth over their worries once trading begins
again next week. The slack in the labor market is still
with us and the Fed has strong history in not raising
rates until jobs are on a steady path. 

Another battle worth watching is the semiconductor sector.
I have written about it recent path several times but the
saga continues. The SOX dropped another -2% to 456 in early
trading on Friday after Deutsche Bank cut Intel to a hold
on concerns about global shipments. There are conflicting
data points on supply and demand constraints depending on
who you read. The Semiconductor Billing report on Friday
showed a +37% jump in sales on a year-over-year basis in
May and at their highest level since late 2000. This 
should be good news but the sector is under attack from
analysts suggesting the peak has passed. Viewed another
way sales only climbed +2.1% in May over April and this
has fueled the criticism by analysts. We will get Intel
earnings on the 13th and that gives us plenty of time
for analysts to polarize even further. As long as the 
SOX continues to be weak we cannot expect the Nasdaq to
recover. Leading chip stocks like INTC, AMAT and LRCX
lost an average of -5% for the week. To summarize, the
component shortage suggests high demand and an increase
in pricing power but limits the amount of chips sold. 
Earnings should continue to rise but sales may not rise
at the same rate. 

Next week is a relatively light week for economic reports
with those on the schedule not specifically market movers.
We will have the ISM Services on Tuesday and the MAPI
Survey on Thursday and those are the highlights. Investor 
focus should begin to shift to earnings as the Q2 cycle
begins. It will start with a whimper on Tuesday with AA,
DNA and YHOO followed by GE and ABT on Friday. The next
week beginning July-12th has over 300 reporters headlined
by Intel on Tuesday. After the GE guidance on Friday and 
the Intel guidance on Tuesday traders will make decisions
about Q3 direction and the markets should react accordingly.

The big news has passed with Iraq, the Fed, quarter end,
Russell shuffle and Jobs now history. If anything we could
be facing a long hot summer of investor apathy as vacations
and election conventions take center stage. Analysts are
pretty much in agreement that the economy is slowing but
only slowing to a more sustainable pace. The starting 
sprint out of the recession lows is over and the market
will settle into its long distance routine. Economics will 
begin to be ignored as long as they maintain a positive
trend and post election 2005 earnings guidance will begin
to take center stage. 

The prospect of no immediate catalyst provided traders 
with no excitement on Friday. The indexes dropped at the
open on the Jobs news but they rebounded slightly once
support levels were reached. The Dow fell to 10275 and
light support just a couple dozen points below its recent
range bottom at 10300. It tested that 10275 level multiple
time during the day and appeared on the verge of cracking
on weekend event risk most of the day. In the end support
held and the Dow closed at 10282 for a loss of -51. 
Internals have declined significantly and the Dow is 
back to June-2nd levels having given back -200 points 
from the weeks highs.

The Nasdaq retreated to resistance turned light support 
at 2000 and hovered there most of the day. With the SOX
heading south it was remarkable to see the Nasdaq hold 
this level for most of the day. The Nasdaq does not face
a support challenge until 1965 and that is well below
our current levels. The YHOO earnings on Tuesday could
be pivotal in whether we test that support. Traders were
not able to make any gains into the close and there was
a distinct lack of short covering. The Nasdaq ended at 
2006 for a loss of -9.  

The flurry of earnings warnings and the weaker than 
expected ISM and Jobs reports have put a crimp in my
expectations for a post holiday rally into earnings. 
I really do not think economic conditions have changed 
much but the perception of a worsening is growing. With
the markets near 10500/2075 and the recent highs stocks
were priced to perfection in anticipation of strong
earnings. The warnings have tarnished investor outlook
and we are seeing much less of a bullish undertone. Where
I was looking for a post holiday uptick into the earnings
week of the 12th I have moved back to a neutral position.

While we could easily go either way there is still 
strong support below us. That support could evaporate
with a couple more high profile warnings and we could
begin a sideways decline into October. I know this flies
in the face of the summer rally crowd but when you think
about it there is no reason for stocks to rise. If real
earnings are going to decline and the economy continue
to slow then stocks are fairly valued at the current
level. What we need is for GE and Intel to brag about
how strong business really is and raise guidance for Q3
and beyond. Personally I think the odds of this happening
now are very slim. I think they will just affirm guidance
and leave it at that. Should Intel lower guidance as two
analysts have suggested we will be in serious trouble. 

This makes next week a tossup and I suspect moving higher
will be a challenge. We have seen the range expanded on
the high side to 10487 and I think we could see the low
side pushed back to 10150. This gives us a very broad 
range to wander over the next couple weeks without any
damage being done. July is typically the strongest month
of the 3Q and so far it is not shaping up as bullish. The
Nasdaq has room to 1965 and is currently right in the 
middle of its recent 1965-2065 range. Again, plenty of 
movement potential without any conviction required. Our
volume on Friday was definitely light with only 2.7B
shares across all markets and that was weighted 2:1 in
favor of declining shares. 

Tuesday is going to be telling for market direction. I
would use Tuesday as an indicator for the week and trade
what you see not what you think. There could easily be
a sentiment change in progress and we need to see which
way the traffic is moving before stepping off the curb.
Speaking of traffic have a safe holiday weekend and 
remember to buckle up. The Dept of Transportation is 
predicting 522-550 deaths from traffic accidents over
the weekend. This weekend kills and injures more people
than any other. Buckle up and live to trade another day.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

**************
FUTURES MARKET
**************

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

SUMMERTIME BLUES
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
The bulls didn't get the lift from getting the modest rate rise 
out of the way and especially did not get the expected big jump 
in jobs. It's enough to make a grown bull cry.  So near yet so 
far – the indices got at or near prior highs but retreated from 
their April price peaks (the Feb. highs in the case of the Nasdaq 
100 & QQQ). This action of last week sets up double tops and 
suggests that this market will continue to be in trading range. 
And, from last week's closing levels, lower from here.  

The only major index powering to a new high was the Dow Jones 
Transportation average (TRAN) and its prior high was reflecting a 
stock group that was lagging the market significantly.  Still, 
this new high in TRAN sets up a watch to see if the Dow 30 (INDU) 
can follow suit at some point – right now, INDU is lagging the 
other related indices. My last week's Trader's Corner article was 
about what Dow Theory might have to say on this subject. See -
http://www.OptionInvestor.com/traderscorner/tc_062904_2.asp  

FRIDAY'S TRADING ACTIVITY – 

THE NUMBERS – 
The S&P 500 Index (SPX) fell to 1,125.37 (-0.3%). The Dow Jones 
30 Average (INDU) was off by 51 points (-0.5%) to 10,282.76, it's 
lowest close since June 3rd. For the week, the Dow lost 89 
points. 

The Nasdaq Composite Index (COMP) was off 9 points (-0.4%), to 
finish at 2,006.6 – for the week COMP fell 19 points.  The 
Russell 2000 (RUT) bucked the trend slightly by closing 
fractionally higher on the day at 582.7 

THE REPORTS – 
The Labor Dept. reported that the June non-farm payroll increase 
was only 112,000 jobs, well under the consensus forecast for 
around a quarter of a million.  

The unemployment rate held steady at 5.6%.  Average hourly wages 
rose by 2 cents (+0.1%) to $15.65 which was less than the 0.3% 
gain expected by the market.

Payroll growth in April and May together was revised lower by
37,000. Over the past 3 months, payroll growth has averaged 
224,000 a month putting it near a million on an annual basis. 

President Bush bragged on the growth, while his Dem challenger 
John Kerry pointed out that new jobs are generally paying less 
than ones lost in prior years. The income squeeze perceived by 
the middle class relates to this issue.  

Details of the June Labor Dept. report included that the average 
workweek fell by 2/10ths of an hour to 33.6 hours.  Total hours 
worked in the economy dropped 0.6%. In manufacturing, the average 
workweek fell by 3/10ths of an hour to 40.8 hours, while overtime 
was steady at 4.6 hours a week.

May factory orders were also released on Friday and fell by 0.3%, 
which was not as weak as the -0.7% forecast and May's decline was 
not as much as April's 1.1% fall.  Not a great time to be in the 
manufacturing business – there are some signs of life but the 
patient is not well. 

THE TALK –
Deutsche Bank dropped its rating on Dow stock Intel (INTC) – also 
of course a key stock in the Nasdaq - to "hold", citing supply-
chain uncertainties. The Deutsche Bank analyst noted concerns 
about Intel's recently launched "Grantsdale" PC chip and its 
motherboard shipments in Taiwan as expressed by lowering their 
firm's rating on the stock. 

Some cautious analyst comments on chip-maker Texas Instruments 
(TXN) also created a negative impact on tech stocks in general, 
as did warnings on some smaller companies. Apple Computer (AAPL) 
was a drag on the hardware sector as the company said the launch 
of a flat-panel version of its popular iMac PC would be delayed.

Semiconductor stocks were among the hardest hit among tech shares 
as investors disregarded word from the Semiconductor Industry 
Association that worldwide sales rose to $17.32 billion in May, 
up 2.1 percent from April and 36.9 percent from a year earlier. 
The Philadelphia Semiconductor index (SOX) fell just over 2%.


OTHER MARKETS – 
Bonds soared as the data lessened concerns about aggressive 
interest-rate moves by the Fed.

Treasury bond prices on Friday rallied to 6-month highs and 
yields fell to 2-month lows. The 10-year note ended almost a full 
point higher, +28/32nds to 102 9/32, yielding 4.46%.

August crude futures closed at $38.39 a barrel on the New York 
Merc, down 35 cents, but up 85 cents for the week. A surprise 
fall in last week's crude inventories provided support last week, 
but prices fell Friday after a 2-day climb of more than $3 a 
barrel.

MY INDEX OUTLOOKS – 

If the bulls are looking for help from the tech stock sectors and 
anticipating that maybe the Nasdaq, which has been lagging the 
S&P indices in recent weeks, will take the lead – little comfort 
for that is provided by the very important semiconductor index 
(SOX) as it reversed right at it's 200-day moving average and 
retreated from there, falling back under its down trendline – 



 

S&P 100 Index (OEX) – Daily chart:

It is now more apparent that the S&P 100 (OEX) has made at least 
an interim top given the continued decline from its high in the 
559 area, which equals its late-April peak at the dashed red 
level line on the daily chart below. If in puts, stay with them 
as the near-term trend has gone from sideways to down with the 
decline to under the low end of the recent trading range.    

The close under 550 and its 21-day moving average is also near-
term bearish.  Support could develop around 544, at the 
previously broken up trendline.  A rebound from this area would 
be encouraging for a shallow correction only.  540-541 may offer 
some support.  533 is at the lower trading envelope line and is a 
kind of benchmark to see where OEX might again be "oversold".




The best technical indication for a top was pre-warned by the 
falling 14-day RSI line which was divergent or contrary action 
relative to what prices were doing; i.e., making a new high.  
This type of bearish divergence is one of the best signs for an 
upcoming reversal that there is. 

In case you want to know more about Price/Indicator divergences, 
you can look back at a prior Trader's Corner article I did, which 
includes a discussion of divergences of this type – 
http://www.OptionInvestor.com/traderscorner/tc_032804_1.asp  


Dow Industrials (INDU) Daily:

The fall last week in the Dow 30 average (INDU) to below near- 
support in the 10300 area gives more credence to the idea that 
this index reached a top when prices again got up near the 
cluster of the April highs in INDU.    

Look for possible support in the 10260 area, then in the 10170 
area of the 200-day moving average.  I think that the 10100 area 
is the lowest that will be seen in the short-term.  (If that is 
the lowest low for this correction it will be interesting to see 
is a head and shoulder's bottom sets up.)    




Price momentum is clearly down now as can be measured by such 
Indicators as the 14-day slow stochastic.  

Nasdaq 100 (NDX) Index  – Daily:

I suspect that the Nasdaq 100 (NDX) is headed back to the 1450 
area at a minimum.  I would be surprised to see NDX climb back 
above 1500 in the coming week, which is a short week anyway.    

A very good tip off for a top was seen mid-week with the clear 
cut higher high, but without a similar new high in the 14-day 
RSI.  These type divergences don't set up all that often, but are 
very valuable to index option trading. 




The bearish divergence that set up this past week suggested a 
high potential put buy as the index rallied – especially up to a 
prior high (the Feb. top) - and when OEX put prices were 
relatively cheap. When they break, you then have to pay "up" for 
the option. 

Nasdaq 100 (NDX) Index  – Hourly:

If you want to see an even better visual on the aforementioned 
bearish price/RSI divergence, the hourly chart is shown below - 




The RSI "length" setting shown above is 14, but the divergent 
trend of a lower RSI peak was also apparent with a "21" setting 
in the Relative Strength Index indicator that is good for use on 
an hourly chart.  

Use of the hourly chart also shows the prior lows coming in 
around 1450 – below this level, support comes in around 1425 
based on what I see in the chart pattern.  

Nasdaq 100 tracking Stock (QQQ) Daily:

I leave the down trendline in place – it was a line of resistance 
– will it now prove to be the opposite and act as support. If so, 
the Q's will need to maintain closes at or above Friday's closing 
level at 36.80.  However best near support is apparent in the 36 
area.  If the Q's start breaking 36 it should go lower still and 
would set up a target to the 35 area.   


 

The only good jump in volume seen in a while – above average 
daily volume – was when the stock broke sharply this past week.  
The lack of a corresponding jump in volume on the rally early in 
the past week was a case of volume not "confirming" the advance 
in prices – the rally. 

Good Trading Success!

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**************
Editor's Plays
**************

Verge of a Crash?

While my logic tells me we should move slightly higher
over the next couple weeks as we move into earnings I
think the potential for a new leg down is rising. I 
am not willing to risk a lot on this potential but I
think it is worth a lottery play. 

With two weeks left in the July option cycle the current
month options are cheap and cheap for a reason. We have
been range bound for a month and with the potential for
an historical uptick next week the odds of remaining
range bound appear good. 

That is where I am beginning to differ from conventional
wisdom. Markets have a habit of doing the opposite of
what we expect when we most expect it. This makes the
counter trend move when it appears one of considerable
strength because everyone has been betting against it. 
Today that would mean everyone bought the dip and is
expecting a rebound into the third week of July. That
is the conventional wisdom. 

Every time I look at the Dow chart today I keep seeing
a potential failure back to 10150-10200 or even 10000
with very little effort. 

I am willing to risk a few dollars on the roll of the 
dice that the market may surprise the bulls. I am going
to suggest the July DJX-$102 put DJV-SX which closed at
$0.70 on Friday. Assuming we open higher on Tuesday we
should be able to buy it cheaper after three days of
time have expired in the premium. If we do open higher
wait for a clear roll over to enter the trade. The 
higher the better. 

We are going to target something below 10200 for an exit.
I am not going to post an official exit because there is
the potential for a serious drop in this fragile market.

I am going to set a stop at 10375 just in case we guessed
wrong. This is a very speculative position and one that
should only last four days or less. I do not want to hold
it over the next weekend unless we are deep in the money
and the markets are heading south. Plan on closing on the 
9th to preserve any remaining time premium. If we are
wrong we will take our lumps. 

Buy July DJX-$102 Put DJV-SX $0.70 at Friday's close. 

Stop loss Dow 10375
Profit target 10200 or less. Look for an exit under 10200.

DJX Chart - Daily
 




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

Microsoft Running In Place  $28.56
Combination play

Microsoft finished only a penny lower for the week as 
traders wait for the news on the cash disbursement. 

http://members.OptionInvestor.com/editorplays/edply_062704_1.asp

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

Trouble Across the Pond
News Corp Update $35.61

Current position: Long (6) Jan-2006 $40 Calls WLN-AH @ $3.83 

http://members.OptionInvestor.com/editorplays/edply_041104_1.asp

http://members.OptionInvestor.com/editorplays/edply_041804_1.asp 


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

PVN Call Update $14.69

http://members.OptionInvestor.com/editorplays/edply_061304_1.asp


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

Mixed Emotions	
- J. Brown

All the traders not yet on holiday with the extended Fourth of 
July weekend can breathe a sigh of relief.  Despite an incredibly 
busy week where the markets endured the Russell 2000 reshuffling, 
the Iraq handover of power, the two-day FOMC meeting and decision 
on interest rates, the Friday non-farm payrolls report and a wave 
of disappointing economic reports, stocks remain widely stuck in 
their month-long trading range.  

Yes, it was rather anticlimactic.  We endured all of these 
"market moving" events and yet the markets didn't move - not just 
for the week but for the year.  The NASDAQ and the S&P 500 are 
marginally up for the year while the Industrials are negative but 
less than 200 points from their 2003 close.  

Looking ahead it's hard to judge investor sentiment.  There are 
conflicting factors for both short-term and long(er)-term time 
horizons. Short-term the broader NASDAQ and S&P 500 are near the 
bottom of their trading range and technicals look bearish.  The 
Industrials are actually just under the bottom of its month-long 
trading range.  Technically the ARMS index or TRIN is showing a 
bullish/oversold reading on its short-term 5-dma.  Yet volatility 
indices remain near their lows indicating traders are too bullish 
for stocks to mount any sort of extended rally.  Plus the sudden 
rise in oil has damaged expectations for a future drop in fuel 
prices to ease inflation and boost consumer discretionary 
spending.  Hopefully the recent two-day drop in the stock market 
and the rise in oil is merely investor fear and/or speculation 
over a terrorist event during the long holiday weekend.  If the 
weekend passes peacefully then oil may slip lower again.  

Short-term one might expect traders to gear up for what should be 
a strong Q2 earnings season.  Unfortunately, investor confidence 
has took a beating on this one with a rash of painful earnings 
warnings.  Yet on the positive side the beginning of July is 
supposed to see retirement money inflows from the recent quarter 
end filter into stock prices.  I think we haven't seen that yet 
because of investor caution ahead of the weekend.   July also 
happens to be the best month out of the third quarter for stocks 
in general.  On the flipside July may be the best month out of 
the third quarter only because August and September are 
historically that much weaker.  As I mentioned in the wrap on 
Wednesday July begins the worst four months of the year for the 
NASDAQ.  

Longer-term investors should be encouraged that the economy has 
been able to maintain its trend of growth.  The U.S. economy is 
working on its 12th consecutive quarter of growth.  Businesses 
have added more than one million jobs since last August.  It was 
only a few quarters ago that the pace of growth hit 20-year 
highs.  Of course therein lies our problem for the second half of 
2004.  Growth was so strong in the second half of 2003 that 
earnings comparisons are going to be extremely tough to beat.  
That's why this Q2 earnings season may be challenging.  
Corporations are expected to easily surpass last year's numbers 
but their guidance going forward will be the determining factor 
for the second half of July and probably all of August.  

One point of view I heard on Friday made a lot of sense.  The 
markets have already accepted a rising interest rate environment.  
Investors expect rates to rise because the economy is improving.  
Yet what if the economy isn't improving.  We've heard and seen a 
number of reports that show growth has been slowing.  The rate of 
job growth has also been declining for three months in a row.  
Now we're moving into the third quarter a.k.a. the slowest 
quarter of the year.  If you view the market from this point of 
view there isn't a lot of eagerness to buy stocks.  

This isn't a new idea.  Jim has been discussing lower earnings 
expectations and weaker comparisons for the third and fourth 
quarter for weeks.  If earnings growth slows down it's only 
natural to see the stock market slow and/or decline.  Earnings 
have always been the main market driver and that's why you hear 
so much lately about how "quality" stocks will be the winners in 
the second half.  But don't start looking at those January put 
options yet.  Job growth is expected to pick up again as we move 
deeper into the second half.  Plus, I mentioned on Wednesday that 
the S&P 500 historically rises an average of 8% in the first six 
months after the Fed begins a tightening cycle on monetary 
policy.  Plus, we have the historical trend for stocks to perform 
well in the last seven months of an election year.  Of course 
this last trend may be challenged.  There is so much uncertainty 
regarding the 2004 elections that stocks might be stuck in wide 
trading range through Thanksgiving.  

Enjoy your long weekend, your hard won freedoms and say thank you 
to the men and women in uniform who help defend it!



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8871
Current     : 10284

Moving Averages:
(Simple)

 10-dma: 10373
 50-dma: 10250
200-dma: 10169



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  960
Current     : 1125

Moving Averages:
(Simple)

 10-dma: 1134
 50-dma: 1119
200-dma: 1099



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1204
Current     : 1481

Moving Averages:
(Simple)

 10-dma: 1489
 50-dma: 1452
200-dma: 1443



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

CBOE Market Volatility Index (VIX) = 15.08 -0.12
CBOE Mkt Volatility old VIX  (VXO) = 15.21 +0.13
Nasdaq Volatility Index (VXN)      = 19.89 -0.17

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.81        559,886       453,271
Equity Only    0.71        459,413       325,758
OEX            0.69         22,288        15,544
QQQ            3.10         32,169        99,994


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

Bullish Percent Data

           Current   Change   Status
NYSE          67.1    + 0     Bear Confirmed
NASDAQ-100    50.0    + 0     BULL ALERT
Dow Indust.   70.0    + 0     Bear Confirmed
S&P 500       65.6    + 0     Bear CORRECTION
S&P 100       67.0    + 1     Bear CORRECTION



Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


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

 5-dma: 1.62
10-dma: 1.28
21-dma: 1.11
55-dma: 1.10


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    1725      1423
Decliners    1092      1522

New Highs     118        84
New Lows       30        39

Up Volume    470M      317M
Down Vol.    807M      838M

Total Vol.  1292M     1187M
M = millions


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

Commitments Of Traders Report: 06/29/04

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 would appear that no one wanted to make any big bets this
week with the Iraq handover, the FOMC meeting and the Jobs report.
Commercial traders remain slightly bearish and small traders remain
bullish.


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%)
06/29/04      405,273   413,351   ( 8,078)   (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%
06/29/04      129,978    94,535    35,443    15.7%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Commercial traders have tempered their bearishness a bit but they
remain very bearish on the e-minis.  Likewise small traders are
still very bullish.  One group is going to be terribly wrong here
and odds are in favor of the big traders.


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%)
06/29/04      258,443   447,505   (189,062)  (26.7%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
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%
06/29/04      236,492     47,780   188,712    66.3%

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 relatively neutral on the NASDAQ-100
with a small bullish bias.  Meanwhile small traders have turned
a bit more bearish on the group.



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%
06/29/04       41,078     37,194     3,884    4.9%

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%)
06/29/04        7,437    11,904    (4,467)  (23.1%)

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

Not much change for the commercial traders.  They remain bullish
on the Dow Industrials.  Small traders have turned a little more
bearish on the index.


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%
06/29/04       27,278    20,512    6,766      14.1%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
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%)
06/29/04        4,930     7,682   (2,752)   (21.8%)

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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ASK THE ANALYST
***************

Like a bunch of Elephants!  Treasury yields and stocks

I've been a subscriber to OptionInvestor.com since 1999.  In 
2000, I pulled huge profits off the table when you began warning 
that lower Treasury yields were a sign of caution toward economic 
slowing, when prior to 2000 Treasury yields and stocks were 
moving in the same direction as the economy was expanding with 
relatively modest inflation.

Sure enough, as it pans out, stocks suffered some losses.  
However, my question is this.  One of the things I remember you 
saying is that the lower move in Treasury yields, which came as 
the Fed was still in a tightening mode, was the signal from the 
bond market that stocks would soon suffer the consequences.  
Isn't that what is taking place today?  The Fed just started 
raising rates and now yields are falling.

Can you explain why you are turning more bullish now than you 
were in 2000?

I checked, and sure enough, this is a human that wrote the above 
e-mail, and not an elephant.  You're not supposed to remember 
things I said more than 3-years ago!

The stock and bond markets have changed a bit the past year 
haven't they?

Stock prices rose sharply from their March 2003 bottom, yet 
Treasury YIELDs continued to decline.

The decline in Treasury YIELDs suddenly became a measure of good 
fortune for stocks as the lower YIELDs helped keep consumer 
borrowing costs at 45 year lows!  That along with tax cuts helped 
reflate the struggling U.S. economy, spurred largely on the back 
of a strong housing market and homebuilding.

And this is where I think it so important to have a general 
understanding of economic cycles.

Stock investors are familiar with terms used to describe the 
evolution of a company, and economic cycles are no different.

In the early stage of development, a company that has developed a 
new product that is eagerly accepted by the market will 
experience what many call an "acceleration phase", where revenues 
will grow rapidly on a year-to-year comparison.  As time passes, 
that same company, as it establishes economies of scale then 
enters a "growth phase" where no longer is it just consumers that 
are early adopters begin to use the company's product(s) on a 
more regular basis.  As time passes a company eventually enters 
what is called a "maturity phase" where growth slows notably when 
compared to the "acceleration" and "growth" phases.

So what does this have to do with stocks and Treasury YIELD?

I'm going to make my case that stocks and Treasury YIELD are 
about to get back into a similar pattern of moving higher in 
unison.  In fact, I'll try and show this to be true and already 
underway.

Again, I believe, based on observation, that the "acceleration" 
phase of a new economic recovery began, and I now think we are 
entering the "growth" phase.  I may be wrong, I may be right.  
And while I will test BEARISH scenarios for sign of validity, it 
is only fair to test BULLISH scenarios.

Not for a day, or a week, but continually.

Here's a weekly bar chart comparison between the 10-year Treasury 
YIELD ($TNX.X) and the S&P 500 Index (SPX.X), which many 
investors consider to be a relatively fair representation of 
market participants view of the U.S. economy.

Treasury YIELD is also thought to be market participants view of 
Fed policy toward interest rates.

In the following charts, I've overlaid conventional use of 
retracement, to simply define a range, and then dissect that 
range. Use of 10-week (50-day) and 40-week (200-day) simple 
moving averages give observation relative YIELD/PRICE movement 
comparisons.

10-year YIELD (top) / S&P 500 (bottom) comparison - Weekly Int.



There are some strikingly similar comparisons between the 10-year 
YIELD chart and the S&P 500 Index.  

It is always fascinating to this analyst how there is ALWAYS some 
type of worry, or BEARISH prognostication present in a market.  
Sometimes the BEARISH scenario plays out, sometimes it doesn't.  
However, one thing that is always found, is the BEARISH and 
BULLISH scenario.  Each portends to call the market, and give 
traders and investors something to think about.  It is those 
scenarios that don't past the test, when continually followed due 
to the trader/investor's conviction, that will do the most harm 
to an account.

In mid-May, we began to discuss an extremely bearish scenario 
that had shifted from "deflation" to "inflation."  

During the "deflation" stage, the BEARISH scenario stated that 
economy was in a nosedive and that despite tax cuts and an overly 
easy Fed (in regards to interest rates at 1.0%) the economy would 
not produce any jobs, and tax cut policy, combined with 
increasing Federal deficit to fund a war, would have the economy 
plunging from recession to depression.

Suddenly, the equity markets turned higher as tax cuts took hold, 
where increased consumer spending began to fuel an economic 
recovery.

Hmmmm.... with the scenario of deflation evidently not in play 
(see markets) and the economy suddenly showing notable job gains, 
the BEARISH scenario of RAMPID INFLATION had to be in play, where 
the rapid rise in Treasury YIELD was clear sign that the Fed has 
lost control, and markets were taking over.  The Fed had 
evidently left interest rates (Fed Funds rate) too low for too 
long, and inflation was rearing its ugly head.

While gold prices, thought to be a good indicator for inflation 
fell from $428 to below $400, a revamped BEARISH scenario for 
RAMPID INFLATION was still in play.  It was thought that Fed 
tightening (raising interest rates) showed gold prices falling, 
and not really being an accurate read on inflation.  Instead, a 
rise in the dollar was the clear sign that RAMPID INFLATION was 
present.

Now, we discussed the RAMPID INFLATION scenario in past 
OptionInvestor.com Index Trader Wraps, as we needed to set up 
some tests.  We also knew that the MARKET was a forward looking 
instrument and would eventually give an answer to various 
scenarios that were in play.

In the 05/23/04 Ask the Analyst column, "Economics 101" we had a 
crash course in economics, looked at recent economic reports, and 
I (Jeff Bailey) made some economic predictions.  Noting that I 
wasn't an economists, but knew just enough about various 
indicators/reports in the scope of an economic cycle, to be 
dangerous.

Here's an update to that 05/23/04 column, but more importantly 
perhaps, still testing the scenario of doom and gloom on RAMPID 
INFLATION.

Table of Economic Reports - Jan. 2004 to May 2004



What have we learned (facts) since mid-May.

One fact revealed since mid-May is that the government now says 
the economy grew at a downwardly revised 3.9% annual rate in the 
first quarter, from the originally reported 4.2% annual rate.  
OK, not as robust as originally thought, but steady growth.  

Another fact, which was a major point of focus in the 05/23/04 
Ask the Analyst column was the beneficial impact that higher 
rates of productivity can have on lessening inflation.  Since 
05/23/04, the government said productivity grew 3.8% in the first 
quarter, up from originally reported figures of 3.5%.

I was a bit skeptical of RAMPID INFLATION taking hold based 
solely on the rise in commodity prices.  After a recession, 
production of all sorts (not just manufactured goods and 
services, but production of commodities is being shut down) had 
been curtailed, where production was scaled back.  Some 
facilities entirely shut down.  It's notable how the CRB Index if 
benchmarked from its end of May close has fallen, as Industrial 
production showed 0.8% and 1.1% gains in April and May.  Did 
various industries bring on production to now take advantage of 
higher prices?  Looks that way doesn't it?  What tends to happen 
when more supply comes to a market?  Price stability, or decline 
depending on demand.

Now, let's get back to Treasury YIELD for a moment.  In past 
commentary, I made the distinction between CONSUMER interest 
rates (established by Treasury YIELD) and interest rates 
(established by the FOMC).  

When reviewing the chart of the 10-year YIELD ($TNX.X) what 
happened with CONSUMER interest rates from mid-March to mid-May?  
Fact:  The 10-year YIELD ($TNX.X) rose from roughly 3.75% to a 
high of 4.85%.  RAMPID INFLATION!!!!!!  What's the 10-year YIELD 
doing now?  Hmmmm.... RAMPID DEFLATION, RECESSION!!! These 
scenarios will now start to surface.  Why?  Because RAMPID 
INFLATION doesn't look to be in play.

You see!  It's a new RECESSION we now have to be worried about.  
See how durable goods and factor orders have been falling off?  
That's it!  RECESSION!

Hmmm.... what are Treasury YIELDS doing?  A bull might say YIELDS 
are moving at a higher yet "measured approach" rate.

Could it be that the reason durable goods and factory orders have 
seen declines after RAMPID RATES OF GROWTH is that the bond 
market, and the rise in YIELDS, which increased consumer 
borrowing costs had an impact on consumer purchases?  Again, 
we've noted how the BOND market probably did a lot of the Fed's 
"dirty work" when YIELDS jumped from their March 2004 relative 
lows, when the Fed first started discussing the possibility of a 
"measured approach" to interest rate hikes.  Just this week, the 
Fed raised rates 25 basis points.

Here's where the trader/investor asking today's question has 
concerns, as it relates to commentary from 2000.

Remember, in 2000 the economic boom, or economic expansion had 
been running at a record 9 years, the longest period of economic 
growth.  We didn't know for certain (you never do until quarter's 
later) that in 2000, the economy had been in its "maturity" 
phase.  

Not unlike animal populations, economic cycles (up and down), 
which stock markets reflect (up and down), show animal 
populations swelling and contracting over periods of time.

While history shows economic expansions ranging from 3 to 9 
years, there's never a CERTAINTY that history will repeat, just 
as there's no certainty that the rabbit population around my 
house will remain robust.  I'm seeing more foxes of late.  
Probably because the food supply is so high in my neighborhood.

In hindsight to some, the NEGATIVE forecast from the bond market 
to the stock market on the lower YIELD trade in 2000, despite a 
50 basis point rate hike by the Fed, was the bond market saying 
"you shouldn't have tightened."  Remember too that GOLD was 
trading at and below the $300 level.  You can review that 
historical analysis in the 08/31/03 Ask the Analyst column "Gold 
and the Fed.  Too loose, too tight, or just right?"

Regardless of what the Fed did in 2000, the stock market would 
have eventually declined.  However, the Fed was criticized for 
its 50 basis point rate hike in 2000 as bringing to an end the 
economic growth cycle, and the length of the eventual recession.  
I also remember that in 1995, 1996, 1997, 1998 and 1999 there 
were constant predictions that the growth cycle for the economy 
was about to end.

Hey.... if you predict something long enough, it will eventually 
come true.

So... let's say that the BEARISH scenario of RAMPID INFLATION has 
been put to rest.  For now at least.

After all, the dollar's decline doesn't match the scenario of 
being a great predictor for inflation.  Gold... hey, its back 
near $400, maybe inflation hawks will refocus on gold.

The CRB Index is hovering around 270, where a slight decline in 
oil prices hasn't hurt.

When I look at the dollar in the above table, one thing that 
stands out to me is that the dollar ROSE (April) at the same time 
as the April Federal Budget Deficit showed a $17.6 billion 
surplus that month.  Hmmmm.... could it be that BEARS that were 
looking for a reason to be concerned about inflation, chose the 
dollar's rise as their indicator of choice?

I'm not sure that that's the only reason.  The INFLATION scenario 
had many currency traders citing the dollar's strength as being 
attributed to buying of dollars on thought the Fed was going to 
be more aggressive with interest rates, thus Fed policy being 
more concerned about inflation.  

As I look at both the BOND and STOCK markets, they both appear to 
be in a renewed upward trends, after exhibiting an acceleration 
move higher.  Where that acceleration has entered a consolidation 
period.  

If it's true that the markets are never wrong, and forward 
looking, it would be my observation that the recent lows for the 
SPX, might well have been reflecting the recent "weaker than 
forecasted" economic data.  In the table above, that would be 
factory orders and durable goods.  

Remember that the May durable orders were released on June 24, 
while factor orders for May were just released on Friday, July 
2nd.

We might now be able to understand what the stock market was 
doing in April, ahead of May economic reports.  And how the 
weaker May and perhaps June data would be a result of the higher 
Treasury YIELD, which had to have consumer-borrowing costs 
rising.

As I (Jeff Bailey) interpret the current market action, I do 
confess a longer-term bullish outlook.  I'm always open to 
BULLISH and BEARISH scenarios, and I think I can usually derive 
some pretty good tests for scenarios presented.

I'm not overly concerned about the DECLINE in Treasury YIELD this 
week, as I think it came largely from a overly worried, or 
BEARISH scenario regarding inflation, which would push the Fed to 
raise interest rates more aggressively.  

I'll continue to monitor for signals of inflation, but from what 
I also see in the hard economic numbers, it what I've discussed 
regarding how a NEW economic cycle of expansion unfolds after a 
recession.  

After a recession, there HAS to be some type of inflation.  
However, I thought that RAMPID INFLATION wasn't, or isn't likely, 
simply due to the thought, based on past economic reports, that 
there was a lot of production shut down during the recession.  
When the economy began to revive, and demand increased, the more 
limited supply had to have some prices rising.

But, as thought, production figures also increased to meet that 
demand, it catching up, and the hard numbers from the economic 
reports now appear to reflect such notions.

Jeff Bailey



*************
COMING EVENTS
*************

-----------------
Earnings Calendar
-----------------

Symbol  Co               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

None

------------------------- TUESDAY ------------------------------

AYI    Acuity Brands         Tue, Jul 06  Before the Bell     0.44


------------------------ WEDNESDAY -----------------------------

ACN    Accenture             Wed, Jul 07  Before the Bell     0.37
AA     ALCOA Inc             Wed, Jul 07  After the Bell      0.47
DNA    Genentech, Inc.       Wed, Jul 07  After the Bell      0.19
ISCA   International SpeedwayWed, Jul 07  Before the Bell     0.32
MSM    MSC Industrial Direct Wed, Jul 07  -----N/A-----       0.31
SCHN   Schnitzer Steel Ind   Wed, Jul 07  After the Bell      1.25
YHOO   Yahoo, Inc.           Wed, Jul 07  -----N/A-----       0.08


------------------------- THUSDAY -----------------------------

LI     Laidlaw Intl, Inc.    Thu, Jul 08  After the Bell      0.22
OCENY  Océ N.V.              Thu, Jul 08  -----N/A-----        N/A
PBG    Pepsi Bottling Group  Thu, Jul 08  -----N/A-----       0.51


------------------------- FRIDAY -------------------------------

ABT    Abbott Laboratories   Fri, Jul 09  Before the Bell     0.54
GE     General Electric      Fri, Jul 09  Before the Bell     0.37
WMMVY.PK  Wal-Mart Mexico    Fri, Jul 09  -----N/A-----        N/A


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Co Name              Ratio    Payable     Executable

BPOP    Popular Inc.              2:1      Jul   8th   Ju1   9th
URBN    Urban Outfitters Inc      2:1      Jul   9th   Ju1  12th
SLXP    Salix Pharmaceuticals     3:2      Jul  12th   Ju1  13th
MGPI    MGP Ingredients           2:1      Jul  15th   Ju1  16th
CCFH    CCF Holding Company       3:2      Jul  15th   Ju1  16th
BLUD    Immucor, Inc              3:2      Jul  16th   Ju1  19th


--------------------------
Economic Reports This Week
--------------------------

The economic calendar is a little light but we will get the ISM
services index data on Tuesday.  Tuesday also kicks off the Q2
earnings season with reports from AA, DNA and YHOO.  The real Q2
action doesn't pick up until the following week.

==============================================================
                       -For-           

----------------
Monday, 07/05/04
----------------
Market Holiday


-----------------
Tuesday, 07/06/04
-----------------
ISM Services (DM)          Jun  Forecast:    65.0  Previous:     65.2
Federal Reserve Governor Broaddus speaks on the economy

-------------------
Wednesday, 07/07/04
-------------------
None


------------------
Thursday, 07/08/04
------------------
Initial Claims (BB)      07/02  Forecast:     N/A  Previous:     351K
Consumer Credit (DM)       May  Forecast:   $7.5B  Previous:    $3.9B


----------------
Friday, 07/09/04
----------------
Wholesale Inventories (DM) May  Forecast:    0.5%  Previous:    -0.1%
Federal Reserve Governor Hoenig speaks on monetary policy

Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available



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Contact Support
The Option Investor Newsletter                   Sunday 07-04-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: AMGN, ITW, GDW, MSTR, PFCB
Dropped Calls: CAT, MERQ, MMM
Dropped Puts: None


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

Amgen Inc - AMGN - close: 55.20 change: +0.44

WHAT TO WATCH: AMGN, the largest component in the BTK biotech 
index, has been stuck in a descending channel since the beginning 
of February.  Yet in the last week shares have managed a rebound 
from its lows and in the last two sessions AMGN has pushed 
through the top of its channel and technical resistance at the 
simple 40-dma.  Bulls might watch AMGN for some confirmation and 
a breakout over the 50-dma.  We'd consider a trade above $56 as a 
potential entry point with a target at the 200-dma near $60.  
AMGN's P&F chart remains very bearish but the downside target has 
already been achieved.  Earnings are expected around July 22nd.



---

Illinois Tool Works - ITW - close: 93.63 change: -1.04

WHAT TO WATCH: ITW has been a big winner in the industrials 
sector.  Shares have rallied from $75 to more than $95 in the 
last 3 1/2 months and the stock was recently named to Lehman 
Brother's top 10 uncommon values for 2004-2005.  Now the stock is 
seeing some profit taking and short-term technicals all look 
bearish.  We would watch ITW for a pull back to the $91.00 area 
and wait for a bounce.  Such a move would be an entry point to 
buy at its rising trendline of support.  Earnings are expected on 
July 21st.



---

Golden West Financial - GDW - close: 107.42 change: +1.37

WHAT TO WATCH: Banking stocks were one of the few sectors that 
managed to close in the green on Friday.  GDW drew our attention 
with its rebound from the simple 50-dma and round-number support 
at $105.  Its MACD indicator is bearish but its shorter-term 
stochastics and RSI are turning upward again.  We still think GDW 
might be a profitable bullish play if it can ever breakout over 
resistance at $110.  Look for earnings on or near July 20th.



---

MicroStrategy - MSTR - close: 40.71 change: -0.82

WHAT TO WATCH: MSTR has been in a steady downtrend ever since its 
double-top near $65.00 in February and March.  Now the trend of 
lower highs and lower lows is about to break round-number, 
psychological support at $40.00.  Daily and weekly technicals 
like the RSI and stochastics are bearish without being too 
oversold yet.  Currently the P&F chart shows the same pattern of 
highs and lows and points to a $32.00 price target.  Traders 
might want to consider an entry under $40.0 with a target of 
$35.00.



---

P.F.Chang's Bistro - PFCB - close: 39.89 change: -0.39

WHAT TO WATCH: It's been a tough quarter for PFCB.  The stock is 
down from its April highs near $52.50 and has recently broken 
through support at $42.50.  Friday's decline actually sent PFCB 
through round-number support at $40.00.  Shares do look oversold.  
A failed rally near the 21-dma appears to be the most favorable 
entry point for shorts but stock could be picking up momentum to 
the downside.  The next support level appears to be the $36-35 
region.  Its P&F chart is very bearish and points to a $28 price 
target.  Earnings are expected near July 21st.




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

IBM $87.04 -0.46 - There are less than two weeks to go till IBM's 
earnings report and shares appear to be sliding into the 
announcement.  

CFC $71.43 +1.18 - Mortgage lender CFC has survived a revenue 
warning from rival WM and rebounded back toward its highs.  A 
move over $72.50 could be a bullish entry point.

S $36.64 -1.10 - Uh oh!  Sears is slipping again and hitting new 
one-year lows.  There might be support at $35.00 but the weekly 
chart suggests support is at $30.00.


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**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

Caterpillar, Inc. - CAT - close 76.72 change: -1.46 stop: 76.00

Our CAT play was full of promise with its recent breakout over the 
$78 level and it teased us for most of last week, bouncing between 
support at $77 and resistance near $79.50.  In the end though, the 
bears won out in the wake of the FOMC meeting and the bottom of 
the trading range broke with emphasis on Friday, with price 
cracking below the 200-dma.  Our stop hasn't been violated quite 
yet and certainly we could see a rebound from the site of the 50-
dma early next week.  But with the fresh Sell signals across all 
the daily oscillators, odds favor the downside and we're going to 
err on the side of caution and drop coverage on CAT this weekend.  
We'd suggest using any sort of rebound early next week as a more 
attractive exit point, not as an invitation for opening new 
bullish positions.

Picked on June 24th at       $79.10
Change since picked:          -2.38
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.35 mln



---

Mercury Interactive - MERQ - cls: 48.00 change: -1.02 stop: 48.50

As we talked about over the past week, the $49 level and the 20-
dma were going to be key support for our MERQ play.  Sure enough, 
the pullback from the run at $51 stalled right at that level on 
Thursday, leaving us in limbo as to whether to drop the play or 
not.  Well, we chose poorly and the market drove that point home 
as it drove MERQ below the $48 level on increasing volume on 
Friday.  That smashed through our $48.50 stop and has us dropping 
the play tonight, not far above where we initiated coverage nearly 
a month ago.  Clearly any open positions should now be closed.

Picked on June 6th at        $47.56
Change since picked:          +0.44
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.07 mln



---

3M Co - MMM - close: 87.50 change: -0.67 stop: 87.49

The sharp sell-off on Thursday in the market and especially in 
the Dow Industrials was too much for this Dow-component.  Shares 
of MMM broke through minor support at the $88.00 level on 
Thursday but managed to rebound from $87.79 to close back above 
the $88.00 mark.  Unfortunately, the Dow's 51-point drop on 
Friday was enough to send MMM back under the $88 level and we 
were stopped out at $87.49.  The new MACD sell signal on the 
daily chart is a concern and the stock may be headed back toward 
support in the $86-85 region.

Picked on June 30 at $ 90.11
Change since picked:  - 2.61
Earnings Date       07/19/04 (confirmed)
Average Daily Volume:    2.5 million    



PUTS
^^^^

None

***********
DEFINITIONS
***********

! Please note changes to the Option Chains for new call and put
  plays.  We are no longer listing a "SL" or Suggested Stop Loss
  on individual options.  Most brokers offer the ability to list
  a stop loss for your option on the underlying stock.  
 
  All of OptionInvestor.com's directional call or put plays list
  a suggested stop loss for the stock itself and if the stock 
  trades at or below that stop on an intraday basis we will 
  close any hypothetical play at that time.  
 
OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
 
The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.
 
RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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Contact Support
The Option Investor Newsletter                   Sunday 07-04-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: AHC, DHR, ETN, EBAY, QCOM
New Calls: INFY, BOL
Current Put Plays: OMC, SLAB, GCI, NTES
New Puts: IRF, APPX


! Please note changes to the Option Chains for new call and put
  plays.  We are no longer listing a "SL" or Suggested Stop Loss
  on individual options.  Most brokers offer the ability to list
  a stop loss for your option on the underlying stock.  
 
  All of OptionInvestor.com's directional call or put plays list
  a suggested stop loss for the stock itself and if the stock 
  trades at or below that stop on an intraday basis we will 
  close any hypothetical play at that time.  


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******************
CURRENT CALL PLAYS
******************

Amerada Hess Corp. - AHC - close: 79.33 change: -0.56 stop: 77.50

Company Description:
Amerada Hess Corporation explores for, produces, purchases, 
transports and sells crude oil and natural gas.  These exploration 
and production activities take place in the United States, United 
Kingdom, Norway, Denmark, Equatorial Guinea, Gabon, Indonesia, 
Thailand, Azerbaijan, Algeria, Malaysia, Colombia and other 
countries.  The company also manufactures, purchases, transports, 
trades and markets refined petroleum and other energy products.  
It owns 50% of a refinery joint venture in the United States 
Virgin Islands, as well as another refining facility, terminals 
and retail gasoline stations located on the east coast of the 
United States.

Why we like it:
Our AHC play certainly sent us on a wild ride last week, but for 
traders willing to take advantage of it, the plunge near $75 on 
Monday provided a terrific entry opportunity.  We had been looking 
for support to hold at a higher level, but we certainly weren't 
going to look the gift horse in the mouth!  After that dip, AHC 
screamed higher, tapping the $80 level on Thursday and settling 
just a bit off that mark on Friday.  That's not bad, especially 
considering the carnage in the rest of the market.  So the big 
question is whether AHC has enough energy to make a run at our 
$82-83 area (our final target) or if it is in the process of 
topping out here.  We obviously think there's more room to the 
upside and we'll play it accordingly.  Look for entry 
opportunities on dips and rebounds from above the $78 level, 
although more aggressive traders can consider new positions (for a 
quick play) above the $80.25 level.  In either case, be aggressive 
about harvesting gains in the $82-83 area.  Note that our $77.50 
stop will be solidly below the 10-dma ($77.47) by Tuesday.

Suggested Options:
Shorter Term: The July $80 Call will offer short-term traders the 
best return on an immediate move, as it is currently at the money.

Longer Term: Aggressive longer-term traders can use the August $85 
Call, while the more conservative approach will be to use the 
August $80 Call.  Our preferred option is the August $80 strike, 
as it is currently near the money and should provide sufficient 
time for the play to move in our favor.  

! Alert - July options expire in 2 weeks!

BUY CALL JUL- 75 AHC-GO OI=2150 last traded @ $4.80
BUY CALL JUL- 80 AHC-GP OI=1922 last traded @ $1.35
BUY CALL AUG- 80*AHC-HP OI=1096 last traded @ $2.90
BUY CALL AUG- 85 AHC-HQ OI= 241 last traded @ $1.15

Annotated Chart of AHC:

 

Picked on June 17th at       $74.15
Change since picked:          +5.18
Earnings Date               7/28/04 (unconfirmed)
Average Daily Volume =     1.12 mln



---

Danaher Corp. - DHR - close 50.27 change: -0.71 stop: 50.00

Company Description:
Danaher Corporation operates in two business areas: 
Process/Environmental Controls and Tools and Components. The 
company's Tools and Components segment produces and distributes 
general purpose mechanics' hand tools and automotive specialty 
tools.  Among the household names they are responsible for are 
Sears' Craftsman line, Allen wrenches, and NAPA hand tools.  The 
Process Controls division, led by Veeder-Root, makes leak 
detection systems for underground storage tanks, as well as 
sensors, switches, measurement devices, and communications and 
power protection products.

Why we like it:
After charging to new highs just over $52 by mid-week, our DHR 
play ended the week on a sour note.  We knew the stock was due for 
some profit taking after the nearly uninterrupted rise from the 
$45 area.  But the depth of the pullback over the past 2 days is 
rather disconcerting.  DHR hasn't yet reached our stop at $50, but 
the close below the 10-dma ($50.52) on Friday doesn't look good. 
Should the stock turn around early next week and rebound higher, 
this could turn out to be a solid entry point, but with the fresh 
Sell signals on the daily oscillators, odds favor a breakdown.  
Only aggressive traders should consider buying this dip.  Maintain 
stops at $50.

Suggested Options:
Shorter Term: The July $50 Call will offer short-term traders the 
best return on an immediate move, as it is currently at the money.

Longer Term: Aggressive longer-term traders can use the August $55 
Call, while the more conservative approach will be to use the 
August $50 Call.  Our preferred option is the August $50 strike, 
as it is currently at the money and should provide sufficient time 
for the play to move in our favor.  

! Alert - July options expire in 2 weeks!

BUY CALL JUL- 50 DHR-GJ OI=1282 last traded @ $1.15
BUY CALL AUG- 50*DHR-HJ OI=1015 last traded @ $1.95
BUY CALL AUG- 55 DHR-HK OI= 568 last traded @ $0.30

Annotated Chart of DHR:

 

Picked on June 20th at       $48.74
Change since picked:          +1.53
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     1.55 mln



---

Eaton Corp - ETN - close: 62.26 chg: -1.42 stop: 61.85

Company Description:
Eaton Corporation is a diversified industrial manufacturer with
2003 sales of $8.1 billion. Eaton is a global leader in fluid
power systems and services for industrial, mobile and aircraft
equipment; electrical systems and components for power quality,
distribution and control; automotive engine air management
systems and powertrain controls for fuel economy; and intelligent
drivetrain systems for fuel economy and safety in trucks. Eaton
has more than 54,000 employees and sells products to customers in
more than 100 countries. (source: company press release)

Why We Like It:
After several days of slowly inching higher ETN has fallen 
sharply in the last two sessions to test critical support at the 
$62.00 level.  The market-wide sell-off in the last two days has 
prompted traders to do a little profit taking in winners like 
ETN.  Fortunately, old resistance tends to become new support.  
This may prove to be a new entry point for bullish positions but 
we suggest waiting to see ETN begin to rebound first.  

We initially added ETN on the breakout above resistance at $62.00 
and planned to play the head-and-shoulders pattern.  Currently 
the H&S pattern points to a $71 target.  Our target is the $70 
region.  It's not uncommon for stocks, after breaking out over 
significant resistance to pull back and retest the same level as 
support but with all the short-term technicals turning negative 
we would wait for signs of a bounce before initiating new 
positions.  Remember, we only have a couple of weeks left before 
ETN's earnings report and we don't plan to hold over the 
announcement.  

Suggested Options:
We're going to suggest the July options but the Octobers are
available.  Our favorite would be the July 60s.

BUY CALL JUL 60.00 ETN-GL OI= 325 Current ask @ $2.90
BUY CALL JUL 62.50 ETN-GZ OI= 945 Current ask @ $1.20
BUY CALL JUL 65.00 ETN-GM OI= 347 Current ask @ $0.40

Annotated Chart:
 


Picked on June 18 at $ 62.05
Change since picked:  + 0.21
Earnings Date       07/15/04 (confirmed)
Average Daily Volume:    1.0 million    




---

eBay Inc - EBAY - close: 91.27 change: +0.68 stop: 87.50      

Company Description: 
eBay is The World's Online Marketplace®. Founded in 1995, eBay 
created a powerful platform for the sale of goods and services by 
a passionate community of individuals and businesses. On any 
given day, there are millions of items across thousands of 
categories for sale on eBay. eBay enables trade on a local, 
national and international basis with customized sites in markets 
around the world. Through an array of services, such as its 
payment solution provider PayPal, eBay is enabling global e-
commerce for an ever-growing online community.
(source: company press release)

Why We Like It:
EBAY is giving bulls a second chance.  We've been watching EBAY 
for weeks and suggested days ago that the breakout over $88.00 
was an entry point for bullish positions.  We finally added it to 
the play list when it broke through resistance at $90.00.  The 
stock is an incredible momentum player and its relative strength 
is amazing.  Even with tech stocks leading the declines this week 
EBAY managed to hold support at $90.00 and rebound from the 
$89.50 region this afternoon.  

The stock is not only moving higher on plain old momentum but 
traders are bidding shares higher on expectations for a strong 
earnings announcement and a potential stock split announcement.  
We've got about 2 1/2 weeks left for EBAY to hit our target price 
of $100.00.  That just happens to be the same target forecasted 
by its previous bull-flag breakout. The bullish P&F chart points 
to a long-term target of $117.  The pull back to $90 is a new 
entry point opportunity.  

Suggested Options:
We're going to suggest the August calls because the July calls
will expire before EBAY's earnings announcement.  Our favorites
are the 90s and 95s, unless EBAY dips back to $88.00 and then
the 85s would work nicely.

BUY CALL AUG 85 XBA-HQ OI=1432 Current Ask $8.40
BUY CALL AUG 90 XBA-HR OI=6290 Current Ask $5.10
BUY CALL AUG 95 XBA-HS OI=4109 Current Ask $2.75
BUY CALL AUG100 XBA-HT OI=2345 Current Ask $1.40 

Annotated Chart: 
 


Picked on June 27 at $ 90.72 
Change since picked:  + 0.56
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    8.3 million    



---

QUALCOMM - QCOM - close: 72.27 change: +0.22 stop: 69.00

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:
So far so good.  QCOM has managed to hold on to most of its gains 
this week after breaking out over major resistance at the $70.00 
mark.  The technical breakout over $70.00 was fueled by big 
volume and it produced a quadruple-top breakout buy signal on its 
P&F chart with a $90.00 price target.  Coincidentally, Merrill 
Lynch recently raised their price target from $75 to $90.  The 
broker also reiterated their "buy" outlook and said QCOM was a 
great way to play the next 3G upgrade cycle in telecom.  In 
Thursday's update we mentioned the recent court decision 
regarding QCOM's lawsuit against Texas Instruments.  It would 
sounds like a few of our readers might be confused about the 
issue.  The two companies sued each other back in the year 2000 
over CDMA technology.  QCOM claims they have "won" because the 
court ruled that TXN did breach their contract.  TXN claims it 
"won" because the court ruled the breach was not material and it 
gets to keep its CDMA license.  Looking at the price action in 
QCOM shares it would appear Wall Street doesn't care anymore or 
they're not worried about it.  

We're still bullish on QCOM and would consider new positions at 
current levels but if QCOM dipped a bounce anywhere above $70 
would also qualify as an entry point.  

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= 3524 Current Ask $4.60
BUY CALL AUG 75 AAO-HO OI= 8187 Current Ask $2.05

Annotated Chart: 
 

Picked on June 29 at $ 71.55 
Change since picked:  + 0.69
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    8.8 million    



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

Infosys Tech. - INFY - close: 95.49 change: +3.37 stop: 90.95

Company Description:
Infosys Technologies Limited is a global information technology 
services company. Progeon Limited, Infosys Technologies 
(Australia) Pty. Limited (Infosys Australia), Infosys 
Technologies (Shanghai) Co. Limited (Infosys China) and Infosys 
Consulting, Inc. are the Company's majority-owned and -controlled 
subsidiaries. Infosys provides end-to-end business solutions that 
leverage technology for its clients across the entire software 
life cycle: consulting, design, development, re-engineering, 
maintenance, systems integration and package evaluation and 
implementation. The Company also provides software products to 
the banking industry, as well as business process management 
services firms through Progeon.

Why we like it:
It's a pretty safe bet that there were more than a few bears 
caught in the trap when shares of INFY broke down below the $75 
level back in the middle of May, but that's the last time you 
could have made a bearish case for the stock.  After a quick snap 
back to over the 200-dma (currently $83.91), the stock 
consolidated above that average, then scaled the 50-dma before 
getting serious about the current rally with the 10-dma ($91.44) 
and 20-dma ($88.12) launching skyward.  The first real serious 
sign of bullish intent came with the breakout over the $90 level, 
which took out the highs from April, setting the stage for the 
sharp bullish move that took place just over a week ago.  The 
pullback from that sharp rally found support just over the $91 
level last week -- curiously right at the site of the February 
highs -- before Friday's strong rebound from the 10-dma.  The PnF 
chart is strongly bullish, with an upside target of $112!

Clearly INFY has been volatile in recent months, but with that 
volatility comes opportunity and right now, the stock is in the 
midst of a strong bullish leg.  Let's go along for the ride.  
Obviously a pullback near the $92 level would make for a great 
entry point for aggressive traders, but that could be a little 
nerve-wracking, considering that we're placing our initial stop 
just under Friday's intraday low.  Actually, the more 
conservative approach will be to take a breakout entry above last 
Monday's $97 high.  Looking at the daily chart, we can see solid 
resistance lying in wait at the $102.50 level and we ought to 
expect at least some consolidation and perhaps a minor pullback 
following the first test of that level.  But with the strength of 
both the candle and PnF charts, we're going to bet on a breakout 
and run northwards to the $110 area.

Suggested Options:
Shorter Term: The July $95 Call will offer short-term traders the 
best return on an immediate move, as it is currently at the 
money.

Longer Term: Aggressive longer-term traders can use the August 
$100 Call, while the more conservative approach will be to use 
the August $95 Call.  However, our preferred option is the July 
$95 strike, due to the very low open interest on the August 
strikes.  Wait for an increase in the open interest in August 
before choosing those strikes.  

! Alert - July options expire in 2 weeks!

BUY CALL JUL- 95 IUN-GS OI=  84 last traded @ $3.40
BUY CALL JUL-100 IUN-GT OI= 151 last traded @ $1.30
BUY CALL AUG- 95*IUN-HS OI=   5 last traded @ $5.90
BUY CALL AUG-100 IUN-HT OI=   2 last traded @ $3.50

Annotated Chart of INFY:

 

Picked on July 4th at        $95.49
Change since picked:          +0.00
Earnings Date                 N/A
Average Daily Volume =        292 K


---

Bausch Lomb - BOL - close: 65.05 change: +0.77 stop: 62.99

Company Description: 
Bausch & Lomb is the eye health company, dedicated to perfecting 
vision and enhancing life for consumers around the world. Its 
core businesses include soft and rigid gas permeable contact 
lenses and lens care products, and ophthalmic surgical and 
pharmaceutical products. The Bausch & Lomb name is one of the 
best known and most respected healthcare brands in the world. 
Celebrating its 150th anniversary, the Company is headquartered 
in Rochester, New York. Bausch & Lomb's 2003 revenues were $2 
billion; it employs approximately 11,500 people worldwide and its 
products are available in more than 100 countries.
(source: company press release)

Why We Like It: 
We think it's time for bulls to turn their attention to BOL.  The 
stock was an incredible momentum machine through most of 2003 and 
into early April 2004.  The stock then began to churn sideways 
between $66 and $60.  The stock has recently rebounded from the 
bottom of its trading range and looks poised to breakout.  On top 
of the technical picture BOL had some decent news on Friday with 
an announcement that it and Ciba Vision, the eye care unit for 
Switzerland's Novartis drug company (NYSE:NVS), had come to an 
agreement on their lawsuit.  BOL would resume selling the 
PureVision brand of contact lenses and pay royalties on them to 
Ciba through 2014.  

BOL's P&F chart is bullish and is building what will be a triple-
top breakout buy signal IF it can break through the $67.00 mark.  
We're going to jump the gun a bit.  We'll start the play with a 
TRIGGER at $66.01.  Aggressive players can try and jump in now on 
the move above $65.00 but we're going to wait for it to trade 
above the current trendline of resistance (see chart).  We'll 
start with a stop loss at 62.99.  The stock might be able to 
trade toward the $75 area with obvious round-number psychological 
resistance at $70.00. 

Suggested Options:
We're going to suggest the August calls.  Our favorite is the 
August 65's.  Be careful.  Volume is pretty light on the August
calls.

BUY CALL AUG 60 BOL-HL OI= 0 Current Ask $6.00
BUY CALL AUG 65 BOL-HM OI= 4 Current Ask $2.45
BUY CALL AUG 70 BOL-HN OI= 0 Current Ask $0.75

Annotated Chart: 
 

Picked on July xx at $ xx.xx <-- See TRIGGER
Change since picked:  + 0.00
Earnings Date       07/29/04 (confirmed)
Average Daily Volume:    490 thousand   




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*****************
CURRENT PUT PLAYS
*****************

Omnicom Group - OMC - close: 73.42 change: -0.88 stop: 77.50

Company Description:
Omnicom Group is a marketing and corporate communications company.  
The company has grown its strategic holdings to over 1500 
subsidiary agencies operating in more than 100 countries.  OMC's 
wholly and partially owned businesses provide communications 
services to clients on a global, pan-regional and national basis.  
The company's agencies provide an extensive range of marketing and 
corporate communications services, including advertising, brand 
consultancy, crisis communications, custom publishing, database 
management, digital and interactive marketing, business-to-
business advertising, employee communications and environmental 
design.  OMC also provides field marketing, healthcare 
communications, marketing research, promotional marketing and 
sports and event marketing.

Why we like it:
It was a stellar week for our OMC play, with the prior week's 
rollover from the 10-dma (now $75.77) setting the stage for a 
plunge through some serious support.  The rollover was rather 
tenuous through the middle of the week, as price inched down to 
just below $76.  But the post-FOMC reaction in the broad market 
sent the stock plunging on Thursday, with the prior lows from 
March barely slowing the decline.  The bears were active again on 
Friday, sending the stock through the $74 level to close on its 
low of the day and it looks like we'll see price continue to 
decline until reaching first decent support in the $71-72 area.  
That support test ought to provide for another rebound attempt, 
which hopefully will offer another rollover entry in the $75 area, 
as former support turns to resistance.  We would not encourage 
momentum entries at this point, with the stock so close to that 
$72 support.  Conservative traders might even want to harvest some 
gains when that support is first tested, looking to re-enter on 
that failed rebound later in the week.  For now, we'll maintain 
our stop at $77.50, just over the high of that failed rebound and 
above the 20-dma ($77.66) by Tuesday's open.

Suggested Options:
Aggressive traders will want to use the July 75 Put while those 
with a more conservative approach will want to use the August 70 
strike due to its greater time until expiration.  Our preferred 
option is the August 70 strike.

! Alert - July options expire in 2 weeks!

BUY PUT JUL-75 OMC-SO OI= 907 last traded @ $2.20
BUY PUT JUL-70 OMC-SN OI=1157 last traded @ $0.30
BUY PUT AUG-70*OMC-TN OI=  70 last traded @ $1.25

Annotated Chart of OMC:

 

Picked on June 20th at        $77.14
Change since picked:           -3.72
Earnings Date                4/27/04 (confirmed)
Average Daily Volume =      1.09 mln



---

Silicon Labs. - SLAB - close: 43.72 change: -1.39 stop: 47.00*new*

Company Description:
Silicon Laboratories designs, manufactures and markets proprietary 
high-performance mixed-signal integrated circuits (ICs) for the 
wireless, wireline and optical communications industries.  The 
company initially focused its efforts on developing ICs for the 
personal computer modem market and is now applying its mixed-
signal and communications expertise to the development of ICs for 
other high growth communications devices, such as wireless 
telephones and optical network applications.


Why we like it:
Talk about barely hanging on, our SLAB play really tried our 
patience just over a week ago, when it blasted higher from the 
apparent breakdown under the $45 level.  That rally attempt 
stalled out literally 2 pennies below our $48.50 stop before 
working steadily lower throughout last week, which ended with the 
stock once again below the $44 level and poised for a break below 
the prior low at $42.88.  Traders that just sold the rollover up 
near the $48 level have got to be feeling pretty smug right about 
now, as they're sitting on a nicely profitable play, that looks 
poised to deliver more gains in the week ahead.  Helping with the 
bearish price action has been the Semiconductor index (SOX.X), 
which shed another 2% on Friday, capping off a 6% 2-day slide.  
Key support for the SOX comes in at the short-term rising 
trendline ($453) and if it is broken, we can look for SLAB to make 
a quick trip down towards our $40 target.  Aggressive traders can 
still look for rollover entries in the $45-46 area or on a break 
below $42.80, but the best entries for this play are most likely 
behind us.  Lower stops to $47, just over both Wednesday's 
intraday high ($46.95) and the 20-dma ($46.87)

Suggested Options:
Aggressive traders will want to use the July 45 Put while those 
with a more conservative approach will want to use the July 50 
strike.  Our preferred option is the July 50 strike, as it is 
currently in the money.

! Alert - July options expire in 2 weeks!

BUY PUT JUL-45*QFJ-SI OI=4982 last traded @ $2.30
BUY PUT JUL-40 QFJ-SH OI= 739 last traded @ $0.45
BUY PUT AUG-40 QFJ-TH OI=2176 last traded @ $1.75

Annotated Chart of SLAB:

 

Picked on June 20th at        $44.99
Change since picked:           -1.27
Earnings Date                4/26/04 (confirmed)
Average Daily Volume =      1.14 mln



---

Gannett Co - GCI - close: 83.52 change: -0.18 stop: 86.05

Company Description: 
Gannett Co., Inc. is a leading international news and information 
company that publishes 101 daily newspapers in the USA, including 
USA TODAY, the nation's largest-selling daily newspaper. The 
company also owns more than 500 non-daily publications in the USA 
and USA WEEKEND, a weekly newspaper magazine. Gannett subsidiary 
Newsquest is the United Kingdom's second largest regional 
newspaper company. Newsquest publishes more than 300 titles, 
including 17 daily newspapers, and a network of prize-winning Web 
sites. Gannett also operates 22 television stations in the United 
States and is an Internet leader with sites sponsored by its TV 
stations and newspapers including USATODAY.com, one of the most 
popular news sites on the Web. (source: company press release)

Why We Like It:
The market sell-off on Thursday was just what we needed to get 
GCI to break eight-month old support at the $84.00 level.  The 
move produced a quadruple-bottom breakdown sell signal on its P&F 
chart with a $79.00 price target.  We're actually aiming for the 
$80.00 level, which as old resistance should become new support.  
Fundamentally GCI is suffering due to the newspaper scandal that 
erupted a couple of weeks ago.  Two major newspapers were caught 
inflating their circulation numbers and the markets reacted 
negatively on fears it was an industry-wide problem.  Plus, the 
industry is suffering from a delayed rebound in the advertising 
market.  With the upcoming Olympics and the hotly contested 
Presidential race ad spending was expected to be strong this 
year.  So far it has failed to meet estimates and the circulation 
issue is going to make advertisers even more reluctant. 

We were triggered on Thursday at $83.95 and plan to exit near 
$80.00, however, the H&S pattern points to a $76.00 target.  Our 
current stop near $86.00 is just over the 200-dma.  

Suggested Options:
While we plan to exit before the July options expire we'd still
prefer to play the August puts.  Our favorites are the August
85s.

BUY PUT AUG 85 GCI-TQ OI= 350 Current Ask $3.00
BUY PUT AUG 80 GCI-TP OI=  46 Current Ask $0.95

Annotated Chart: 
 

Picked on July 01 at $ 83.95
Change since picked:  - 0.33
Earnings Date       07/13/04 (confirmed)
Average Daily Volume:    957 thousand   



---

Netease.com - NTES - close: 38.86 chg: -0.52 stop: 42.26*new*

Company Description: 
NetEase.com, Inc. is a leading China-based Internet technology 
company that pioneered the development of applications, services 
and other technologies for the Internet in China. Our online 
communities and personalized premium services have established a 
large and stable user base for the NetEase Web sites, which are 
operated by our affiliate. As of March 31, 2004 we had 
approximately 194 million accumulated registered accounts, and 
our average daily pageviews for the month ended March 31, 2004 
exceeded 341 million. (source: company press release)

Why We Like It: (Thursday's original update)
Any time we play one of the Chinese Internets we like to add an 
extra note of caution.  They're not for everyone as the group can 
still be volatile.  Now having said that the entire niche has 
been weak the last couple of sessions and today's breakdown in 
NTES looks good for bearish plays.  On top of the general market 
weakness today the Chinese Internets were hit extra hard due to a 
downgrade by one analyst reducing expectations for the group.  
Concerns over business not building fast enough and some 
regulatory hurdles were to blame for the reduced outlook.  

We like the technical picture for NTES.  Its daily chart shows 
the breakdown below round-number psychological support at $40.00 
on rising volume that is nearly double the average trading 
volume.  Weekly and daily technicals like the RSI and stochastics 
are bearish and its P&F chart is weak and points to a $33 target.  
We do note that NTES has support near $35.50 and we're going to 
make that our initial target but the stock appears to be trading 
in a wide descending channel and a lower target is possible.  

Earnings are expected in about three weeks but the date is not confirmed.  

WEEKEND UPDATE:
Friday's session was a sleeper for NTES.  The stock was somewhat 
volatile in early trading first dropping and then rocketing back 
toward resistance at $40.00.  After failing to breakout the stock 
spent the majority of the session sliding sideways in a very 
tight 30-cent range.  We're encouraged by the second close under 
the $40.00 mark but it wouldn't surprise us to see another bounce 
toward $41.  So far so good.  We're going to lower our stop to 
$42.26.

Suggested Options:
We're going to suggest the August puts.  Our favorites are the 
40s but the 45s have relatively low time premium and the 35s are 
cheap.

BUY PUT AUG 45 NQG-TI OI= 119 Current Ask $7.30
BUY PUT AUG 40 NQG-TH OI= 527 Current Ask $3.90
BUY PUT AUG 35 NQG-TG OI= 889 Current Ask $1.60

Annotated Chart: 
 

Picked on July 01 at $ 39.38
Change since picked:  - 0.52
Earnings Date       07/26/04 (unconfirmed)
Average Daily Volume:    1.7 million    



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

Int'l Rectifier - IRF - close: 37.66 change: -1.63 stop: 41.60

Company Description:
International Rectifier Corporation is a designer, manufacturer 
and marketer of power management products and a worldwide 
supplier of a type of power semiconductor, MOSFET (a metal oxide 
semiconductor field effect transistor).  Power semiconductors 
process electricity into a form more usable by electrical 
products.  The company's products are divided among three broad 
product categories: analog integrated circuits (ICs) and advanced 
circuit devices, power systems and power components.  IRF's 
products are used in a range of end markets, including consumer 
electronics, information technology, automotive, aerospace and 
defense, communications and industrial.

Why we like it:
Topping out near the $57 level in early December, shares of IRF 
have been in a long, steady decline ever since.  Every apparent 
rebound results in a new lower high, which is then followed by a 
new lower low.  At each point along the way, a point could be 
made that "key support" just below the most recent low would 
hold, and therefore a bearish play was too 'risky'.  But this 
time, things are different.  Friday's sharp drop pushed IRF below 
the May lows to its lowest point since late September of last 
year when the stock was trading near the $37 level.  A quick look 
at the daily chart shows that below $37 there's not much of 
anything to provide support until the stock reaches solid support 
near $30.  That's more than 20% below current levels, so clearly 
we have the potential for a major move on our hands.  The PnF 
chart certainly bears out the bearish picture, with the recent 
drop from the $44 level producing a very convincing Sell signal, 
that currently is working with a downside target of $31.  Of 
course, with the column of O's not yet complete, that target 
could continue to fall.

We want to make the play prove its weakness to us before playing, 
so we're setting a trigger at $37.  If that level is traded, it 
will lengthen the current column of O's and will be solidly below 
both last Friday's lows, as well as the September lows.  Momentum 
traders can certainly view that breakdown as a viable entry 
point, as it would also represent a break into the gap left 
behind in June of 2002.  More conservative traders will want to 
watch for a subsequent bounce back to test resistance in the $38-
39 area, entering on the rollover.  In either case, we'll target 
a move to the $30-31 area over the next couple weeks.  Due to the 
size of the downside potential, we're starting our coverage with 
a rather liberal stop at $41.60, just over last week's intraday 
high, as well as the resistive 50-dma ($41.18).

Suggested Options:
Aggressive traders will want to use the July 30 Put while those 
with a more conservative approach will want to use the July 35 
strike.  Traders looking for more insulation against time decay 
may want to consider the October strike, or the August strike 
(not listed) when they have some open interest.  Our preferred 
option is the July 35 strike, as it is currently in the money.

! Alert - July options expire in 2 weeks!

BUY PUT JUL-40*IRF-SH OI= 850 last traded @ $2.80
BUY PUT JUL-35 IRF-SG OI= 501 last traded @ $0.40
BUY PUT OCT-35 IRF-TG OI=  93 last traded @ $1.35

Annotated Chart of IRF:

 

Picked on July 4th at         $37.66
Change since picked:           +0.00
Earnings Date                4/29/04 (confirmed)
Average Daily Volume =      1.07 mln


---

American Pharma. - APPX - close: 29.07 chg: -1.19 stop: 31.51

Company Description: 
American Pharmaceutical Partners, Inc. is a specialty drug 
company that develops, manufactures and markets injectable 
pharmaceutical products, focusing on the oncology, anti-infective 
and critical care markets. APP has acquired the exclusive North 
American rights to manufacture and market ABRAXANE(TM), a 
proprietary nanoparticle injectable oncology product that has 
completed Phase III clinical trials for metastatic breast cancer. 
The company believes that it has established the only commercial 
scale protein-engineered nanoparticle manufacturing capability in 
the United States.  (source: company press release)

Why We Like It: 
The first part of June was tough on biotech stocks.  Investors 
decided to "sell the news" during and after the giant ASCO 
conference for biotech companies this year.  What makes APPX 
different is that the biotech sector managed to rebound in the 
second half of June while APPX did not.  The stock is 
significantly under performing its peers and the technical 
breakdown through support at $30.00 on Friday looks pretty nasty.  
Its P&F chart is extremely bearish and currently points to a 
$12.00 price target.  That's a long-term target.  We're going to 
aim for a short-term move toward the $25.00 region.  

Suggested Options:
We're going to suggest the August puts even though we do not plan 
on holding over the July 22nd earnings report (currently 
unconfirmed).  Our favorite puts would be the August $30s.

BUY PUT AUG 32.50 AQO-TZ OI= 60 Current ask $4.40
BUY PUT AUG 30.00 AQO-TF OI=243 Current ask $2.75
BUY PUT AUG 27.50 AQO-TY OI=182 Current ask $1.50

Annotated Chart: 


Picked on July 04 at $ 29.07
Change since picked:  - 0.00
Earnings Date       07/22/04 (unconfirmed)
Average Daily Volume:    910 thousand   



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The Option Investor Newsletter                   Sunday 07-04-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: See Note
Option Spreads: “Getting Fixed” Doesn’t Have To Be Painful – Covered Calls III
 


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Option Spread Strategies
************************

“Getting Fixed” Doesn’t Have To Be Painful – Covered Calls III

By Mike Parnos, Investing With Attitude

Everybody screws up.  It’s human nature.  I spent two entire columns 
explaining what TO do – and what NOT to do – when using the covered call 
strategy.  Did it sink in?  Who knows?  

Studies have shown that you have to be exposed to something a minimum of 
seven times before you comprehend it.  So read on.  You may think you 
already understand what I’m about to explain, however, there’s more than 
a reasonable chance that you may be a little fuzzy on the subject.

Due to the seeming simplicity of trading covered calls, dozens of books 
have covered the topic.  They devote chapters upon chapters painting 
blue sky with potential profits.  It titillates that greedy part of the 
brain and sends the uneducated racing to the phone to put on covered 
calls.  Unfortunately, these “would-be” traders rush in where angels 
fear to tread.  There’s no better example of “a fool and his money are 
soon parted” than in the options market.  

However, in these publications, only a few paragraphs explain what to do 
if the trade turns to mierde.  But, it’s a rare occasion when someone 
will tell you “like it is.”  Well, as you know, that’s my mission in 
life.  If your therapist won’t tell you, who will?

I don’t enjoy the role as the prophet of doom, but someone has to do it.  
Don’t get me wrong.  I don’t purport to have the cure for the disease.  
An ounce of prevention . . . and all that.  If you’re going to trade 
strategies without all the information, eventually it will be fatal.  
Your brokerage account will die a slow (sometimes not-so-slow) and 
painful death.  It won’t do much for your ego, either. 

All I can do is try to temporarily resuscitate you, put on a bandage on 
the wound, and pour some medicinal information into that black hole we 
call the void of trading knowledge.

What Went Wrong?
You had it all planned out.  You bought 1,000 shares of XYZ stock at 
$32.80 and sold the next month’s $35 call option for $.75.  That $750 
looked so good in your brokerage account the next day, didn’t it?  One 
week goes by, XYZ is at $33.75.  So far, so good.  You have dollar signs 
in your eyes.  Another week passes.  XYZ is at $32.65.  Not bad.  


Then, the Tuesday morning of expiration week, you turn on CNBC and hear 
that XYZ has announced an earnings warning, followed closely by a few 
analyst downgrades.  In pre-market trading, XYZ is selling at $27.00.  
Wait!  How can that be?  You thought XYZ was going up.  All your 
research said . . . yada, yada, yada . . .  Well, Sherlock, you were 
wrong.   The market wasn’t wrong.  It never is.  YOU were wrong.  Once 
you admit it, we can try to start salvaging what we can from this 
disaster.

Here’s The Situation
First, you must have a belief that XYZ is capable of rebounding.  If 
not, you should take your loss, lick your wounds, and find another 
vehicle to use to make your money back.

With XYZ trading at $27, let’s check out the option chain for XYZ calls 
for the following month.  
Stock     Strike            Bid      Ask
XYZ     $25.00 call     2.60     2.80
XYZ     $30.00 call     1.40     1.60

You still own your 1,000 shares of XYZ stock.  So, here’s what we’re 
going to do.
1.  Sell 10 contracts of the $30 call for $1.40
2.  Buy 10 contracts of the $25 call for $2.80
3.  Sell another 10 contracts of the $30 call for $1.40

The sale of the first 10 contracts (step 1) is covered by your 1,000 
shares of stock.  In reality, it’s just another covered call.  In steps
 2 & 3, we’re buying the $25 calls and selling the $30 – establishing a
 bull call spread.  

Let’s take a closer look.  Our total out-of-pocket expenditure is $2.80 
for the $25 calls (step 2).   What are we bringing in?  In steps 1 & 3 
we brought in $1.40 + $1.40.  That’s a total of $2.80.  We spent $2.80 
and we took in $2.80.   So far, all this maneuvering has cost us 
nothing.

What have we accomplished?  We have put ourselves into a position to 
double our participation in XYZ’s move back up.  Therefore, in order for 
us to recoup our losses, XYZ does not have to go very far.

Calculating Breakeven
Your XYZ shares were valued at $32.80 before you put on the covered call 
position.  When you put on the repair position, XYZ was trading at $27.  
You were facing a deficit of $5.80 ($32.80 less $27).  With the repair 
position, you would be participating in XYZ’s move TWICE as fast.  When 
XYZ is at $28.90, your shares would have gained $1.90 (from $27) and 
your $25 call will be worth $3.90.  Together, the $1.90 and $3.90 will 
make up the $5.80 deficit.

Had you just held the stock, XYZ would have had to move all the way from 
$27 back to $32.80 – a $5.80 move.  Using the repair strategy enables 
you to recoup your losses when XYZ moves from $27 up to $28.90 – only a 
$1.90 move. 

What If . . .
If XYZ moves back up and closes over $30, a)  Your stock will be called 
away at $30 (good riddance!); and b)  Your $25 bull call spread will be 
worth $5.00.  That would give you a total value of $35.  The value of 
XYZ when you first entered the position was $32.80.  That means you will 
realize a profit of $2.20.

Reality
What you just read is possible in many covered call situations, but not 
all.  The stock may not be at a good level or there isn’t sufficient 
premium to make this repair strategy worthwhile.  In the above example, 
the repair strategy did not cost anything.  It may actually cost a 
little to put on the additional bull call spread.  Is it worth it?  
You’ll have to be the judge – basing your decision on your realistic 
evaluation of the stock.  Wishful thinking doesn’t enter into the 
equation.  I know all about wishful thinking.  Everyday, when I wake up 
and Carmen Electra isn’t making me breakfast, I suffer disappointment.  
The difference is that my wishful thinking doesn’t cost a thing.
_________________________________________________________________

Words To Live By (I Do!)
"Life is too short to spend your precious time trying to convince a 
person (or company) who wants to live in gloom and doom otherwise. Give 
lifting that person your best shot, but don't hang around long enough 
for his or her bad attitude to pull you down. Instead, surround yourself 
with optimistic people." -- Zig Ziglar
_________________________________________________________________

JULY POSITIONS
Position #1 – SPX Iron Condor – 1125.38
We sold 10 July SPX 1170 calls and bought 10 July SPX 1180 calls for a 
credit of about: $1.10 ($1,100).  Then we sold 7 July SPX 1075 puts and 
bought 7 July SPX 1060 puts for a credit of about:  $1.20 ($840).  The 
total net credit of was $1,940.  Maximum profit range of 1075 to 1170.  
Breakeven points of 1072.23 to 1171.94.  Maintenance: $10,500.  
Potential profit: $1,940.

Position #2 – RUT Iron Condor – 582.72
We sold 10 July RUT 600 calls and bought 10 July RUT 610 calls for a 
credit of about: $1.00 ($1,000). Then we sold 10 July RUT 530 puts and 
bought 10 July RUT 520 puts for a credit of $1.30 ($1,300).  Our total 
net credit was $2.30 ($2,300).  Maximum profit range of 530 to 600.  
Breakeven points of 527.70 to 602.30.  Maintenance: $10,000.  Profit 
potential $2,300.

Position #3 – SPX Credit Spread Boogie – 1125.38
We haven’t done this strategy is quite some time.  To review, it 
consists of establishing a 25-point credit spread and taking in 
$6-7 of premium (as much as possible).  If the trend continues, 
you keep the premium.  If the trend reverses, you close the trade 
for double the premium amount.  Then, you open a credit spread in 
the opposite direction, using enough contracts to replenish what 
you spent to close the initial spread.

We sold 3 SPX July 1125 puts and bought 3 SPX July 1100 puts for a 
total credit of about: $6.30 ($1,800).  

Our profit potential:  $1,800.  Maintenance: $7,500 (initially).  
We’ll need to keep a close eye on this one.  We have to be alert – 
plus, we have to have a large enough account size to accommodate 
trading an increased number of contracts if adjustments become 
necessary.

Position #4 – SOX (Semi-Conductor Index) – Iron Condor – 457.31
We sold 10 SOX July 490 calls and bought 10 SOX July 500 calls for 
a credit of about: $1.10 ($1,100).  Then we sold 10 SOX July 420 
puts and bought 10 SOX July 410 puts for a credit of about: $1.30 
($1,300).   Our total net credit of: $2.40 ($2,400).  Maximum 
profit range: 420 to 490.  Breakeven points: 417.60 & 492.40.  
Maintenance: $10,000.  Potential profit: $2,400.  


ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $36.82
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 
2005 QQQ $29 calls for a total debit of $14,300.   We make money by 
selling near term puts and calls every month.  Here’s what we’ve done so 
far:  Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts 
and calls – credit of $1,150. Dec. $34 puts and calls – credit of 
$1,500.  Jan. $34 puts and calls – credit of $850.  Feb. $34 calls and 
$36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of 
$1,150. Apr. $34 calls and $37 puts – credit of $750.  May $34 calls and 
$37 puts – credit of $800.  
June $34 calls and $37 puts -- total net credit of $750.  We rolled out 
to the July $34 calls ($.20 credit) and $37 puts ($.60 credit) and took 
in a net credit of $.80 ($800).  Our new total credit is now $10,400.

Note:  We haven’t included the proceeds from this long term QQQ ITM 
Strangle in our profit calculations.  It’s a bonus!  And it’s a great 
cash flow generating strategy.

ZERO-PLUS Strategy.  OEX – 547.17
In my Feb. 8th column, I outlined a strategy based on an initial 
investment of $100,000.  $74,000 was spent on zero coupon bonds maturing 
in seven years at a value of $100,000.  The principal $100,000 
investment is guaranteed.  We’re trading the remaining $26,000 to 
generate a “risk free” return on the original investment.
Our current position:  We own 3 OEX December 2006 540 calls @ $81 (x 300 
= $24,300).  Our cash position as of May expiration was $4,390 plus 
unused $1,700 = $6,090.  From the June option cycle, we are able to 
officially add $1,175 to our cash position – that now stands at $6,265 
($4,565 plus unused $1,700).

New July Zero Plus Positions.  
July bull put spread 535/525 for credit of $1.30 x 5 contracts = $650.  
Short 570 call for credit of $1.40 x 5 = $700.  If all goes well, we’ll 
be able to add $1,350 to our cash position as we wait for the market to 
move up.
_________________________________________________________________
 
New To The CPTI?
Are you a new Couch Potato Trading Institute student? Do you have 
questions about our educational plays or our strategies? To find past 
CPTI (Mike Parnos) articles, first look under "Education" on the OI home 
page and click on "Traders Corner." For more recent columns, you can 
look under "Strategies" and click on "Spreads & Combos." They're waiting 
for you 24/7. 
____________________________________________________________

Happy Trading! 
Remember the CPTI credo: May our remote batteries and self-discipline 
last forever, but mierde happens. Be prepared! In trading, as in life, 
it's not the cards we're dealt. It's how we play them. Your questions 
and comments are always welcome. 
Mike Parnos
CPTI Master Strategist and HCP 
 
Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the numbers 
represented here may have been achieved or beaten by our readers, we 
make no representation that any individual investor achieved these exact 
results. The tracking for the plays listed in this section uses closing 
prices for the day the newsletter is published and it is not meant to 
imply that any reader actually received those prices or participated in 
these recommendations. The portfolio represented here is hypothetical 
and for investment education purposes only. It is only an illustration 
of what type of gains a knowledgeable investor might receive utilizing 
these strategies.


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The Option Investor Newsletter                   Sunday 07-04-2004
Sunday                                                      5 of 5

In Section Five:

Spreads and Straddles: A Market In Need Of A Holiday...
Premium-Selling Plays: NAKED PUTS & CALLS


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

A Market In Need Of A Holiday...
By Ray Cummins

The major equity averages drifted lower Friday as investors
soured on stocks after a disappointing labor report and some
mediocre profit forecasts from the technology segment.

The Dow Jones Industrial Average finished the day 51 points
lower at 10,282 on weakness in Caterpillar (NYSE:CAT), General
Electric (NYSE:GE), and United Technologies (NYSE:UTX).  The
NASDAQ Composite retreated 9 points to close at 2,006, with
chip stocks among the biggest losers after a less than stellar
report from the Semiconductor Industry Association.  The S&P
500 Index slid 3 points to 1,125 with only homebuilders, REITS
and precious metals enjoying noticeable buying pressure.  The
pre-holiday session produced relatively light volume of 1.08
billion on the New York Stock Exchange and 1.19 billion on the
NASDAQ.  Breadth was mixed with winners ousting losers by a 2
to 1 margin on the Big Board, while advancers and decliners on
the technology exchange were roughly even.  Bond prices soared
to recent highs and the benchmark 10-year note closed up 28/32,
with its yield dropping to 4.46%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 07/02/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  52.59   JUL   42  45   0.30   44.70   0.30   Open
YHOO    31.87  33.94   JUL   25  27   0.30   27.20   0.30   Open
CFC     69.15  71.43   JUL   60  63   0.35   63.03   0.35   Open
QCOM    69.86  72.27   JUL   60  65   0.45   64.55   0.45   Open
SWIR    33.83  36.53   JUL   25  30   0.90   29.10   0.90   Open
CTSH    24.25  24.76   JUL   20  22   0.27   22.23   0.27   Open
NUE     69.54  73.85   JUL   60  65   0.75   64.25   0.75   Open
SII     53.26  56.76   JUL   47  50   0.30   49.70   0.30   Open
MXIM    51.62  49.22   JUL   45  50   0.70   49.30  (0.08)  Open?
RJR     65.90  66.74   JUL   55  60   0.35   59.65   0.35   Open
PHTN    34.93  31.40   JUL   30  32   0.30   32.20  (0.80) Closed
URBN    60.80  61.64   JUL   50  55   0.40   54.60   0.40   Open
AMZN    53.71  52.59   JUL   47  50   0.30   49.70   0.30   Open
PLT     42.39  41.88   JUL   35  40   0.50   39.50   0.50   Open

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

The position in Ishares Russell 2000 Index (IWM) was not available
at the recommended price.  Photon Dynamics (NASDAQ:PHTN) suffered
the fate of most semiconductor equipment stocks and conservative
traders should close the bullish spread to limit potential losses.
Maxim Integrated Products (NASDAQ:MXIM) is also a candidate for
early exit.

  
CALL-CREDIT SPREADS

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

APPX    34.03  29.07   JUL   45  40   0.50   40.50   0.50   Open
INSP    34.71  36.61   JUL   45  40   0.65   40.65   0.65   Open
WMS     28.75  30.30   JUL   35  30   0.65   30.65   0.35   Open?
GS      90.21  93.61   JUL  100  95   0.70   95.70   0.70   Open
SYMC    42.42  42.94   JUL   50  45   0.65   45.65   0.65   Open
FRX     56.32  57.21   JUL   65  60   0.60   60.60   0.60   Open
CTX     47.34  46.01   JUL   52  50   0.30   50.30   0.30   Open
SINA    35.60  30.80   JUL   45  40   0.45   40.45   0.45   Open
CECO    44.45  42.25   JUL   55  50   0.55   50.55   0.55   Open
RYL     75.80  78.96   JUL   85  80   0.60   80.60   0.60   Open

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

WMS Industries (NYSE:WMS) has continued to recover this week and
is now a candidate for early exit.  Ryland Group (NYSE:RYL) and
Goldman Sachs (NYSE:GS) are on "watch" list.  Positions in Genzyme
(NASDAQ:GENZ) and the Oil Service Holdrs (AMEX:OIH) have 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  34.41   JUL    35    30     2.15    2.35    Open?
SNDK    22.90  20.93   JUL    22    22     3.40    3.60    Open
GDT     56.02  55.03   JUL    55    55     4.80    4.50    Open
DNA     54.60  55.35   JUL    55    55     4.25    4.10    Open
OVTI    15.50  14.68   JUL    15    15     2.70    4.00    Open
MDC     64.77  64.39   JUL    65    65     4.00    4.50    Open

M.D.C. Holdings (NYSE:MDC) may have been a difficult position to
enter (on a simultaneous order basis), due to the volatility on
Monday, however that straddle, along with Omnivision (NASDAQ:OVTI)
and Sandisk (NASDAQ:SNDK) has offered small profits.  With the
market in a trading range, there has been very little noteworthy
activity in the debit straddles portfolio.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

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

FRE - Freddie Mac  $63.57  *** Interest Rate Speculation ***

Federal Home Loan Mortgage Corporation (NYSE:FRE) or Freddie Mac,
is a stockholder-owned corporation established by Congress in
1970 to support home ownership and rental housing.  Freddie Mac
purchases single-family and multi-family residential mortgages
and mortgage-related securities, which it finances mainly by
issuing mortgage pass-through securities and debt instruments in
the capital markets.  The Federal Home Loan Mortgage Corporation
guarantees these securities and mortgage lenders sell their loans
to the company and use the proceeds to fund new mortgages, which
in turn increases the money supply to homebuyers.  Freddie Mac
does not make loans directly to the homebuyer, but puts private
investor capital to work for homebuyers in general.

FRE - Freddie Mac  $63.57

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-55.00  FRE-TK  OI=1112  ASK=$0.20
SELL PUT  AUG-60.00  FRE-TL  OI=1022  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$59.45


__________________________________________________________________

GILD - Gilead Sciences  $67.42  *** Testing 2004 Highs! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a drug for treating
cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome,
a drug for treating AIDS-related Kaposi's sarcoma.  

GILD - Gilead Sciences  $67.42

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-55.00  GDQ-TK  OI=2391  ASK=$0.45
SELL PUT  AUG-60.00  GDQ-TL  OI=2179  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$59.40



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

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.

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

LLTC - Linear Technology  $36.74  *** In A Trading Range? ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military
and space systems.

LLTC - Linear Technology  $36.74

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-42.50  LLQ-HV  OI=3309  ASK=$0.25
SELL CALL  AUG-40.00  LLQ-HH  OI=6453  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=16% B/E=$40.35


__________________________________________________________________

XLNX - Xilinx  $31.53  *** Sell-Off In Progress! ***

Xilinx (NASDAQ:XLNX) designs, develops and markets complete
programmable logic solutions, including advanced integrated
circuits, software design tools, predefined system functions
delivered as intellectual property cores, design services,
customer training, field engineering and technical support.
The programmable logic devices include field programmable gate
arrays and complex programmable logic devices.  These devices
are standard products that its customers program to perform
desired logic functions.  Its products are designed to provide
high integration and quick time-to-market for electronic
equipment manufacturers primarily in the telecommunications,
networking, computing, industrial and consumer markets.

XLNX - Xilinx  $31.53

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-37.50  XLQ-HT  OI=517   ASK=$0.20
SELL CALL  AUG-35.00  XLQ-HG  OI=2330  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$35.30



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.
__________________________________________________________________

NFLX - Netflix  $32.31  *** Volatility = Premium! ***

Netflix (NASDAQ:NFLX) is an online movie rental subscription
service in the United States, providing more than 1,487,000
subscribers access to a library of more than 18,000 movies,
television and other filmed entertainment titles.  Customers
select titles at Netflix's Website, www.netflix.com, aided by
the company's recommendation service, receive them on DVD by
first-class mail and return them at their convenience using
the company's prepaid mailers.  The company also provides
information on DVD movies, including critic reviews, member
reviews, online trailers, ratings and personalized movie
recommendations.

NFLX - Netflix  $32.31

PLAY (speculative - neutral/debit strangle):

SELL CALL  JUL-37.50  QNQ-GU  OI=8156  BID=$0.30
SELL PUT   JUL-27.50  QNQ-SY  OI=2364  BID=$0.25
INITIAL NET-CREDIT TARGET=$0.55-$0.60
MAXIMUM PROFIT (MARGIN) = 8%
UPSIDE B/E=$38.05 DOWNSIDE B/E=$26.95



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*****************************************
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 07/02/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   16.47    0.40   5.63%   2.74%
DITC     JUL    17    16.80   22.04    0.70   8.40%   4.17%
SYNA     JUL    17    16.85   17.89    0.65   7.48%   3.86%
PTIE     JUL     7     7.15    8.02    0.35   9.89%   4.90%
BCC      JUL    35    34.25   37.26    0.75   5.12%   2.19%
JILL     JUL    20    19.45   23.61    0.55   6.72%   2.83%
LSS      JUL    20    19.50   27.97    0.50   6.07%   2.56%
OI       JUL    15    14.65   16.00    0.35   5.64%   2.39%
NVTL     JUL    15    14.65   25.52    0.35   7.34%   2.39%
PDII     JUL    25    24.70   29.98    0.30   3.91%   1.21%
RSAS     JUL    17    17.05   19.70    0.45   6.22%   2.64%
STLD     JUL    25    24.45   28.03    0.55   5.33%   2.25%
UPL      JUL    30    29.55   37.23    0.45   4.14%   1.52%
USG      JUL    15    14.15   17.31    0.85  13.32%   6.01%
ATI      JUL    12    12.20   17.49    0.30   7.44%   2.46%
BJS      JUL    42    41.70   46.00    0.80   4.75%   1.92%
LCAV     JUL    25    24.35   28.34    0.65   6.85%   2.67%
NCRX     JUL    27    26.80   31.05    0.70   7.30%   2.61%
NVTL     JUL    17    17.05   25.52    0.45   8.97%   2.64%
SSYS     JUL    22    22.20   24.04    0.30   4.41%   1.35%
SWIR     JUL    30    28.85   36.53    1.15  10.66%   3.99%
SYNA     JUL    17    16.90   17.89    0.60   8.98%   3.55%
YHOO     JUL    30    29.20   33.94    0.80   6.80%   2.74%
AMHC     JUL    22    21.80   27.07    0.70   9.36%   3.21%
CTSH     JUL    22    22.20   24.76    0.30   4.34%   1.35%
CYBX     JUL    30    29.25   32.56    0.75  10.31%   2.56%
ERES     JUL    22    21.85   27.62    0.65   9.03%   2.97%
HLEX     JUL    15    14.65   16.28    0.35   7.40%   2.39%
MINI     JUL    20    19.65   27.50    0.35   5.89%   1.78%
NFI      JUL    30    29.30   39.22    0.70   9.77%   2.39%
PTIE     JUL     7     7.25    8.02    0.25  11.96%   3.45%
RIMM     JUL    50    49.15   70.91    0.85   6.57%   1.73%
SGTL     JUL    22    22.25   26.71    0.25   4.25%   1.12%
BRCM     JUL    40    39.30   43.15    0.70   6.43%   1.78%
CSGP     JUL    40    39.60   45.92    0.40   3.49%   1.01%
DHB      JUL    12    12.20   15.41    0.30   8.97%   2.46%
DY       JUL    25    24.65   27.60    0.35   4.63%   1.42%
ERES     JUL    22    22.20   27.62    0.30   4.97%   1.35%
FWHT     JUL    20    19.60   21.41    0.40   6.89%   2.04%
GVHR     JUL    22    22.20   26.02    0.30   5.07%   1.35%
IMH      JUL    20    19.75   22.11    0.25   4.41%   1.27%
NVTL     JUL    17    16.90   25.52    0.60  15.07%   3.55%
PLMO     JUL    25    24.55   34.66    0.45   7.28%   1.83%
USG      JUL    15    14.70   17.31    0.30   7.05%   2.04%
BCC      JUL    35    34.55   37.26    0.45   5.53%   1.30%
CHIC     JUL    20    19.65   20.90    0.35   7.68%   1.78%
CENX     JUL    22    22.00   24.29    0.50   9.64%   2.27%
ENDP     JUL    22    22.15   23.16    0.35   6.56%   1.58%
IFIN     JUL    37    37.05   42.98    0.45   5.93%   1.21%
STTX     JUL    22    22.05   21.17   (0.88)  0.00%   0.00% *
TASR     JUL    30    29.65   44.30    0.35   6.39%   1.18%
USG      JUL    15    14.70   17.31    0.30  10.67%   2.04%
VSAT     JUL    22    22.20   25.05    0.30   5.67%   1.35%
AMED     JUL    30    29.50   29.24   (0.26)  0.00%   0.00%
CIMA     JUL    30    29.60   33.78    0.40   6.65%   1.35%
ERES     JUL    25    24.70   27.62    0.30   6.05%   1.21%
ISRG     JUL    17    17.25   18.67    0.25   7.04%   1.45%
MU       JUL    15    14.70   14.68   (0.02)  0.00%   0.00%
NFLX     JUL    30    29.45   32.31    0.55   9.80%   1.87%
NSM      JUL    20    19.80   20.31    0.20   4.91%   1.01%
NKTR     JUL    17    17.15   19.46    0.35  10.49%   2.04%
SWIR     JUL    30    29.75   36.53    0.25   5.32%   0.84%
XMSR     JUL    25    24.65   27.83    0.35   6.82%   1.42%

Steel Technologies (NASDAQ:STTX) and Amedisys (NASDAQ:AMED)
are candidates for "early-exit" and Micron (NYSE:MU) has
suffered from the selling pressure in chip stocks.  A number
of issues are on the "watch" list after the Friday's retreat
in technology shares.


NAKED CALLS

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

AMLN     JUL    25    25.35   23.05    0.35   5.29%   1.38%
ICOS     JUL    30    30.45   29.84    0.45   5.26%   1.48%
OIIM     JUL    17    17.80   15.65    0.30   5.50%   1.69%
INSP     JUL    40    40.50   36.61    0.50   6.88%   1.23%
RHAT     JUL    25    25.60   22.18    0.60   9.08%   2.34%
XMSR     JUL    27    27.75   27.83   (0.08)  0.00%   0.00% *
CECO     JUL    65    65.90   42.25    0.90   7.19%   1.37%
ESI      JUL    45    45.50   37.90    0.50   5.47%   1.10%
FMT      JUL    20    20.40   17.85    0.40   8.75%   1.96%
NBIX     JUL    55    56.10   50.73    1.10   8.21%   1.96%
SLAB     JUL    50    50.75   43.73    0.75   6.39%   1.48%
AGIX     JUL    20    20.45   18.78    0.45   9.16%   2.20%
LEND     JUL    30    30.55   27.41    0.50   6.63%   1.64%
TSS      JUL    22    22.90   21.51    0.40   8.67%   1.75%
PAYX     JUL    35    35.40   33.34    0.40   4.97%   1.13%
FEIC     JUL    25    25.35   23.32    0.35   6.89%   1.38%
WM       JUL    40    40.30   38.25    0.30   3.79%   0.74%
IPXL     JUL    20    20.40   19.12    0.40  10.18%   1.96%
PSFT     JUL    20    20.25   17.21    0.25   6.99%   1.23%

As mentioned on Tuesday, 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

CRDN   38.50  JUL 35.00  AUE SG 0.45  722 34.55  12   3.3%   9.2%
CACS   14.00  AUG 12.50  CQQ TV 0.50    0 12.00  47   2.7%   7.0%
CBST   11.38  AUG 10.00  UTU TB 0.35 5567  9.65  47   2.3%   6.4%
NFI    39.22  AUG 30.00  NFI TF 0.80  613 29.20  47   1.8%   6.0%
NVTL   25.52  AUG 20.00  NVU TD 0.50    6 19.50  47   1.7%   5.8%
ARXX   13.95  AUG 12.50  ARX TV 0.40   23 12.10  47   2.1%   5.7%
TASR   44.30  AUG 30.00  QUR TF 0.85   29 29.15  47   1.9%   5.7%
PETD   28.32  AUG 25.00  PHQ TE 0.65  173 24.35  47   1.7%   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).

__________________________________________________________________

CRDN - Ceradyne  $38.50  *** New All-Time High! ***

Ceradyne (NASDAQ:CRDN) develops, manufactures and sells advanced
technical ceramic products and components for defense, industrial,
automotive and commercial applications.  The company's primary
products include lightweight ceramic armor for soldiers and
military helicopters; aesthetic ceramic orthodontic brackets;
durable, reduced friction, ceramic diesel engine components;
ceramic-impregnated dispenser cathodes for microwave tubes,
lasers and cathode ray tubes, and ceramic industrial components
for erosion and corrosion resistant applications.

CRDN - Ceradyne  $38.50

JUL 35.00 AUE SG LB=0.45 OI=722 CB=34.55 DE=12 TY=3.3% MY=9.2%


__________________________________________________________________

CACS - Carrier Access  $14.00  *** Rally Underway! ***

Carrier Access (NASDAQ:CACS) is engaged in the design, production
and sales of broadband access equipment to communications service
providers.  Its products are used to upgrade capacity of wireline
and wireless communications networks.  The firm's unique product
portfolio features eight platforms that reside in a variety of
locations, including the service providers' central office, cell
site and wireless hub locations, and end users' business premises.

CACS - Carrier Access  $14.00

AUG 12.50 CQQ TV LB=0.50 OI=0 CB=12.00 DE=47 TY=2.7% MY=7.0%


__________________________________________________________________

CBST - Cubist Pharmaceuticals  $11.38  *** Bottom-Fishing! ***

Cubist Pharmaceuticals (NASDAQ:CBST) is engaged in the research,
development and commercialization of novel antimicrobial drugs
to combat serious and life-threatening infections.  In the United
States, the company markets Cubicin (daptomycin for injection,
previously known as Cidecin) for the treatment of complicated
skin and skin structure (cSSS) infections caused by Gram-positive
bacteria, including those caused by MRSA (methicillin-resistant
staphylococcus aureus) and MSSA (methicillin-susceptible S. aureus).
Cubicin is an antibacterial agent from a new class of antibiotics
called cyclic lipopeptides, and has clinical use in the treatment
of infections caused by aerobic Gram-positive bacteria.

CBST - Cubist Pharmaceuticals  $11.38

AUG 10.00 UTU TB LB=0.35 OI=5567 CB=9.65 DE=47 TY=2.3% MY=6.4%


__________________________________________________________________

NFI - NovaStar Financial  $39.22  *** Premium-Selling Only! ***

NovaStar Financial (NYSE:NFI) is a specialty finance firm that
originates, invests in and services residential nonconforming
loans.  The company offers a range of mortgage loan products to
borrowers (nonconforming borrowers) that usually do not satisfy
the credit, collateral, documentation or underwriting standards
prescribed by conventional mortgage lenders and loan buyers.

NFI - NovaStar Financial  $39.22

AUG 30.00 NFI TF LB=0.80 OI=613 CB=29.20 DE=47 TY=1.8% MY=6.0%


__________________________________________________________________

NVTL - Novatel Wireless  $25.52  *** Entry Point? ***

Novatel Wireless (NASDAQ:NVTL) is a provider of wireless data
access solutions, including wireless data modems and software,
for use with portable personal computers (PCs) and with handheld
computing devices.  The company delivers comprehensive solutions
that help businesses and consumers to access personal, corporate
and public information through e-mail, enterprise networks and
the Internet.  Novatel also offers wireless data modems as well
as custom software and hardware engineering services and systems
integration services to its customers to facilitate use of its
products.

NVTL - Novatel Wireless  $25.52

AUG 20.00 NVU TD LB=0.50 OI=6 CB=19.50 DE=47 TY=1.7% MY=5.8%


__________________________________________________________________

ARXX - Aeroflex  $13.95  *** Upgrade = Rally! ***

Aeroflex (NASDAQ:ARXX) uses its advanced design, engineering and
manufacturing abilities to produce microelectronic and testing
solutions.  Its products are used in the aerospace, defense and
broadband communications markets.  Aeroflex also designs and
builds motion control systems and shock and vibration isolation
systems, which are used for commercial, industrial and defense
applications.  The company's operations are grouped into three
segments: Microelectronic Solutions, Test Solutions and Isolator
Products.

ARXX - Aeroflex  $13.95

AUG 12.50 ARX TV LB=0.40 OI=23 CB=12.10 DE=47 TY=2.1% MY=5.7%


__________________________________________________________________

TASR - TASER International  $44.30  *** More Premium-Selling! ***

TASER International (NASDAQ:TASR) develops and manufactures a
range of less-lethal self-defense devices.  The firm's primary
product lines include the ADVANCED TASER and the TASER X26, a
recently introduced weapon system offering a new "shaped pulse"
technology, and a smaller form factor.

TASR - TASER International  $44.30

AUG 30.00 QUR TF LB=0.85 OI=29 CB=29.15 DE=47 TY=1.9% MY=5.7%


__________________________________________________________________

PETD - Petroleum Development  $28.32  *** Oil Sector  ***

Petroleum Development (NASDAQ:PETD) is an independent energy
company engaged primarily in the development, production and
marketing of natural gas and oil.  The company has grown
primarily through drilling and development activities, the
acquisition of natural gas and oil producing wells and the
expansion of its natural gas marketing activities.

PETD - Petroleum Development  $28.32

AUG 25.00 PHQ TE LB=0.65 OI=173 CB=24.35 DE=47 TY=1.7% 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.

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

ATRS - Altiris  $26.85  *** Stuck In A Range? ***

Altiris (NASDAQ:ATRS) offers a range of Web-enabled solutions
that empower organizations to easily manage desktops, notebooks,
handhelds, and Windows, Linux and UNIX servers throughout the IT
lifecycle.  Altiris provides fully integrated, complete systems
management solutions for client and mobile, server, and asset
management.  The company automates, simplifies, and reduces the
cost and complexity of IT lifecycle management with a rapid
return on investment.

ATRS - Altiris  $26.85

PLAY (sell naked call):

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

SELL CALL  AUG 30    QJI HF     12    0.85  30.85   6.5%   2.8%


__________________________________________________________________

SINA - SINA Corporation  $30.80  *** Premium-Selling Only! ***

SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an
online media company and value-added information service provider
for China and the global Chinese communities.  With a branded
network of localized Websites targeting China and overseas Chinese,
the company provides an array of services to its users including
region-focused online portals, search, directory, interest-based
and community-building channels, free and premium e-mail, wireless
short messaging, online games, virtual Internet service provider,
classified listings, e-commerce, e-learning, and enterprise
e-solutions.  SINA generates revenue through advertising, various
fee-based services, e-commerce and enterprise services.

SINA - SINA Corporation  $30.80

PLAY (sell naked call):

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

SELL CALL  AUG 40    NOQ HH    2267   0.85  40.85   7.8%   2.1%


__________________________________________________________________

SLAB - Silicon Laboratories  $43.73  *** Next Leg Down? ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and
sells proprietary high-performance mixed-signal integrated
circuits for the wireless, wireline and optical communications
industries.  Mixed-signal ICs are electronic components that
convert real-world analog signals, such as sound waves, into
digital signals that electronic products can process.  The
company's mixed-signal engineers use standard complementary
metal oxide semiconductor (CMOS) technology to create ICs that
can reduce the cost, size and system power requirements of
devices that the company's customers sell to their end user
customers.

SLAB - Silicon Laboratories  $43.73

PLAY (sell naked call):

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

SELL CALL  AUG 50    QFJ HJ     508   1.00  51.00   5.3%   2.0%




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