Option Investor
Newsletter

Daily Newsletter, Monday, 07/12/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                   Monday 07-12-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Doji Day
Watch List: A Few Components of the Dow Industrials.


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     07-12-2004            High     Low     Volume Advance/Decline
DJIA    10238.22 + 25.00 10257.10 10162.18 1.34 bln   1519/1271
NASDAQ   1936.92 -  9.41  1941.24  1921.40 1.49 bln   1253/1763
S&P 100   543.70 +  1.07   544.52   539.74   Totals   2772/3034
S&P 500  1114.35 +  1.54  1116.11  1106.71
RUS 2000  562.24 -  1.49   564.56   558.29
DJ TRANS 3091.62 +  3.65  3093.18  3066.66
VIX        14.96 -  0.82    15.61    14.61
VXO        16.07 +  0.58    17.13    15.80
VXN        21.73 -  0.62    22.51    21.48
Total Volume 3,114M
Total UpVol  1,173M
Total DnVol  1,894M
52wk Highs      92
52wk Lows      178
TRIN          1.48
PUT/CALL      1.17
*******************************************************************

Doji Day
Jonathan Levinson

Both the Dow and the Nasdaq test last week's lows, the Dow
holding and the Nasdaq falling below, and both reversed to the
upside to close near the upper end of their day ranges.  It was
truly a tale of two markets, with the Dow posting a key outside
upside reversal day, breaking Friday's low but closing above
Friday's high.  The Nasdaq, however, despite the doji bottom
still closed below Friday's range, adhering to what is turning
out to be a precipitous daily downtrend off the end-of-June
window-dressing high.

Volume was at the lower end of "light" on both exchanges (see
data above), and volatility was wild, with the VXO and QQV
diverging higher as the VIX and VXN moved lower, the first taste
of this month's op-ex week antics.  Morgan Stanley was out
predicting a retest of the May lows, despite Abby Joseph Cohen's
reiteration of her previous almost perfectly-timed contrarian
bullish recommendation from the previous week.


Weekly Dow Chart


The Dow tested the rising weekly support line with today's low at
10162.  It's very early in the week to be assessing the current
1-day old weekly candle, but today's intraday doji bottom behaved
exactly as one would expect for a support line that wants to
hold.  While the weekly cycle oscillators are a mixed bag, they
did not decline last week, and the case can be made for a weekly
cycle upphase trying to form from a higher price and oscillator
low.  As is so often the case with key trendlines, the move that
breaks them is often a high volume, high drama gapper, and given
that this one has been in place since the March 2003 lows, I
would expect no less.  As has been occurring with increasing
regularity lately, the oscillators are in an ambiguous state
waiting for price to resolve the dilemma.  A weekly close below
Dow 10150 or above 10200 will likely determine direction to the
downside or upside, respectively-  that is the range that I'll be
watching this week. A closing break above 10400 would set the
stage for a retest of the year high at 10795.


Daily Dow Chart


Today's print was a very bullish candle.  A close higher within
the range would have left a bullish hammer, but the bullish doji
star closing above Friday's candle body is bullish enough for me.
The move was strong enough to bury most of the sellers since
Wednesday and gave the first suggestion of an upturn in the 10-
day stochastic from a higher price and oscillator low.  10260-
10300 is key resistance, but the overhang from the June top from
10330-10350 should prove to be very stiff resistance.


Weekly Nasdaq Chart


The cycle ambiguity in the weekly Dow is apparent in the weekly
Nasdaq as well, but the price is a little more generous in
providing clues.  The 10 week stochastic points up while the Macd
points uncertainly south, but the price, holding as it is below
the 1970 level, suggests a failure below the rising support line
off the October 2002 low.  The Nasdaq has been full of false
breaks, and we'll want to see a high volume close below the
rising support line this week to confirm the bearish break.
Support from the previous weekly low coincides with lower
Bollinger support at 1884, while resistance at the apex of the
broken pennant is up to 1990.


Daily Nasdaq Chart


The Nasdaq tried but just couldn't get it together, anchored by
weakness in the SOX.  I've drawn the most bullish interpretation
I see here, that of a falling wedge, but note that it's
unsupported by the oscillator picture which remains
overwhelmingly bearish.  The divergence between the Dow and the
Nasdaq is extreme- one of these two charts is going to the get
with the program, and one is leading the way.  Historically,
that's tended to be the Naz, but in this case I'm not at all
confident of that.  In any event, the cycle points lower for the
time being, with a low for the move printed today at 1920 with
next support conveniently located at 1900.  Resistance is at
1940, followed by 1960 and 1990.  If my wistful bull wedge
interpretation is correct, then an upside break would have an
implied target as high as 2050.


Weekly TNX Chart


Bonds rose today, with the ten year note yield (TNX) closing
lower by 2.3 bps at 4.443%.  The weekly cycles are on clear sell
signals following the double top at the year highs at 4.88%.
Support from last week is at 4.41%, with resistance to 4.5%.
Today's action looked and felt corrective against the weekly
cycle downphase, but there's also support from last autumn down
to the 4.2% level.  This uncertainty is reflected in the narrow
range since the drop two weeks' ago, and while the weekly
oscillators suggest that it will break to the downside, treasury
bulls have had a long wait so far.

There were no significant economic data released today, with the
market news dominated by earnings reports, up- and downgrades.

Crude oil futures began the day strongly, scoping 5 week highs
and trading above the widely-watched 40 level in the morning.
Despite the Fed's dismissal of this year's commodity inflation as
being fleeting, oil and the CRB have been returning to their
previous highs.  A story made the rounds concerning the impact of
higher gasoline prices on WMT's clientele, stating the obvious
point that consumers are feeling the pinch.  Reuters reported
that despite the high production accomplished by OPEC this year,
strong demand has left little capacity to absorb supply problems.
The article cited the problems at YUKOS, a strike in Nigeria,
sabotage attacks in Iraq and fires in Norway.  The promised
500,000 bpd increase in formal quotas by Saudi Arabia has done
little quell rising prices.  The article noted that OPEC has been
producing above its official limits and that Saudi Arabia intends
to hold production at 9.1M bpd, the third month at this high
level.  The $42 price seen earlier this year represented a 21
year high.  A late session reversal pulled oil futures back below
the 40 level to close 1.58% lower at 39.33, helped along by a
more than 4.41% decline in natural gas futures.

It's an obvious point that high oil prices will put the squeeze
on every level of the economy.  Demand for oil is inelastic, for
the most part, and higher prices mean that consumers and
businesses have less to spend on everything else.
Unsurprisingly, the decline in oil futures coincided with the
upward spike in equities in the afternoon.

Over the weekend, the Wall Street Journal ran a story on the US
budget deficit, discussing the well-worn but still-pertinent
issue of the negative impact of deficits on the economy in
general and taxpayers in particular.  It also raised the spectre
of a fall in foreign purchases of treasury debt.  This issue
strikes a chord as the US Dollar Index hangs at 5 month lows
following the more than 25% decline since its high at the
beginning of 2002.  The following chart from the WSJ
contextualizes the current budget deficit and the financing
thereof:


Chart of WSJ Fiscal Picture


Against this backdrop was a general malaise for techs ahead of
the INTC report due after the bell tomorrow.  A NY Times story
over the weekend highlighted what the author feels to be overly
optimistic positioning by tech companies as reflected in the
impressive year-over-year inventory builds taking place at Dell
(61% y-o-y increase), Seagate (+60%), Foundry Networks (+48%),
Cisco (+47%), TXN (+30%), Intel (+29%), Sun (+25%) and Micron
(+21%).  The point of the article was that demand is lagging far
behind the supply being accumulated by these producers, making
the industry vulnerable as a whole.

NVLS reported Q2 earnings of 37.M or 25 cents per share, missing
estimates by a penny.  Excluding charges associated with its of
Angstron Systems, the company earned $43.9M or 29 cents per
share. Sales rose 41.5% in Q2 to $338.2M from $239.1M in Q2 2003,
beating estimates of $331.3M. The company cited strong demand in
its press release.  AMAT CEO Mike Splinter held forth at the
Semicon West industry conference in San Francisco: "We aren't
alarmed by any early indicators."  Merrill Lynch was out with a
downgrade for the semiconductor sector, stating that the stocks
(over 30 of them) "offer no upside from current levels" and cited
inventory builds as a major factor in contributing to its
opinion.  That view was countered by Bear Stearns, who said that
despite pockets of weakness in the sector, it still maintains a
favorable view of the sector.

Later in the session, the Semiconductor Equipment and Materials
International Group announced that the leading chip equipment
manufacturers surveyed in their most recent study anticipate a
sales increase 63% to $36.2B in 2004. CEO Stanley Myers said that
"The outlook is for growth to be sustained next year, although
not at levels as high as this year. SEMI members generally
believe the peak of this market cycle will occur in the second
quarter of 2005."  Out of the numerous conflicting signals as to
the fundamentals, the market was the final arbiter with the PHLX
semiconductor index (SOX) declining 2.21% to 441.18 for the day.

After the bell, LSI warned that its Q2 revenue would miss
estimates due to "softer-than-anticipated demand for
semiconductors in storage components and video game console
markets." The company lowered estimates from 455M-470M to 448M.

Domino's Pizza, the largest pizza chain in the US, is set to
price 24M shares tonight in the $15-$17 range in a bid to raise
408M for its IPO under ticker symbol DPZ on the NYSE.

A  $54M settlement was reached in a sex discrimination suit
between the U.S. Equal Employment Opportunity Commission (EEOC)
and MWD filed on behalf of a class of female officers and women
eligible for officer promotion in the firm's Institutional Equity
Division.  The settlement, made without admission of liability,
includes at least $2M to fund diversity programs to enhance the
compensation and promotional opportunities for female employees
at MWD and $12M in payment of the original complainant, bond
trader Allison Schieffelin.  EEOC Chair Cari M. Dominguez said
that "We are pleased that Morgan Stanley worked cooperatively
with us to resolve this litigation. With this settlement, Morgan
Stanley has taken an important leadership step in adopting
progressive programs to promote diversity that should serve as a
model for the financial services industry."

For tomorrow, we await the 8:30 release of the May trade balance
estimated at -48.3B, and at 2PM the treasury budget estimated at
16.3B.  The pace of earnings reports will pick up as well- INTC
reports after the bell at 5:30PM, as does JNPR and JNJ, though
the time of the release for JNJ has not been listed.  With the
Nasdaq printing as clear a bearish picture as the Dow's
potentially bullish one, I'm keeping my mind open.  I believe
that the easy money has been made on the current leg of this
decline.  While the daily Dow is not printing buy signals here
and gave bulls a beautiful doji, it did so on light volume.
Nevertheless, I believe that in the short term bears are pressing
their bets at these levels.  The charts do not indicate that it's
time to buy, but pressure is increasing with each downward tick.
A break to new lows from here could get very ugly, and with
earnings season ahead of us that's a distinct possibility.  Until
some clarity emerges, however, I counsel patience and caution.
The weekly oscillators are uncertain and the daily charts are
mixed.  The worst trades are those that you enter in frustration
after missing an entry.  Don't force your positions and wait, if
necessary, for the market to come to you. It's much easier to set
a stop loss and manage a position when you've gotten a good
entry, close to support or resistance.  I believe that we're
closer to daily support than resistance, but would personally
prefer to wait until the oscillators are more certain.


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

Stock Option and Futures Brokerage

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

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

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

www.OneStopOption.com

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


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

A Few Components of the Dow Industrials.

___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


Intl Business Machines - IBM - close: 84.95 change: +1.06

WHAT TO WATCH: IBM has been a huge drag on the Dow with three
weeks of steady declines from the $91 level to the $83.50 range.
Today IBM turned in a nice oversold bounce and broke through its
5-dma, a level of technical resistance for the last couple of
weeks.  Short-term technicals ticked higher as well and traders
could be jockeying for position ahead of IBM's Thursday night
earnings report.  We're not suggesting any plays ahead of the
report but we do want to keep an eye on it for any post-report
moves.  Estimates are set at $1.12 a share.

Chart=


---

Intel Corp - INTC - close: 26.24 change: -0.33

WHAT TO WATCH: It was another tough day for semiconductors.
Merrill Lynch downgraded the sector from "over weight" to "under
weight" and downgraded Intel from "buy" to "neutral".  Shares of
Intel gapped down and spent a good portion of the day under the
$26.00 mark.  The late afternoon rebound in the markets helped
INTC recover some ground but traders remain cautious ahead of its
earnings report due out tomorrow after the closing bell.
Analysts' estimates are for Intel to earn 27 cents a share.
Given the bearish P&F chart with its $17 price target one might
surmise that investors aren't very keen on Intel's prospects.  A
trade through $25.50 would break recent support and be a
potential, post-earnings entry point for new shorts.

Chart=


---

United Technologies - UTX - close: 90.05 change: +0.29

WHAT TO WATCH: We've been watching UTX the last couple of weeks
as the stock consolidates sideways after some strong gains from
the May-June rally.  The last several days have seen UTX test
support at the $88.00 level and its simple 200-dma.  Its P&F
chart, while currently in a column of O's, is still bullish and
points to a $115 target.  We like the rebound back over the
round-number $90.00 mark today and noticed its short-term
technicals like the RSI and stochastics have turned positive.
Bullish traders could gamble on a rally into earnings but that's
a tough call to make with the Industrial average looking weak.
Watch for earnings on July 21st.

Chart=


---

Pfizer Inc - PFE - close: 33.62 change: -0.38

WHAT TO WATCH: PFE didn't move much today but it failed to rally
with the Dow Jones Industrial average and it was noticeable.  PFE
is challenging short-term support at $33.50 and looks poised to
breakdown further and fall toward the $30.00 mark.  Its P&F chart
also looks bearish but is currently resting against rising
support.  Shares do look short-term oversold with its steady
decline from the June highs.  Bears could gamble on more short-
term weakness ahead of its July 23rd earnings.

Chart=



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

PG $54.88 +0.16 Dow-component Procter & Gamble has been slowly
consolidating along the bottom of its rising channel.  The stock
moves a bit too slowly for direction call plays but spreads and
covered calls might work well.

XOM $45.44 -0.01 - ExxonMobil managed a small bounce from today's
lows but is still struggling with resistance at the $45.00 level.
This happens to coincide with resistance in the $45-46 range
dating back to 2000-2001.  Considering the rise in crude oil this
stock could be a slow and steady winner for patient investors.
It might be a decent covered call play.



*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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

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


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

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

Contact Support


The Option Investor Newsletter                   Monday 07-12-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: IRF, SLAB, WFMI
Dropped Calls: QCOM
Dropped Puts: APPX


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

Live Securities Brokerage Service with Licensed Option Principals

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


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

IRF - put play -
 lower stop from $38.25 to $37.25

---

SLAB - put play -
 SLAB has dipped to $40.51 intraday and is trading very
 close to our exit target at $40.00.  What concerns us
 is the daily candle looks like a "hammer", which could
 indicate a one-day reversal.  We encourage readers to
 take profits at these levels and conservative traders
 may want to lower their stops to $42.05.  We are going
 to lower our stop from $45.01 to $44.01.

---

WFMI - call play -
 Heads up!  WFMI did NOT produce the follow through we
 expected from Friday's "hammer" candlestick.  Instead WFMI
 has produced another decline.  While that decline was mild
 and shares traded sideways for the whole session it significantly
 undermines the confidence in this momentum play.  More aggressive
 traders may want to slip their stops under the $90.00 mark. We
 will leave ours at $90.50.


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

QUALCOMM - QCOM - close: 69.59 change: -0.97 stop: 69.75

It was not a good day for QCOM.  Before the bell Smith Barney
raised their price target but issued some cautious comments about
investors expectations possibly growing too fast for QCOM's
earnings.  The stock quickly broke through support at the $70.00
mark and hit our stop loss at $69.75.  We had turned cautious on
QCOM over the last couple of updates and the stock's MACD has now
produced a new sell signal. Meanwhile its P&F chart has produced
a "high pole" warning.

Picked on June 29 at $ 71.55
Change since picked:  - 1.94
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    8.8 million
Chart =



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

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

American Pharma. - APPX - close: 25.30 chg: -0.49 stop: 27.01

The early morning weakness in the BTK biotech index was enough to
lead APPX through support at the $25.00 mark and hit an intraday
low at $24.76.  Our target was $25.00 and in the MarketMonitor
today we reminded readers now would be a good time to take
profits and exit.  Traders now have a choice if they have not
already exited for a profit.  Exit tomorrow at the open or merely
tighten stops significantly and let it ride.  APPX continues to
look weak.  A stop loss above the $26.00 level, which was support
and should now be resistance, might be a good idea.  We're going
to take the money and run.

Picked on July 04 at $ 29.07
Change since picked:  - 3.77
Earnings Date       07/22/04 (confirmed)
Average Daily Volume:    910 thousand
Chart =



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

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You mar
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you mar go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you mar simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you mar call us at 303-797-0200 and give us the
information over the phone.

You mar also fax the information to: 303-797-1333


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

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


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

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

Contact Support



DISCLAIMER

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

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

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

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives