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Daily Newsletter, Wednesday, 07/14/2004

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The Option Investor Newsletter                Wednesday 07-14-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: A Setup
Watch List: A small list of candidates

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     07-14-2004            High     Low     Volume Advance/Decline
DJIA    10208.80 - 38.79 10286.89 10172.39 1.78 bln   1336/1467
NASDAQ   1914.88 - 16.78  1937.68  1908.98 2.08 bln   1114/1876
S&P 100   541.79 -  2.21   546.01   539.90   Totals   2450/3343
S&P 500  1111.47 -  3.67  1119.60  1107.83
RUS 2000  559.74 -  2.95   565.88   557.66
DJ TRANS 3085.22 +  5.48  3107.87  3058.57
VIX        13.76 -  0.70    16.59    13.34
VXO        15.10 -  0.58    16.16    14.43
VXN        21.64 +  0.22    22.37    21.07
Total Volume 4,221M
Total UpVol  1,357M
Total DnVol  2,804M
52wk Highs     136
52wk Lows      210
TRIN          1.52
PUT/CALL      0.94
*******************************************************************

A Setup
Linda Piazza

Disappointment over some aspects of Intel's earnings report set
markets up for a decline in Wednesday's trading.  The parade of
warnings from after Tuesday's close and before Wednesday's open
also contributed, with those warnings coming from ELMG, IMN, LIN,
and KOMG, perhaps among others.  Despite gains in banking stocks,
tech weakness in Asia sent the Nikkei 2.17 percent lower.
European bourses headed lower.  So did our futures.  Merrill
Lynch trimmed its earnings estimates for the bellwether tech
stock, INTC, and Deutsche Bank made negative comments about the
company's inventories.  Prudential cut INTC's rating to neutral.
The setup was perfect.

At 8:30, the release of June's import and export prices and
retail sales also contributed to anticipated weakness in the
markets.  May's imports had risen 0.2 percent, and exports had
risen 0.4 percent.  June's imports dropped 0.2 percent, with the
ex-oil number flat.  June's exports dropped 0.6 percent, with the
ex-ag number dropping 0.1 percent.  Exports are the most closely
watched of the export/import numbers since they indicate demand
for U.S. goods overseas, but also since the import number lags
other indicators.  The numbers were termed soft, and the setup
was almost complete.

Retail sales might have been the most closely watched of all the
numbers released Wednesday morning, with overseas analysts
mentioning U.S. retail sales frequently over the last week.
Although retail sales can be volatile, they're indicative of one
component of consumer spending patterns. May's retail sales had
risen 1.2 percent and 0.7 percent ex-auto, but economists had
forecast a 0.7 percent drop for June.  Instead, June's retail
sales fell a greater-than-expected 1.1 percent, with May's retail
sales revised up to a 1.4 percent gain.  June's auto sales fell
4.3 percent, their deepest cut since February 2003, according to
one article. Ex-auto retail sales fell 0.2 percent in June.  The
setup was complete.

Despite the disappointing export and retail sales numbers,
futures displayed little reaction at first.  They had dropped
after the Intel announcement after hours Tuesday and drifted down
near the overnight lows just prior to the 8:30 announcements.
They drifted slightly lower.

Juniper Network's overnight announcement that it expected Q3
earnings to exceed analysts' expectations sent that stock higher
by 9 percent in the pre-market but did little to stem tech
weakness.  Earnings announcements pre-open included Bank of
America's better-than-expected results, but that wasn't enough,
either.

The setup worked.  For a few minutes.  Cash markets displayed the
expected weakness at the open, with the SOX plunging through the
440 level to a morning low of 420.69. The TRAN dropped low enough
to test last Friday's low.  The Nasdaq opened below its 200-ema
after closing beneath it Tuesday for the first time since May's
weakness, with the Nasdaq then dropping to 1908.98.  The Dow fell
low enough to touch its 200-sma, perhaps helping to trigger the
V-shaped recovery that soon began.

That rebound proved impulsive, to borrow OIN Market Monitor
commentator Keene Little's expression.  At first markets seemed
little disturbed by news of an explosion in Iraq that killed
Mosul's governor or the Department of Energy's revelation that
crude inventories fell 2.1 billion against an expected climb.
The API's industry figures showed an even larger drop of 5.1
billion, with the two figures seldom agreeing.  Gasoline stocks
also fell against an expectation of a small rise.  Even the TRAN
chugged higher, stretching above 3100 again.  The initial lack of
response may have been due to the rise in distillate inventories,
perhaps hinting that those inventories had just been shifting up
the refining food chain from crude to distillates.  Perhaps the
lack of response was due to a formation on the intraday chart of
the crude futures that hinted that futures were unlikely to move
above $40.00/barrel.

Once crude futures moved above $40.00 at about 1:00 EST, however,
indices dove.

Annotated 30-Minute Chart of Crude Futures:




Annotated 30-Minute Chart of the SPX:



The official Fed-speak line lately has been that inflationary
pressures due to rising energy costs will be transitory.  Market
watchers have also noted that consumer sentiment usually isn't
dented too heavily by rising gasoline costs as long as consumers
feel those costs are temporary.  Lately, however, a retailer
blamed lowered sales on the bite higher gasoline costs were
taking out of customer's spending.  While tomorrow might see
conciliatory statements out of OPEC and non-OPEC oil-producing
countries, a continued rise in crude prices should continue to
pressure equities.

Also exerting pressure was the 4.48 percent drop in the SOX.

Annotated Daily Chart of the SOX:



While a bounce back up to test broken support at 440 can't be
ruled out, neither can a test of 406 likely support.  However, as
dire as the SOX's chart looks, the Nasdaq's offers some hope that
the decline in that index may be almost over on the short term.

Annotated Daily Chart of the Nasdaq:



Confirmation of the possible reversal signal would occur with an
open tomorrow above today's close, preferably a gap higher
opening, and then a continued climb.  Any reversal might be short
lived, however, consisting of a rise to test broken support,
perhaps near the midline of the descending regression channel or
perhaps a bit higher, near the 1960 former support or the 50-dma,
now at 1964.78.

The Russell 2000 also offers hope of a possible bounce, but one
that might be short lived.

Annotated Daily Chart of the Russell 2000:



A drop through the Russell 2000's 557.70-ish support instead
would suggest a possible retest of May's low.

The Dow clung to recent support, managing a close above the 200-
sma and the midline of its descending regression channel,
prepared for a downturn through that channel or a rise up to test
Wednesday's high and then the 100-dma and perhaps 10,300-10,350,
with each step dependent on a successful retest of lower
resistance.

Annotated Daily Chart of the Dow:



The SPX also continues to bounce from tests of the midline
support of its descending regression channel, although the term
"bounce" must be loosely applied.  The SPX has not retested its
200-sma, but market participants should watch for a possible test
of that average, now at 1,102.65, as it was touches of that SPX
average that bounced markets in May.  A failure to bounce on a
test this time could send the SPX toward 1,090 and then toward
the bottom of its regression channel, sending other indices
lower, too, but market bears should probably prepare for at least
a tepid bounce attempt if that average should be touched.

Annotated Daily Chart of the SPX:



Did anything change in after hours to change the pictures on
these charts?  After-hours earnings included INTC competitor AMD,
with the company saying that higher sales produced a Q2 profit in
comparison to the year-ago loss.  Reports characterized earnings
as being in line with estimates.  At the time this report was
prepared, AMD was trading at $13.33, down from the close at
$13.74.  AAPL's earnings of 16 cents/share beat expectations for
15 cents per share.  Sales of $2.014 billion also beat
expectations for sales of $1.94 billion. As this report was
prepared, AAPL was trading at $29.70, up from the close at
$29.58.  QLGC and SNDK also reported after hours, with both
gaining after hours.  QLGC traded at $25.68 as this report was
prepared, up from the close at $24.50. QLGC reported earnings in
line with expectations. SNDK had climbed to $23.82 as this report
was prepared, up significantly from the close at $19.98.  SNDK
beat forecasts by 8 cents a share.  Revenue was $433.29 million
against expectations of $410.89 million.

Nasdaq futures climbed after the cash close, at least keeping
alive the possibility that it could deliver on the suggested
reversal signal.  Dow and SPX futures climbed, too, building hope
that they could cling to midline support on their descending
regression channels.  In a climate of increasing fuel costs,
however, those hopes prove tenuous, and an 8:30 report tomorrow
could explode them.

Thursday's economic reports include the much-awaited June PPI, to
be released at 8:30.  For more than a week, I've been reading
reports on forex-related sites about how the dollar has been
pressured by worries about the PPI.  May's core PPI, excluding
food and energy costs, had shown a 0.3 percent increase, with
expectations for June's number at a 0.2 percent rise.  May's PPI
had shown an 0.8 percent increase, with expectations for June's
number from a flat number to a 0.2 percent increase.  A much
higher than expected PPI number could damage any hopes for a
bounce.

Also to be released Thursday morning are the initial claims
numbers, with last week's claims at 310 thousand and with
expectations for a rise to 335-340 thousand.  For two weeks in
June, we saw the claims number surprise to the downside, with the
lower-than-expected number attributed to Federal holidays during
the week.  We'll see if expectations have been managed better
this time with the July 4th holiday falling within the current
reporting week.

Economic reports won't conclude with these releases, however.  An
additional 8:30 release includes the NY Empire State Index for
July, with the index at 30.2 for June and forecast to measure 28
for July.  At 9:15, June's capacity utilization and industrial
production numbers will be released.  At noon, the Philly Fed
releases July's index, with the prior number at 28.9 and
expectations for 25.  At 2:00, the Treasury Budget figures for
June will be released, with the previous number at $21.2 billion.

In addition, more than 100 companies report Thursday, including
Citigroup (C, before the open), Cypress Semiconductor (CY, before
the open), Fairchild Semiconductor (FCS, before the open),
Marriott International (MAR, before the open), Nokia (NOK, before
the open), Pepsico (PEP, before the open), Southwest Airlines
(LUV, before the open), Stryker (SYK, after the close), and
UnitedHealth Group (UNH, before the open).

As should be obvious from this detailing of only some of the
economic and earnings reports due tomorrow, market participants
will have much to digest on this option-expiration Thursday.  The
pin-them-to-the-numbers game usually begins Thursday afternoon,
too, so that any move higher might be tempered or reversed by any
one of those numbers, technical considerations as indices reach
the top of recent consolidation zones, higher crude prices, or
that usual pin-them-to-the numbers tendency.  During May's
consolidation, false breakouts occurred with increasing frequency
as time progressed, and that may be happening now, too.  As this
report is written, markets look ready to attempt a bounce, but
those bounces will be bounces into consolidation zones or proven
resistance, so trade them with care if you must trade at all.
Trade has been choppy within those consolidation zones, and may
grow choppier still, as May's pattern proved and today confirmed.

If markets instead head lower tomorrow, bears should keep that
SPX 200-sma on the radar screen, making plans as to how you'll
handle tests of that moving average from which the markets
bounced in May.


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

A small list of candidates

___________________________________________________________________

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.
___________________________________________________________________


Cymer Inc - CYMI - close: 30.30 change: -2.51

WHAT TO WATCH: CYMI is a semiconductor stock that has been hit
hard recently falling from resistance at $37.50 to round-number
support at the $30.00 level.  Today's 7.6% drop happened to come
on more than twice the average volume indicating some conviction
on the part of the sellers.  Shares are very short-term oversold
and due for a bounce and coincidentally the $30 mark happens to
be its P&F bearish target.  Now P&F targets can be exceeded but
this looks like a pivotal spot for the tug-of-war between bulls
and bears to resume.  Bears might want to look for a drop through
$30.00 or a failed rally/bounce under the $32 level.  Yet watch
out for earnings on July 20th.

Chart=


---

Marvel Enterprises - MVL - close: 15.97 change: -0.23

WHAT TO WATCH: A reader request!  MVL has oddly enough been
falling sharply on heavy volume the last couple of weeks.  At
first glance it could be a "sell the news" reaction to the
release of Spiderman 2, which happens to be making box office
records.  On top of having a huge blockbuster out this summer
through its partner with Sony (SNE), MVL also recently announced
a $100 million share buyback.  Something doesn't smell right.
MVL has virtually no debt and its cash hoard is growing (well at
least it was before the share buyback program).  Granted shares
are up significantly from their 2002 summer lows near $3.00.  It
could be profit taking from a big player in the stock but we
don't know.  Its P&F chart is bearish and points to a $13 target.
We're bullish on the stock's fundamentals and position in its
industry but we'd be cautious and step back to wait for its July
29th earnings.

Chart=


---

Carbo Ceramics - CRR - close: 70.04 change: +1.90

WHAT TO WATCH: Up on a down day in the markets?  CRR's 2.78% jump
grabbed our attention (and on big volume for CRR).  Shares have
been slowly consolidating gains for the past six weeks or so and
it looks like the waiting game is over.  Its MACD has just
produced a new buy signal and the close over the $70.00 mark
looks encouraging.  The P&F chart is a little ugly but it's
bullish and points to a $97 target.  We'd probably target an
initial move toward $75 but watch for earnings on July 21st.

Chart=



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The Option Investor Newsletter                Wednesday 07-14-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: AET, SUN, IRF, DISH
New Call Play: HUG
Dropped Calls: SLAB
Dropped Puts: WFMI


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

AET - call play -
 We have been TRIGGERED $86.55
 No change in stop loss at $81.99

---

SUN - call play -
 Raise stop from $62.99 to $63.99

---

IRF - put play -
 Lower stop from $37.25 to $36.01

---

DISH - put play -
 An upgrade to "out perform" sent DISH soaring
 back toward the $30.00 mark but it held as resistance.
 No change in stop loss at $31.01.


*************
NEW CALL PLAY
*************

Hughes Supply - HUG - close: 60.00 change: +1.29 stop: 57.00

Company Description:
Hughes Supply, Inc., founded in 1928, is one of the nation's
largest diversified wholesale distributors of construction,
repair and maintenance- related products, with nearly 500
locations in 38 states. Headquartered in Orlando, Florida, Hughes
employs approximately 8,900 associates and generates annual
revenues of approximately $3.5 billion. Hughes is a Fortune 500
company and was named the #2 Most Admired Company in America in
the Wholesalers: Diversified Industry segment by Fortune
Magazine. (source: company press release)

Why We Like It:
It's been a pretty good year for HUG with the stock up 20 percent
YTD and up almost 100 percent from its October lows.  The company
is starting to make a habit of issuing upside preannouncements.
They guided higher back in April and they guided higher again on
July 7th.  This time HUG is looking for EPS to jump 41-48 percent
on same-store sales growth of 14-16 percent.  This puts HUG
earnings in the $1.13-1.18 range, up from 80 cents a year ago,
and above analysts' estimates at 99 cents a share.

The stock is also getting some positive press from the likes of
Investor Business Daily.  IBD recently ran an article praising
the company and management for its growth strategy and new
internal efficiencies over the past two years.

We like the bullish chart pattern and bullish P&F chart.  The
latter style chart points to a $66 target.  We agree.  If HUG can
build on its breakout we'll go long and target a move to $66.  We
will use a TRIGGER to go long at $60.51.  Until HUG trades at or
above our trigger we'll sit tight.  Earnings are not expected
until late August.


Suggested Options:
Our one big caveat with this play is the low option volume.
Be careful with your order placement.  We're going to suggest
the August 60s but the 55s look good if you can afford them.

BUY CALL AUG 55 HUG-HK OI= 5 Current Ask $5.60
BUY CALL AUG 60 HUG-HL OI=22 Current Ask $2.15

Annotated Chart:



Picked on July xx at $ xx.xx <-- See TRIGGER
Change since picked:  + 0.00
Earnings Date       08/24/04 (unconfirmed)
Average Daily Volume:    288 thousand
Chart =



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

Whole Foods - WFMI - close: 89.64 change: -1.21 stop: 90.50

As expected WFMI has been stopped out at $90.50.  The stock
actually opened lower at $90.48 immediately taking us out of the
play.  After trying to hold support at the $90.00 level most of
the session the afternoon weakness in the broader indices helped
drag WFMI under.  Shares are now short-term oversold but the next
stop appears to be the $85-87 region.

Picked on July 11 at $ 92.31
Change since picked:  - 2.67
Earnings Date       07/28/04 (confirmed)
Average Daily Volume:    801 thousand
Chart =



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

Silicon Labs. - SLAB - close: 40.43 chg: -1.34 stop: 44.01

Finally!  SLAB has finally hit our target price at the $40.00
mark.  Shares initially traded lower on the Intel news last night
but rebounded sharply from the $40.30 level in the morning to
rebound back to $42.  Then as the broader indices began to sink
into the afternoon buyers gave up and SLAB traded to $39.91
before the close.  If you've not already exited for a profit we
suggest readers do so now or significantly tighten stops if you
expect SLAB to trade much lower under $40.

Picked on June 20th at $44.99
Change since picked:   - 4.20
Earnings Date        07/26/04 (confirmed)
Average Daily Volume =   1.14 mln
Chart =



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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.

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


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