Option Investor
Newsletter

Daily Newsletter, Thursday, 07/29/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Thursday 07-29-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Escaping July
Futures Wrap: See Note
Index Wrap: Looks like short covering
Market Sentiment: A Buyable Bounce?


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      07-29-2004           High     Low     Volume   Adv/Dcl
DJIA    10129.24 + 12.20 10163.01 10084.84 1.84 bln 2258/ 963
NASDAQ   1881.06 + 22.80  1885.01  1867.62 1.70 bln 2043/ 992
S&P 100   537.28 +  0.82   539.64   535.28   Totals 4301/1955
S&P 500  1100.43 +  5.01  1103.71  1095.42
W5000   10663.45 + 12.45 10691.29 10541.91
SOX       411.19 + 11.70   414.04   399.49
RUS 2000  549.83 +  8.63   549.90   541.20
DJ TRANS 3129.42 + 43.10  3135.05  3086.33
VIX        15.68 -  0.47    16.12    15.42
VXO (VIX-O)15.46 -  0.42    16.24    15.22
VXN        23.99 -  0.88    24.79    23.82
Total Volume 3,838M
Total UpVol  2,865M
Total DnVol    888M
Total Adv  4879
Total Dcl  2222
52wk Highs  104
52wk Lows   151
TRIN       0.94
NAZTRIN    0.61
PUT/CALL   0.65
************************************************************

Escaping July
by Jim Brown

It is almost over, July that is. So far it has run true to
its historical election year norm with weakness leading up
to the convention and disappointment over summer guidance.
The good news is our sentence to this purgatory of a market
correction may be about over as the July calendar expires.

Dow Chart


Nasdaq Chart


SPX Chart




The economics this morning were unimpressive and the market
lost its overnight excitement early as oil began to rebound
from its dip. The Jobless Claims rose to 345,000 and +5K
over estimates and very close to the 350K inflection point.
Continuing claims rose again and at 2.96M are very close
to breaking back over the three million mark. Investors
were not impressed.

The Help Wanted Index dropped to 38 and only +2 points off
its historical low of 36 reached last year. The recent high
was 40 in February and it has been trending slightly lower
ever since. Prior to the recession the index peaked at 92.
Only 31% of newspapers surveyed indicated help wanted ads
were increasing. While the headline numbers are not likely
to increase to numbers of yesteryear with the advent of
online search firms the actual movement of the index
remains important. The movement has not showed any gains
since February and that is a strong negative for current
job growth.

The Employment Cost Index rose +0.9% for Q2 and only
slightly less than the +1.1% jump in Q1. The majority of
the increase was related to benefit cost increases and
only a minor amount was due to wage increases. This still
suggests the labor market is soft and there is strong
competition for available jobs. Since benefits increase
regardless of wages, employers continue to be faced with
job cuts as way to reduce expenses.

The Jobs picture will come to a head next week when we
get the Nonfarm Payrolls once again. The current consensus
is for an addition of +215,000 compared with only +112,000
jobs added in June. That is a very strong number for a
summer month. We are also nearing that time of the
month again where the major economic reports seem to
converge. Friday begins with the Q2 GDP, NAPM and PMI
and Monday has the ISM for June. These reports lead off
the August schedule and will serve to set the tone for
the next couple weeks.

As we move out of July traders will breathe a sigh of
relief. According to ISI the markets lost -$900 billion
in market cap since July 1st. The Dow gave up -5% since
June 30th to the July 26th lows. The Nasdaq lost -11%,
SPX -5.7%, Russell -6.8% and a whopping -20% on the SOX.
Using the Nasdaq and SOX numbers we have seen a real
correction in the markets and it is time for more than
just a relief rally. Coincidentally the convention is
over tonight. Nice how that worked out.

Seriously, we are due for a real rebound next week and
it could begin as early as tomorrow. For the last three
days we have seen attempts to rebound in the afternoon
but fear of convention darkness always held us back
from a real rally. The volatility has been very strong,
relative to the last three months and volume has
picked up significantly. Tuesday and Wednesday we
had over four billion shares traded and today came
very close at 3.85M. Up volume has increased strongly
and most of the indexes have seen a double bottom
retest of support over the last four days.

The Dow tried for three days to break and hold 9950
and the bears could not manage it. We have now seen
two higher lows since Monday and we went out near
the highs of the day in anticipation of the convention
closing successfully. The Nasdaq pushed down to 1830
on Monday and Wednesday and barely dipped below 1870
today. It held its gains and went out near the highs
of the day.

Obviously these factors do not guarantee a positive
market ahead but they are bullish signals. Earnings
are literally exploding and may even beat Q2 when
the smoke clears. This is very contrary to the prior
estimates of mid to high teens for overall earnings.
Current estimates are for +25% to +27% based on the
strong performance by S&P companies. Granted Intel,
MSFT, IBM and some others were not glowing about their
future prospects but they still posted decent results.
We are actually seeing estimates for Q3/Q4 rise
slightly and this has surprised most analysts.

We also have the rising price of oil impacting our
markets. After opening down today it did rise to touch
$43 once again. Boone Pickens was on the radio today
saying oil was headed for $50. This kind of talk had
the markets running scared as well as the talk about
shutting down Yukos. Guess what? Yukos was a power
play as the game of brinkmanship continues and the
Russian courts said today they never expected Yukos
to stop selling oil. Also, oil supplies are rising
according to a report today. The extra oil OPEC said
they would begin pumping a month ago is starting to
hit stockpiles and I believe the market price will
reflect that soon. If oil prices begin to moderate
then stock prices, down on the threat of oil, are
free to rebound.

We also have the elimination of the convention risk.
Tonight is the last night and is probably the most
risky as it is the highest profile event. If the
Kerry speech goes off without an incident and the
attendees file out of the auditorium safely the
city of Boston and the country in general will
breathe a strong sigh of relief.

To make a long story short we have seen a sharp
correction and we are due for a sharp rebound. The
timing is right with a week devoid of events and only
a few high profile economic reports to stimulate the
conversation. This is a free week for traders to romp
if they so desire. The following week we have another
Fed meeting and possible rate hike and the news will
begin to focus on the Olympics and associated terror
risk in Greece. Still, as bad as it can be it is still
Greece and not on U.S. soil and investors may feel a
little better about being in the market.

Obviously nothing guarantees a rebound or the duration
should a rebound occur. What we have is the perfect
setup in an imperfect market. Money is still flowing
into funds but that money has not made it into the
market. As I related last week many funds are sitting
on as much as 25% of their portfolio in cash. Should
the market begin to rise those funds will begin to
worry about missing a move and could put some of that
cash back to work.

Historically the calendar is with the bulls. In election
years the markets tend to rise in August as expectations
about the winner begin to firm. Part of the recent sell
off could have been an election slump as Kerry went into
the convention ahead of Bush in the polls. Since the
convention has been in progress Bush has pulled ahead
again and the markets have begun to rise. It could be
just a coincidence of timing but don't discount the
polls completely.

Technically the Dow has rebounded from its 9914 low to
the top of its down trend channel at 10150 and this is
very strong resistance. It is also exactly where a
breakout could produce a strong reaction. A breakout
here would quickly run into resistance at 10200-10250
but without any immediate clouds on the horizon we could
see 10400 again. I know, it sounds like I have been
hitting the bottle and got a little tipsy but I am just
telling you what could happen. The 200dma is 10225.

The Nasdaq is so far from real resistance that it could
easily run for quite a few points. With the 1881 close
today the 1900 level is the next key but a break there
could see a quick bounce to 1950. I am not suggesting
that will happen but just stating potential.

The SPX is still the key as I have been telling you for
the last two weeks. It closed today exactly on the key
1100 level and ready to race off in either direction.
The 200dma is near 1107 and a strong bounce could easily
push the index back over that key level and remove some
of the sell triggers from the reach of fund managers.

The bearish side of this analysis is the dead stop at
key levels of Dow 10150 and SPX 1100. These are strong
resistance levels and levels that could hold if even
the slightest negative news appears. We can be watching
for a rebound to appear but we need to be careful to
also watch for the bears sneaking up behind us.

We had several positive earnings reports after the close
with IM, ACS, ADPT, CYTC, GILD, KLAC and VSEA beating
estimates. KLAC was somewhat bullish on the conference
call and futures are up in the overnight session. The
earnings calendar for Friday morning is very light but
we have four economic reports that could spark the
market. GDP, NAPM-NY, PMI and Consumer Sentiment will
be released.

One negative event was announced today and that was a
$5 billion withdrawal from Janus Funds. Janus announced
that an unnamed investor was withdrawing $5 billion by
year-end from Janus Funds. This amounts to nearly 4% of
assets under management for Janus. This money will
likely be reinvested in the market by a new fund of
choice but we could see a negative bias at Janus as
other investors hearing the news decide to liquidate
as well. This could be a drag on the market over the
next five months BUT remember we lost $900 billion in
market cap over the last 21 days in July according to
ISI. $5 billion may be a significant amount of money
but over five months the withdrawal should be nearly
invisible.

For Friday the instructions are the same. Remain long
over SPX 1100 and short/flat below that level.

Enter Passively, Exit Aggressively.

Jim Brown
Editor


************
FUTURES WRAP
************

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


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

No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?

OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!

Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.

http://www.OneStopOption.com

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

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

Looks like short covering

The major indices held their gains to close back near their
session highs after and FBI terrorist warning for California and
New Mexico sent jitters through the markets in the afternoon
session.

Market Snapshot / Internals - 07/29/04 Close



Technology shares rose where optimistic outlooks from JDS
Uniphase (NASDAQ:JDSU) $3.44 +14.66% and Taiwan Semiconductor
(NYSE:TSM) $7.01 +3.54% may have at least fueled some short-
covering.

New lows at both the NYSE and NASDAQ are notably fewer than
earlier in the week, but there's a heck of a lot of work to be
done at the new highs category to sense some type of bullish
leadership presenting itself.

At more "oversold" 5 and 10-day ratios, Both the 5 and 10-day
NH/NL ratios at the NASDAQ see some percentage improvement.

After seeing the NYSE NH/NL ratios show strength, but then get
pulled back lower by the NASDAQ NH/NL ratios last weeks, I've got
to think that a sustainable move higher for the markets would
have to find a UNISON turn up in both the NYSE and NASAQ NH/NL
indications.

Pivot Analysis Matrix -



The S&P 100 Index (OEX.X) traded almost smack between its WEEKLY
Pivot and WEEKLY R1, where today's session high fell shy of
WEEKLY R1.  The Dow Industrials (INDU) 10,129.24 +0.12 was a
percentage gainer underperformer on the session where one of its
"Generals" in General Motors (NYSE:GM) $42.75 -3.10% provided
negative weight and offset Intel's (NASDAQ:INTC) $24.23 +3.28%
stellar gains.

At tomorrow's close, we'll get new MONTHLY Pivot levels, as well
as new WEEKLY Pivot levels.  It's been a struggle, but bulls have
managed to push the major indices to their best levels of the
week, with the SOX.X getting a trade at its WEEKLY Pivot for the
first time this week.  (In this weekend's Index Trader Wrap, I'm
filling in for Leigh Stevens and will post charts with new
WEEKLY/MONTHLY pivot retracement).

Perhaps last week's $874 million net equity fund inflows ARE
being felt this week.

Hey!  Even the Broker Dealer Index (XBD.X) 120.28 +1.45% managed
to trade, and close the 120 level today.

It's notable that just a couple of weeks ago, when Intel (INTC)
reported quarterly results, the company disclosed that a build-up
in chip inventory due to the company's overproduction would
negatively impact current quarter results until the excess
inventory was moved out.  Today, INTC closes at its highest level
since quarterly earnings were released.

When Goldman Sachs downgraded General Motors (GM) today, GM's
rising inventories was one of Goldman's critiques, or reasons for
downgrading the world's largest automaker.

Jeff Bailey


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

A Buyable Bounce?
- J. Brown

It would seem that the current oversold bounce may indeed be
buyable.  At least that appears to be the sentiment among the
more optimistic traders.  Stocks have suffered a very painful
July and after three weeks of losses we were due for an upside
correction.  The market internals today were pretty bullish and
paint a much better picture than the 12-point gain on the Dow
Jones or the 5-point gain on the S&P 500.  Advancing stocks
outnumbered decliners 19 to 8.5 on the NYSE and 20 to 9.5 on the
NASDAQ.  Up volume was more than double down volume on the NYSE
and almost four times the down volume on the NASDAQ.

Looking at the sector indices we can see just how wide the rally
was today.  Not one major sector index closed lower.  The rebound
was lead by a 4% gain in the HMO healthcare sector, which was
bouncing from its simple 200-dma.  The INX Internet index
followed with a 3.5% gain and a breakout over its simple 10-dma.
The XAL airlines index turned in a 2.9% gain after rebounding
from new one-year lows.  The airlines were boosted by news that
Russia's Justice Ministry would not force oil giant Yukos to halt
oil sales.  This tugged on crude prices but they remain near
their highs.

With so many stocks bouncing from oversold levels we could see
shorts begin to cover in earnest and bulls being tempted to step
back into the market.  Keep in mind that we have one more night
of the Democratic convention and if all goes well (i.e. no
terrorist attacks) then stocks could melt higher in a big sigh of
relief.

Tomorrow also brings several economic reports.  Before the bell
is the advanced GDP readings, which are expected to come in
around 3.7%.  After the open will be the July University of
Michigan consumer sentiment index and the Chicago PMI report.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8997
Current     : 10129

Moving Averages:
(Simple)

 10-dma: 10073
 50-dma: 10212
200-dma: 10225



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  960
Current     : 1100

Moving Averages:
(Simple)

 10-dma: 1096
 50-dma: 1113
200-dma: 1106



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1204
Current     : 1398

Moving Averages:
(Simple)

 10-dma: 1392
 50-dma: 1434
200-dma: 1447



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

CBOE Market Volatility Index (VIX) = 15.68 –0.47
CBOE Mkt Volatility old VIX  (VXO) = 15.46 –0.42
Nasdaq Volatility Index (VXN)      = 23.99 –0.88


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.65        671,863       435,720
Equity Only    0.56        547,501       306,108
OEX            0.95         19,785        18,836
QQQ            1.57         23,682        37,248


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

Bullish Percent Data

           Current   Change   Status
NYSE          59.8    - 1     Bear Confirmed
NASDAQ-100    33.0    - 3     Bear Confirmed
Dow Indust.   53.3    - 3     Bear Confirmed
S&P 500       53.6    - 1     Bear Confirmed
S&P 100       55.0    - 1     Bear Confirmed



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

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


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

 5-dma: 1.21
10-dma: 1.19
21-dma: 1.44
55-dma: 1.16


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    1933      2039
Decliners     859       953

New Highs      41        39
New Lows       35        46

Up Volume   1280M     1312M
Down Vol.    494M      341M

Total Vol.  1834M     1671M
M = millions


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

Commitments Of Traders Report: 07/20/04

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

Commercial traders have upped their short positions a tad while
reducing their longs by nearly the same amount.  Yet the change
is rather insignificant.  Small traders pared back their shorts
by a very small amount and remain net bullish.


Commercials   Long      Short      Net     % Of OI
06/29/04      405,273   413,351   ( 8,078)   (0.9%)
07/06/04      402,952   416,526   (13,574)   (1.7%)
07/13/04      407,166   416,869   ( 9,703)   (1.2%)
07/22/04      404,828   419,017   (14,189)   (1.7%)

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
06/29/04      129,978    94,535    35,443    15.7%
07/06/04      132,423    90,748    41,675    18.7%
07/13/04      133,935    95,787    38,148    16.6%
07/22/04      138,123    94,990    43,133    15.5%

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

There is some interesting action in the e-minis.  Commercial
traders significantly added to their long positions, which
reduced their overall net bearish stance to the lowest level
in weeks.  Small traders, in contrast, reduced their longs
and added to their shorts.  This could be viewed as a
bullish move in sentiment except institutional traders remain
net bearish.


Commercials   Long      Short      Net     % Of OI
06/29/04      258,443   447,505   (189,062)  (26.7%)
07/06/04      287,442   423,583   (136,141)  (19.1%)
07/13/04      265,142   427,017   (161,875)  (23.4%)
07/22/04      309,972   428,240   (118,268)  (16.0%)

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
06/29/04      236,492     47,780   188,712    66.3%
07/06/04      219,321     58,567   160,754    57.8%
07/13/04      225,410     57,699   167,711    59.2%
07/22/04      212,078     62,416   149,662    54.5%

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


NASDAQ-100

Very little action in the commercial traders with similar
additions to both longs and shorts.  Meanwhile small traders
upped their longs and reduced their shorts and that significantly
reduced their overall bearish posture.


Commercials   Long      Short      Net     % of OI
06/29/04       41,078     37,194     3,884    4.9%
07/06/04       42,245     37,343     4,902    6.2%
07/13/04       44,211     37,007     7,204    8.9%
07/22/04       45,069     37,975     7,094    8.5%

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
06/29/04        7,437    11,904    (4,467)  (23.1%)
07/06/04        9,345    16,527    (7,182)  (27.8%)
07/13/04        7,847    15,243    (7,396)  (32.0%)
07/22/04        9,398    11,776    (2,378)  (11.2%)

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

Almost no change in positions for commercial traders but
small traders have pared back their bearish positions.


Commercials   Long      Short      Net     % of OI
06/29/04       27,278    20,512    6,766      14.1%
07/06/04       27,214    20,775    6,439      13.4%
07/13/04       27,773    20,573    7,200      14.9%
07/22/04       27,957    20,389    7,568      15.7%

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
06/29/04        4,930     7,682   (2,752)   (21.8%)
07/06/04        5,969     8,227   (2,258)   (15.9%)
07/13/04        5,292     9,068   (3,776)   (26.3%)
07/22/04        4,857     7,297   (2,440)   (20.1%

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03

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


************************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 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                 Thursday 07-29-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: GS, IBM, PGR
Call Play Updates: TXT, FDX, HUG, SYMC
New Calls Plays: See Note
Put Play Updates: CEPH, DISH, MGA, STJ
New Put Plays: See Note


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

Goldman Sachs - GS - close: 89.69 change: +0.98 stop: 91.51

Diehard technical traders might wonder why we're closing GS now
even though the stock remains under round-number resistance at
$90.00.  First of all we suggested on Tuesday that if the XBD
broker-dealer index can breakout and close over the 120 level
we'd consider closing GS.  Second, the new bullish buy signal in
GS' MACD indicator doesn't bode well for shorts.  We're choosing
to exit now and lick our wounds than see GS breakout any further.


Picked on July 15 at $ 87.25
Change since picked:  + 2.44
Earnings Date       06/22/04 (confirmed)
Average Daily Volume:    4.0 million
Chart =


---

Intl Business Mach - IBM - cls: 86.77 chg: +0.92 stop: 86.51

We are closing this IBM put play un-opened.  Big Blue never
traded low enough to hit our trigger at $83.99 and breakdown from
its bear-flag pattern.  Odds are now that may not happen any time
soon.  Not only is IBM trading higher on the rebound in
technology but CSFB has started coverage on IBM with an "out
perform" and a $100 price target.

Picked on July xx at $ xx.xx <-- see TRIGGER
Change since picked:  - 0.00
Earnings Date       07/16/04 (confirmed)
Average Daily Volume:    5.2 million
Chart =


--

Progressive - PGR - close: 75.78 chg: -0.17 stop: 78.51

We're choosing an early exit on PGR.  We had expected a steeper
drop toward the $71 region but PGR has slowly faded in a daily
bleed lower to hover at support near $75.  Now that the broader
indices are bouncing we don't want to see PGR's "gain" evaporate
in an oversold bounce.  We're suggesting readers take profits now
or significantly tighten stops.

Picked on July 15 at $ 79.00
Change since picked:  - 3.22
Earnings Date       07/14/04 (confirmed)
Average Daily Volume:    655 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

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


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

Textron - TXT - close: 61.35 change: +0.63 stop: 57.49

The rally continues for TXT.  Shares hit another new high four-
year high after announcing it had one a 175 armored vehicle
contract worth $50 million from the Iraqi government.  Thus fare
we're encouraged by the strength in TXT shares and with the
broader indices starting to bounce we should see TXT continue to
climb.  No change in our stop loss just yet.  We'll leave it at
$57.49.

Picked on July 26th at $60.72
Change since picked:   + 0.63
Earnings Date        07/22/04 (confirmed)
Average Daily Volume =    622 thousand
Chart =


---

Fedex Corp - FDX - close: 81.92 change: +0.72 stop: 79.00

The four-day bounce in the Dow Transports is finally starting to
rub off on shares of FDX, which is up two days in a row.  Of
course FDX was not quite as weak as the transports have been in
mid-July.  We're encouraged to see FDX nearing resistance at
$82.00 and readers can use a breakout as a entry point.  Short-
term technicals are positive and its MACD is near a new buy
signal.

Picked on July 20 at $ 82.81
Change since picked:  - 0.89
Earnings Date       06/23/04 (confirmed)
Average Daily Volume:    1.1 million
Chart =


--

Hughes Supply - HUG - close: 60.72 change: +0.47 stop: 57.00

HUG appears to be back to its old habits of drifting higher.  The
stock has weathered the July weakness very well.  Now that the
broader indices are starting to bounce HUG should continue to
outperform.  We're encouraged that HUG has managed to build on
yesterday's close above the $60.00 mark.  Today's move over
$60.50 looks like an entry point for new bullish positions.

Picked on July 15 at $ 60.51
Change since picked:  - 0.69
Earnings Date       08/24/04 (unconfirmed)
Average Daily Volume:    288 thousand
Chart =


--

Symantec - SYMC - close: 46.31 change: +1.35 stop: 42.45 *new*

Excellent news for SYMC bulls.  The stock has been able to build
on its recent breakout and has now pushed through the 100-dma and
the $45 level.  Today's 1.79 percent rally in the GSO software
index was strong but SYMC outperformed with a 3 percent gain.
Traders can choose to buy the breakout or hope for a dip back to
$45 and then buy a bounce.  We are raising our stop loss to
$42.45.

Picked on July 27 at $ 44.91
Change since picked:  + 1.40
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    5.4 million
Chart =



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

Check the site later tonight for New Plays!


************************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 Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

Cephalon - CEPH - close: 50.64 change: +0.13 stop: 52.01

Traders need to be careful here.  The BTK biotech index is up
three days in a row and has closed above its simple 10-dma, which
has been technical resistance for the past three weeks.  The BTK
still has overhead resistance in the 480-487 range but its short-
term technicals are bullish and its MACD is close to producing a
new buy signal.  Likewise shares of CEPH have seen their
technicals turn positive and its MACD has already produced a new
buy signal.  Yet so far resistance at the simple 21-dma is
holding.  Thus far the triple-bottom breakdown sell signal on its
P&F chart is holding up.  We would not suggest new positions here
and traders may want to tighten their stops.

Picked on July 15 at $ 49.87
Change since picked:  + 0.77
Earnings Date       08/03/04 (confirmed)
Average Daily Volume:    969 thousand
Chart =


---

EchoStar Comm. - DISH - close: 27.51 chg: -0.39 stop: 29.05*new*

Bears retain their firm grip on shares of DISH.  The stock has
slipped lower for four days in a row while the broader indices
have bounced the last three.  Today's close under the $28.00
level is a minor victory for the shorts too.  We're going to
tighten our stop loss to $29.05.  Remember our exit is a drop to
the $25 region.

Picked on July 09th at $28.99
Change since picked:   - 1.48
Earnings Date        08/11/04 (unconfirmed)
Average Daily Volume =    2.5 mln
Chart =


--

Magna Intl - MGA - close: 80.25 change: +0.20 stop: 83.01

The lack of any significance bounce in MGA while the broader
market is rebounding should be good news for the bears.  Yet it's
somewhat nerve-wracking to watch the stock oscillate around
round-number support/resistance at $80.00.  We're still bearish
and we're going to keep our stop loss at $83.01 but more
conservative traders might want to consider using a tighter stop
in the $82.00-81.50 range.

Picked on July 15 at $ 81.53
Change since picked:  - 1.28
Earnings Date       08/05/04 (confirmed)
Average Daily Volume:    182 thousand
Chart =


--

St. Jude Medical - STJ - close: 67.02 chg: +0.92 stop: 68.50

The volatility continues for STJ.  The stock appears to be stuck
in a trading range between $65 and $68.  This sideways
consolidation has given the technical oscillators time to nudge
higher from their oversold status.  We remain bearish but we'd be
careful about new positions with the broader market bouncing.
We're going to leave our stop loss at $68.50 for now.

Picked on July 25 at $ 66.75
Change since picked:  + 0.27
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    1.2 million
Chart =



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

Check the site later tonight for New Plays!


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

No time to follow the Market Monitor? Tired of missing good Trades
because you stepped away from your computer?

OneStopOption Group can follow the Market Monitor for you. You
choose the number of contracts, we take care of the rest!!

Trade Stock Options, Stocks and ALL Futures with the same Group.
Call us 888 281-9569 to see if you qualify to have us rebate your
subscription cost.

http://www.OneStopOption.com

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


**********
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                  Thursday 07-29-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Carpet to Oil and more!
Traders Corner: The Tree of Indicators


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

Carpet to Oil and more!

___________________________________________________________________

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


Borg Warner - BWA - close: 46.57 change: +1.75

WHAT TO WATCH: BWA surged on strong volume to breakout over
resistance at the $45 level.  The move follows BWA's earnings
report out this morning where the company beat estimates by 5
cents per share.  While we normally don't play the post-earnings
reaction this looks pretty bullish.  Aggressive bulls could
target a move toward $50.  Its P&F chart points to a $61 target.

Chart=


---

Mohawk Industries - MHK - close: 73.25 change: +1.05

WHAT TO WATCH: MHK, a carpet manufacturer, tends to trade
somewhat inline with the homebuilders.  We're seeing a bounce in
both today.  Currently MHK is stuck in a trading range between
$68 and $75.  Bulls can use a breakout over the $75 mark and its
simple 200-dma as an entry point.  A rally past $75 would produce
a new P&F buy signal.

Chart=


---

ITT Industries - ITT - close: 79.25 change: +0.85

WHAT TO WATCH: Industrial and cyclical stocks are starting to
rebound from their lows and ITT is making a run back toward the
$80 level.  If ITT can breakout over round-number resistance at
$80 bulls might want to target a move to the $85 region.  The
stock's short-term technicals are bullish and its MACD is hinting
at a new buy signal soon.

Chart=


---

ChevronTexaco - CVX - close: 95.48 change: +1.17

WHAT TO WATCH: Oil-related stocks have been announcing some
pretty strong earnings numbers.  Shares of CVX have rallied from
their simple 40-dma as crude prices hit new highs.  Today's
bounce over the $95 level follows yesterday's 2-for-1 split
announcement.  We feel that CVX is headed toward the $100 mark
but it depends on how investors react to their earnings report
due out Friday morning.  Estimates are for $2.70 a share.  CVX's
P&F chart currently points to a $111 target.

Chart=



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

LLL $61.30 +1.05 - The post-earnings rebound continues for LLL.
Traders might want to consider bullish positions on a breakout
over the $62.00 level.

COP $78.10 +1.44 - COP is another oil giant that is bouncing from
rising support.  There is resistance at $80 but we suspect COP
will breakout.

IMO $48.72 +0.72 - Yet another oil-related stock, shares of IMO
have been consolidating a June-July breakout from a large wedge-
like pattern. Now the stock is charging toward new highs.  Look
for a move over the $49 level.

NKE $72.90 +2.10 - NKE is seeing some follow through on the
bounce back above the $70 mark and its simple 200-dma.

VLO $75.12 +1.58 - VLO reported earnings today and investors
responded with a 2% gain.  Bulls might be able to target a move
to $80.


************************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 Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

The Tree of Indicators
By Leigh Stevens
lstevens@OptionInvestor.com


I heard about a concept called the "tree of indicators" that my
trading mentor ("Market Wizard") Mark Weinstein used to say was
something he found of value and learned from Joe Granville. Old
jolting Joe was quite the market prognosticator back in the 70's
and 80's – well, I'm unsure how far back he was famous, but the
mid-80's was when I knew of him and saw him on market shows.

Granville used a number of indicators that were related but
showed different aspects of the market. The best trades occurred
when they all, or most of em, lined up to give a major buy or
sell "signal".  There are only a few things that tell you the
real story on the market.  Fortunately those few things are
pretty safe from being overused cause traders/investors don't
heed them. This is because they are too "simple" – hey,
complicated must be better cause the market's complicated, right?
– or folks are not disciplined enough to wait for the right time
when they could possibly go in (to the market) heavy and not lose
– that is, if they didn't over-leverage, which option traders are
prone to do; i.e., not enough trading capital left in reserve.

This mentor of mine I mentioned, who by the way has made 10's of
millions in the market and trust me, is someone you have never
seen selling his newsletter or "black box" system on CNBC, used
to say: "always leave yourself enough room (money) to 'price
average' a couple of times." This is not such a heretical thought
and he was an index options trader primarily then – OEX's mostly.
What made his approach work was that he only went in when the
market was showing an intermediate to major buy/sell signal.
This left him a lot of time to fill between trades.  So, what did
he do with himself?  Watch the market and spend 2-3 hours
everyday talking to me, a sponge for his knowledge and experience
on how to call the market.

The most important of his "tree of indicators" -

FIRST – although this is the one that is not strictly an
indicator: what is the chart pattern telling you?  Is there a
possible double bottom, a Head & Shoulder's top, etc.  So,
"pattern" is the first thing.  Indicator is usually used for
things like Volume, measures of overbought/oversold (oscillators)
like RSI or Stochastics, etc.  However, if technical analysis
ONLY works with price and volume information, PRICE is first
among equals.  Number 1!

For example, in this recent chart of the S&P 500 (SPX), we have
an apparent double bottom that has set up – the chart is a close-
only "line" chart – the double bottom is of course points 2 & 3 –




SECOND – what is volume telling us? Mark used to say that "volume
precedes price" – meaning, that first comes for example, a volume
climax, then the trend changes.  Or, up volume contracts to a
certain level on a 10-day moving average basis, then turns up –
that is the "volume" bottom.  Prices will follow although they
may continue lower for a while longer.

I wrote more on this subject in a recent Trader's Corner article
which I invite you to read if you haven't – for example, why only
up volume?  Is the up volume indicator only useful to indicate a
bottom? – yes. It's a bottom indicator only. Up, down or total
volume on either exchange is not a strong market predictor for a
top – at least not reliably and it lacks a "baseline" quality.
Anyway, more of my musings on up volume is found at –
http://www.OptionInvestor.com/traderscorner/tc_072204_2.asp

Here is what it looks like in the chart below – NYSE daily total
up volume is plotted under the same SPX chart as above.  What to
zero in on is not the daily fluctuations but the 10-day average –




As can be seen on the chart above at points 1 and 2 (stay tuned
on point 3!) is that when the 10-day average of total NYSE up
volume has contracted or fallen to a reoccurring level, which in
recent months has been 530 million, an upside reversal has
occurred within a few days; e.g., 1 – 5.

If you like to play "gotsha", you'll especially zero in on the
fact that there was an instance under point #2 where the up
volume average contracted to the "baseline" (dark green level
line), but the market did not find a bottom until later – true
enough, but this is where we build a case for and look at, a few
indicators, not just this one.

Also, in point #1, the up volume indicator bottomed twice and it
was the second one that was significant as the market continued
lower.  But, as I said, more on using a few key indicators
together shortly.  The idea is a term I use a lot: "confirmation"
by other indicators or patterns.

I think you can see why, if you use this Up volume indicator to
go bottom fishing, you would be buying calls in an area for a
position type trade, not a quick in and out rifle shot type
trade.

THIRD – "Sentiment".  How bullish or bearish are option traders?
Guess what fellow traders? - as a group we are lousy at being
bullish and buying index calls at bottoms, and equally off at
buying puts at tops.  In fact, we are most bearish at bottoms and
tend to be most bullish at tops.  There are individual exceptions
of course, but I am talking about the herd so to speak – the
collective opinion or activity of all traders. Myself, I find it
quite hard to get bullish at what even all my indicators and
aspects of technical analysis tell me is a bottom.

As anyone reading many of my past commentaries will know, I rely
for a reading on market sentiment on a daily read of total equity
call volume to total equity put volume on the CBOE.  That's it
and I wrote about this all also in a prior Trader's Corner at –
http://www.OptionInvestor.com/traderscorner/tc_021904_2.asp

When put volume gets close to equaling call volume for equities
(excluding index option volumes), this tends to be at or near a
bottom and vice versa at tops, where call volume may be double or
more than double that of total daily put volume –




You can see that the first bearish extreme (in its zone) was good
for being close to the top, but that the bullish extremes tended
to occur in clusters.  Sometimes I use a 5-day moving average to
smooth this out.  Mostly, I just figure that at bottoms, there is
this tendency and I also know that (again) the market should be
in a area or close to a bottom, but I have to see what the other
indicators say and how they line up also.

FORTH – Is the Index at an overbought or oversold extreme
relative to an oscillator type indicator? – especially the RSI
(Relative Strength Index) on a 14 (or 13) day basis. Here to, I'm
always keenly interested if there is a bullish or bearish
price/RSI divergence.  Was there a higher price peak, not also
accompanied by a higher high in the RSI – hey, it rhymes!  Or,
was there a lower (price) low, accompanied by a higher RSI
reading relative to recent days –




The time frame labeled "1" has a bullish RSI divergence and did
signal a major bottom.  There was no bearish divergence at the
top after that rally – nor, in fact, did the RSI get to the red
"danger" extreme zone.  Low #2 also saw a bullish price/RSI
divergence and was an excellent signal in and of itself.

Point "3", at the recent possible double bottom did not see a
bullish divergence – the RSI in fact "confirmed" the lower low in
price.  However, here the potential double bottom pattern,
accompanied by an oversold extreme and a reading down near RSI
30, is a telling duo I think.

PUTTING THEM ALL TOGETHER – the next chart has PATTERN,
OSCILLATOR, UP VOLUME and SENTIMENT Indicators all lines up. It's
not an accident that "PATTERN" is in a larger font than the
others – it has a greater importance than any one or sometimes,
many, indicators.  If you want to remember to check ALL these
factors, use the "POVS" acronym.  POW with a V, plural –




It's a LONG scroll down.  Now however, it can be seen that the up
green arrows are noted mostly where there are other confirming
indicators that also suggest a possible turning point – all
bottoms in this case. For top indications I will not consider the
Up Volume Indicator.

SUMMING UP –

Point #1 – Pattern of lower lows; Bullish Oscillator divergence
at 2nd higher high in RSI; Volume bottom – 2nd one was at same
time as bullish Price/RSI divergence; Bullish call/put sentiment
reading. The second of the double green arrows was the buy
"signal" – note that the Sentiment reading often occurs 1-5 days
ahead of the lowest low.

Point #2 – Pattern of lower lows, but unconfirmed by RSI
(bullish), preceded by a volume low (volume precedes price) and
these points also saw a bullish reading in my Sentiment indicator
– a 5-day average (not shown) helped highlight the extreme
bearishness suggested by the cluster of 1-day extreme readings.

Point #3 – Lower lows all the way back to the same level as the
prior closing low, setting up possible double bottom pattern; at
the same point there was an oversold RSI oscillator extreme; a
possible volume bottom also happened at the "baseline" I'm using
(at 530 million); the recent double bottom low was preceded by a
bullish 1-day sentiment reading 6 days prior to it and a bit
longer than the 1-5 days I'm used to seeing before a bottom. I've
seen an extreme 6 days prior to a bottom before, but it's rarer.

All in all, my "tree of indicators" has suggested that the recent
low is a double bottom and I am holding August and a few
September OEX calls. However, my stop out/exit point is just
below the last low. One advantage of a possible double bottom is
that it gives a very defined "tight" stop out point, at just
under the 2nd bottom.


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

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


**********
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