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Daily Newsletter, Sunday, 08/01/2004

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The Option Investor Newsletter                   Sunday 08-01-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.
Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: That Was Exciting
Futures Wrap: See Note
Index Trader Wrap: Up week, but a downer month for stocks
Editor's Plays: Looking at the Future
Market Sentiment: Here We Go Again
Ask the Analyst: See Note
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 7-30         WE 7-23         WE 7-16         WE 7-09 
DOW    10139.71 +177.49 9962.22 -177.56 10139.8 - 73.44 - 69.61 
Nasdaq  1887.36 + 38.27 1849.09 - 34.06 1883.15 - 63.18 - 60.33 
S&P-100  537.67 +  7.29  530.38 -  5.52  535.90 -  6.73 -  4.54 
S&P-500 1101.72 + 15.52 1086.20 - 15.20 1101.40 - 11.41 - 12.57 
W5000  10701.65 +147.83 10553.8 -178.04 10731.9 -110.82 -154.87 
SOX      416.43 + 10.85  405.58 -  4.88  410.46 - 40.68 -  6.17 
RUT      551.29 + 12.07  539.22 - 16.26  555.48 -  8.25 - 18.99 
TRAN    3111.69 + 68.25 3043.44 - 44.89 3088.33 +  0.36 - 58.20
******************************************************************

That Was Exciting
by Jim Brown

The market celebrated the end of convention event risk
with a yawn and the concern immediately shifted to the
lower than expected GDP. The critical convention event
risk expired with no more excitement than a week old
newspaper. 

Dow Chart – Daily

 
Nasdaq Chart – Daily

 
SPX Chart

 
NYSE Composite Chart ($NYA.x)

 

The big news for the morning was not the end of the
convention risk but the unexpected drop in the Q2 GDP 
to +3.0% from +4.5% in Q1 was well below estimates of 
+3.8% growth. This was the lowest level for GDP since 
the +1.9% in Q1 of 2003. The biggest component drop was
in personal consumption which fell from +4.1% in Q1 to
only +1.0% in Q2. This was a major drop and confirms 
the retail weakness we have been hearing about for a
couple months. Overall the GDP is still up +4.8%
over the last four quarters but that is mostly due to
the +7.4% jump in Q3-2003 as a result of the 2003 tax
rebate. The minor rise in consumer spending was the 
smallest gain in over three years. 

While the GDP was a disaster the PMI was a blowout. 
The Business Barometer headline number was 64.7 compared
to 56.4 in June. This did not completely reverse the
drop in June from 68.0 in May but it does bring the
report back in line with the prior two months. The
Production component soared to 69.5 from 53.9 and New
Orders rose to 68.7 from 56.8. Backlogs rose +6.5 to
60.2. The only component with a strong decline was
employment which fell to 45.6 from 53.6. That was the
worst labor reading since June-2003. Most notable was
the drop in inflation with Prices Paid falling to 77.6
from 84.5. This was the first drop in PP since February.

Also adding to the positive economic picture was the
NAPM-NY which rose to 302.5 in July and well over the
290.9 in June. This is a multi month high and shows
business conditions are still improving. Non
manufacturing activity jumped +31% to 71 from 58.0.
Current conditions jumped to 72.3 from 57.6 but the
six-month outlook exploded to 78.5 from 60. 

Strong economics like the PMI and NY-NAPM along with
the Philly Fed and Empire State survey suggests the
ISM on Monday could see a strong upside surprise. The
challenge is whether the rebound actually occurred 
in July or just the beginning of the rebound. The 
consensus estimates are for a headline number of 62.0
and right in line with the last four month average of
62.2. The recent high was 63.6 in January and we have
seen numbers near 61 twice in Feb and June. A number
over 63.0 would be seen as a very strong confirmation
the economic soft patch is behind us. The markets 
should act positively to any strong number.

The GDP sinking to +3.0% growth for the quarter and
the uptick in the regional indexes for June/July 
suggests May was the weak link that dragged down the
GDP. The best news was the falling inflation levels.
With a soft GDP and inflation levels coming off their
highs despite high energy prices the Fed should be
ecstatic. The Fed meeting on August 10th is still
showing the possibility of a rate hike but there is
no possibility of a 50 point hike as there was in the
past. The current Fed Funds Futures are pricing in
a 25 point hike in August, November and December and
would raise the target rate to 2.0% by year end. I
believe the Fed will raise rates in August because
to not raise them would raise questions about what
does the Fed know that we don't. Since the hike is
already priced in the Fed will get a free pass on
this one. 

The final reading on the July Consumer Sentiment 
came in at 96.7, +2.0 over June's 95.6 and slightly
over estimates. The dip in gas prices added to the
slight rise in sentiment but with prices rising
again we could see sentiment sink once that $2.00
per gallon rate is back to haunt us. 

Oil rose to an all time high at $43.85 and spiked
well over previous levels. The reasoning analysts
are giving is the potential for terrorist attacks
causing a real slow down in deliveries. OPEC is
reportedly pumping every barrel they can and well
over the stated production quotas. Meanwhile the
demand for oil is growing at a 24 year high. This
means any production stoppage could send prices
soaring even farther. The rumored target is Saudi
Arabia where the regime is under attack and they
are a major producer of high quality oil. Terror
attacks have grown in intensity and frequency and
the oil infrastructure is reportedly too wide spread
to protect completely. Traders are fighting rumors
that the production/transportation facilities could
be attacked just before our elections in an effort
to drive prices significantly higher and provide a
voter backlash from high gas prices. Granted this
is all just speculation but as you can see by the
price there is worry. Oil supplies are actually
rising in the U.S. and some traders feel the price
spike will end badly. 

What was really surprising on Friday was the 
disconnect of the stock market from the oil price. 
Recently we have seen a strong divergence in prices
when oil rose, stocks fell. This disconnect could be
the symptom of an impending move higher in stocks. 
We saw support levels remain rock solid at 10100 on 
the Dow and 1098 on the SPX. The S&P futures closed
at the high of the day at 1103.75. 

Unfortunately the market action on Friday was far
from predictable. The price action on my charts was
more like child's crayon scratching than a recognizable
pattern. We tested highs and lows of the various
support/resistance ranges almost at will with no 
directional trend. The strongest move of the day 
came just before the close when the Dow and SPX
rebounded off their lows and returned to their highs
in just the last 25 min of trading. Techs, which had
been stronger turned weaker in the afternoon in stark
divergence to the action in the Dow and SPX. 

The Dow traded in a 64-point range from 10086 to 10150.
The 10100 support was rock solid and 10150 was equally
solid resistance. We made the round trip to both 
levels multiple times over the last two days and the
battle seems far from over. 

The Nasdaq traded in a narrow 20 point range just under
1900 and was supported by the SOX (+1.27%) and the
Russell which traded over its 550 resistance high 
several times. The only trend was sideways and that
was barely discernable. 

The easiest method of illustrating the abrupt swings
in the market is to show an intraday chart of the 
Advance/Decline line. This chart shows alternating
buy sell programs almost constantly throughout the
entire day with major swings late in the afternoon. 
Those swings in the afternoon were +/- 700 issues
on an alternating basis. Very difficult to trade
when alternating buy/sell programs are running 
rampant. This is good news because volatility means
change is in the wind. 

Adv/Dcl Chart

  


I have been expecting a post convention rebound and 
I have to admit Friday was very frustrating. I kept 
expecting every rebound to break that overhead 
resistance and begin to move higher in anticipation of
next week. Unfortunately that strong move up did not
appear until the close when the futures moved to the
high of the day. 

There were multiple reasons for the lack of momentum
with the primary ones being the very low GDP and the
nearly $44 oil. There also appeared to be a sell the
news crowd that came to the market this morning also
looking for a rally to sell into. The good news was
the strong underlying bid at 10100 on the Dow and
1098 on the SPX. Buyers took a lot of shots but 
managed to hold the line. I may have been expecting 
too much for a summer Friday with barely over three 
billion shares traded but I have not changed my tune. 

Despite the choppy week and some new lows all around
the indexes did manage to finish positive and at the
highs for the week. It was the first positive week 
for the Dow and SPX since June-18th. The Dow gained 
+177 and the Nasdaq +38. Not great numbers but still
a reversal of the trend. I view the strong underlying
bid on Friday as proof that sellers are beginning to
lose their grip on the market. With the S&P futures 
closing at a two week high and well over 1100 at 
1103.75 it suggests we could see a very different 
market on Monday. 

I still believe that SPX 1100 resistance will break
to the upside despite multiple failures at the 1102 
level on Friday. Part of my reasoning is the trend
for the last 11 election year cycles for the markets
to rebound the first week of August. Secondarily we
are still very oversold given the positive earnings
we are seeing. I believe any rally will eventually
fail but that is another story for another day. Treat
any continued rebound as a trading rally only and 
keep your stops in place. 

With the convention over one of our fear factors has
been put to rest. Kerry is still in a dead heat with
Bush but his pep rally is over. I am sure he hoped to
add some points in the polls but the latest survey
showed Bush adding +2 points on Friday. The Kerry 
platform has been publicized and the critics are 
coming out the woodwork. Drug companies are under
attack and price controls and green power are the
hot topics. 

On the Republican side the Budget Office released the
expected budget deficit today at -$445 billion. While
that is a record deficit it is still not complete. 
The budget was offset by a +$155 billion social 
security surplus. Considering the state of the SS 
system that money should remain in the trust fund
for future use instead if used to pay bills. The war
in Iraq was not included and will be brought up as
a supplemental item in the spring and is expected to
be $50 billion. Add those together and we have a real
budget deficit in the $650 billion range. This is why
foreign investors are fleeing our markets with net
withdrawals for the last three months. They believe
the soaring deficit will require desperate measures 
that could handicap our economy and our markets. 

To be fair that deficit is the result of the post Y2K
recession that began in early 2000, the 9/11 attack, 
massive expenditures for homeland defense and the huge
tax rebates that helped to spark the economy in 2003.
There are pros and cons on both sides but the main 
point I want to make is the market is watching the 
polls. The drop over the last three weeks could have
been partly due to the convention event risk but not
risks from terrorists. Had the convention produce a 
ground swell of support for some new program of price
controls, budget cuts and cancellation of last years 
tax cuts then the market would have reacted negatively
to any Kerry gain in the polls. With the convention over
and no new agenda the danger, in both contexts, seems
to have passed. The market is free to discount the race
with the Republican pep rally still ahead. 

In stock news of note Intel announced a delay in the
release of the new 4ghz Pentium 4 processor until the
first quarter. Giving confusing reasons in English that
would make Greenspan proud the company deftly avoided 
saying that by pushing the chip one quarter farther 
out they could dump their high inventory of older 
chips during the Q4 holiday sales cycle. Intel 
management is not stupid and they realized that by 
delaying the long awaited chip all the computers built
in the 4Q would have to be built with the older chips.
Does not take a rocket scientist to see the reasoning 
here. 

I ended last Sunday's article with instructions to 
look for good stocks over the next couple days that
were beaten down with the market and then expect an
end of week rebound. Monday was the low for the week
and you got a second chance on Wednesday. The Dow
finished +224 points off its lows for the week and
the Nasdaq +54. If you followed my instructions you
probably did well. 

For Monday the Thursday night instructions have not
changed. Remain long over SPX 1100 and short/flat 
below that level. Hopefully we will get a stronger 
than expected ISM and we will be off to the races. 
As always, just like the GDP on Friday, there is the
potential for a negative surprise so wait for the 
announcement volatility to pass before entering new
positions.  

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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


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

Up week, but a downer month for stocks

The major indices finished the week with gains and broke a 4-week 
losing streak where some positive economic readings from July 
helped offset "slowing growth" reading from late spring.

Oil jumped to record highs with shipments threatened by a legal 
battle between Russia's government and the country's biggest oil 
exporter, OAO Yukos Oil Co., by attacks on oil infrastructure in 
Saudi Arabia and Iraq and by civil unrest in Nigeria and 
Venezuela.  Oil gushed higher with September futures (cl0u) 
$43.80 +2.45% posting its fifth weekly gain, the first time that 
has happened in more than a year. 

U.S. Market Watch - 07/30/04 Close

 

The CBOE Internet Index (INX.X) 171.99 +0.19% edged higher on 
Friday, but holds the top spot among equity sector gainers 
(listed in the Market Watch) for the week, while mixed earnings 
and perhaps the Democrat's platform for restructuring the nations 
healthcare system in an attempt to slow the rise of healthcare 
costs sent the Health Provider Index (RXH.X) 348.37 down 4.32% on 
the week.

Not listed in the U.S. Market Watch above is the Dow Jones U.S. 
Steel Index ($DJUSST) 126.18 +0.52%, which surged 8.87% on the 
week and 13.11% the past 20 sessions.  It closed at an all-time 
high on Friday.  

Did you know there was a Dow Jones U.S. Toy Index ($DJUSTY) 
275.47 -0.36%?  I didn't until last night.  It was down 2.79% 
this week, and has fallen 6.68% the past 20 sessions.

A weaker than forecasted initial/preliminary second-quarter GDP 
reading, which showed the U.S. economy growing at a more modest 
3.0% annual rate in the second quarter had Treasuries reversing 
much of their earlier week losses, where the benchmark 10-year 
yield fell a sharp 10 basis points in Friday's trade.  The yield 
curve would have steepened this week, usually a bullish sign for 
equities with the shorter-dated 5-year yield rising 1.5 basis 
points, the belly of the curve rising 4.3 basis points, while the 
longest-dated 30-year yield ($TYX.X) rose 3.4 basis points.

On a 4-week basis, the yield curve flattened notably, with the 5-
year YIELD ($FVX.X) down 3.6 basis points, the 10-year YIELD 
($TNX.X) down 8.9 basis points, and the 30-year yield ($TYX.X) 
falling 8.6 basis points.

In last weekend's "Market Sentiment" column, I thought we might 
want to monitor the Broker Dealer Index (XBD.X) 119.39 -0.73% 
this week.  The brokers carved out a 1.92% gain on the week, and 
that just about matches the indices gains.  

Here's a good index to again... MONITOR right now, get a feel for 
things after this week's release of July consumer 
confidence/sentiment readings, which were stronger than 
economists' forecast.  Remember, these are SURVEYS and consumers 
don't always do what they say over the phone.

Earnings season is starting to wind down a bit, with just about 
75% of the S&P 500 Index (SPX.X) components having reported their 
quarterly earnings.  Whew!  Thank goodness.

However, next week, we're going to get slammed with a bunch of 
economic data, so I would want us to have an additional 
"sentiment" index to keep track of.

It's a beauty!  By that I mean it looks WEAK, suspect to decline!  
It has something to prove!  Or, I should say, it provides a test 
of which the MARKET has something to prove, buyers and sellers.  

What is it?  Hint.... there's only 147 days left until the 
Christmas holiday.  While I always wait until the last minute to 
buy holiday gifts for friends and family, institutions should 
have their list together, be accumulating some of their favorite 
names if a strong consumer, economy and holiday shopping season 
is to unfold.

S&P Retail Index (RLX.X) - Daily Intervals 

 

When we look at the S&P 500 Index (SPX.X) later, you're going to 
see some similarities between the SPX.X and the Retail Index 
(RLX.X).  Where relative to the SPX.X, the RLX.X looks a little 
stronger as it relates to its 21-day SMA and 200-day SMA.  I 
think the RLX.X is a good sub-index to monitor the next couple of 
weeks.  The MARKET's received some upbeat news on consumer 
sentiment surveys.  Hey, that's fine, but those are surveys.  
Will the MARKET believe it and commit capital to it?  The RLX.X 
holds that key.

With rising oil and gasoline prices, economists are worried, with 
good cause, that higher gasoline prices are using up consumer's 
expendable cash they might otherwise be spending on camouflage 
clothing, new boots, goose decoys, a new shirt, a blouse, a 
skirt, washing machine, laptop computer, you name it.  Heck, last 
week I filled up the 40-gallon tank on the "land yacht" and it 
set me back $72.00.  That's a decent set of duck decoys. Ouch!

Pivot Analysis Matrix - 

 

I've highlighted some of the support (green) and resistance (red) 
correlations in the Pivot Analysis Matrix where we have new 
MONTHLY pivot levels, which are derived from July's high/low and 
Friday's close.

Now, I marked the Dow Industrials' (INDU) WEEKLY S1, WEEKLY R2 
and MONTHLY R1, where I see some similarities with these levels 
as found in MAY's MONTHLY Pivots, where the INDU traded lower to 
start the month out, violating its then MONTHLY S2 (9,986) where 
I see this WEEK's (8/02-08/06) WEEKLY S1.  In May, the INDU fell 
to a low of 9,852 and staged a rebound to close the month of May 
at 10,188 (just now seeing Monday's DAILY R2 of 10,188), where in 
June, the Dow Industrials (INDU) traded a high of 10,487 (would 
be ABOVE August's MONTHLY R1).

Now, for July, we saw the indices fall from their opening bell on 
July 1.  In this past Monday's "Market Wrap," fellow analyst 
Jonathan Levinson titled that wrap "Doji Day," and while Jonathan 
noted that Monday's intra-day action was not "the stuff of 
classic doji bottoms," the major indices did move higher from 
Monday's doji.

Dow Industrials (INDU) Chart - Daily Intervals

 

Some of my yellow zones haven't budged in a couple of weeks, so 
I'm leaving them right where they are.  Stochastics seem 
positioned that near-term resistance is going to be formidable at 
all that confluence of SMA's and WEEKLY R1 and WEEKLY Pivot 
retracement of 10,226.  Note from your Retail Index RLX.X the 
position of its 200-day SMA, which did see trade on Thursday 
(07/29/04).

Again... I am not a candlestick expert, but other analysts at 
premierinvestor.net and OptionInvestor.com give better insight to 
the implications of "doji" patterns.  

Before I even knew about candlesticks, I observed on my own that 
a bar chart, where a bar shows an almost identical opening price 
and closing price created what I called an "iron cross," kind of 
like the male gymnast will perform on a set of rings.

Envision yourself trying to perform an "iron cross" (I'm laughing 
to myself as I picture my arms being ripped from their sockets) 
and where after such a TRADE is seen, where it would appear the 
MARKET has agreed on a price, that a break up or down from that 
"iron cross" then has the MARKET further agreeing on price 
direction, whichever direction price breaks (up or down).

Look at some weekly interval and monthly interval charts of 
stocks, or indices for this type of pattern.  

The Semiconductor Index (SOX.X) made a beautiful "upside down 
iron cross" as I call it in March of 2003.  Just as its sector 
bullish % at Dorsey/Wright and Associates reversed up to "bull 
confirmed" status at 28%.  Current sector status for the 
Semiconductor's is "bear confirmed" at 8% and would take a 
reversing higher reading of 14% to turn up to "bull alert."  

Speaking of bullish % indications.  One of the best analogies I 
read this week, was from Dorsey/Wright.  In the 09:00 AM Updates, 
I post the various major market bullish % readings.  In one of 
their special e-mail updates, THEIR NYSE bullish % (not 
www.stockcharts.com, which I reference at 09:00 AM) reversed back 
lower this week.  The analogy maid is that this action, in the 
very broad NYSE Bullish %, where NYSE listed stocks are more 
often a "buy and hold" type stock among institutional investors 
(mutual funds, pension funds, etc.) is that the DEFENSIVE team is 
on the field again.

The analogy that I liked was .... "that the generals are still 
fighting the battle, but the soldiers are leaving the field.  How 
long can the generals hold out?  I don't know."

This is why I (Jeff Bailey), like to try and pick out a couple of 
sectors that I feel might be "key" to figuring out the "how long" 
it might last question.  

The Broker/Dealer Index (XBD.X) is VERY WEAK, but did make a 
near-term "bottom" on July 19, while the broader S&P 500 Index 
(SPX.X) traded a recent "bottom" this Monday.  To me, when a VERY 
WEAK index makes a bottom first, it is usually a sign of SHORT 
COVERING?  The reason I think this is because SMART money must 
have shorted at the top, and perhaps that same SMART money is 
locking in some gains.  It would be that SMART bulls sold the top 
and are just showing up again, but I've never been so smart as to 
buy long the extreme bottom of anything.  It's much safer to wait 
for some signs of meaningful strength before getting long.  
However, its SO easy to buy a bottom when your short when all 
you're doing is locking in gains at a target.

According to Dorsey/Wright and Associates, their Wall Street 
Bullish % (BPWALL) is still "bear confirmed" at 28%, would take a 
reversing higher reading of 34% to achieve "bull alert" status, 
and 44% to achieve "bull confirmed" status.

S&P 500 Index (SPX.X) Chart - Daily Intervals

 

Rebounds in the SPX from the 1,095 level (March and May) have 
shown some confirmation of strength with a trade above 1,111.

As it relates to Friday's GDP data, some things run through my 
mind.

Some economists and market analysts said they thought the upward 
revision to first quarter GDP (January-March) from 3.9% to 4.5% 
"offset" Friday's release of second quarter GDP (April-June) of 
3.0%, which was below economists' forecast of 3.7%.

Bull-chips! I say.  What the upward revision to Q1 GDP does, is 
most likely "assure" 2004 total GDP coming in at 4% or more, but 
I don't think it "offsets" the preliminary Q2 GDP of 3.0%.  While 
Q2 GDP will be revised (we're just getting the FINAL Q1) I would 
think that company's earnings, revenues, cash flows, whatever 
measure fundamentalists use, was already reported.

First quarter is over and done with.  If the MARKET is all-
knowing (and I believe this to be true) then I say the SPX 
accurately depicts first quarter GDP figures, revised upward and 
all.  Perhaps the "dashed red" cheaters trend, currently at 1,140 
depicts the slowing rate of economic growth here in the U.S., 
where the solid red trend was perhaps reflecting the more bearish 
scenario of "inflation, banks crater, etc. etc" that was laid out 
in May.

NASDAQ-100 Tracker (QQQ) - Daily Intervals

 

QQQ $35.45-$35.41 should be a formidable near-term challenge and 
resistance.  I don't dwell on my mistakes, but try to learn from 
them and review them.  I got my bullish head handed to me on the 
most recent "pop" above the new MONTHLY Pivot on a 1/2 bullish 
long, and was stopped at $34.50 the very next day.

A couple of traders asked if Wednesday's volume spike of 155.07 
million shares was a "capitulation" climax of selling?

It might have been.  I'm VERY defensive in my trading when I try 
and pick a bottom with some longer-term call options, and on 
Tuesday, when JDS Uniphase (NSADAQ:JDSU) $3.45 +0.29% was falling 
to a 52-week low, out of admitted disgust, I profiled the 
writing/selling of the August $3.00 calls for $0.10 against the 
previously profiled December $3.00 calls.  This was the WORST 
trade I made this week and leaves a bit of a bad taste in my 
mouth after a rather good week for trade profiles.

I turned on the VOLUME indicator for the QQQ and crudely drew 
somewhat of a bowl shape where volume has been picking up a bit 
in the QQQ since about mid-June.  

I didn't catch the figures in time, but CNBC was quickly 
recapping some statistics from brokers regarding terrible trade 
volumes, investment banking deals, etc for recent months.  

Maybe we're starting to see some of the summer doldrums wearing 
off.  Our daily volume indications from both the NYSE and NASDAQ 
in our market snapshot have certainly been rebounding in recent 
weeks, when volume in June was often-times hard presses to reach 
much above 1.2 billion shares on the NYSE, and 1.5 billion at the 
NASDAQ.

Just for informational purposes, I averaged the daily volume for 
the NYSE in June, which approximates at 1.30 billion shares 
traded per day.  In July, volume averaged approximately 1.39 
billion shares, a 6.9% increase.

For the NASDAQ, June's average daily volume was 1.58 billion 
shares traded per day.  In July, average daily volume rose 8.2% 
to 1.71 billion shares traded.

Market Snapshot / Internals - 07/30/04 Close

 

I still sense, based on observation from the internals, that the 
bulk of buying being done this week (look at 5-day NH/NL ratios) 
is being done by bearish short covering.  Certainly you've got 
some bulls in here looking for a bottom.

NASDAQ's NH/NL indications have gotten pretty close to 0%, where 
late last week, and early this week, we were seeing new lows 
around the 200 level, where at best we saw 50 new highs and at 
worst, 15 new highs.  As we get closer to 0% (as low as ratio can 
go) it's the NASDAQ NH/NL indications at both the 5-day and 10-
day that show signs of greater improvement.  

Remember a couple of week's ago, the NYSE NH/NL indications at 
higher levels were showing the improvement while NASDAQ's NH/NL 
indications were still headed south.  Then seemingly pulling the 
NYSE NH/NL indications back lower.

In retrospect, as can often-times be found, it was as if MARKET 
participants were spending more time a couple of weeks ago buying 
some NYSE listed stocks, while at the same time, still 
distributing/selling NASDAQ listed stocks.  

Then, as distribution continued in the NASDAQ, the buyers went 
away at the NYSE and the recent revisiting of May's lows in the 
major indices has been found.

For some real strength, or sign of renewed bullish leadership, I 
would really want to see BOTH the NYSE and NASDAQ NH/NL 
indications get in unison, and NOT just the 5-day NH/NL ratios 
turning up like they did this week, and NOT just the 5-day ratios 
above their 10-day NH/NL rations.

A BEAR that has been short, and holding some handsome profits is 
more likely to use 5-day reversal up, or crossovers, to help make 
a decision on whether to cover and lock in some gains or let 
things ride, but the more powerful and more lasting bullish moves 
have come when BOTH the NYSE and NASDAQ 10-day NH/NL ratios are 
in unison to the upside.  

When Dorsey/Wright and Associates made the analogy of "the 
generals are still fighting the battle, but the soldiers are 
leaving the field," I chuckle to myself a bit, with the recent 
action we saw when the NYSE NH/NL indications were showing 
improvement as the NASDAQ NH/NL indications really didn't show 
too much fight.

I can now only envision a Civil War type of battle field, on a 
hot summer's day.  The meadow, surrounded by trees is the battle 
field with blue and gray coats lurking in the surrounding woods 
on either side.

Like a swarm of bees, a small group of blue coats come out of the 
wood, a hoop'n and a hallering!  Then a much larger swarm of gray 
coats (bears at this point) appear from the other edge of the 
forest.

They charge each other and meet in the middle, then the smaller 
group of blue coats suddenly turns and runs (after doing what 
damage they could to the blue coats) back where they came from 
yelling, "run away, run away" leaving their general to do battle 
by himself.  The general either ends up meeting his maker, or 
turns and runs, yelling... "hey wait up for me!"  

These brief battles, where the blue coats (bulls) look to do 
battle, can be a trader's mentality at this point.  

Right now, the slower moving major market bullish % we update in 
the 09:00 Update has the bears winning the battle, so on a 
broader market basis (NYSE, COMPX, SPX, OEX, NDX, INDU) its the 
bulls strategy to try and take 10 troops against the bears 30 
troops.  If fortunate, the bulls lose just 1 soldier, while 
eliminating 3 or 4 of the bears.

This can be done should the 10 bullish troops strategize and pick 
out 3 or 4 of their opponents and gang up on them.  Slowly 
eliminating the number of bears.

This would be more analogous to individual stock trading, in 
stronger sectors and stocks within those sectors.

For the index trader the bulls are really waiting for sign that 
reinforcements have shown up, or enough bears have turned tail 
yelling... "run away, run away!"

Jeff Bailey


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

Looking at the Future

The Russell has performed admirably over the last week
with a rebound from 531 and the edge of disaster and 
back to its 551 close on Friday. This is a very strong
rebound. Unfortunately I do not think it will hold. 

Normally Aug/Sept/Oct are bearish months for the small
caps. Funds tend to favor large caps for the Q3 dip for
the extra liquidity. They tend to put aside cash and 
wait for the September/October dip then buy small caps.

With the rebound from the lows we are seeing a potential
setup for the coming dip. I think we will see a further
rise next week and then a decline to even lower lows
in the weeks ahead. Pure speculation on my part but
history tends to repeat. 

Because options are so expensive on the Russell-2000
we are going to look at options on the Ishares instead.
The Russell Ishares (IWN) is about 1/3 the value of
the Russell. Friday's close on the Russell was 551.29
and 164 on the IWN. 

The Russell has strong resistance at 563-565 which
corresponds to 166-167 on the IWN.  

The game plan will be to buy three contracts of the 
Sept IWN-$160 puts IWN-UL. Buy one at the open on 
Monday and one on a touch of $165 another at $166. 
(One contract at each level) It was $3.30 at Friday's
close with the IWN at $164. I would also recommend the
November $160 put IWN-WL in order to still have time 
premium left during any Sept/Oct dip. However the 
current premium is $6.10 and that is too expensive 
for many readers. It is the best risk by far. 

I am willing to suggest the play with a September put
because I expect the Olympics and Republican Convention
event risk to pressure the small caps. This could
provide added incentive to exit them early and not
wait for the rush. 

The target on the play is $155 and the May lows. The
low for last week was $159.10. Obviously if the target
is hit it would be a very profitable trade. 

Considering the potential for a terrorist event over
the next 45 days I think this is a very low risk trade.
Whether the event happens or not we could still see
the Russell sink on worry alone. 

BUY Sep $160 IWN Put IWN-UL (Closing price $3.30)
BUY Nov $160 IWN Put IWN-WL (Closing price $6.10)

The November put has the least risk. 

Stop loss = IWN $168
Profit target = IWN $155

Russell-2000 Chart

 
IWN - Ishares Chart

 


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

QQQ Update  $34.91

The game plan was to buy the Aug-$33 QQQ Put QAV-TG at the
open on Monday as terrorist insurance against an event
at the convention. The price at the open was 35/40 cents.
The instructions were to sell the put on Friday morning 
(20/25) once the convention was over and buy a Aug-$35 
Call QQQ-HI (55/60) at the open. This was planned to 
capitalize on any post convention rebound. 

Unfortunately the rebound started earlier than expected
and we paid more for the call than I wanted. We are down
15-20 cents on the put making our cost in the call 80
cents on a worst case basis. We have three weeks to run
before expiration and the QQQ closed at $34.91 on Friday.
Since the QQQ has already rebounded +1.20 off the lows
for the week I am not expecting much more of a run. QQQ
$35.50 will be our target exit point. 

The object of the game now is to get out with our costs
and commissions. The market did not cooperate with the
strategy but we have an excellent chance of getting out
alive with a minor profit.  

http://members.OptionInvestor.com/editorplays/edply_072504_1.asp

Microsoft Update  $28.49

Microsoft has found support at $28.30 but can't seem
to move higher and hold its gains. $28.80 has turned
it back twice this week. 

The game plan was to exit our put with a target of $27.
Let's change the exit to $27.50 and hope for a breakeven.
The put closed Friday at 15 cents. Our cost is 25 cents.


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

News Corp Update $33.90

Still not enough premium in the calls to justify the
risk in selling calls against our leaps. The Aug-$35
call is only 25x40 cents. Be patient our time will 
come. 

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

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

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


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

PVN Call Update $13.78

Nice rebound off the $13 low for the week. PVN bounced
off its 100dma and closed nearly $1 off its low for the
week. 

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


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

Here We Go Again
- J. Brown

Now that earnings season is beginning to subside the market is 
rightfully turning back to its old worries about oil, interest 
rates, jobs and the economy. Oil is a major issue. Now that crude 
is hitting new highs above $42 a barrel the impact could be felt 
throughout the entire economy.  Airliners and transports have to 
deal with higher fuel costs.  Many manufacturers use petroleum in 
their creation process.  Consumers will feel the pinch at the gas 
pump and that will affect retail sales across the board.  Oil 
could be the easy villain to point to for the recent 
disappointment in the GDP numbers.  

Economists were looking for 3.7% GDP growth in the second quarter 
but the economy only grew 3% after the June "slump".  Rising oil 
prices are a major factor.  One analyst suggested that the "risk" 
premium in oil has hit $15 a barrel as fears mount of a terrorist 
attack and/or a complete melt down with the Russian oil giant 
Yukos.  Thankfully we did see some positive economic numbers this 
past week.  The University of Michigan consumer sentiment numbers 
rose in July and the Chicago PMI index jumped strongly from 56.4% 
in June to 64.7% in July.  

The Federal Reserve will certainly be watching the PMI number and 
the boatload of economic reports that are due to come out this 
week.  Wall Street will once again focus on the interest rate 
issue as we approach the August 10th FOMC meeting.  However, 
before we can make it to August 10th we have to get past the 
upcoming July jobs number due out this Friday.  Estimates are for 
a gain of 230,000 jobs in July. The GDP slowdown and job growth 
are going to be major factors in the Fed's decision to hike rates 
and by how much.  

It's easy to wonder why the GDP number didn't come in stronger.  
Business has been brisk for corporate America.  Of the companies 
that have reported their Q2 earnings the average profit growth 
has been about 26%.  That's huge!  Yet businesses aren't spending 
money like they should be and many have been guiding lower for 
the third quarter, which really fuels investor fears over another 
economic slow down.  Of course this is nothing new.  Our market 
wrap column has been discussing the reality of an earnings slow 
down and tougher year-over-year comparisons for weeks.

August could be interesting.  Not only do we have another Fed 
meeting but the Olympics begin in Greece and here at home we'll 
be preparing for the Republican National Convention.  Both of the 
last two events are terrorist targets.  According to the Stock 
Trader's Almanac August is pretty tough on stocks too.  It's the 
worst month of the year for the Industrials and the S&P 500 over 
the last 15 years and the second worst month of the NASDAQ.  
Fortunately, election year Augusts tend to do a little bit 
better.  Bulls also have an oversold bounce currently underway so 
this August may turn out better than most if buyers can keep the 
bounce moving.  

Be careful and watch those stop losses.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8997
Current     : 10139

Moving Averages:
(Simple)

 10-dma: 10073
 50-dma: 10209
200-dma: 10226



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  960
Current     : 1101

Moving Averages:
(Simple)

 10-dma: 1096
 50-dma: 1112
200-dma: 1107



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1204
Current     : 1400

Moving Averages:
(Simple)

 10-dma: 1393
 50-dma: 1432
200-dma: 1447



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

CBOE Market Volatility Index (VIX) = 15.32 –0.36
CBOE Mkt Volatility old VIX  (VXO) = 15.40 –0.06
Nasdaq Volatility Index (VXN)      = 23.31 –0.68


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63        544,250       344,652
Equity Only    0.53        464,179       247,812
OEX            0.71         18,325        13,090
QQQ            1.37         28,978        39,682


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

Bullish Percent Data

           Current   Change   Status
NYSE          59.9    + 0     Bear Confirmed
NASDAQ-100    33.0    + 0     Bear Confirmed
Dow Indust.   53.3    + 0     Bear Confirmed
S&P 500       54.0    + 0     Bear Confirmed
S&P 100       55.0    + 0     Bear Confirmed



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

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


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

 5-dma: 0.96
10-dma: 1.07
21-dma: 1.44
55-dma: 1.17


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    1640      1742
Decliners    1134      1276

New Highs      62        54
New Lows       36        62

Up Volume    861M      993M
Down Vol.    664M      491M

Total Vol.  1554M     1496M
M = millions


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

Commitments Of Traders Report: 07/27/04

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

Commercials are turning a bit more bearish with a decrease in
long positions and a small increase in shorts.  Small traders
are naturally turning a bit more bullish with a decrease in
shorts.


Commercials   Long      Short      Net     % Of OI
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%)
07/27/04      397,354   422,914   (25,560)   (3.1%)

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
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%
07/27/04      135,136    90,433    44,703    19.8%

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


E-MINI S&P 500

Commercial traders have decreased their bearishness by 
upping their long contacts by about 20K.  Small traders 
are hedging their bets a bit by reducing their bullish
positions.


Commercials   Long      Short      Net     % Of OI 
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%)
07/27/04      337,615   429,477   ( 91,862)  (12.0%)

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
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%
07/27/04      186,211     68,930   117,281    46.0%

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


NASDAQ-100

Commercial traders are still hovering around the same level
of cautious bullishness for the last three weeks.  Small
traders have moved from bearish to less bearish to neutral
in the last three weeks (thus a bullish progression in
sentiment).


Commercials   Long      Short      Net     % of OI 
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%
07/27/04       43,042     35,935     7,107    9.0%

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
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%)
07/27/04       14,543    14,518        25     0.0%

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

The bullish sentiment from the commercial traders dipped
a tad this past week with an increase in their short positions.
Meanwhile small traders have significantly adjusted their
positions to be less bearish.


Commercials   Long      Short      Net     % of OI
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%
07/27/04       27,577    21,427    6,150      12.5%

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
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%)
07/27/04        5,310     6,099   (  789)   ( 6.9%)

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

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


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

The Ask-the-Analyst column by Jeff Bailey will return next week.


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

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

Symbol  Co               Date           Comment      EPS Est

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

ABN    ABN Amro Hldgs      Mon, Aug 2  Before the Bell        N/A
AMT    American Tower Corp Mon, Aug 2  Before the Bell      -0.16
ARI    Arden Realty Inc    Mon, Aug 2  After the Bell        0.63
BBD    Banco Bradesco S.A. Mon, Aug 2  -----N/A-----          N/A
SAN    Banc SantanderChile Mon, Aug 2  -----N/A-----         0.53
CUZ    Cousins Props Inc   Mon, Aug 2  After the Bell        0.55
ETR    Entergy             Mon, Aug 2  Before the Bell       1.14
FHCC   First Health Grp    Mon, Aug 2  Before the Bell       0.32
GTM    GULFTERRA ENERGY    Mon, Aug 2  Before the Bell       0.51
HMY    Harmony Gold Mining Mon, Aug 2  Before the Bell      -0.03
HBC    HSBC Hldgs plc      Mon, Aug 2  Before the Bell        N/A
MVSN   Macrovision         Mon, Aug 2  After the Bell        0.18
MNT    Mentor              Mon, Aug 2  After the Bell        0.34
MCY    Mercury General     Mon, Aug 2  -----N/A-----         1.02
NNDS   NDS Grp PLC         Mon, Aug 2  Before the Bell       0.19
NKTR   NEKTAR THERAPEUTICS Mon, Aug 2  -----N/A-----        -0.29
NTES   Netease.com Inc     Mon, Aug 2  After the Bell        0.40
OKE    ONEOK Inc.          Mon, Aug 2  After the Bell        0.16
PHRM   Pharmion Corp       Mon, Aug 2  After the Bell       -0.55
PXD    Pioneer Nat Res     Mon, Aug 2  Before the Bell       0.72
PPS    Post Props, Inc     Mon, Aug 2  After the Bell        0.39
PG     Procter & Gamble Co Mon, Aug 2  Before the Bell       0.48
QGENF  Qiagen N.V.         Mon, Aug 2  After the Bell        0.08
RJR    R.J. Rynlds Tbcco   Mon, Aug 2  Before the Bell       1.24
SUG    Southern Union Co   Mon, Aug 2  Before the Bell       0.04
SPW    SPX                 Mon, Aug 2  Before the Bell       0.71
SRX    SRA Intl, Inc.      Mon, Aug 2  After the Bell        0.39
STO    Statoil ASA         Mon, Aug 2  Before the Bell        N/A
TLTOB  Tele2 AB            Mon, Aug 2  Before the Bell        N/A
TPP    Teppco              Mon, Aug 2  After the Bell        0.39
PFG    The Principal Finl  Mon, Aug 2  After the Bell        0.58
TP     TPG NV              Mon, Aug 2  Before the Bell       0.43
UCL    Unocal              Mon, Aug 2  After the Bell        0.83
WGL    WGL Hldgs           Mon, Aug 2  Before the Bell      -0.16


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

ASX    Adv Semicon Eng     Tue, Aug 3  -----N/A-----         0.09
AAA    Altana AG           Tue, Aug 3  Before the Bell        N/A
ACAS   Am Capital Strategy Tue, Aug 3  -----N/A-----         0.67
AMH    AmerUs Grp Co.      Tue, Aug 3  After the Bell        1.00
AHL    Aspen Ins Hldgs Ltd Tue, Aug 3  After the Bell        0.79
AGO    Assured Guaranty    Tue, Aug 3  After the Bell        0.44
ITU    Banco Itau Hldg Fin Tue, Aug 3  -----N/A-----          N/A
BOX    BOC Grp PLC         Tue, Aug 3  -----N/A-----         0.60
FUN    Cedar Fair LP       Tue, Aug 3  -----N/A-----         0.36
CEPH   Cephalon, Inc.      Tue, Aug 3  After the Bell        0.39
CKFR   CheckFree           Tue, Aug 3  After the Bell        0.29
CZN    Citizens Comm Co.   Tue, Aug 3  Before the Bell       0.11
COH    Coach, Inc.         Tue, Aug 3  Before the Bell       0.31
CEI    Crescent Rl Est Eq  Tue, Aug 3  Before the Bell       0.27
CMLS   Cumulus Media Inc.  Tue, Aug 3  Before the Bell       0.17
DVA    DaVita              Tue, Aug 3  Before the Bell       0.51
DTC    Domtar Inc.         Tue, Aug 3  Before the Bell        N/A
EDMC   Education Mgmt Corp Tue, Aug 3  After the Bell        0.18
EMR    Emerson Electric    Tue, Aug 3  Before the Bell       0.75
ETM    Entercom Comm       Tue, Aug 3  Before the Bell       0.45
EOG    EOG Resources, Inc. Tue, Aug 3  -----N/A-----         1.00
EPC    Epcos               Tue, Aug 3  -----N/A-----          N/A
EOP    Eq Office Prps TrustTue, Aug 3  Before the Bell       0.65
EQR    Equity Residential  Tue, Aug 3  Before the Bell       0.53
FTI    Fmc Tech, Inc.      Tue, Aug 3  Before the Bell       0.30
FBR    Friedman Bill RamseyTue, Aug 3  After the Bell        0.57
GGB    Gerdau S.A.         Tue, Aug 3  -----N/A-----         0.36
GLG    Glamis Gold Ltd     Tue, Aug 3  Before the Bell       0.04
HCC    HCC Ins Hldgs       Tue, Aug 3  After the Bell        0.68
HNT    Health Net, Inc.    Tue, Aug 3  Before the Bell       0.50
HTG    Hrtge Prop Inv Trst Tue, Aug 3  After the Bell        0.67
IMDC   INAMED              Tue, Aug 3  After the Bell        0.52
IACI   InterActiveCorp     Tue, Aug 3  After the Bell        0.21
IPR    Intl Power          Tue, Aug 3  -----N/A-----          N/A
KZL    Kerzner Intl Ltd    Tue, Aug 3  -----N/A-----         0.89
KCI    KINETIC CONCEPTS INCTue, Aug 3  Before the Bell       0.36
LAF    Lafarge North Am    Tue, Aug 3  After the Bell        1.15
MPG    Maguire Props, Inc. Tue, Aug 3  After the Bell        0.46
MLM    Martin Marietta Mat Tue, Aug 3  Before the Bell       0.92
MDP    Meredith Corp       Tue, Aug 3  Before the Bell       0.72
MICC   Millicom Intl Cell  Tue, Aug 3  -----N/A-----         0.27
MLS    Mills Corp          Tue, Aug 3  Before the Bell       0.90
NFP    Natl Finl Partners  Tue, Aug 3  After the Bell        0.48
OCAS   Ohio Casualty       Tue, Aug 3  After the Bell        0.33
PDX    Pediatrix Med Grp   Tue, Aug 3  Before the Bell       0.99
PFGC   PERFORMANCE FOOD GRPTue, Aug 3  Before the Bell       0.38
PER    Perot Systems       Tue, Aug 3  Before the Bell       0.15
PCG    PG&E Corp           Tue, Aug 3  Before the Bell       0.53
PL     Protective Life CorpTue, Aug 3  -----N/A-----         0.77
PDLI   Protein Design      Tue, Aug 3  After the Bell       -0.12
PRU    Prudential Finl, IncTue, Aug 3  After the Bell        0.78
KWK    Quicksilver Res     Tue, Aug 3  After the Bell        0.16
Q      Qwest Comm          Tue, Aug 3  Before the Bell      -0.13
RYAAY  Ryanair Hldgs       Tue, Aug 3  -----N/A-----         0.37
SILI   Siliconix           Tue, Aug 3  Before the Bell       0.55
THC    Tenet Healthcare    Tue, Aug 3  Before the Bell      -0.01
TEVA   Teva Pharmaceutical Tue, Aug 3  Before the Bell       0.32
TM     Toyota Motor Corp   Tue, Aug 3  -----N/A-----         1.56
TYC    Tyco Intl           Tue, Aug 3  Before the Bell       0.41
WPI    Watson Pharm, Inc.  Tue, Aug 3  Before the Bell       0.41


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

AEM    Agnico-Eagle Mines  Wed, Aug 4  After the Bell       0.11
AOC    Aon Corp            Wed, Aug 4  After the Bell       0.52
AIV    Apartment Inv & MgmtWed, Aug 4  Before the Bell      0.64
WTR    Aqua America        Wed, Aug 4  Before the Bell      0.19
AXS    Axis Capital Hldgs  Wed, Aug 4  After the Bell       0.86
BF     BASF                Wed, Aug 4  -----N/A-----         N/A
BCE    BCE                 Wed, Aug 4  Before the Bell       N/A
BVF    Biovail Corp        Wed, Aug 4  Before the Bell      0.24
BSG    BISYS GRP INC       Wed, Aug 4  Before the Bell      0.17
BSY    British Sky Brdcst  Wed, Aug 4  -----N/A-----         N/A
CDIS   Cal Dive Intl       Wed, Aug 4  After the Bell       0.37
CNQ    Canadian Natural ResWed, Aug 4  -----N/A-----        0.97
CI     CIGNA               Wed, Aug 4  Before the Bell      1.25
XEC    Cimarex Energy Co.  Wed, Aug 4  -----N/A-----        0.76
CNO    CONSECO INC         Wed, Aug 4  After the Bell       0.37
CXR    COX RADIO INC       Wed, Aug 4  Before the Bell      0.20
CSR    Credit Suisse Grp   Wed, Aug 4  Before the Bell       N/A
CVS    CVS Corp            Wed, Aug 4  Before the Bell      0.54
FST    Forest Oil Corp     Wed, Aug 4  After the Bell       0.51
FMS    Fresenius Med Care  Wed, Aug 4  -----N/A-----         N/A
GPK    GRAPHIC PACKAGING   Wed, Aug 4  -----N/A-----         N/A
HIG    Hartford Finl Serv  Wed, Aug 4  After the Bell       1.57
HIW    Highwoods Props     Wed, Aug 4  After the Bell       0.55
ICOS   ICOS Corp           Wed, Aug 4  -----N/A-----       -0.98
ICST   Intgrtd Crct Sys    Wed, Aug 4  Before the Bell      0.26
JBX    Jack in the Box     Wed, Aug 4  -----N/A-----        0.54
KYPH   Kyphon, Inc.        Wed, Aug 4  After the Bell       0.08
NFS    Ntnwd Finl Services Wed, Aug 4  After the Bell       0.80
NCRX   NeighborCare, Inc.  Wed, Aug 4  After the Bell       0.24
NTLI   NTL INC             Wed, Aug 4  -----N/A-----       -2.57
OGE    OGE Energy          Wed, Aug 4  Before the Bell      0.43
PAA    Plains All Am Ppln  Wed, Aug 4  Before the Bell      0.55
PTP    Plat Undrwrtrs HldgsWed, Aug 4  After the Bell       0.84
RL     Polo Ralph Lauren   Wed, Aug 4  Before the Bell      0.11
RA     Reckson Ass Realty  Wed, Aug 4  After the Bell       0.54
RRI    Reliant Energy      Wed, Aug 4  -----N/A-----       -0.02
RRD    RR Donnelley        Wed, Aug 4  After the Bell       0.30
SPIL   SILICONWARE PRCISIONWed, Aug 4  -----N/A-----        0.10
TRK    Speedway MotorsportsWed, Aug 4  Before the Bell      0.91
SWC    Stillwater Mining CoWed, Aug 4  Before the Bell      0.13
TSO    Tesoro Petroleum    Wed, Aug 4  Before the Bell      2.56
BCO    The Brink's Co      Wed, Aug 4  Before the Bell      0.33
TOM    Tommy Hilfiger      Wed, Aug 4  -----N/A-----       -0.10
UVN    Univision Comm      Wed, Aug 4  After the Bell       0.19
UNM    UnumProvident Corp  Wed, Aug 4  After the Bell       0.39
WR     Westar Energy, Inc. Wed, Aug 4  Before the Bell      0.33
WWCA   Western Wireless    Wed, Aug 4  After the Bell       0.37


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

AL     Alcan Inc.          Thu, Aug 5  -----N/A-----         0.66
ATK    Alliant Techsystems Thu, Aug 5  Before the Bell       0.72
AMLN   Amylin Pharm        Thu, Aug 5  Before the Bell      -0.40
AAUK   Anglo American Plc  Thu, Aug 5  -----N/A-----          N/A
AIZ    ASSURANT INC        Thu, Aug 5  Before the Bell       0.63
BCS    Barclays Bank PLC   Thu, Aug 5  -----N/A-----          N/A
BRL    Barr PharmaceuticalsThu, Aug 5  Before the Bell       0.57
BE     BearingPoint, Inc.  Thu, Aug 5  Before the Bell       0.08
BIO    Bio-Rad LaboratoriesThu, Aug 5  After the Bell        0.80
BNN    BRASCAN CORP        Thu, Aug 5  Before the Bell       0.50
BGG    Briggs & Stratton   Thu, Aug 5  Before the Bell       1.53
CPN    Calpine Corp        Thu, Aug 5  Before the Bell      -0.10
CPT    Camden Prop Trust   Thu, Aug 5  After the Bell        0.79
CHC    CharterMac          Thu, Aug 5  Before the Bell       0.63
CDL    CITADEL BRDCST CORP Thu, Aug 5  -----N/A-----         0.04
CLX    Clorox              Thu, Aug 5  Before the Bell       0.83
CMS    CMS Energy Corp.    Thu, Aug 5  Before the Bell       0.07
CXW    Corrections Corp. AmThu, Aug 5  Before the Bell       0.37
DEG    Delhaize Grp        Thu, Aug 5  Before the Bell        N/A
DVN    Devon Energy Corp   Thu, Aug 5  Before the Bell       2.02
GMST   Gmstr-TV Guide Intl Thu, Aug 5  After the Bell       -0.02
GPRO   Gen-Probe           Thu, Aug 5  After the Bell        0.19
GT     Goodyear Tire RubberThu, Aug 5  Before the Bell       0.08
THX    Houston Exploration Thu, Aug 5  -----N/A-----         1.51
IDA    Idacorp Hldg        Thu, Aug 5  Before the Bell       0.25
IST    Ispat Intl          Thu, Aug 5  -----N/A-----          N/A
KPP    Kaneb Pipe Line PartThu, Aug 5  Before the Bell       0.71
KSE    KeySpan             Thu, Aug 5  Before the Bell       0.19
KG     King PharmaceuticalsThu, Aug 5  Before the Bell       0.23
KOSP   Kos Pharmaceuticals Thu, Aug 5  Before the Bell       0.54
LAMR   LAMAR ADVERTISING COThu, Aug 5  Before the Bell       0.10
LFL    LAN Chile           Thu, Aug 5  -----N/A-----         0.24
MAC    Macerich Co         Thu, Aug 5  Before the Bell       0.89
CLI    Mack-Cali Realty    Thu, Aug 5  Before the Bell       0.87
MGA    Magna Intl Inc.     Thu, Aug 5  -----N/A-----         1.95
MFC    Manulife Finl Corp  Thu, Aug 5  After the Bell        0.54
NRG    NRG Energy          Thu, Aug 5  -----N/A-----          N/A
NVDA   NVIDIA Corp         Thu, Aug 5  -----N/A-----         0.15
OHP    Oxford Health Plans Thu, Aug 5  Before the Bell       0.96
PNRA   Panera Bread        Thu, Aug 5  -----N/A-----         0.21
PEI    Penn Rl Est Inv TrstThu, Aug 5  Before the Bell       0.85
PIXR   Pixar Anim Studios  Thu, Aug 5  After the Bell        0.37
PXP    Plains Explor Prod  Thu, Aug 5  Before the Bell       0.42
PDE    Pride Intl Inc.     Thu, Aug 5  After the Bell        0.05
PSA    Public Storage      Thu, Aug 5  -----N/A-----         0.76
PSD    Puget Energy        Thu, Aug 5  After the Bell        0.13
RWT    Redwood Trust, Inc. Thu, Aug 5  -----N/A-----          N/A
RUK    Reed Elsevier NV/PlcThu, Aug 5  -----N/A-----          N/A
RMD    ResMed Inc.         Thu, Aug 5  After the Bell        0.46
RBA    Ritchie Bros AuctionThu, Aug 5  Before the Bell       0.41
SLE    Sara Lee            Thu, Aug 5  Before the Bell       0.43
SRE    Sempra Energy       Thu, Aug 5  -----N/A-----         0.65
SNN    Smith & Nephew      Thu, Aug 5  Before the Bell       0.49
STRA   Strayer Education   Thu, Aug 5  Before the Bell       0.73
TLD    TDC A/S             Thu, Aug 5  -----N/A-----          N/A
NZT    Telecom Corp Nw ZlndThu, Aug 5  -----N/A-----          N/A
TS     TENARIS S A         Thu, Aug 5  -----N/A-----         0.60
DTV    The DIRECTV Grp     Thu, Aug 5  -----N/A-----         0.06
IPG    Intrpblc Grp Co     Thu, Aug 5  Before the Bell       0.09
PMI    The PMI Grp, Inc.   Thu, Aug 5  -----N/A-----         0.94
SVM    The ServiceMaster CoThu, Aug 5  Before the Bell       0.24
TOT    Total               Thu, Aug 5  Before the Bell       2.22
TRZ    Trizec Props, Inc.  Thu, Aug 5  Before the Bell      -0.59
UVV    Universal Corp      Thu, Aug 5  After the Bell         N/A
VRX    Valeant Pharm Intl  Thu, Aug 5  Before the Bell      -0.01
VPI    Vintage Petroleum   Thu, Aug 5  -----N/A-----         0.51
HLTH   WebMD               Thu, Aug 5  After the Bell        0.10
WGR    Western Gas Res     Thu, Aug 5  Before the Bell       0.38
WMB    Williams Co Inc.    Thu, Aug 5  Before the Bell       0.07
WEC    Wis Energy Corp     Thu, Aug 5  Before the Bell       0.26
XMSR   XM Satellite Radio  Thu, Aug 5  Before the Bell      -0.88


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

ASN    Archstone-Smith TrstFri, Aug 6  Before the Bell       0.45
AXA    AXA                 Fri, Aug 6  -----N/A-----          N/A
EAGL   EGL                 Fri, Aug 6  Before the Bell       0.25
ERF    Enerplus Res Fund   Fri, Aug 6  Before the Bell        N/A
HME    Home Props, Inc.    Fri, Aug 6  Before the Bell       0.75
KUB    Kubota Ltd          Fri, Aug 6  -----N/A-----          N/A
MXIM   Maxim Intgrtd Prod  Fri, Aug 6  After the Bell        0.36
POM    Pepco Hldgs, Inc.   Fri, Aug 6  -----N/A-----         0.28
TU     TELUS               Fri, Aug 6  -----N/A-----          N/A
TGN    Texas Genco Hldgs   Fri, Aug 6  Before the Bell        N/A


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

Symbol  Co Name              Ratio    Payable     Executable

VAR     Varian Medical Systems Inc2:1      Jul  30th   Aug   2nd
GTK     GTECH Holdings Corp       2:1      Jul  30th   Aug   2nd
CAPX    Capital Crossing Bank     2:1      Aug   9th   Aug  10th
QCOM    Qualcomm Inc              2:1      Aug  13th   Aug  16th


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

Wall Street is still wading through a wave of Q2 earnings but
the stream of economic data coming out this week is likely to
take center stage.  The ISM index is on Monday.  Factory orders
and ISM Services come out on Wednesday just to name a few.

==============================================================
                       -For-           
----------------
Monday, 08/02/04
----------------
Auto Sales (NA)            Jul  Forecast:    5.6M  Previous:     4.9M
Truck Sales (NA)           Jul  Forecast:    7.6M  Previous:     7.1M
Construction Spending (DM) Jun  Forecast:   -0.1%  Previous:     0.3%
ISM Index (DM)             Jul  Forecast:    62.0  Previous:     61.1


-----------------
Tuesday, 08/03/04
-----------------
Personal Income (BB)       Jun  Forecast:    0.3%  Previous:     0.6%
Personal Spending (BB)     Jun  Forecast:    0.0%  Previous:     1.0%


-------------------
Wednesday, 08/04/04
-------------------
Factory Orders (DM)        Jun  Forecast:    0.6%  Previous:    -0.3%
ISM Services (DM)          Jul  Forecast:    61.5  Previous:     59.9
Crude oil and Gasoline inventories

------------------
Thursday, 08/05/04
------------------
Initial Claims (BB)      07/30  Forecast:     N/A  Previous:     345K
Natural Gas inventories

----------------
Friday, 08/06/04
----------------
Nonfarm Payrolls (BB)      Jul  Forecast:    233K  Previous:     112K
Unemployment Rate (BB)     Jul  Forecast:    5.6%  Previous:     5.6%
Hourly Earnings (BB)       Jul  Forecast:    0.3%  Previous:     0.1%
Average Workweek (BB)      Jul  Forecast:    33.8  Previous:     33.6
Consumer Credit (DM)       Jun  Forecast:   $4.0B  Previous:    $8.2B


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


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Contact Support
The Option Investor Newsletter                   Sunday 08-01-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Possible Trading Candidates
Dropped Calls: None
Dropped Puts: STJ


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

Possible Trading 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.
___________________________________________________________________


Chicago Mercantile Exchg - close: 125.50 change: -0.95

WHAT TO WATCH: CME has produced an impressive rebound from its
simple 100-dma with a string of higher lows.  The area to watch
is resistance at the $127.50 level, which has held the stock back
for two weeks.  Aggressive traders could go long over $127.50
while more conservative types could wait for a breakout above its
21, 40 and 50-dma's near the $130 mark.  In spite of the massive
drop CME's P&F chart is still bullish and points to a $180 price
target.

Chart=


---

Strayer Education - STRA - close: 97.42 change: -3.17

WHAT TO WATCH: It's time to pay attention if you're a quick and
nimble trader.  STRA looks extremely bearish and the recent
breakdown under $105 and the $100 levels has the stock pointed
toward the $90 level or worse.  Actually the whole sector looks
bad (think CECO, COCO, EDMC, APOL and UOPX).  The only thing
stopping us from adding it to the play list as a put is the
earnings report, which is due out the morning of August 5th.

Chart=


---

Moody's Corp - MCO - close: 68.10 change: +2.41

WHAT TO WATCH: The 3.66% rally on Friday has us a bit perplexed
because we can't find the catalyst.  Earnings were on Wednesday.
Granted the earnings were strong and MCO beat estimates by 5
cents but then why didn't the stock rally on Thursday?  Adding to
the mystery was volume on Friday's rally, which was more than
double the average volume.  The breakout from its two-month
trading range is very tempting and aggressive traders may want to
nibble at it but MCO still has resistance in the $70-71 range.

Chart=


---

Zebra Technologies - ZBRA - close: 82.63 change: +1.96

WHAT TO WATCH: We mentioned ZBRA might be a bullish candidate
again in the MarketMonitor on Friday.  Shares bounced sharply
from support at $75.00 (and its simple 100-dma).  Earnings are
now out of the way and the company beat estimates by 2 cents.
Short-term technicals are bullish and its MACD is nearing a new
"buy" signal.  Friday's breakout over its 10, 21, 40 and 50-dma's
looks like a buy signal for a run toward the $90 level.  Don't
forget ZBRA splits 3-for-2 on August 26th.

Chart=



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

XOM $46.30 +0.27 - With oil at new highs we continue to like the
bullish trend in ExxonMobil.  We would consider it a decent
covered call candidate.

BR $38.17 +0.36 - BR is another oil/gas stock that is nearing new
highs and looks like a covered call candidate.

APC $59.79 +0.64 - Yet another oil/gas play that is bouncing
higher and nearing new highs.


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

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


CALLS
^^^^^

None


PUTS
^^^^

St. Jude Medical - STJ - close: 68.13 chg: +1.11 stop: 68.50

Uh-oh!  It's time to exit.  STJ has shown a bit too much strength
and managed to breakout over resistance at $68.00 and its simple
10-dma.  Short-term technicals are turning upward as well.  We're
going to exit here to keep our losses at a minimum.  Traders can
keep STJ on their watch list for a rebound and a failed rally
under the $70 level, which should remain tough resistance.

Picked on July 25 at $ 66.75
Change since picked:  + 1.38
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    1.2 million
Chart =



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


OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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

Please read our disclaimer at:
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The Option Investor Newsletter                   Sunday 08-01-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: ADSK, ETN, FDX, IR, HUG, SYMC, TXT
New Calls: CCMP, IMO
Current Put Plays: CEPH, DISH, MGA
New Puts: None


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

Autodesk - ADSK - close: 40.14 change: +0.39 stop: 36.99

Company Description:
Autodesk is the world's leading design software and digital
content company, offering customers progressive business
solutions through powerful technology products and services.
Autodesk helps customers in the building, manufacturing,
infrastructure, digital media, and wireless data services fields
increase the value of their digital design data and improve
efficiencies across their entire project lifecycle management
processes. (source: company press release)

Why We Like It: (Original Play from Thursday)
The rebound in technology and the GSO software index looks
tempting especially now with the GSO producing a new buy signal
on its MACD indicator.  One way to play the rebound in software
is ADSK.  The stock has weathered the storm in July much better
than many of its peers. ADSK still maintains a bullish rising
channel and its MACD is about to produce a new buy signal as
well.  A few days ago Piper Jaffray issued some comments on how
ADSK channel checks were doing better than expected and that
bodes well for its earnings date in late August.

We want to play ADSK with a TRIGGER to go long at 40.05.  If we
are triggered we'll start the play with a stop loss at $36.99 and
a short-term upside target at $45.00.

Weekend Update:
We didn't have to wait long for ADSK to trade through our TRIGGER
to go long at $40.05.  The stock shot higher on Friday and broke
through round-number, psychological and historical resistance at
$40.00 to hit $40.90 before slipping lower ahead of the weekend.
The dip back to $40 can be seen as an entry point for new bullish
positions.

Suggested Options:
Traders can choose from the August or September calls.  The
August $40 are our favorite.

BUY CALL AUG 35 ADQ-HG OI= 317 Current Ask $5.80
BUY CALL AUG 40 ADQ-HH OI=2367 Current Ask $1.95
BUY CALL AUG 45 ADQ-HI OI= 881 Current Ask $0.40
BUY CALL SEP 40 ADQ-IH OI= 347 Current Ask $2.70
BUY CALL SEP 45 ADQ-II OI=  32 Current Ask $0.85

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.



Picked on July 30 at $ 40.05
Change since picked:  + 0.09
Earnings Date       08/19/04 (unconfirmed)
Average Daily Volume:    2.1 million
Chart =


---

Eaton Corp - ETN - close: 64.58 change: -0.39 stop: 61.99

Company Description:
Eaton Corporation is a diversified industrial manufacturer with
2003 sales of $8.1 billion. Eaton is a global leader in fluid
power systems and services for industrial, mobile and aircraft
equipment; electrical systems and components for power quality,
distribution and control; automotive engine air management
systems, powertrain solutions and specialty controls for
performance, fuel economy and safety; and intelligent truck
drivetrain systems for safety and fuel economy. Eaton has 55,000
employees and sells products to customers in more than 100
countries. (source: company press release)

Why We Like It: (Original Play from Thursday)
We're adding ETN as a technical breakout/relative strength play.
Fortunately, earnings were pretty good to back up the stock
price.  The company reported back on July 15th and beat Wall
Street estimates by 4 cents per share.  ETN also beat the revenue
estimates.  Furthermore they issued positive upside guidance for
the third quarter above analysts' estimates.  Unfortunately, the
market was dropping during their earnings report and the stock
was unable to benefit from the positive news.  Today shares
managed to breakout (intraday) over round-number, psychological
resistance at the $65 mark on volume 50% above normal.  Its
short-term technicals are positive and its MACD indicator has
produced a new buy signal.  We also like the triple-top breakout
buy signal on its P&F chart with a $86 price target.  We're only
going to target a quick move to the $70 region and then re-
evaluate our exit as ETN approaches.  We'll start the play with a
stop loss at $61.99, under the simple 40-dma.

Weekend Update:
ETN continues to consolidate under resistance at the $65 level.
Fortunately buyers were there to buy the dip toward $64 and ETN
was trading higher toward the close of the day.  We would expect
ETN to breakout very soon.  More conservative traders can wait
for the move over $65 before initiating positions.

Suggested Options:
Short-term traders can choose from the August or September calls.
We like the August 65s as the Septembers look pretty new and
don't have much open interest.

BUY CALL AUG 60 ETN-HL OI= 107 Current Ask $4.90
BUY CALL AUG 65 ETN-HM OI=1296 Current Ask $1.35
BUY CALL AUG 70 ETN-HN OI=  50 Current Ask $0.25
BUY CALL SEP 65 ETN-IM OI=  93 Current Ask $2.40
BUY CALL SEP 70 ETN-IN OI=   0 Current Ask $0.65

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.



Picked on July 29 at $ 64.98
Change since picked:  - 0.39
Earnings Date       07/15/04 (confirmed)
Average Daily Volume:    925 thousand
Chart =


---

Fedex Corp - FDX - close: 81.87 change: -0.04 stop: 79.00

Company Description:
FedEx Corp. provides customers and businesses worldwide with the
broadest portfolio of transportation, e-commerce and business
services. With annual revenues of $25 billion, the company offers
integrated business applications through operating companies
competing collectively and managed collaboratively, under the
respected FedEx and Kinko's brands. Consistently ranked among the
world's most admired and trusted employers, FedEx inspires its
more than 240,000 employees and contractors to remain
"absolutely, positively" focused on safety, the highest ethical
and professional standards and the needs of their customers and
communities.(source: company press release)

Why We Like It:
The Dow Transportation index produced a decent bounce this week
in spite of crude oil hitting new highs over $42 a barrel.  The
bounce in FDX was not quite as impressive but then FDX held up
better during the down turn.  We are encouraged by the rebound
from the $80 level and continue to suggest new bullish positions
on a move past the $82.00 mark.  In the news FDX has announced
plans to add 18 new weekly flights to China including six new
destinations.

Suggested Options:
We like the August and September calls.  The $80 strike looks
good.  Remember, this is not a bullish environment.  Wait for
a bounce back above $82.00.

BUY CALL AUG 80 FDX-HP OI=1858 Current Ask $2.95
BUY CALL AUG 85 FDX-HQ OI=5113 Current Ask $0.60
BUY CALL SEP 80 FDX-IP OI= 181 Current Ask $3.80
BUY CALL SEP 85 FDX-IQ OI= 213 Current Ask $0.40

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.




Picked on July 20 at $ 82.81
Change since picked:  - 0.93
Earnings Date       06/23/04 (confirmed)
Average Daily Volume:    1.1 million
Chart =


---

Ingersoll-Rand - IR - close: 68.81 chg: -0.72 stop: 66.99

Company Description:
IR is a leading innovation and solutions provider for the major
global markets of Security and Safety, Climate Control,
Industrial Solutions and Infrastructure. The company's diverse
product portfolio encompasses such leading industrial and
commercial brands as Schlage locks and security solutions; Thermo
King transport temperature control equipment; Hussmann commercial
and retail refrigeration equipment; Bobcat compact equipment;
Club Car golf cars and utility vehicles; and Ingersoll-Rand
industrial and construction equipment. In addition, IR offers
products and services under many more premium brands for
customers in industrial and commercial markets.
(source: company press release)

Why We Like It: (Original Play from Thursday)
Now that the industrials are starting to produce an oversold
bounce we want to capture the move by playing a stock that's been
showing relative strength.  Unlike most stocks shares of IR are
trading with a gain for the month of July.  This could be due to
the company's earnings report on July 22nd.  IR beat analysts
estimates by 12 cents and turned in better than expected
revenues.  Furthermore IR's management guided higher for the
third quarter above analysts' estimates.  From the sounds of it
IR's management is pretty upbeat.  Here's an excerpt from their
press release:

  "Activity in most of IR's major end markets continued to
  improve during the second quarter of 2004," said Henkel.
  "Second-quarter orders for the total company increased by
  approximately 16% compared to last year's activity. From our
  recent order pattern, we see a continuing recovery in most
  North American and European markets and continuing growth in
  Asia."

  "As we enter the second half of the year, we are positioned to
  generate dramatic growth and greater returns for our
  shareholders. Through our innovations we are driving dramatic
  growth and capturing market share. Our continuous improvement
  initiatives enhance operating efficiencies, facilitating a more
  profitable business. In addition, our businesses are
  increasingly operating as an integrated unit, generating
  powerful synergies from our collective talent, resources and
  brands."

We really like IR's point-and-figure chart, which is showing a
strong rebound from its P&F support.  Currently the P&F chart
also shows a recently minted buy signal with an $80 target.  We
are going to suggest readers use a TRIGGER at $70.01 to enter
this play.  Our target will be the $76-77.50 range.  We'll start
with a stop loss at $66.99.

Weekend Update:
Shares of IR saw a little profit taking on Friday as the stock
continues to consolidate under resistance at $70.  We remain un-
triggered and wait for IR to breakout and hit our entry point at
$70.01.  Until then we'll sit on the sidelines.

Suggested Options:
Short-term traders can choose from the August or September calls.
The August 65s and 70s looks good but we like the September 70s
and 75s if you're a bit more aggressive.

BUY CALL AUG 65 IR-HM OI=3052 Current Ask $4.40
BUY CALL AUG 70 IR-HN OI=1122 Current Ask $1.20
BUY CALL SEP 70 IR-IN OI=2074 Current Ask $2.10
BUY CALL SEP 75 IR-IO OI= 565 Current Ask $0.65

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.



Picked on July 29 at $ xx.xx <-- see TRIGGER
Change since picked:  + 0.00
Earnings Date       07/22/04 (confirmed)
Average Daily Volume:    1.3 million
Chart =


---

Hughes Supply - HUG - close: 60.99 change: +0.20 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:
We don't have much new to report on for HUG.  The stock continues
to show strength and drift higher.  Unlike most of the market HUG
is actually positive for the month of July.  We would expect the
prevailing trend to continue and see the push past the $60.50
level as an entry point for new bullish positions.  The P&F chart
hasn't changed much and points to a $66 target.  We are targeting
a move to the $65-66 range.  No change in our stop loss yet.


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.
Traders might feel better playing the September 60s even though
we plan to close this play before earnings expected on August 24.

BUY CALL AUG 55 HUG-HK OI=11 Current Ask $6.30
BUY CALL AUG 60 HUG-HL OI=97 Current Ask $2.15
BUY CALL SEP 60 HUG-IL OI= 0 Current Ask $3.10

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.




Picked on July 15 at $ 60.51
Change since picked:  + 0.48
Earnings Date       08/24/04 (unconfirmed)
Average Daily Volume:    288 thousand
Chart =


--

Symantec - SYMC - close: 46.76 change: +0.45 stop: 42.45

Company Description:
Symantec is the global leader in information security providing a
broad range of software, appliances and services designed to help
individuals, small and mid-sized businesses, and large
enterprises secure and manage their IT infrastructure. Symantec's
Norton brand of products is the worldwide leader in consumer
security and problem-solving solutions. Headquartered in
Cupertino, Calif., Symantec has operations in more than 35
countries. (source: company press release)

Why We Like It:
It's been a good week for SYMC.  The rebound in the software
sector has been a big boost for SYMC.  The most recent outbreak
of viruses and worms has also lent strength to the stock as the
dangers elevate awareness for antivirus companies like SYMC.
We're very encouraged by the breakout over the $44 level, the
100-dma and round-number resistance at $45.  Technicals are
positive and SYMC's P&F chart has raised its target from $54 to
$60.  Remember that we're targeting a move to $49.50.  Traders
can look for a dip back toward the $45-46 levels as a potential
entry point for new positions.

Suggested Options:
We like the August and September calls, specifically the $40 and
$45 strikes.

BUY CALL AUG 40 SYQ-HH OI= 6049 Current Ask $7.10
BUY CALL AUG 45 SYQ-HI OI=10864 Current Ask $2.70
BUY CALL SEP 45 SYQ-II OI=  853 Current Ask $3.60

Annotated chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.



Picked on July 27 at $ 44.91
Change since picked:  + 1.85
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    5.4 million
Chart =


---

Textron - TXT - close: 61.30 change: -0.31 stop: 57.49

Company Description:
Textron Inc. is a $10 billion multi-industry company with more
than 43,000 employees in nearly 40 countries. The company
leverages its global network of aircraft, industrial and finance
businesses to provide customers with innovative solutions and
services. Textron is known around the world for its powerful
brands such as Bell Helicopter, Cessna Aircraft, Kautex,
Lycoming, E-Z-GO and Greenlee, among others.
(source: company press release)

Why We Like It:
Things are looking good for TXT.  We added the stock to the call
list last Monday after its high-volume breakout over resistance
at the $60 level.  The rally was initially fueled by its earnings
where the company beat estimates by 13 cents and guided higher
for the full year.  The rally was boosted again by an upgrade
from Smith Barney a week ago who raised TXT to a "buy" with a $70
target.  Later this past week TXT announced a new $50 million
contract for 175 armored vehicles to the Iraqi government.
Technicals are positive and its P&F chart has broken out to a new
buy signal with a $76 target.   We're very encouraged that TXT
has managed to consolidate some of its gains above the $60 level
and the stock looked poised to hit new four-year highs as the
markets closed on Friday.  The recent action still looks like an
entry point for new positions.

Suggested Options:
We like the August and September calls. Our favorites are the
$55s and $60s with the Septembers looking like the better deal.

BUY CALL AUG 55 TXT-HK OI=  0 Current Ask $6.60
BUY CALL AUG 60 TXT-HL OI=118 Current Ask $2.20
BUY CALL AUG 65 TXT-HM OI= 75 Current Ask $0.30
BUY CALL SEP 55 TXT-IK OI=588 Current Ask $6.90
BUY CALL SEP 60 TXT-IL OI=350 Current Ask $3.00

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.




Picked on July 26th at $60.72
Change since picked:   + 0.58
Earnings Date        07/22/04 (confirmed)
Average Daily Volume =    622 thousand
Chart =



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

Cabot Micro - CCMP - close: 35.49 change: +0.61 stop: 31.75

Company Description:
Cabot Microelectronics Corporation, headquartered in Aurora,
Illinois, is the leading supplier of CMP slurries for polishing
various materials used in semiconductor manufacturing processes.
The company's products play a critical role in the production of
the most advanced semiconductor devices, enabling the manufacture
of smaller, faster and more complex devices by its customers.
(source: company press release)

Why We Like It:
CCMP isn't a pure-play semiconductor maker.  Instead CCMP makes
the various supplies and chemicals used in the process of chip
manufacture.  The stock exploded higher on July 22nd after the
company reported earnings that beat estimates by 10 cents a share
and came in above estimates on revenues.  The volume on those
first two post-earnings sessions was about four times the normal.
Ever since then CCMP has been climbing higher on above average
volume.  We're encouraged to see it above technical resistance at
its simple 100-dma and the breakout over the $35 level looks like
a bullish entry point.

Now that the SOX is producing an oversold bounce and CCMP is
filling the gap there should be nothing to stop CCMP from running
toward the $40 level.  Traders can evaluate new positions here or
look for a dip back to $34 and buy a bounce.  We'll start the
play with a stop loss at $31.75.  We'll target $40.00 but its P&F
chart points to a $52 target.


Suggested Option:
We like the August and September $35 calls with a preference for
the September 35s.

BUY CALL AUG 30 UKR-HF OI=1895 Current Ask $5.70
BUY CALL AUG 35 UKR-HG OI= 651 Current Ask $1.85
BUY CALL SEP 35 UKR-IG OI=1015 Current Ask $2.95
BUY CALL SEP 40 UKR-IH OI= 337 Current Ask $1.15

Annotated Chart:



Picked on August 1st at $35.46
Change since picked:    + 0.00
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =     935 thousand
Chart =


--

Imperial Oil - IMO - close: 49.49 change: +0.77 stop: 46.75

Company Description:
Imperial Oil is Canada's largest integrated oil company and its
largest refiner and marketer of petroleum products with over
2,100 Esso-branded retail sites across the country.
(source: company press release)

Why We Like It:
We've been looking for a way to play the rise in oil but so many
of the larger oil stocks are very overbought or just don't move
very quick.  For example, XOM looks very bullish but it just
creeps higher, which makes it a decent covered call play but not
one for a directional call play.  We like IMO for its technical
breakout on its daily and Point-&-Figure charts.  However, we are
breaking the rules a bit. Normally we don't suggest stocks that
don't have a certain minimum of average volume and IMO doesn't
qualify.  Volume is very light but that may be because IMO is a
Canadian company primarily traded on the Toronto exchange.
Fortunately, what volume we do see has been very strong during
the recent rallies.

The breakout over resistance at $48.00-48.50 is a new all-time
high for IMO.  While technicals are bullish and its MACD has
produced a new buy signal we've also noted the spread triple-top
breakout buy signal on its P&F chart with a $60 target.

While we're willing to initiate long positions here some traders
may want to wait and look for another pull back/bounce from the
$48.00 level.  More conservative traders might want to wait for
IMO to breakout over the $50.00 mark, which could be round-number
psychological resistance.

Suggested Option:
IMO does have both August and September calls available but there
is very little action (a.k.a. no open interest) in the September
strikes yet.  That doesn't mean you can't trade the Septembers
but we do suggest caution.

BUY CALL AUG 45 IMO-HI OI=405 Current Ask $4.70
BUY CALL AUG 50 IMO-HJ OI=267 Current Ask $0.60
BUY CALL SEP 45 IMO-II OI=  2 Current Ask $4.90
BUY CALL SEP 50 IMO-IJ OI=  0 Current Ask $1.10

Annotated Chart:



Picked on August 1st at $49.49
Change since picked:    + 0.00
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =      55 thousand
Chart =



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

Cephalon - CEPH - close: 50.54 change: -0.12 stop: 52.01

Company Description:
Founded in 1987, Cephalon, Inc. is an international
biopharmaceutical company dedicated to the discovery, development
and marketing of innovative products to treat sleep and
neurological disorders, cancer and pain. Cephalon currently
employs approximately 2,000 people in the United States and
Europe. U.S. sites include the company's headquarters in West
Chester, Pennsylvania, and offices and manufacturing facilities
in Salt Lake City, Utah. Cephalon's major European offices are
located in Guildford, England, Martinsried, Germany, and Maisons-
Alfort, France. The company currently markets three proprietary
products in the United States: PROVIGIL, GABITRIL, ACTIQ and more
than 20 products internationally. (source: company press release)

Why We Like It:
Time has almost run out.  CEPH has managed to bounce higher with
the rebound in the BTK biotech index and both of them are
starting to fail under resistance. Unfortunately, CEPH is due to
report Q2 earnings after the closing bell on Tuesday evening.  We
don't like to hold a directional position over an earnings
announcement so we plan to close CEPH on Tuesday afternoon before
they report.

Suggested Options:
CEPH is due to report earnings on Tuesday evening. We are
not suggesting new positions at this time.

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.




Picked on July 15 at $ 49.87
Change since picked:  + 0.67
Earnings Date       08/03/04 (confirmed)
Average Daily Volume:    969 thousand
Chart =


---

EchoStar Comm. - DISH - close: 27.75 chg: +0.21 stop: 29.05

Company Description:
EchoStar Communications Corporation serves 10 million satellite
TV customers through its DISH Network(TM) and is a leading U.S.
provider of advanced digital television services. DISH Network's
services include hundreds of video and audio channels,
Interactive TV, HDTV, sports and international programming,
together with professional installation and 24-hour customer
service. DISH Network is the leader in the sale of digital video
recorders (DVRs). (source: company press release)

Why We Like It:
Slowly but surely shares of DISH have continued to sink lower.
The descending 21-dma has been overhead resistance for months and
it's working well now.  The close under the $28 level is
encouraging if you're bearish and we plan to see DISH near our
$25 target soon.  Keep in mind that we only have 10 days left
before DISH announces earnings and we're not going to hold over
the report.  If we don't drop DISH this coming Friday (6th) then
we'll close it on the 9th.  This could be a determining factor if
you're considering new positions, which we would not recommend
with such a short time horizon.

Suggested Options:
We are cautious right now.  See play above for details.
Our favorite is the August 30s.

BUY PUT AUG 30.00 UAB-TF OI= 631 Current Ask $2.60
BUY PUT AUG 27.50 UAB-TY OI=1966 Current Ask $0.95

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.



Picked on July 09th at $28.99
Change since picked:   - 1.24
Earnings Date        08/10/04 (confirmed)
Average Daily Volume =    2.5 mln
Chart =


--

Magna Intl - MGA - close: 80.50 change: +0.25 stop: 82.01*new*

Company Description:
Magna, the most diversified automotive supplier in the world,
designs, develops and manufactures automotive systems,
assemblies, modules and components, and engineers and assembles
complete vehicles, primarily for sale to original equipment
manufacturers of cars and light trucks in North America, Europe,
Mexico, South America and Asia. Magna's products include:
automotive interior and closure components, systems and modules
through Intier Automotive Inc.; metal body systems, components,
assemblies and modules through Cosma International; exterior and
interior mirror and engineered glass systems through Magna
Donnelly; fascias, front and rear end modules, plastic body
panels, exterior trim components and systems, greenhouse and
sealing systems, roof modules and lighting components through
Decoma International Inc.; various engine, transmission and
fueling systems and components through Tesma International Inc.;
a variety of drivetrain components through Magna Drivetrain; and
complete vehicle engineering and assembly through Magna Steyr.
Magna has approximately 75,000 employees in 212 manufacturing
operations and 47 product development and engineering centres in
23 countries. (source: company press release)

Why We Like It:
Exit Alert!  We're quickly running out of time in MGA.  The
company is due to report earnings on the morning of Thursday,
August 5th.  Somehow we think MGA is going to hit our target at
$75 by then.  It could be we don't expect it.  Conservative
traders may want to exit now to reduce their risks or close the
play with a small profit.  Thus far the simple 200-dma, a
technical level the stock pretty much ignored for the previous
four months, has suddenly proven to be an obstacle for the bears.
We're going to keep the play open for now and plan to close it on
Wednesday afternoon just before the closing bell.  In the
meantime we're going to lower our stop loss to $82.01.

Suggested Options:
We are not suggesting new put positions at this time.

Annotated Chart:
* we apologize for the incomplete chart.
It is missing a couple of sessions.




Picked on July 15 at $ 81.53
Change since picked:  - 1.03
Earnings Date       08/05/04 (confirmed)
Average Daily Volume:    182 thousand
Chart =



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

None


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The Option Investor Newsletter                   Sunday 08-01-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Temporary Rebound?


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*****
LEAPS
*****

Temporary Rebound?

Last week I mentioned that the game plan for the next 
couple of months was to target some good stocks and
hope to fill our leaps on cheap prices on market
weakness. 

We saw some serious market weakness last week but
also a decent rebound. It is frustrating to watch
stocks we are hoping to get in cheap add several
dollars in price on the rebound. However, patience
is the key over the next three months. Aug/Sep/Oct
are the three most widely recognized months of the
year for sudden drops and corrections. What we have
seen in July may be just the tip of the iceberg.

I am not saying this to scare anybody out of the 
market but to just remind everyone that this is a
period where normal historical dips normally occur.
We plan on taking advantage of these dips when/if
they appear. 

Last week I profiled a couple stocks that I hoped
to get cheap. The market this weak has rebounded
to serious resistance levels but could still move
higher next week. When you consider the period
we are approaching and the potential for event
risk around the Olympics (Aug 13-29) and the 
Republican convention (Aug 30-Sept 2) the odds 
of a resumption of the July slide are very good. 

I am going to suggest a couple put leaps this week
that could be very profitable over the next couple
months. Consider it terrorist insurance for your
portfolio. 



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

SMH $32.90   Puts

The semiconductor index has rebounded from 390 to just
over 416 in the last three days. This was round number
support and matched by support in various other indexes.
It was not a material support level on the SOX. The next
real support levels are 375 and 355. 

The SOX is too expensive to buy options so we will be
looking at the SMH or semiconductor holders. The SMH
dipped to 30.75 last week and has rebounded to 32.90.
With 33.00 as strong resistance the odds of a material
continued rebound are slim. Not impossible but slim. 
Next support is 30.50 and 27.75. With techs and small
caps likely to make at least one more leg down I want
to try and capture that move with some longer term
options. Not leaps but far enough out to get us past
the election. I want to always keep in the back of
our mind that these are terrorist insurance until
the profit targets are hit or the election is over.

With the SMH at $32.90 and a minimum price target of
$30 and possibly $28 I want to use either the Nov-$30
puts (SMH-WF) or the Nov-$35 puts (SMH-WG). I am
ignoring the at the money 32.50 put as too expensive.

SMH NOV-30.00 Put SMH-WF closing price $1.30
SMH NOV-35.00 Put SMH-WG closing price $3.70

Since the 35.00 put is already 2.10 in the money the
real cost of the put is $1.60 and the delta is very
high. As the SMH moves down the premium will increase
much quicker than the at the money option. It is 
personal preference but I prefer in the money options
on trades like this. 

We are going to target $28.00 for exit consideration
but will watch it carefully under $30 for signs of
a rebound.

The entry target will be $33.50

The stop loss will be 35.00.   

SMH Chart – Daily

 
SOX Chart

 


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

Russell 2000 - 551.29  

The Russell 2000 has rebounded from the edge of the
cliff over the last several days from a low of 531 to
Friday's close at 551. There is very strong resistance 
just above us at 565 and I believe strongly that the
Russell will not make it over that level in the coming
week. 

Small caps are typically the weakest link in the fall
months because of liquidity concerns. Funds want to 
be in the big caps or cash while waiting for the 
Sept/Oct dips. This is their best buying opportunity
and this year should be no different. In fact with 
the event risk this year it could be a very good
buying opportunity. 

I profiled this play in the Editors Plays section 
this week and liked it so much I thought readers of
this section would benefit from it as well. 

The Russell options are too expensive for pure
speculation plays so we are going to focus on the
Ishares (IWN) The Russell closed at 551 on Friday
an the IWN at 164. It trades at about 1/3 of the
Russell value. 

The Russell has strong resistance at 563-565 which
corresponds to 166-167 on the IWN.  

Because LEAP traders are used to paying a little
more for options we are going to use the Nov-160
Put IWN-WM at $6.10. You might get it a little
cheaper on Monday if the market manages to break
upside resistance for a change. Resistance on the
IWN is 166-167 and we closed at 164. 

If you are feeling aggressive I would buy the Nov
$170 puts for $10.90, already 6.00 in the money
and increase your delta on this play. The more
you spend the more you risk because the delta
cuts both ways on an in the money option. 

I do expect a continued rebound on Monday/Tuesday
and the closer we can get to the 166 resistance
the better the price on the put. I am not going
to put a trigger on this and leave it up to you
on when to enter. I plan on buying this option
myself so I will use my price for the entry and
I am targeting 166 for the entry but that could
change. 

The target on the play is $155 and the May lows. The
low for last week was $159.10. Obviously if the target
is hit it would be a very profitable trade. 

Considering the potential for a terrorist event over
the next 45 days I think this is a very low risk trade.
Whether the event happens or not we could still see
the Russell sink on worry alone. 

BUY Nov $160 IWN Put IWN-WL (Closing price $6.10)

Stop loss = IWN $168
Profit target = IWN $155

IWN Chart

 
Russell Chart

 


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

Current Portfolio: 


RHAT Red Hat $17.12, stop $12.50
Entry $14.81   Recommended July-18th

Current position:
2006 $20 LEAP Call YFX-AD cost $2.75 Current $3.80
Sept $12.50 ins put RCV-UV cost $0.55 Current 0.25

Initial play description:
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp


Red Hat Chart

 


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

CIEN - Ciena Corp $2.82  - no stop
Entry $3.09
Takeover candidate

2006 $5 LEAP Call YCD-AA $0.65 cost 70 cents.
No insurance put

Initial play description:
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

Ciena Chart

 


TYC Tyco $31.00 Stop $29.50
Entry $28.32

2005 $30 LEAP Call TYC-AF $3.00 cost $2.15 +40%
2006 $30 LEAP Call WPA-AF $5.20 cost $4.00 +25%
July $25 insurance put - expired - cost $.55

Tyco Chart

 


HD Home Depot $33.00   Stop 34.50 
Entry $34.69

2005 $35 LEAP Put HD-MG $2.95 cost $2.95 -3%
2006 $35 LEAP Put WHD-MG $4.40 cost $4.50 -4%
May $40 Insurance put - expired - cost $.55  

HD Chart

 


Position Summary Graph

 


LEAPS Watch List

**Editors Note** In the event of a market drop due to a 
terrorist attack on U.S. soil all entry targets should be
immediately cancelled. 


MER - Merrill Lynch $49.72 target entry $46.00 
               
2006 $50 LEAP Call WZM-AJ Currently $7.20 target $5.00

http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

MER Chart

 



INTC - Intel $24.38 target entry $20.00

2006 $22 LEAP Call WNL-AX currently $5.00
2006 $25 LEAP Call WNL-AE currently $3.80

http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

INTC Chart

 



EBAY - EBAY $78.33 target entry $70.00

2006 $80 LEAP Call YEU-AP currently $14.20

http://members.OptionInvestor.com/leaps/Lp_072504_1.asp

EBAY Chart

 



JNPR - Juniper Networks $22.96 target entry $20.00

2006 $25 LEAP Call WBW-AE currently $5.20

http://members.OptionInvestor.com/leaps/Lp_072504_1.asp

JNPR Chart

 


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**********

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The Option Investor Newsletter                   Sunday 08-01-2004
Sunday                                                      5 of 5

In Section Five:

Spreads and Straddles: Finally, A Positive Week For Stocks!
Premium-Selling Plays: Naked Puts and Calls


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

Finally, A Positive Week For Stocks!
By Ray Cummins

The major equity averages moved higher Friday, closing the week
in positive territory despite another surge in crude oil prices.

The Dow Industrial Average ended 10 points higher at 10,139 with
Boeing (NYSE:BA), Coca-Cola (NYSE:KO), and McDonald's (NYSE:MCD
among the best performers.  The tech-heavy NASDAQ Composite rose
6 points to 1,887 as semiconductor and internet shares enjoyed
buying pressure.  The Standard & Poor's 500 Index added 1 point
to close at 1,101 with airline, brokerage, and drug store stocks
limiting the market's gains.  Volume on the NYSE was 1.30 billion
while 1.49 billion shares crossed on the NASDAQ.  Breadth on the
Big Board was positive by a ratio of 3 to 2, but the activity was
slightly less bullish on the technology exchange.  U.S. treasury
prices were higher with the benchmark 10-year note jumping 26/32,
while its yield fell to 4.47%.  For the week, equity prices were
higher with the blue-chip Dow average up 1.8%, the broad S&P 500
index advancing 1.4%, and the NASDAQ climbing 2.1%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 07/30/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


PUT-CREDIT SPREADS

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

FRE    63.57  64.31  AUG  55.0  60.0  0.55   59.45   0.55   Open
POT    98.08  96.69  AUG  85.0  90.0  0.60   89.40   0.60   Open
UOPX   89.09  86.17  AUG  75.0  80.0  0.60   79.40   0.60   Open
FAST   54.74  62.38  AUG  45.0  50.0  0.60   49.40   0.60   Open
PD     79.00  77.94  AUG  65.0  70.0  0.60   69.40   0.60   Open
AAPL   32.30  32.34  AUG  27.5  30.0  0.30   29.70   0.30   Open
FSH    58.66  58.20  AUG  50.0  55.0  0.65   54.35   0.65   Open

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

Positions in Wellpoint Health (NYSE:WLP) and Anthem (NYSE:ATH)
have previously been closed to limit losses.  The position in
Gilead Sciences (NASDAQ:GILD), which is currently profitable,
also became a candidate for early exit when it moved below the
sold (put) strike at $60.

  
CALL-CREDIT SPREADS

Stock  Pick   Last   Mon  L/C   S/C  Credit   CB    G/L   Status

LLTC   36.74  39.10  AUG  42.5  40.0  0.30   40.30  0.30   Open
XLNX   31.53  29.43  AUG  37.5  35.0  0.25   35.25  0.25   Open
MERQ   46.17  36.56  AUG  55.0  50.0  0.65   50.65  0.65   Open
SMH    34.58  32.90  AUG  42.5  40.0  0.30   40.30  0.30   Open
TLB    33.04  30.80  AUG  40.0  35.0  0.60   35.60  0.60   Open
VAR    77.24  69.01  AUG  90.0  85.0  0.50   85.50  0.50   Open
KLAC   43.33  41.23  AUG  50.0  47.5  0.25   47.75  0.25   Open
NVLS   29.23  27.01  AUG  35.0  32.5  0.20   32.70  0.20   Open
BZH    90.65  93.40  AUG 105.0 100.0  0.45  100.45  0.45   Open
LLY    64.67  63.72  AUG  75.0  70.0  0.65   70.65  0.65   Open

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

Linear Technologies (NASDAQ:LLTC) will be a candidate for early
exit on any move above $40.


DEBIT STRADDLES

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

DVN     69.40  70.40   AUG   70.00  70.00   5.00    4.80    Open
TBL     60.26  58.04   AUG   60.00  60.00   4.75    5.00    Open

Timberland (NYSE:TBL) enjoyed a brief surge in volatility on 7/22,
plunging to a low near $56.25 during the session.  The move may
have offered a break-even exit using only the bearish portion
of the straddle, however I was not available to monitor trading
in the TBL options so the play will remain open in the summary.
      
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

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

BULLISH PLAYS - CREDIT SPREADS

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

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

ANSS - Ansys  $47.44  *** Favorable Earnings Spark Rally! ***

Ansys (NASDAQ:ANSS) develops and globally markets engineering
simulation software and technologies used by engineers and
designers across a spectrum of industries, including aerospace,
automotive, manufacturing, electronics and biomedical.  Ansys
focuses on the development of open and flexible solutions that
enable users to analyze designs on the desktop, providing a
common platform for fast, efficient and cost-conscious product
development, from design concept to final-stage testing and
validation.  The company distributes its Ansys, DesignSpace,
ICEM CFD Engineering and CAD products through a global network
of channel partners, in addition to direct sales offices in
strategic, global locations.

ANSS - Ansys  $47.44

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-40.00  QUS-TH  OI=41  ASK=$0.25
SELL PUT  AUG-45.00  QUS-TI  OI=0   BID=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$44.55


__________________________________________________________________

WBSN - Websense  $38.19  *** Rising Profits = Rising Stock! ***

Websense (NASDAQ:WBSN) provides employee Internet management
products that enable organizations to analyze, report and
manage how their employees use computing resources, including
Internet access, instant messaging, peer-to-peer file sharing,
network bandwidth and desktop applications.  The company's
primary product offering is the Websense Enterprise software
application, its central policy engine and management console.
Websense Enterprise also serves as a platform for related
Websense add-on modules such as Client Application Manager,
Bandwidth Optimizer, instant message Attachment Manager and
Client Policy Manager, and supports a variety of reporting
options that allow organizations to document patterns of
employees' use of computing resources.

WBSN - Websense  $38.19

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-30.00  DQH-TF  OI=1148  ASK=$0.25
SELL PUT  AUG-35.00  DQH-TG  OI=255   BID=$0.65
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$34.55



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

BEARISH PLAYS - CREDIT SPREADS

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

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

APOL - Apollo Group  $83.50  *** Downtrend Underway? ***

Apollo Group (NASDAQ:APOL) provides higher education to working
adults.  The company operates through its subsidiaries: The
University of Phoenix, University of Phoenix Online, Institute
for Professional Development, The College for Financial Planning
Institutes Corporation and Western International University.  The
company offers its programs and services at 71 campuses and 121
learning centers in 37 states, Puerto Rico and Vancouver, British
Columbia.

APOL - Apollo Group  $83.50
 
PLAY (less conservative - bearish/credit spread):

BUY  CALL  AUG-95.00  OAQ-HS  OI=4218  ASK=$0.30
SELL CALL  AUG-90.00  OAQ-HR  OI=6719  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$90.65


__________________________________________________________________

ACS - Affiliated Computer  $51.80  *** In A Trading Range? ***

Affiliated Computer Services (NYSE:ACS) is a global company
delivering comprehensive business process outsourcing and
information technology outsourcing solutions to commercial and
government clients.  Within its commercial segment, ACS offers
technology outsourcing, business process outsourcing and systems
integration services to clients in such industries as insurance,
utilities, manufacturing, financial institutions, telecom,
healthcare, retail and transportation.  In its state and local
government segment, the firm is a business process outsourcing
provider to state and local governments.  ACS also provides
systems integration services, business process outsourcing and
technology outsourcing to federal agencies.

ACS - Affiliated Computer  $51.80

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-60.00  ACS-HL  OI=616   ASK=$0.10
SELL CALL  AUG-55.00  ACS-HK  OI=7986  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$55.45



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

INDEX-BASED COMBINATION POSITIONS

As a trader, you may be familiar with options on individual stocks 
where you have the right to buy (call option) or the right to sell 
(put option) a particular stock at some predetermined price within 
some predetermined time.  The buyer has the rights and the seller 
the obligations.  With index options the basic ideas are the same. 
Index options allow you to make investment decisions on a specific 
industry group or on the market as a whole.  Spread strategies can 
be made with index options similar to those made with individual 
stock options and professional traders also employ index spreads 
in common hedge strategies.
_________________________________________________________________

OEX - S&P 100 Index  $537.67  *** Credit-Spread Strangle ***

Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries.  The component
stocks are weighted according to the total market value of their
outstanding shares.  The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding.  Trading in S&P-100
options will ordinarily cease on the business day preceding the
expiration date.  OEX options generally may be exercised on any
business day before the expiration date.

By combining two credit-spread positions, you can participate
in a popular neutral-outlook strategy known as the "Long Iron
Condor."  It is often used with range-bound issues and it is a
limited risk, limited profit position that provides a wide range
for success.  The benefit to this technique is that some brokers
require less collateral for the combined position, as only one
spread can lose money at expiration.  You should consult with
your brokerage firm to determine the maximum margin requirements
before initiating the position.

OEX - S&P 100 Index  $537.67

PLAY (less conservative - bearish/credit spread):

BUY  CALL  AUG-560.00  OEB-HL  OI=11920  ASK=$0.45
SELL CALL  AUG-555.00  OEB-HK  OI=8048   BID=$0.90
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$555.50

- and - 

PLAY (less conservative - bullish/credit spread):

BUY  PUT  AUG-515.00  OEB-TC  OI=7891  ASK=$1.40
SELL PUT  AUG-520.00  OEB-TD  OI=7996  BID=$1.85
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$519.50


_________________________________________________________________

QQQ - Nasdaq-100 Trust  $34.89  *** Premium-Selling Play! ***

The Nasdaq-100 Trust Series I is a pooled investment designed to
provide results that generally correspond to the price and yield
performance of the Nasdaq-100 Index.  The issue was created to
provide investors with the opportunity to purchase units in the
Nasdaq-100, representing proportionate undivided interests in the
portfolio of securities held by the Trust, which consists of
substantially all of the securities, in substantially the same
weighting, as the component securities of the underlying index.

QQQ - Nasdaq-100 Trust $34.89

PLAY (speculative - neutral/debit strangle):

SELL CALL  SEP-37.00  QQQ-IK  OI=219242  BID=$0.35
SELL PUT   SEP-32.00  QAV-UF  OI=67904   BID=$0.35
INITIAL NET-CREDIT TARGET=$0.75-$0.80
MAXIMUM PROFIT (MARGIN) = 10%
UPSIDE B/E=$37.75 DOWNSIDE B/E=$31.25



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

SEE DISCLAIMER - SECTION 1

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


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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 07/30/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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

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

NFI      AUG    30.00   29.20   40.11    0.80   5.99%   2.74%
NVTL     AUG    20.00   19.50   22.97    0.50   5.77%   2.56%
CBST     AUG    10.00    9.65   10.38    0.35   6.43%   3.63%
TASR     AUG    30.00   29.15   31.29    0.85   5.67%   2.92%
PETD     AUG    25.00   24.35   26.61    0.65   4.86%   2.67%
CRDN     JUL    35.00   34.55   38.25    0.45   9.24%   1.30%
CRDN     JUL    35.00   34.70   38.25    0.30   7.43%   0.86%
NFI      AUG    30.00   29.40   40.11    0.60   4.68%   2.04%
NVTL     AUG    20.00   19.50   22.97    0.50   6.11%   2.56%
TASR     AUG    30.00   29.30   31.29    0.70   4.93%   2.39%
EYET     AUG    35.00   34.45   37.10    0.55   3.92%   1.60%
SCHN     AUG    30.00   29.00   30.93    1.00   6.53%   3.45%
MGAM     AUG    25.00   24.25   18.91   (5.34)  0.00%   0.00%
FRO      AUG    30.00   29.30   38.35    0.70   4.97%   2.39%
GIVN     AUG    30.00   29.45   34.44    0.55   4.21%   1.87%
ATI      AUG    15.00   14.50   20.05    0.50   7.89%   3.45%
BEIQ     AUG    25.00   24.00   24.01    0.01   0.08%   4.17%
ESIO     AUG    25.00   24.20   25.75    0.80   6.43%   3.31%
AMHC     AUG    25.00   24.25   27.23    0.75   5.98%   3.09%
VTS      AUG    22.50   21.85   24.63    0.65   5.72%   2.97%
OSTK     AUG    30.00   29.40   35.07    0.60   5.60%   2.04%
KWK      AUG    30.00   29.50   31.67    0.50   4.09%   1.69%
ATI      AUG    15.00   14.75   20.05    0.25   4.68%   1.69%
EYET     AUG    30.00   29.55   37.10    0.45   3.85%   1.52%
ERES     AUG    22.50   22.15   24.91    0.35   4.50%   1.58%
CTSH     AUG    22.50   22.05   27.55    0.45   4.61%   2.04%
TECH     AUG    40.00   38.75   39.80    1.05   5.27%   3.23%
ELN      AUG    20.00   19.70   20.55    0.30   4.31%   1.52%
FARO     AUG    20.00   19.65   23.53    0.35   5.77%   1.78%
STLD     AUG    30.00   29.60   32.75    0.40   3.50%   1.35%
SRDX     AUG    20.00   19.50   23.92    0.50   7.27%   2.56%
NFI      AUG    35.00   33.85   40.11    1.15   9.90%   3.40%
ISG      AUG    30.00   29.05   32.73    0.95   7.59%   3.27%
LCAV     AUG    25.00   24.35   26.09    0.65   6.54%   2.67%
DHB      AUG    12.50   12.15   15.21    0.35   8.54%   2.88%
MSO      AUG    10.00    9.65   11.29    0.35   9.88%   3.63%
EENC     AUG    12.50   12.25   13.59    0.25   4.83%   2.04%
BLUD     AUG    20.00   19.50   20.26    0.50   6.68%   2.56%
ERES     AUG    25.00   24.40   24.91    0.51   5.92%   2.46%
IDCC     AUG    17.50   17.05   19.24    0.45   6.72%   2.64%
JNPR     AUG    22.50   21.95   22.96    0.55   6.37%   2.51%
NFI      AUG    35.00   34.25   40.11    0.75   7.63%   2.19%
JCOM     AUG    25.00   24.45   25.51    0.55   5.80%   2.25%
LCAV     AUG    25.00   24.75   26.09    0.25   3.16%   1.01%
CERN     AUG    35.00   34.35   45.00    0.65   6.54%   1.89%
VLCCF    AUG    25.00   24.35   32.39    0.65   8.65%   2.67%

Multimedia Games (NASDAQ:MGAM) was an unexpected loser Friday,
plunging over $5 after the company missed its earning estimates
and provided below-consensus guidance for the upcoming quarter.
Needless to say, the position was closed after the announcement.
Aeroflex (NASDAQ:ARXX) and Carrier Access (NASDAQ:CACS) have
previously been closed to limit potential losses.  A number of
other issues are on the early-exit list including: BEIQ, TASR,
JCOM, JNPR, ERES, ELN, TECH, KWK, ESIO, SCHN, and CBST.

 
NAKED CALLS

Stock   Strike  Strike  Break  Current   Gain    Max    Simple
Symbol  Month   Price   Even    Price   (Loss)  Yield   Yield

SLAB     AUG    50.00   51.00   35.29    1.00   5.30%   1.96%
SINA     AUG    40.00   40.85   28.34    0.85   7.85%   2.08%
ATRS     AUG    30.00   30.85   25.11    0.85   6.52%   2.76%
MRVL     AUG    27.50   27.85   23.22    0.35   3.98%   1.26%
MACR     AUG    25.00   25.40   20.20    0.40   4.55%   1.57%
ISIL     AUG    20.00   20.45   18.36    0.45   5.72%   2.20%
FLML     AUG    25.00   25.50   18.85    0.50   8.15%   1.96%
OTEX     AUG    30.00   30.65   25.34    0.65   6.12%   2.12%
TELK     AUG    25.00   25.45   19.76    0.45   5.60%   1.77%
ASKJ     AUG    40.00   40.50   29.08    0.50   5.97%   1.23%
DRIV     AUG    30.00   30.85   28.10    0.85   7.92%   2.76%
SINA     AUG    35.00   35.45   28.34    0.45   6.42%   1.27%
BSX      AUG    40.00   40.50   38.26    0.50   3.58%   1.23%
ICUI     AUG    30.00   30.80   27.80    0.80   8.64%   2.60%
WMGI     AUG    35.00   35.65   27.63    0.65   5.46%   1.82%
LSCP     AUG    30.00   30.70   19.07    0.70  11.15%   2.28%
ERICY    AUG    30.00   30.65   26.71    0.65   8.01%   2.12%
NTES     AUG    40.00   40.45   37.25    0.45   6.31%   1.11%

There was no viable position in Eon Labs (NASDAQ:ELAB), due to
the "gap-down" opening on the day after the play was listed.

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

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

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

NEW NAKED-PUT CANDIDATES

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

KYPH   27.03  AUG 25.00  QYQ TE 0.50   90 24.50  19   3.3%   8.6%
IDCC   19.24  AUG 17.50  DAQ TW 0.30 1004 17.20  19   2.8%   7.7%
CYTC   24.20  AUG 22.50  YQK TX 0.40  561 22.10  19   2.9%   7.6%
TOY    16.46  AUG 15.00  TOY TC 0.25 3726 14.75  19   2.7%   7.4%
KRON   43.92  AUG 40.00  KUE UH 0.60    0 39.40  19   2.4%   6.7%
UTHR   24.76  AUG 22.50  FUH TX 0.30  370 22.20  19   2.2%   6.0%
CRK    21.04  AUG 20.00  CRK TD 0.25   58 19.75  19   2.0%   5.2%

Company Descriptions

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

KYPH - Kyphon  $27.03  *** Earnings Speculation! ***

Kyphon (NASDAQ:KYPH) develops medical devices to restore spinal
anatomy using minimally invasive technology.  The firm's initial
marketing focus is on surgeons who repair spine fractures caused
by osteoporosis.  Kyphon's first commercial products, comprising
its KyphX instruments, utilize its proprietary balloon technology.
Surgeons use those tools to help repair fractures during minimally
invasive spine surgeries.  Its instruments have also been used in
open surgical procedures.  The firm sells various instruments for
use in spine fracture procedures including: Bone Access Systems,
Inflatable Bone Tamps, Inflation Syringes, Bone Filler Devices
and Bone Biopsy Devices.  Quarterly earnings are due on 8/4.

KYPH - Kyphon  $27.03

AUG 25.00 QYQ TE LB=0.50 OI=90 CB=24.50 DE=19 TY=3.3% MY=8.6%


_________________________________________________________________

IDCC - InterDigital Comm.  $19.24  *** Bottom Fishing! ***

InterDigital Communications (NASDAQ:IDCC) specializes in the
architecture, design and delivery of wireless technology and
product platforms.  Over the course of its corporate history,
the company has amassed a substantial and significant library of
digital wireless systems experience and know-how, and holds an
extensive worldwide portfolio of patents in the wireless systems
field.  InterDigital markets its technologies and solutions 
primarily to wireless communications equipment producers and 
related suppliers.  In addition, the company licenses its Time
Division Multiple Access and Code Division Multiple Access
patents to equipment manufacturers worldwide.  

IDCC - InterDigital Comm.  $19.24

AUG 17.50 DAQ TW LB=0.30 OI=1004 CB=17.20 DE=19 TY=2.8% MY=7.7%


_________________________________________________________________

CYTC - Cytyc  $24.20  *** Strong Earnings = Rally! ***

Cytyc (NASDAQ:CYTC) designs, develops, manufactures and markets
sample preparation and imaging systems for medical diagnostic
applications.  The company's principal products are the ThinPrep
System and ThinPrep Imaging System.  The ThinPrep System is an
automated system for the preparation of cervical specimens and
non-gynecological samples on microscope slides.  In addition,
the company manufactures and markets the FirstCyte Breast Test,
a risk assessment tool for women who are at high risk for breast
cancer.

CYTC - Cytyc  $24.20

AUG 22.50 YQK TX LB=0.40 OI=561 CB=22.10 DE=19 TY=2.9% MY=7.6%


_________________________________________________________________

TOY - Toys R Us  $16.46  *** Entry Point? ***

Toys R Us (NYSE:TOY) is a retailer of toys, baby products and
children's apparel.  As of January 31, 2004, the firm operated
1,501 retail stores worldwide.  These consisted of 927 locations
in the United States, 685 toy stores (including four Geoffrey
stores), 198 specialty baby-juvenile stores; Babies R Us, and 44
children's clothing stores under the name Kids R Us.  Toys R Us
also sells merchandise on its Internet sites: www.toysrus.com,
www.babiesrus.com, www.imaginarium.com, www.sportsrus.com and
www.personalizedbyrus.com.

TOY - Toys R Us  $16.46

AUG 15.00 TOY TC LB=0.25 OI=3726 CB=14.75 DE=19 TY=2.7% MY=7.4%


_________________________________________________________________

KRON - Kronos  $43.92  *** On The Rebound! ***

Kronos (NASDAQ:KRON) is a single-source provider of human
resources, payroll, scheduling and time and labor solutions.
The company's employee relationship management (ERM) solutions
are the Workforce Central Suite, Kronos iSeries Central Suite
and Timekeeper Central System.  These unique solutions enable
organizations to reduce costs and increase productivity,
improve employee satisfaction, align employee performance with
organizational objectives and put real-time information in the
hands of decision makers.  In addition to its core products,
Kronos offers a variety of complementary products designed to
help maximize ERM capabilities.  Kronos maintains service and
technical support organization that maintains systems and also
provides professional and educational services.

KRON - Kronos  $43.92

AUG 40.00 KUE UH LB=0.60 OI=0 CB=39.40 DE=19 TY=2.4% MY=6.7%


_________________________________________________________________

UTHR - United Therapeutics  $24.76  *** Uptrend Intact! ***

United Therapeutics (NASDAQ:UTHR) is a biotechnology company
focused on the development and commercialization of therapeutics
to treat chronic and life-threatening diseases in 3 therapeutic
areas: cardiovascular medicine, infectious disease and oncology.
It has 5 therapeutic platforms: Prostacyclin analogs are stable
synthetic forms of a molecule that has effects on blood-vessel
health and function; Remodulin has been approved in the United
States for the treatment of pulmonary arterial hypertension in
patients with New York Heart Association Class II-IV symptoms; 
Immunotherapeutic monoclonal antibodies are antibodies that
activate patients' immune systems to treat cancer; Glycobiology
anti-viral agents are a class of small molecules that may be
effective as an oral therapy for hepatitis C or other infections,
and Telemedicine involves portable digital devices that enable
physicians to remotely monitor patients' bodily measurements.

UTHR - United Therapeutics  $24.76

AUG 22.50 FUH TX LB=0.30 OI=370 CB=22.20 DE=19 TY=2.2% MY=6.0%


_________________________________________________________________

CRK - Comstock Resources  $21.04  *** Strong Sector!  ***

Comstock Resources (NYSE:CRK) is an independent energy company
engaged in the purchase, development, production and exploration
of oil and natural gas properties.  Comstock's oil and natural
gas operations are concentrated in the Gulf of Mexico, east
Texas/north Louisiana, southeast Texas and south Texas regions.
In addition, the Company has properties in the Illinois Basin
region in Kentucky and the Mid-Continent regions located in the
Texas panhandle, Oklahoma and Kansas. Its oil and natural gas
properties are estimated to have proved reserves of 616 billion
cubic feet of natural gas equivalent (Bcfe) as of December 31,
2003.

CRK - Comstock Resources  $21.04
 
AUG 20.00 CRK TD LB=0.25 OI=58 CB=19.75 DE=19 TY=2.0% MY=5.2%



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

ACDO - Accredo Health  $32.40  *** Sector Slump! ***

Accredo Health (NASDAQ:ACDO) provides specialty retail pharmacy
services, clinical services, reimbursement services and delivery
services, pursuant to agreements with biotech drug manufacturers,
relating to the treatment of patients with certain costly chronic
diseases.  The firm addresses the needs of the manufacturers by
providing specialized services that facilitate product launch
and patient acceptance, including the collection of timely drug
utilization and patient compliance information, patient education
and monitoring through the use of written materials and telephonic
consultation, reimbursement expertise and overnight drug delivery.

ACDO - Accredo Health  $32.40

PLAY (sell naked call):

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

SELL CALL  AUG 35    DZU HG    244    0.45  35.45   6.7%   1.3%


_________________________________________________________________

SPW - SPX Corporation  $40.95  *** Downtrend Intact! ***

SPX Corporation (NYSE:SPW) is a global provider of technical
products and systems, industrial products and services, flow
technology and service solutions.  The firm offers a collection
of products, including scalable storage networking solutions,
fire detection and building life-safety products, television
and radio broadcast antennas and towers, life science products
and services, transformers, compaction equipment, high-tech die
castings, dock systems, cooling towers, air filtration products,
valves, back-flow prevention and fluid handling equipment and
metering and mixing solutions.  Its products and services also
include specialty service tools, diagnostic systems, service
equipment and technical information services.  SPX' products
are used by customers in various industries, including chemical
processing, pharmaceuticals, infrastructure, mineral processing,
petrochemical, telecommunications, transportation, power, and
financial services.  Quarterly earnings are due on 8/2/04.

SPW - SPX Corporation  $40.95

PLAY (sell naked call):

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

SELL CALL  AUG 45    SPW HI    526    0.40  45.40   5.0%   0.9%


_________________________________________________________________

ULBI - Ultralife Batteries  $16.39  ** Post-Earnings Sell-Off! **

Ultralife Batteries (NASDAQ:ULBI) develops, manufactures and
markets a range of standard and customized lithium primary
(non-rechargeable), lithium ion and lithium polymer rechargeable
batteries for use in an array of applications.  The company has
focused on manufacturing a family of lithium primary batteries
for military, industrial and consumer applications.  Ultralife
also supplies rechargeable lithium ion and lithium polymer
batteries for use in portable electronic applications.

ULBI - Ultralife Batteries  $16.39

PLAY (sell naked call):

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

SELL CALL  AUG 17.5  BMQ HW     75    0.40  17.90  11.0%   2.2%



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

SEE DISCLAIMER - SECTION 1

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


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