Option Investor
Newsletter

Daily Newsletter, Monday, 08/16/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                   Monday 08-16-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Green Day
Futures Wrap: See Note
Index Trader Wrap: Hurricane or tropical storm?
Traders Corner: Do you know the difference between RS and RSI?


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     08-16-2004            High     Low     Volume Advance/Decline
DJIA     9954.55 +129.20  9967.08  9825.35 1.45 bln   2247/ 559
NASDAQ   1782.84 + 25.62  1789.49  1759.58 1.28 bln   2074/ 994
S&P 100   527.30 +  6.58   528.14   520.72   Totals   4321/1553
S&P 500  1079.34 + 14.54  1080.66  1064.80
RUS 2000  528.06 + 10.67   528.06   517.39
DJ TRANS 3051.14 + 84.22  3051.54  2967.90
VIX        17.57 –  0.41    19.28    17.42
VXO        17.39 -  1.38    18.98    17.39
VXN        26.72 -  0.74    28.22    26.20
Total Volume 3,020M
Total UpVol  2,539M
Total DnVol    397M
52wk Highs      69
52wk Lows      217
TRIN          0.37
PUT/CALL      0.85
*******************************************************************

Green Day
Jonathan Levinson

The Nasdaq led again, on this time it was to the upside on a
rally that added 1.31% to the Dow and 1.46% to the Nasdaq.
Volume was on the lighter side of moderate at 1.172B NYSE shares
and 1.269B Nasdaq shares, 10:1 in favor of advancing shares on
the NYSE and just over 4:1 on the Nasdaq.

The day's advance was an overdue correction within the intraday
cycles, and had little impact on either the daily or weekly cycle
downphases.  The weekly cycle downphase is in its "mature
adolescence" here with more room to the downside, while the daily
cycle is oversold and showing hints of a bullish stochastic
divergence.  If today's gains do not get strongly reversed this
week with a retest of last week's low, the daily cycle should
firm up and begin to generate at least the chop that would
ideally proceed the next daily cycle upphase.  Bear in mind,
however, that the last daily cycle upphase at the end of July
proved to be a bull trap, aborting early before plunging under
the influence of the broader weekly downphase.


Weekly Dow Chart


The weekly cycle downphase yielded a retest of 9800 for the Dow,
and support held, with today's rally adding 128 points to close
at 9953.  Other than the slight bullish divergence on the weekly
Macd histogram noted on the chart, the weekly cycle remains lower
and the lower falling channel, still a potential bull flag but
growing long in the proverbial tooth, has untested support just
above 9600.  A break of 9800 would signal that the weekly cycle
downphase means business and would target that lower level next.
9944-50 is a significant confluence level, followed to the upside
by 10020-40 and the 10200-250 level.  It appears that the daily
cycle is trying to assert itself and a move to that upper level,
significant not just on a trendline basis, would likely threaten
the weekly cycle downphase currently in progress.


Daily Dow Chart


The Dow's 1.31% gain was sufficient to violate the primary
downtrend in price but not the upper descending trendline that
contained the August highs, currently lined up with confluence at
10020.  A break above that level should be sufficient to generate
a buy signal on the daily cycle oscillators, and the bullish
divergence setup is still present on the 10-day stochastic if the
advance continues.  Downside support at 9800 is key for bulls
hoping to realize on that bullish divergence- a move below it
would take out the currently higher low on the oscillator.  9940-
50, which held back last week's highs, should now act as support
above which a test of 10020 should prove inevitable.


Weekly Nasdaq Chart


The Nasdaq's key 1760 support level remains key support, having
been tested at the lows of the current move.  Price continues to
walk down the lower channel descending trendline, and last week's
doji star at the lows of the move sets up a perfect either-or
dilemma of accumulation versus distribution.  Today's gain sets
up this op-ex week for a possible correction within the
descending price trend, but there's strong resistance between
1840 and 1890 on the way to upper channel resistance at 1920.  A
break of 1920 would be required to threaten the weekly cycle
downphase and open the door to a possible bull wedge breakout.
The last daily cycle upphase attempt failed very early, and bulls
will need to make a more substantial attempt in order to abort
the current weekly downphase shown here.


Daily Nasdaq Chart


The Nasdaq is still well within the steep downtrend, but it too
has maintained that higher stochastic low so far and is a mere 18
points away from a test of 1800 trendline resistance.  However,
there's a gap to the 1825 level and given the degree to which the
daily cycle oscillators have declined, cautious bulls will want
to see a move hold above 1800 and preferably take out 1825-35
quickly in order to establish that the daily cycle upturn is not
just another whipsaw, such as we saw at the end of July.  1890 is
the more significant resistance level above, and the weekly cycle
downphase should barely detect a move that fails to at least
challenge it.


Weekly TNX Chart


The bond rally has been sputtering as the shorter timeframes work
off the overbought condition created by over two months' worth of
gains.  On the daily chart (not shown), the ten year note yield's
(TNX) daily cycle is trying to commence a new upphase within the
ongoing weekly cycle downphase.  The strong confluence support at
the 4% level is looking increasingly difficult to attain,
particularly given rising weekly Bollinger support at 4.11%.
However, the current bounce of the past 3 weeks is looking like a
flag within the ongoing weekly downphase, and until that trend is
broken, confirmed by an upturn in the 10-week stochastic, long-
timeframe bond-bears will have to wait.  A move above 4.4% would
likely set the stage for the next leg up on this weekly
timeframe, with next resistance at 4.48%, 4.65%, 4.8%, 4.88% and
4.2%.  For the day, the TNX rose 4.5 bps to close at 4.258%.

The National Association of Home Builders credited the dip in
rates with an increase in confidence as reflected in its
Homebuilder confidence index which rose from 67 in June to 71 in
August.   NAHB president Bobby Rayburn said that lower interest
rates "undoubtedly helped push builder optimism to its highest
level since October 2003 as potential buyers who might have been
sitting it out started diving back into the market when rates
headed downward."


Weekly chart of Crude oil



Crude oil declined today, closing at 45.95 following the victory
of Venezuelan President Hugo Chavez in a weekend recall
referendum that soothed fears of a disruption of Venezuelan oil
exports.  The decline started the week on a negative note for
September crude futures, but as can be seen on the weekly chart,
it's a mere correction well-within the apex of what is one of the
steepest wedges I've ever seen on a weekly chart.  The ascending
wedge is a bearish pattern that tends to break to the downside,
in this case with a potential implied target of 36.  With that
said, there's confluence support at 44 and then in the 40-41
range.

The ticker headlines used the word "plunges" and "plummeted" to
characterize the action of the New York Empire State Index data
released today at 8:30AM, which was down from 35.6 in July to
12.6 for August, the lowest level since May 2003 and well below
expectations of 31.8.  The drop resulted from steep declines in
both new orders (14.9 from 28.6 in July) and shipments (11.9 from
34 in July).  For all the drama of the downside surprise,
however, the reaction from the futures was muted, with the Nasdaq
futures staying positive as the Dow and S&P retreated briefly
into negative territory at 8:30AM.  The Empire State Index is a
relatively new index and is not a major market mover.  It is
based on a monthly survey of approximately 175 CEOs and
presidents of manufacturers in New York State, compiled and
released by the New York Federal Reserve Bank.

The Treasury Department announced that foreign long-term net
capital flows into the U.S. rose to $71.8B in June from $65.2B in
May, the first increase since January 2004.  Foreign gross asset
purchases of U.S. securities increased to $85.5B from $62.4B,
while U.S. residents sold $13.7 billion of foreign assets
net compared with a net gain of $2.8B in May.  Foreign central
banks purchased $18.3B of U.S. assets in June, up from $14.5B in
May.

The Air Transport Association announced that July's traffic rose
9.2% while capacity rose 7.7% from this time last year,
attributing the rise to aggressive ticket pricing and seasonal
factors.  The Amex Airline Index, XAL, was up strongly, adding
5.56% to close at 43.86.

Marketwatch reported that Comerica Bank released a study showing
that automobile prices measured against median family income
reached their most affordable levels in 25 years in Q2 2004 as
incomes rose faster than vehicle prices.  The average new
vehicle's total cost was $27,126 and took 20.6 weeks of median
family income to purchase at Q2 levels.

The media is now calling it the most expensive storm to hit the
US since Hurricane Andrew in 1992, with estimates of Hurricane
Charley's cost beginning to come in.  It was reported that 1
million homes are and could remain for weeks without power, with
2300 people in emergency shelters in the wake of the storm that
left at least 17 dead.  Federal Emergency Management Agency
director Michael Brown said that 11,000 people have already
applied for disaster relief.

Some sources have estimated the damage at up to $145B, making it
one of the most serious disasters in US history, but the majority
of estimates are less extreme.  German reinsurer Munich Re placed
the insured cost between 7B and 14B US, while the Florida
Division of Emergency Management estimated the cost of total
economic losses around $15B and the Associated Press reported
that the State of Florida is estimating losses at $11B.
Economic losses, which include both insured and uninsured losses,
are always substantially higher than insured losses alone.

All can agree, however, that impact from the storm was
substantial, and the markets treated it as mostly bullish for
prices.  Orange futures closed limit-up on the New York Board of
trade, rising nearly 8% on speculation of significant damage to
this year's crop.  Insurers also rose, with a number of companies
including ALL and AHL saying that the hurricane could be material
to current operations but would not threaten the companies'
overall financial condition.  ALL announced that the Florida
Hurricane Catastrophe Fund would cover the company's Florida
subsidiaries for 90% of their losses above an estimated retention
of $286M up to an estimated maximum reimbursement of $922M.  With
the broader markets higher, ALL managed a 1.35% gain, while AHL
was fractionally higher for the day.  HIG closed higher by 1.62%,
CB added 1.05%, PRU rose 1.26% and AIG gained 2.36%.  Florida
banks also rose on the anticipation of disaster relief funding
and rebuilding, as did the Dow-Jones Home Construction Index
(DJUSHB), which added 2.93% to close at 595.48, regaining its 200
day SMA for the first time since dropping below it in July.

MHC, which operates park model and RV resort communities also
lagged the broader market but was nevertheless higher for the
day, announcing the closure of two of its communities to reopen
for the winter and damage to 30 of its 84 properties.  The
company said that it does not expect the damage to be material to
its overall financial picture and maintained previous earnings
guidance.  MHC finished higher by .72% at 32.33.

In other news, GOOG announced that it has requested an effective
date of Aug. 17th after the close, which, if granted, would allow
GOOG shares to begin trading Wednesday morning.  After the bell,
however, it announced that the SEC and California securities
regulators are looking into its issuance of stock options, the
SEC in an informal inquiry.  The company has made a rescission
offer to repurchase the securities in question.

For tomorrow, we will see whether Friday's doji was the start of
a more significant move in the daily cycle, or just a
consolidation of last week's lows.  The strong upside move today
for the Dow and Nasdaq following a lower doji on Friday's higher
volume is a potential bottom formation, and the intraday move
today had an impulsive feel to it.  The trouble with cycle
analysis is that moves are always uncertain until they've been
confirmed with oscillator signals which, by their very nature,
always lag the price.  It's for that reason that we watch other
indicators, such as chart and candle formations and the intraday
Keltner channels covered in the Market Monitor.  Here, there's
reason for bullish optimism, but the downside price trend is very
strong and has not yet been reversed.

Provided that Friday's lows remain intact this week, I expect the
daily cycle to build a new upphase, complete with the bullish
divergence noted above.  With the weekly cycle downphase against
it, however, the onus will remain on bulls to keep the price
advancing long enough to threaten first the daily downtrend and
then the weekly downphase at the levels posted above.  So far,
the bounce we saw today was overdue and likely produced by deeply
oversold intraday and oversold daily oscillators.  A strong
showing from bulls this week will be required to build it into
something more.


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

Hurricane or tropical storm?

Buyers sent stocks higher Monday with all equity-based sectors
posting solid gains with airlines, biotechnology and brokers
leading the broad advance.

September Oil futures (cl04u) $45.90 traded back $1.00 from
contract highs of $46.90 set early Monday morning after
Venezuelan President Hugo Chavez won a recall referendum.

Still, oil remained well above the $45.00 per barrel mark as
traders were uneasy should those supporting the opposition take
to the streets and riot.

Venezuela's electoral authorities said Mr. Chavez had scored a
58% to 42% victory in a poll marked by long delays.  Two
opposition members of the five-member Venezuelan Electoral
Council have already claimed that a "gigantic fraud" had been
committed.

Tomorrow's trade in oil could well determine if today's gains for
bulls was simply a tropical storm, or the makings of a full force
hurricane of bullish enthusiasm.

U.S. Market Watch - 08/16/04 Close



Two of my "sentiment" indices had the Securities Broker/Dealer
Index (XBD.X) 119.40 +3.33% jumping near its WEEKLY R2 (119.60)
in today's session, while the S&P Retail Index (RLX.X) 377.52
+2.82% closed above its trending lower 21-day SMA (374.95) and
correlative WEEKLY R2 (374.48), where despite disappointing
quarterly results, building products retailer Lowes (NYSE:LOW)
$49.14 +5.33% surged on an upbeat outlook from company
executives.

The "blue light special" at KMart (NASDAQ:KMRT) $76.05 +17.18%
attracted buyers after the discounter reported stronger-than-
expected quarterly results.

Market Snapshot / Internals - 08/16/04 Close



The major indices opened flat after pre-opening economic data had
the regional New York Empire State Index showing manufacturing
activity cooled notably in August.  Stocks seemed to gather steam
as Florida's damage from Hurricane Charles had some estimating
initial damage between $5 billion and $11 billion, where some
estimated the storm's path could have claims rising as high as
$15 billion.

Aluminum giant and Dow component Alcoa (NYSE:AA) $30.81 +3.98%
jumped more than $1.00 on speculation that aluminum prices might
rise as demand for construction siding material could see a near-
term surge in demand, while manufactured homebuilders jumped as
aerial photos showed many manufactured homes flattened from
Hurrican Charley's winds.

Pivot Analysis Matrix -



The Semiconductor Index (SOX.X) 370.30 +0.99% jumped to trade its
WEEKLY Pivot within the first 90-minutes of trade, but huff and
puff as it might, could not find enough buyers for the break
above.  Resistance is stacked at SOX.X WEEKLY Pivot and DAILY R1,
and without the semiconductors, the NASDAQ-100 Index (NDX.X)
1,326.84 +1.45% and QQQ $32.89 +1.12% faded from just below their
MONTHLY S1 and WEEKLY R1 correlations.

September Oil Futures (cl04u) - 30-minute intervals



In my opinion, today's broad market gains couldn't have been
fueled by today's modest declines in oil, but oil prices will be
closely watched as traders argue whether or not oils rise is
attributed entirely to strong economic factors of demand
exceeding supply, or purely created from momentum traders
pressing the black gold higher.

The last three weeks has found oil bulls eagerly buying dips at
the September futures (cl04u) WEEKLY Pivots, and it may take a
move below this week's WEEKLY S1 and $44.31 for momentum bulls to
start unraveling.  If so, the recent trade of selling equities
against higher oil prices could unravel in an equity bull's
favor.

Relative Strength bar chart of SPX.X versus Sept. Oil



In Friday evening's Market Monitor I updated the relative
strength chart of the SPX.X versus September Crude Oil futures
(cl04u), where I showed this chart in the August 4 Index Trader
Wrap.  Tomorrow may be the BIG test for similarity of what took
place on July 21 and 22nd, when oil prices continue to march
higher, pummeling the SPX further lower.

Jeff Bailey


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

Live Securities Brokerage Service with Licensed Option Principals

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


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

Do you know the difference between RS and RSI?

Many times I hear traders, the experienced and the inexperienced,
talk about Relative Strength (RS) and the Relative Strength Index
(RSI) interchangeably. RS is a measure of strength compared to
another trading vehicle, sometimes called Comparative Relative
Strength. RSI, on the other hand, measures strength compared to
itself, sometimes called Internal Relative Strength. For all of
you who know the difference this may be just a refresher and for
those of you who thought they were the same please read on.

RSI is an overbought/oversold indicator used to predict trend
reversal points. Developed by J. Welles Wilder, Jr. and first
described in his book New Concepts in Technical Trading Systems,
this is a momentum oscillator that measures the velocity of
directional price movement. It compares a stock's highest highs
and lowest lows over a period of time. RSI is based upon the
difference between the average of the closing price on up days
vs. the average closing price on the down days. RSI measures the
internal strength of the trading vehicle by monitoring changes in
its closing price. It is a leading indicator – never a laggard.

I will include the formula here just so you know what it is. You
don’t need to calculate it because virtually all charting
services will have an RSI indicator.

N = number of days

Internal Relative Strength = Average net UP for N
                             Average net DOWN for N
RSI =


RSI fluctuates between 0 and 100. When it reaches a peak and
turns down it is a top. When RSI reaches a trough and turns up
you have a bottom. Simple eh! I wish. These turns come at
different levels in different markets or different times during a
bull or bear market. For example is 70 degrees hot or not? Your
answer, of course, depends on the time of year. In December, the
answer would be a resounding yes. However, in July no, it’s not
hot. It also depends on where you live. If you live in Honolulu
it doesn’t matter what month it is, 70 degrees is cold. To make a
long story short (too late!) RSI levels need to be read with an
eye to how RSI has reacted to price moves in the past and market
dynamics.

So how do you use the RSI oscillator? One way is to draw
horizontal reference lines across the highest peaks and the
lowest valleys of RSI. These are often drawn for you in charting
services and are usually at 70 and 30. Or you can use the system
that Alexander Elder (author of Trading for a Living) uses and
draw a line beyond which the RSI has spent less than 5% of its
time in the past 4 – 6 months.

However, the strongest trading signals come not from the absolute
values of RSI but from RSI divergences from price. These
divergences tend to occur at major tops and bottoms.

Take a look at the DOW.



The magenta arrows mark the times when the DOW was making higher
highs but RSI was making lower highs and were predicting a
possible decline. The blue arrows show when the DOW was making a
lower low but the RSI was making a higher low. The red arrows
show a possible RSI divergence for the DOW is making a lower low
but RSI is making an equal low. This one is not quite as clear as
the others because RSI is actually making a lower low but not by
as much as the DOW and when you start to look at gradations in
divergences you can get into a lot of trouble.

Now let’s take a look at Relative Strength. Relative Strength
compares a security’s price change with that of a "base." It is
calculated by dividing a security's price by the base’s price.
The result of this division is the ratio, or relationship,
between the two securities. The “base”, although can be another
stock, is more valuable when it is a sector, an index or the
whole market.

When the RS indicator is moving up, it shows that the security is
performing better than the base. When the indicator is moving
sideways, it shows that both are performing the same (i.e.,
rising and falling by the same percentages). When the indicator
is moving down, it shows that the security is performing worse
than the base (i.e., not rising as fast or falling faster).

It's best when the relative strength line moves up at a sharp
angle, showing the stock is outperforming the base. A line moving
down indicates the opposite: a weakening stock. The relative
strength line offers other clues when the base is a broad market
index:

- It's a positive sign when the line begins moving higher before
the stock price itself does. A rising line indicates underlying
strength in a stock; frequently, it's just a matter of time until
the price itself begins moving higher.

- If a stock's RS line stays on an uptrend, that’s positive. It
shows the stock is keeping ahead of the overall market, acting as
a confirmation of the uptrend.

- If a stock's relative strength line fails to follow along with
a new high in price, that's a warning signal. This shows the
market is moving up faster than the stock. This may signal the
stock is weakening; though the price may not reflect it
immediately.

Here is an example. First of this is a line chart of the NDX.X




And here is a line chart of RIMM a much stronger stock than
NDX.X.




Looking at these charts you could say RIMM was stronger but the
RS line actually quantifies it. Here is the RS line of RIMM /
NDX.X.




RS and RSI are two excellent leading indicators that can add a
new dimension to your trading plan but need to be used in
different contexts. One reveals price strength in relation to
past price performance and the other price strength in relation
to another trading vehicle. And, also the absolute value,
although important, is not as important as the divergences from
price.

Remember plan your trade and trade your plan.

Jane


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

Stock Option and Futures Brokerage

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

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

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

www.OneStopOption.com

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


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

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

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

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

To subscribe you may go to our website at

www.OptionInvestor.com

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

 "Contact Support"

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

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


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

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


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

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

Contact Support


The Option Investor Newsletter                   Monday 08-16-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: POT, WHR
Dropped Calls: SYMC
Dropped Puts: AMZN, AZO
Watch List: Home to Brokers and more!


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

Live Securities Brokerage Service with Licensed Option Principals

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


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

POT - call play -
 Remember that POT splits 2-for-1 on Wednesday.
 Traders concerned about any post-split depression
 will want to close the play before Tuesday's close.
 We're going to keep the play open.

---

WHR - put play -
 Has surprised us with a big rally in the face of
 Monday's broad market rebound.  The move back above
 the $60.00 level is bad news for bears.  The stock is
 on track to stop us out tomorrow if it doesn't reverse soon.


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

Symantec - SYMC - close: 45.22 change: +0.02 stop: 44.49

We are trying to be more careful about keeping out losses to a
minimum.  SYMC's lack of participation in today's market-wide
rally, led by technology stocks, is suspicious.  The very short-
term trend of lower highs has produced a new MACD "sell" signal
today.  Other technical indicators we follow also look bearish.
We're going to exit here but we'll keep an eye on SYMC for
another opportunity in the future.

Picked on July 27 at $ 44.91
Change since picked:  + 0.33
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    5.4 million
Chart =



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

Full Service Brokers

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

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

Amazon.com - AMZN - close: 37.97 change: +1.84 stop: 37.51

Wow!  It looks like today's market-wide rally has spooked some
shorts into covering.  AMZN was off to a strong start and by the
end of the day had closed at a new nine-day high.  Technicals are
certainly turning bullish and its MACD has produced a new "buy"
signal.  Over the weekend we had expressed our caution about
bearish positions and lowered our stop loss. AMZN hit that stop
loss today at $37.51.

Picked on August 3rd at $37.61
Change since picked:    + 0.36
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =     8.3 million
Chart =


---

AutoZone - AZO - close: 77.10 change: +2.95 stop: 76.51

AZO certainly turned in an impressive day.  The stock soared
almost 4 percent to breakout (again) over the pivotal $75 level
and minor resistance near $76.  Some claim the move was fueled by
speculation that Eddie Lampert and his ESL Investments plans to
buy more shares of AZO.  ESL's ownership of AZO has risen to
about 24% after its recent purchases.  We've been stopped out of
the play at $76.51.

Picked on August 4th at $74.60
Change since picked:    + 2.50
Earnings Date         05/26/04 (confirmed)
Average Daily Volume =     1.0 million
Chart =



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

Full Service Brokers

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

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

Home to Brokers and more!

___________________________________________________________________

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


Pulte Homes - PHM - close: 58.91 change: +2.34

WHAT TO WATCH: The DJUSHB home construction index rallied 2.9%
and broke out over both its simple 100 and simple 200-dma's.  The
index also managed to hit new six-week highs. The group is being
lead by PHM, which rallied more than 4% and broke out over
resistance at $58.00 to hit new all-time highs.  This looks like
a momentum strategy entry point for bullish positions but we
might watch it for a day or two and see how it interacts with
potential resistance at the round-number $60.00 level.

Chart=


---

Phelps Dodge - PD - close: 79.46 change: +2.78

WHAT TO WATCH: Shares of PD soared today more than 3.6% after
copper prices rallied to $1.30 a pound.  This could be tough
resistance for copper, which struggled at the $1.30 level earlier
this year but a breakout would send it to new highs (over
$1.32/lb.).  We mentioned PD in the MarketMonitor today and noted
that the stock has broken its four-week trend of lower highs but
remains just under round-number resistance at $80.00.  The short-
term technicals are turning bullish and its MACD has just
produced a new "buy" signal today.  Readers could use a trigger
over $80.00 as a buy signal.

Chart=


---

Lehman Brothers - LEH - close: 71.45 change: +1.44

WHAT TO WATCH: Today's market rally helped the XBD Broker-dealer
index climb more than 3.3% and breakout through the top of its
descending channel.  While the move probably needs to see some
confirmation before considering any significant bullish positions
readers can keep their eyes on LEH.  LEH has consolidated
sideways the last four weeks while many of its peers have been
hitting new relative lows.  Furthermore its arguable that LEH Has
put in a double-bottom near $67 and a breakout over $72.00 could
be a bullish entry point for traders.  We hesitate because there
is so much congestion and potential resistance overhead.  The P&F
chart helps weed out a lot of the noise and fortunately it too
shows that a breakout over $72.00 would be a new "buy" signal.

Chart=


---

PIXAR - PIXR - close: 72.20 change: +2.27

WHAT TO WATCH: This is it!  We've been watching for PIXR to
breakout over resistance at the $71.00 level for days.  The move
was fueled by almost three times the normal amount of volume.
That's positive news for the bulls.  Readers may want to consider
bullish positions here or look for a dip back toward the $71.00
level and buy a bounce.  The bullish P&F chart now points to an
$89.00 target.  Meanwhile you can tell your kids that PIXR's next
movie "The Incredibles" comes out on November 5th.

Chart=



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

AT $53.85 +1.03 - We've been watching AT over the last couple of
weeks for a breakout over resistance in the $53.00-53.50 range.
That move came today on stronger than average volume.  This may be
an entry point for bullish positions.


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

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

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

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

To subscribe you mar go to our website at

www.OptionInvestor.com

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

 "Contact Support"

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

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


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

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


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

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

Contact Support



DISCLAIMER

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

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

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

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives