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Daily Newsletter, Wednesday, 08/18/2004

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The Option Investor Newsletter                Wednesday 08-18-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: A New Meaning
Futures Wrap: See Note
Index Trader Wrap: Expiration rally inflicts pain on bears


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
     08-18-2004            High     Low     Volume Advance/Decline
DJIA    10083.15 +110.32 10083.15  9934.05 1.58 bln   2192/ 621
NASDAQ   1831.37 + 36.12  1831.37  1784.60 1.55 bln   2240/ 797
S&P 100   534.84 +  6.44   534.84   526.81   Totals   4432/1418
S&P 500  1095.17 + 13.46  1095.17  1078.93
RUS 2000  541.61 + 11.61   541.70   526.98
DJ TRANS 3094.47 + 49.87  3094.60  3027.20
VIX        16.23 -  0.79    19.67    16.13
VXO        16.30 -  0.89    17.80    16.27
VXN        24.17 -  1.38    26.29    24.07
Total Volume 3,461M
Total UpVol  3,040M
Total DnVol    389M
52wk Highs     104
52wk Lows      122
TRIN          0.43
PUT/CALL      0.98
******************************************************************

A New Meaning
Linda Piazza

Jim attends a conference through the end of this week, and will
return next week.

Those who looked forward to seeing the markets googled may have
attached a new meaning to that anticipated effect Wednesday.
While the long-awaited Google (GOOG) IPO was expected to
reinvigorate markets when it was first announced, news related to
its IPO may deflated markets instead pre-market-open Wednesday
morning.

Beginning in the European overnight session, commentators began
to mention the Google effect as one depressant on the markets.
Although the Google IPO had been expected to debut Wednesday, the
SEC closed its doors Tuesday afternoon without declaring the
company's registration statement effective.  At 4:07 Wednesday
afternoon, CNBC announced that Google had finally obtained that
registration statement, clearing Google to launch its IPO.

Monday, news had circulated that the SEC was conducting an
informal probe into options grants for Google's employees, but by
Wednesday morning, another possible problem had resurfaced.
Although most had assumed that potential problems with the
founders' interview with Playboy had been resolved by amended IPO
documents that included the interview, some were mentioning that
the SEC might have second thoughts about that interview, too.
The thought was that the article may have violated quiet-period
rules although the interview was conducted in April.  In
addition, many viewed the two-tier class structure for the shares
as problematic.

While some termed these mistakes "amateur" mistakes, there might
have been little room for amateurish actions in a climate of tech
weakness.  Enthusiasm for Google's IPO had apparently dimmed.
During the overnight session, Google announced that it would trim
the expected range of its IPO from the former $108-135 to $85-95,
a decision that did not come as a surprise to many market
watchers.  The recent weakness in tech stocks, including Internet
stocks, resulted in reduced interest in a high-priced IPO.
Google also said that it would sell fewer shares.  If the company
is able to price shares at the midpoint of its new range, the
reduced share offering would bring in $1.8 billion.

Also, pre-market, an AP report named Dutch bank and insurer ING
as the Janus client planning to withdraw from the fund, with the
planned ING withdrawal representing about 4 percent of Janus'
assets.  ING dropped in early European trading, although it had
gained 0.71 percent by the U.S. close.

Crude futures also pressured European markets and U.S. futures.
Several weeks ago, a European technical analyst discussed crude
prices on CNBC Europe.  That analyst mentioned a short-term
target for crude at $47.50 and a top at $57.00.  At the time,
even though crude prices had been surging, those targets appeared
overstated.  They didn't appear so this morning, with crude
futures for September delivery above $47.00 in the overnight
session and hitting $47.35 just before the Department of Energy
released its inventories figures.

Equity futures reacted as expected in the pre-market session,
dropping with that and other news.  In Europe, Air France and
Deutsche Lufthansa this week added surcharges to cope with rising
crude costs, and Finnair blamed rising fuel costs for an
anticipated loss in 2004.  Other companies begin to mention the
impact that rising crude costs have on their earnings.

Readers have been advised for a long time to watch crude futures
since rising prices pressure the equity markets.  Equity markets
often trade in an inverse relationship to crude futures.
However, a different meaning might now be attached to crude's
climb.  At some point, crude futures will top out for the short-
term, and each cent tacked onto its price brings it closer to
that short-term top.  Crude's rise has become almost parabolic
since mid-August.  If that analyst on CNBC Europe was correct,
that short-term top may not be the final top, but that short-term
top could come any time, including at the $47.50 mark that
analyst indicated, almost hit Wednesday.  In addition, at some
point, markets will begin to anticipate the absolute swing top in
crude prices, and will begin to discount that top, with equity
indices perhaps disconnecting from the current pattern of trading
in opposition to crude futures.  We may see a period, perhaps
only a short-term period or perhaps longer, when both equities
and crude rise.  That period may have begun Wednesday.

Annotated Five-Minute Charts of Crude Futures and the TRAN:




Because so many geopolitical developments factor into the costs
of crude, it's difficult to pinpoint whether the disconnect has
begun or if Wednesday's trading pattern was just an aberration.
Did it begin today because the situation in Najaf could possibly
be resolved more peaceably than was first expected?  Did Jimmy
Carter's willingness to reexamine referendum results in Venezuela
calm that situation?  Will the disconnect happen if Yukos is
purchased and markets believe the purchaser can maintain
production standards?

Developments in Iraq and Russia led to some of Wednesday's
volatility in crude prices, but market watchers also noted that a
monthly report from OPEC may have resulted in the pre-market
spike in crude prices.  OPEC raised expectations for 2004's
demand by 27.17 million barrels.  Although OPEC also noted that
OPEC production could meet demand in both 2004 and 2005, markets
did not want to hear about increased demand in a rising-price
environment.

In addition, Wednesday, Shiite cleric Muqtada al-Sadr reportedly
agreed to withdraw his forces from Naraf's holy shrine.  Many
deaths and injuries had already resulted in Wednesday's clash
before the cleric's decision. Although some distrust this
development, especially as the cleric also demanded a truce with
surrounding U.S. troops, the possibility of a peaceful resolution
in Naraf eased some fears about oil production in Iraq.  Six
hours before the cleric agreed to withdraw his Mehdi Army
militia, Iraq's defense minister had warned that an assault on
the shrine was imminent.  The possibility that the cleric would
withdraw tempered the early gains in crude prices that other
developments had engendered.

Those other developments included a Russian court's refusal
Tuesday to suspend the government's efforts to collect Yukos' tax
bill for 2000, setting up the possibility that the company will
file for bankruptcy.  The developments also included Department
of Energy and API figures showing decreasing crude inventories.
The Department of Energy quoted a 1.3 million barrel decrease
while the American Petroleum Institute quoted a 1.5 million
barrel decrease.  Because of Hurricane Charley and Tropical Storm
Bonnie, some had anticipated a bigger decline, however, by as
much a 3-5 million barrels.  Others argued that the real effect
will not be shown until next week. The confusion resulted in
volatile trading patterns between 10:30 and 11:00, when the
Department of Energy and API released their figures.

Other figures showed gasoline inventories down 2.6 million
barrels, according to the Energy Department, and 3.5 million
barrels, according to API; and distillate inventories rising 2.1
million barrels, according to the Energy Department, and up 1.6
million barrels, according to API.

The temporarily lessened import of rising crude prices, perhaps
because some view those prices as topping out, allowed equities
to rise in Wednesday's trading.  The TRAN rose through its
descending regression channel, climbing above the 30- and 50-
dma's and closing above both.

Annotated Daily Chart of the TRAN:




The TRAN rises toward a challenge 3100 and the top of its
descending regression channel, near 3125, both levels the TRAN
could reach tomorrow or the next day.  The TRAN tends to produce
a consolidation-type candle as it reaches important milestones,
so it would not be a surprise to see it produce a smaller-range
candle Thursday that touches or perhaps pierces 3100 or the top
of the descending regression channel.  As yet, it's not possible
to predict whether the TRAN will break through that channel or
turn down again.  Oscillators suggest more upside to go, but they
often do as the TRAN approaches the top of the descending
regression channel, and the TRAN has historically still turned
down at that resistance.  This has been a bellwether index
lately, sometimes being more predictive of market action than the
often-hailed SOX, so keep an eye on this index's action tomorrow
with respect to that upper channel line.  Remember that the TRAN
can be volatile, so that it sometimes pierces a trendline only to
fall back below it.

Crude was not the only influence on the markets today, of course.
Earnings reports from retailers Borders Group (BGP), Charming
Shoppes (CHRS), Ross Stores (ROST), and Talbots (TLB) showed all
four companies either meeting or beating forecasts, helping to
support markets early in the session. All were positive part of
the day, although not all held onto their gains.  The S&P Retail
Index, the RLX, did, however, closing cents above its 200-dma.
That close came at a level from which the RLX might pull back to
form a shoulder of a potential inverse H&S, however.

Also, early Wednesday morning, the Mortgage Bankers' Association
released figures showing that for the week ending August 13, the
Market Composite Index of mortgage loan applications rose 11.9
percent. The seasonally adjusted Refinance Index soared 20.9
percent.  The Refinancing Index had last shown refinancing
activity up 2.5 percent.  The average 30-year, fixed-rate
mortgage decreased to 5.75 percent from the 5.80 percent figure a
week earlier.  The Dow Jones US Home Construction Index, the
DJUSHB, climbed, but only a modest 0.49 percent.  Benefiting more
were the financial stocks, with the BIX, the S&P Banking Index,
gaining 0.99 percent, and the BKX, the Philadelphia Bank Sector
Index, rising 0.93 percent.  The BIX broke through the upside of
an orthodox broadening formation on its daily chart, although
technical analysis suggested that a downside break was more
likely.

Annotated Daily Chart for the BIX:




There's no reason to doubt this breakout, but traders might be
wary, nonetheless.  Watch Thursday for follow-through on this
index or for a fall back inside the formation, a bearish
occurrence if it should happen.

Other indices produced upside breakouts out of formations
typically deemed bearish.  The SPX was one.

Annotated Daily Chart of the SPX:




The SPX nearly met the upside target suggested by the break out
of a rectangular pattern.  Limited upside follow-through tomorrow
might be one outcome, with a pullback to follow, perhaps next
week.  One developing pattern on the 240-minute and daily charts
suggests this possibility.

Annotated 240-Minute Chart of the SPX:




A close much above 1109 would appear to negate the potential
formation, while a close between 1000 and 1109 would require a
redrawing of the possible neckline, then depicting it as
horizontal rather than declining.  A candle that pierces that
trendline and possibly 1100, but closes at or below both, would
tend to confirm the possibility of the SPX turning down into
another shoulder.  Anyone who has traded through the last year
knows better than to count on either a regular H&S or an inverse
one confirming, but watching this formation allows traders an
opportunity to measure strength or weakness.  A drop much past
1070 would tend to reject the formation, but even if it's to be
eventually confirmed, it's possible that bulls will endure a
pullback first.

The Nasdaq and SOX both climbed to test the former support from
their violated descending regression channels.

Annotated Daily Chart of the Nasdaq:




Annotated Daily Chart of the SOX:




Although the TRAN's behavior has often been more indicative of
the markets' general direction than the SOX lately, it may be
time to return to watching the SOX for guidance. The SOX's gains
Wednesday were produced despite disappointment with Applied
Materials' (AMAT) guidance.  With the semi book-to-bill number
due Thursday after the close, it might be possible to see a
continued run-up into that number, perhaps to 393-394 or even up
to the 30-dma, but a high-wave candle, doji, or other candle
indicative of indecision appears possible for Thursday, too,
after Wednesday's big gain.

The daily charts of the Dow and Russell 2000 showed many of the
characteristics shown on that of the SPX.

Annotated Daily Chart of the Russell 2000:




Like the SPX, the potential for an inverse H&S exists on this
chart, but the Russell 2000 may have further to climb before
consolidating and rounding down into another shoulder, perhaps up
toward 548-550, depending on whether the neckline is to be
horizontal or descending.  The Russell 2000 has met the upside
target projected by the break out of its rectangular
consolidation formation, however, and soon faces resistance from
those converging moving averages marked on the chart, so it's
possible that it will see some type of candle indicative of
indecision tomorrow or Friday, too.

Annotated Daily Chart of the Dow:




The Dow ended the day jammed up against next resistance after
having met the upside target predicted by the breakout of its
rectangular consolidation zone.  An inverse H&S also remains
possible on the Dow.  If that inverse H&S is to form, look for
either an immediate downturn or possible follow-through on the
gains Thursday morning, perhaps up to 10,100-10,120, with the Dow
backing off the high of the day by the close and producing one of
the candles indicative of indecision.  Gains much higher than
10,120 might indicate that the neckline will not be descending,
but that the Dow might instead rise toward 10,200 before
steadying and forming a possible horizontal neckline.

Although many indices present the possibility of a consolidation-
type day or pullback beginning Thursday after some initial
follow-through, stronger gains or an immediate reversal can't be
ruled out.  Those possibilities of a consolidation-type day can
also be predicated upon the usual tendency of a tight-range day
to follow a large-range day, and on the often-seen tendency for
indices to get pinned to certain numbers beginning about midday
on the Thursday of an option-expiration week.  However, overnight
developments in Iraq or Russia might change the tenor of trading
Thursday, and just because tight-range days tend to follow large-
range days doesn't meant that they always do.

Indecision might now be unexpected tomorrow for reasons other
than what's seen on charts, too.  Thursday, market watchers may
feel as if their heads are spinning, trying to weigh the impact
of many economic releases.  Initial jobless claims begins the
day, released at 8:30.  Last week's number showed 333 thousand
new claims, with 335-340 thousand expected for this week's
number.  At 10:00, July's Leading Indicators, the DJ/BTM Business
Barometer, and Chicago Fed Index will all be released.  June's
Leading Indicators Index fell 0.2 percent, with expectations for
July's also suggesting a decline, from 0.1-0.4 percent, depending
on the source.

Thirty minutes later sees the release of the natural gas
inventories, not garnering as much attention lately as the crude
inventories number.  A noon, the August Philly Fed Index will be
released.  In July, the Philly Fed stood at 36.1, with
predictions for August's number spanning a wide range, from 20.0-
30.8, depending on the source.  After the close sees the Money
Supply number and the Semi Book-to-Bill number, released at about
6:00 EST.  Although that semi number will not be released during
trading, anticipation might impact the SOX tomorrow.

Then there's the Google effect.  As this report was prepared, it
was not yet certain whether Google would begin trading Thursday,
but that remained a possibility.   The potential scenario for the
markets outlined in these pages might be radically changed by
Google's IPO if it begins trading or by some geopolitical event
occurring during the overnight session, events that cannot be
foreseen tonight.  Test early market action against the scenario
to see if it fits. Discard the scenario if it doesn't.  Many
markets ended at or just under possible resistance, allowing an
easy test of that scenario.


***************
FUTURES MARKETS
***************

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


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*****************
INDEX TRADER WRAP
*****************

Expiration rally inflicts pain on bears

Bears were most likely licking their chops this morning as
September Oil futures (cl04u) were on the rise while stock
futures were painting a lower trade.

While there was some positive news after the opening bell, this
morning's first 10-minutes of trade may well have signaled that
it was a bear's head being put on the chopping block, with
traders bound and determined to inflict some "Max Pain" option
expiration on their counterparts, as stocks rallied strong to
their close, despite oil settling at record highs.

In last night's Index Wrap, I quickly outlined activity in the
TRIN that traders might want to be alert to, and today's
unraveling of bullish enthusiasm after a lower open certainly has
the smell of option expiration volatility.

Either that, or the "inverse oil trade" has run its course.
Hmmm.... I'm not so certain about that.  Here's why.

U.S. Market Watch - 08/18/04 Close



I've added today's opening ticks to the far right of this
evening's U.S. Market Watch, where the tracking DIA, SPY and QQQ
will give us a more accurate picture of where the major indices
opened.  Look at their lows, just fractions below the opening
tick.

Then with the TRIN observations and bullish and bearish "plan" we
were alert to, note that the TRIN opened 1.14, ticked 1.15, and
let me tell you, it dropped like a rock as buyers stepped up to
the plate.

Now look at today's Market Volatility Index (VIX.X).  The opening
tick 17.51 then.... "whacko" as if Popeye himself had squeezed
open a can of spinach as put selling and call buying unraveled.
In the August 12 Index Trader Wrap I showed a chart of the VIX.X
and today's close has volatility right back lower, where more
than likely, option expiration has played a BIG role in recent
gains.

Not convinced?  Today's most active SPX options were the August
1,075 puts (SPQ-TO), September 1,075 calls (SPQ-IO) and September
1,075 puts (SPQ-UO).  Hmmm.... 1,075 isn't too far off of the
SPX's weekly R1 (1,075.65) and MONTHLY S1 (1,073.50) levels.

My main point here, is that I (Jeff Bailey) am not overly
confident that the "higher oil, lower equity" trade has come off.

Market Snapshot / Internals - 08/18/04 Close



While some of the reports out of Iraq that Shiite cleric Muqtada
al-Sadr had agreed to withdraw his Mehdi army from Najaf could
have only helped bullish sentiment, that news didn't hit the
wired until well after 10:00 AM EDT.  By then, the TRIN had
already dropped to its DAILY S1 and below its DAILY Pivot (0.85).

While the major indices seemed to stall out just below their
WEEKLY R2s at mid-session, bulls flipped the switch to "buy"
after 02:00 as TRIN made a new low and the Dow Industrials added
another 70-point gain to the close.

Today's volumes were not that heavy, perhaps further hinting that
the bulk of today's gains can be attributed to unraveling of
option trades.  Once the move started, it didn't want to stop.

Congratulation to fellow analyst Mark Davis as he rung up an
impressive 88.15% gain trading SPX options in today's Market
Monitor.  Check out his recap in the Market Monitor archive at
16:33:27 and 16:30:49.

Pivot Analysis Matrix -



I'd be a liar if I told you I thought for certain that the SPX
would battle back to within 5-points of its August "Max Pain" at
1,100.  But there it is at tomorrow's DAILY R1.

It's probably coincidence that the NASDAQ-100 Index (NDX.X) was
ablve to close at its DAILY R2.  Hmmmm.... sounds like an option-
expiration target to me.  Gulp!  The NASDAQ-100 Index (NDX.X)
August "Max Pain" is 1,375 (25-point increments).  Hmmm.....
that's tomorrow's DAILY R1.

For tomorrow, I'm using today's QChart's high, low and close for
TRIN.

My thoughts for BULLISHNESS is that for further unraveling ABOVE
DAILY R1's, then TRIN has to fall below 0.91 (DAILY R1) or
thereabouts at some point in the session.

DAILY R1s could be in play, where I remember the SOX.X hovering
around the 400.00 level in late July, refusing to close much
below 399.  When the SOX.X did close below 400.00 on August 6, it
has traded a new 52-week low of 360.61, which took place intra-
day on Friday of last week.

One note I would make, is that on an intra-day basis, once the
INDU broke 10-points above its WEEKLY R2, it extended those gains
to 10,045 by 02:30 PM EDT.  When the INDU pulled back from that
session high, bulls snapped up 10,025 faster than Popeye could
ask Olive Oyl out on a date.

Jeff Bailey


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The Option Investor Newsletter                Wednesday 08-18-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Watch List: A Few Bullish Candidates
Stop Loss Updates: AET, HIG
Dropped Calls: None
Dropped Puts: None
New Calls: MHK, TDS, ZBRA


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

A Few Bullish 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.
___________________________________________________________________


Toro Co - TTC - close: 64.98 change: +1.67

WHAT TO WATCH: TTC has broken out through the top of its six-week
descending channel and its technicals are turning bullish.  The
MACD is showing a new "buy" signal from oversold levels.  We
mentioned TTC in the MarketMonitor this afternoon and believe it
could be a decent bullish candidate if it pushes through $65 or
$66 depending on your level of risk.

Chart=


---

Par Pharmaceuticals - PRX - close: 40.29 change: +1.75

WHAT TO WATCH: Drug and Biotech stocks turned in a pretty good
session today.  Shares of PRX added 4.5% and out performed both
indices.  We're very encouraged by the breakout over round-number
resistance at the $40.00 level.  We would consider bullish
positions on a climb through technical resistance at its simple
100-dma directly overhead near $40.75. P&F chart traders can
watch for a move over $42 to produce a new buy signal.

Chart=


---

Patterson Companies - PDCO - close: 75.99 change: +1.09

WHAT TO WATCH: We came very close to adding PDCO to the play list
as a call candidate today.  The stock climbed 1.45% on stronger
than average volume.  Shares appear to be coiling for a breakout
over its trendline of resistance and lower highs.  We would
consider a move over $77.00 as a potential entry point.  The P&F
chart is bullish and points to a $91 target.  Unfortunately, PDCO
is due to announce earnings on August 26th and we don't like to
hold over an earnings report.


Chart=



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

QCOM $36.02 +1.06 - We mentioned QCOM as a bullish candidate in
the MarketMonitor today.  Watch for a move over $36.50 as a
potential entry point.

PD $79.51 -1.26 - PD slipped back under the $80.00 level today
but traders bought the dip and drove shares back toward $80
again.

WFMI $77.17 +0.95 - Whole Foods is trying to rebound and has
climbed back above its 10 and 200-dma's.  Watch for a move over
$80.


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

AET - call play -
 Raise stop from $87.50 to $88.95

---

HIG - put play -
 Readers should be careful here.  HIG has
 closed back over the $60.00 level.

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

None


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

None


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*********
NEW CALLS
*********

Mohawk Industries - MHK - close: 74.60 change: +0.58 stop: 72.45

Company Description:
Mohawk is a leading supplier of flooring for both residential and
commercial applications. Mohawk offers a complete selection of
broadloom carpet, ceramic tile, wood, stone, laminate, vinyl,
rugs and other home products. These products are marketed under
the premier brands in the industry, which include Mohawk,
Karastan, Ralph Lauren, Lees, Bigelow, Dal- Tile and American
Olean. Mohawk's unique merchandising and marketing assist our
customers in creating the consumers' dream. Mohawk provides a
premium level of service with its own trucking fleet and over 250
local distribution locations. (source: company press release)

Why We Like It:
Mohawk, a carpet and flooring company, has been known to trade in
the shadow of the homebuilders.  If homebuilders are doing well
then logic dictates that more homes means more carpet sales for
the likes of MHK.  Thus the recent uptick in the homebuilding
sector has given rise to MHK as well.  Technically shares of MHK
have broken through their 2 1/2 month trend of lower highs.  MHK
has also broken out above its simple 100-dma and is challenging
resistance at its simple 20-dma and the top of its current
trading range at $75.00.  The Point & Figure chart looks very
tempting.  The P&F chart shows MHK consolidating above P&F
support and has now produced a new buy signal with an $84 target.

We are optimistic about MHK's short-term prospects here but we
want to be careful.  The major indices are up three days in a row
and could be due for a pull back, plus the weekend is coming and
that tends to raise geo-political concerns.  Our plan is to use a
TRIGGER above the early June high.  Our entry point will be
$75.51.  Until then we'll wait on the sidelines.  Our initial
target will be the $80.00 mark.

Suggested Options:
Traders need to be careful here.  We're not suggesting any big
positions.  The September calls are our favorites but volume is
very light.  Novembers are available but that's two extra months
we don't think we need.

BUY CALL SEP 70 MHK-IN OI=  2 current ask $5.60
BUY CALL SEP 75 MHK-IO OI= 19 current ask $2.00
BUY CALL SEP 80 MHK-IP OI=  0 current ask $0.45

BUY CALL NOV 75 MHK-KO OI=842 current ask $3.70
BUY CALL NOV 80 MHK-KP OI= 52 current ask $1.65

Annotated Chart:


Picked on August xxth at $xx.xx <-- See TRIGGER
Change since picked:     + 0.00
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      397 thousand
Chart =


---

Telephone & Data Sys - TDS - cls: 77.43 change: +0.83 stop: 74.00

Company Description:
TDS Telecom is a growing communications company serving more than
1 million residential and business customers in small rural and
suburban communities in 30 states. The company's goal is to
provide the most effective communication technology and high-
quality services in its chosen markets. TDS Telecom is a
subsidiary of Telephone and Data Systems, Inc., a diversified
telecommunications corporation founded in 1969 and a FORTUNE 500
company, that operates primarily by providing wireless and local
telephone service through its strategic business units, U.S.
Cellular and TDS Telecom. (source: company press release)

Why We Like It:
Right off the bat let us warn you that this is an aggressive
play.  Not only is option volume pretty low but the stock's
average trading volume is below our unofficial requirements for
trading.  What we like about TDS is its bullish technical
picture.  The stock skyrocketed higher and broke through
resistance at $75 back in July after surprising with a positive
earnings report that beat analysts' expectations by 12 cents.
Since then TDS has consolidated sideways in a $4.00 range but
most of the time the $75 level has held as support.  Now the
stock is building a trend of higher lows with short-term support
at its simple 21-dma.  We feel that TDS is ready to breakout over
resistance at $78.00.  Unfortunately, the stock has old
support/resistance at $80.00 dating back to 2000 and 2002.
However, the P&F chart shows a triple-top breakout buy signal
with a $94 target.

We're willing to make a play on a breakout over $78.00.  More
conservative traders willing to take the risk with the low volume
might wait for a move over $80.00.  We'll use a TRIGGER at $78.05
and target a move to $85.00.

Suggested Options:
We want to warn you again that option volume is very low here.
Choose carefully.

BUY CALL SEP 75 TDS-IO OI= 0 current ask $3.70
BUY CALL SEP 80 TDS-IP OI=10 current ask $1.00
BUY CALL SEP 85 TDS-IQ OI= 0 current ask $0.30

BUY CALL NOV 75 TDS-KO OI=105 current ask $5.30
BUY CALL NOV 80 TDS-KP OI=  0 current ask $2.70
BUY CALL NOV 85 TDS-KQ OI=  0 current ask $1.15


Annotated Chart:


Picked on August xxth at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      195 thousand
Chart =


---

Zebra Tech. - ZBRA - close: 83.22 chg: +2.56 stop: 79.95

Company Description:
Zebra Technologies Corp. delivers innovative and reliable on-
demand printing solutions for business improvement and security
applications in 90 countries around the world. More than 90
percent of Fortune 500 companies use Zebra-brand printers. A
broad range of applications benefit from Zebra-brand thermal bar
code, "smart" label, receipt, and card printers, resulting in
enhanced security, increased productivity, improved quality,
lower costs, and better customer service. The company has sold
four million printers, including RFID printer/encoders and
wireless mobile solutions, and also offers software, connectivity
solutions and printing supplies. (source: company press release)

Why We Like It:
We believe that RFID technology is going to be a huge business
over the next several years and from the looks of ZBRA's chart so
does Wall Street.  Not only do we like the rebound from the
simple 100-dma and the bullish technicals and new "buy" signal in
its MACD, but we also like the fact that ZBRA is due to split 3-
for-2 late next week.  A little bit of pre-split momentum could
keep the rally alive.  The recent three-day run in the NASDAQ has
helped ZBRA push back above resistance at the $80.00 mark and
today's gain put ZBRA back above its 40 and 50-dma's.

More aggressive traders may want to consider positions at current
levels now that ZBRA has broken its trend of lower highs.
However, we are going to use a TRIGGER above six-week old
resistance at $84.00.  Our entry point will be $84.35.  Our
short-term target is $90.00.  Readers need to decide now, if they
like the play, are they willing to hold over the stock split or
not.  Some stocks experience post-split depression while others
do not.  ZBRA begins trading at its post-split price on August
26th.

Suggested Options:
Our favorites are the September calls but the Novembers have more
volume.  You might want to ask your broker now how the symbols
will change after ZBRA splits 3-for-2 next week.

BUY CALL SEP 80 ZBQ-IP OI= 71 current ask $5.00
BUY CALL SEP 85 ZBQ-IQ OI=217 current ask $2.30

BUY CALL NOV 85 ZBQ-KQ OI=381 current ask $4.80
BUY CALL NOV 90 ZBQ-KR OI=929 current ask $2.90


Annotated Chart:


Picked on August xxth at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      419 thousand
Chart =



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