Option Investor
Newsletter

Daily Newsletter, Wednesday, 09/15/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Wednesday 09-15-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Storm Warnings  
Futures Wrap: See Note
Index Trader Wrap: A "Crazy Ivan" type of session 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      09-15-2004           High     Low     Volume   Adv/Dcl
DJIA    10231.36 - 86.80 10317.05 10228.78 1.58 bln 1127/1642
NASDAQ   1896.52 - 18.88  1908.38  1892.08 1.58 bln 1133/1840
S&P 100   542.63 -  4.30   546.93   542.57   Totals 2260/3482
S&P 500  1120.37 -  7.96  1128.33  1119.74
SOX       380.78 - 12.72   393.50   379.81
RUS 2000  568.52 -  2.44   570.97   566.53
DJ TRANS 3215.78 -  9.25  3227.71  3208.71
VIX        14.64 +  1.08    14.67    13.68
VXO (VIX-O)14.77 +  1.22    14.79    13.78
VXN        20.30 +  0.81    20.53    19.82
Total Volume 3,161M
Total UpVol    839M
Total DnVol  2,287M
Total Adv  2260
Total Dcl  3482
52wk Highs  148 
52wk Lows    50
TRIN       1.83
PUT/CALL   0.94
******************************************************************

Storm Warnings
Linda Piazza

Earnings warnings, economic numbers, results of an OPEC meeting,
and discussions of Ivan's impact bombarded investors Wednesday. 
Along the Gulf Coast, homeowners and businesses prepared for the
coming storm.  On Wall Street, investors did likewise, not liking
all the news that bombarded them.  

That news actually began with Xilinx's (XLNX) warning after the
close Tuesday and continued through the morning hours Wednesday. 
Not all news was bad.  The HMO, the Morgan Stanley Healthcare
Index, posted a strong gain.  Component stock Pacificare Health
(PHS) announced a buyout of American Medical Security (AMZ). 
Investors liked the deal as both stocks soared, even though PHS
will pay a 41 percent premium to AMZ's closing price on Tuesday
and assume the company's debt.  Analysts may have something to
say about the terms of the deal, but PHS's confidence that the
deal will contribute to net income caused it to raise its 2005
earnings forecast.  

Even a hurricane's winds blow first one direction and then the
other as the eye passes.  Damage is still done, and so it was to
the markets in Wednesday's trading.  Programmable-chip
manufacturer Xilinx's (XLNX) warning damaged sentiment in the
semiconductor sector.  The company joined INTC, TXN, NSM and LSI
in trimming revenue estimates.  UBS did its part to damage that
sentiment, too, cutting its rating on Nvidia Corporation (NVDA)
to a reduce rating on valuation concerns.

By midday, the SOX had dropped to the converging 20- and 30-
sma's, erasing all the week's gains and appearing to produce an
evening-star reversal pattern.  That's where the SOX closed, too.

Annotated Daily Chart of the SOX:

 

Several chart characteristic of potential importance show up
here.  The confirmed evening-star formation hints that the SOX
could head lower, but first the index has to push past the
converging 20- and 30-dma's.  Those averages could instead
support it.  Bullish divergence was confirmed as the SOX dipped
to the early September high.  That divergence, coupled with the
level from which the SOX turned lower again, suggests the
possibility of an inverse H&S forming.  Should the SOX
consolidate or stop any pullback above or near 360, that
possibility is preserved.  A dip past 360 tends to negate the
possibility with a dip past the early September low confirming
the bearishness.  Any SOX bears should have profit-protecting
plans in place from the SOX's current level down to 360 in case
the SOX does complete that inverse H&S.  

As of tonight, a push above 400 would be required for a
confirmation of the inverse H&S, but the neckline rises.  Any SOX
bulls should have profit-protecting plans in place as the 50-dma
and then 400 are tested in case the SOX turns lower again at the
neckline.

Some indices withstood the day's storm of economic numbers and
news better than others.  The day's economic releases began with
the MBA Refinancing Index at 7:00.  Headlines announced the
decline in mortgage application volume but pegged the decrease on
a holiday-shortened week, with that cause buffering the effect of
the decline.  The composite number fell a seasonally adjusted 2
percent from the previous week's.  The seasonally adjusted
Purchase Index and Refinance Index fell 4.3 and 1.2 percent,
respectively.  The average interest rate for 30-year, fixed-rate
mortgages fell to 5.68 percent from the previous week's 5.79
percent.  The Dow Jones US Home Construction Index, the DJUSHB,
withstood potential storm winds relatively well, losing only 0.52
percent and closing well off its low of the day.  The index's
pattern forms a possible bearish rising wedge on the daily chart,
so it's possible that ill winds in the form of lower home sales
could yet topple it.  So far, this index continues to defy
expectations of a deeper decline, however.

Earnings before the open included BBY's, with the headlines 
touting the beat-by-a-penny earnings and the increase in Q2's
profit.  Other headlines noted that cost controls had been
responsible for those earnings.  Improved margins also
contributed, however.  Earnings were 46 cents per share,
including charges of 7 cps for asset impairments.  According to
at least one article, analysts had expected earnings of 52 cps,
but apparently that expectation had been a before-charges number. 
At $6.08 billion, revenue slightly topped the $6.06 billion
expected.  The company expects to achieve earnings of 41-47 cps
in Q3 and $2.80-2.93 per share for the full year against
analysts' expectations of 44 cps for the quarter and $2.90 per
share for the full year.  BBY not only withstood any economic
storm winds, but also gapped above its 200-sma and posted a 4.61
percent gain.

The strength in BBY was offset by a blue chip warning.  Perhaps
to be expected after bottling group Coca-Cola Enterprise's (CCE)
warning last week, Coca-Cola (KO) warned before the open.  KO
said that H2 earnings will not meet expectations, blaming weak
volumes in North America and Germany.  The summer had been
unseasonably cool and rainy in Western Europe, the company noted. 
Merrill Lynch later downgraded KO to a neutral rating from a buy.

That blue chip warning also damaged sentiment, causing some to
worry about the quality of earnings in the coming quarter.  More
storm warnings gathered, and KO gapped lower.  This blue chip's
decline helped send the Dow below the 200-sma early in the
session.  KO, INTC, and MSFT led the volume decliners in the Dow,
with KO closing lower by 3.98 percent.

Other companies lowering guidance included Celestica (CLS) and
Tribune Company (TRB).  Not even Oracle's originally well-
received earnings and strong climb Wednesday could help protect
the techs from a buffeting as Goldman Sachs cut its rating of the
IT hardware systems and software sectors to a neutral rating. 
The GSO, the GSTI Software Index dropped 0.79 percent, but
remained within the trading range established this week.

Economic numbers continued at 8:30 with the release of 
September's Empire State Manufacturing Index and July's Business
Inventories at 8:30. The prior number for the Empire State
Manufacturing Index had been 12.6, with expectations for
September's number ranging from 20.0-22.0, and with the 28.3
number surprising to the upside.  Even that strong number had
negative import, though, with the optimistic winds created by
this number soon swinging the other direction.  Some considered
that number's strength to have increased the chances that
September's FOMC meeting will result in another rate-hike
decision. 

Business inventories gained 0.9 percent in June, but were revised
up to 1.1 percent.  July's inventories climbed 0.9 percent
against an expectation of a 0.8 percent increase.  This was
touted as the strongest two-month gain in four years.  The
inventory-to-sales ratio climbed to 1.32.  Retail inventories
rose 0.6 percent in July. 

A rise in inventories can be viewed from two perspectives, one
suggesting it as a positive as businesses gear up for anticipated
demand.  When that rise outpaces sales gains, it's difficult to
view that rise as a positive, however.  Since the components of
this number, with the possible exception of retail inventories,
are known prior to its release, the business inventories number
wasn't expected to be a market-moving number. The 1.8 percent
rise in auto inventories might have damaged sentiment, however,
reviving worries about anticipated cuts in production. U.S. car
manufacturers dropped.

More attention was expected to focus on the rest of the morning's
numbers.  At 9:15, the Federal Reserve released figures on
August's industrial production and capacity utilization. 
August's industrial production rose 0.1 percent against an
expected rise of 0.4 percent, but it rose to 116.6 on the
government's index, with that number passing up the previous high
recorded in June 2000, before the recession.  Capacity
utilization was steady at 77.3 percent after July's number was
revised up to 77.1 percent, matching expectations.  Despite the
belief that more attention would focus on these numbers, markets
appeared to pay little attention.

Near 10:30, the Department of Energy released crude, distillate,
and gasoline inventories with the American Petroleum Institute
releasing its figures near the same time.  The DOE figures showed
crude inventories dropped 7.1 million barrels, distillate
inventories climbed 1.7 million barrels and gasoline inventories
fell by 1.6 million barrels.  The drop in crude supplies was
termed "hefty" in one article.  The API also showed a drop in
crude inventories, with their figures detailing that drop at 2.3
million barrels.  The API noted a rise in gasoline inventories by
700,000 barrels.  DOE and API figures almost always differ, but
they didn't differ in their revelation that crude inventories had
dropped more than expected.  Storm winds stiffened, although most
damage had already been done to the markets by the time those
numbers were released.  

An OPEC meeting had already focused attention on crude and
related stocks, a focus that was heightened by Ivan, continued
attacks on the pipelines in Iraq and this week's CSFB Small Cap
Energy Conference and Peters & Company North American Oil and Gas
Conference.  OPEC's outcome had been intended to calm the storm
winds.  

OPEC's president quantified the fear premium in the price of
crude, stating that the premium was in the $10-15 range per
barrel.  He labeled the degree of worry about shortages
unwarranted.  OPEC left the price band at $22-28 a barrel, with
the decision as to whether to increase the price band postponed
to the December 6 meeting.  OPEC also attempted to calm worries
by upping the production quota by 1 million barrels a day, with
that increased production to begin in November.  Some analysts
noted that the official increased production to 27 million
barrels a day will have little impact since OPEC members already
unofficially produce 0.4 million barrels a day more than new
quota.  An OPEC member put a different spin on that conclusion,
though, saying that OPEX had "officialized" the increased
production.  

Some immediate impact did occur, however, with crude prices
dipping initially until the decrease in inventories blew that
fear premium higher again after 10:30.  Later in the afternoon,
OPEC's president made another attempt to calm the winds, saying
that he expected 2005's demand to be less than that in 2004. 

Ivan also focused attention on crude, with major petroleum
companies and smaller independents closing offshore and onshore
facilities or going on storm-alert status.  The U.S. Minerals
Management Service noted at midmorning that 50 percent of the
manned platforms in the Gulf of Mexico had been evacuated and 60
more rigs shut down.  Forty-six percent of the distillation
capacity for the U.S. is located in the four-state region
possibly impacted by Ivan, with Texas and Louisiana accounting
for all but three percent of that capacity.  By midmorning,
damage was already being reported on some of those rigs, with
Ivan's full force not yet impacting the industry's production
capacity.  

Crude futures for October delivery again appeared to bounce off
the 50-dma, with prices climbing above $45.00 but they didn't
hold those levels.  

Annotated Daily Chart of Crude Futures for October Delivery:

 

Crude futures may not have been able to sustain gains because
Ivan's impact on the industry will be deemed transitory and
because of those soothing words out of the OPEC meeting.  As long
as the contract remains above the 50-dma on a closing basis,
however, the possibility remains that it may break to the upside
rather than the downside.

Ivan's impact will not be on the energy industry alone, of 
course.  Ports are being shut down along the Gulf.  Some ships
were diverted to other Gulf ports and some reversed course. 
Shipbuilders have shut down facilities.  Any industry relying on
cargo shipments might be impacted.  Still, despite the possible
impact on stocks in the TRAN, the Dow Jones Transportation Index,
the index held close to recent highs until the last couple of
hours of trading.  It closed at the low of the week, but didn't
suffer major technical damage.  It's been consolidating just
below possible monthly support/resistance from the late 90s but
holding above 3200 and the early July swing high.  Bearish
price/divergence appeared on the recent move above the July swing
high, so watch for a possible dip in this important index.  A dip
below 3200 might damage sentiment.  

The damage from earnings warnings and worries about Ivan's impact
was too much for the Dow to sustain, with that index dropping
below the 200-sma by midmorning.

Annotated Daily Chart of the Dow:

 

The Dow could drop as far as the 100-dma and still preserve the
possibility that the current decline is a bull flag decline.  The
first downside target then appears to be 10,184-10,200, with a
break of that level perhaps sending the Dow down to test the
converging 30- and 50-sma's.  Although the above QCharts-drawn
regression channel has an upper boundary just under 10,400, a
simple trendline drawn across this year's swing highs crosses at
about 10,340.  A move above the September 7 high of 10,363 would
be needed to confirm an upside breakout.  Such a breakout would
soon face resistance from the late June highs of 10,487.

MSFT and INTC also impacted the Nasdaq, turning it down after two
days of testing its 100-sma.  The Nasdaq clung to 1900 and the
200-ema at 1904.38 much of the day, but closed at 1896.52,
creating an approximation of an evening-star pattern.

Annotated Daily Chart of the Nasdaq:

 

The Russell 2000's test of its 200-sma and subsequent bounce near
10:35 might have helped to steady other markets during the midday
period.

Annotated Daily Chart of the Russell 2000:

 

A move above Monday's high would confirm a breakout above the
descending regression channel in which the Russell 2000 has been
trading, while a move below the 200-sma, confirmed by a move
below 566, might send the Russell down to test 560-563 and then
552-554.  Bears might have a profit-protecting plan in mind if
the Russell 2000 should test that 552-554 zone and bulls might
have one in mind if the index should test 588-590.

The SPX still remains an index to watch, however.  Unlike the Dow
and the Russell 2000, this index did not retest its 200-sma. 

Annotated Daily Chart of the SPX:

 

If markets should continue to decline, traders should set alerts
for an SPX test of its 200-dma, as tests of that average can and
have moved the markets.  A breakout above the top of the
ascending regression channel, at about 1132 on the above QCharts-
drawn chart but at 1130 by some others' calculations, would
signal an upside breakout, to be confirmed by a move above the
June high.  Any entering bullish trades on an upside breakout
should keep stops tight until that June high is bypassed.  

A break below the 200-sma on a closing basis would likely damage
sentiment and strengthen storm warnings related to the often-seen
September and October declines.  As Jim Brown noted on the
OptionInvestor Market Monitor, that range between the top
trendline of the descending regression channel and the 200-sma is
a risky one to trade.

Will markets continue to decline?  Forecasters must warn of an
approaching storm, and that warning must encompass all possible
landfalls.  Obviously, however, not all those warnings are
realized, and so they might not be with the market's storm
warnings offered by the recent lows in volatility indices, the
often-seen dismal market performance in September and October,
and the earnings warnings that are beginning to appear.  

However, many indices produced reversal signals at the tops of
their regression channels.  The VIX and VXO saw strong moves up
from their recent lows, a warning for those with bullish hopes. 
The VXN's move was not as pronounced.  While traders must be open
to the possibility that this storm will not bring a decline but a
consolidation that withstands the pressure, or that indices could
even surge above the year-long descending trendlines seen on
some, this does not yet appear to be a good time to be nurturing
bullish hopes for the immediate future.  Let price action show
you if bullish hopes are to be realized by producing those needed
breakouts.

For tomorrow, investors have two reasons to anticipate the
possibility that markets might not go much of anywhere.  One is a
tendency for large-range days to be followed by small-range days. 
Another is related to opex, with markets sometimes ratcheting
down on opex Thursday, with S&P 500 options ceasing to trade as
of Thursday's close.  

A couple of factors argue against that tight-range consolidation
theory, however.  Along with news of Ivan's damage, investors
will be treated to overnight discussions about the implications
of the Dow's close beneath its 200-sma.  Although savvy investors
know that the Dow is not the broadest of markets, it draws much
attention.  If the decline should continue, however, bears should
pay special attention if the Russell 2000 and/or SPX should test
their 200-sma's, as those would be potential bounce points. 
Until breakouts occur to the upside, this appears to be a time
for selling rallies rather than buying support, but watch for
those potential breakouts.

In addition, economic reports and events have the potential to
move fragile markets.  Economic reports Thursday begin with the
usual 8:30 release of initial jobless claims, with last week's
release cheering with markets with a drop to 319 thousand.  That
figure will also be accompanied by the 8:30 release of CPI, with
prior numbers at a drop of 0.1 percent for the headline number
and a rise of 0.1 percent for the ex-food and energy number. 
Tuesday morning, I listened to a report on a survey of small
business owners, with a majority of those owners saying that they
felt able to pass higher costs on to consumers and were planning
on raising prices.  We'll see if any of that confidence has
filtered down into the CPI numbers yet.

Additional numbers include the July Treasury Capital Flows at
9:00 and Natural Gas Inventories at 10:30.  Perhaps more closely
awaited will be the September Philly Fed Index at noon, with that
index last showing a 28.5 reading.  At 1:00, the Fed's Gramlich
is scheduled to report on oil and policy matters in a talk in
Kansas City, with the market perhaps reacting to Gramlich's take
on the oil's effect on the economy, unless Ivan's anticipated
swath through the U.S. might somehow impact Gramlich's
appearance. Money supply will be reported after the market's
close, at 4:30.   


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


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

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


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

A "Crazy Ivan" type of session

In the movie "Hunt for Red October," U.S. submarine Petty Officer 
Jones described that the Soviet sub he was tracking had pulled a 
"Crazy Ivan."

At times, Soviet submarines using a "Crazy Ivan" would 
inexplicably turn 180 degrees in an attempt to outmaneuver their 
foes, or launch a surprise attack.

While we've been hearing about Hurricane Ivan for weeks as it 
takes aim at the U.S. Gulf Coast, investors used the rapidly 
approaching hurricane and earnings warnings from beverage giant 
Coca-Cola (NYSE:KO) $41.16 -3.98%, chipmaker Xilinx (NASDAQ:XLNX) 
$27.50 -5.3% and electronics outsource-manufacturer Celestica 
(NYSE:CLS) $12.60 -13.52% as ample reasons to lock in recent 
profits.

According to current weather forecasts, Hurricane Ivan is 
expected to hit land late this afternoon, or early Thursday, 
somewhere between Florida's Panhandle and Louisiana, with winds 
reaching up to 160-mph.

A perfect storm seemed to be brewing for energy bulls early in 
the session as Gulf of Mexico producers and refiners have been 
shutting in production ahead of Ivan's visit.  At 10:30 AM EDT 
the EIA said its statistics showed a 7.1 million barrel draw in 
the latest week, which was well above a 1.5 million barrel draw 
forecast.  Supplies in storage are estimated at roughly 278.6 
million barrels, or 1% below last year's level.

October Crude Oil futures (cl04v) jumped as high as $45.30, but 
"Crazy Ivan'd" by the close to settle down 29 cents at $43.58 as 
Hurricane Ivan's path appeared to be drifting north-northeast 
toward Alabama and the Florida panhandle and not directly at many 
of the Louisiana-coastal refiners.

U.S. Market Watch - 09/15/04 Close

 

I can't say today was a totally "defensive-looking" session.  
Treasuries found selling, not safe-haven buying, and selling was 
rather evenly distributed among the major maturities.  

The dollar gained ground after this morning's release of the 
September New York Empire State Index, which showed a notable 
rebound in manufacturing activity in the northeast.  Some 
defensive action here?  I don't think so.  Remember next week's 
FOMC meeting (Tuesday) and we might be seeing one of those 
anticipatory bouts of dollar buying on thought the Fed may hike 
another 25 basis points.  Fed hike thoughts may also have brought 
selling into Treasuries.

A quick check of October Fed Funds futures (ff04v) 98.26, which 
fully encompasses next week's FOMC meeting is predicting roughly 
100% chance the Fed will raise it target for Fed funds to 1.75%.  
We get this by taking a base 100 (or zero rate), subtracting the 
Fed Funds futures of 98.26 to get 100 - 98.26 = 1.74.

That report (NY Empire) took some of the sting our of the later-
released August Industrial Production data where production fell 
0.1%, which was below economists' forecast for a 0.5% gain.  
July's upwardly revised figures showed a gain of 0.6% from the 
previously reported 0.4% gain.

August capacity utilization was steady at 77.3% in August, even 
with July's upwardly revised 77.3% utilization rate from the 
previously reported 77.1% rate.  These continued low levels of 
capacity utilization suggest few bottlenecks.

The Utility Sector Index (UTY.X) 330.60 +0.02% finished today's 
session with a fractional gain after trading 52-week highs just 
last week at 334.33.  A bit of an intra-day "Crazy Ivan" here too 
considering August's industrial production figures were pulled 
lower by a third-straight month of decline in utilities output, 
with August output falling 2.4%.

October Crude Oil futures (cl04v) - 30-minute intervals

 

At mid-session, I thought for certain crude would find a bid 
above $44.75.  However, oil futures "Crazy Ivan'd" too.  The 30-
minute chart does show bidders came up to the $44.75 level once 
it was broken, but two horizontal highs of $45.40 and $45.30 look 
very suspicious as though determined sellers are forming at that 
level.

Despite the rather sudden late-session reversal in oil, stocks 
which did show some bid from their morning lows, faded toward 
today's close, as if traders would rather wait out Ivan and be 
more protective of recent gains.

Market Snapshot / Internals - 09/15/04 Close

 

Volumes were brisk, but nothing unusual and steady with what the 
daily rates have been since the Labor Day weekend.  New lows at 
both the NYSE and NASDAQ are almost identical to yesterday, while 
new highs abate for a second-straight session.  

Pivot Matrix - 

 

The S&P 100 Index (OEX.X) has traded its slowly rising 200-day 
SMA (547.05) 5 times in the last seven sessions, but buyers have 
been unable to hold a close above this longer-term SMA, which at 
this point would suggest there's not a lot of conviction from 
buyers.  The OEX hasn't been able to hold a close above its 
correlative WEEKLY R1 and MONTHLY R1 either.

While the OEX struggles with its 200-day SMA, the NDX/QQQ have 
both come up shy of their 200-day SMA's (1,441, $35.81) during 
the recent rebound, while the Dow Industrials (INDU) closed back 
below its slowly trending higher 200-day SMA (10,231) after 
breaking above on September 2.

In last night's Index Trader Wrap we quickly reviewed the very 
broad and stronger NYSE Composite ($NYA.X), and in the opening 
ticks, the 6,574 level was cut like a hot knife through warm 
butter, offering little sign of support from buyers.

Jeff Bailey


************************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                Wednesday 09-15-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Watch List: Tonight's Watch List is Mostly Put Candidates
Stop Loss Updates: AHC, RAI, TDS
Dropped Calls: None
Dropped Puts: None
New Calls: None
New Puts: KRI, MMM

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

Tonight's Watch List is Mostly Put 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.
___________________________________________________________________


British Airways - BAB - close: 38.47 change: -1.48

WHAT TO WATCH: Now here's an airline stock that still has some 
life left in but bears are circling.  BAB is suffering under a 
long-term trend of lower highs and the recent failed rally under 
the 50-dma is now accompanied by a high-volume drop and a new 
MACD "sell" signal.  The P&F chart is bearish and points to a $31 
target but BAB is currently testing P&F support at $38.

Chart=


---

H&R Block - HRB - close: 47.65 change: -0.87

WHAT TO WATCH: We almost added HRB to the play list as a put 
candidate tonight.  The broken bullish trend in late August never 
saw much of an oversold bounce.  Instead HRB has established new 
resistance near $49.50.  Today's drop under the $48.00 mark and 
its simple 100-dma was fueled by volume about 70 percent above 
average.  We would target a drop back toward the May lows near 
$44.  The P&F chart is bearish and points to a $27 target but 
shows immediate support near $45.

Chart=


---

Inamed Corp - IMDC - close: 51.01 change: -0.89

WHAT TO WATCH: Medical equipment supplier IMDC is best known for 
its breast implant business.  Unfortunately for shareholders it 
looks like there's been a lot of profit taking the last couple of 
months.  After July's big drop IMDC met selling on the bounces 
and is now suffering under a trend of lower highs.  We would 
consider IMDC a put candidate if shares break support at the 
$50.00 mark.  The P&F chart is bearish and points to a $32.00 
target but shows some support near $47.

Chart=


---

New Century Financial - NCEN - close: 58.09 change: +2.34

WHAT TO WATCH: NCEN continues to ignore the market and rise to 
the beat of its own drum.  Shares hit another high today on very 
big volume.  The P&F chart is very bullish and points to a $70.00 
target.  While we wouldn't want to chase NCEN today we would 
consider buying a bounce from $55.50-56.00.

Chart=



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

CFC $37.45 +0.68 - CFC is another mortgage lender that is nearing 
new highs.  Watch for a breakout over $38.00.

UNH $70.28 +0.34 - UNH has put together a nice string of gains 
while it climbs to new highs.  Watch for a dip back to $68 and 
consider buying a bounce.  

ATH $87.66 +1.60 - We've been watching for a breakout over its 
simple 100-dma and ATH produced it today.

GDW $112.70 +3.75 - We've been waiting and watching for GDW to 
breakout over resistance at the $110 level for weeks.  Suddenly 
shares decided to do so today on very big volume.  



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

AHC - call play -
  Stay alert here. We've been cautious for days and 
  it looks like AHC may fall through the bottom of its
  trading range soon.  Oscillators are turning bearish.
 
RAI - call play -
  Uh-oh!  Investors did not respond well to RAI's 
  mid-quarter update.  The company reaffirmed earnings
  and shares sank.  They did manage a bounce from $73.80
  where the stock found support three days ago but the 
  afternoon drop doesn't look good.
 
 
TDS - call play -
  We're expecting a little profit taking tomorrow but the
  $81.00 level should be support.


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

None


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

None

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

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


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

None


********
NEW PUTS
********

Knight-Ridder - KRI - close: 63.85 change: -1.03 stop: 65.51

Company Description:
Knight Ridder is the nation's second-largest newspaper publisher, 
with products in print and online. The company publishes 32 daily 
newspapers in 28 U.S. markets, with a readership of 8.7 million 
daily and 12.6 million Sunday. Knight Ridder also has investments 
in a variety of Internet and technology companies and two 
newsprint companies. The company's Internet operation, Knight 
Ridder Digital, develops and manages the company's online 
properties. It is the founder and operator of Real Cities 
(www.RealCities.com), the largest national network of city and 
regional Web sites in more than 100 U.S. markets. Knight Ridder 
and Knight Ridder Digital are headquartered in San Jose, Calif.
(source: company press release)

Why We Like It:
Why do we like KRI as a put play?  How about the "trend is your 
friend".  KRI has been sinking for weeks.  The whole sector began 
to suffer back in May but June and July was when the sell-off 
really began.  Concerns that the recent over-circulation scandal 
is a nationwide problem have undermined investor confidence.  
Further driving investors out of the stock have been weaker than 
expected advertising numbers.  To top it off rival Tribune (TRB) 
issued an earnings warning today and shares of KRI fell 1.58 
percent to crack minor support at the $64.00 level.  Not only has 
KRI been suffering under its simple 50-dma but technical 
oscillators are negative and its MACD is very close to a new 
"sell" signal.  

What about those who feel the move has already occurred in KRI?  
Granted that's a good point.  KRI is down significantly from its 
summer highs.  However, the August to September bounce was a 
perfect 25 percent retracement of the June to August drop.  Now 
that KRI has released some of its pent up oversold-steam it's 
free to hit new lows.  The P&F chart is bearish with a $45.00 
target.  We're going to target a drop to the $57-58 range, which 
was support back in March 2003.  We'll put our stop above 
technical resistance at the 50-dma.

Suggested Options:
We only have October and January puts to choose from at this 
time.  We're going to suggest the October's.  Our favorites would 
be the 65s and 60s.  If you'd like more open interest try the
Januarys.

BUY PUT OCT 65 KRI-VM OI= 22 current ask $1.90
BUY PUT OCT 60 KRI-VL OI=  0 current ask $0.35

Annotated Chart:

 

Picked on September 15 at $63.85
Change since picked:      - 0.00
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       491 thousand
Chart =


---


3M Co - MMM - close: 82.00 change: -1.92 stop: 84.51

Company Description:
Every day, 3M people find new ways to make amazing things happen. 
Wherever they are, whatever they do, the company's customers know 
they can rely on 3M to help make their lives better. 3M's brands 
include Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, 
Filtrete, Command and Vikuiti. Serving customers in more than 200 
countries around the world, the company's 67,000 people use their 
expertise, technologies and global strength to lead in major 
markets including consumer and office; display and graphics; 
electronics and telecommunications; safety, security and 
protection services; health care; industrial and transportation.
(source: company press release)

Why We Like It:
This is as much a play on MMM's bearish reversal as it is on the 
weakness in the Dow Industrials.  As a Dow component MMM tends to 
move with the average.  Longer-term MMM has great relative 
strength against the DJIA but short term the stock looks 
vulnerable to more profit taking.  Briefly this is a short-term 
technical breakdown play and we hope to be in and out in a few 
days.  MMM's rebound from the August lows matched the Dow's.  Yet 
as the Dow struggled to breakout above its trendline of 
resistance shares of MMM struggled to breakout over the $85.00 
mark.  Now both are falling through their simple 200-dma's.  We 
like MMM's breakdown today because it was fueled by volume almost 
50 percent above average.  MMM's technical oscillators don't look 
to great and its P&F chart is currently bearish with a $65 
target.  Bears have two immediate concerns other than a surprise 
bullish rally in the Dow.  First MMM could have round-number 
support near $80.00.  Second there is potential support if you 
connect a trendline from the March low and extend it through the 
August low (see chart).  We'll start the play with a stop loss at 
$84.51.  Our short-term target is $77.50 but we're willing to 
hold out for a drop to $75.00.


Suggested Options:
Short-term traders can choose from the October and January puts.
We like the Octobers and would probably play the 85s or 80s.

BUY PUT OCT 85 MNZ-VQ OI=5355 current ask $3.70
BUY PUT OCT 80 MMM-VP OI=5160 current ask $1.10
BUY PUT OCT 75 MMM-VO OI=3274 current ask $0.25

Annotated chart:

 

Picked on September 15 at $82.00
Change since picked:      - 0.00
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       2.5 million 
Chart =



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





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