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Daily Newsletter, Wednesday, 10/27/2004

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The Option Investor Newsletter                Wednesday 10-27-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Recipe for a Rally  
Futures Wrap: See Note
Index Trader Wrap: Oil happens! 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      10-27-2004           High     Low     Volume   Adv/Dcl
DJIA    10002.03 +113.55 10018.55  9841.95 2.15 bln 1941/ 854
NASDAQ   1969.99 + 41.20  1971.28  1926.25 2.06 bln 2092/ 906
S&P 100   537.78 +  6.09   538.41   529.30   Totals 4033/1760
S&P 500  1125.40 + 14.31  1126.29  1107.43
SOX       410.90 + 14.13   411.49   397.01
RUS 2000  587.18 +  9.57   587.18   577.53
DJ TRANS 3475.20 + 39.59  3475.78  3406.64
VIX        15.72 -  0.67    16.53    15.66
VXO (VIX-O)16.13 -  0.35    17.39    15.97
VXN        21.52 -  0.95    22.65    21.21
Total Volume 4,215M
Total UpVol  3,253M
Total DnVol    915M
Total Adv  4033
Total Dcl  1760
52wk Highs  312 
52wk Lows    47
TRIN       0.56
PUT/CALL   0.70
******************************************************************

Recipe for a Rally 
Jane Fox

The U.S. petroleum inventories morning report was the fuel needed 
for a huge drop in oil prices and a massive climb in the stock 
market. The DOW closed above 10000 at 10002.30 for a daily rally 
of 113.80 points. But the fuel based climb was not just 
restricted to the DOW, the broader market ignited also. The SPX 
was up 14.31, or 1.3%, to 1125.40 and the Nasdaq gained 41.20, or 
2.1%, to 1969.99. On the other hand, the bond market got crushed, 
as were oil prices, which plunged $2.71 to about $52.46 a barrel 
-- a 4% plunge. 

Even though oil may have retreated today it has been on a 
meteoric rise for the last few months and one would think the 
economy would be suffering for it but economists will be the 
first to say this is just not so, oil prices haven’t held back 
the economy so far. However, that may be about to change.  
According to 54 economists who participated in a Wall Street 
Journal survey, a sustained move above $50/bbl will be the point 
when higher oil prices begin to take a greater toll on growth. A 
move into the $50 to $59-a-barrel range that is sustained for a 
complete quarter, would force them to shave their gross domestic 
product forecasts by one-half point. 

But so far, the move to $50-plus oil hasn't lasted long enough to 
cause economists to pare back their forecasts. As a matter of 
fact the economists lifted their estimates for third quarter 
growth to a 4.0% inflation-adjusted annual rate, from the 3.6% 
average forecast they made in September. 

Economic Reports:

Durable Goods:

Although economists had predicted Durable-goods orders would gain 
0.6%, the Commerce Department report for September durable goods, 
products meant to last three years or more, increased only 0.2% 
to $195.7 billion after a revised 0.6% decline in August. The 
barometer of business spending, orders for non-defense capital 
goods excluding aircraft, rose 2.6% after a 0.3% increase in 
August. The durable-goods data are some of the most volatile 
reported by the government so forecasters are wary of using 
monthly fluctuations to get a read on the overall state of the 
economy.

New Homes Sales:

Augmented by lower mortgage rates, new home sales in September 
unexpectedly rose to the third highest total on record suggesting 
housing is helping spur the economy.  The Commerce Department 
said single-family home sales rose 3.5 percent to a 1.206 million 
annual pace last month from a revised 1.165 million rate in 
August.  Sales rose in the every region except the West. The 
median selling price dropped 8.4 percent in September to $197,700 
from August's $215,900. According to the latest forecast by the 
National Association of Home Builders, sales of new homes this 
year will reach 1.164 million, surpassing last year's record 
1.089 million.

Department of Energy crude, distillate, and gasoline inventories:

In the biggest decline since Sept. 10, crude oil futures fell 
from a daily high of 55.65/bbl after an Energy Department report 
showed that U.S. stockpiles rose more than expected. In the week 
ended Oct. 22, supplies climbed 3.9 million barrels to 283.4 
million when an increase of 1 million barrels was expected. 
Inventories were 2.9 percent lower than a year earlier. 
Stockpiles of distillate fuel, which includes heating oil and 
diesel, declined more than expected last week.

Fed Beige Book:

The Fed Beige book is a monthly snapshot of business conditions 
compiled from reports submitted by the Fed's 12 regional banks. 
This survey, released at 2:00EDT, showed the U.S. economy 
continued to grow in September and early October despite being 
hit by rising energy costs and increased uncertainty surrounding 
the election. It gave a picture of an economy that is moving 
ahead and even the hard-hit manufacturing sector is showing signs 
of regaining its foothold. The report found that the pace of 
activity had quickened in the Richmond and Dallas districts and 
the other five districts, Boston, Philadelphia, Chicago, 
Minneapolis and Kansas City, reported steady expansions. 

Central bank policy-makers use this report when they next meet to 
decide whether to raise interest rates or not. Most economists 
believe that they will continue to raise rates to make sure that 
economy does not get overheated and cause inflation. 

Earnings Reports:

In its fiscal first quarter, Procter & Gamble's (PG) net profit 
rose 14% on volume growth and a net gain from selling its juice 
business. The company also maintained its fiscal 2005 guidance 
although costs have been increasing. PG posted a net income of $2 
billion, or 73 cents a share, up from $1.76 billion, or 63 cents 
a share, in last year's first quarter. PG ended the day at $51.78 
down 1.73.

Hit by tough conditions in Europe and Asia, Unilever (UN) said 
its business suffered in the third quarter but has maintained its 
forecast for low earnings-per-share growth for the full year. The 
maker of brands such as Dove soap and Lipton tea, reported its 
net increased 4.2% to $1.13 billion. UN stated conditions in 
Europe continue to be difficult because of weak consumer 
confidence and the growth of discount retailers. They also sited 
poor weather as the cause for lower sales of ice cream and ready-
to-drink tea in the region. UN closed the day at 57.92 down 0.13.

The Philadelphia cable-television and Internet provider Comcast's 
(CMCSA) net income fell sharply from the previous year's third 
quarter because the previous year's quarter's results included a 
$3.29 billion gain from the sale of the company's interest in 
home-shopping network QVC. CMCSA reported its net income dropped 
93% to $220 million, or 10 cents a share, from $3.18 billion, or 
$1.41 a share, a year earlier. Revenue jumped 12% to $5.1 billion 
from $4.55 billion a year earlier. CMCSA ended the day at 29.47 
up 0.55. 

Blockbuster (BBI), who earlier this month split off from its 
former corporate parent Viacom, is suffering from a continued 
decline in its video-rental business and reported a sizeable loss 
in the third quarter. The company reported a net loss of $1.42 
billion, or $7.82 a share, compared with net income of $63.7 
million, or 35 cents a share, a year earlier. Revenue rose 1.8% 
to $1.41 billion from $1.38 billion a year earlier. BBI ended the 
day at 6.81 down 0.28. 

ConocoPhillips (COP) reported a net income gain in the third 
quarter as record high oil prices overcame declining production 
and higher exploration costs. Although some large oil companies 
like COP are faced with fewer and fewer ways to reinvest their 
windfall profits into projects that will grow production in 
future years, COP is using its cash to invest in the Russian oil 
industry. COP has announced a $2.4 billion strategic alliance 
with Russian oil giant OAO Lukoil, under which COP can purchase a 
7.6% stake of the company and develop joint exploration projects. 
COP ended the day at 84.92 down 1.01. 

The world's largest aerospace company, Boeing's (BA), attributed 
its third-quarter 78% surge in net income to double-digit growth 
in its military unit more than offsetting the losses in its 
commercial-aviation unit. In absolute dollars net income was $456 
million, or 56 cents a share, up from $256 million, or 32 cents a 
share, a year earlier. Revenue increased 7.9% to $13.15 billion 
from $12.18 billion during last year's third quarter. BA finished 
the day at 50.10 up 0.12. 

After hours we will be getting earnings from many companies but 
the most noteworthy are ASKJ, BIIB, JDSU, SWKS and THQI. 


Annotated Weekly Chart of the DOW:

 

Here is a weekly chart of the DOW, which I think shows why we may 
see a more upward pressure in the next few days. 

I am not a huge fan of MAs - they seem just a little too esoteric 
for for me but there is one I use because a lot of other analysts 
use it also - it is the 200 MA.  However, I have a problem 
because there are two 200 MAs, the simple and the exponential and 
as you can see from the chart above they can be quite divergent. 
To solve this problem I have put both on the chart and lo and 
behold they are merging so I don't have to decide between them. 
But the really cool thing is that they are merging right at the 
bottom of the DOW's weekly regression channel. 

Then you have the positive divergence in the MACD and 
stochastics, the election next week and the end of October and 
you have a recipe for a rally. 

Annotated Weekly Chart of the SPX:

 

As you can see from this chart the weekly SPX is much more 
bullish than the weekly chart of the DOW. First of all the 
regression channel is almost sideways while the DOW weekly chart 
points downward. Also both 200 MAs - the simple and exponential, 
are above the bottom channel.  And then there is the bullish 
reverse H&S forming with the neckline at the top channel line. 
More ingredients in our rally recipe.

Annotated Weekly Chart of the NASDAQ:

 

The weekly chart of the Nasdaq is much harder to read than the 
DOW and the SPX. The regression channel did not completely 
contain price like it did in the other two weekly charts. The two 
200 MAs are much more divergent here but I looks like the 
exponential is the best one to use.  It also looks like this 
index is ready to retreat and visit the bottom of the channel 
exactly opposite of what we are seeing in the DOW's chart. Of 
course you have to take into consideration the fact that the 
Nasdaq has been much more bullish than the DOW in the last few 
weeks. However you want to explain it, markets "work" much better 
when you have all the pieces in sync and that is not the case 
now. 

Annotated Daily Chart of the DWC - Wilshire 5000:

 

Instead of showing a chart of the Russell 2000 I decided to show 
you a chart of the Wilshire 5000, which is the total market. 
Surprisingly the two are very similar. 

I think what is most noteworthy here is the bullish reverse H&S 
forming with the head right at where the two 200 MAs converge. 
The only problem (isn't there always a problem?) is that reverse 
H&S are most relevant when a market is making a bottom and 
although I guess you could call this a falling market but on the 
weekly chart it is hard case to make.  

The Market Tomorrow

Thursday's economic releases begin with the usual 8:30 release of 
jobless claims, with those claims last week showing a decrease 
beneath the benchmark 350 thousand to 329 thousand.  At 10:00, 
the Help-Wanted Index will be released, with natural gas 
inventories next, near 10:30.  The Money Supply number will be 
seen after Thursday's market close, at 4:30.  

The most noteworthy earnings tomorrow will come from CCMP, COLM, 
DCX, XOM, GTW, GSK, IMCL, JBLU, LTR, MSO, MLNM, PNRA, RTN, G, VZ, 
VIA.

Have a great evening. 

Jane


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

Oil happens!

The major indices gushed higher to close at their highs of the 
session, where a one-day reversal in oil had equity bulls hopeful 
that the torrid rise in energy prices may be nearing an end.

Despite a sixth straight week of declines in distillate 
inventories, from which heating oil is refined, December Crude 
Oil futures (cl04z) $52.46 -4.9% fell a sharp $2.71 and continue 
to edge lower in Thursday's trade at $52.15.

Late last night I was updating our economic report table and had 
made the following notes.  

Consumer confidence fell to 92.8 in October, and very close to 
its April reading of 93.00.

On April 30, the S&P 500 Index (SPX.X) closed at 1,107, not too 
different from Tuesday's close of 1,111.

The DIFFERENCE that stood out was oil, which isn't a surprise 
considering the Conference Board said "energy prices" was the 
main contributor to weakening consumer confidence.  Perhaps 
investor confidence as well.

Economic Table - Last update 10/16/04 Close

 

Today, the "unexpected" may have happened.  Crude oil and heating 
oil futures did bid higher just after this morning's 10:30 AM EDT 
release of weekly energy inventory figures, but sellers showed up 
in force at about 10:50 AM EDT.

I heard/read at least 10 reasons for why oil reversed course.

One reason cited was that while distillate inventories fell (-2.4 
million barrels versus -750 barrels), it was the much larger than 
expected rise in oil inventories (+4.0 million barrels versus 
estimates for 800K).

Another reason mentioned, which is something we had discussed 
recently is that refiners just hadn't "turned on the spigots" to 
start refining heating oil at these higher price levels, afraid 
of getting stuck with inventory should a mild winter be found in 
the northeast.  Again, it is my understanding that refiners can 
refine heating oil as if it were candy, as there isn't a major 
refining effort needed.

U.S. Market Watch - 10/27/04 Close

 

The AMEX Composite (XAX.X) 1,314.84 +0.24% managed to squeak out 
a new 52-week closing high.  So did the CONSUMER SENSITIVE 
retailers in the S&P Retail Index (RLX.X) 427.16 +2.18% and the 
once-thought "fuel sensitive" Dow Transports (TRAN) 3,475.  
Tonight I posted the 1-year (last 52-weeks) highs and lows along 
with percentage changes.

Good Gravy!  Heating oil up 106% and Oil up 98%.  One has to 
wonder just where the major indices might be if energy prices 
haven't risen like they have.

Market Snapshot / Internals - 10/27/04 Close

 

Volumes remain brisk at both the NYSE and NASDAQ, where renewed 
interest among investors in October had the NASDAQ turning more 
than 2 billion shares for the second time in 5 sessions.  
Shorter-term bullish leadership is renewed at both the NYSE and 
NASDAQ where 5-day ratios see upside reversals, with NASDAQ just 
reversing up at 60.00% today after the NYSE 5-day NH/NL ratio 
reversed up yesterday.

We've been looking at December Crude Oil futures (cl04z) on a 30-
minute interval bar chart.  

Tonight I want to quickly run through a 50-cent box size chart of 
www.stockchart.com's Continuous Oil Chart ($WTIC).  While most 
charts of crude oil futures are plotted on a 25-cent box size, 
I'm charting on 50-cent so we get a bigger picture, and remove 
some of the noise/volatility from oil's trade.

Oil - Light Crude - Continuous Contract ($WTIC) - $0.50 box

 

First sign of weakness would be a double bottom sell signal at 
$51.50 (O going below a prior column of O).  Now, see where I've 
colored it yellow?  By gosh, that would be the same yellow zone 
I've had marked on our 30-minute bar chart of the December Crude 
Oil futures (cl04z).  As many times as a housing bubble has been 
called, so has a bubble in oil.  Before the bubble can "pop," 
there's still some selling to be done, but for equity bulls, 
there may be some sign of weakening.

Now, see the vertical PINK lines?  I've marked one partial column 
of O (supply) with the "High Pole Warning," which is a point and 
figure pattern that can signal a reversal in the making.

Oil has a lot of BULLISH momentum behind it, and with a 
commodity, that momentum can be long-lasting.  However, see how 
oil did fall back to a prior "buy signal" that was created at 
$41.00 back in late August?  That red 9 at $41.50 is early 
September.

Everyone, even an oil bull, is afraid of buying the top.  If oil 
can break below $51.00, I think there's a pretty good chance it 
unwind further to at least $49.50.  See what happened at $49.50 
on the way to the recent high?  That spread triple top buy signal 
at $49.50 had every short running for cover.  Those that didn't 
will most likely be eager buyers on the re-test.

In last night's Index Trader Wrap, I mentioned the possibility 
that a reversal in oil, however unlikely, could see the S&P 500 
Index (SPX.X) trade back near 1,125.  

OK, tonight I'm going to lay the groundwork for the possibility 
that a further decline in oil, could see the NASDAQ-100 trade 
1,500.  But the KEY is OIL, and market psychology toward 
Tuesday's election.

Pivot Matrix -

 

The 10-year Yield ($TNX.X) was DOWN more than 2 basis points 
earlier in the session, then reversed higher as oil reversed.  
See that correlative 41.32, or 4.132% at DAILY R1 and MONTHLY 
Pivot of 41.27, or 4.127%.  I (Jeff Bailey) think there's still 
going to be some hesitancy among market participants, and they 
won't be to willing to sell the "safety" of the 10-year above 
that level.  

My thought is... there's only two things that will have the 10-
year yield ($TNX.X) moving much above 4.132% over the next week.  
One is that oil sees continued decline (like today), coupled with 
a market psychology that doesn't "fear" any potential terrorist 
attacks ahead of Tuesday's election.  

Months ago the Department of Homeland Security alerted us that it 
had information that terrorists may be targeting some financial 
buildings in order to try and disrupt the U.S. presidential 
elections.

I (Jeff Bailey) don't believe there will be a terrorist strike 
between now and Tuesday, but I'm not the MARKET.  The MARKET may 
not believe it either.  If the MARKET wants to get more 
aggressive on the "buy side" for equities, then it should sell 
the 10-year YIELD above 4.132% is my thinking, and use a lower 
oil price as the catalyst.

I'm kind of excited tonight.  Remember that "fitted" retracement 
of the e-Mini NASDAQ-100 futures (nq04z) I've shown in the past?  
The one with some yellow zones?  

Check this out.  Tonight, oil closes right near $52.00 as the e-
mini NASDAQ-100 futures settle at 1,479.50.  On October 6, the e-
mini NASDAQ-100 futures settled right at these levels.  Oil did 
too!

Quick!  Go back and look at your pivot matrix for the cash NDX.X 
and QQQ.  

e-Mini NASDAQ-100 Futures - Daily Intervals

 

I make some notes as to how we're once again at a "zone" of 
resistance.  Remember, this 1,478.83-1,485.81 yellow zone is a 
RESULT of fitting.  

I asked myself "why" futures traders wouldn't push the e-min 
futures above 1,485.81 back on October 6.  I ask myself that 
today to.

It could have been due to something going wrong with the 
semiconductors.  It could have been oil too.

December Crude Oil futures (cl04z) - 30-minute interval

 

On October 7, December Oil futures jumped to new contract highs 
of $52.00 from its then WEEKLY R2 of $50.99 (say $51 and tie with 
PnF chart).  See how oil hasn't wanted to go back below that 
$51.00 level, which we've marked with our yellow zone?  

Now, I said above that if oil will give that double bottom sell 
signal at $51.50 and pick up downside momentum near-term below 
$51.00, it should fall to at least $49.00. 

On the above chart, I see where $49.05 (say $49.00) was the 
WEEKLY Pivot earlier this month.  One thing an equity trader 
might look to do is on continued weakness in oil, is play the 
"beta trade" or the high tech trade from the bullish side.  

I think a bull could do that, then protect with a rather tight 
stop below the current WEEKLY Pivots.

The catalysts for gain is further decline in oil and we should 
have a decent idea of a near-term downside target.

The 10-year YIELD ($TNX.X) will give an indication of how 
AGGRESSIVE the MARKET wants to be.  If Treasuries are the "safe 
haven" where money has been flowing into since May, when the 10-
year YIELD was up at 48.00 or 4.8%, then the more aggressive the 
market wants to get with equities, it will get LESS DEFENSIVE and 
sell Treasuries faster than a politician will sell out to the 
highest bidding lobbyist after Tuesday's election!

I'm kidding of course.  Politicians do what is best for the 
nation.  

Jeff Bailey


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The Option Investor Newsletter                Wednesday 10-27-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Watch List: Breakouts, New Highs and more!
Stop Loss Updates: None
Dropped Calls: APC
Dropped Puts: None
New Calls: DHR, GS, IBM, ITW
New Puts: None

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

Breakouts, New Highs 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.
___________________________________________________________________


M D C holdings - MDC - close: 76.48 change: +0.48

WHAT TO WATCH: The three-day rally and bounce from the $70 level 
looks tempting in MDC.  The stock just broke out to new all-time 
highs with above average volume fueling the move.  What we really 
like is the P&F chart's bullish triangle breakout pattern, which 
is normally a very successful pattern to trade.  Currently the 
P&F upside target is $81.00.  

Chart=


---

Taro Pharmaceutical - TARO - close: 26.08 change: +1.72

WHAT TO WATCH: Has TARO finally put in a bottom?  The stock has 
been a HUGE loser in 2004.  Now shares have consolidated sideways 
between $20 and $25 for the last three months.  Today's 7 percent 
gain is a breakout over resistance at the $25 level. Volume was 
more than 60 percent above average.  This looks like a bullish 
entry point but TARO is due to report earnings tomorrow.  We 
would wait to see the market's reaction.  The P&F chart looks 
very bullish with a new triple-top breakout buy signal with a $37 
target.

Chart=


---

Harman Intl Industries - HAR - close: 112.55 change: +8.00

WHAT TO WATCH: There it goes again.  HAR added 7.65 percent on 
huge volume after reporting earnings today that beat Wall Street 
estimates by 8 cents a share.  The stock is extremely long-term 
oversold but the momentum crowd won't let go.  The technicals 
have turned positive again and HAR's MACD indicator just produced 
another buy signal.  The current P&F target is $130.

Chart=


---

Vimpel Communications - VIP - close: 114.21 change: +5.49

WHAT TO WATCH: Russian communication stock VIP has broken its 
two-week trend of lower highs and pushed back above round-number, 
psychological resistance at the $110 level.  Short-term 
technicals looks strong and its MACD is hinting at a new buy 
signal soon.  The P&F chart currently points to a $120 target but 
we suspect that if the market continues to rally VIP will surpass 
this target.  

Chart=



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

EMR $64.70 +1.48 - EMR just broke out over major resistance at 
the $64.00-64.50 level.  This is a quadruple top breakout buy 
signal on the P&F chart with a $76 target.

CSC $49.75 +1.52 - CSC is nearing major resistance at the $50 
level. 

MFE $23.42 +1.29 - Mcafee recently changed its ticker symbol back 
in July.  The stock has been a steady climber since August.  
Watch for a dip.


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

None

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

Anadarko Petroleum - APC - close: 68.60 chg: -2.45 stop: 67.99     

We had been planning to exit APC on Thursday to avoid the 
company's Friday morning earnings report.  Unfortunately, 
Wednesday's sharp decline is prompting a quick retreat.  A 5.3 
percent drop in crude oil was the main culprit.  It is 
interesting to note that APC held support at its simple 21-dma 
and the $68 level but it may not hold for long.  Volume was 
pretty heavy during today's profit taking.  We're suggesting 
readers exit with us.

Picked on October 22 at $70.40
Change since picked:    - 1.80
Earnings Date         10/29/04 (confirmed)
Average Daily Volume =     1.6 million 
Chart =



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

None

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

Danaher - DHR - close: 54.99 change: +0.69 stop: 51.99

Company Description:
Danaher, a leading industrial company, designs, manufactures and 
markets innovative products, services and technologies with 
strong brand names and significant market positions.
(source: company press release)

Why We Like It:
The expanding economy has been good business for DHR and its two 
divisions the process and environment controls division and the 
tools and components division.  The company reported earnings 
about a week ago.  Q3 results were up about 45 percent and DHR 
beat the street estimates by 3 cents.  We're impressed with DHR's 
relative strength and momentum as it continues to march higher 
with a pattern of higher lows.  The last three weeks have seen 
minor support at $52 and resistance at $55.00.  We believe that 
DHR will breakout over the $55 level soon and we can target the 
$60 level.  Aggressive traders can look for a dip in the $53-54 
range.  Conservative traders can wait for the breakout over $55.  
We'll start the play with a stop loss at $51.99.  DHR's P&F chart 
is noteworthy for two reasons.  Fist is the bullish catapult 
breakout pattern.  Second is that the bullish price objective has 
already been achieved, which may lead some traders to avoid this 
play or use more caution.

Suggested Options:
Short-term traders can choose the Novembers, Decembers or January
calls.  We're going to suggest the Decembers and January strikes.

BUY CALL DEC 50 DHR-LJ OI= 825 current ask $5.80
BUY CALL DEC 55 DHR-LK OI=1563 current ask $1.95
BUY CALL DEC 60 DHR-LL OI=   0 current ask $0.30

BUY CALL JAN 55 DHR-AK OI=2814 current ask $2.50
BUY CALL JAN 60 DHR-AL OI= 117 current ask $0.65

Annotated chart:

 

Picked on October 27 at $54.99
Change since picked:    + 0.00
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     1.3 million 
Chart =


---

Goldman Sachs - GS - close: 96.10 change: +2.34 stop: 91.00

Company Description:
Goldman Sachs is a leading global investment banking, securities
and investment management firm that provides a wide range of 
services worldwide to a substantial and diversified client base 
that includes corporations, financial institutions, governments 
and high net worth individuals. Founded in 1869, it is one of the 
oldest and largest investment banking firms. The firm is 
headquartered in New York and maintains offices in London, 
Frankfurt, Tokyo, Hong Kong and other major financial centers 
around the world. (source: company press release)

Why We Like It:
Breakout confirmed.  If you read our Lehman Brothers (LEH) call 
play recent then you already know that the XBD broker-dealer 
index has been churning under resistance and just recently broke 
out.  The XBD had broke above round-number resistance at the 130 
level a few days ago but didn't push through technical resistance 
at its simple 200-dma until yesterday.  Today (Wednesday) the XBD 
broker-dealer index soared another 3.8 percent as the group 
produced a follow through move boosted by the broader market 
strength.  Like the index, shares of GS have been consolidating 
under resistance.  For GS this resistance was near the $95-96 
levels.  Wednesday saw GS add 2.49 percent and breakout over the 
$96 level and its own simple 200-dma.  Short-term technicals like 
the RSI and stochastics are bullish and its MACD indicator just 
produced a new "buy" signal. Volume was more than 33 percent 
above the average.  This looks like a bullish breakout worth 
buying.  The P&F chart shows an ascending triple-top breakout buy 
signal with a $114 target.  Currently, we're going to target the 
$105 region but short-term traders can aim for the $100 mark, 
which is likely to be short-term round-number, psychological 
resistance anyway. 

Suggested Options:
Short-term traders can use the November, December or January
calls.  We're going to suggest the Decembers and Januarys.

BUY CALL DEC 90 GS-LR OI=1537 current ask $7.40
BUY CALL DEC 95 GS-LS OI=2514 current ask $3.60
BUY CALL DEC 100 GS-LT OI=4634 current ask $1.20

BUY CALL JAN 95 GS-AS OI=14101 current ask $4.40
BUY CALL JAN 100 GS-AT OI=24325 current ask $1.90
BUY CALL JAN 105 GS-AA OI=12773 current ask $0.65

Annotated chart:

 

Picked on October 27 at $96.10
Change since picked:    + 0.00
Earnings Date         09/21/04 (confirmed)
Average Daily Volume =     3.2 million 
Chart =


---

Intl Business Mach. - IBM - close: 90.00 chg: +1.00 stop: 86.00

Company Description:
IBM is the world's largest information technology company, with 
80 years of leadership in helping businesses innovate. Drawing on 
resources from across IBM and IBM Business partners, IBM offers a 
wide range of services, solutions and technologies that enable 
customers, large and small, to take full advantage of the new era 
of e-business. (source: company press release)

Why We Like It:
We have been a little bit reluctant to go long IBM after its gap 
higher on Oct. 19th and overhead resistance at the $90 level and 
its simple 200-dma.  Normally gaps tend to get filled but right 
now it's looking like this one, sparked by investor reaction to 
IBM's impressive Q3 earnings, may be an exception.  It's been a 
positive week for IBM.  Monday reversed the drift lower from late 
last week after Barron's printed a story with positive comments 
on the tech giant and suggested it could be a $100 stock again.  
The stock rallied again on Tuesday and almost broke out after 
IBM's management approved an additional $4 billion for its stock 
buyback program.  Today that breakout finally happened on volume 
that was about 27 percent above the average.  IBM hit $90.27 
intraday and closed at $90.00 above its simple 200-dma.  IBM is a 
great way to play the bounce in the Dow Industrials and the 
rebound in tech stocks in general.  We like its P&F chart with 
the bullish catapult breakout pattern and $97 target.   Besides 
after three and a half months of building a base between $83 and 
$88 IBM looks ready and rested for another bullish leg higher.  
Our six to eight week target is $100.

Suggested Options:
Traders can choose from the Novembers, Decembers and January
strikes.  We're going to suggest the December and January calls.

BUY CALL DEC 85 IBM-LQ OI= 5067 current ask $5.80
BUY CALL DEC 90 IBM-LR OI= 6702 current ask $2.25
BUY CALL DEC 95 IBM-LS OI= 2124 current ask $0.60
BUY CALL DEC100 IBM-LT OI= 1187 current ask $0.15-not suggested

BUY CALL JAN 85 IBM-AQ OI=15374 current ask $6.50
BUY CALL JAN 90 IBM-AR OI=40569 current ask $3.10
BUY CALL JAN 95 IBM-AS OI=24154 current ask $1.10
BUY CALL JAN100 IBM-AS OI=35820 current ask $0.40-not suggested

Annotated chart:

 

Picked on October 27 at $90.00
Change since picked:    + 0.00
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 
Chart =


---

Illinois Tool Works - ITW - close: 90.89 chg: +0.59 stop: 87.50

Company Description:
ITW is a $10 billion in revenues diversified manufacturer of 
highly engineered components and industrial systems and 
consumables. The Company consists of approximately 625 
decentralized operations in 44 countries and employs some 47,500 
people. (source: company press release)

Why We Like It:
We like ITW because it allows us to both play the rebound in the 
industrial/cyclical stocks and we can play the bounce back to the 
top of its trading range.  Yes, ITW has been stuck in a trading 
range between $87.50 and $96.50 for the last few months.  The 
stock just bounced from the bottom of the range and technical 
indicators are turning positive again.  Not only do we have the 
range pattern moving in our favor but the current rebound in the 
industrials is likely to help as well.  Not to mention that ITW 
recently announced earnings and while it missed estimates by a 
penny it guided higher for the fourth quarter.  We are targeting 
the $96 level.

Suggested Options:
We are going to suggest the December or January calls.

BUY CALL DEC 85 ITW-LQ OI= 95 current ask $7.10
BUY CALL DEC 90 ITW-LR OI=975 current ask $3.40
BUY CALL DEC 95 ITW-LS OI=664 current ask $1.20

BUY CALL JAN 85 ITW-AQ OI=3315 current ask $7.70
BUY CALL JAN 90 ITW-AR OI= 393 current ask $4.20
BUY CALL JAN 95 ITW-AS OI= 556 current ask $1.80

Annotated chart:

 

Picked on October 27 at $90.89
Change since picked:    + 0.00
Earnings Date         10/19/04 (confirmed)
Average Daily Volume =     1.2 million 
Chart =



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