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Daily Newsletter, Monday, 11/08/2004

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The Option Investor Newsletter                   Monday 11-08-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Passing Time 
Futures Wrap: See Note
Index Trader Wrap: Bulls thrive above 545  


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      11-08-2004           High     Low     Volume   Adv/Dcl
DJIA    10391.31 +  3.77 10405.69 10361.44 1.70 bln 1174/1645
NASDAQ   2039.25 +  0.31  2044.53  2033.79 1.61 bln 1373/1645
S&P 100   557.30 -  0.60   558.02   555.96   Totals 2547/3290
S&P 500  1164.89 -  1.28  1166.86  1162.32
SOX       418.61 +  0.78   421.35   416.18
RUS 2000  602.08 -  2.21   605.51   601.21
DJ TRANS 3581.97 +  9.47  3585.75  3561.77
VIX        13.80 -  0.04    14.48    13.67
VXO (VIX-O)13.92 -  0.44    14.92    13.77
VXN        19.22 -  0.25    20.23    19.13
Total Volume 3,311M
Total UpVol  1,584M
Total DnVol  1,608M
Total Adv  2547
Total Dcl  3290
52wk Highs  420 
52wk Lows    40
TRIN       0.72
PUT/CALL   0.64 
*******************************************************************

Passing Time
Jonathan Levinson

Equity bulls ran the clock on hapless bears today, as intraday 
downphases succeeded only in moving the price sideways.  The Dow 
and Nasdaq finished fractionally higher while the SPX finished 
fractionally lower.

It was a quiet day, particularly in the wake of Friday's busy 
session.  Volume was significantly lighter today for QQQ, while 
near average for the indices.  The CBOT reported that on Friday, 
more than 4.3M contracts were traded, more than half of which 
electronically.  The 4.3M figure was the second heaviest day for 
the exchange, while the 50%+ figure set a new record.



Daily Dow Chart


The Dow eked out a 3.77 point gain to close at 10391.31. I have 
squeezed one years' worth of daily prints onto the chart to 
provide some longer term perspective-  anyone wishing to see more 
daily candle detail is urged to look at the daily YM chart in 
tonight's Futures Wrap.

The 1-year daily chart shows a strong rally off the October lows 
that is most likely still in progress and will so remain until 
the price is at least back into the declining channel below 
10220.  In the meantime, the daily cycle continues to press 
higher, with immediate upside resistance at 10425, then at 10500 
and 10560. 


Daily S&P 500 Chart


The SPX fell 0.11% to close at 1164.89.  The move failed at a 
high of 1166.86 and bounced from a higher low of 1162.32.  While 
it's possible that Friday's high volume upside doji was the 
terminal move in this strong but overbought daily cycle upphase, 
bears will need to see a move below the 1150 level on a closing 
basis to suggest a reversal in the upphase.  The first sign of 
trouble will be a break of 1160, while confirmation will come on 
a break of 1146.


Daily Nasdaq Chart


The Nasdaq managed a .31% gain, which was impressive given that 
such occurred during an intraday cycle downphase.  The high 
printed at 2044, while the low was 2033.  Above 2045, next 
resistance is at 2070 and 2105.  The daily cycle oscillators are 
oversold here, and bears can hope for a terminal upside surge to 
finish off this cycle and pave the way for the next downphase.  
If bears can close the Nasdaq below 2020-25, we should see the 
upphase stall, but it should take a close below 1996 to reverse 
it.


Weekly TNX Chart


Ten year notes followed through on last week's weakness, with the 
ten year note yield (TNX) rising 2.9 bps to close at 4.215%.  On 
the weekly chart, note that the latest weekly candle is based 
solely on today's move, as with the weekly crude oil chart below.  
The weekly cycle upphase about which I've been writing has been 
strengthening off the rising lower trendline, and continues to 
coincide with the daily cycle upphase (see tonight's Futures 
Wrap).  Above current levels, next resistance is in the 4.3% 
area, followed by 4.4%.  

A large 11.25B overnight repo was announced this morning by the 
Fed's open market desk, refunding the 7B maturing today and 
leaving an additional 4.25B on the table.  This money may have 
found its way into the treasury bill auctions that took place 
today, with 19B in 6 month bills generating a bid-to-cover ratio 
of 1.84, 21B of 3 month bills generating a bid-to-cover ratio of 
1.89, and 22B of 3 year notes generating a 2.24 bid-to-cover.



Weekly chart of Crude oil


Crude oil declined again today, kicking off the third week since 
its 52-week and record high (in nominal terms- the 1980 high 
would have been $90 in today's dollars).  News sources attributed 
the continued weakness to expectations that existing supplies 
will be sufficient to meet demand for the winter, and recovering 
production in the Gulf of Mexico.   Tensions remained high, 
however, on news of increased violence in Fallujah carrying over 
from the weekend, with Reuters reporting the killing of more than 
40 insurgents.  This was compounded by a lack of resolution in 
the Nigerian labor troubles and Russian YUKOS' likely bankruptcy, 
but it was the grounding of a tanker in the Suez Canal that 
occupied headlines this afternoon.


Bloomberg reported that approximately 135 ships were waiting 
today after The Tropic Brilliance ran aground 2 days ago carrying 
142,547 tons of crude oil.  This mishap closed the Canal for the 
first time since 1975.  As of 2003, the Energy Department 
reported that 1.3M bpd move through the Canal, and while there 
was a chance that The Tropic Brilliance would be unloaded and 
floated out as soon as today, crude oil held above a low of 
48.625 on the Nymex all day, closing lower by 1.05% at 49.10.


The weekly chart of crude oil futures shows a steep drop from the 
October high, with first support asserting itself in the 48-49 
area, below which there's stronger support between 45 and 46, 
then at 42.  Note the bearish stochastic divergence that was in 
play for most of the runup above 48.


It was a quiet news day overall.  There were no major economic 
reports released, and tomorrow's lone report will be Wholesale 
Inventories for September to be announced at 10AM, with 
economists expecting a rise of 0.7% after August's 0.9% increase.

In corporate news, TASR took a jump on news that the 
Transportation Security Administration of the US Homeland 
Security Department has approved the onboard use of TASR's 
weapons by air marshals on flights to and from the US.  TASR 
closed higher by 16.4% at 54.12.

Insurance group CNO announced Q3 earnings of 36 cents per share 
of 57.9M, well ahead of last year's Q3 figures of 17 cents or 
18.9M.  The company cited its ongoing effort to improve 
operations and risk management, and reaffirmed its 2005 outlook 
of $1.71 per share .  The 36 cent EPS figure beat estimates by 2 
cents.  CNO added 7.29% to close at 17.95.

Drugmaker PFE  disclosed in an SEC filing on Friday that NY A-G 
Elliot Spitzer has requested documentation regarding trials and 
possible promotion of certain of its products for uses other than 
as approved by the FDA.  A similar request was received by the 
company from Connecticut's Attorney-General in connection with 
Zoloft, and there was mention of its Bextra product as well. PFE 
lost 1.32% to close at 28.41.

Oil & gas company HEC broke even for Q3 on net income of 795K and 
revenues of 8.3M, reversing a loss in Q3 2003 of 1 penny per 
share or 806K on revenue of 7.4M.  HEC added 1.85% to close at 
.55.
 
Airliner BAB reported Q2 earnings before tax of 220M pounds on 
revenue that rose 2.2% to 2.02B pounds.  The company announced 
that it would not be paying a dividend as fuel costs rose 12.4% 
to 271M pounds.  Despite hedging, the company expects to pay 245M 
pounds more for fuel than last year.  Passenger and cargo 
surcharges are expected to offset 160M pounds' worth of this 
increase.   BAB finished lower by 2.83% at 40.85.

Silver and gold miner CDE reported a Q3 loss of 18M or 8 cents 
per share, down from a 10 cent loss in Q3 2003, but noted that 
2.1M of current operating profits will be reported in Q4 due to a 
temporary plant closure.  Revenues were higher by 30% to 31.3M.  
CDE lost 3.84% to close at 5.01.

MSFT was weaker on news that the company estimates its exposure 
to antitrust claims at 950M, 200M more than the figure disclosed 
in its latest 10K filing.  These figures don't include a payment 
of 536M to be made to networker NOVL and to the US Computer and 
Communications Industry Association in settlement of antitrust 
claims arising from NOVL's Netware product in its landmark 
antitrust case in the European Union.  NOVL also plans to file a 
claim arising from alleged anticompetitive practices that have 
caused prejudice to its WordPerfect suite (WordPerfect and 
Quattro Pro) during the 1990s.  The Netware payment resulted in a 
3 cent charge for MSFT's previously reported Q1 results of 26 
cents.  MSFT's updated results in light of the NOVL settlement 
were 23 cents on earnings of 2.53B.  MSFT lost 3 cents to close 
at 29.28, while NOVL finished higher by 9.48% at 7.51.

GE announced that it will be selling 60% of its stake in GE 
Capital International Services (GECIS), its global outsourcing 
business, to General Atlantic Partners and Oak Hill Capital 
Partners.  The company said that GECIS will "no longer limit its 
cost-saving, business support services to GE and GE customers ... 
We will now have unrestricted access to the world market."  The 
company intends to expand into Eastern Europe and China.   GE 
lost 7 cents to close at 35.12.

Later in the session, the NASD announced that it has charged 
financial advisors HRB with fraud in connection with its sales of 
Enron bonds between Oct. 29, 2001 and Nov. 27, 2001, prior to the 
Enron bankruptcy.  The NASD alleged that HRB's sales force failed 
to disclose the extent of the risks associated with the bonds.  
HRB responded that its sales and disclosures were sufficient in 
light of the information available at the time, and that it 
expects to prevail at the eventual hearing.  HRB finished higher 
by .45% at 49.59.

Resort developer and operator IDR announced a Q1 loss of 6.7M or 
14 cents per share, down from a profit of 2 cents per share or 
938M.  The company said that it expected the loss, which it said 
resulted from the timing of various construction projects.  The 
stock declined on the news, finishing lower by .76% at 19.55.

It's unsurprising that today was a throwaway session as the 
market awaits CSCO's results tomorrow and the Fed's rate decision 
on Wednesday.  Many were expecting a strong rally today, and the 
charts suggest that it was merely deferred by the long, tiring 
range that printed.  Bears can hope that Friday marked the daily 
cycle exhaustion top, but better than hope will be confirmation 
in the form of lower daily highs and lows.  Until that occurs, 
the trend is your friend.  With any luck, there will be more 
movement tomorrow, as suggested by today's inside range.  A 
violation of either today's high or lows will be the first sign 
of a possible directional move in the direction of the break, but 
watch for volume to confirm it-  as we saw today, the price can 
drift this way and that, and on low volume reversals are much 
more likely. 
 

************
FUTURES WRAP
************

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


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

Bulls thrive above 545

Stocks traded sideways in Monday's session as buyers and sellers 
contemplated last week's impressive rally for equities, where 
demand for equities was so strong, the broad S&P 500 Bullish % 
($BPSPX) achieved bull confirmed status on Friday.

While the major indices treaded water for the bulk of the 
session, with the S&P 500 Index (SPX.X) 1,164.89 -0.10% edging 
down just more than 1-point, bears were raiding the Treasury 
market ahead of Wednesday's FOMC meeting, where most believe 
Friday's much stronger than expected nonfarm payroll numbers for 
October will have the Fed raising its fed funds rate 25 basis 
points to 2.0%. 

Many Fed speakers over the past month have suggested that 
incoming economic data would have more of an influence on their 
decision than the price of crude.

December Crude Oil futures (cl04z) settled down 52 cents, or 
1.04% at $49.09 on Monday as U.S. and Iraqi forces readied to 
mount an assault on the city of Fallujah, a stronghold for recent 
militant activity.

U.S. Market Watch - 11/08/04 Close

 

On Friday we saw a hefty 461 new highs posted on the NYSE, where 
volume was brisk at just over 1.72 billion share.  Today's 210 
new highs and lighter volume of 1.3 billion would suggest buyers 
and sellers were very selective with decisions and nibbling away 
rather than taking big bites.  NASDAQ volume also abated from 
recent daily averages of 1.82 billion and while the number of new 
highs eased to 154, new lows were even with Friday's 25.

U.S. Market Watch - 11/08/04 Close

 

The U.S. Dollar Index (dx00y) 84.09 +0.09% edged off fresh multi-
year lows found on Sunday, while the juggernaut Dow Transports 
(TRAN) recorded another multi-year high in Monday's session.  The 
Utility Index (UTY.X) also traded a multi-year high, while the 
Defense Index (DFX.X) closed at an all-time high and posts a gain 
for the fourth-straight session.

Brokers were notably weak in Monday's session after the New York 
Times said the SEC was investigating pricing by several brokers 
on suspicion that they failed to secure the best possible price 
for stocks they were trading for their customers.  Some of the 
firms mentioned were MWD $52.93 -1.52%, MER $55.82 -1.06%, AMTD 
$13.16 -5.11%, SCH $9.63 -0.92% and ET $12.77 -3.18%.

S&P 100 Index (OEX.X) - Daily Intervals

 

Buyers will most likely be aggressive on any OEX pullback at the 
545 level.  While the broader S&P 500 Bullish % ($BPSPX) achieved 
"bull confirmed" status on Friday, so did the narrower and large 
cap S&P 100 Bullish % ($BPOEX).  With internals confirming the 
externals, bulls and bears will be competing for stock.

Pivot Matrix - 

 

The Semiconductor Index (SOX.X) is the only equity-based index in 
our pivot matrix to not see trade at its MONTHLY R1.  Advanced 
Micro Devices (NYSE:AMD) $17.37 +1.63% holds its analysts day on 
Friday and the Semiconductor Book-to-Bill report isn't scheduled 
to be released until Thursday November 18.  I feel the pressure 
building in the semiconductors, where I think resolution will be 
to the upside.  As of Friday evening, Dorsey/Wright and 
Associate's Semiconductor Bullish % (BPSEMI), which rose 1.25% on 
Friday was reading 33.13% and hadn't yet achieved "bull 
confirmed" status at 34%.

Jeff Bailey

 
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The Option Investor Newsletter                   Monday 11-08-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None	
Dropped Calls: None
Dropped Puts:  None
New Call: EBAY
Watch List: Dow-components to healthcare and more! 


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

None 


*************
DROPPED CALLS
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None


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

None

********
NEW CALL
********

eBay Inc. - EBAY - close: 103.69 chg: +4.01 stop: 95.00

Company Description:
eBay is The World's Online MarketplaceŽ. Founded in 1995, eBay 
created a powerful platform for the sale of goods and services by 
a passionate community of individuals and businesses. On any 
given day, there are millions of items across thousands of 
categories for sale on eBay. eBay enables trade on a local, 
national and international basis with customized sites in markets 
around the world. Through an array of services, such as its 
payment solution provider PayPal, eBay is enabling global e-
commerce for an ever- growing online community.
(source: company press release)

Why We Like It:
We constantly monitor EBAY.  It's such a trading crowd favorite 
and momentum players love it.  We've had our eye on it for the 
last couple of weeks as EBAY flirted with a breakout over the 
$100 level.  Now, with today's 4 percent gain, we believe the 
stock has finally escaped grip of $100 psychological resistance.  
Today's move pushed EBAY over recent resistance near $102.50 and 
scored new all-time highs.  Volume was above average.  The move 
was fueled by positive news from J.P. Morgan.  The firm put EBAY 
on its focus list and slapped a $130 price target on the stock 
while raising their 2005 earnings estimates for the company.  It 
may not be a coincidence but the Point & Figure chart has 
produced a new triple-top breakout buy signal with a $125 target.  

Here's our plan.  Now that the fourth-quarter, post-election 
rally has begun and we're into the best two months of the year we 
can look for EBAY to help lead the way higher.  Short-term 
traders can target a move to the $110 level.  If you're willing 
to hold on a few weeks longer we can target $120 by year-end.  
Readers can choose to go long now over $103 or hope/wait for a 
dip back towards $100 and buy a bounce.  Either should work.

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

BUY CALL DEC 100 XBA-LT OI= 6418 current ask $7.00
BUY CALL DEC 105 XBA-LA OI=11171 current ask $4.20
BUY CALL DEC 110 XBA-LB OI=17839 current ask $2.15
BUY CALL DEC 115 XBA-LC OI= 2356 current ask $1.05

BUY CALL JAN 100 XBA-AT OI=23791 current ask $8.80
BUY CALL JAN 105 XBA-AA OI= 6039 current ask $6.00
BUY CALL JAN 110 XBA-AB OI=10130 current ask $4.00
BUY CALL JAN 115 XBA-AC OI= 5343 current ask $2.50
BUY CALL JAN 120 XBA-AD OI= 2409 current ask $1.50

Annotated chart

 

Picked on November 80 at $103.69 
Change since picked:      + 0.00
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =      10.4 million 
Chart =



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

Boeing Co - BA - close: 52.07 change: +0.92

WHAT TO WATCH: We considered adding BA to the OptionInvestor.com 
play list tonight as a new call candidate.  The rebound from the 
quick double-bottom near $48.00 and the bullish technicals look 
tempting.  Today's 1.8 percent gain and breakout over its simple 
50-dma also looked encouraging.  Given the Dow's breakout over 
its descending channel all the Dow-components will have the wind 
at their backs and BA could be ready to soar.  Watch for a move 
over $53.00.  Yes, there is resistance near $55.00 but the 
bullish P&F chart points to a $62 target.

Chart=


---

Cardinal Health - CAH - close: 49.01 change: +1.66

WHAT TO WATCH: We mentioned CAH in the MarketMonitor today.  The 
stock has broken out over resistance near $48.50 and its simple 
100-dma.  Volume has been above average for the last two 
sessions.  Today's 3.5 percent gain puts CAH at new three-month 
highs and poised to breakout over round-number resistance at 
$50.00.  The P&F chart has reversed from a sell signal to a buy 
signal with a $74 target. Watch for the move over $50.

Chart=


---

F P L Group - FPL - close: 71.00 change: +0.52

WHAT TO WATCH:  This high-flying electric utilities stock 
recently broke out over resistance at the $70.00 level.  FPL is 
also in a triple-top breakout buy signal on the P&F chart with a 
$99 target.  We'd like to consider bullish positions but shares 
have old resistance near $73.00 dating back to December of 2000.  
It may be best to watch it.  FPL currently produces a dividend 
yield of 3.8 percent.

Chart=


---

United Technologies - UTX - close: 97.19 change: -0.06

WHAT TO WATCH: Dow-component UTX is benefiting from the bullish 
breakout in the Dow and the leadership in the defense stocks.  
UTX recently broke through resistance near $96.00 but shares 
still have resistance at its all-time highs just under $98.00.  
However, P&F chart traders will note the new triple-top breakout 
buy signal and a $114.00 price target. 

Chart=



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

ESI $41.15 +3.10 - ITT Education has seen its stock surge 8 
percent on above average volume.  ESI broke through resistance at 
its simple 200-dma and the $40.00 mark.

PDCO $38.85 -0.13 - PDCO is once again challenging resistance 
near $39.00.  There is also round-number resistance near $40.00.

TASR $54.11 +7.62 - TASR is on the move again with a 16.4 percent 
rally on huge volume producing a breakout over resistance at $50.
 

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