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Daily Newsletter, Wednesday, 11/17/2004

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The Option Investor Newsletter                Wednesday 11-17-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: A Complicated Dance  
Futures Wrap: See Note
Index Trader Wrap: Keep one eye on oil and 20-minutes of similarity 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      11-17-2004           High     Low     Volume   Adv/Dcl
DJIA    10549.57 + 61.92 10602.85 10481.83 2.12 bln 1932/ 889
NASDAQ   2099.68 + 21.06  2112.18  2090.72 2.20 bln 2009/1050
S&P 100   565.72 +  3.46   568.67   562.26   Totals 3941/1939
S&P 500  1181.94 +  6.51  1188.46  1175.43
SOX       439.85 + 12.24   445.64   427.61
RUS 2000  622.97 +  5.08   627.89   617.89
DJ TRANS 3600.46 + 28.27  3631.53  3571.78
VIX        13.21 +  0.00    13.39    12.77
VXO (VIX-O)13.64 -  0.36    14.02    13.57
VXN        18.50 -  0.10    18.63    17.36
Total Volume 4,320M
Total UpVol  3,283M
Total DnVol    993M
Total Adv  3941
Total Dcl  1939
52wk Highs  482 
52wk Lows    30
TRIN       0.57
PUT/CALL   0.71
******************************************************************

A Complicated Dance
Linda Piazza

The relationship among costs, the dollar's behavior, and
equities' performance composes a complicated dance.  That's
particularly apparent when the costs being considered are fuel
costs, paid for in dollars.  

A record jump in the PPI on Tuesday and an overnight plummet in
the dollar against the euro and yen focused particular attention
on Wednesday's CPI and crude inventories numbers.  Against a
background of a weakening dollar and the specter of increasing
costs, equity investors needed to see satisfactory crude
inventories.  

At least, that's what the dance program suggested.  The day
didn't turn out that way.  The combination of a higher-than-
expected rise in CPI; disappointing crude, gasoline, and
distillate inventories; and continuing weakness in the dollar
should have pressured equities.  That dance program was ignored,
although the strengthening bonds suggested that it should not be,
until later in the session.  Crude finally bounced, pressuring
equities.  

Annotated Daily Chart of Crude Futures for December Delivery:

  

It was the TRAN that first demonstrated the effect of the rising
crude prices.  The TRAN often serves as an indicator index, being
particularly sensitive to both crude and economic developments. 
Watch the TRAN for clues as to how the S&P's and Dow might react,
as the TRAN sometimes leads these other indices.

Annotated Daily Chart for the TRAN:

 

Visible on the TRAN's 60-minute chart is a potential triple-top
formation.  The TRAN, however, did not break down out of its
recently established consolidation pattern, and so has not yet
confirmed that triple top.  A break higher remains possible, with
such a break starting a new leg higher. 

The charts of the two S&P's and the Dow show similar
characteristics.

Annotated Daily Chart for the Dow:

 

Annotated Daily Chart for the SPX:

 

Like the TRAN, both the Dow and the SPX ended the day within the
recently built consolidation zones. Unlike the TRAN, both had
attempted breakouts above that zone, only to be hit by selling.  

The tech-related indices present somewhat different pictures. 
The SOX's successful move above the 200-ema predicted a test of
the 200-sma.  That test occurred today, ahead of AMAT's after-
hours earnings release.  

Annotated Daily Chart for the SOX:

 

Note the breakout above the long-term descending red trendline. 
This chart suggests the danger in acting on a warning, such as
the confirmed CCI H&S, rather than letting price be the ultimate
guide.  Bulls in semi-related stocks do not want to see the SOX
retreat back beneath the 200-ema and that red trendline tomorrow,
however, as quick reversals after a breakout suggest danger to
long positions.  

Annotated Daily Chart for the Nasdaq:

 

In general, the day's trading produced several attempts to break
out, met with strong selling when the dollar collapsed again and
crude rose again.  Tech-related indices kept climbing, but may be
vulnerable to sell-the-news effects after AMAT's earnings, as
strong as that earnings report appeared to be.  With new orders
beating expectations, AMAT reported earnings of $0.27/share
against expectations of $0.26/share and compared with $0.01/share
a year ago.  The company reported that it had gained market
share.  Net sales rose from last year's $1.22 billion to this
year's $2.20 billion.  The report was mostly in-line with
expectations, although some had worried that orders would
decrease.  The chief executive did note some cautiousness among
customers due to increasing chip inventories.

However, some evidence of excessive bullishness exists in AMAT's
trading.  As noted by Marc Eckelberry of OIN's Futures Monitor,
short interest declined to 8 percent over the last month, with
put/call rations declining, too.  That sell-the-rumor effect may
already be reflected in after-hours behavior, with AMAT last at
$16.77 as this report was prepared, down from the cash close of
$17.34.  

We can't always trust after-hours behavior, however, and there's
more to consider in that complicated dance among equities, the
dollar's behavior and costs.  This morning's CPI added one step
to that dance.  

Last month, CPI had risen 0.2 percent, with the ex-food-and-
energy component rising 0.3 percent.  October produced a 0.6
percent rise against expectations of a gain of 0.4 percent, with
over half that rise coming from energy costs.  The core CPI rose
0.2 percent, in line with expectations.  The number emphasized
the importance of energy costs and the need for crude to continue
its recent pullback if inflation is not to rear its head.

Although less attention was paid to other economic releases, this
Wednesday's economic calendar was almost as full as last
Wednesday's, beginning with the MBA Refinancing Index at 7:00,
and continuing with that CPI and Housing Starts and Building
Permits at 8:30.  Despite the holiday-shortened preceding week,
the Composite Index of mortgage loan applications rose 4.3
percent, week-over-week, on a seasonally adjusted basis.  Not
adjusted for seasonality, applications decreased.  Refinancing
activity increased 10.6 percent, with the refinance share rising
to 48.6 percent of all applications.  The seasonally adjusted
Purchase Index decreased 0.6 percent.  

Finance activity revealed some worrisome tendencies, and housing
starts and building permits provided a mixed impression.  Housing
starts zoomed up 6.4 percent, but building permits dropped 0.7
percent.  Some seasonality issues might have produced the
decrease in permits.  
  
At 9:30, October's Industrial Production and Capacity Utilization
followed, leading into the 10:30 release of crude, gasoline, and
distillate inventories.  October's industrial production rose a
much greater-than-expected 0.7 percent, with capacity utilization
increasing a greater-than-expected 77.7 percent.  The Federal
Reserve noted that September's number had been affected by
hurricanes in the Southeast, and termed Monday's number a
possible bounce back from that hurricane-slowed production.

The American Petroleum Institute scooped the Department of
Energy, releasing figures showing crude imports up 4.5 percent
from the year-ago level.  The API reported a rise of 3 million
barrels in crude inventories, but a drop of 1.5 million barrels
in distillates and a rise of 126,000 million barrels in gasoline
inventories.  With winter months approaching, attention has
focused on distillate stocks, with expectations among analysts
for a rise instead of the actual decline.  Distillate supplies
include heating oil.  While weather forecasts are for a mild
winter, some worry that a hard cold snap would deplete supplies
and drive up prices.

The Department of Energy's later release revealed crude
inventories higher by 800,000 barrels, but distillate and
gasoline inventories down 1 million and 400,000 barrels,
respectively.  These numbers fell below expectations for a rise
of 2.3 million barrels.  

Economic releases tapered off, but the pre-market shakeup created
by the Kmart (KMRT) and Sears (S) merger announcement continued. 
Both had bounced in pre-market trade, with KMRT closing higher by
7.69 percent and S, by 17.23 percent.  Competitors Wal-Mart
(WMT), Home Depot (HD) and Lowes (LOW) didn't fare so well, with
WMT closing lower by 0.65 percent; HD, 1.67 percent and LOW, 0.41
percent.  The net effect on the retail index, the RLX, was to
close it higher by 0.37 percent. 

The merged company will be named Sears Holdings Corporation, and
will be the third-largest retailer in the U.S., although both
companies will keep their original brand names.  The structuring
of the deal gives Sears' shareholders a 10.6 percent premium over
Tuesday's closing price.  The companies expect the merger to be
finalized by March 2005.  Cost savings and an increase in
incremental gross margin will benefit the companies, executives
believe.   

Reviewing the moves of that complicated dance show that crude
bounced and the dollar declined, with that combination proving
somewhat difficult for equities to negotiate.  Yet if equities
face resistance just ahead, so does crude, and it's not yet clear
which will take the lead in this complicated dance.  Equities
pause, but might glide through either resistance or support, not
yet having clearly broken through in either direction.  CCI
flutters into H&S formations, hinting that the indices might be
tiring and might need at least minimal retracements, but that
probably depends on both crude costs and the SOX's reaction to
AMAT's earnings release.  Watch the recently established
consolidation zones, the SOX's 200-ema and Nasdaq 2100 for clues.

Thursday's economic releases begin with the usual 8:30 release of
jobless claims, but tomorrow's economic calendar rivals today's
in number, if not in importance.  At 10:00, October's Leading
Indicators will be released, followed by Natural Gas Inventories
at 10:30, and November's Philly Fed Index at noon.  The Leading
Indicators number is generally not considered market-moving, but
I've seen it do just that.  The Money Supply number will be
released at 4:30.  One report suggests that the Semi Book-to-Bill
number also appears tomorrow, but the official site at
wps2a.semi.org (formerly semi.org) lists November 22 as the
release date.  Be ready for the next big move, but be willing to
be wrong, too, reversing course if necessary.


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

Keep one eye on oil and 20-minutes of similarity

Stocks traded higher on Wednesdays with the NASDAQ-100 Index 
(NDX.X) 1,571.12 +1.45% chiming in with a new 52-week high, while 
its Tracking Stock (AMEX:QQQ) $39.11 +1.33% followed suit on 
brisk volume of 125.4 million shares, and would have most likely 
closed at or near its session high of $39.32, if bulls hadn't 
slipped on a late spat of buying in oil.

Pattern traders will want to keep an eye on oil tomorrow.  Some 
of the things I saw today look EXACTLY like they did last week, 
and more than likely, traders are going to look for SIMILARITY 
(bullish for stocks) or DIVERGENCE (bearish for stocks) in 
tomorrow's early morning trade.

If you've been playing close attention to my recent weekly 
observations of how oil trades toward the Wednesday close, and 
more importantly, how it finishes into Friday's close, then 
tonight's Index Trader Wrap will make perfect sense.

Tonight I'm going to quickly look at a 10-minute interval chart 
of December Crude, show you just how similar (to within 10-
minutes!) today's trade was to that found on Wednesday of last 
week.  That sets up the observation for SIMILARITY or DIVERGENCE!

December Crude Oil futures (cl04z) - 10-minute intervals

 

I don't believe I have a photographic memory, but I knew I had 
seen this afternoon's action in the not-to-recent past.  Last 
Wednesday to be exact.  I checked the time as well, and last 
Wednesday, we would have seen a late afternoon "pop" higher in 
December Crude, which started at 01:50 PM EST.  That after a 
LOWER trade earlier in the morning.  Since that time, stocks, 
which did fall to their close have rallied strong.  With the 
knowledge that the $WTIC point and figure charts ($0.25 box size) 
is so near its bullish support trend, equity traders need to 
understand that the oil commodity is near an important level of 
longer-term upward trend!  

Now look at today's action.  Oil dips jumps to WEEKLY S1 on 
today's EIA inventory report, then falls to a session low and 
WEEKLY S2, then jerks back higher to WEEKLY S1 by 11:15.  All is 
calm until a further bid comes into the "black gold" at the 
beginning of our 10-minute bar starting at 01:30 PM EST.

While PRICE is not exactly the same for oil today, as it was at 
Wednesday's close last week, traders still have a wary eye on oil 
prices.  As oil popped above the $46.50 level today, several sell 
program premiums "came out of nowhere" to have the major indices 
retreating from their best levels of the session.

One thing we'll note in tonight's Pivot Matrix is that at last 
Wednesday's close (11/10/04), the major indices closed very close 
to THIS WEEK'S weekly S1.

Using the 10-minute interval chart of December Crude also brings 
in the observation of how SIMILAR its 200-period SMA is today, to 
that found on Wednesday of last week.

I (Jeff Bailey) would use this observation more for BULLS that 
are contemplating taking some profits that I would a BEAR to step 
in aggressively with equity shorting with overhead supply of 
stock now limited.

Market Snapshot/Internals - 11/17/04 Close

 

A 33-point decline in the Dow Industrials (INDU) isn't that big 
of a deal (between 01:00 and 2:00), but by 02:30 the INDU had 
fallen to 10,520.  You and I can probably figure that any buyers 
that have been observing, not trading or buying, just observing 
this weeks trade are now rather hesitant to be buyers, certain 
they'll not buy top after not doing so last week, or the week 
before.  Today's pop in oil late in the session was further 
reason for hesitant bulls to step back, or for some profitable 
bulls to take some profits.  

We see some abatement in advancing issues by the 03:00 hour, 
which suggests to me that there were some stocks that were 
trading with a decent 1% gain or better, that an hour later were 
dripping red by 03:00 PM EST.

Here's a quick look at tomorrow's Pivot analysis Matrix.

Pivot Matrix - 

 

Only the DIA, SPX.X and SPY were not able to trade their WEEKLY 
R1s.  Meanwhile, the SOX.X launched further higher and CLOSED 
above its WEEKLY R2 after trading its MONTHLY R2.  

Tonight's extended session was a choppy one.  Applied Materials 
(AMAT) $17.34 +3.46% initially jumped as high as $17.90 after the 
headline quarterly earnings handily beat expectations.  When the 
conference call got underway, AMAT then fell to as low as $16.42 
to see a last tick at $16.79 after the company warned that an 
expected 35% drop in new orders for the current quarter (now 
underway) has the company expecting revenue to drop 20-23%, which 
implies Q1 revenue between $1.69-$1.76 billion, with earnings 
coming in at approximately $0.15 to $0.16 per share.  The revenue 
figure was well below consensus of $2.147 billion.

The stock did see a narrowing trade when management said it was 
pretty confident on its backlog, citing no significant 
cancellations, and is looking for a strong 2005, given customer 
cautiousness and guidance going into Q1.

AMAT executives would not give guidance beyond Q1 2005.

The NASDAQ-100 Tracker (AMEX:QQQ) last ticked at $38.98, while 
the Semiconductor HOLDRs (AMEX:SMH) $34.30 +2.29% saw last trade 
in the extended session at $33.90, which would be 10-cents below 
its WEEKLY R2, but 8-cents above today's low of $33.81 for 
perspective.   

Dow Industrials (INDU) Chart - 10-minute interval

 

I make some notes that both the INDU and oil have been waffling 
this week.  One might begin to associate the INDU WEEKLY R1 with 
this week's December Crude WEEKLY S2.  I still think oil price 
isn't just "economic" its very "psychological" to traders and 
investors.

Bulls could have "thrown in the towel" I guess and let the INDU 
close below last week's close.  But they didn't, and they didn't 
last Wednesday either!  Note:  QCharts will display last week's 
close in dashed PINK (if I have that feature turned on).

S&P 100 Index (OEX.X) Chart - 10-minute intervals

 

On Thursday of last week, the OEX finally maintained a bid ABOVE 
its prior week close by 11:30 AM EST.  That could be a test for 
tomorrow.  Hey!  Tomorrow's DAILY Pivot is roughly equivalent to 
last weeks close.  That would be a good test for equity 
strength/weakness.

NASDAQ-100 Tracker (QQQ) Chart - 10-minute interval

 

With volume turned on, I placed my cursor at the beginning of the 
01:30 PM EST bar.  Not suspicious volume, but not many bidders as 
the QQQ began a decline.  The biggest volume spike of the 
afternoon didn't come until 02:00-02:10.

U.S. Market Watch - 11/17/04 Close

 

Today's bond market action was truly perplexing, even for pure 
bond traders.  There was talk that a EuroZone hedge fund was 
covering a large bund/10-year spread (was buying U.S. 10-year, 
driving price higher, yield lower) and when pit traders smelled 
blood, they felt obligated to help inflict further pain.  One 
trader was heard saying .... "this bond market just won't let you 
sell it," as bond bears have been speculating that any dollar 
intervention could bring selling into Treasuries.  

Jeff Bailey

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The Option Investor Newsletter                Wednesday 11-17-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Watch List: Software, Energy, Financials and more
Stop Loss Updates: DHR, IBM, MUR, QCOM
Dropped Calls: None
Dropped Puts: MXIM
New Calls: PTR, SUN
New Puts: FRX

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

Software, Energy, Financials 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.
___________________________________________________________________


Symantec Corp - SYMC - close: 61.24 change: +0.70

WHAT TO WATCH: We mentioned SYMC in the MarketMonitor today.  
There's been virtually no weakness in this anti-virus software 
maker's shares.  The bullish pattern of higher lows is coiling 
for a breakout over resistance at $62.00.  With a 2-for-1 split 
on December 1st it would not surprise us to see SYMC make a run 
through the end of November.  Watch for the breakout.

Chart=


---

Toro Co - TTC - close: 70.91 change: +0.56

WHAT TO WATCH: We continue to like the relative strength in 
shares of TTC.  The stock is challenging resistance in the $71-72 
region.  If TTC can breakout over $72.00 it would reverse its 
current P&F sell signal into a buy signal.  We would target a 
move to $80 by year's end.

Chart=


---

Anadarko Petroleum - APC - close: 67.52 change: +1.03

WHAT TO WATCH: APC is another oil stock that is trying to rebound 
out of its six-week consolidation.  Technicals are improving and 
its MACD is nearing a new buy signal.  It may be noteworthy that 
in spite of the pull back its P&F chart never reversed into a 
sell signal.  We would consider potential bullish plays over 
$68.50.  The P&F chart points to a $99 target.  We would probably 
target $75-80 by year's end.

Chart=


---

Commerce Bancorp - CBH - close: 60.20 change: +0.69

WHAT TO WATCH: This financial stock continues to coil into a 
bullish pattern ready for a breakout over resistance at $61.00.  
If shares do breakout bulls can use it as an entry point for a 
run toward the $65.00 level.  

Chart=




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

AHC $79.82 +2.53 - Yet another oil stock except AHC did see some 
serious profit taking.  Now it's trying to bounce above the 200-
dma.  A move over $81.50 may be an entry point.

GENZ $55.29 +0.12 - Has GENZ produced a double-top near $57.00?

RIMM $87.34 +5.51 - This 6.7 percent rally may be worth looking 
into.  The P&F chart points to $100.00.


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

DHR - call play -
  DHR added 2.4 percent and is just over 1.5 points from
  our target at $60.00.  We are going to raise our stop
  loss to $55.95.
 
IBM - call play -
  This looks like a potential short-term top in IBM.  Watch
  for a dip soon.
 
MUR - call play -
  As expected shares of MUR bounced from support near
  $77.50-78.00.  Aggressive players can use this spot as
  a new bullish entry point. We are still waiting for MUR
  to breakout over resistance at $82.00.
 
QCOM - call play -
  QCOM added 2.95 percent on above average volume to
  breakout over resistance at $40.00 and several moving
  averages.  This looks like a new bullish entry point.


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

None


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

Maxim Integrated - MXIM - close: 43.48 chg: +0.96 stop: 45.51

This has been a big week for semiconductor stocks.  The SOX has 
been up four out of the last five sessions and broken out over 
resistance near 420 and its exponential 200-dma.  The sector 
index still has resistance at the simple 200-dma directly 
overhead but we're going to call it quits on MXIM given this 
sector bullishness.  We will keep an eye on MXIM for future 
weakness.  The stock has under performed its peers and is only 
reluctantly trading higher.  

Picked on November 10 at $42.04
Change since picked:     + 1.44
Earnings Date          10/05/04 (confirmed)
Average Daily Volume =      6.0 million 
Chart =


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

PetroChina Co - PTR - close: 55.18 change: +0.94 stop: 52.49

Company Description:
Based in Beijing, the PetroChina Company Limited is a wide 
reaching oil company involved in the exploration, production and 
sale of oil and natural gas. 

Why We Like It:
PTR is essentially a Chinese oil and energy conglomerate.  We 
feel it's another way for traders to play what should be another 
leg up in the energy sector.  The stock, traded on the NYSE as an 
ADS, peaked just under $64 in December 2003.  The consolidation 
sent shares back toward $42 before bouncing a couple of times off 
its 50-week moving average.  Now shares have been quietly 
channeling higher the past six months.  Today's 1.7 percent gains 
is a breakout over resistance at the $55.00 level.  Bulls can 
also point to the ascending triple-top breakout buy signal on its 
P&F chart, which currently points to a $61 target.  We will start 
bullish positions here and target a move to $60. 

Editor's note: We have several bullish candidates on the play 
list from the energy sector.  We do not suggest readers play all 
of them.  Find the one or two you like the best. Don't over 
exposure yourself to any one sector.

Suggested Options:
The December strikes have the most open interest and they should
work but we're going to suggest the March calls.

BUY CALL MAR 50 PTR-CJ OI=1228 current ask $6.60
BUY CALL MAR 55 PTR-CK OI=1262 current ask $3.30
BUY CALL MAR 60 PTR-CL OI= 988 current ask $1.20

Annotated Chart:

 

Picked on November 17 at $55.18
Change since picked:     + 0.00
Earnings Date          00/00/04 (confirmed)
Average Daily Volume =      288 thousand
Chart =


---

Sunoco Inc - SUN - close: 77.55 change: +2.27 stop: 72.00

Company Description:
Sunoco, Inc., headquartered in Philadelphia, PA, is a leading 
manufacturer and marketer of petroleum and petrochemical 
products. With 890,000 barrels per day of refining capacity, over 
4,800 retail sites selling gasoline and convenience items, over 
4,500 miles of crude oil and refined product owned and operated 
pipelines and 37 product terminals, Sunoco is one of the largest 
independent refiner-marketers in the United States. Sunoco is a 
significant manufacturer of petrochemicals with annual sales of 
approximately five billion pounds, largely chemical intermediates 
used to make fibers, plastics, film and resins. Utilizing a 
unique, patented technology, Sunoco also manufactures two million 
tons annually of high-quality metallurgical-grade coke for use in 
the steel industry. (source: company press release)

Why We Like It:
SUN is yet another energy/oil stock that bulls should take note 
of.  We've had SUN on the watch list recently and the stock is 
out performing its brethren.  After surging through most of 
September the stock has consolidated sideways with a bullish bias 
of higher lows that has now given way to a new closing high.  The 
technicals look strong and its MACD indicator just now produced a 
new buy signal.  The P&F chart is bullish with a $117 long-term 
target.  Even though we feel that this is an entry point now 
we're going to use a TRIGGER to wait for a little bit of 
confirmation.  Our entry will be at $78.25 so SUN will have to 
breakout over $78.00 and hit new all-time highs before we open 
the play.  More aggressive traders can look for another dip and 
buy a bounce above $75.00.  We will target a short-term move to 
$84-85 and an end of year target of $87-90.

Editor's note: We have several bullish candidates on the play 
list from the energy sector.  We do not suggest readers play all 
of them.  Find the one or two you like the best. Don't over 
exposure yourself to any one sector.

Suggested Options:
We are going to suggest the January options since we plan to 
hold SUN through the end of the year.

BUY CALL JAN 75 SUN-AO OI= 716 current ask $6.00
BUY CALL JAN 80 SUN-AP OI= 402 current ask $3.20
BUY CALL JAN 85 SUN-AQ OI=  30 current ask $1.45

Annotated Chart:

 

Picked on November xx at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          10/21/04 (confirmed)
Average Daily Volume =      1.2 million 
Chart =



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

Forest Labs - FRX - close: 40.68 change: -1.93 stop: 44.01

Company Description:
Forest has well-established franchises in therapeutic areas of 
the central nervous, cardiovascular and respiratory systems, and 
we are always exploring new product opportunities that address a 
range of health conditions. Our principal brands include 
LexaproŽ(escitalopram oxalate), NamendaŽ(memantine HCl) and 
BenicarŽ(olmesartan medoxomil). (source: company press release)

Why We Like It:
Ouch!  It's been a very tough year for FRX shareholders.  The 
stock turned in a very strong fourth quarter for 2003 only to 
peak near $77.50 in January-February of this year.  Then the 
profit taking began and it just kept going and going and going.  
Every month or so there was more bad news punctuation by a high 
volume sell-off.  There's been no let up in bad news or the high 
volume declines. This month alone FRX issued an earnings warning, 
followed by bad news for one of its hypertension drugs and now 
there's been news of the CEO selling shares.  Of course the real 
story is that the CEO is 76 years old and is doing some estate 
planning but investors don't always get the details.  Usually 
when news hits that management is selling huge blocks of stock at 
one-year lows it's taken as a negative.  Whatever the stories are 
there is no denying FRX's relative weakness.  Technicals are sour 
and the MACD has rolled over into a new sell signal.  The P&F 
chart points to a $35 target.  We are going to use a TRIGGER 
under round-number support at $40.00 to open this play.  Our 
entry point will be 39.95.  Our initial target will be $35.00 but 
we suspect FRX could trade lower.  Once triggered we'll lower our 
stop.

Suggested Options:
We are going to suggest the January puts.  

BUY PUT JAN 35 FRX-MG OI=2390 current ask $0.90
BUY PUT JAN 40 FRX-MH OI=4621 current ask $2.45
BUY PUT JAN 45 FRX-MI OI=7905 current ask $5.50

Annotated Chart:

 


Picked on November xx at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          10/18/04 (confirmed)
Average Daily Volume =      2.8 million 
Chart =


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