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Daily Newsletter, Thursday, 11/18/2004

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The Option Investor Newsletter                Thursday 11-18-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: On The Verge of a Breakout?
Futures Wrap: See Note
Index Wrap: You may want to consult your accountant first....
Market Sentiment: A Growing Crowd


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-18-2004           High     Low     Volume   Adv/Dcl
DJIA    10572.55 + 23.00 10585.26 10547.39 1.85 bln 1582/1609
NASDAQ   2104.28 +  4.60  2105.39  2089.48 1.93 bln 1477/1640
S&P 100   565.97 +  0.25   567.12   565.00   Totals 3059/3249
S&P 500  1183.55 +  1.61  1184.90  1180.09 
W5000   11608.55 +  7.67 11618.71 11572.94
SOX       445.64 +  5.80   445.94   433.36
RUS 2000  622.06 -  0.91   623.17   618.84
DJ TRANS 3612.22 + 11.80  3618.54  3598.74
VIX        12.98 -  0.23    13.29    12.96
VXO (VIX-O)13.95 +  0.31    14.52    13.87
VXN        18.79 +  0.29    19.03    18.44 
Total Volume 4,096M
Total UpVol  2,305M
Total DnVol  1,735M
Total Adv  3552
Total Dcl  3657
52wk Highs  330
52wk Lows    53
TRIN       0.94
NAZTRIN    0.49
PUT/CALL   0.62
************************************************************

On The Verge of a Breakout?
by Jim Brown

As OpEx week comes to a close the SPX is poised to move
higher after a week of moving sideways. Last Thursday
we saw the SPX come to a dead stop just under resistance
at 1175. Friday saw a breakout to 1183.50 and after a
week of trading the SPX closed today at 1183.75. This
completes the third consolidation pause for the current
rally. That means Friday could be pivotal for market
direction and with the rising underlying bid that 
direction may be up. 

Charts

 
Nasdaq Chart

 
SPX Chart

 


The concept of a new leg higher may be in sharp contrast
to the economics we saw today. There are some seriously
conflicting views of the economy as we rush towards the
year end. The Jobless Claims came in as expected and 
provided no economic jolt with the continuing claims
slipping slightly and helping the outlook for new
jobs are being created. We are about two weeks away
from the November payrolls and the estimates have not
yet begun to fly. After last months +337,000 gain it
will be hard to beat but investors would be happy with
anything in the 200K range or higher. 150K is the minimum
acceptable new jobs level because that is the number of
new workers entering the labor force each month. We need
150K per month just to break even.

Today's economic weakness began with the Conference
Boards Leading indicators which fell for the fifth
consecutive month. This was an October number at -0.3%
and the September drop was revised down to -0.3% also
making October the fourth consecutive month of -0.3% 
declines. This steady stream of progressively lower
readings for five months is the first time since 1995
the indicators have posted a five month decline. There
are several factors contributing to this meltdown. The
ten-year treasury yield has fallen consistently despite
the Fed rate hike cycle currently underway. Manufacturing
employment numbers are also pushing the index down as
hours worked decline and new orders decline. Remember
this was an October number and pre election. There has
been a spurt in hiring and investment since the election
and the November report could show a significant reversal
in the trend. 

Another weak report came from the Philly Fed Survey
at 20.7. This was a drop from 28.5 in October and well
below the consensus of 23.5. The Philly Fed number has
been very volatile recently with a drop to 13.4 in Sept
and a bounce to 28.5 in Oct. The return to 20.7 is a
continuation of the decline started earlier this year.
All production components except for employment fell 
including New Orders, Shipments, Prices Received and 
Prices Paid. Delivery Times, Back Orders and Inventory
levels all slipped into negative territory. The only     
component to show a major improvement was the Six Month
Outlook which exploded from 27.6 to 52.1. Considering
the drops in all the production components it appears
just getting past the election has improved spirits
dramatically.

There are no material economic reports on Friday and
we will be left to trade on sentiment and stock news. 
That stock news will feature tonight's earnings from 
DIS, ADSK, MRVL, GPS and MSCC.  

Disney beat estimates by a penny on a +24% rise in 
profits and projected double digit earnings growth for
the next few years. Some say it appears Disney has turned
the corner and could be about ready to break resistance 
at $27. ADSK beat earnings by +3 cents and announced a
2:1 split to kick off a +$4 gain in after hours. They
also raised estimates for the current quarter. 

The Gap announced earnings inline with estimates at 28
cents and said they were going to buy back $750 million
in shares. MRVL beat estimates by a penny and projected
+5% to +7% growth for the 4Q. DITC beat estimates by
+8 cents and SRNA blew away estimates of 21 cents with
a 35 cent headline number. That number did include some
special items. 

Not all the earnings were positive with ELBO beating
by a penny but warning that revenue and earnings would
be below estimates for the 4Q. ELBO dropped more than
$3 in after hours but recovered much of it before the
session ended. 

SIRI saw a spike of +$1 after it was announced that 
Mel Karmazin, former president of Viacom, is joining 
SIRI as CEO. With Karmazin and Howard Stern making 
the SIRI commitment the struggling satellite radio
company is rapidly gaining respectability. Tough to 
use the words Howard Stern and respectability in the
same sentence but in this case it applies.   

GOOG dropped -4.96 after warning for the second time 
this week that revenue growth would probably decline
in the fourth quarter because of intensifying competition
and the "inevitable" slowdown as the business gets bigger.
It also warned that ad revenue would slow as it removed
online ads that generate low levels of interest. Two
warnings in one week could be a sign that earnings are
going to disappoint for the current quarter as the
extreme projections generated during the IPO process
and the thousands of pages of print hype are tested
by reality. The $167 close was the lowest close since
Oct-21st. 39.1 million shares were released for trading
on the 16th and tripled the prior float of about 19m
shares. Another 25 million will be released four weeks
from now on Dec-16th, 25 million on Jan-16th and 179
million on Feb-16th. 

Google Chart

 

Intel continued its upward march after CEO Craig Barrett
said Intel was on track for much better operational
performance in the first half of 2005 than 2004. This
is a positive step up from the 3Q earnings guidance 
where Intel said 4Q sales would be only "seasonal" and
with lower gross margins. Intel spiked +50 cents and
helped power the SOX to new breakout highs at 445.
Intel is pressing resistance at $25 and accelerating.

The SOX breakout to 445 the day after AMAT said orders
could be down -35% is positively amazing. AMAT itself
closed up +31 cents at $17.69 after dropping to $16.50
at the open. The bulls are back and bad news is being
ignored once again. The SOX recovery after the AMAT
news may be the final nail in the coffin for the bears.
The SMH shares moved higher in after hours trading to
$35 on news from MRVL, MCDT and MSCC.  

SOX Chart

 


During today's session the Dow crept higher but stalled
at 10585 and just under Wednesday's 10600 resistance
high. We have a strong pattern of higher lows as the
consolidation band narrows and the underlying bids
move higher. A break over 10600 would target the high
for the year and a three year high at 10750. With the
historically bullish Thanksgiving week ahead the odds
are good we will see that test soon. 

The Nasdaq is also slowly pressing higher. The close
today over 2100 puts it one step closer to the high
for the year and a three year high at the January 26th
close of 2153. All the interim highs since January have
been surpassed and there is no slowing in the uptrend.
We are not making 30-40 point moves but each day is
another rung on the ladder. 2250 is the commonly quoted
end of year resistance target. 

The Nasdaq saw support from the SOX today and the new
breakout high but the Russell closed negative after a
bout of profit taking intraday. A morning sell program
knocked the Russell back to 618 and -10 points from its
628 high on Wednesday. The Russell has had a great run
and it is only normal to expect some funds to take some
profits and shift the money into other issues. I suspect
there was some money moving from small caps to chips on
the strength of the SOX rebound. 

With oil still holding at the lows and just over the 
100day average at $45.75 there is nothing to keep traders
from buying stocks. Yes they are overbought. Yes they are
at or near the highs for the year and at key resistance
levels but the race is on. The race for mutual fund
profits is feeding cash to the markets at a frenzied
pace. TrimTabs announced after the bell today that $5B
in new cash flowed into funds for the week ended on
Wednesday. TrimTabs said cash was flowing into funds
at a pace not seen since the tax deposits hit the markets 
in April. Since funds have to put that money to work they
have to keep buying stocks. They can't afford to sit on
cash and have to tell their investors in January that 
they missed another +1000 point Dow gain because the 
market was overbought. (At least they hope it will be
another +1000 point gain.) With 12500 the year end 
target taking shape in many analyst interviews there 
is still money to be made in their view. 

This all assumes the greater fool theory is still alive
and well. Everyone buying stocks at the highs for the
year are hoping there will be somebody left to sell to
in January. Next week is Thanksgiving and it is normally
bullish through the Monday after turkey day. Then we move
to the January effect rally which actually occurs the
first two weeks of December. Normally this is when losing
small caps get sold in the last two weeks of December for
tax purposes and then bought again the first two weeks of
January when new money hits the markets. However, in 
recent years this process is said to have moved to the
first two weeks of December as everybody tries to beat
the rush in order to buy the dip ahead of the Santa Claus
rally. Confused? In reality the January effect has blurred
over the last few years as all of December has turned into
a bullish session. But, there I go worrying about the future
when all we need to do is get through Thanksgiving rally
first then worry about the next step. Those that really
want to toss in their sleep tonight could worry if the
Thanksgiving rally will appear or will the funds use
that historical trend to take profits from the last three
weeks. See, you can really drive yourself crazy if you
start trying to outwit the market. In my case it is not
a very long drive. 
  
Sell too soon! 

Jim Brown
Editor


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


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

You may want to consult your accountant first....

It's here!  The security gold bugs had been longing for.  But the 
anticipation that I, and many other traders had for the new 
StreetTracks Gold Trust (NYSE:GLD) $44.38 ETF isn't what many had 
hoped for.  At least not from the trader's perspective.

In a June 22, 2003 Ask the Analyst column titled "A new security 
to grab a gold bugs attention," we reviewed the World Gold 
Council's proposal of a new ETF that would allow investors and 
traders to actually get some exposure (long or short) to gold 
bullion, without having to actually take physical possession.

I was disappointed to learn that the Internal Revenue Service 
(IRS) has decided that despite the StreetTracks Gold (GLD) being 
a security, any taxes paid will fall under the IRS's 
"collectibles" tax-rate of 28%, and not the potentially lower tax 
rates stock investors and traders have become accustomed to.

So before you trade this long-awaited security, check with your 
tax professional, especially you active traders, as the 
StreetTracks Gold (GLD) might not be suitable for everyone.

I can only imagine that one of the reasons it has taken so long 
for the World Gold Council-sponsored ETF to finally come to 
market was that the WGC wanted it to be taxed as a capital gain 
or loss, not a collectible.  

According to the New York Stock Exchange, investors bought an 
estimated $550 million in the StreetTracks Gold Trust (GLD) 
$44.38, where this trust will now hold that amount of gold 
bullion.

Today's offering may well have had some impact on the AMEX Gold 
Bugs Index ($HUI.X) 239.37 -2.35%, as this non-weighted EQUITY 
index fell, while Spot Gold in New York $442.10 -0.52% as well as 
December Gold Futures (gc04) $442.20 -0.15% traded fractionally 
lower.

If you get the feeling, based on observation, that gold bugs 
decided to move toward the commodity itself, which provides more 
of a "true" hedge against inflation, or dollar weakness, then 
today's trade makes some sense as discussed in the June 22, 2003 
Ask the Analyst column.

With the StreetTracks Gold Trust (GLD) reflecting the underlying 
value of gold bullion, traders and investors can use 
Stockcharts.com's Continuous Gold ($GOLD) point and figure chart, 
to get a feel for supply/demand of this commodity-based ETF, as 
if it had been trading for months!

Continuous Gold Contract ($GOLD) Chart - $2 box

 

Most institutions will view gold prices on a $2-box chart, show 
that's what we're looking at above.  You can see it gives some 
very choppy trade, but I'll still use it to at least try and 
establish some type of trading target, see if it "makes sense" 
with other observations (dollar, Treasuries, junk bonds, and gold 
equities).  Right now, a GLD trader/investor would equate the 
current bullish vertical count ($462) in the above $GOLD chart 
with $46.20.  After a powerful triple-top buy signal at $432.00, 
near-term support for the GLD would be assessed at $43.20.

AMEX Gold Bugs Index ($HUI.X) - 4-point box

 

Most institutions will view the 4-point box of the $HUI.X, and 
while gold itself has broken above its January/March highs of 
$436.50, the $HUI.X is lagging that type of relative strength 
price action.  Why?  Probably because of the dollar weakness, 
where the STOCKS in the $HUI.X will largely have to be purchased 
with U.S. dollars, and when they're sold, will also be equated 
with what the dollar has done.  You can see some of the "loss of 
hedge" that gold itself provides against a currency.

I've noted in past bullish gold commentary the Newmont Mining 
(NYSE:NEM) $48.63 -1.84%, which trades just off its January high 
of $50.20 is the way I like to trade bullish/bearish in gold.

With Dorsey/Wright and Associates Precious Metals Bullish % 
(BPREC) now rising to a higher level of bullish risk, but still 
VERY strong at 70.55% (tonight's reading), I think bulls should 
be looking for some pullback entries.  I'm probably going to get 
some Newmont (NEM) called away tomorrow as I had written some 
November $47.50 covered calls against the underlying in late 
October, as I thought NEM would stay under that level, with the 
HUI.X under 244.00.  

In a "bull confirmed" environment, those triple-top buy signals 
are powerful aren't they?

Market Snapshot/Internals - 11/18/04

 

While today's first day of trade for the StreetTracks Gold Trust 
(GLD) was perhaps the top story for Index Traders, it was the 
Semiconductor Index (SOX.X) 445.64 +1.32% powering higher after 
another terrible quarterly earnings report from a bellwether that 
should grab investor's attention.  While Applied Materials 
(NASDAQ:AMAT) $17.65 +1.78% has some formidable resistance ahead 
at $18.00, and is not a stock I'm crazy about from the long-side, 
bulls will most likely want to focus on the chip-makers, which 
will usually lead a cyclical recovery.  Remember the equipment 
makers are DEPENDENT on the chip makers for their future.

After getting my head handed to me on some covered calls in the 
Semiconductor HOLDRs (AMEX:SMH) $34.80 +1.45% this week (see my 
Market Monitor profiles) I think I'm back on trend with the 
semis.  

After achieving "bull confirmed" status on Friday at 34% bullish, 
Dorsey/Wright and Associates' Semiconductor Bullish % (BPSEM) has 
inched up to 38.13% as of tonight's close.

U.S. Market Watch - 11/18/04 Close

 

Stocks treaded water for the better part of the day, but got a 
late bid to their close with the SOX.X and Oil Service (OSX.X) 
holding the top spot among sector winners.  I discussed the 
Pharmaceutical Index (DRG.X) where finger-pointing at the FDA's 
may have bulls avoiding the sector on the thought that the FDA 
has to become even more stringent in how it approves new drugs, 
and reviews drugs currently available to consumers.

Pivot Matrix - 

 

Whenever I see a plethora of buy or sell program premiums, and 
little movement from the major indices, I sense pressure 
building.  

While the major indices have gone nowhere this week, the U.S. 
observed Thanksgiving week tends to be very bullish, especially 
toward the Wednesday close, and trade-shortened Friday 
(11/26/04).  Nobody's sure why this is, but after having been a 
broker and consulted for Merrill Lynch, the tendency is for the 
big money managers (mostly buy side) to do most of their 
selling/fine tuning the week prior to Thanksgiving, and sometimes 
early in the Thanksgiving week (Monday or Tuesday) then turn the 
easy decisions over to their assistants as the big guns get an 
early start on a four or five-day Thanksgiving weekend.  The 
assistants are usually given the instruction... "don't mess 
anything up," and a rather bullish bias takes hold.

Jeff Bailey

****************
MARKET SENTIMENT
****************

A Growing Crowd
- J. Brown

It would seem that just as "everyone" predicted a post-election 
rally now "everyone" is waiting for the overdue pull back.  
Normally, when "everyone" is expecting something to happen odds 
are it fails to show up or at least fails to show up in the same 
form that "everyone" was looking for.  I believe this year's 
post-election rally to be a valid exception considering all the 
worries that were surrounding the Presidential election.  

Yet now that everyone is looking for the dip it may not appear.  
I know that sounds improbable and I wouldn't bet on it but it is 
a possibility.  This time I happen to agree with "everyone".  I 
do believe stocks are extremely overbought and way overdue for a 
correction.  How deep will the correction be?  I don't know but I 
suspect it will be a lot more shallow than you or suspect it will 
be given the growing crowd of investors looking to buy the yet to 
occur dip.  

So what's holding the market up?  I don't know that either other 
than a lack of willing sellers.  If investors feel that stocks 
will closer higher before the year-end there isn't much reason to 
sell now.  Several days ago Jim did an excellent job explaining 
the predicament that many fund managers are probably facing right 
now as the grapple with the issue of buy now or hope for a pull 
back.  Plus, we have a little historical trend going for us.  
The Stock Trader's Almanac reports that the week before 
Thanksgiving week has been up eleven years in a row.  Furthermore 
the Almanac states that the options expiration Friday (that's 
tomorrow) has been up 7 out of the last 12 years.  I'm not sure 
I'd bet on that last statistic but the Industrials do look set to 
end up on the week. 

It bears noting that the volatility indices, which have been 
flashing the market-top warning signal for days are still trading 
near multi-year extremes.  Plus, the ARMS index or TRIN's moving 
averages are trading at or near bearish reversal levels.  This is 
a very tough spot to consider new bullish positions.  Do so 
carefully.  Personally, I'd still rather wait for the dip before 
opening new long positions.  Next week, before Thanksgiving, 
looks like a good spot for the market to pause.


-----------------------------------------------------------------

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9585
Current     : 10572

Moving Averages:
(Simple)

 10-dma: 10471
 50-dma: 10158 
200-dma: 10245 



S&P 500 ($SPX)

52-week High: 1170
52-week Low : 1031
Current     : 1183

Moving Averages:
(Simple)

 10-dma: 1174
 50-dma: 1131
200-dma: 1121



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1580

Moving Averages:
(Simple)

 10-dma: 1545
 50-dma: 1463
200-dma: 1439



-----------------------------------------------------------------

CBOE Market Volatility Index (VIX) = 12.98 -0.23
CBOE Mkt Volatility old VIX  (VXO) = 13.95 +0.31
Nasdaq Volatility Index (VXN)      = 18.79 +0.29 


-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63      1,161,751       726,699
Equity Only    0.50        911,558       454,881
OEX            1.06         36,439        38,534
QQQ            0.37         40,777        15,170


-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          72.2    + 0.75  Bear Correction
NASDAQ-100    76.0    + 5     Bull Confirmed
Dow Indust.   63.3    + 0     Bull Confirmed
S&P 500       73.0    + 0.8   Bull Confirmed
S&P 100       71.0    - 1     Bull Confirmed


Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


-----------------------------------------------------------------

 5-dma: 0.80
10-dma: 0.88
21-dma: 0.89
55-dma: 0.99


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.


-----------------------------------------------------------------

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1377      1454
Decliners    1415      1574

New Highs     128        95
New Lows       10        15

Up Volume    980M     1068M
Down Vol.    854M      856M

Total Vol.  1860M     1943M
M = millions


-----------------------------------------------------------------

Commitments Of Traders Report: 11/09/04


Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

The difference between longs and shorts on the commercial side
continues to narrow suggesting no bias one way or the other.
Small traders are also somewhat neutral with a mild bullish
bias.

Commercials   Long      Short      Net     % Of OI
10/19/04      432,945   441,041   ( 8,096)   (0.9%)
10/26/04      441,263   445,992   ( 4,729)   (0.4%)
11/02/04      446,192   441,676   ( 4,516)   (0.4%)
11/09/04      447,779   449,171   ( 1,392)   (0.1%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   23,977  - 12/09/03

Small Traders Long      Short      Net     % of OI
10/19/04      147,148   124,827    22,321     8.2%
10/26/04      138,201   121,275    16,926     6.5%
11/02/04      136,290   132,040     4,250     1.5%
11/09/04      148,415   136,325    12,090     4.2%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Commercials traders appear to be trying to capitalize on the 
S&P's overbought status.  Short positions soared and the latest
data is one of the most bearish readings of the year.  As is
usually the case the small traders is on the opposite side of
the play with one of the most bullish readings of the year.


Commercials   Long      Short      Net     % Of OI 
10/19/04      264,860   531,541   (266,681)  (33.4%)
10/26/04      276,128   509,552   (233,424)  (29.7%)
11/02/04      307,053   580,081   (273,028)  (30.7%)
11/09/04      337,164   672,903   (335,739)  (33.2%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
10/19/04      353,903     66,027   287,876    68.5%
10/26/04      345,908     64,061   281,847    68.7%
11/02/04      395,029     63,746   331,283    72.2%
11/09/04      392,253     58,999   333,254    73.8%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Commercial traders remain bullish on the NASDAQ.  Meanwhile
small traders upped their positions on both longs and shorts
but hit a new bearish extreme as far as net short positions.


Commercials   Long      Short      Net     % of OI 
10/19/04       52,630     31,940    20,690   24.4%
10/26/04       53,233     31,323    21,910   26.2%
11/02/04       53,002     31,231    21,771   25.0%
11/09/04       54,509     33,016    21,493   24.5%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  25,160   - 06/01/04

Small Traders  Long     Short      Net     % of OI
10/19/04       10,462    25,243   (14,781)  (41.3%)
10/26/04       10,521    25,388   (14,867)  (42.8%)
11/02/04        8,886    36,621   (27,735)  (61.3%)
11/09/04       10,213    38,251   (28,038)  (57.8%)

Most bearish reading of the year: (28,038) - 11/09/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Not much action in the commercials as they remain evenly
divided between longs and shorts.  The same can be said for
small traders this past week with a split between bulls and
the bears.


Commercials   Long      Short      Net     % of OI
10/19/04       25,385    24,213    1,172       2.3%
10/26/04       25,707    24,855      852       1.6%
11/02/04       25,319    24,261    1,058       2.0%
11/09/04       22,863    22,463      400       0.8%
 
Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
10/12/04        8,814     9,167   (  353)   ( 1.9%)
10/19/04        8,327     6,015    2,312     16.1% 
10/26/04        8,405     6,336    2,069     14.3%
11/02/04        7,952     6,306    1,261      8.8%
11/09/04        6,165     6,483    ( 318)   ( 2.5%)

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03


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The Option Investor Newsletter                 Thursday 11-18-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None 
Call Play Updates: COP, DHR, EBAY, EOG, FDX, GDW, IBM, LEH, MUR, OSK, 
                   PTR, QCOM, SLB, SUN 
New Calls Plays: None
Put Play Updates: FRX
New Put Plays: None


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

None


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********************
PLAY UPDATES - CALLS
********************

ConocoPhillips - COP - close: 86.26 change: -0.46 stop: 81.99

We are growing a little perplexed here.  COP seems to be under 
performing some of its peers and the OIX oil index the last few 
days.  That's not to say we're not still bullish on the stock but 
rivals XOM and CVX may look more appealing if you're looking for a 
mega-cap player in the group.  Yesterday COP held their annual 
analyst meeting and the company reaffirmed their production 
forecasts.  COP also raised its capex spending schedule from $4.5 
billion this year to $5.1 billion in 2005 and $5.2 billion in 2006 
as the company plans to spend more on exploration and production.  
What readers may find interesting is news that COP is basing their 
projections on crude oil falling to $28 a barrel in 2005, $26 a 
barrel in 2006 and to $24 a barrel beyond 2006.  This doesn't seem 
to line up with everything we've read regarding the peak in oil 
production yet oil companies have been consistently under reporting 
where they think oil will trade.  Plus, the West Texas crude that 
COP quotes tends to trade under imported crude prices.  Regarding 
the current bullish play in COP we would still watch for a bounce 
above $85.00 or a new rally over the $88 level.

Picked on November 03 at $85.50
Change since picked:     + 0.76
Earnings Date          10/27/04 (confirmed)
Average Daily Volume =      3.0 million 
Chart =



---

Danaher - DHR - close: 58.64 change: +0.23 stop: 55.95  

Yesterday (Wednesday) shares of DHR experienced some strong 
follow through from Tuesday's intraday bounce.  DHR powered 
through resistance at $58.00 to hit new all-time highs.  The move 
was fueled by the Kmart-Sears merger.  Sears is a big customer 
for DHR and if the merger is completed the new bigger entity 
could/should be a much larger customer for DHR.  This close to 
our target at $60.00 we are not suggesting new bullish positions.  
Readers can prepare to exit as DHR moves into the $59.50-60.00 
range. Yesterday we raised our stop loss to $55.95.    

Picked on October 27 at $54.99
Change since picked:    + 3.63
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     1.3 million 
Chart =


---

eBay Inc. - EBAY - close: 110.50 chg: +1.13 stop: 102.49 *new*

The dip never got very deep in shares of EBAY.  The pull back 
from $110 to $107.50 was it.  If you're a technical trader it 
looks like the simple 5-dma as very short-term support.  Brave 
momentum traders may want to consider positions here but do so 
with a tighter stop than ours.  We're raising our stop loss to 
$102.49. We have a wide stop because we want to give shares room 
to maneuver as we hold EBAY through the end of December. Yes, 
it's still okay to consider some profit taking at current levels.   

Picked on November 80 at $103.69 
Change since picked:      + 6.81
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =      10.4 million 
Chart =


---

EOG Resources - EOG - close: 69.29 change: +1.29 stop: 63.99

We don't see any new news to report on but EOG is going to let 
that slow it down.  The MACD recently produced a new buy signal 
and shares have rallied past short-term resistance near $68.50.  
EOG is currently testing the descending trendline of lower highs 
dating back to its peak in October.  We expect the stock will 
breakout over $70 soon.  Readers can look to buy a dip/bounce 
near $68 or buy a breakout over $70.

Picked on November 14 at $ 68.37
Change since picked:      + 0.92
Earnings Date           10/26/04 (confirmed)
Average Daily Volume =       1.1 million    
Chart =



---

Fedex Corp - FDX - close: 94.78 change: +0.33 stop: 89.99     

We have nothing to complain about here.  The dip wasn't very deep 
and FDX continues to climb using its simple 10-dma as immediate 
support.  Yes, the Dow Transportation index and FDX remain 
severely overbought and yes we still suggest readers, especially 
short-term traders, take profits here; but the trend is your 
friend.  Conservative traders could tighten their stops.  We have 
a wide stop because we want to hold FDX through the year end.  
However, we may get cold feet and chicken out (exit) at $97-98 
since the P&F target is only $97. 

Picked on October 21 at $89.45 
Change since picked:    + 5.33
Earnings Date         09/22/04 (confirmed)
Average Daily Volume =     1.5 million 
Chart =


---

Golden West Fncl - GDW - cls: 118.66 chg: -2.31 stop: 114.99    

Financials hit some minor profit taking today and shares of GDW 
slipped under the $120 level and its simple 10-dma.  Fortunately, 
the $118.00 level held up as support.  This could end up being a 
new bullish entry point but we'd want to see some signs of a 
bounce first.  Watch for a move back over the $120 level.  
 
Picked on November 10 at $118.15
Change since picked:      + 0.51
Earnings Date           10/21/04 (confirmed)
Average Daily Volume =       583 thousand   
Chart =


---

Intl Business Mach. - IBM - close: 95.10 chg: -0.36 stop: 89.99 

Last chance!  IBM has been holding on to its gains but the recent 
action is beginning to look like a short-term top.  We've been 
suggesting that short-term traders do some profit taking now and 
consider re-entering on a dip.  We plan to hold IBM through the 
end of the year but that means enduring all the ups and downs.  
Right now IBM is overdue for some "downs".  We're looking for a 
dip into the $92-93 range.  
   
Picked on October 27 at $90.00
Change since picked:    + 5.10
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 
Chart =


---


Lehman Brothers - LEH - close: 83.34 chg: -0.26 stop: 79.95  

LEH continues to consolidate sideways.  It's hard to see on the 
daily chart but shares of LEH are consolidating into a pennant 
formation with higher lows and lower highs over the past two and 
a half weeks.  We would not suggest new positions until we saw 
LEH trade above the $85.00 level.  The XBD broker-dealer index 
remains significantly overbought and due for a correction.

Picked on October 26 at $80.60 
Change since picked:    + 2.74 
Earnings Date         09/21/04 (confirmed)
Average Daily Volume =     2.0 million 
Chart =


---

Murphy Oil - MUR - close: 80.11 change: +0.76 stop: 77.49

Kudos to any of the brave traders who bought the recent dip.  We 
expected MUR to rebound from the $77.50 level and traders jumped 
in at the $78.00 mark to buy the dip.  Officially the newsletter 
is more conservative and we're waiting and watching for MUR to 
breakout over resistance at $82.00.  Our suggested entry point to 
go long is at $82.25.  Fortunately, the MACD indicator continues 
to improve and flirt with a new buy signal.  

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           10/26/04 (confirmed)
Average Daily Volume =       500 thousand   
Chart =



---

Oshkosh Truck - OSK - close: 62.98 change: -0.09 stop: 57.00

OSK continues the sideways consolidation between $62 and $64.  
Shares are now testing technical support at the 10-dma but if the 
market pulls back we expect OSK to correct as well.  Right now 
we're suggesting readers watch for a pull back toward the $60 
level as the next entry point.  

Picked on November 07 at $ 62.16
Change since picked:      + 0.82
Earnings Date           10/28/04 (confirmed)
Average Daily Volume =       205 thousand   
Chart =


---

PetroChina Co - PTR - close: 55.10 change: -0.08 stop: 52.49

PTR is one of the new bullish candidates we added on Wednesday.  
The stock recently broke out over significant resistance at the 
$55.00 level.  Readers looking for a little more confirmation can 
watch for a move over $55.50 before initiating bullish positions.  
There is no new news and no change in our strategy.

Picked on November 17 at $55.18
Change since picked:     - 0.08
Earnings Date          00/00/04 (confirmed)
Average Daily Volume =      288 thousand
Chart =



---

Qualcomm - QCOM - close: 41.24 change: +0.43 stop: 37.50

The rebound continues for shares of QCOM and the stock is 
confirming yesterday's breakout over minor resistance near $40.50 
and the cloud of moving averages.  Technicals continue to improve 
and the MACD is now into its second day of a new buy signal. This 
looks like another bullish entry point to us.  

Picked on November 15 at $ 40.51
Change since picked:      + 0.73
Earnings Date           11/03/04 (confirmed)
Average Daily Volume =      13.9 million    
Chart =


---


Schlumberger - SLB - close: 65.28 change: +0.73 stop: 61.00

SLB continues to rebound as we expected it would but the ascent 
has been a bit slower than we suspected.  Shares are back over 
round-number resistance at $65.00 but are still struggling under 
the 40 and 50-dma's near $66.00.  This looks like a bullish entry 
point to us but more conservative traders can wait for a move 
over $66.

Picked on November 12 at $ 65.05
Change since picked:      + 0.23
Earnings Date           10/22/04 (confirmed)
Average Daily Volume =       3.9 million    
Chart =


---

Sunoco Inc - SUN - close: 78.44 change: +0.89 stop: 72.99*new*

Well that didn't take very long.  We've been following SUN on the 
watch list recently and finally decided to add it to the play 
list on Wednesday.  The stock has been out performing some of its 
oil-related fellows and managed to breakout over resistance at 
$78.00 to hit new all-time highs.  We had a TRIGGER to go long at 
$78.25 that was hit today.  The MACD is in a new buy signal and 
everything looks ready for another leg higher.  We are raising 
our stop loss to $72.99. 

Picked on November 18 at $78.25
Change since picked:     + 0.19
Earnings Date          10/21/04 (confirmed)
Average Daily Volume =      1.2 million 
Chart =



**************
NEW CALL PLAYS
**************

None


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*******************
PLAY UPDATES - PUTS
*******************

Forest Labs - FRX - close: 40.93 change: +0.25 stop: 44.01

We added FRX to the play list on Wednesday as a relative strength 
loser.  The stock's consistent downtrend and series of negative 
news events have produced numerous high-volume declines.  
Yesterday was one such event.  Surprisingly shares experienced 
very strong volume today as buyers defended the stock near the 
$40.00 level.  That's why we have a TRIGGER to buy puts at 
$39.95.  Until FRX breaks support at $40.00 we'll sit on the 
sidelines.  More aggressive traders can look for another failed 
rally under $44.00 as a bearish entry point.

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 =



*************
NEW PUT PLAYS
*************

None


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**********

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The Option Investor Newsletter                 Thursday 11-18-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: A brief watch list this evening. 
Traders Corner: Elliott Wave principles basics; part 2
Combos/Straddles: Staying Positive While We Weather The Storm 

**********
WATCH LIST
**********

A brief watch list this evening.

___________________________________________________________________

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.
___________________________________________________________________


3M Co - MMM - close: 82.37 change: +0.14

WHAT TO WATCH: Dow-component MMM has been under performing some 
of its peers as the DJIA index soars to new monthly highs.  Bulls 
should be encouraged by MMM's breakout over its four-month 
trendline or resistance two weeks ago.  Yet the stock has churned 
virtually sideways the past two weeks.  We suspect the Dow will 
pull back soon.  Watch MMM for a dip toward round-number support 
at $80.00.

Chart=


---

Vimpel Communications - VIP - close: 126.75 change: +7.96

WHAT TO WATCH: VIP soars for a 6.7 percent gain and new all-time 
highs after reporting earnings today.  The stock broke through 
resistance in the $122.50 region on very strong volume.  We would 
probably not chase it here but look for a pull back to consider 
bullish positions.  

Chart=


---

Mobile Telesys - MBT - close: 147.22 change: +8.04

WHAT TO WATCH: Wow!  MBT has produced a huge bounce from the $139 
level and the rising trendline of support dating back to mid-
September.  Volume was above average on today's bounce and shares 
cleared round-number resistance at $145 and several significant 
moving averages.  MBT looks ready to rally toward the $155-156 
range. 

Chart=



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

SYMC $61.81 +0.57 - SYMC is nearing resistance at $62.00 and 
looks ready to breakout!

AHC $81.45 +1.63 - Almost there.  AHC has broken out over the 
$80.00 level and is almost over the $81.50 mark we suggested as 
an entry point.

APC $68.13 +0.61 - APC continues to look like a bullish 
candidate.  We see today's move as an entry point.

ATH $97.60 +0.95 - From $72 to $97 in just four weeks, shares of 
ATH are extremely overbought.  Watch for resistance at $100 and a 
sizeable pull back before considering bullish positions.


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**************
Traders Corner
**************

Elliott Wave principles basics; part 2
By Leigh Stevens

I started this series back on 10/26 (04) and part 2 carries on from 
it and reading part 1 is helpful if not necessary. See – 
http://www.OptionInvestor.com/traderscorner/tc_102604_1.asp 

But, FIRST, a word from our sponsor ... no! Rather two Subscriber 
e-mail Questions that either relate to the wave topic directly or 
where my answer has some relevance to it - 

SUBSCRIBER QUESTION: 
"In your example of the Weekly S&P500 chart, you show wave 4 
violating the price territory of wave 1. Everything I have read and 
even the EW software that I use  (Advanced Get) states that if W4 
drops into W1 territory, the chart is renumbered, in your example, 
W3 now becomes W1 and W4 becomes W2 and so on. Just curious why you 
numbered the way you did?"

NOTE: Our questioner referred to this chart from my 10/26 article 
and how the bottom of the sharp decline labels "4" was lower than 
the top of the advance ending at "1"  –


  

[NOTE: The question is really how can corrective wave 4 overlap ALL 
of the prior advance, wave 3, and still be labeled correctly?]  

RESPONSE: 
What you say is the case most of the time in Elliott Wave terms. I 
was trading and writing on the market during this period.  The  
powerful advance ending where I labeled it "3", certainly "felt" 
like a three wave which is typically a very strong and powerful 
advance.  

What I labeled corrective wave 4 was very fast and also felt like 
the correction to the preceding up wave 3 that preceded it. I knew 
also that "portfolio insurance" selling added the additional amount 
for the extension of wave 4 that caused the overlap and was a one-
time event - the portfolio insurance concept and method (of 
automatic shorting of index futures at pre-determined, successively 
lower levels) lost its wide following after that sharp fall. 

The next rally or advancing wave that followed had the 
characteristic and feel of a final wave (5) up and was followed by 
a major A-B-C correction - all in all, the whole period shown above 
offered an example of a 5 wave bull market followed by an A-B-C 
bear market. 

Now, about wave 4 "canceling" all of wave 3 and retracing all of 
the prior advance, getting into the territory covered by the first 
advance. (Per my earlier article; see it by clicking on the link 
above – the 3 up moves of a bull market are labeled 1, 3 and 5; the 
two intervening corrections are labeled 2 and 4.) I would probably 
note in the future that corrective wave 4 does not usually retrace 
all of up move (3), or corrective wave 2 that preceded it. I would 
also note the limitations of software, where only ONE rule can be 
programmed into the rules of the program; i.e., in this case, how 
waves can be labeled.    

In his own words, R.N. Elliott wrote: 
"As a general rule, it may be assumed that wave three will reach a 
higher level than wave one, and that wave five will go higher than 
wave three. (There can be fifth wave "failures" - L.S.) Likewise, 
wave four should not carry to as low as attained by wave two. Wave 
two rarely cancels all the ground gained by wave one, and wave four 
rarely cancels all of the ground gained by wave three."  

You'll notice that Elliott himself is not "dogmatic" in his 
interpretations of how market action sometimes unfolds by his use 
of the words "general" and "rarely".

SUBSCRIBER QUESTION (2):
"Leigh, the last two weekends you mention 39 as the upside target 
for the Q's.  Has the price of oil and or other conditions changed 
your thinking here?  Are we screaming overbought here?"

RESPONSE:
I had $39 as an upside target for QQQ because I thought that this 
current market move, as strong as it's been, would at least re-test 
the prior intraday high. I also noted that if QQQ closed ABOVE 39 
and then especially had a follow through close the following day, 
then higher objectives were implied – I didn't say what those 
higher target possibilities were actually. Sorry, dear readers. 

There are a couple of points I can make – one pertains to when does 
the market get the most "overbought"? – Answer: when it's in a 3 
wave advance.  

The second advance in a bull market move (the first advance being 
"wave 1"; the second advance or "wave 3" follows after a corrective 
pullback "wave 2) is usually the strongest and the ascent is 
typically STEEP – pullbacks are shallow and the market usually gets 
the most overbought by conventional measurements of 
overbought/oversold; e.g., by use of the RSI Indicator – 

The steepness of the rate of ascent can be seen by the angle of the 
second trendline going from point 2 at the bottom of the downturn 
following the first big rally off the August bottom – and which is 
extended up toward an imagined end of wave 3. This is the power 
move so to speak and is the rally where an indicator like RSI gets 
the most extreme.    


 

As measured by the RSI, this market is way overbought as you 
suggest but that does not necessarily mean to automatically exit 
calls for example. It may mean to not take any or many NEW call 
positions as too high risk.  

NOTE: In the chart above, the strong OBV trend is a confirming 
secondary indicator that this is a power move.  Just looking at 
the volume bars is not enough as the daily volume levels are not 
huge.  

As to how we can judge where a top might come in, I rely on price 
patterns – there is no double top or anything like that but 
prices are trading within a trend channel on the hourly chart and 
the top end of it may be the next objective, say around 41 – 


    


RECAPPING BASIC ELLIOTT WAVE PRINCIPLES – 
A bull market or a basic up trend tends to break down 
into 3 advancing "impulse" waves, with 2 intervening counter-
trend corrections or downswings and that these all together make 
up a 5-wave structure. The END of a wave is where we put the 
number or letter. A "typical" look to this is can be seem from a 
chart from a prior market – 


 

A bull market move, designated by the 5-wave structure or pattern 
is followed by a down-up-down correction or 3-part structure 
designated by the Letters A, B and C as can be seen in the current 
Dow 30 (INDU) weekly chart – 


  

The back and forth, up and down price swings between the major top 
made in early-2000 top (top of wave 5) and the next major low at 
"A" was a complex move - but this was followed by a simple 
structure in the advance culminating at "B". Wave 5 was also 
relatively simple.  

This is another  characteristic of the market in wave terms.  If a 
wave has been "complex", the next will be simple. This can also be 
seen in the simplicity of up wave 3, which was followed by complex 
wave 4.

What this characteristic of the pattern made by the various rallies 
and declines helps tell is WHERE we are? Is this correction likely 
to have a lot of wide-ranging price swings and which is good for 
traders?  Is this advance we're in likely to be strongly in ONE 
direction?  If so, you may want to get into puts or calls and stay 
positioned and do less trading in and out.

LAST BUT NOT LEAST – FOR OPTION TRADERS
Having an idea of the wave pattern as it unfolds is very valuable 
to option traders, but we need to look at intraday charts, 
especially hourly charts – 

If the Nasdaq Composite is in a strong uptrend characteristic of a 
3 wave and that was apparent when the earlier corrections were 
shallow and short-lived, then a strategy of trading in and out of 
options will NOT be as profitable as staying in a position and 
would warrant going out to an expiration that is not the next one 
coming up.  


  

AND, you note that the bigger waves break down into smaller sub-
sets; e.g., wave 1 consists of 5 waves up and corrective wave 2 
breaks down into the a-b-c pattern of ALL corrections.  More on 
this to follow in another article on wave patterns and theory. 

Good Trading Success!  

****************
Combos/Straddles
****************

Staying Positive While We Weather The Storm

By Mike Parnos

What going to happen first?  Is the market going to run out of 
steam or are we going to run out of money?  Just kidding, sort of.  
This month the market has taken its toll on our brokerage account, 
but we controlled our losses, and we live to trade another day.  

We preserved our trading capital and that's the secret to 
effectively running a business.  From the emails I've received, 
some CPTI students got out earlier and experienced smaller losses.  
Others, however, held on too long and are taking severe hits.  I 
can only hope that something is learned from the experience.

What we've experienced this month happens very seldom, but this is 
the "mierde" I talk about in the CPTI credo.  We have to be 
prepared for any occurrence.

Now What?
Good question.  The market is trending -- not the ideal situation 
for the Iron Condor strategy.  It has taken little, if any, rest on 
its way up.  The S&P 500 has gone up 90 points in the last four 
weeks.    There are those of you who may choose to sit out until 
the trend becomes a more defined.  That is understandable -- and 
even advisable.  A little innocent voyeurism never hurt anyone.  
Watching other short traders getting abused might even be 
entertaining -- especially after the month we experienced.  

For the newsletter, however, the only way we're going to learn is 
to put on trades.  I'm going to place some "hypothetical" trades 
tomorrow and then wait until next week to possibly put on a few 
more.  I'm going to be ultra-conservative.  The dollar amounts 
aren't going to be impressive, but they will provide you a slightly 
different approach to a few of our strategies.

What Did We Learn?
Aside from the self-discipline to take a loss when necessary, it 
became painfully apparent that the spreads in our Iron Condors were 
too wide.  When the time came to close our positions, we bought 
back our short options only to discover that our long positions had 
little value to help defray the costs.

For example -- if we had the November 1180/1200 bear call spread 
(20-points), a week ago it would have cost us about $9.00 to buy 
back the 1180 call.  The 1200 call might have had a value of only 
$1.00.  We would have had to pay a net $8.00 to close a spread that 
was only about $1.00 in-the-money.  

What we're going to try to accomplish in the future is to create 
smaller spreads (5-points and 10-points).  To generate reasonable 
premiums, we will take in less per spread and simply trade more 
contracts.  Then, if we get into trouble (which will happen sooner 
or later), the long option will have some value to make the 
unwinding process less painful.
____________________________________________________________

DECEMBER CPTI POSITIONS
December Position #1 -- SPX Iron Condor (Part 1) - 1183.55
We are mildly bullish on the market and this bull-put spread still 
gives us about a 40-point cushion on the downside with the short 
strike near what should prove to be a support level.

Sell 20 December SPX 1145 put 
Buy 20 December SPX 1140 put
Approximate credit:  $.80 ($1,600)

Notice that, as of Thursday's closing price, the "natural" posted 
price shows only $.30 of premium.  The rest of our premium is going 
to come from negotiating between the bid and ask spread.  

Strike           Bid         Ask
1140 Put        $3.30       $3.70
1145 Put        $4.00       $4.70

You'd be surprised how much you can get if you just ask.  We'll try 
to get $.30 from the 1145 $.70 bid/ask spread.  Then, we'll try and 
get $.20 from the 1140 $.40 bid ask spread.  Add that $.50 to the 
$.30 posted prices and we have our $.80.  Asking for $.80 may be a 
little aggressive, but in life you're not going to get anything 
unless you ask for it.  You can always modify it lower if you don't 
get filled in a reasonable amount of time.

This is just the bull-put portion of our Iron Condor.  We're going 
to wait until the smoke clears a little before looking at our bear-
call spread.  Besides, Monday, the SPX should open up a lot more 
strike prices to select from.  It will give us a lot more 
flexibility.  If the market shows no sign of topping, there's 
nothing wrong with just having the bull-put spread.  We have to 
take what the market gives us.  When we get greedy, we get hurt.

December Position #2 -- SPX Sure Thing (Almost) Credit Spread – 
1183.55
Here we go again.  But, if you noticed, our Sure Thing fiasco may 
be our only profitable trade to close this month.  It's best used 
in a trending market -- and there's no denying that we're in a 
trend.  It cost us a bunch to find out.  Maybe we can take 
advantage of it.

Sell 2 SPX December 1180 puts
Buy 2 SPX December 1180 puts
Credit $7.50 ($1,400)
___________________________________________________________

The Last Man Standing
Our SPX 1185/1200 position is till going.  As you know, since the 
SPX is a European option, trading ceased today (Thursday).  
However, we are still exposed to the Friday opening settlement 
price.

The SPX closed at 1183.55.  That means we have a small 1.45 cushion 
to help us in case the SPX opens higher.  At this point we are at 
the mercy of the market.  The November SPX options do not trade.  
It's a helpless feeling, so you can a) light a candle, b) pray to 
God, Buddha, Allah or the Tooth Fairy (or all of the above), or c) 
have a few stiff drinks and watch Gilligan's Island reruns until 
you fall asleep.

The settlement symbol for the SPX will be SET or $SET.  It will be 
available about noon on Friday.  You can always call 1-888-OPTIONS 
and ask for the Nov. SPX settlement number.  They'll have it as 
soon as it's released.  Good luck!!
____________________________________________________________

NOVEMBER CPTI POSITIONS
November Position #1 - SPX Iron Condor - 1183.55
We sold 12 SPX November 1185 calls and bought 12 SPX November 1200 
calls with a credit of about $1.25 ($1,500). Then we sold 9 SPX 
November 1070 puts and bought 9 SPX November 1050 puts for a credit 
of about $1.65 ($1,485). Total credit and potential profit of about 
$2,985. The maximum profit range is from 1070 to 1185. The 
maintenance is $18,000. The potential return on risk is about 20%. 
November Position #2 - SPX Iron Condor - 1183.55
Considering the downward market movement, I felt it is appropriate 
to initiate a SPX position with different parameters. We sold 10 
SPX Nov. 1160 calls and bought 10 SPX Nov. 1180 calls for a credit 
of about $1.40 ($1,400). Then we sold 10 SPX Nov. 1025 puts and 
bought 10 SPX Nov. 1005 puts for a credit of about $1.20 ($1,560). 
Profit potential was about $2,960. Closed for $3,840 loss. 
November Position #3 - OEX Iron Condor - 565.97
We sold 10 OEX Nov. 500 puts and bought 10 OEX Nov. 490 puts for a 
credit of about $.70 ($700). Then we sold 10 OEX Nov. 555 calls and 
bought 10 OEX Nov. 565 calls for a credit of about $.60 ($600). 
Total net credit and maximum profit of $1.30 ($1,300).  On Friday 
we closed the trade for a $4,000 loss. (see article above).
November Position #4 - RUT - Iron Condor - 622.06
We sold 10 RUT Nov. 520 puts and bought 10 RUT Nov. 510 puts for a 
credit of about $.70 ($700). Then we sold 10 RUT Nov. 610 calls and 
bought 10 RUT Nov. 620 calls for a credit of about $.60 ($600). 
Total net credit and maximum profit of $1.30 ($1,300). Closed for 
$2,800 loss.  
 
ONGOING POSITIONS
QQQ ITM Strangle - Ongoing Long Term -- $39.29
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of 
the 2005 QQQ $29 calls for a total debit of $14,300. We make money 
by selling near term puts and calls every month. Here's what we've 
done so far: Oct. $33 puts and Oct. $34 calls - credit of $1,900. 
Nov. $34 puts and calls - credit of $1,150. Dec. $34 puts and calls 
- credit of $1,500. Jan. $34 puts and calls - credit of $850. Feb. 
$34 calls and $36 puts - credit of $750. Mar. $34 calls and $37 
puts - credit of $1,150. Apr. $34 calls and $37 puts - credit of 
$750. May $34 calls and $37 puts - credit of $800. June $34 calls 
and $37 puts -- total net credit of $750. We rolled out to the July 
$34 calls ($.20 credit) and $37 puts ($.60 credit) and took in a 
credit of $.80 ($800). We rolled to the August $34 calls and $37 
puts, taking in a credit of $900. We rolled to the Sept. $34 calls 
and $37 puts, yielding $.45 or $450 for the cycle. For October we 
were again limited to a $.45 ($450) rollout. We rolled to the 
November. $34 calls and $37 puts for a total of $.70 ($700). Our 
new total credit is now $12,900. 
Note: We haven't included the proceeds from this long term QQQ ITM 
Strangle in our profit calculations. It's a bonus! And it's a great 
conservative cash flow generating strategy. 
ZERO-PLUS Strategy. OEX - 565.97
In my Feb. 8th column, I outlined a strategy based on an initial 
investment of $100,000. $74,000 was spent on zero coupon bonds 
maturing in seven years at a value of $100,000. The principal 
$100,000 investment is guaranteed. We're trading the remaining 
$26,000 to generate a "risk free" return on the original 
investment. We own 3 OEX December 2006 540 calls @ $81 (x 300 = 
$24,300). Our cash position as of August expiration was $8,390. In 
September we added another $975 for a total of $9,365. In October 
we added $650 for a new total of $10,015. 
Zero-Plus Position For November
November bull put spread 500/490 for credit of $.70 x 5 = $350. 
November bear call spread 555/565 for credit of $.60 x 5 = $300. If 
all goes well, we'll be able to add another $650 to our cash 
position. 
 
SPX "Sure Thing" Strategy - 1183.55
Formerly called the "Credit Spread Boogie." We sold 3 SPX 1120 
October puts and bought 3 SPX 1095 October puts for a net credit of 
about $6.50 ($1,950). The initial maintenance was $7,500. When the 
SPX traded in the low 1100s, it was time for an adjustment. We 
closed out the original bull put spread for $13.20 ($3,960). We 
then opened a seven-contract position of an 1115/1140 bear call 
spread, taking in $6.35 ($4,445). We took in some extra premium. 
Our new profit potential is $2,435 -- if SPX closes below 1115. 
We've been getting whipsawed. Our most recent position was a 
November 14-contract 1120/1095 bull put spread at $7.00 ($9,800). 
The maintenance is getting pricey at $35,000. That's why this 
strategy is not for everyone. Our potential profit is still $2,435. 
We had to close the 1120/1095 bull put spread and we initiated a 
new 1115/1140 bear call spread. We picked up another $350 in 
premium to $2,785, but our maintenance is now $70,000. 
Once more with feeling. I know this is getting out of hand, but we 
have to play out the hand. We closed out our 1115/1140 bear call 
spread and now have 60 contracts of a November 1125/1100 bull put 
spread. We've taken in a total of $2990 in premium and our 
maintenance is now $150,000. I hope this is the last of it. 
 
Happy Trading! 
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In 
trading, as in life, it's not the cards we're dealt. It's how we 
play them. 
Mike Parnos, Your Options Therapist and CPTI Master Strategist 
 
Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the 
numbers represented here may have been achieved or beaten by our 
readers, we make no representation that any individual investor 
achieved these exact results. The tracking for the plays listed in 
this section uses closing prices for the day the newsletter is 
published and it is not meant to imply that any reader actually 
received those prices or participated in these recommendations. The 
portfolio represented here is hypothetical and for investment 
education purposes only. It is only an illustration of what type of 
gains a knowledgeable investor might receive utilizing these 
strategies. 

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