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Daily Newsletter, Tuesday, 11/30/2004

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The Option Investor Newsletter                 Tuesday 11-30-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Passing Time 
Futures Markets: See Note
Index Trader Wrap: S&P 100 and Dow better get a move on 
Market Sentiment: Good Time for a Dip.


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-30-2004           High     Low     Volume   Adv/Dcl
DJIA    10428.02 - 47.90 10483.14 10428.02 1.95 bln 1372/1885
NASDAQ   2096.81 - 10.10  2107.45  2096.81 1.91 bln 1395/1754
S&P 100   557.47 -  2.68   560.58   557.46   Totals 2767/3639
S&P 500  1173.82 -  4.75  1178.66  1173.81 
SOX       423.87 -  6.00   431.29   423.86
RUS 2000  633.77 -  0.69   635.81   632.53
DJ TRANS 3658.71 +  8.60  3663.30  3638.47
VIX        13.24 -  0.06    13.38    13.07
VXO (VIX-O)13.54 -  0.08    14.17    13.53
VXN        18.88 +  0.01    18.90    18.52 
Total Volume 4,214M
Total UpVol  1,760M
Total DnVol  2,379M
Total Adv  3162
Total Dcl  4175
52wk Highs  531
52wk Lows    44
TRIN       1.04
NAZTRIN    1.01
PUT/CALL   0.89
************************************************************

Passing Time
by Jim Brown

The markets could not make up their mind today and spent
the entire dsession trading in a range and passing time 
while waiting for Friday. Funds planning on purchases with
the Microsoft dividend money likely spent the day adjusting
positions and dropping less desirable stocks. The result
was a terribly boring range bound day that ended right on
support across the board. 

Dow Chart

 
Nasdaq Chart

 
SPX Chart

 

There was a very confusing mix of economic news and stock
traders were unsure which reflected reality. The Chain 
Store Sales fell -1.5% for the week ended 11/27 and that
was the biggest drop since March 27th when the index fell
-1.9% for the week. Correct me if I am wrong here but
shouldn't Thanksgiving week be one of the strongest 
weeks of the year? We have already heard that Wal-Mart
barely posted a gain over last year due to a bad decision
about specially discounted items but some other retailers
did well. We heard from the retail sector that many stores
saw increases in the +4% range but it looks like those
chains were not a significant part of the survey. The 
ICSC-UBS Index is now resting near its late October low
for the year and casts doubt on the strength of the season.
ICSC lowered its sales forecast for November sales to 2.5%
to 3.0% from the 3.5% to 4% it had previously predicted. 

Also causing confusion was a drop in Consumer Confidence
to 90.5 from 92.9 and fourth consecutive monthly drop. 
The consensus estimates were calling for a significant
increase to 96.3. Obviously somebody forgot to tell the
consumers. The present conditions component was slightly
higher at 95.2 from 94.0 in October. The expectations
component was the culprit as it fell from 92.2 to 87.4.
Something weighed on the consumer consciousness and they
are becoming worried about the future. We did see oil
return to $50 and the market floundered after testing
the highs back on Nov-17th. There was also a round of
analysts suggesting any end of year rally would find
tough sledding once January appeared with much lower
growth estimates for 2005. There was a significant drop
in buying expectations with those planning on buying a
home falling to 2.4% from 3.6%, autos fell to 4.2% from
7.6% and major appliance purchasers fell to 24.2% from 
27.8%. The sum of those three components was the lowest
since the early 1990s and the auto component was the
lowest on record. Expectations of business conditions 
worsening and fewer jobs also rose. The headline number
at 90.5 was the lowest reading since March. The biggest
decline in confidence came from households with income 
under $35K per year.

The Chicago PMI fell to 65.2 from last months two decade
high at 68.5. No surprise there given the current state
of the economy. Just a normal pullback after a strong
spike. This may be seasonal more than a drop in the
business climate. Products made for the holidays had to
be in stores by Thanksgiving and that sent production 
to the October highs. In November production fell to 
68.4 from 79.7 and new orders dropped to 70.0 from 79.4.
Order backlogs fell to 52.7 from 60.9. Unbelievably
employment soared to 60.8 from 54.1. Production is
catching up with demand either from slowing demand or
increasing production. This was still a strong report
and could just be indicating that the production spike
for the holiday season is over.

The NY-NAPM rose again to 319.3 from last months 313.7
and continued its multi month march higher. The index 
is up +40.5% from this time last year. Manufacturing
components slowed but non manufacturing numbers rose.
The coming bonuses in the financial sector should keep
the bloom on the big NYC apple until early next year.
The yearlong increase in conditions should then moderate
given the potential change in the tax structure in 2005.  
 
Another upside surprise came from the GDP with a 3.9%
headline number and better than the previously reported
+3.7% growth. Conditions were mostly positive with a
better trade balance and increases in consumption. The
downside was a drop in corporate profits by -2.4% due
to hurricane damage and the lag time for insurance 
payments. Business investments also increased as they
tried to capture the accelerated depreciation on new
equipment purchased before year end. Inventories were
revised down sharply to $31.8B from $47.8B which was
previously reported. This should increase GDP in the
4Q as inventory levels are rebuilt. 

The end of year replacement cycle for computer equipment
is well underway as evidenced by Dell's gains in revenue
and earnings. HPQ also showed gains in the PC sector and
for both companies the gains are due in a large part by
the accelerated depreciation for equipment purchased this
year. With less than 30 days remaining in this economic
stimulant it was not surprising to see the Gartner Group
warn that several computer companies may go away soon.
Gartner said the accelerated depreciation was keeping
several in business and once that ceased any growth in
the PC sector was going to be limited to single digits
in 2005. According to Gartner we have seen six quarters
of double digit growth and that has kept those third
string players in the game. Dell, IBM and HPQ are not
expected to drop out of the business and Dell was the
preferred vendor for the long run. According to Gartner
Dell could sell computers for less than it cost others
to make them given their scale and buying power. NEC
and Toshiba were farther down the list and questionable
as future players. Gartner thought the next replacement
cycle would begin in 2008 when the new operating system
is due out from Microsoft. 

Wal-Mart continued to drop today with share prices back
at $52 and support from the summer. The David Faber, CNBC
bounce has been erased due to a miscalculation on the
Thanksgiving advertising plan. Seems Wal-Mart believed
that consumers would remember they always have low prices
on everything all the time without massive advertising.
Stores like Target, Mervyns, Kohls, Sears, etc, blanketed
mailboxes, papers and airwaves with advertised specials 
and were successful in attracting consumers for the big
holiday cycle. WMT saw only a minimal gain in sales for
the weekend and a major drop in market cap as a result
of their error. WMT has lost -$13 billion in market cap
over the last two days but they assured investors they 
will rectify the situation very quickly. My guess is the
sleeping lion is no longer sleeping and will be roaring
and advertised specials will be appearing everywhere over
the next five weeks. I hope Target and Kmart enjoyed their
weekend because the next five weeks could be a lot tougher.
WMT can afford to spend more on advertising than most other 
retailers have in weekend sales. WMT at $50 sounds like
a buying opportunity to me. 

Tomorrow will be the debut of the QQQ on the Nasdaq as
the QQQQ. The AMEX will continue to trade the QQQ but
on an unlisted basis and volume is likely to be minimal.
The QQQ/QQQQ is the most actively traded ETF in the world
with more than 100 million shares traded each day. 

The QQQ is not the only major change this week. The SOX
will have its first major makeover in two years with the
addition of three stocks and the removal of two. The SOX
index will drop MOT and LSI. Motorola is being dropped
because they spun off their chip division into Freescale
Semi (FSL) back in July. LSI is being dropped because
it no longer reflects leadership in the sector according
to the Philadelphia Exchange. Freescale (FSL), Infineon
(IFX) and Marvell Technology (MRVL) are being added to
the SOX. The changes will be made before the start of
trading on Friday. The SOX options are the eighth most
traded index options for 2004.  

After the bell today NVLS gave investors their mid
quarter update saying that earnings would be in the upper
half of their projected range. They projected earnings in
the 24-26 cent range and analysts had only projected 21
cents. They also said the business climate remained 
sluggish but they saw a strong sell through until year
end. They are hoping consumer-buying trends will be
strong enough to prompt a new wave of component orders
in 2005 that result in new equipment from NVLS. Sounds
like a strong rendition of "wishing and hoping" by the
NVLS chorus. 

PHG announced on Tuesday that they were cutting their
2005 estimates for global chip growth to ZERO from +5%.
They also said they had shipped more than one billion
mobile displays and should complete their second billion
within six years. They are the leading supplier of cell
phone screens and they expect volume to double in value
and volume over the next four years. 

Gold prices hit a high of $456 today and just below the
$457 high set on Monday. While the weak dollar may be
a motivating force the real reason is the $1.5 billion
in new demand to back the GLD ETF. Since the fund is
backed by the metal they must buy gold for every share
that is purchased. This is new demand that did not
previously exist and is taking supplies out of the 
circulation pipeline. Since this gold will not be
used for anything but collateral it will not reappear
on the market unless the new gold bugs begin dumping
those GLD shares. This has driven the price from $425
to over $455 in the last three weeks. Add in the weak
dollar and you have 18 year highs. 

November is over and despite any concerted month end
buying the indexes had a spectacular month. The Russell
rose +8.5%, Nasdaq +6.2%, S&P Midcap +5.8%, Transports
+4.6% and of course the S&P rounding out the list at 
+3.9%. The Dow squeaked in with a +4% gain and the
Wilshire only slightly better at +4.6%. Considering
the weakness since Nov-18th it is surprising the indexes
did as well as they did. The SOX tried to make a run for
negative territory but found support for a +2.9% gain
once the smoke cleared.

Those positive numbers above are the probable reason
for the negative numbers we have seen for the last week
or so. The Thanksgiving rally was very minimal and funds
appeared to be taking the first two days this week as
an opportunity to lighten up on those stocks they did
not want to take into year end. Profits are not profits
until they are sold and booked. This is a hurdle week
for economics and with the Intel update on Thursday
night there is plenty of suspense. We have a heavy
economic schedule ahead with the ISM on Wednesday 
leading the list. The November Jobs report is due out
Friday morning only a few hours after Intel confesses.
Add in ten other economic reports between tonight and
Friday morning and there is ample reason to lighten the
load ahead of the Microsoft dividend payable on Thursday.
TrimTabs is now estimating that $22B to $25B will be put
back into stocks over the week beginning on Friday. This
is a huge amount of liquidity and should float the markets
for at least two weeks. I personally believe funds are
adjusting positions this week to prepare for the liquidity
boom. Given the risk from Intel and Jobs I doubt we will
see any major gains until Friday or possibly even Monday
of next week. Of course if early buyers begin to appear 
the race could start sooner than expected.  

That adjustment knocked about -50 points off the Dow
today and closed it right on support that has held since
11/22 at 10430. While this would appear to be a critical
level we could easily see a dip to 10370 and stronger
support with no damage to the long term uptrend. In
fact another dip lower would be welcomed by those buyers
wanting one last entry point before Friday. 

The Nasdaq has been much stronger than the Dow and
held the 2100 level once again with only a minor -2
point break at the close. The Nasdaq is holding the
high ground despite the SOX weakness from the impending
Intel update. The positive NVLS news tonight could help
support the SOX and in turn hold up the Nasdaq. The
Nasdaq has plenty of decent support between 2060-2100
and is not in danger unless we have a real buyer revolt. 

The SPX is also holding on support at 1175 with stronger
support at 1170 and 1165. A worst-case scenario would be
for the SPX to drop back to 1165 to clear the stops and
then rebound into the liquidity event. I would still be
a dip buyer above 1165. 

My plan for the rest of the week is to try to remain
long over SPX 1165 and wait for the cash to begin flowing.
If fund managers simply pocket the cash for a rainy day
there could be a lot of bulls headed for slaughter. I
don't expect this because find managers need to use that
money to prop up the market and guarantee returns into 
the year end. Once we get to January earnings it could
be a very different scenario but we will worry about 
that once the gift wrap hits the trash and the Christmas
trees hit the curb. Grab some Maalox and continue buying
the dips over SPX 1165. 

If you have not registered the end of year renewal 
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Buy the dips until the trend changes. 

Jim Brown
Editor


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

S&P 100 and Dow better get a move on

Stocks ended a very bullish month of November on a sour note, 
where despite a decline in various energy futures contracts and a 
Treasury trade that had the yield curve steepening, equity bulls 
never could muster much of a move higher, where consumer 
confidence readings from the Conference Board was surprisingly 
weak.

Stocks felt "heavy" to me today.  And I can't figure out why.  
Did bulls exhaust themselves in November?  

The major averages had their most bullish monthly performance of 
the year in November with the Dow Industrials (INDU) jumping 400 
points, or 4.0%.  The S&P 500 Index (SPX.X) gained a healthy 43.6 
points, or 3.9% and hit a new 52-week high in November.  
Meanwhile, the SPX's narrower counterpart and the S&P 100 Index 
(OEX.X) gained 16.8 points, or 3.1%.  

The also narrow, but tech-heavy NASDAQ-100 Index (NDX.X) surged 
84.7 points, or 5.7% for the month, also managing a new 52-week 
high in November.  

The small caps as depicted by the Russell 2000 Index (RUT.X) 
showed the large caps who is boss in November, with the RUT.X 
gaining just under 50 points, or a bubbling 8.6%.

Hey Matt!  Are you still here?

In the January 18, 2004 Ask the Analyst column, Matt asked about 
the Stock Trader's Almanac notes regarding the importance of the 
first 5-days of this years trade, being a potential predictor of 
full-year market direction.  If ALL the major indices are going 
to finish higher on the year, which was indicated by bullish 
trade for the first 5 days, then the S&P 100 and Dow Industrials 
better get a move on!

U.S. Market Watch - 11/30/04 Close

 

I should throw the NASDAQ Composite (COMPX) into the mix as a 
major equity index that is still below its January highs, but 
holding above its December 31, 2003 close of 2,003.37.

Since I discussed the rather bullish seasonal tendency for the 
COMPX and RUT.X, which historically begins in November, tonight's 
little recap of November percentage gain does put some emphasis 
on the larger-cap INDU and OEX components to carry their weight 
if the other major indices are to hold onto, or build gains into 
the end of the year.  

Has anyone been following the 01/18/04 Ask the Analyst column, 
where Matt lost his mind and was thinking way outside the box?  
Believe it or not Matt, I've been amazed, and my thoughts are 
this.

If the Dow Industrials (INDU) 10,428.02 -0.45% are going to have 
a shot at the January highs (10,753), then 10,384 needs to hold 
support on the close for at least the next 2 Fridays.

That's 5-DRT thinking anyway.

Dow Industrials (INDU) Chart - 5-DRT from 01/02/04

 

In the 01/18/04 Ask the Analyst column, we used a weekly interval 
bar chart of the INDU with Matt's "5-DRT" thoughts.  Here's a 
closer look using daily intervals.  The premise of the first 5-
days, is if the markets trade up the first 5-days of the year, 
then it should "predict" a bullish year for equities.

Let's scroll forward to past and current trade.  I can't get all 
of this year's trade in a daily interval bar chart for the INDU, 
but as it stands at tonight's close, the INDU is now roughly 26 
points for the year.  

No bull will proclaim victory if the INDU closes up 1-point this 
year.  But Matt's thoughts regarding the 5-DRT might prove 
helpful near-term.  I've also overlaid the newly calculated 
MONTHLY Pivot analysis levels.

Dow Industrials (INDU) Chart - Daily Intervals (5-DRT)

 

While a higher high from the MACD oscillator is encouraging to 
bulls, the recent bearish MACD crossover below its Signal does 
suggest a near-term loss of bullish momentum.  

My bottom line for support would be the newly calculated MONTHLY 
Pivot.  The one bullish pattern of change that I take away from 
the 5-DRT, is that for the first time this year, the INDU has 
managed to close above four (4) levels after a trade at Red #5 
(9,710.89).  Blue #1 is a sticking point of resistance.  That was 
the January 8 high, or 5th session high of 2004.

When reviewing our Pivot Matrix, this WEEK's WEEKLY R2 is pretty 
close to that level at 10,610.32.

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

 

In the 11/09/04 Index Trader Wrap, I thought OEX bulls would 
"thrive above 545."  I'm going to raise that limit to 555.  
Obvious overlap at the WEEKLY S2 and MONTHLY Pivot.  

My "key stock" for both the INDU and OEX is 3M (NYSE:MMM) $79.59 
-0.51%, and the MARKET had better wake up and smell the coffee it 
is to agree with my thoughts of weaker dollar and lower oil being 
the positive catalyst for this deep cyclical.

Prior to this morning's open, Credit Suisse initiation coverage 
of MMM with an "outperform" rating and bullish target of $92.  

As it might relate to the above chart of the OEX, MMM would be 
sitting right at my old OEX "cheater's downward trend" (dashed 
red), roughly OEX MONTHLY S1.

Speaking of oil prices, it is that time of week again.  Tomorrow, 
we get weekly crude oil, distillate and unleaded gas inventory 
numbers.

In today's Market Monitor at 12:38:37 I made comment benchmarking 
the Jan Crude Oil futures (cl05f) at their WEEKLY Pivot.  Then at 
02:00:10 I quickly showed the Jan. Heating Oil futures (ho05f) 
with WEEKLY pivot levels.  Then at 02:05:57, the Jan Unleaded Gas 
futures (hu05f), which suggested to me a lower trade coming for 
energy, with heating oil weaker in its WEEKLY Pivot.

January Crude Oil futures (cl05f) - Daily Intervals

 

We've been following the Point and Figure chart of $WTIC, and 30-
minute interval charts of Crude Oil futures.  I continue to work 
with technical analysis tools and techniques I've taught traders 
and investors in the past.  Tonight I wanted to "step back" a 
little and look at the daily interval chart of Crude Oil, using 
conventional (blue) and the "fitted 38.2%" retracement technique 
I've taught traders and investors.  

Using this technique, I colored a "yellow zone" that results, 
which isn't identical to the zone first identified with the PnF 
chart, but we can perhaps see how futures traders are trading off 
these retracement.

The $46.20 level should be tied with the bullish support trend 
that held support on the PnF chart.  That's a BIG level of 
technical support still and should define the longer-term upward 
trend still being in tact.  

I placed this week's WEEKLY Pivot levels on the chart.  It would 
look to me that this week's WEEKLY S1 and WEEKLY R1 really tie in 
nicely with the retracement work above, and thus become "key 
levels" the remainder of the week.

MACD traders!  You'll pick up on some DIVERGENCE from the past, 
where MACD actually went below zero, now rises back toward zero.  
On a daily interval chart, MACD traders would most likely be 
selling oil against $50.52, with stops just above, looking for 
MACD to roll back lower from zero, and accelerating a downward 
move below $46.00 in coming weeks of trade.

That's a test.  A continued test traders will implement with each 
passing day, week, and month.

Market Snapshot / Internals - 11/30/04 Close

 

Last fall, the NYSE NH/NL indications stayed at very bullish 
readings of 98% until March.  While the number of new highs at 
both the NYSE and NASDAQ were not impressive, new lows have been 
very modest, giving some sign of "strength" from the bottom.  
This "strength" from the bottom as I'll call it can be sign of 
short-covering from bears that aren't willing to press their 
luck, but still eager to take profits in weak stocks.  

Of late, VIX.X readings close to 14.00 seem to be "high premiums" 
that option traders seem to be selling out the money puts 
against, but low enough premiums to be buying calls on, with 
thought of another pullback seeing a higher high.  

MONTHLY Pivots may be key if this pattern is to continue.

Pivot Analysis Matrix - New MONTHLY Levels

 

I'm running late with tonight's update, but quickly highlighted 
some correlative support/resistance levels in the matrix.

The BIX.X struggled all session, but clawed back to a fractional 
gain as the 10-year yield ($TNX.X) faded from a session high 
yield of 4.382%.

Jeff Bailey


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

Good Time for a Dip.
- J. Brown

After an incredible run in the markets from late October through 
mid-November stocks are finally beginning to see some profit 
taking.  We've been warning about a possible consolidation for a 
couple of weeks but the best (or worst) stocks could do was trade 
sideways.  Today the technical indicators on the major indices 
have finally turned into bearish signals.  Short-term traders 
looking at gains over the past month should strongly consider 
doing some profit taking of their own.   Yet don't run far.  
We're not expecting the pull back to be very deep.  

If you're a Fibonnaci trader watch the Industrials for a dip back 
toward 10,250.  This would be a 38.2% retracement of its October-
November run.  Coincidentally this is also just above its simple 
200-dma, which should offer technical support.  The rest of the 
major indices look equally vulnerable to some profit taking.  
After all the month of November saw the Industrials gain 4%, the 
S&P 500 added 3.9% and the NASDAQ Composite soared for a 6.2% 
gain.  

A dip this week with the host of economic reports would make 
sense.  Disappointing or not traders could use the economic news 
as an excuse to sell.  They certainly have their pick of reports 
to blame.  Wednesday brings the ISM index, Fed's Biege book, 
construction spending, Personal Income and spending, Auto and 
truck sales.  Thursday will bring the factor orders.  Friday 
hosts the November jobs report, the ISM services index and more!  
On top of all the economic news we have the Intel mid-quarter 
update to watch on Thursday evening.  Confidence is not running 
high as Intel and many in the semiconductor sector are heading 
south.  

Fortunately, as Jim mentioned in the wrap tonight, analysts 
expect a large chunk of the multi-billion dollar Microsoft cash 
dividend to find its way back into stocks.  The dividend is paid 
late this week so we can probably expect all this money to hit 
stocks next week just in time for a Santa Claus rally.  



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9585
Current     : 10428

Moving Averages:
(Simple)

 10-dma: 10499
 50-dma: 10188 
200-dma: 10240 




S&P 500 ($SPX)

52-week High: 1188
52-week Low : 1031
Current     : 1173

Moving Averages:
(Simple)

 10-dma: 1178
 50-dma: 1138
200-dma: 1122



Nasdaq-100 ($NDX)

52-week High: 1581
52-week Low : 1301
Current     : 1571

Moving Averages:
(Simple)

 10-dma: 1569
 50-dma: 1483
200-dma: 1442



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

CBOE Market Volatility Index (VIX) = 13.24 -0.06
CBOE Mkt Volatility old VIX  (VXO) = 13.54 +0.08
Nasdaq Volatility Index (VXN)      = 18.84 +0.01 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.89        597,404       529,019
Equity Only    0.69        480,231       331,968
OEX            0.71         18,722        13,328
QQQ            4.52         15,970        72,181


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

Bullish Percent Data

           Current   Change   Status
NYSE          74.2    + 0.7   Bear Correction
NASDAQ-100    74.0    - 1     Bull Confirmed
Dow Indust.   66.6    + 0     Bull Confirmed
S&P 500       72.4    - 0.6   Bull Confirmed
S&P 100       72.0    + 0     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: 0.82
10-dma: 0.97 
21-dma: 0.95
55-dma: 1.10


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    1244      1365
Decliners    1595      1671

New Highs     175       143
New Lows        8         7

Up Volume    825M      826M
Down Vol.   1101M     1029M

Total Vol.  1957M     1883M
M = millions


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

Commitments Of Traders Report: 11/23/04


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

Commercials are growing more bearish despite upping both their
long and short positions.  As usual the small traders are headed
the opposite direction by growing more bullish.

Commercials   Long      Short      Net     % Of OI
11/02/04      446,192   441,676   ( 4,516)   (0.4%)
11/09/04      447,779   449,171   ( 1,392)   (0.1%)
11/16/04      452,149   468,048   (15,899)   (1.7%)
11/23/04      462,408   491,384   (28,976)   (3.0%)

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
11/02/04      136,290   132,040     4,250     1.5%
11/09/04      148,415   136,325    12,090     4.2%
11/16/04      166,862   156,751    10,111     3.1%
11/23/04      171,192   150,606    20,586     6.4%

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 have been consistently bearish on the e-minis
but they've reached a new yearly high in their bearish bias.
Small traders remain staunchly net bullish.

Commercials   Long      Short      Net     % Of OI 
11/02/04      307,053   580,081   (273,028)  (30.7%)
11/09/04      337,164   672,903   (335,739)  (33.2%)
11/16/04      371,282   796,279   (424,997)  (36.4%)
11/23/04      412,724   849,091   (436,367)  (34.6%)

Most bearish reading of the year: (436,367)  - 11/23/04
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
11/02/04      395,029     63,746   331,283    72.2%
11/09/04      392,253     58,999   333,254    73.8%
11/16/04      445,737     70,169   375,568    72.8%
11/23/04      400,995     62,080   338,915    73.1%

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


NASDAQ-100

No change here.  Commercials remain net bullish.  Small
traders remain net bearish, although they've reached a new 
yearly high in their bearish attitudes. 

Commercials   Long      Short      Net     % of OI 
11/02/04       53,002     31,231    21,771   25.0%
11/09/04       54,509     33,016    21,493   24.5%
11/16/04       55,737     33,683    22,054   24.6%
11/23/04       58,159     34,104    24,055   26.0%

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
11/02/04        8,886    36,621   (27,735)  (61.3%)
11/09/04       10,213    38,251   (28,038)  (57.8%)
11/16/04       10,533    37,660   (27,127)  (56.2%)
11/23/04       11,153    39,712   (28,559)  (56.1%)

Most bearish reading of the year: (28,559) - 11/23/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Both professional traders and small traders are growing
more bearish on the Industrials.

Commercials   Long      Short      Net     % of OI
11/02/04       25,319    24,261    1,058       2.0%
11/09/04       22,863    22,463      400       0.8%
11/16/04       22,004    23,744   (1,740)     (3.8%)
11/23/04       22,527    25,537   (3,010)     (6.2%)
 
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
11/02/04        7,952     6,306    1,261      8.8%
11/09/04        6,165     6,483    ( 318)   ( 2.5%)
11/16/04        5,937     6,533    ( 596)   ( 4.7%)
11/23/04        5,833     8,299   (2,466)   (17.4%)

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                  Tuesday 11-30-2004
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: ABK, COP, DHR, EBAY, EOG, FDX, FLR, IBM, ITT,
                   MUR, OSK, PTR, QCOM, SLB, SUN
New Calls Plays: None
Put Play Updates: 
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
********************

Ambac Fincl Group - ABK - close: 81.33 chg: -0.38 stop: 77.99

If you missed Monday's newsletter we added ABK last night with a 
trigger to go long/buy calls at $82.26.  Until ABK can breakout 
and hit our entry point we'll be happy to sit out and watch.  
More aggressive traders can watch for a dip to $80 and buy a 
bounce.  

Picked on November xx at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      490 thousand
Chart =



---

ConocoPhillips - COP - close: 90.99 change: +0.96 stop: 84.99

COP managed to out perform the broader market indices and the OIX 
oil index on Tuesday.  We're encouraged because it looks like 
traders are still buying the dips.  COP managed to close at a new 
all-time high given today's one percent gain. No change in strategy 
or stop loss.  Short-term traders can still take profits here.

Picked on November 03 at $85.50
Change since picked:     + 5.49
Earnings Date          10/27/04 (confirmed)
Average Daily Volume =      3.0 million 
Chart =



---

Danaher - DHR - close: 56.88 change: -0.60 stop: 55.95 

We've been expecting a pull back in DHR for days now and it's 
finally starting.  Technicals are turning bearish, which is 
normal.  We would not suggest any new plays until we see if DHR 
can bounce from the $55 or $56 levels.  Of course we have a stop
loss at $55.95 to minimize our risk.

Picked on October 27 at $54.99
Change since picked:    + 1.89
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     1.3 million 
Chart =


---

eBay Inc. - EBAY - close: 112.30 chg: -0.35 stop: 104.99      

EBAY continues to show relative strength by managing a mere 35-
cent loss on Tuesday's market decline.  This is even more 
impressive when you consider the news that Standard & Poor's 
downgraded the stock to fairly valued this morning.  If shares of 
EBAY do dip we'd expect the stock to find strength in the $108-
110 range.  Short-term traders can still do some profit taking 
here.

Picked on November 80 at $103.69 
Change since picked:      + 8.61
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =      10.4 million 
Chart =


---

EOG Resources - EOG - close: 75.07 change: -0.23 stop: 69.85     

Merrill Lynch downgraded EOG to "neutral" this morning and shares 
of EOG gapped lower on the news.  Yet traders stepped in to buy 
the dip at $74.00 pushing EOG back toward the highs for the day.  
We do expect EOG to consolidate lower as it digests the previous 
two weeks of gains but today's action shows a lot of strength. 
Watch for a bounce from the $72.50 region.

Picked on November 14 at $ 68.37
Change since picked:      + 6.70
Earnings Date           10/26/04 (confirmed)
Average Daily Volume =       1.1 million    
Chart =



---

Fedex Corp - FDX - close: 95.03 change: -0.40 stop: 93.95     

FDX is holding up pretty well considering how overbought and 
extended the stock is.  We've been suggesting that readers do 
some profit taking for days now.  If you're thinking about it 
decide fast.  FDX looks ready to test minor support at $94 again.  
Volume has been somewhat heavy the last couple of sessions 
suggesting some distribution.  

Picked on October 21 at $89.45 
Change since picked:    + 5.58
Earnings Date         09/22/04 (confirmed)
Average Daily Volume =     1.5 million 
Chart =


---

Fluor Corp - FLR - close: 51.90 change: -0.25 stop: 48.51     

FLR continues to consolidate sideways as it digests its gains 
from last week.  We're impressed that FLR is actually holding 
those gains since they came so suddenly.  The lack of profit 
taking is impressive.  Even so, if FLR does dip lower we'd watch 
for a bounce from the $50.00 region. 

Picked on November 22 at $48.51
Change since picked:     + 3.39
Earnings Date          10/27/04 (confirmed)
Average Daily Volume =      521 thousand   
Chart =



---

Intl Business Mach. - IBM - close: 94.24 chg: -1.26 stop: 89.99 

We have been suggesting that IBM has been vulnerable and ready to 
consolidate lower for the past two weeks.  This time we really 
mean it!  Yesterday's failed rally near $96.50 is the second one 
in two weeks.  Now IBM is testing minor support near $94.  We 
expect it to fail.  Readers can do some of their own profit 
taking now if they have not already.  We will be expecting IBM to 
dip back toward the $90-93 region.  

Picked on October 27 at $90.00
Change since picked:    + 4.24
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 
Chart =


---

ITT Industries - ITT - close: 85.12 change: -1.28 stop: 83.70

ITT is one of our newly added momentum candidates given 
yesterday's breakout over resistance to a new all-time high.  
Shares had been consolidating sideways for the last three weeks 
and looked ready to turn higher.  Now we suspect that ITT may 
retest the $84 region as support once more.  Aggressive traders 
can watch for a bounce from $84 as a new entry point.  The rest 
of us can wait for ITT to trade back above $86.40 again. 

Picked on November 29 at $86.40 
Change since picked:     - 1.28
Earnings Date          10/21/04 (confirmed)
Average Daily Volume =      502 thousand 
Chart =



---

Murphy Oil - MUR - close: 85.31 change: +0.21 stop: 79.85

It looks like the momentum in MUR's rally is fading.  Traders 
bought the early dip to $84.00 on Monday but it wouldn't surprise 
us to see MUR slip back toward support at $82.00 again.  Plan 
your trades carefully.  We would obviously prefer to see the $84 
level hold up as more significant support.  No change in 
strategy. 

Picked on November 22 at $ 82.25
Change since picked:      + 3.06
Earnings Date           10/26/04 (confirmed)
Average Daily Volume =       500 thousand   
Chart =



---

Oshkosh Truck - OSK - close: 62.82 change: -1.43 stop: 59.00     

Hmm... after last week's breakout higher it looks like OSK has 
reversed course.  Monday's action was a clean failed rally at the 
$65 level and Tuesday is a 2.2 percent follow through to the 
downside.  Traders can wait to see if the $62 level holds up 
since it has been support for the past three weeks.  If not we 
can wait and watch for a bounce from the $60 mark, which should 
be stronger support. 

Picked on November 07 at $ 62.16
Change since picked:      + 0.66
Earnings Date           10/28/04 (confirmed)
Average Daily Volume =       205 thousand   
Chart =


---

PetroChina Co - PTR - close: 56.35 change: -0.24 stop: 52.49

We don't have much to report on for PTR.  The stock has been 
trading sideways between $56.00 and $57.00 the last few days.  
Patient traders can wait and watch for a possible dip toward 
$55.00 and buy the bounce.  

Picked on November 17 at $55.18
Change since picked:     + 1.17
Earnings Date          00/00/04 (confirmed)
Average Daily Volume =      288 thousand
Chart =



---

Qualcomm - QCOM - close: 41.62 change: +0.03 stop: 37.99

Bulls aren't getting very far in QCOM these days.  The path of 
least resistance seems to be up for QCOM but it's not moving very 
fast.  Patient traders can probably get another chance to buy a 
dip towards $40.00 later this week.  

Picked on November 15 at $ 40.51
Change since picked:      + 1.11
Earnings Date           11/03/04 (confirmed)
Average Daily Volume =      13.9 million    
Chart =


---


Schlumberger - SLB - close: 65.63 change: -0.43 stop: 61.99

Hmm... we've been expecting a possible pull back toward the 
$65.00-65.50 region.  Of course now that it (the pull back) is 
here shares of SLB don't look so hot.  The four-week up trend is 
still in place but technicals are definitely fading.  Better wait 
for signs of a bounce before considering new positions.  Watch 
the OSX oil services index for sentiment on the industry. 

Picked on November 12 at $ 65.05
Change since picked:      + 0.58
Earnings Date           10/22/04 (confirmed)
Average Daily Volume =       3.9 million    
Chart =


---

Sunoco Inc - SUN - close: 82.56 change: +0.13 stop: 75.95     

SUN continues to be a relative strength winner.  There has been 
very little profit taking, if at all, on its two-week rally.  Yet 
in spite of its strength we'd probably look for a dip anyway.  A 
pull back to round-number support/resistance at $80.00 would 
probably be healthy.  Of course in doing so SUN's technicals 
would take a turn for the worse.  In the news SUN okayed a $5.5 
million discrimination settlement.  

Picked on November 18 at $78.25
Change since picked:     + 4.31
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: 38.97 change: +0.45 stop: 42.01

FRX continues to inch higher in an oversold bounce but it is 
struggling with resistance at the $39.50 level.  Traders have a 
choice.  They can wait for the potential failed rally under 
$40.00, which means that FRX would have to fill the gap first.  
Or watch for the next drop under the $38.50 level as a new entry 
point.  

Picked on November 22 at $39.07
Change since picked:     - 0.10
Earnings Date          10/18/04 (confirmed)
Average Daily Volume =      2.8 million 
Chart =



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

None


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**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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The Option Investor Newsletter                  Tuesday 11-30-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Potential Entry points for bullish and bearish plays.
Spreads & Straddles: Retailers Lead The Retreat!
Premium Selling Plays: Naked Puts & Calls
Combos/Straddles: And On The Seventh Day He Rested . . .

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

Potential Entry points for bullish and bearish plays.

___________________________________________________________________

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.
___________________________________________________________________


Toro Co - TTC - close: 72.50 change: +1.21

WHAT TO WATCH: This is it!  This is the breakout we've been 
waiting for.  TTC has been coiling in a pattern of higher lows 
for months under resistance at the $72.00 level.  Now shares are 
breaking out on above average volume.  The bullish P&F chart 
points to an $85 target.  If it weren't for our expectation that 
the market will dip soon we'd buy this breakout.  More aggressive 
traders may want to chase this one anyway. 

Chart=


---

Maxim Integrated Products - MXIM - close: 40.96 change: -0.76

WHAT TO WATCH: By all accounts MXIM breakdown today looks like a 
bearish entry point to short/buy puts on the stock.  Yet we're 
feeling cautious given Intel's mid-quarter update on Thursday 
night.  More aggressive traders may want to jump in on today's 
1.8 percent loss anyway following the previous three days of 
failed rallies near $43.00.  The P&F chart has turned bearish 
with a $36 target but this target will most likely be revised 
lower.  Conservative traders can wait until after Intel's update 
and/or watch for a drop under $40.00.

Chart=


---

Eli Lilly & Co - LLY - close: 53.33 change: -0.99

WHAT TO WATCH: If you prefer to buy puts on stocks showing 
relative weakness then LLY is a candidate for you.  Shares have 
been sliding for months.  The most recent bounce from October 
failed near $58.00 and has been sliding lower under its simple 
40-dma ever since.  Technicals have rolled over again and its 
MACD has produced another sell signal.  The P&F chart points to a 
$44.00 target.  This looks like an entry point but watch for 
round-number support at $50.00.

Chart=


---

Zimmer Holdings - ZMH - close: 81.60 change: +1.11

WHAT TO WATCH: ZMH is bucking the market's downtrend today with a 
1.37 percent rally.  More importantly the technicals are turning 
positive with another buy signal in ZMH's MACD indicator.  The 
P&F chart is very bullish with a $110 target.  We would watch for 
a breakout over the $82.00 level as an entry point to go long/buy 
calls.  There is some resistance at $85 but we'd target the $90 
level. 

Chart=



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*******************
SPREADS & STRADDLES
*******************

Retailers Lead The Retreat!
By Ray Cummins

U.S. equities slumped Tuesday amid a surprise decline in consumer
confidence and data suggesting mediocre demand during the first
week-end of the holiday shopping season.

The Dow Jones Industrial Average closed down 47 points at 10,428,
despite trading in positive territory for much of the session.
Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) were among the most
prominent losers in the blue-chip group.  The NASDAQ Composite
fell 10 points to 2,096, with Intel (NASDAQ:INTC) deflating the
chip segment ahead of its mid-quarter update.  The S&P 500 Index
dropped 4 points to 1,173 as selling pressure emerged in retail,
financial, consumer staples, and utility shares.  Trading volume
was 1.55 billion on the NYSE and 1.85 billion on the technology
exchange.  Breadth favored bearish stocks 3 to 2 on the Big Board
and 5 to 4 on the NASDAQ.  Bonds prices dipped amid expectations
of future interest rate increases.  The benchmark 10-year note
finished down 9/32 at 99 1/16, while its yield rose to 4.35%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 11/28/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT-CREDIT SPREADS

Stock  Pick   Last   Mon  L/P   S/P  Credit   CB     G/L   Status

VIP    40.50  39.22  DEC  35.0  36.7  0.23   36.43   0.23   Open
WLP   113.90 122.22  DEC 100.0 105.0  0.50  104.50   0.50   Open
CECO   35.00  38.31  DEC  25.0  30.0  0.60   29.40   0.60   Open
PJC    48.95  45.57  DEC  40.0  45.0  0.60   44.40   0.60  Closed
EYET   45.64  41.00  DEC  30.0  35.0  0.45   34.55   0.45   Open
XMSR   36.13  37.61  DEC  30.0  32.5  0.25   32.25   0.25   Open
OIH    84.45  87.00  DEC  75.0  80.0  0.60   79.40   0.60   Open
DWA    39.58  38.20  DEC  30.0  35.0  0.50   34.50   0.50   Open
DRIV   38.31  42.53  DEC  30.0  35.0  0.35   34.65   0.35   Open
NBR    52.72  52.75  DEC  47.5  50.0  0.40   49.60   0.40   Open

L/P = Long Put  S/P = Short Put  CB = Cost Basis  G/L = Gain/Loss

Special Tuesday Note: Dreamworks Animation (NYSE:DWA) is on the
"watch" list and should be closed on further downside activity.


CALL-CREDIT SPREADS

Stock  Pick   Last    Mon  L/C   S/C  Credit   CB    G/L   Status

SEPR   45.44  45.91   DEC  55.0  50.0  1.00   51.00  1.00   Open
TTWO   33.24  33.49   DEC  40.0  37.5  0.30   37.80  0.30   Open
ERTS   46.97  47.76   DEC  55.0  50.0  0.65   50.65  0.65   Open
GM     39.97  39.23   DEC  45.0  42.5  0.30   42.80  0.30   Open
BSX    34.70  34.32   DEC  40.0  37.5  0.30   37.80  0.30   Open
MXIM   42.50  42.20   DEC  50.0  45.0  0.70   45.70  0.70   Open
BIIB   58.31  58.43   DEC  70.0  65.0  0.50   65.50  0.50   Open
INSP   49.17  45.25   DEC  65.0  60.0  0.40   60.40  0.40   Open
AMZN   38.55  39.09   DEC  45.0  42.5  0.30   42.80  0.30   Open
OSIP   58.16  50.49   DEC  70.0  65.0  0.55   65.55  0.55   Open
LXK    84.82  85.49   DEC  95.0  90.0  0.45   90.45  0.45   Open
MBT   135.99 136.33   DEC 155.0 150.0  0.55  150.55  0.55   Open

L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss


DEBIT STRADDLES

Stock   Pick   Last   Exp.   Long   Long  Initial   Max     Play
Symbol  Price  Price  Month  Call   Put    Debit   Value   Status

DE      69.26  73.14   DEC   70.0   70.0    4.50   4.25     Open


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CFC - Countrywide Financial  $33.21  *** Recovery Underway? ***

Countrywide Financial (NYSE:CFC), formerly Countrywide Credit
Industries, is a holding company that originates, purchases,
sells and services mortgage loans through its major subsidiary,
Countrywide Home Loans.  The company's mortgages are principally
prime credit first-lien mortgage loans secured by single one- to
four-family residences (prime credit first mortgages).  The firm
also offers home equity loans and sub-prime credit loans.  CFC,
through its other wholly owned subsidiaries, offers products and
services that are largely complementary to its mortgage banking
business, including lender-placed mortgage insurance, insurance
brokerage, mortgage-backed securities brokerage and underwriting,
brokerage of bulk servicing transactions, loan processing and
servicing in foreign countries, and retail banking.  The company
conducts its business through four segments: Insurance Segment,
Capital Markets Segment, Global Segment and Banking Segment.

CFC - Countrywide Financial  $33.21

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-27.50  CFC-MY  OI=5192   ASK=$0.35
SELL PUT  JAN-30.00  CFC-MF  OI=13174  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$29.70


__________________________________________________________________

EBAY - eBay  $112.30  *** Another All-Time High! ***

eBay (NASDAQ:EBAY) is a web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

EBAY - eBay  $112.30

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-95.00   XBA-MS  OI=5809  ASK=$1.00
SELL PUT  JAN-100.00  XBA-MT  OI=5866  BID=$1.55
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$99.40



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

LLY - Eli Lilly  $53.33  *** Downtrend Intact! ***

Eli Lilly and Company (NYSE:LLY) discovers, develops, makes and
sells pharmaceutical products.  The company's largest category
of products is the neurosciences group, however it also makes
endocrinology products, oncology products, animal health products,
cardiovascular products, anti-infectives and other pharmaceutical
products.  Most of Lily's pharmaceutical products are distributed
through wholesalers that serve pharmacies, physicians and other
healthcare professionals, and hospitals.

LLY - Eli Lilly and Company  $53.33

PLAY (speculative - bearish/credit spread):

BUY  CALL  JAN-65.00  LLY-AM  OI=36455  ASK=$0.35
SELL CALL  JAN-60.00  LLY-AL  OI=27198  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$60.65


__________________________________________________________________

NVLS - Novellus Systems  $26.94  *** Sector Slump! ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous
solution.

NVLS - Novellus Systems  $26.94

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-32.50  NLQ-AZ  OI=1185  ASK=$0.25
SELL CALL  JAN-30.00  NLQ-AF  OI=7069  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$30.35



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.
_________________________________________________________________

No straddles or strangles today...

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


*****************************************
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
*****************************************

All of these issues have robust option premiums and favorable
technical indications.  However, current news and events, as
well as market sentiment, will have an effect on these stocks
so review each position thoroughly and make your own decision
about its outcome.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 11/28/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.
  
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
 
NAKED PUTS

Stock   Strike  Strike  Cost   Current   Gain    Max    Simple
Symbol  Month   Price   Basis   Price   (Loss)  Yield   Yield

MYGN     DEC    17.50   17.05   18.74    0.45   5.52%   2.64%
VTIV     DEC    17.50   17.05   19.04    0.45   5.46%   2.64%
IFLO     DEC    15.00   14.55   19.31    0.45   6.89%   3.09%
SEAC     DEC    17.50   16.95   16.59   (0.36)  0.00%   0.00% *
ADLR     DEC    12.50   12.10   13.92    0.40   6.88%   3.31%
UTHR     DEC    25.00   24.05   45.51    0.95   9.03%   3.95%
RIGL     DEC    20.00   19.70   24.40    0.30   4.02%   1.52%
NFLD     DEC    15.00   14.45   17.49    0.55   8.24%   3.81%
RMBS     DEC    17.50   16.75   22.17    0.75   9.88%   4.48%
AGIX     DEC    20.00   19.60   24.71    0.40   4.83%   2.04%
ATI      DEC    20.00   19.35   22.93    0.65   7.37%   3.36%
MRVL     DEC    25.00   24.60   31.53    0.40   5.17%   1.63%
ELN      DEC    22.50   22.15   27.96    0.35   4.93%   1.58%
TSRA     DEC    25.00   24.35   37.75    0.65   7.97%   2.67%
VTS      DEC    20.00   19.65   23.64    0.35   4.84%   1.78%
ERICY    DEC    30.00   29.60   33.11    0.40   3.44%   1.35%
RMBS     DEC    17.50   16.95   22.17    0.55  10.12%   3.24%
TSRA     DEC    30.00   29.65   37.75    0.35   4.12%   1.18%
NCRX     DEC    25.00   24.25   28.06    0.75   8.18%   3.09%
IFLO     DEC    17.50   17.00   19.31    0.50   7.38%   2.94%
NTGR     DEC    15.00   14.60   16.29    0.40   6.54%   2.74%
ENZ      DEC    17.50   17.05   18.47    0.45   6.32%   2.64%
CECO     DEC    30.00   29.30   38.31    0.70   7.67%   2.39%
CRA      DEC    12.50   12.20   13.67    0.30   6.11%   2.46%
DDS      DEC    22.50   22.25   26.69    0.25   4.06%   1.12%
SRNA     DEC    20.00   19.60   20.55    0.40   5.87%   2.04%
RAE      DEC     7.50    7.25    9.20    0.25  10.80%   3.45%
FXEN     DEC     7.50    7.05   10.15    0.45  17.57%   6.38%
NVDA     DEC    17.50   17.10   19.86    0.40   6.91%   2.34%
IDCC     DEC    17.50   16.85   20.63    0.65  11.05%   3.86%
MCIP     DEC    17.50   17.05   19.21    0.45   7.70%   2.64%
PLMO     DEC    30.00   29.60   36.93    0.40   5.49%   1.35%
TINY     DEC    12.50   12.15   14.80    0.35   9.97%   2.88%
IDCC     DEC    17.50   17.20   20.63    0.30   6.57%   1.74%
ADLR     DEC    12.50   12.25   13.92    0.25   6.86%   2.04%
NANO     DEC    15.00   14.70   16.44    0.30   6.80%   2.04%
ISRG     DEC    30.00   29.50   35.47    0.50   6.08%   1.69%
DHB      DEC    17.50   17.20   20.46    0.30   6.59%   1.74%
AMED     DEC    30.00   29.35   33.27    0.65   7.53%   2.21%
HNT      DEC    25.00   24.60   27.34    0.40   5.37%   1.63%
  
The position in Seachange International (NASDAQ:SEAC) has been
closed to limit potential losses.
  

NAKED CALLS

Stock   Strike  Strike  Break  Current   Gain    Max    Simple
Symbol  Month   Price   Even    Price   (Loss)  Yield   Yield

MNST     DEC    30.00   30.60   27.45    0.60   4.91%   1.96%
FOSL     DEC    30.00   30.50   27.90    0.50   4.16%   1.64%
SLAB     DEC    35.00   35.55   30.11    0.55   4.84%   1.55%
APPX     DEC    35.00   35.60   29.80    0.60   7.73%   1.69%
DIGE     DEC    25.00   25.30   23.85    0.30   6.05%   1.19%
MDCO     DEC    30.00   30.35   25.16    0.35   5.01%   1.15%
BOBJ     DEC    25.00   25.40   23.44    0.40   5.96%   1.57%
ENZN     DEC    20.00   20.55   14.18    0.55  14.84%   2.68%
TACT     DEC    25.00   25.40   22.16    0.40   8.50%   1.57%
AMLN     DEC    25.00   25.25   20.92    0.25   5.35%   0.99%
ATMI     DEC    25.00   25.40   23.40    0.40   5.74%   1.57%
CELG     DEC    30.00   30.45   27.39    0.45   6.31%   1.48%
JBLU     DEC    25.00   25.30   23.65    0.30   4.99%   1.19%
AGIX     DEC    30.00   30.35   24.71    0.35   8.24%   1.15%
JUPM     DEC    20.00   20.20   16.00    0.20   6.98%   0.99%

There was no position available in Connetics (NASDAQ:CNCT) due
to the "gap" down in the underlying issue on the day after the
play was published.  Digene (NASDAQ:DIGE) is now on the "watch"
list.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NEW NAKED-PUT CANDIDATES

Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

MSO    23.62  DEC 20.00  MSO-XD 0.40 3396 19.60  18   3.4%  10.9%
NKTR   18.68  DEC 17.50  QNX-XW 0.35  101 17.15  18   3.4%   8.9%
NANO   16.26  DEC 15.00  QNK-XC 0.25   56 14.75  18   2.9%   7.7%
VISG   8.07   JAN  7.50  TUM-MU 0.40  222  7.10  53   3.2%   7.5%
SHOP   30.62  DEC 25.00  QSK-XE 0.30   80 24.70  18   2.1%   7.3%
ELAB   26.96  DEC 25.00  ESQ-XE 0.35  941 24.65  18   2.4%   6.4%
RHAT   14.48  JAN 12.50  RCV-MV 0.45 5739 12.05  53   2.1%   6.1%
GIVN   33.31  DEC 30.00  QPG-XF 0.35 2423 29.65  18   2.0%   5.7%

Abbreviations:

LB-Last Bid price, OI-Open Interest, CB-Cost Basis (or break-even
point), DE-Days to Expiry, SY-Simple Yield (monthly basis without
margin), MY-Maximum Yield (monthly basis with margin), TS-Target
Shoot.
_________________________________________________________________

MSO - Martha Stewart  $23.62  *** Rally Mode! ***

Martha Stewart Living Omnimedia (NYSE:MSO) is an unique content
and commerce company that creates "how-to" content and domestic
merchandise for homemakers and other consumers.  The company's
products are generally sold under brand labels incorporating the
Martha Stewart brand name, which it leverages across a range of
media and retail outlets.  MSO primarily focuses on the domestic
arts, providing consumers with ideas, information, merchandise
and other resources.

MSO - Martha Stewart  $23.62

DEC 20.00 MSO-XD LB=0.40 OI=3396 CB=19.60 DE=18 TY=3.4% MY=10.9%


_________________________________________________________________

NKTR - Nektar Therapeutics  $18.68  *** A Big Day! ***

Nektar Therapeutics (NASDAQ:NKTR) makes drug delivery products
based on its portfolio of technologies and expertise designed
to improve drug performance throughout the drug development
process.  The company has developed three distinct technology
platforms: Nektar Molecule Engineering, which uses advanced PEG
(polyethylene glycol)ylation and PEG-based delivery systems to
enable drug performance, Nektar Particle Engineering, which uses
the company's expertise in pulmonary particle technology and
supercritical fluids technology to design and manufacture optimal
drug particles and Nektar Delivery Solutions, which uses advanced
systems for pulmonary drug administration to improve therapeutic
outcomes.

NKTR - Nektar Therapeutics  $18.68

DEC 17.50 QNX-XW LB=0.35 OI=101 CB=17.15 DE=18 TY=3.4% MY=8.9%


_________________________________________________________________

NANO - Nanometrics  $16.26  *** A New "Nano" Craze? ***

Nanometrics (NASDAQ:NANO) designs, manufactures, markets and
supports the thin film metrology systems for the semiconductor,
flat panel display and magnetic recording head industries.  The
company's measurement systems use microscope-based, non-contact
spectroscopic reflectometry.  Some of the firm's systems provide
complementary spectroscopic ellipsometry to measure the thickness
and optical characteristics of films on a variety of substrates.
In addition, the firm has both integrated and standalone optical
critical metrology systems to measure critical dimensions of the
patterns on semiconductor wafers.  The company also manufactures
a line of optical overlay registration systems that are used to
determine the alignment accuracy of successive layers of chip
patterns on wafers in the photolithography process.

NANO - Nanometrics  $16.26

DEC 15.00 QNK-XC LB=0.25 OI=56 CB=14.75 DE=18 TY=2.9% MY=7.7%


_________________________________________________________________

VISG - Viisage Technology  $8.07  *** Own This One! ***

Viisage Technology (NASDAQ:VISG) delivers technology identity
solutions for governments, law enforcement agencies and other
businesses concerned with enhancing security, reducing identity
theft, providing access control and protecting personal privacy.
The company's business involves two related segments: secure
credentials and biometrics.  The secure credentials solutions
segment involves the design, development, sale and utilization
of integrated software and hardware solutions that produce
identification credentials utilizing face recognition and
other biometric technologies.  The focus of the biometric
technology solutions segment is primarily on applications
designed to deter criminal and terrorist activities, including
government research and development contracts.

VISG - Viisage Technology  $8.07

JAN  7.50 TUM-MU LB=0.40 OI=222 CB=7.10 DE=53 TY=3.2% MY=7.5%


_________________________________________________________________

SHOP - Shopping.com  $30.62  *** Internet Retail ***

Shopping.com (NASDAQ:SHOP) is an online comparison-shopping
service.  It helps consumers make informed purchase decisions
by enabling them to find the items they are looking for, compare
products, prices and stores and buy from among thousands of
online merchants.  The company gathers product and merchant
data from across the Internet, organizes and structures it into
a comprehensive catalog and presents the resulting information
to consumers in a user-friendly interface at its flagship
destination, www.shopping.com, and its consumer reviews Website,
www.epinions.com.

SHOP - Shopping.com  $30.62

DEC 25.00 QSK-XE LB=0.30 OI=80 CB=24.70 DE=18 TY=2.1% MY=7.3%


_________________________________________________________________

ELAB - Eon Labs  $26.96  *** Another Entry Point? ***

Eon Labs (NASDAQ:ELAB) is a generic pharmaceutical firm engaged
in developing, licensing, manufacturing, and marketing a range
of prescription pharmaceutical products primarily in the United
States.  The company focuses primarily on drugs in a broad range
of solid oral dosage forms, using both immediate and sustained
release delivery, in tablet, multiple layer tablet, film-coated
tablet and capsule forms.  Eon Labs obtains new generic products
primarily through internal product development and from strategic
licensing or co-development arrangements with Hexal AG, as well
as with other companies.

ELAB - Eon Labs  $26.96

DEC 25.00 ESQ-XE LB=0.35 OI=941 CB=24.65 DE=18 TY=2.4% MY=6.4%


_________________________________________________________________

RHAT - Red Hat  $14.48  *** Bottom-Fishing Only! ***

Red Hat (NASDAQ:RHAT) provides an enterprise operating system
and related systems management services based on open source
technology for the information technology infrastructure
requirements of large enterprises.  The company developed an
enterprise operating system, Red Hat Enterprise Linux AS,
which it introduced in May 2002.  In March 2003, the company
launched three additional technology solutions in the Red Hat
Enterprise Linux line: Red Hat Enterprise Linux ES, Red Hat
Enterprise Linux WS and Red Hat Network.  Red Hat also offers
a range of professional services relating to the development,
deployment, and use of Red Hat Enterprise Linux and related
technology-based systems management services.

RHAT - Red Hat  $14.48

JAN 12.50 RCV-MV LB=0.45 OI=5739 CB=12.05 DE=53 TY=2.1% MY=6.1%


_________________________________________________________________

GIVN - Given Imaging  $33.31  *** On The Rebound? ***

Given Imaging (NASDAQ:GIVN) is an Israeli company established to
develop, produce and market a platform technology for diagnostics
and therapy of the gastrointestinal (GI) tract.  The company was 
founded to commercialize a minimally invasive, disposable imaging
capsule for diagnosing small intestine disorders and diseases. 
Given has submitted a number of patents worldwide for the unique
technologies employed in the Given Diagnostic Imaging System, and
for new capsules to be developed using the basic technological
platform.  Future generations of the Given Diagnostic Imaging
System will be developed to capture images of the rest of the
upper GI tract and the large intestine.

GIVN - Given Imaging  $33.31

DEC 30.00 QPG-XF LB=0.35 OI=2423 CB=29.65 DE=18 TY=2.0% MY=5.7%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is
no more than twice the original premium received from the sold
option.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

ARO - Aeropostale  $28.50  *** Bearish Retailer? ***

Aeropostale (NYSE:ARO), together with its subsidiary, Aeropostale
West, is a mall-based specialty retailer of casual apparel and
accessories that target both young women and young men aged 11
to 20 years.  The firm provides its customers with a selection
of active-oriented, fashion basic merchandise.  Aeropostale
maintains control over its proprietary brand by designing and
sourcing all of its merchandise.  The company's products can be
purchased only at its stores or organized sales events at college
campuses.  The company plans to open approximately 95 new stores
in fiscal 2004.

ARO - Aeropostale  $28.50

"SPECULATIVE" PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  DEC 30    ARO-LF     666   0.55  30.55   8.9%   1.8%


_________________________________________________________________

KYPH - Kyphon  $24.06  *** In A Trading Range? ***

Kyphon (NASDAQ:KYPH) develops medical devices to restore spinal
anatomy using minimally invasive technology.  The firm's initial
marketing focus is on surgeons who repair spine fractures caused
by osteoporosis.  Kyphon's first commercial products, comprising
its KyphX instruments, utilize its proprietary balloon technology.
Surgeons use those tools to help repair fractures during minimally
invasive spine surgeries.  Its instruments have also been used in
open surgical procedures.  The firm sells various instruments for
use in spine fracture procedures including: Bone Access Systems,
Inflatable Bone Tamps, Inflation Syringes, Bone Filler Devices
and Bone Biopsy Devices.  Quarterly earnings are due on 8/4.

KYPH - Kyphon  $24.06

"SPECULATIVE" PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  DEC 25    QYQ-LE     858   0.50  25.50   9.2%   2.0%


_________________________________________________________________

MAY - May Department Stores  $28.12  *** Sector Slump! ***

The May Department Stores Company (NYSE:MAY) operates regional
department stores with the following names: Lord & Taylor;
Filene's and Kaufmann's; Robinsons-May and Meier & Frank;
Hecht's and Strawbridge's; Foley's, and Famous-Barr, L.S.
Ayres and The Jones Store.  May National Bank of Ohio, an
indirect subsidiary, extends credit to customers of May's six
department store divisions.  May Merchandising, an indirect
subsidiary, works closely with its department store divisions
and merchandise vendors to communicate emerging fashion trends
and to develop merchandise assortments.

MAY - May Department Stores  $28.12

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  DEC 30    MAY-LF    4869   0.25  30.25   4.4%   0.8% TS



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


****************
COMBOS/STRADDLES
****************

And On The Seventh Day He Rested . . .

By Mike Parnos

I guess the market had a lot more stamina.  It powered straight up 
from October 25th to November 18th before it decided to take a 
breather.  The market didn't create the earth, the sun, man or 
woman, or Sears & Roebuck.  It just created a heapin' helpin' of 
grief for bear-call spread holders.  

But that's in the past.  We lost a few bucks, but we kept the 
lesson.  And, what did we learn?  Keep the spreads small.  To 
generate more premium, trade a few more contracts.

Maybe the almighty market simply ran out of steam and is recharging 
its batteries, preparing for another leg up.  Maybe the market will 
come back and retrace a bit.  Regardless, it's the pause that 
refreshes.  It almost makes one want to trade.  So, that's what we 
did today.

There are only 2 1/2 weeks left to December expiration, and a lot 
of (seemingly) solid support at 1170, 1160, and 1145.  At least we 
can be sure of one thing -- Bush won't get elected again.  If we 
were to put on a bear call spread to complete our Iron Condor, you 
know that, with our luck, they'll find Osama Bin Laden just before 
expiration.

So, let's look at a "hypothetical" trade that I put on today.  I'm 
still being conservative, but, with a large chunk of the month 
gone, I couldn't resist.  The market finished at, or near, its low 
for the day.  So, it's possible that these "hypothetical" prices 
may also be available tomorrow.
 
CPTI December Position #4 - 1173.82 
Sell 20 SPX December 1135 puts
Buy 20 SPX December 1130 puts
Credit of about $.35 ($700)

Compared to the profit we're used to making, this doesn't seem like 
a lot.  But, we're going to work our way back into the black a 
little at a time -- with a large degree of safety.  
_________________________________________________________________

Put On A Happy Face
In our continuing search for ways for CPTI students to spend their 
profits, we learned that a clinic in Cleveland says it has recently 
received approval (after much debate) to do a facial transplant.   
No more nip here and tuck there.  We're talkin' about the whole 
thing -- ear to ear and chin to roots.  Some of us really need a 
serious overhaul.  Apparently, we'll soon be able to start fresh.  
To practice, they'll work on people who have been severely 
disfigured.  Where will they get the skin to use?  I'll leave that 
to your imagination.

They estimate that it could take up to two years before they get 
the kinks out (of the procedure) and conquer some other problems 
they'll be facing.  Just think -- in the future, everyone will look 
like Heather Locklear and George Clooney.  I hope I live that long.

Regardless of what they can do to my face, it's a pretty good bet 
that I won't be doing a Hanes underwear commercial anytime soon.  
Just in case, though, I better start getting my body in shape.  I 
better tell Dominos to cut back 10% on the pepperoni.  
____________________________________________________________

DECEMBER CPTI POSITIONS
December Position #1 -- SPX Iron Condor (Part 1) - 1173.82
This bull-put spread still gives us about a 45-point cushion on the 
downside with the short strike near a support level.  

We sold 20 December SPX 1125 puts and bought 20 December SPX 1120 
puts for a credit of $.50 ($1,000).   Maintenance: $10,000.  When 
you're looking for your new position, the concept of getting much 
your profit from negotiating the bid/ask spread still applies. (see 
the Thursday, Nov. 18 column).

This position is just the bull-put portion of a potential Iron 
Condor.  We're going to wait until the smoke clears a little before 
looking for bear-call spread possibilities.  When the time comes to 
put on the bear call spread, as long as we create a 5-point spread, 
there will be no additional maintenance requirement.

December Position #2 -- SPX Sure Thing (Almost) Credit Spread – 
1173.82

We sold two SPX December 1165 puts and bought two SPX December 1140 
puts for a $6.90 credit ($1,380).

Here we go again.  We saw an opportunity to sell the 1165 puts and 
buy the 1140 puts for a credit of $6.90.  We're still in a bullish 
trend and want to position ourselves to take advantage of it.  A 
quick reminder -- only do this strategy if you have a LOT of 
maintenance available.  You might need it.

December/January Position #3 -- SPX Iron Condor  (Part 1) - 1173.82
I've become very conservative -- even more so after our unpleasant 
experience in the November cycle.  I saw an opportunity to put some 
serious distance between a bull put spread and where the SPX was 
trading.   With the SPX at 1179, I noticed the January 1100/1090 
bull put spread would yield about $.70.  Being still somewhat 
bullish for the next few months, I was willing to go out to 
January.  I like that almost 80-point cushion and I'm willing to 
wait the eight weeks.  When the opportunity presents itself, we can 
always add the other side of the condor.

We sold 15 SPX January 1100 puts and bought 15 SPX January 1090 
puts for a credit of about $.70 ($1,050).  Maintenance: $15,000
___________________________________________________________
ONGOING POSITIONS
QQQ ITM Strangle - Ongoing Long Term -- $39.12
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 
took in $.45 ($450) rollout. We rolled to the November. $34 calls 
and $37 puts for $.70 ($700).  Last week we rolled in the December 
$34 calls and $37 puts for a total of $.50 ($500).  New total: 
$13,400.
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 - 557.47
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 about 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 $10,675. 
Zero-Plus Position For December
Prior to expiration, we bought back our Nov. 555 calls and rolled 
it to six contracts of the January 580 calls for a credit of about 
$100.  We also put on five contracts of a December 540/530 bull-put 
spread for an $.80 credit ($400). 
 
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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