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Daily Newsletter, Monday, 12/06/2004

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The Option Investor Newsletter                   Monday 12-06-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Sleeper 
Futures Wrap: See Note
Index Trader Wrap: See Note  


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      12-06-2004           High     Low     Volume   Adv/Dcl
DJIA    10547.06 - 45.15 10591.99 10526.82 1.72 bln 1153/1673
NASDAQ   2151.25 +  3.29  2157.43  2138.21 2.13 bln 1346/1713
S&P 100   566.59 -  0.49   567.79   564.57   Totals 2499/3386
S&P 500  1190.25 -  0.92  1192.41  1185.18
SOX       446.88 +  1.60   449.05   440.36
RUS 2000  639.03 -  3.18   642.21   636.56
DJ TRANS 3707.25 - 19.49  3727.85  3701.47
VIX        13.19 +  0.23    13.40    12.93
VXO (VIX-O)13.57 -  0.04    14.29    13.37
VXN        19.53 +  1.27    19.60    18.68
Total Volume 3,859M
Total UpVol  2,149M
Total DnVol  1,590M
Total Adv  2499
Total Dcl  3386
52wk Highs  149 
52wk Lows    23
TRIN       0.99
PUT/CALL   0.75 
*******************************************************************

Sleeper
Jonathan Levinson

Traders perturbed by the whippy price action were comforted by 
the extremely light volume today, with QQQQ barely managing to 
trade half of Friday's volume.  Despite the relatively tight 
price range and light volume, however, volatility rose sharply 
(QQV +10.09%)for the QQQQ while declining slightly (VXO -.7%) for 
the OEX.


Daily Dow Chart


Dow bulls must have missed the memo this morning, as the 
Industrials hung stubbornly in the red as the Nasdaq and SPX 
spent much of the session in the green.  The bounce in oil might 
have been a contributing factor, but as the one year daily chart 
above indicates, Dow bears have about 130 points left to go 
before the current bullish daily cycle picture can be 
invalidated.   The October-November flagpole rally has resolved 
itself into the "flag" portion of the pattern, and the current 
200 point range will either prove to be consolidation or 
distribution.  The direction of the break above 10650 or below 
10430 should be determinative.  Above 10640, the daily cycle 
uptick will confirm itself into a genuine upphase from a much 
higher price and oscillator low, while below 10430, bears will 
have a chance at retracing at least part of last month's rally.  
For the day, the Dow lost 45.15 to close at 10547.06.


Daily S&P 500 Chart


The SPX traded both sides of unchanged today as the Dow held 
lightly negative.  As with the Dow, the SPX is tracing a pullback 
from last week's highs within the flag atop the October-November 
rally.  The range here has risen to 1174-1200, with next support 
below at 1160 and 1140-45.  The light volume and doji prints 
today suggest that traders aren't willing to take a stand as to 
which way this deadlock will resolve.  A bounce from here will 
need to take out 1200 in order for the rally to reignite, while 
anything less suggest a renewed test of rising support at 1174.  
In my view, the bulls have a greater challenger than the bears, 
but that view is mitigated by the fact that price has been rising 
for the past 2 months and the trend is, as they say, your friend.  
Aside from aggressive traders and gunslingers, following a high 
volume range break should be the safer approach.  The SPX closed 
lower by .92 at 1190.25.



Daily Nasdaq Chart


The less oil-sensitive Nasdaq eked out a 3.3 point gain to close 
at 2151.3.  The daily cycle upturn apparent on the charts of its 
peers is also apparent here, but the angle of incline is so sharp 
that the consolidation looks more like a rising wedge than a 
rising flag.  In  any case, 10125-30 is support, 2180-85 
resistance.  Below the 2050 wedge implied target, next support is 
at 2035, but the daily cycle oscillators should reverse on a 
break of 2100, if it occurs.


Weekly TNX Chart


Bonds rose today, with the ten year note yield (TNX) managing to 
break slightly below 4.26% support, losing 3 bps to close at 
4.24%.  The headlines this morning attributed the move to the 
shootout at the US embassy in Saudi Arabia (discussed below), but 
I suspect that that particular event was a tempest in a teapot 
for the bond market today.  The weekly cycle upphase continues 
higher, and last week's strong whipsaw saw a test of 4.44% 
resistance followed by a strong decline in the TNX following 
Friday's disappointing employment report.  A move below current 
levels should target 4.14%-4.16% support, but until the weekly 
cycle turns down, these pullbacks should remain corrective for 
the upphasing TNX.


The Chicago Fed's senior economist, William Strauss, told Reuters 
that he expects slower growth in 2005 of 3.3% (Real GDP), down 
from the 4.4% projected this year. The estimate, derived from the 
Fed's experts as well as attendees of the Chicago Fed's economic 
symposium, is based on the anticipated slowdown caused by higher 
interest rates and high crude oil prices.  The only component of 
GDP expected to grow was exports, based on the decline in the US 
Dollar's rendering exports more attractive to holders of rallying 
foreign currencies.   Participants expect the unemployment rate 
to decline in 2005, and for inflation to decline from its current 
2.9% level this quarter to an average estimate of 2.4% in 2005.


Weekly chart of Crude oil


Iran's oil minister Bijan Zanganeh indicated that the OPEC 
ministers will be focusing more on quota compliance than on the 
removal of production ceilings at the upcoming meeting in Cairo 
later this week. Zanganeh noted that price is very unstable 
currently, but suggested that current oversupply be dealt with 
not by raising the production ceiling but rather by compliance 
with existing production quotas.  Zanganeh had nothing to say 
about the suggestion from other OPEC members that the oil price 
band target be raised from $22-$28 per barrel to a minimum of $30 
per barrel.  When pressed on what he felt to be a fair price, 
Zanganeh replied that the market price is, by definition, fair.

That price came down significantly last week, the largest move in 
either direction in over 3 years.  Support came at 42, and 40-42 
remains strong confluence support.  The weekly cycle downphase, 
so far very strong, suggests that selling might not be over, and 
unless we see a clear move back above the 50 level, that selling 
might in fact be just getting started.  While the long term 
fundamentals for oil remain very bullish, the shape of the weekly 
oscillators suggest that the correction may well have further to 
go.  For the day, crude oil closed higher by 1.08% at 43 on the 
Nymex.

The morning opened on a bleak note as Associated Press reported 
that a number of Americans were injured in an attack on the US 
consulate in Jiddah, Saudi Arabia.  The attackers apparently used 
grenades to make it past the Saudi security personnel to the 
interior of the compound where a gunbattle ensued.  The initial 
reports stated that 7 people were killed in the 3 hour crisis, 
among which 3 attackers, but later reports stated that "several 
Americans were slightly injured" and none were killed.  2 
attackers were captured, and an American spokesperson said that 
the attackers were suspected al Qaeda militants.  Later reports 
upped the body count to 7 and then 14, but security sources 
reported that all were Arabs and Asians, many of whom staff who 
were alleged used as human shields by the attackers during the 
battle.

Spain was rocked by at least 7 explosions following a series of 
telephone warnings from callers claiming to represent the Basque 
separatist group ETA.  The explosions occurred in Leon, 
Santillana del Mar, Avila, Valladolid and Ciudad Real, Alicante, 
and Malaga.  Initial reports indicated that only minor injuries 
were caused, with subsequent reports quantifying the inured at 
18.

In corporate news, Circuit City (CC) reported a 4.3% decline in 
same-store sales for fiscal Q3 from 2003's Q3 levels.  Total 
sales were higher by 3.8% to 2.5B, missing estimates of 2.6B for 
the quarter.  The company blamed the shortfall on its decision to 
reduce its promotions of music, movies and software, and a change 
in its DSS and wireless phone business models.  The stock was 
downgraded as well by SunTrust Robinson Humphrey to "neutral," 
and the combination saw the stock get hit for a 7.46% decline to 
close at 15.

Canadian miner GG reported that it intends to purchase WHT for 
2.09B in stock in a friendly offer following its failed hostile 
bid to take over CDE.  The Sunday announcement claimed that this 
latest consolidation in the mining industry will render GG the 
eighth largest gold producer worldwide with proven reserves of 
10.5M ounces and an expected production of 1.1M ounces in 2005. 
GG closed lower by .56%  at 14.26, while CDE got clipped for 
4.73% to close at 14.03 and WHT rose 7.84% to close at 3.44.

Kimberly-Clark (KMB) announced its plan to increase its quarterly 
dividend by 12.5% to 45 cents per share and to buy back "at 
least" 1B of its own stock in 2005.  KMB expects Q4 earnings in 
the 89-91 cent range.  KMB rose .56% to close at 64.34.

Navistar (NAV) announced that it expects Q4 earnings to be no 
less than $1.88 per share compared with $1 for Q4 2003 and 8 
cents above current consensus estimates.  The company attributes 
the rise in guidance to strong engine shipments and improved cost 
structure.  NAV lost 5.88% to close at 38.73.

3Com Corp. (COMS) warned that it expects to lose 12-14 cents per 
share on revenue of 149M-153M for Q2, solidly below consensus 
estimates of 7 cents per share on revenue of 174M.  COMS lost 
3.94% to close at 4.39.

CMGI announced a loss of $600,000 for fiscal Q1, breaking even on 
a per-share basis after earning 6 cents per share on income of 
29.9M in Q1 2003.  Net revenue rose 171% to 257.1M, while total 
operating income rose 134% to 2.4M. CMGI blasted higher, adding 
32.45% as of this writing to 2.49.

The White House gave a lift to the price of gold in the 
afternoon, when spokesman Scott McClellan stated that the federal 
government would be required to borrow in order to support the 
"upfront transition" costs associated with the reform of what he 
characterized as the currently "unsustainable" Social Security 
system.  Part of this transition includes the addition of 
personal retirement accounts to Social Security.  

While there were no economic reports today, tomorrow will see the 
release of revised Q3 productivity, estimated at 2%, and later in 
the day, consumer credit for October, estimated at +6.0B.  While 
today's lack of decline certainly suggests bullishness, that 
bullishness was severely tempered in my view by the lack of 
volume that came in for the rise, particularly on QQQQ.  As noted 
in the Market Monitor, the cycle setup this morning suggested a 
stronger decline than we got, but the intraday rise came in on 
dramatically lighter volume overall.  Perhaps the big boys hadn't 
closed out enough longs or gotten sufficiently short to permit a 
deep downside move this morning.  If so, the intraday gains 
should prove to be merely distribution, and should get no further 
than the afternoon highs tomorrow.  If so, the sellers who were 
so notably absent today should push back tomorrow.  If they 
don't, we can expect yet another powerful display of strength 
from the bulls when volume returns. 


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

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


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_120604_1.asp

 

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The Option Investor Newsletter                   Monday 12-06-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: LEH	
Dropped Calls: ITT
Dropped Puts:  FRX
Watch List: Specialty retail to homes and more 


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

LEH - call play -
  Recently added LEH has added 0.8 percent on Monday
  and traded through our TRIGGER to go long at $85.51.


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

ITT Industries - ITT - close: 84.33 change: -0.53 stop: 83.70

The consolidation continues in shares of ITT today.  
Unfortunately, the stock has now broken through the bottom of its 
four-week trading range and support near $84.00-83.75.  We've 
been stopped out at $83.70.  The next level of support for ITT 
should be the $81 region.  

Picked on November 29 at $86.40 
Change since picked:     - 2.61
Earnings Date          10/21/04 (confirmed)
Average Daily Volume =      502 thousand 
Chart =



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

Forest Labs - FRX - close: 40.90 change: +0.83 stop: 41.01      

Too strong!  FRX's oversold bounce is beginning to look like a 
rally.  The stock remains stuck in its long-term downtrend but 
we've been stopped out at $41.01 today's intraday high.  Readers 
can watch for a potential failed rally near $44 and/or under its 
simple 100-dma as a possible bearish reversal and new entry point 
to buy puts.  

Picked on November 22 at $39.07
Change since picked:     + 1.88
Earnings Date          10/18/04 (confirmed)
Average Daily Volume =      2.8 million 
Chart =




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

AutoZone - AZO - close: 85.03 change: -1.11

WHAT TO WATCH: There could be trouble ahead for AZO.  The stock 
is selling off just days before its earnings report on December 
8th.  The very sharp rally that began in October ended several 
days ago with a failed rally under $90.00.  Since then AZO has 
trended lower with a pattern of lower highs.  Late last week 
produced another bearish reversal pattern plus volume was above 
average on the declines.  In spite of this weakness the P&F chart 
remains extremely bullish with a $120 target.  Maybe traders 
should watch for support near its 200-dma and look for a bounce.  
Analysts' earnings estimates are for $1.45 a share. 

Chart=


---

Cummins Inc - CMI - close: 77.70 change: -2.18

WHAT TO WATCH: The five-week rally in CMI could have reversed.  
The failed rally/breakout over $80 three days ago is seeing some 
follow through.  Short-term technicals have turned negative and 
its MACD has produced a new sell signal.  Volume was pretty heavy 
on the reversal and today's decline as well.  Altogether this 
could be an aggressive entry point for bearish positions.  

Chart=


---

Timberland Co - TBL - close: 65.52 change: +1.01

WHAT TO WATCH: TBL has been churning sideways between $63 and $67 
for the last five weeks.  We find the stock intriguing as the 
current bounce has turned short-term technicals positive.  We 
would watch for the breakout over $67.50 as a new bullish entry 
point.  The P&F chart points to a $69 target but it would not 
surprise us to see TBL run towards the $74-75 region.

Chart=


---

Toll Brothers - TOL - close: 54.82 change: +1.11

WHAT TO WATCH: TOL is breaking out over resistance at $54.00 to 
hit new all-time highs.  After three weeks of consolidating 
sideways the stock could be starting another leg higher.  We 
would wait and watch for the company's earnings report due out on 
December 9th before considering any positions.  The P&F chart 
points to a $69 target.

Chart=



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

BZH $130.92 +1.18 - BZH has broken out over resistance at $130.

GD $108.69 -1.14 - We're still watching for a move over $110.

BMET $48.63 -0.24 - Still watching for a move over $50.

ITW $94.83 -0.20 - Still watching for a move over $96.75.

HDI $59.47 +0.28 - HDI is still trying to breakout over $60.

FFH $176.60 +8.54 - FFH has broken out to new nine-month highs 
but can it surpass its all-time high near $184?
 

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FREE TRIAL READERS
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If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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