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Daily Newsletter, Monday, 12/13/2004

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The Option Investor Newsletter                   Monday 12-13-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: High Anxiety 
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)
*******************************************************************
      12-13-2004           High     Low     Volume   Adv/Dcl
DJIA    10638.32 + 95.10 10642.53 10543.21 1.79 bln 1930/ 882
NASDAQ   2148.50 + 20.43  2148.50  2132.19 2.06 bln 1886/1150
S&P 100   570.41 +  4.91   570.55   565.50   Totals 3816/2032
S&P 500  1198.68 + 10.68  1198.77  1188.00
SOX       425.10 +  2.35   427.59   423.10
RUS 2000  638.03 +  5.79   638.08   631.65
DJ TRANS 3724.96 + 38.93  3724.96  3685.27
VIX        12.54 -  0.22    12.61    12.13
VXO (VIX-O)13.55 +  0.35    13.77    12.80
VXN        18.78 -  0.79    19.64    18.71
Total Volume 3,863M
Total UpVol  2,791M
Total DnVol    971M
Total Adv  3816
Total Dcl  2032
52wk Highs  375 
52wk Lows    28
TRIN       0.72
PUT/CALL   0.72 
*******************************************************************

High Anxiety
Jonathan Levinson

The equity indices probed the highs today, with SPX setting a 
nominal new high as the Dow and Nasdaq rose below theirs.  
Volatility as measured by the VXO and QQV rose along with price 
as tensions mounted ahead of tomorrow's FOMC meeting.

Breadth was solidly positive and volume solid despite very light 
QQQQ volume, with the number of advancing shares traded nearly 
tripling declining volume on both the NYSE and Nasdaq.



Daily Dow Chart


The Dow revisited the rally high today, finishing 4 points below 
the high of the day at 10642.53.  Just as we saw several times 
last week, bearish intraday cycle setups went net nowhere, with 
sellers displaying a perfect absence of strength.  The daily 
chart itself is an example of this, with the daily cycle 
oscillators aborting a pathetic 2 week downphase and today 
printing early an early buy signal, the first step of a new 
upphase. This oscillator action lines up with the interpretation 
of the past month's range as a bullish continuation pattern.


On the flip side of that coin, the current chart pattern 
resembles that seen in June and in September, when the flag atop 
a flagpole rally degenerated into a complex top as the price 
simply collapsed.  In June, that occurred from a similar pattern 
of higher flag highs.  There's no telling whether this will 
repeat again, and it's worth repeating that the bears have been a 
no-show on most of their intraday downphases as well as on the 
current daily cycle downphase.  Food for thought.


Daily S&P 500 Chart


The SPX gained 10.68 points to close at 1198.68, one tenth of a 
point off its high of the day and 52-week high.  The same bullish 
uptick in the daily cycle oscillators is evident here as on the 
Dow above, and with upper expanding wedge resistance in play at 
current levels, tomorrow will be do or doo-doo time for the 
bears.  Support is below at 1180, and unless the bears can drill 
the price down to at least that area tomorrow, the daily cycle 
upphase will begin catching up to the price, starting from a much 
higher price and oscillator low than the previous one did- a very 
bullish scenario.



Daily Nasdaq Chart


Whereas the Dow and SPX have been either topping or consolidating 
at the highs for the past month, the Nasdaq has just been rising.  
Despite this, the daily cycle downphase is more persistent than 
it is on the SPX and Dow.  That's either an important bearish 
divergence, or a very bullish consolidation-  a downphase in 
which the price continues to rise.  In either case, the bears 
need to get the price below the 2100 level for starters.  The 
Nasdaq feel 16 points short of its year high today, another 
potentially bearish divergence when compared with the SPX.  With 
the price persisting at these levels, the daily cycle downphase 
is on borrowed time and should abort if the price doesn't pull 
back tomorrow.  Either way, it will be helpful to get the 
indicators back in line with the price.


Weekly TNX Chart


Bonds were firm last week and kicked off this week on a positive 
note as ten year note yields (TNX) declined, finishing lower by 
.5 bps at 4.151%.  Last week's decline was sufficient to stall 
the weekly cycle upphase, with the 10-week stochastic currently 
on a bearish kiss.  With rising bear wedge support just below in 
the 4.0%-4.02% area, bond bulls are now eyeing what could be a 
large price with a wedge target in the low 3% area.  TNX bears 
will want to see the previous low in the 3.9% support area taken 
out to target 3.55%-3.6% support.  For TNX bulls, a move above 
4.4%-4.44% should be sufficient to reignite the stalled weekly 
cycle upphase.


Weekly chart of Crude oil


Forecasts of colder than average temperatures for the next 5 days 
in the northeast and sabotage in Iraq contributed to a strong 
open for crude oil this morning following OPEC's weekend 
statements to cut back 1M bpd of "excess" output.  OPEC, which 
produces 1/3 of the world's oil, resolved that Saudi Arabia, 
Kuwait, the United Arab Emirates, Nigeria, Libya, Algeria and 
Qatar will each reduce output by 5%,  and that the cuts will 
impact not just the lower grade "Arab heavy" but also higher 
grades, though few details were given.  

Over the weekend, delivery of oil through Iraq's northern export 
pipeline to Ceyhan was stopped on Sunday, following a 12-day halt 
caused by an explosion at the November.  Despite this, the OPEC 
announcement and the colder weather, prices were steady, with 
January crude trading a narrow range on both sides of unchanged 
for much of the daytime session and closing at 41.  On the weekly 
chart, the 30 minute cycle downphase continues, with price 
confluence support in the 40-42 range currently being tested.  As 
40 was a major resistance area on the way up, we can expect 
support to assert itself here.  Added to that is the news from 
the CFTC as reported by Reuters to the effect that crude oil 
specs had moved to a net short position of 17440 contracts for 
the week ended December 3rd from a 5815 net long position the 
previous week. On a contrarian basis, this would be bullish for 
oil prices.

At 8:30AM, the Commerce Department released the November retail 
sales report which showed a 0.1% increase vs. expectations for no 
change.  The bigger news was the large upward revision in the 
October report from a 0.2% gain to a 0.8% gain.  As expected, 
automobile sales were weak, declining 1.3%, but that decline was 
expected.  Excluding auto sales, November retail sales were 
higher by 0.5% for the month and 8.6% for the year.

At 10AM, the Commerce Department reported that business 
inventories rose 0.2% in October, missing economists' 
expectations for a 0.5% increase.  Retail inventories declined 
0.6%, while sales rose 1.2%, the largest increase since March.  
The inventory-to-sale ratio fell to 1.3 for the month, falling 
back below September's 1.31 reading to the record low set in May 
of this year.  The inventory-to-sales ratio for the manufacturing 
sector remained at 1.25, for the wholesale sector 1.15, and for 
the automobile sector it declined from 1.62 in September to 1.59 
for October.

Mastercard reported on Sunday that transaction volume for the 
prior week was 7.8% higher than it was one year ago, with 67.7M 
transactions processed during those seven days.  This is the 
third consecutive week of transaction volume growth on a year-on-
year basis reported by Mastercard.

Agence France-Press reported that China will impose export duties 
on textiles and clothing.  This news comes to the great relief of 
global textile producers fearing a flood of Chinese product when 
China's quota system is lifted next month. The report went to 
quote spokesman Chong Quan from China's Ministry of Commerce, who 
explained that the new tariffs will be assessed on volume rather 
than price, which should bolster the production of high-end 
fabrics. 

In corporate news, TOY was up strongly this morning following a 
weekend report from the Financial Times to the effect that 
European firm Permira and US firm Apollo were collaborating on a 
takeover bid for TOY.  The article stated that KKR, Cerberus and 
Bain Capital were also among the suitors, and that CSFB is 
conducting the auction with bids due after Christmas.  TOY closed 
higher by 2.81% at 20.47.

PSFT and ORCL have finally reached an agreement to conclude their 
18-month takeover saga, announcing PSFT's acceptance of ORCL's 
$26.50 per share bid in a 10.3B deal.  ORCL had previously stated 
that $24 was its final offer.  PSFT, which had closed at $23.95 
on Friday, was up to 26.40 in premarket trading and closed higher 
by 10.31% at 26.42, while ORCL rose as well, closing higher by 
10.17% at $14.63.  Oracle's Larry Ellison said, "This merger 
works because we will have more customers, which increases our 
ability to invest more in applications development and support."  
ORCL expects that the deal will add 1 cent to its fiscal Q4 EPS, 
2 cents per quarter in fiscal 2006, and "a bit more" in 2007.

Cardinal Health (CAH) announced a 3-year restructuring plan that 
includes a 500M stock buyback and the dismissal of 4200 
employees, just over 7% of its workforce in a bid to boost 
earnings by 500M.  The company is forecasting a 15% drop in EPS 
for 2005, which should bring earnings growth down to the "low 
single digits" compared with its prior expectation of double-
digits. CAH closed lower by 1.76% at 55.76.

Tenet Healthcare (THC) warned as well, citing lower patient 
volumes and high levels of bad debt from patients.  THC's Q3 net 
loss reported in November totaled 15 cents per share or 70M on 
revenue of 2.44B, 3.2% lower than Q3 2003.  With 3748 fewer 
admissions in tenet-operated hospitals and an increase in 
admissions of uninsured patients from 3.5% to 3.8% of the total, 
THC is expecting to record charges that could exceed 1B in Q4 
2004. THC lost 8.06% to close at 11.07.

The Nasdaq 100 Index (NDX) added the following 8 stocks to the index 
late Friday: XMSR, ADSK, LBTYA, NTLI, MCIP, WYNN, ERICY,
SIRI. The following 8 were removed: CEPH, CPWR, FHCC, GNTX, HSIC, 
NVDA, PTEN, RYAAY.  XMSR reached a 4 year high of 39.60 following 
that news and on the announcement that GM has signed its one
millionth XMSR subscriber.  These changes become effective on 
December 20th.

USA Today reported over the weekend on an "avalanche" of IPOs set 
to commence trading this week, as many as 17.  This is the 
highest number of IPOs in a single week since August 11, 2000, 
when there 26 in that week.  This year's 196 total IPOs also 
harkens back the dotcom bubble.  The article noted that IPOs have 
been largely successful this year, up an average of 31% from 
their IPO price, the best such showing since 1999.

Tomorrow is the FOMC meeting and at 2:15 we get the Fed's rate 
announcement.  This is always good for a rollercoaster afternoon, 
with quiet, low volume in the hours preceding the announcement 
and then whippy moves in both directions after 2:15PM.  On the 
one hand, rates remain very low at current levels, as conceded in 
the numerous speeches from the Fed's governors and Chairman.  On 
the other hand, demand for US debt has been firm as evidenced by 
the recent treasury auctions.  This morning's upward revision to 
the October retail sales report was treated by some mainstream 
media channels as sealing the deal on a 25 bp rate hike tomorrow.  
With equities, commodities and foreign currencies still very 
strong this year against the US Dollar, even following last 
week's bounce, there are strong arguments to support a rate 
increase, even despite the Fed's reticence to tighten during the 
less liquid December period.  Time will tell.

Aside from the FOMC announcement, we'll get the 8:30AM 
announcement of the October trade balance, est. 53B, then at 9:15 
Industrial Production and Capacity Utilization, est. +0.2% and 
77.8% respectively.  With op-ex week and FOMC trading patterns, 
the potential for headfakes, false breaks, stop runs and whipsaws 
could scarcely be higher.  Tomorrow is a good day during which to 
be extra careful out there.


************
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_121304_1.asp
 

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The Option Investor Newsletter                   Monday 12-13-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: MWD 	
Dropped Calls: None
Dropped Puts:  None
Watch List: Heavy lifting to Power tools and more 


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

MWD - call play -
  We have been triggered at $54.11 in MWD.  The stock
  added 1.3 percent and broke out over resistance at $54.00
  as the XBD broker-dealer index broke through the 150 level.


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

None


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

None


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

Caterpillar - CAT - close: 93.98 change: +2.36

WHAT TO WATCH: Dow-component CAT helped lead the Industrials 
higher with a 2.5 percent rally to breakout over its three-week 
trading range.  The rally in CAT was fueled by positive comments 
from Legg Mason (LM) who reiterated their buy rating and raised 
their earnings estimates.  CAT looks ready to spring toward the 
$100 level, which should be psychological resistance.

Chart=


---

State Street Corp - STT - close: 46.35 change: +1.05

WHAT TO WATCH: Banking stock STT is breaking out from its five-
week consolidation and resistance at its exponential 200-dma.  
Short-term technicals are positive and its MACD indicator has 
produced a new buy signal.  Yet before considering new long 
positions we would wait and watch for a move over resistance at 
$47 and its simple 200-dma.  A breakout here would look like a 
rally through the neckline of its inverse (bullish) H&S pattern.

Chart=


---

Black & Decker - BDK - close: 85.24 change: +0.57

WHAT TO WATCH: We are still waiting and watching momentum, high-
flyer BDK.  The stock has encountered tough resistance at $86 and 
has consolidated sideways for the last five weeks between $82-86.  
It looks like technical traders could be waiting on the MACD 
indicator that is nearing a new buy signal.  We would watch for a 
move over $86.25 as a potential entry point.  Our target would be 
the $95-100 range.

Chart=


---

Adolph Coors - RKY - close: 74.73 change: +1.18

WHAT TO WATCH: The stock does look a little overbought here but 
the short-term technicals are already turning positive.  Today's 
bounce following several days of consolidation could be sparking 
the next leg higher.  More aggressive traders could go long here 
or just over $75 and target $79-80.  Technical bulls will note 
that RKY's bullish P&F chart points to $106. The upcoming Coors-
Molson merger is due to be voted on by shareholders on January 
19th.  

Chart=



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

TMK $56.24 +0.52 - Insurance stock TMK has been churning sideways 
in a relatively tight range the last five weeks.  Watch for the 
breakout over $56.50.

SUN $81.29 +1.68 - Believe it or not oil refiner SUN looks 
bullish again.  Aggressive traders may want to consider positions 
here but watch oil.  If crude breaks $40 a barrel it could spark 
another sell-off.

CLF $95.70 +2.15 - Mining stock CLF is bouncing from the $90 
level.  Short-term traders might target $100 but there is some 
resistance at $98.  
 

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would welcome you as a permanent subscriber.

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price is $129.95 which is $20 off the monthly rate.

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start until your free trial is over.

To subscribe you may go to our website at

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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


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

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