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Daily Newsletter, Wednesday, 12/15/2004

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The Option Investor Newsletter                Wednesday 12-15-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Vantage Points  
Futures Wrap: See Note
Index Trader Wrap: A bit unnerving 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      12-15-2004           High     Low     Volume   Adv/Dcl
DJIA    10691.45 + 15.00 10706.16 10636.47 2.14 bln 1942/ 912
NASDAQ   2162.55 +  2.71  2171.27  2151.31 2.36 bln 1776/1285
S&P 100   573.45 +  1.03   574.00   570.19   Totals 3718/2197
S&P 500  1205.72 +  2.34  1206.61  1199.44
SOX       434.04 +  1.02   436.46   429.78
RUS 2000  648.61 +  5.07   648.61   642.68
DJ TRANS 3759.61 +  2.58  3770.55  3739.34
VIX        12.35 -  0.38    12.88    12.23
VXO (VIX-O)13.16 -  0.29    14.14    13.00
VXN        18.77 +  0.19    19.14    18.28
Total Volume 4,508M
Total UpVol  2,591M
Total DnVol  1,818M
Total Adv  3718
Total Dcl  2197
52wk Highs  454 
52wk Lows    22
TRIN       1.02
PUT/CALL   0.63
******************************************************************

Vantage Points
Linda Piazza

Wednesday offered a view of the U.S. economy from several vantage
points, including the White House's.  One of the first of those
vantage points occurred when Treasury Secretary John Snow
appeared on CNBC Wednesday morning ahead of the open of the White
House's economic forum.  A CNBC commentator expressed skepticism
that the predicted reduction in the budget deficit would occur. 
Snow's "wait and see" answer epitomized the tone of the entire
interview.  Several times, he repeated his confidence that "the
numbers are going to play out," adding that rising government
receipts coupled with fiscal discipline would produce those
better numbers.  

On a morning that had seen the dollar drop precipitously against
some currencies, a guest commentator quizzed him about his
expressed strong dollar policy, saying that she hadn't seen any
actions to back up that policy. Snow answered that he never
talked about dollar levels.  Saying that the administration's
policy was well known, he stated that a strong American economy
was key.  Whether he meant that economic growth was key to
buoying the dollar or that he would sacrifice dollar strength to
help American multinational companies proved unclear, at least to
this listener, and the guest commentator did not ask further
questions that might have clarified the matter.

Later, President Bush spoke, saying that his administration's
policy was a strong dollar one, and Greenspan took the dollar's
value into account when deciding on rate hikes.  Harvard's
Feldstein was to echo Snow's optimism later in the day, saying
that the economy was in good shape. Disputing some assertions
that no evidence of inflation exists, Feldstein noted evidence of
upward pressure on prices.  After dropping precipitously against
the yen and euro overnight, the dollar steadied throughout the
day, with dollar investors perhaps awaiting other developments
out of the forum.  

Snow also addressed the issue of Social Security reform,
affirming that he had approached the bond market for help
financing the transition into personal accounts.  He expressed
confidence that if a "real fix" could be found, financing could
be found for that transition.  When questioned about whether 30-
year bonds would be issued, as had been rumored, or whether a
figure up to $1.5 trillion in bonds was accurate, Snow was cagey
with answers, essentially giving the same "wait and see" reply.    

For much of the day, indices displayed that same caginess.  An
end-of-day move higher pushed some above important resistance.

Annotated Daily Chart of the SPX:

 

Annotated Daily Chart of the Nasdaq:

 

Helped by Merck (MRK) after Raymond James upped the stock to a
strong buy rating, the Dow broke out of a broadening formation.

Annotated Chart for the Dow:

 

Annotated Daily Chart for the Russell 2000:

 

Beginning with the 7:30 release of the Mortgage Bankers
Association's (MBA) information on mortgage activity and ending
with the Dec NAHB Housing Market Index at 1:00, another vantage
point into the health of the economy was the performance of the
housing industry.  According to the MBA, mortgage activity
declined 1.00 percent on a seasonally adjusted basis in the week
ending December 10.  Refinancing applications also fell on a
seasonally adjusted basis, by 2.00.  The purchase index declined
0.4 percent.  Both the mortgage activity and purchase index
numbers had produced strong gains the week before, but the
decline in refinancing activity built on weakness from the
previous week.  

The U.S. December Homebuilder' Index was unchanged at 71.  The
DJUSHB still rose 5.44 percent, one of the strongest gaining
indices, perhaps cheered by Lennar Corp (LEN)'s earnings report. 
That report included 34 percent growth in earnings.  The company
beat forecasts and raised guidance for the year above
expectations.  A rally in the bond market also helped encourage
the homebuilders, with yields remaining low.

The 8:30 release of the December's Empire Manufacturing offered
another vantage point into the health of the U.S. economy, at
least as it's developing in New York.  Manufacturing activity in
that area unexpectedly increased to 29.9 in December from a
revised 18.9 for November.  Economists had expected a decline. 
New orders, shipments and unfilled orders all rose while the
number of manufacturers reporting deteriorating conditions
declined.  Despite those assertions about no sign of inflation,
those New York area manufacturers apparently experienced some,
with December's prices-paid component rising.  Manufacturers were
not able to pass prices on to consumers, apparently, since the
prices-received component dropped.  Maybe New York area residents
will soon be able to absorb some of those rising costs to
manufacturers, however, as the employment index also rose, to
21.9 from November's 10.6.

October's Net Capital Inflows, announced at 9:00, offered another
vantage point, showing capital inflows at $48.1 billion, down
from September's $67.5 billion. Foreign purchases of net domestic
securities fell while foreign purchases of U.S. Treasury notes
climbed.  Private purchases of U.S. financial assets declined. 
The news hit the weak dollar, weakening it further, before it
began a long period of consolidation for the day.  

At 10:30, the usual release of crude, gasoline, and distillate
inventories offered yet-another vantage point, one with a less
cheerful view.  Some concern had already arisen with Yukos'
Wednesday morning bankruptcy filing in a Houston court.  Yukos
felt forced into the move by the Russian government's intention
to sell off the valuable Yuganskneftegaz unit.  The government
intends the sale as one step in collecting the $28 billion in
taxes the government has billed the company.  Yukos asked the
U.S. judge for an injunction against that sale, along with other
protections.

Iran had also announced that it would adhere to OPEC's decision
to trim production, on the same morning that ChevronTexaco made
public its intention to raise its planning price for oil from the
previous $15-25 a barrel to $20-30 a barrel.  The Chairman and
CEO's conclusion that higher oil prices constituted an enduring
structural change probably caused more harm than the raising of
planning prices.  Most analysts had concluded that major
companies had already raised planning prices, especially after
Royal Dutch/Shell noted in September that while $20 a barrel
would remain its official planning price, the company would
factor in a price of $25.00 a barrel or above when making
investment decisions.

In that climate, crude had been rising pre-market, a climb it
continued into the release of crude inventories.  The Department
of Energy's figures proved disappointing to those who had hoped
to see a further build in inventories.  Instead, the DOE reported
steady inventories in distillates, the focus of interest during
winter months.  The American Petroleum Institute (API) reported a
drop of 2.2 million barrels.  The DOE said crude inventories
dropped 100,000 barrels and gasoline rose 1.5 million barrels. 
API disputed those numbers, citing a gain of 2.5 million barrels
in crude inventories and a drop of 1.3 million barrels in
gasoline. The government reported that imports dropped 498,000
barrels a day, arguing against OPEC's assertion that full tankers
have been churning their way through the seas to the U.S. with
inventories increasing.  The government's data on imports offers
a different view from a different vantage point.

After stabilizing for a few moments as the news was digested,
crude futures rose again.  

Annotated Daily Chart for Crude Futures for January Delivery:

 

While equities bucked the usual crude-up/equities-down reaction,
many may be discounting the rise in crude, feeling as if it were
an overreaction to the Yukos news.  Some might be focusing on the
technical potential for another rollover soon, perhaps after that
neckline is retested.  

Perhaps the various vantage points offered up a more encouraging
view of the economy than many expected to see.  Many had worried
about the influx of new shares into the market with the heavy IPO
schedule this week, but today's big IPO, Las Vegas Sands (LVS)
performed strongly, closing at $46.52, well above the
$29.00/share pricing.  

Increased merger and acquisition activity provides an optimistic
vantage point for the markets, and markets are seeing more M&A
activity.  Today's featured the Sprint Corporation purchase of
Nextel (NXTL) with the cash-plus-share price at a premium to
Tuesday's closing price.  Both boards have apparently already
approved the deal that will make the combined company, to be
known as Sprint Nextel, the country's third-largest cell phone
company.  The deal is expected to be completed by the second half
of 2005, if the regulatory approvals and usual closing conditions
can be met by then.  Sprint will spin off local telephone
operations.

Gary Forsee will head up the new company, with titles of 
resident and CEO.  He's currently Sprint Chairman and Chief
Executive.  Current Nextel president and CEO Timothy Donahue will
serve as chairman of the combined company.  Forsee enthused about
the efficiencies that will be generated and UBS analysts agreed.
UBS noted that Sprint should realize at least $19 million for the
spin-off of local telephone operations and speculated that 2005's
pre-tax cash flow should see double-digit increases.
    
Keep your eyes on the view, however, as tomorrow offers numerous
new vantage points, including FedEx (FDX) and Goldman Sachs (GS)
earnings before the bell and Adobe Systems (ADBE), Darden
Restaurants (DRI), KB Home (KBH) and Nike (NKE) after the bell.  

Thursday's economic releases begin with the 8:30 release of
jobless claims and include the 10:30 release of natural gas
inventories, but will feature many more economic releases. 
November Housing Starts, Building Permits, and Q3 Current Account
Balance will all be released concurrently with the jobless
numbers.  At noon, markets watchers will see December's
Philadelphia Fed.  The minutes of the November 10 FOMC meeting
will be released at 2:00, and at 4:30, the Money Supply figure
follows up.  Also after the close, the Semi Book-to-Bill number
will be released.  

With many indices offering tentative new upside breakouts, there
better not be any thick, ground-hugging roots to trip bulls
wandering among those gorgeous views.


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

A bit unnerving

It may have been a bit unnerving to broader market equity bulls 
to see January Crude Oil futures (cl05f) $44.19 +5.7% jump more 
than $2.00, but it had to be equally unnerving for broader market 
bears to see stocks trade mixed to higher.

Could it be that the market doesn't care about oil prices 
anymore?  

I doubt it, but can only think that the market doesn't get overly 
concerned unless oil can settle above $46.36.

Here's a quick look at today's energy futures action.  Heating 
Oil lead the percentage gains, where the EIA said its statistics 
showed heating oil inventories unchanged, where analysts were 
actually looking for a 1.0 million barrel build.

U.S. Market Watch - Energy futures (Jan, Feb, March)

 

No build in heating oil, and cold weather along the east coast 
was today's catalyst for a move higher in heating oil, crude oil 
and unleaded gasoline.  I don't have much of a background in 
meteorology (the study of weather), but I have made note that 
January heating oil settled HIGHER (green arrow) than February 
heating oil (pink arrow), which settled HIGHER than March heating 
oil (red arrow).  Hmmm.... that's not all that unusual as warmer 
weather usually presents itself in the spring.  

You can probably see the same "seasonality" in natural gas prices 
with February trading $7.33 and March a little lower at $7.26.

What keeps the March Crude Oil futures (cl05h) $44.90 just higher 
than February, is probably the prices for Unleaded Gasoline (Jan, 
Feb, March).  

If I (Jeff Bailey) were to observe future month Unleaded Gasoline 
prices below the current month, I'd be telling you that today's 
bounce in oil was "just a bounce, don't worry about it," as the 
market looks toward spring.   

But heating oil, and CURRENT weather temperatures and inventories 
still seem to be the main catalyst for how oil trades, or 
unleaded gasoline for that matter.  Gasoline prices rose "in 
sympathy," as they should (derived from crude oil) despite the 
EIA saying unleaded gasoline inventories rose by 1.5 million 
barrels.

Note to refiners.... produce a little more heating oil, cut back 
on your gasoline refining.  Get your mixtures "just right."

Now, I can't say with any certainty that stock investors "didn't 
care" about oil prices today, but I think the market can probably 
use some of the same reason discussed above, and an understanding 
of where oil has been the past couple of months, to perhaps think 
its a little early to be "panicking" for today's gains.  

Let's quickly review the daily interval chart of January Crude 
Oil futures (cl05f) and see if you might not agree with $46.36 as 
a level of trade where the equity markets do start to care about 
oil's price.

January Crude Oil futures (cl05f) - Daily Intervals

 

After completing last night's Index Trader Wrap, I posted some 
thoughts/observations regarding heating oil hinting that prices 
might see a near-term rebound.  I will admit that I didn't think 
oil would jump above $43.53 today, and the overlapping resistance 
from my "fitted 38.2%" (pink) retracement, and the conventional 
(blue) retracement.  

But it might just be the case that the MARKET has picked up on 
how after trading $55.30, crude oil FELL lower by 4 blue levels 
($52.54, $49.78, $48.07 and $46.36) to then bounce up 2 levels 
(48.07 and $49.78) but NEVER find a daily settlement ABOVE $49.78 
before sellers drove oil back LOWER by 4 levels.  

I've said before that commodity traders are very supply/demand 
chart driven, and boy do they trade levels.  They look for 
patterns, and they look for SIMILARITY and DIVERGENCE to the past 
before they decide to change their trading posture (bullish or 
bearish).  

In my opinion, every oil BULL above $46.36 is looking for a rally 
to sell into (that's a good test for renewed strength), while 
after seeing 4 levels of LOWER trade, BEARS may have locked in 
some gains today.

Now, look to the far left of the chart where I "red circled" and 
labeled the $46.36 level with "Alert!"  That settlement above 
$46.36 may well have been the "alert" to further strength in oil, 
especially as oil was making new contract highs and overhead 
supply was limited!  

For me, and perhaps other market participants, $46.36 is "the 
level" near-term that broader market equity bulls might care 
about the most.

U.S. Market Watch - 12/15/04 Close

 

Strong earnings from Lennar (NYSE:LEN) $56.35 +10.85% and lower 
10 and 30-year Treasury yields, which should have mortgage rates 
holding at/near historically low levels had the Dow Jones Home 
Construction Index (DJUSHB) 807.15 +5.43% surging once again.  

I was looking at some of these homebuilders and the short 
interest/days to cover on them.  Suffice it to say, bears are 
getting their heads handed to them in recent sessions, and bulls 
have been more than eager to swing the axe.

I couldn't uncover any news as to the Biotechnology Index (BTK.X) 
537.39 -1.21% slid 6.6 points after challenging the neckline 
(545) of that reverse head and shoulder pattern.  The Biotech 
HOLDRs (AMEX:BBH) 145.65 -0.65%, which have been bumping against 
$147.50 for two weeks now, show a "Max Pain" theory value of $140 
for December ($5 increments), while the BTK.X's "Max Pain" theory 
value is 520 (20-point increments) and today's losses among the 
components look rather evenly spread.  

When looking at a bar chart of Network Appliances (NASDAQ:NTAP) 
$34.64 +4.62%, a component of the Disk Drive Index (DDX.X) 121.14 
+1.78%, it looks like some speculative bears decided to give up 
as NTAP breaks out of a 8-day pennant.  A point and figure 
chartist would associate the bar chart with one of the bullish 
triangle-looking patterns.

SanDisk (NASDAQ:SNDK) $23.41 +2.27% got a little pop from its 
December "Max Pain" theory of $22.50, where a better-than 
consensus earnings report from BestBuy (NYSE:BBY) $58.86 +5.03% 
and some upbeat forward-looking comments couldn't have hurt.

The Securities Broker Dealer Index (XBD.X) 152.64 +0.37% 
scratched out what I would consider to be a fractional gain.  
Lehman Bros. (NYSE:LEH) $87.90 +2.62% closes in on its all-time 
high found in March at $89.72 after blowing away consensus 
estimates.  Legg Mason (NYSE:LM) $70.30 -3.36% provided the drag 
after saying in plans to offer 4 million shares in a secondary 
public offering.  Goldman Sachs (NYSE:GS) $109.25 -0.57% edged 
down 63 cents ahead of tomorrow mornings quarterly earnings 
report.  Consensus has "Goldy" earning $2.30 per share.

The bond trade in Treasuries has me, and probably half of Wall 
Street perplexed.  I can't figure it out.

Maybe Merrill has the right call.  "One and done," with 
yesterday's 25 basis point rate hike by the FOMC being the last 
one for a couple of meetings.

The trade in our "Junk Bond" Pacholder High Yield (AMEX:PHF) 
$10.03 +0.4% continues to suggest a low interest rate 
environment, with steady economic growth.

Here's an updated chart of PHF with my conventional (blue) and 
bullish "fitted 38.25" retracement.  In May, I thought all the 
screaming about inflation provided a buying opportunity for "junk 
bonds," but we had to believe in a strong/strengthening economy 
and little inflation.  However, just recently, on 11/24/04, I 
thought PHF bulls should sell some of their holdings (1/4 or 1/2 
positions) when PHF pierced the $10.10 level.  

Pacholder High Yield (PHF) - Daily Intervals

 

As I review my thoughts regarding the decision to advise 
investors to take some profits, I was really thinking we would 
see some selling in the 10-year Treasury and 30-year Treasury, 
where their YIELDS would move higher, perhaps make the dividend 
yield of the PHF becoming less attractive and subject to some 
profit taking, back lower to $9.66, where I could once again 
listen for rumblings of "inflation, slowing economy" as a re-
entry point.  This may still happen, but buyers now look to have 
been eager to buy a 9.2% dividend yield after the pullback to 
$9.78 and that "zone of support."  

Can "junk bonds" get squeezed as a "head/shoulder top" sees the 
right shoulder grow into the ear?  I guess that depends if you're 
short, have to cough up $0.075 dividend per month, and aren't 
certain what stage of an economic recovery you might be in.

Considering "junk bonds" are the closest member of the bond 
market to equities, I don't see why junk can't get squeezed just 
like a stock.

S&P 100 Index Chart - Daily Intervals

 

The S&P 100 Index (OEX.X) 573.45 +0.17% did close at a new 52-
week high, by 0.01 point!  In an evening Market Monitor post on 
12/01/04 I was feeling a little bullish as we turned the calendar 
to December.  Other than DAILY R1s and R2s for tomorrow, and 
today's rebound in oil prices, there's little technical 
resistance other than a bullish resistance trend from the prior 
higher highs to keep the OEX in check.  

Drake the dog better quit sleeping under my chair, unless he 
doesn't mind the thought of me falling on top of him.

Pivot Matrix - 

 

The Dow Industrials (INDU) 10,691 +0.14% closed right on its 
WEEKLY R2, and with today's intra-day observation that one of its 
components Exxon/Mobil (NYSE:XOM) $50.51 -0.29% wasn't moving in 
the direction of oil prices, but seemed to "pinned" near its 
December "Max Pain" theory of $50.00, I've got to think quarterly 
expiration has something to do with this.  Mind you, I don't go 
around checking every stock's December "Max Pain" and thinking up 
theories that a stock does what it does based on option 
expiration, but XOM's trade, relative to what oil prices were 
doing today, has me somewhat suspicious.

Keep an eye on XOM.  Nasty looking head/shoulder top pattern 
developing here.  But, I've seen enough of these fail in recent 
weeks to be leery.  Still, this is oil, and I'm not all that 
convinced that January Crude Oil futures (cl05f) can get a 
settlement back above $46.36.

With the NASDAQ-100 Index (NDX.X) getting ready to reshuffle into 
Friday's close, perhaps the lack of correlations in the pivot 
matrix has something to do with that also.  Tough trade for the 
QQQQ next couple of days in my opinion.

Market Snapshot / Internals - 12/15/04 Close

 

Brisk volume by the close, which isn't all that unusual, 
especially as we near the quarterly expiration.  Today's 
advance/decline lines reflects the "squeeze" or "Python squeezes 
bear" I sensed, based on observation Monday evening, and NH/NL 
indications on the shorter-term 5-day basis begin to turn up 
above their 10-day indications.

Jeff Bailey


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The Option Investor Newsletter                Wednesday 12-15-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Watch List: Candidates for both bulls and bears.
Stop Loss Updates: ABK, ARLP, EBAY, FLR, MDC, OSK, SWN
Dropped Calls: None
Dropped Puts: ADI
New Calls: ZBRA
New Puts: GCI

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

Candidates for both bulls and bears.

___________________________________________________________________

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.
___________________________________________________________________


Mobile Telesys - MBT - close: 119.01 change: -5.24

WHAT TO WATCH: We strongly considered adding MBT to the OI play 
list as a put candidate tonight.  The recent breakdown under the 
$130 level and the failed rally on the bounce look pretty 
bearish.  Plus, today's drop under round-number support at $120 
was fueled by very heavy volume.  The P&F chart, while negative, 
doesn't help us because the downward target has already been 
achieved.  However, we suspect that MBT has more weakness ahead 
of it and would target a move toward the $100 level.  Look for 
some possible support in the $108-110 range.

Chart=


---

Phelps Dodge - PD - close: 96.84 change: +2.40

WHAT TO WATCH: Copper producer PD appears to be channeling 
higher.  The recent bounce from $87 near its 100-dma was a 
rebound from the bottom of the channel.  If the channel pattern 
holds true then bulls can probably target a move toward the $105 
region in spite of potential round-number resistance at $100.  
The P&F chart shows a similar bounce from support and points to a 
$115 target.

Chart=


---

Black & Decker - BDK - close: 85.64 change: +1.13 

WHAT TO WATCH: We continue to watch BDK for a breakout over the 
$86.00 level.  The stock has been churning sideways between $82 
and $86 for weeks.  Technicals indicators are starting to turn 
bullish again but we need to see BDK power to a new high.  We 
would use a trigger over $86.25 with a $100 six to eight week 
target.

Chart=


---

American Intl Group - AIG - close: 64.72 change: -0.39

WHAT TO WATCH: The two-month rally in AIG is starting to look a 
little long in the tooth.  Momentum indicators are waning and it 
has been struggling to breakout over the $66.00 level.  More 
aggressive traders may want to consider bearish positions if AIG 
breaks minor support at the $64 mark.  We would use a relatively 
tight stop since we would be going against the grain on its P&F 
chart.  Of course the trend since April has been one of lower 
highs and lower lows. 

Chart=



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


EOG $73.26 +1.21 - We're still bullish on EOG and believe the 
stock can hit new highs. 

FRX $45.40 +0.60 - We're impressed by the steady strength in 
shares of FRX.  The stock has cleared resistance at $42, 44 and 
several moving averages.

BWA $51.15 +1.34 - BWA looks interesting.  Watch for a breakout 
over $52.00.

CBL $75.42 +0.87 - This is a real high-flyer.  The two-week 
consolidation between $74 and $76 may be over soon.  


************************Advertisement*************************

We got trailing stops!
 * Trade online with trailing stops at optionsXpress, at no extra cost 
 * Trailing stops based on the option price or the stock price
 * Also place Contingent, Stop Loss, and "One Cancels Other" orders
 * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees!

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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



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

ABK - call play -
  ABK added a nice 1.79 percent following yesterday's intraday
  rebound.  The stock is back at a new all-time high.
 
 
ARLP - call play -
  Potential Exit Alert!  We alerted our MarketMonitor subscribers
  early this afternoon that ARLP was nearing our target in the
  $70-72.50 range.  Shares eventually hit $70.30.  Readers may 
  want to strongly consider exiting for a quick trade here.  We're
  going to hang on and plan an exit at $71.00.  We are going to
  raise our stop loss to $63.99.    
 
 
EBAY - call play -
  Prepare to exit!  EBAY broke out of its consolidation pattern
  with another new high.  We are ready to close the play at $120.
 
FLR - call play -
  Prepare to exit!  At first glance today's session appears to be a 
  failed rally.  Our first reaction was to sell now to capture the move
  higher.  However, looking closer at the intraday chart we still have 
  a positive bias that FLR can hit the $55 level.  However, that does not
  mean that our readers can't strongly consider taking some profits here
  or closing the play altogether.  We are raising our stop loss to $52.75.
 
MDC - call play -
  Exit Alert!  MDC has surpassed our initial short-term target at $85.
  The split announcement last night helped fuel a 4.2 percent rally
  on Wednesday's session.  Normally we would exit now and we are 
  suggesting that our readers strongly consider taking some profits
  here or closing the play.  The newsletter is going to alter its strategy.
  We'll raise our stop loss to $82.00 and set an official exit price at $88.50.  
 
OSK - call play -
  Prepare to exit!  OSK has broken out over the $66 level.  We
  are targeting a move to $67.50.  Shares hit $66.95 as the high.
 
 
SWN - call play -
  SWN is off to a good start.


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

None


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

Analog Devices - ADI - close: 37.99 chg: +0.31 stop: 39.11

This was a tough call for us.  Today's action in ADI looks like a 
failed rally under $38.50 but the SOX index looks ready to tread 
higher.  We're going to err on the side of caution since this is 
normally a bullish time of year.

Picked on December 8 at $ 36.14
Change since picked:     + 1.85
Earnings Date          11/23/04 (confirmed)
Average Daily Volume =      4.1 million  
Chart =



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

Zebra Technologies - ZBRA - close: 55.21 chg: +1.09 stop: 51.99

Company Description:
Zebra Technologies Corp. delivers innovative and reliable on-
demand printing solutions for business improvement and security 
applications in 100 countries around the world. More than 90 
percent of Fortune 500 companies use Zebra-brand printers. A 
broad range of applications benefit from Zebra-brand thermal bar 
code, smart label, receipt, and card printers, resulting in 
enhanced security, increased productivity, improved quality, 
lower costs, and better customer service. The company has sold 
nearly four million printers, including RFID printer/encoders and 
wireless mobile solutions, as well as software, connectivity 
solutions and printing supplies.
(source: company press release)

Why We Like It:
The rebound is underway.  ZBRA broke down in late October after 
investors sold the stock on its earnings news, which was not bad.  
Shares bounced days later in early November after testing support 
at the simple and exponential 200-dma's.  Then in mid-November 
the stock crashed on negative rumors concerning a major customer 
for ZBRA.  The company denied it but the stock has been 
consolidating sideways for the last four weeks.  Now shares have 
rallied back through resistance at its 200-dma's, the 50-dma and 
the $55.00 level.  Plus, you can see a similar breakout through 
resistance on its Point & Figure chart that just happens to have 
a bullish triangle breakout pattern.  These are typically one of 
the most successful P&F patterns to play.  ZBRA's P&F chart 
points to a $66 target.  We are willing to go long here above 
$55.00 but more conservative traders may want to wait for ZBRA to 
clear resistance near $56.00-56.50 from mid-November.  Our 
initial target is a move into the $60-62 range. 

Suggested Options:
We are going to suggest the January and February calls.

BUY CALL JAN 50 ZBQ-AJ OI=107 current ask $5.80
BUY CALL JAN 55 ZBQ-AK OI=565 current ask $2.05
BUY CALL JAN 60 ZBQ-AL OI=113 current ask $0.60

BUY CALL FEB 55 ZBQ-BK OI=2089 current ask $3.60
BUY CALL FEB 60 ZBQ-BL OI= 500 current ask $1.70

Annotated chart:

 

Picked on December 15 at $ 55.21
Change since picked:      + 0.00
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       709 thousand 
Chart =



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

Gannett Co Inc - GCI - close: 79.60 chg: -1.41 stop: 82.51

Company Description:
Gannett Co., Inc. is a leading international news and information 
company that publishes 101 daily newspapers in the USA, including 
USA TODAY, the nation's largest-selling daily newspaper. The 
company also owns more than 600 non-daily publications in the USA 
and USA WEEKEND, a weekly newspaper magazine. Gannett subsidiary 
Newsquest is the United Kingdom's second largest regional 
newspaper company. Newsquest publishes more than 300 titles, 
including 17 daily newspapers, and a network of prize-winning Web 
sites. Gannett also operates 21 television stations in the United 
States and is an Internet leader with sites sponsored by its TV 
stations and newspapers including USATODAY.com, one of the most 
popular news sites on the Web.(source: company press release)

Why We Like It:
GCI has been slowly withering under a pattern of lower highs for 
months.  We've mentioned on the nightly watch list in the past as 
a potential bearish candidate, especially if it breaks the $80 
level and its July lows.  Well shares just broke the $80 mark on 
above average volume.  Combine the technical breakdown with its 
relative weakness against the market and we could see GCI 
breakdown to new yearly lows.  The P&F chart points to a $72 
target and if GCI trades under $79 it would be a spread quintuple 
top breakdown sell signal.  We are going to use a TRIGGER at 
$79.39 to open the play.  This would be a new low under its July 
dip.  P&F chart traders can wait for GCI to break $79.  Our 
initial target is only $75 but it wouldn't surprise us to see GCI 
drop towards $70, which should be support.

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

BUY PUT JAN 80 GCI-MP OI=1783 current ask $2.35
BUY PUT JAN 75 GCI-MO OI= 462 current ask $0.50

BUY PUT APR 80 GCI-PP OI= 714 current ask $3.50
BUY PUT APR 75 GCI-PO OI= 397 current ask $1.60

Annotated chart:

 

Picked on December x at $ xx.xx <-- see TRIGGER
Change since picked:     - 0.00
Earnings Date          01/31/05 (unconfirmed)
Average Daily Volume =      1.0 million  
Chart =



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