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Daily Newsletter, Sunday, 12/26/2004

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The Option Investor Newsletter                   Sunday 12-26-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.
Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap:  Too Much Eggnogg
Futures Wrap: See Note
Index Trader Wrap:  STAY OR GO AWAY?
Editor's Plays:  Sell Resistance
Market Sentiment:   Seasonal Trends
Ask the Analyst: Dear Santa:
Coming Events: Earnings, Splits, Economic Events 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 12-24        WE 12-17        WE 12-10        WE 12-03 
DOW    10827.12 +177.20 10649.9 +106.70 10543.2 - 48.99 + 69.98 
Nasdaq  2160.62 + 25.42 2135.20 +  7.13 2128.07 - 19.89 + 45.99 
S&P-100  576.06 +  8.67  567.39 +  1.89  565.50 -  1.58 +  4.43 
S&P-500 1210.13 + 15.93 1194.20 +  6.20 1188.00 -  3.17 +  8.52 
W5000  11933.81 +150.45 11783.4 + 91.38 11692.0 - 43.29 + 99.63 
SOX      426.43 +  2.68  423.75 +  1.00  422.75 - 22.53 + 14.30 
RUT      649.37 +  7.29  642.08 +  9.84  632.24 -  9.97 + 11.05 
TRAN    3787.78 + 36.71 3751.07 + 65.04 3686.03 - 40.71 + 78.75 
VXO       11.23           12.71           13.20           13.61 
VXN       16.80           18.21           19.57           18.26
******************************************************************


Too Much Eggnog
by Jim Brown

After several weeks of pre holiday celebrating that sent 
many of the indexes to new highs the markets stumbled into
Thursday's close and barely remained positive. The tipsy
trading on Thursday exhibited very little bias as the 
markets closely resembled the winding down of a holiday 
party with revelers heading for the door. With $60 billion,
yes billion, in bonuses being paid to Wall Street managers
as the year end draws to a close there was just enough
positive bias to protect those bonuses. 

Dow Chart - Weekly


Nasdaq Chart - Monthly


SPX Chart - Monthly


While traders were attending the office party economic 
reports were flowing faster than Christmas cheer. The
Jobless Claims bounced back from their multi month lows
at 316K the prior week to a more normal 333,000 for the
current week. It appears that abnormally low number last
week and those abnormally high numbers of 361K and 350K 
the previous two weeks were all errors in the seasonal 
adjustments. With this weeks claims back at 333k and
the recent average, the conditions appear to be back 
to normal. 

Durable Goods rebounded from last months -0.9% drop to 
grow +1.6% in November. However, orders ex-transportation
fell -0.8%. This was the second consecutive decline. The
gain in the headline number was due mainly to a +64.2%
jump in civilian aircraft orders. You would have thought
that big a jump in aircraft orders would have pushed the
headline number even higher but a -35% drop in communication
equipment offset much of those aircraft gains. Defense orders
also fell -31.8%, general machinery -3.3% and computers fell
-4.2%. Backorders rose +1.2% stretching their consecutive
string or gains to 15 months. 

Personal Income rose +0.3% for November with wage growth 
rising a little slower at +0.2%. Spending rose by +0.2%
and even more remarkable savings rose +0.3%. All of these
numbers may seem trivial but in the greater scheme of
things this is a continued improvement in the face of
potential economic weakness. This was the slowest wage
and salary growth in five months but the key word is 
still growth. 

The Monthly Mass Layoffs for November rose again to 1399
and will impact 130,423 workers. This was the second monthly
increase and well above the lows at 69,000 back in Aug/Sep.
Manufacturing continues to be the weakest sector with 29%
of the layoffs and the Western region the weakest area. The
initial jobless claims for November showed the West with
the most new claims at 46,854. 

New home sales dropped -12% in November to an annualized
rate of 1.125 million. This was the strongest drop in a
decade. Inventory levels rose for the fifth month and now
stands at a 4.5 month supply. I discussed the drop in 
housing starts last week as indications that builders
may be experiencing a buildup in inventory and could be 
holding off on new starts until just before spring. This
sales number suggests the ever higher trend may be slowing
not that the bubble is bursting. With inventory at the
highest levels since Feb-2003 there could be some continued
price declines if buying does not pickup in the spring. 
Prices fell -5.2% in November. This could pressure earnings
by the builders but nobody seems worried. The drop in sales
had no real impact on builder stocks with only minor losses
for the day. 

Despite the layoffs, drop in home sales and the slow 
down in personal income we saw Consumer Sentiment jump
to its highest level since January at 97.1. This was a
gain of +4.3 points from November and +1.4 from the 
initial December reading. With the election behind us 
we no longer have every TV commercial telling consumers
how bad conditions have been over the last four years.
The market is hitting new multiyear highs and cash 
coming into funds at year end is expected to be at 
record levels. Consumers have forgotten about the high
gas prices in October and are oblivious about the gas 
problems ahead. Interest rates are still low despite 
continued hikes by the Fed. Jobs are being created and
from the consumer viewpoint life may not be good but it
is a heck of a lot better than it was last year. One 
survey released on Thursday showed over 50% of workers
would like to change jobs. While I am surprised it was
not any higher it is amazing that so many people want 
to change what they do for a living. 

Franklin Raines was tossed out on his fanny on Thursday
but it was not a hard landing. Fannie Mae allowed him 
to retire early and that allowed him to keep all his 
compensation totaling some $36 million and an annual 
pension of $1 million for life. This has quite a few 
analysts up in arms since the majority of his 
compensation was tied to the stock price. The same stock
price that he is accused of manipulating by managing
earnings. If anything criticism is raining down on 
Franklin and odds are good he will be booted in the 
fanny from board positions he holds in several other
companies. 

I know some people are getting tired of this but there
are very bad implications from the Russian takeover of 
Yukos. The hourly news on Thursday was full of sound 
bites where Putin acknowledged that the takeover by the
state was orchestrated by perfectly legitimate market 
means and was absolutely ethical. The smug acknowledgement
by Putin was like a slap in the face for democracy in 
Russia and analysts are racing to see who will be the 
next target. The game board for strategic global oil 
assets is changing as we move ever closer to the coming
oil shortage. We had news today that China, in fear their
oil supply from Russia may be in danger, was moving to 
acquire significant production from Canada. Guess who 
currently buys the majority of Canadian oil? The U.S. 
of course. Should China bid enough to acquire future 
oil from Canada then the price we pay for any remaining
oil supplies would also be higher. More than price 
concerns we would then have increasing supply concerns
if forced to compete with China for the available 
production. There is an oil shortage ahead and the 
positioning by major countries we are watching play 
out on the global stage is proof of that shortage ahead. 

If you are still looking for that late holiday gift then 
Genetic Saving and Clone has the perfect copycat gift for
you. Literally! They will copy your cat and produce a dead
ringer clone for a mere $50,000 and give you a money back
guarantee. The guarantee is that the cat will be a perfect
genetic copy in everything but personality. Personality is
a learned component based on upbringing and life experiences
but as cat lovers all agree cats think they are better 
than humans anyway. A woman in Houston was the first cash 
customer and is very happy with her replacement pet. 
According to the company hundreds of prospective purchasers
have already supplied DNA material from their cats in hopes
of a successful clone. Dog lovers will have the last laugh
today however because in an interview with the company 
president he said dogs were much more difficult to clone
than cats because they were more complex. He said dogs
were even harder to clone than humans. I guess that proves
that humans are actually a dogs best friend not the other
way around. Abusing this news item for all it is worth I 
guess the next thing to look forward to is dogs having 
their pet humans cloned. 

Back to the reality of the markets the Dow posted a new
closing high for the year on Thursday at 11827. That was
only a +11 point gain for the day but it was enough to
nearly guarantee a continued post holiday rally. That 
was +525 points higher than the pre Christmas close in
2003 at 10305 and only 60 days away from its low for this
year at 9708 on Oct-25th. Essentially the gains for the
entire year for the Dow have transpired over the last 60 
days with the first ten months of declines only the preshow.
The odds are good we will see 11000 sometime next week and
the odds are also good that could be our battleground for
quite a while. 11000-11250 was the upside resistance range
from April 1999 through June of 2001. We traded well above
and below that range during that period but that is the
level we must overcome for any real gains in 2005. 

The Nasdaq struggled higher on Thursday as well to close
at 2160 and just over that 2153 level that has been causing
so much trouble. I believe this time we will see a move 
higher and we will see 2250 become the next resistance 
level to cuss. The Nasdaq is still struggling under the
weight of the SOX and its strong hold on 425. Despite
some decent chip news on Thursday the SOX only managed
to post a two point gain to 426. The Russell is trying
to pull the Nasdaq higher with its all time high close
on Friday at just over 649. Both the SOX and the Russell
have provided little upward pressure for the last two
days but at least the Russell is poised for another leg
higher. It should be the index of choice next week. 

I mentioned the $60 billion in bonuses expected to be
paid to Wall Street money managers as the year comes to
a close. These people have a very strong motive to keep
the markets printing new highs right into the close on
Dec-31st. This performance-based compensation is keeping
funds fully invested in hopes of a retirement cash 
windfall in January. That windfall is currently expected
to be more than $31 billion with estimates rising daily. 
Even if it does not provide a new leg up for the rally
it should give those managers with overbought positions
a volume cushion to sell into. 

For next week the game plan is clear, remain invested as
long as the market continues higher. Next week is when
the typical Santa rally occurs and market worries should
not appear until the first week of January. There are
no material economic events on Monday and I doubt the
market would pay attention anyway. Holiday cheer and 
performance anxiety should supply all the motive power
we need. Remember the adage, "Should Santa fail to call
bears may come to Broad and Wall." All eyes will be
watching for the Santa rally to appear.    
 
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************
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
********************

STAY OR GO AWAY?
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
With a strong performance in the NYSE related major indices, 
since the Tuesday opening, the S&P 100 (OEX) and the Dow 30 
(INDU) have cleared their early year highs - OEX by 3 points and 
the Dow by 100 points, so the possibility of bearish double tops 
goes too. The narrower S&P 100 (OEX) and the Dow 30 stocks are 
catching up with the broader S&P 500 (SPX).  

What was leading on this strong rally of recent weeks - the 
Nasdaq - is now lagging a bit. This leapfrog shows that investors 
move on to undervalued groups after the others have a good run 
and that's showing a underlying healthy market.   

The Nasdaq Composite closed above its early-'04 peak by some 7 
points. All this was accomplished on relatively low volume, but 
with a likely firm market in next week's also shortened holiday 
trading week, the major indices go out higher than coming in - 
SPX is up about 9% year to date.  Hey, not far off the historical 
stock market rate of return (appreciation) of 10%.   

But where from here? - It seems unlikely that the market is going 
to run away to the upside in the New Year after the run we've 
had. There are some warning signs I'm seeing technically and with 
such things as the dollar. However, market tops, even interim 
ones after such a strong rally, where some solid put plays could 
be had, are very hard to pinpoint. Much more so than bottoms.  

Some reasons for this and one technical pattern (a "wedge") that 
might be signaling a significant correction ahead are more 
footnotes here, but explained in some detail in my Trader's 
Corner article at - 
http://www.OptionInvestor.com/traderscorner/tc_122604_1.asp

THE WEEK'S CLOSING NUMBERS – 

The S&P 500 (SPX) gained a half point to close at 1,210.13 and
 was up 1.3% on the week. The Dow 30 (INDU) Average was up 11.2 
points to 10,827 and 1.7% for the week.

The Nasdaq Composite Index (COMP) gained 3.59 points to 2,160.62. 
 and higher by 1.2% on the week.
 
THURSDAY'S TRADING  – 

The market was well off best intraday levels, but in fairly quiet 
trade ahead of the long holiday weekend. Traders unwound 
positions ahead of a long weekend and reacted some to a new low 
in the dollar and mixed economic news, especially a substantial 
drop in new home sales.

The U.S. currency fell against the euro as government data showed 
mixed results for the U.S. economy. The dollar was off nearly a 
percent against the euro to $1.3509, a new high for the Euro, a 
new low for the greenback. The dollar was down 0.6% versus the 
Japanese yen - to 103.56 in New York trading.   

Crude futures closed at $44.15 a barrel on the New York Merc 
Exchange, rallying a bit from under $44, in a short trading 
session.

Tech was weak after disappointing news from Micron Technology 
(MU) - the company reported its Q1 revenues were good and 
slightly beat Street expectations as sales grew 14%, as reported 
late-Wednesday. But shares of MU, an important memory chipmaker 
as  got no boost, in part because profits was slightly under 
expectations and the stock fell a bit less than a percent. 

Red Hat (RHAT) was short of its revenue forecasts although its Q3 
revenues were inline with consensus estimates but its Q4 sales 
outlook was disappointing, and the stock fell more than 13%.
PalmSource Inc. (PSRC) fell some 10% to a new yearly low after 
the company announced a disappointing quarterly outlook even 
though it was above expectations for its fiscal Q2 profit. The 
stock finished down nearly 3.5%.

Contributing to the decline Thursday from intraday highs was a 
pullback in Pfizer (PFE) after the U.S. Food & Drug 
Administration issued an advisory warning for doctors in 
prescribing its painkillers Bextra and Celebrex - this until the 
FDA conducts a full review of their safety profiles. 

Pfizer stock finished off a half percent to $26.07 down from its 
best level of the day - $26.59.

Consumer sentiment improved in late December, according to the 
University of Michigan's consumer sentiment index, which rose to 
97.1 in late-December, from 95.7 earlier in the month. 

The U.S. Commerce Department said sales of new housing units in 
fell sharply in November after October's increase was revised 
higher. The number of new homes sold in November fell 12% to 
1.125 million units after sales rose 4.2 percent in October. 

The department originally estimated sales rose 0.2% in the month, 
versus expectations of around 1.2 million units. Homebuilders' 
shares were weak in the aftermath of this data release.

Commerce also reported that U.S. consumer spending rose two 
tenths of percent in November, which was outpaced slightly by a 
three tenths of percent increase in personal income. Personal 
savings more than doubled to $22.2 billion in November from $10.2 
billion in the prior month, while the savings rate rose to 0.3% 
from 0.1%.

The Commerce Department also released figures on durable goods 
orders, as rising 1.6% in November, the largest increase since 
July, mostly on the strength of a jump in civilian aircraft 
orders. Total orders fell a revised 0.9 percent in October, a 
steeper decline than the 0.4 percent drop initially reported.

Excluding transportation, durable goods orders fell 0.8% in 
November after falling 1.3% in the October. 

The U.S. Labor Department indicated that first-time claims for 
state unemployment benefits rose, after the largest weekly 
decline in three years in the prior week. The number of initial 
claims in the week ended Dec. 18 rose 17,000, to 333,000 and was 
in line with expectations.

The benchmark 10-year Treasury note was off 3/32 to 100 8/32 and 
a yield of 4.22% in very quiet trade. 

MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

Giving the benefit of any doubt to the strong trend I had to 
assume the week just ended was more likely to be up again. And, 
the S&P 500 (SPX) rebounded and stayed above its prior weeks' 
price range - that sideways rectangle - and rebounded from the 
top end of that range.  Doing just what it should do to stay with 
a bullish chart pattern.  

Resistance I assumed might come in around 1206-1208 was cleared.  
I see a more key potential resistance coming up, around 1220, at 
the top end of a rising up trendline as highlighted below. If SPX 
cleared 1220, 1240 could be a next upside target.  

More on the wedge pattern by following the link above to my 
Trader's Corner piece.  The rising wedge doesn't show a bearish 
beginning until and unless that lower line is pierced - so a 
decisive fall under 1200-1205 would put me on alert for what 
selling pressure might be building.  

Next support is pegged at 1192-1193 with major support at 1170.  
Any close under 1l70 would be decidedly bearish.  Actually, a 
retreat back below the aforementioned 1192 level, especially on a 
closing basis and with no rebound back the next day, would cause 
me to blow the whistle and suggest calls holders exit the pool. 



My sentiment indicator hasn't yet indicated a significant 
correction, but it doesn't unless price patterns also line up the 
same way which hasn't come. The bearish readings did put me on 
notice that traders were becoming strongly bullish. The 5-day 
average above 2 (see lower chart) is a definite warning - it can 
signal a top within 5 trading days and Thursday's close was that.  
Monday should tell the story on any serious setback - it may only 
signal Nasdaq starting to fall off.   

The wedge pattern is sometimes a precursor to a top as those 
lines converge, showing a kind of price compression.  It is 
something I will be watching but is not a signal to exit calls 
into puts. Actually I myself exited any remaining calls, mainly 
because I don't like to stick around for a final move higher when 
the market is more high risk and overbought. Not that there is 
not money that can't be made, but it doesn't fit my risk profile 
and strategy of tending to be long calls or puts only. 

S&P 100 Index (OEX) – Daily chart:

The 10 point move from Tuesday's opening up to the end of week 
(Thursday) high was more than needed for the S&P 100 (OEX) to 
clear its prior yearly high at 573 which is a bullish next step. 
This same level - 573 - ought to act as a near support if this 
index is going to move still higher.  OEX did back off from a key 
technical resistance at the trendline at 578. If the Index clears 
580, I could see it rallying another 10 points higher, to 590 - 
if 590 is seen, well why not 600, a likely major resistance test. 

On the downside, 570 is key near support - really 567-570 as near 
support.  Below 567, more major support is likely to be found 
around 558-560. The very strong bullish pattern is maintained as 
long as OEX stays above 570.  Below 567, call holders should 
consider that there is risk of a deeper correction.       



We have the OEX going up and the RSI backing off considerably 
from an overbought extreme - there are two ways of looking at 
this, one bullish, one is a bullish warning.  The lack of a 
confirming RSI is a divergence that can precede a top.  On the 
other hand, the market moves sideways enough so that this 
indicator retreats to a more neutral mid-range reading. 

When the market has a mind to run we can STOP relying on 
stochastics, RSI, MACD and others of this type that work best or 
mostly well in trading range markets.   

Dow 30 Average (INDU) - Daily: 

Bust out - hey, the Dow 30 (INDU) caught up this past week with 
its move above the prior yearly high and above the top end of the 
rising wedge pattern that often sometimes turned out to be a 
bearish precursor to a top and reversal.  The top it exceeded 
this past week was also the 2002 weekly closing high, so its 
doubly significant. 
 
The Dow did hit another minor trendline that suggested possible 
resistance - but which may turn out to be only minor. There is no 
real major resistance implied by prior years highs until well 
above 11,000 - not until around 11,200.  

Support is at 10,750, then 10,600 as key technical support, with 
10,420-10,400 as major support.   



Yes, the market is overbought near-term. If we get a terrorist 
attack or something direr happen, it will drop like a Hummer 
instead of a brick. Actually, this is false physics, as we all 
know (don't we) that a brick falls as fast as a Hummer SUV/tank - 
but one does more damage when it hits.      

Nasdaq Composite (COMP) Index  – Daily chart:

The Nasdaq Composite (COMP) did clear the old high again at 2153, 
but it also appears to be struggling in the 2160 area - there 
doesn't seem to be enough buying interest to take it through this 
zone. Maybe in the New Year. If COMP does clear 2160, it could go 
to 2230 before being at an overbought extreme again.  

Support implied by the prior recent lows, the 21 and 50-day 
moving averages and the like, is 2125, then 2105-2100. A close 
under 2100 would be a bearish sign. Major support doesn't come 
into play then before 2030.  




Nasdaq 100 (NDX) Index  – Hourly:

The Nasdaq 100 (NDX) is lagging the S&P indices and the Composite 
but is holding above the 21-day average which is maintains a 
bullish picture. Near resistance is at 1630-1635.  A move to 
above this area suggests a possible next upside target to around 
1670-1675.  

A decline below 1600 suggests the selling pressure is building 
and I would look for a test of support in the 1580-1585 area.  
Next support looks like 1550-1555. Major support is around 1500.     



The sideways trend is "throwing off" the short-term overbought 
condition so the next move after NDX finishing going sideways, 
could well be another spurt higher. This is the pattern in 
prolonged bull trends - the rotational nature of the correction 
leads to a continued move higher with pauses along the way. 

Besides green eggs and ham however, I DO NOT LIKE the way that a 
lot of key tech stocks are still lagging, including the 
Semiconductors.  So, I will not play for any further upside in 
NDX. And the QQQ tracking stock looks lower to me.  

Nasdaq 100 tracking Stock (QQQ) Daily chart:

QQQ has hit resistance (twice) implied by the top end of its 
uptrend channel and is coming down from there and will head lower 
still from the looks of the chart.  Namely, the bear flag pattern 
(circled) that formed over the past few days from an anemic 
bounce, suggests that the stock can decline to below the prior 
'04 peak at 39 (what should be support now) to around 38.25-
38.15, technical support implied by the low end of its channel. 



The recent sideways to lower trend after a minor double top is 
sending the RSI lower and well under the overbought extreme it 
was at.  However, I thin, that the Nasdaq 100 will get fully 
oversold again before it is in a position to rally again 
substantially.  

Have a happy holiday season and...  
Good Trading Success!
 



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**************
Editor's Plays
**************

Sell Resistance

This will be brief today due to our holiday schedule but
there is a potential event in our future I did not want
to pass up. 

The Dow has broken out to new multiyear highs above 
10800 and the investment community is bubbling over with
excitement. However there is a potential resistance range
ahead that could produce some sharp profit taking. The
Dow has strong resistance between 11000-11300 and we are
nearing the end of the calendar year. 

There is a good possibility we could hit 11000 next week
and that level become an brick wall as the calendar rolls
over into 2005. Once fund managers have locked up their
bonuses they may be eager to unload some of their current
winners they feel are overbought once we get into January. 

Last week the dip began on January 9th but I think the
11000 level could act as a trigger this year and if not
a trigger at least resistance until the January sell
cycle begins. There is a lot of cash that hits the 
first five days of the year so managers may try to 
squeeze a few extra bucks before taking profits. 

Here is the plan. 

Because we may see some pre 11000 anxiety I want to buy
the DIA January $109 puts DIA-ME with a touch of 10975 
by the Dow. We will get in a little early just in case 
we don't actually touch 11000. Those puts should be 
selling somewhere around 50-75 cents at that level
depending on when it is reached. Our profit target will
be anything below 10800. With the January puts we have
a short fuse but the cost of entry is going to be cheap.  

BUY DIA JAN$109 Put DIA-ME with a Dow print at 10975.

Profit target Dow 10800. If the Dow is falling below
that level then wait for a bottom to appear before 
exiting.

There is no stop loss. 

Dow Chart - Weekly




************  
Open plays:
************  
 

RIMM - $83.95 Combination Play 

RIMM is still holding at the $83-$85 level and working
off the patent news. This is a very long term play
and we have several months before the protective
put expires. I will be updating it about once a
month unless something newsworthy appears. 

RIMM Chart


http://members.OptionInvestor.com/editorplays/edply_121204_1.asp
http://members.OptionInvestor.com/editorplays/edply_121904_1.asp



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

Seasonal Trends
- J. Brown

It looks like a Merry Christmas for stocks on Wall Street.  Would 
you believe the traditional "Santa Claus" rally hasn't even begun 
yet?  It's true.  Normally the Santa rally is the last five days 
of the year and the first two trading days in January, according 
to the Stock Trader's Almanac by Hirsch.  This past week has been 
one of seasonal bullishness and arguably some mutual fund window 
dressing for the year-end and quarter-end.  

Thursday's gains may not have been stunning but we're impressed 
with the market's relative strength.  You can bet that 3 1/2 year 
highs for the Dow and three-year highs for the S&P 500 are bound 
leave many individual investors in a cheerful mood.  The economic 
data out on Thursday didn't hurt the bulls.  Durable goods orders 
rose better than expected and consumer confidence closed December 
above expectations.  

I am beginning to worry a bit about January.  The volatility 
indices closed at or near new multi-year lows again.  Sooner or 
later these will correct as the market sees a significant pull 
back and it could be sooner rather than later.  I also want to 
point out that the bullish percent data, while positive, are also 
near very high levels and in reversal territory.  

Next week could be a quiet one.  The economic data is almost 
nonexistent and there are zero earnings announcements to speak 
of.  We can look forward to more window dressing and some tax 
loss selling for any big losers. 



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

Market Averages

DJIA ($INDU)

52-week High: 10864
52-week Low :  9708
Current     : 10827

Moving Averages:
(Simple)

 10-dma: 10696
 50-dma: 10365 
200-dma: 10244 



S&P 500 ($SPX)

52-week High: 1213
52-week Low : 1060
Current     : 1210

Moving Averages:
(Simple)

 10-dma: 1201
 50-dma: 1163
200-dma: 1126



Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1613

Moving Averages:
(Simple)

 10-dma: 1611
 50-dma: 1545
200-dma: 1454



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

CBOE Market Volatility Index (VIX) = 11.23 -0.22 
CBOE Mkt Volatility old VIX  (VXO) = 11.23 -0.58
Nasdaq Volatility Index (VXN)      = 16.80 -0.35 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.84        449,664       376,167
Equity Only    0.57        375,124       212,569
OEX            2.64          8,076        21,352
QQQQ           1.31         15,804        20,727


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.6    + 0.6   Bear Correction
NASDAQ-100    78.0    + 0     Bull Confirmed
Dow Indust.   73.3    + 3.3   Bull Confirmed
S&P 500       78.0    + 1     Bull Confirmed
S&P 100       78.0    + 1     Bull Confirmed


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

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


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

 5-dma: 1.05
10-dma: 0.99 
21-dma: 0.96
55-dma: 1.07


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    1535      1675
Decliners    1228      1334

New Highs     270       137
New Lows       10        11

Up Volume    671M      873M
Down Vol.    478M      485M

Total Vol.  1189M     1423M
M = millions


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

Commitments Of Traders Report: 12/14/04

**The COT data has not yet been updated.  We expect
  it will be here by next Tuesday, Dec. 28th.


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

Commercial traders upped their positions in both longs and 
shorts with the net result as a decrease in their bearish
bias.  Small traders did the same but with a net result in
a decrease in their bullish bias.

Commercials   Long      Short      Net     % Of OI
11/23/04      462,408   491,384   (28,976)   (3.0%)
11/30/04      462,394   491,813   (29,419)   (3.0%)
12/07/04      450,072   498,057   (47,985)   (5.0%)
12/14/04      502,471   540,494   (38,023)   (3.6%)

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
11/23/04      171,192   150,606    20,586     6.4%
11/30/04      176,031   148,876    27,155     8.3%
12/07/04      187,707   135,776    51,931    16.0%
12/14/04      201,428   164,111    37,371    10.2%

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


E-MINI S&P 500

Hmm.. we have some interesting movement here.  Commercials upped
both their longs and shorts but their bearish bias has been slowly
decreasing for weeks.  Meanwhile the small traders more than 
doubled their short positions putting a serious dent in the 
overall bullish bias.

Commercials   Long      Short      Net     % Of OI 
11/23/04      412,724   849,091   (436,367)  (34.6%)
11/30/04      439,074   855,440   (416,366)  (32.2%)
12/07/04      470,553   805,234   (334,681)  (26.2%)
12/14/04      556,980   899,616   (342,636)  (23.5%)

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
11/16/04      445,737     70,169   375,568    72.8%
11/23/04      400,995     62,080   338,915    73.1%
11/30/04      386,665     67,926   318,739    70.1%
12/07/04      311,838     66,496   245,342    64.8%
12/14/04      398,915    137,598   261,317    48.7%

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


NASDAQ-100

We are seeing some interesting movement here too.  Commercial
traders significantly raised their positions in both longs
and shorts with a serious drop in their bullish bias as 
the net effect.  Meanwhile small traders added a huge chunk 
of new longs compared to a significant jump in shorts with
the net effect being a sharp drop in their bearish bias.

Commercials   Long      Short      Net     % of OI 
11/23/04       58,159     34,104    24,055   26.0%
11/30/04       56,629     30,571    26,058   29.8%
12/07/04       57,621     34,313    23,308   25.4%
12/14/04       73,554     50,286    23,268   18.7%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  26,058   - 11/30/04

Small Traders  Long     Short      Net     % of OI
11/23/04       11,153    39,712   (28,559)  (56.1%)
11/30/04        9,902    44,779   (34,877)  (63.7%)
12/07/04       15,489    49,064   (33,575)  (52.0%)
12/14/04       26,781    58,159   (31,378)  (36.9%)

Most bearish reading of the year: (34,877) - 11/30/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercial traders added significant amounts to both their long
and short positions with a net decrease in their bearish bias.
Small traders also poured a lot of new money into both their
long and short positions with the net effect as a decrease
in their bearishness.

Commercials   Long      Short      Net     % of OI
11/23/04       22,527    25,537   (3,010)     (6.2%)
11/30/04       22,622    25,411   (2,789)     (5.8%)
12/07/04       25,523    27,351   (1,828)     (3.4%)
12/14/04       36,960    38,566   (1,606)     (2.1%)
 
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
11/23/04        5,833     8,299   (2,466)   (17.4%)
11/30/04        5,739     8,536   (2,797)   (19.6%)
12/07/04        5,274     9,507   (4,233)   (28.6%)
12/14/04       13,445    19,089   (5,644)   (17.3%)

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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***************
ASK THE ANALYST
***************

Dear Santa:

I'm running a little late with this year's wish list, but 
hopefully you've got a little time to look through my list, and 
see if there's anything on the list you might be able to deliver.

As always, I know you can't promise anything, but nonetheless, if 
I don't ask, then there's little chance of you knowing what I'm 
wishing for this Christmas.

First of all, I'm very thankful that I'm still alive, healthy, 
and contrary to some peoples opinion, haven't lost my mind.  If I 
could have just one more year like this year, then I'd be 
thankful for that.

But more important, would be a Christmas wish for some type of 
world peace.  Yes, "ho, ho, ho!"  Sometimes, I just wish 
everyone could get along.  See what you can do about this.  I'm 
sure you've tried, but keep trying on this one.  You're probably 
right that world peace is something that all of us, in some way 
or another, have the ability to achieve for ourselves, if we 
really wanted it.

When you visit the Middle East, let the troops know that I think 
about them quite often.  Here is where I'll wish for their safe 
return.  Not just the U.S. troops, but also coalition troops and 
all of those that are trying to bring some stability and peace to 
the region.  

Peace and stability in the Middle East.  Those are some big 
wishes to try and fulfill aren't they?

But probably not as big as the wish you most likely received from 
Brooke Sewell, a 10-year old here in Littleton, CO.  That name 
probably rings a bell as she most likely wished that you could 
bring her father, Chris, back to her, after he was killed by a 
suspect fleeing police in a stolen SUV just a couple of weeks 
ago.  

Chris and I went to high school together.  He and my brother were 
best friends.  Even when my brother was teasing me, Chris never 
took sides, and seamed to be the friendly "peacemaker."  I 
hadn't talked to Brooke's father, Chris, since I saw him at 
the shopping mall a couple of years ago.  It was just before 
Christmas come to think of it.  I can still remember Chris' smile 
and warm greeting.  

When you stop at Brooke's house this year, I sure wish you could 
spend a few more minutes with her and her mom if you could.

In fact, don't bother stopping by my house and do spend a little 
extra time at Brooke's house.  I'll be out of town, and Drake has 
already chewed through the Christmas lights cord, and tipped the 
tree over so many times, that I ended up taking the tree down.

Since I'm on the topic of kids, I know that Linda's 
granddaughter still isn't feeling well.  I'm probably going over 
your head here, but I do believe in Christmas miracles.  If I 
could wish good health for all children, then I'll add that to my 
list again this year.

As you can see, a lot of my wishes aren't really physical in 
nature.

This year, I've wished for a lot of things at various times, 
which when it came down to it, I actually had the ability to 
solve the "problem" or achieve the "reward" that I was wishing 
would either go away, or come to fruition.

I could go on an on and add more wishes to this year's list, but 
if you were able to fulfill just a couple of this year's wishes, 
then that would be more than enough.

I don't have a stock market wish this year.  These things tend to 
take care of themselves.  Besides, this little Santa Claus rally 
we've had has been pretty good anyway.

If I had one final wish, it would be that all OptionInvestor.com 
and premierinvestor.net subscribers have a safe, and happy 
holiday!

Jeff Bailey


*************
COMING EVENTS
*************

-----------------
Earnings Calendar
-----------------

*This is not a complete list.  We only try and highlight the 
more significant earnings reports.


Symbol  Co               Date           Comment          EPS Est

------------------------- MONDAY -------------------------------

INLD  Interland, Inc.     Mon, Dec 27  After the close    -0.29
SATC  SatCon Technology   Mon, Dec 27  ----- n/a -----      n/a

------------------------- TUESDAY ------------------------------

..none..

------------------------ WEDNESDAY -----------------------------

..none..


------------------------- THURSDAY -----------------------------

..none..


------------------------- FRIDAY -------------------------------

..none..


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

SKT   Tanger Factory Outlet       2:1      Dec 28th    Dec 29th
BEBE  bebe stores                 3:2      Dec 29th    Dec 30th
SVBI  Severn Bancorp              2:1      Dec 30th    Dec 31st
LUK   Leucadia Ntl Corp           3:2      Dec 31st    Jan  3rd
NADX  National Dentex             3:2      Dec 31st    Jan  3rd
CLF   Cleveland Cliffs            2:1      Dec 31st    Jan  3rd
O     Realty Income               2:1      Dec 31st    Jan  3rd
BRC   Brady Corp                  2:1      Dec 31st    Jan  3rd
NX    Quanex Corp                 3:2      Dec 31st    Jan  3rd
SBIT  Summit Bancshares           2:1      Dec 31st    Jan  3rd

-----------------------------------
Economic Reports & Events This Week
-----------------------------------

This is a very quiet week for economic events and earnings.  Those
traders not on holiday will look for the consumer confidence
numbers on Tuesday, existing home sales on Wednesday and the Chicago
PMI index on Thursday.

==============================================================
                       -For-           
----------------
Monday, 12/27/04
----------------
..none..

-----------------
Tuesday, 12/28/04
-----------------
Consumer Confidence for December

-------------------
Wednesday, 12/29/04
-------------------
Existing Home Sales for November
Crude oil and gasoline inventory numbers

------------------
Thursday, 12/30/04
------------------
Weekly Initial Jobless Claims
Help Wanted Index for November
Chicago PMI for December

----------------
Friday, 12/31/04
----------------
U.S. bond market closes early (half day)



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

 



FREE TRIAL READERS
******************

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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                   Sunday 12-26-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Banking, Trucks, Semiconductors and more!
Dropped Calls: None	
Dropped Puts: None


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





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


Banking, Trucks, Semiconductors and more!

___________________________________________________________________

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.
___________________________________________________________________


M&T Bank - MTB - close: 108.01 change: +0.54

WHAT TO WATCH: MTB is once again on the move upwards.  The stock 
got a bit ahead of itself in early November and has spent the 
last seven weeks consolidating sideways.  MTB's daily chart 
almost shows a rising channel but this time the rebound began 
before MTB hit the bottom of its channel.  Thursday's breakout 
over the $108 level is a new all-time high and confirms the new 
MACD buy signal.  Be aware that the P&F chart only points to a 
$109 target.  




---

PACCAR Inc - PCAR - close: 78.92 change: +0.53

WHAT TO WATCH: PCAR is a truck maker we would watch for a 
breakout over the $80-81 range.  Shares turned in a huge run from 
$65 to $80 in October and November.  Ever since PCAR has been 
digesting those gains with a sideways consolidation.  Now its 
technicals are starting to improve and its MACD indicator is 
hinting at a new buy signal soon.  A trigger over $80 or $81 
could work with a short-term $85 target.  The P&F chart points to 
a $114 target.




---

Apollo  Group - APOL - close: 80.08 change: -0.09

WHAT TO WATCH: APOL continues to consolidate sideways near the 
$80 level following its recent breakdown.  We suspect this 
consolidation will eventually breakdown and APOL will trade 
towards the $75 level.  Watch for a drop under $79.00 or $78.85 
before initiating positions.   The P&F chart is still bearish but 
is in danger of producing a high-pole warning. 




---

KLA-Tencor - KLAC - close: 45.72 change: -0.11

WHAT TO WATCH: The semiconductor sector and the SOX isn't quite 
sure which way to go.  The current four-month trend is bullish 
but the short-term consolidation looks bearish and both the SOX 
and shares of KLAC have narrowed into tighter and tighter range. 
A breakout one way or the other is right around the corner.  
Bulls may want to consider longs if KLAC trades over $47.50.  
Bears can jump on a short if KLAC breaks $45 and/or its simple 
200-dma near $44.25. 





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

PD $97.93 +0.61 - Copper producer PD continues to inch higher.  
Shares are battling with resistance near $100.  A breakout could 
lead toward $105 near the top of its channel.

PGR $85.56 +1.53 - Technicals are showing a mixed picture but PGR 
has already achieved its bearish target at $84.  Shares look 
ready for a possible oversold bounce.  Use a trigger and a tight 
stop loss. 

JNJ $63.60 +0.30 - JNJ continues to be a relative strength winner 
with traders buying the recent dip to $62.  Be aware that the P&F 
chart only points to a $65 target.

QCOM $44.55 +0.11 - So close!  We're still watching for QCOM to 
breakout over resistance at $45.00.

KO $41.51 -0.07 - Dow-component KO has been consolidating under 
resistance at $42.00 since the gap down in September.  Watch for 
the breakout.

MMM $82.55 +1.04 - Positive comments from Goldman Sachs for Dow-
component MMM helped spark a rally that pushed MMM above its 200-
dma.  Too bad it's still under resistance at $83.00.

IVGN $66.59 -0.21 - Aggressive traders can watch IVGN for a 
bounce from $65 and target a move to $70.

EXPD $56.01 +1.67 - After nearly eight weeks of consolidating 
between $50 and $55 EXPD has finally broken out to the upside.


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

 


**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^
None

PUTS
^^^^

None


***********
DEFINITIONS
***********


OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


************************Advertisement*************************
 
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Now you can follow the investment master's actual moves.
 
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reveals his most recently disclosed, ACTUAL stock picks, Click HERE!
 
 
http://www.bigmoneywatch.com/default.asp?aid=626
 
**************************************************************

 

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

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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
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Contact Support




The Option Investor Newsletter                   Sunday 12-26-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: ZBRA, WFMI, UTX, SWN, RAI, MHK, MDC, IBM, 
              GOOG, FSH, FRE, ETR, COF, BIIB, BDK, BBOX, ACL, ABK
New Calls: See note
Current Puts: GCI
New Puts: See Note

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******************
CURRENT CALL PLAYS
******************


Ambac Fincl Group - ABK - cls: 82.38 chg: +0.08 stop: 79.89     

Company Description:
Ambac Financial Group, Inc., headquartered in New York City, is a 
holding company whose affiliates provide financial guarantees and 
financial services to clients in both the public and private 
sectors around the world. Ambac's principal operating subsidiary, 
Ambac Assurance Corporation, a leading guarantor of public 
finance and structured finance obligations, has earned triple-A 
ratings, the highest ratings available from Moody's Investors 
Service, Inc., Standard & Poor's Ratings Services, Fitch, Inc. 
and Rating and Investment Information, Inc.
 (source: company press release)

Why We Like It:
We continue to be cautious in ABK.  The IUX insurance index has 
continue to climb in spite of its waning momentum indicators yet 
ABK is not following the IUX higher.  Instead ABK has been stuck 
in a narrowing consolidation pattern between $82 and $83.  We are 
not suggesting new bullish positions at this time and 
conservative traders may want to consider raising their stop loss 
toward the $81 region.  The recent action has been disappointing 
with the broader market indices climbing higher during this 
seasonally bullish period.

Suggested Options:
We are not suggesting new bullish positions at this time.

Annotated chart


Picked on December 01 at $82.26
Change since picked:     + 0.12
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      490 thousand



---

Alcon Inc - ACL - close: 81.62 chg: -0.12 stop: 77.85

Company Description:
Alcon, Inc. is the world's leading eye care company. Alcon, which 
has been dedicated to the ophthalmic industry for over 50 years, 
develops, manufactures and markets pharmaceuticals, surgical 
equipment and devices, contact lens solutions and other vision 
care products that treat diseases, disorders and other conditions 
of the eye. Alcon has been conducting retinal research for more 
than 15 years and is the world's leading provider of surgical 
equipment used by vitreoretinal specialists who treat patients 
with AMD and other retinal diseases.
(source: company press release)

Why We Like It: (Original Play update from Wednesday)
The DRG drug index has been rather volatile lately with news 
hitting drug giant PFE to blame for the recent declines but 
overall the trend for the sector has been bullish the last four 
to five weeks.  We like ACL as both a relative strength play and 
a technical breakout play.  Shares held up very well during the 
recent declines in the sector a few days ago and now ACL is 
breaking out over early October resistance.  CSFB named ACL as 
its favorite play in the specialty pharmaceutical stocks.   We 
also like the bullish P&F chart with its quadruple-top breakout 
buy signal and $98.00 target.  Our plan is to stay long over 
$80.00 an target a quick run toward the $86-87 region.  We are 
going to be somewhat cautious going forward.  ACL looks strong 
but there are stocks in the drug sector that could be hit with 
tax loss selling (like MRK and PFE) next week that could be a 
drag on the index and thus ACL would have to swim upstream 
without the benefit of a positive sector index. 

Weekend Update:
There is little change in ACL during Thursday's session but the
overall trend remains bullish.  We're encouraged by another gain
for the DRG drug index.  In the news Piper Jaffray started
coverage of ACL with an "out perform" rating.

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

BUY CALL FEB 80 ACL-BP OI= 577 current ask $4.60
BUY CALL FEB 85 ACL-BQ OI=2019 current ask $2.20


Annotated chart:


Picked on December 22 at $ 81.74 
Change since picked:      - 0.12
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       773 thousand




---

Black Box - BBOX - close: 46.17 change: +0.02 stop: 43.40

Company Description:
Black Box is the world's largest technical services company 
dedicated to designing, building and maintaining today's 
complicated network infrastructure systems. Black Box services 
150,000 clients in 141 countries with 117 offices throughout the 
world. (source: company press release)

Why We Like It: (Original Wednesday Play Description)
It has been a while since we have added BBOX to the play list.  
We did note the October breakout over resistance at $40.00 and 
its climb through technical resistance at the exponential 200-dma 
and then later at the simple 200-dma but shares failed near 
resistance at $45 in early December.  Fortunately for the bulls 
BBOX didn't fall far.  Lending the stock some strength may have 
been the recent broker comments.  At least two analyst firms have 
upgraded BBOX in the last week. The latest firm put a $52 target 
on the stock.  We would agree.  The bullish P&F chart may point 
to a $64 target but we see resistance in the $50-51 region.  That 
will be our target.  Now that shares have broken through 
resistance at $45.00 and on very strong volume this looks like an 
entry point.  We would like to put our stop under support at 
$42.00 but that doesn't provide a very economical risk-reward 
ratio. We opted to put our stop under its simple 200-dma.  If 
shares surprise us with a dip we would buy a bounce near $45.  
Keep an eye on the NWX networking index and larger rival CSCO
as a reference. 

Weekend Update:
BBOX is a new candidate added on Wednesday's newsletter.  
Thursday's session didn't see much action other than a mild 
consolidation sideways above the $46 level.  There is no 
change in our strategy.

Suggested Options:
We are not planning on holding BBOX past its January earnings 
date.  Aggressive players can trade the January calls.  We're
going to suggest the Februarys.

BUY CALL FEB 45 QBX-BI OI=235 current ask $3.40
BUY CALL FEB 50 QBX-BJ OI= 10 current ask $1.30

Annotated chart:


Picked on December 22 at $ 46.15 
Change since picked:      + 0.02
Earnings Date           01/18/05 (unconfirmed)
Average Daily Volume =       128 thousand




---


Black & Decker - BDK - close: 85.72 chg: -0.11 stop: 83.49

Company Description:
Black & Decker is a leading global manufacturer and marketer of 
power tools and accessories, hardware and home improvement 
products, and technology-based fastening systems.
(source: company press release)

Why We Like It:
BDK has been teasing bulls this week.  The stock spiked higher on 
Wednesday and hit our trigger to go long at $87.01 but quickly 
fell back into its new trading range between $85.00 and $86.50.  
The stock has been churning sideways since early November and 
shares should find rising technical support at its simple 40 and 
50-dma's.  The MACD indicator suggest that BDK wants to turn 
higher and its Point & Figure chart points to a $114 target.  
Unfortunately, we're just not seeing much follow through.  The 
lack of participation in the market's rally this week could be a 
warning sign.  We would not suggest new bullish positions until 
BDK trades back above the $87.00 or $87.50 levels.  Our six to 
eight week target remains the $96-100 region.

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

BUY CALL FEB 85 BDK-BQ OI=553 current ask $5.00
BUY CALL FEB 90 BDK-BR OI=274 current ask $2.50
BUY CALL FEB 95 BDK-BS OI= 13 current ask $0.60

Annotated Chart:


Picked on December 22 at $ 87.01
Change since picked:      - 1.29
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       656 thousand 




---

Biogen Idec - BIIB - close: 66.31 change: +0.67 stop: 63.75*new*

Company Description:
Biogen Idec creates new standards of care in oncology and 
immunology. As a global leader in the development, manufacturing, 
and commercialization of novel therapies, Biogen Idec transforms 
scientific discoveries into advances in human healthcare.
(source: company press release)

Why We Like It:
Early strength in the BTK biotech index was encouraging on 
Thursday but the rally began to fade into the afternoon hours.  
Meanwhile BIIB managed to maintain its early morning gains but 
the stock remains stuck in its new trading range between $64.50 
and $67.00.  We are complaining too much.  BIIB needed some time 
to digest its late November and early December gains.  Yet now 
after more than two weeks of churning sideways we're ready for 
BIIB to begin the next leg higher.  Maybe next week during the 
traditionally bullish last five days of the year we'll see BIIB 
breakout again.  Readers can pick their entry point - a bounce 
from $65 or a breakout over $67.  We are going to raise our stop 
loss to $63.75.  The April options might be the better play here 
over the January strikes although February we're recently 
introduced.

Suggested Options:
We are going to suggest the January and April calls.  Right
now our favorites would be the Aprils. 

BUY CALL JAN 60 IHD-AL OI=21487 current ask $7.00
BUY CALL JAN 65 IHD-AM OI=12222 current ask $2.90
BUY CALL JAN 70 IHD-AO OI=13434 current ask $0.60

BUY CALL APR 65 IHD-DM OI= 3667 current ask $5.60
BUY CALL APR 70 IHD-DN OI= 8959 current ask $3.20

Annotated chart


Picked on December 9 at $ 65.25
Change since picked:     + 1.06
Earnings Date          01/26/05 (unconfirmed)
Average Daily Volume =      3.5 million  



---

Capital One Financial - COF - cls: 82.43 chg: -0.30 stop: 76.99

Company Description:
Headquartered in McLean, Virginia, Capital One Financial 
Corporation (www.capitalone.com) is a holding company whose 
principal subsidiaries, Capital One Bank and Capital One, F.S.B., 
offer consumer lending products and Capital One Auto Finance, 
Inc., offers automobile and other motor vehicle financing 
products. Capital One's subsidiaries collectively had 47.2 
million accounts and $75.5 billion in managed loans outstanding 
as of September 30, 2004. Capital One, a Fortune 500 company, is 
one of the largest providers of MasterCard and Visa credit cards 
in the world. (source: company press release)

Why We Like It:
There is not much new to report on for COF.  The stock continues 
a slow drift higher and the recent bullish breakouts in the BKX 
and BIX banking indices certainly don't hurt.  If COF does 
produce a dip we would look for a bounce in the $81 region or 
worse case the $80 level, which should be new support.  Either 
spot would be a good place to consider new longs.  Our six to 
eight week target remains the $88-90 region. 

Suggested Options:
We are going to suggest the January and March calls.  Our 
favorites would be the March strikes.  February strikes
have recently become available too.

BUY CALL JAN 75 COF-AO OI=3509 current ask $8.10
BUY CALL JAN 80 COF-AP OI=6086 current ask $3.80
BUY CALL JAN 85 COF-AQ OI=2629 current ask $0.95

BUY CALL MAR 80 COF-CP OI=1751 current ask $5.80
BUY CALL MAR 85 COF-CQ OI=1637 current ask $2.90
BUY CALL MAR 90 COF-CR OI=1922 current ask $1.15

Annotated Chart:


Picked on December 12 at $ 81.12
Change since picked:      + 1.31
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       1.4 million  



---


Entergy Corp - ETR - close: 67.35 chg: -0.46 stop: 64.95*new*

Company Description:
Entergy Corporation is an integrated energy company engaged 
primarily in electric power production, retail distribution 
operations, and gas transportation. Entergy owns and operates 
power plants with about 30,000 megawatts of electric generating 
capacity, and it is the second-largest nuclear generator in the 
United States. Entergy delivers electricity to 2.6 million 
utility customers in Arkansas, Louisiana, Mississippi, and Texas. 
Entergy has annual revenues of over $9 billion and approximately 
14,000 employees. (source: company press release)

Why We Like It:
We added ETR earlier this week as a momentum/relative strength 
play in the electric utilities sector.  Shares have been 
consistently trending higher with investors buying dips to its 
simple 40 or 50-dma's.  We expected some resistance near $68 and 
now that ETR has tested it don't be surprised to see shares slip 
back toward the $66.50-67.00 level before mounting another 
breakout attempt.  Such a pull back could be a new bullish entry 
point.  Conservative types may want to wait for ETR to clear the 
$68 level before going long.  We are going to raise our stop loss 
to $64.95, still under the simple 50-dma.  For more details see 
the original play description on Dec. 21st.

Suggested Options:
We are going to suggest the February and March calls.  
Unfortunately the February calls look new so there's no volume
or open interest yet.

BUY CALL FEB 65 ETR-BM OI= 0 current ask $3.60
BUY CALL FEB 70 ETR-BN OI= 3 current ask $0.75

BUY CALL MAR 65 ETR-CM OI=220 current ask $3.80
BUY CALL MAR 70 ETR-CN OI=146 current ask $1.10

Annotated chart:


Picked on December 21 at $ 67.62
Change since picked:      - 0.27
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.1 million  



---

Freddie Mac - FRE - close: 71.77 chg: -0.67 close: 66.99

Company Description:
Freddie Mac is a stockholder-owned company established by 
Congress in 1970 to support homeownership and rental housing. 
Freddie Mac fulfills its mission by purchasing residential 
mortgages and mortgage-related securities, which it finances 
primarily by issuing mortgage-related securities and debt 
instruments in the capital markets. Over the years, Freddie Mac 
has made home possible for one in six homebuyers in America.
(source: company press release)

Why We Like It:
There has been a ton of news out on Fannie Mae (FNM) and its CEO 
resigning over the much-publicized accounting issues.  
Fortunately none of the negativity is rubbing off on FRE.  As we 
mentioned earlier FRE is seen as having its problems behind it 
and now the company is on the comeback trail retaking market 
share from FNM.  Traders quickly bought the dip on Thursday 
morning but we wouldn't be surprised to see FRE dip back toward 
the $70 level, which we would use as a new bullish entry point.  
Our two-month target remains the $77-80 region. 

Suggested Options:
We are going to suggest the April calls.  

BUY CALL APR 65 FRE-DM OI=12669 current ask $8.10
BUY CALL APR 70 FRE-DN OI= 3093 current ask $4.30
BUY CALL APR 75 FRE-DO OI=15307 current ask $1.65

Annotated chart:


Picked on December 21 at $ 71.80
Change since picked:      - 0.03
Earnings Date           00/00/05 (unconfirmed)
Average Daily Volume =       2.8 million  



---

Fisher Scientific - FSH - cls: 62.56 chg: -0.04 stop: 57.95*new*

Company Description:
Founded in 1902, Fisher Scientific International Inc. is a 
leading provider of equipment, supplies, and services for the 
clinical laboratory and global scientific research markets. 
Through our broad product offering, electronic-commerce 
capabilities, integrated global logistics network, and 
manufacturing facilities, we provide more than 600,000 products 
to over 350,000 customers in 145 countries.
(source: company press release)

Why We Like It:
So far so good.  We recently added FSH to the play list following 
its breakout over major resistance in the $60-61 region.  This 
ended a trading range between $52.50 and $61 dating back to 
April.  The P&F chart is bullish with a $79 target.  We're a 
little less enthusiastic and will target a move into the $68-70 
range.  If shares of FSH dip we would look for the $60 level to 
act as support and a bounce here would be an attractive entry 
point.  We are raising our stop loss to $57.95.


Suggested Options:
We are going to suggest the March calls.

BUY CALL MAR 55 FSH-CK OI= 281 current ask $8.80
BUY CALL MAR 60 FSH-CL OI=1933 current ask $4.90
BUY CALL MAR 65 FSH-CM OI=1259 current ask $2.10

Annotated chart:


Picked on December 21 at $ 61.70
Change since picked:      + 0.86
Earnings Date           02/02/05 (unconfirmed)
Average Daily Volume =       1.3 million  




---

Google Inc - GOOG - close: 187.90 change: +1.60 stop: 174.99

Company Description:
Google's innovative search technologies connect millions of 
people around the world with information every day. Founded in 
1998 by Stanford Ph.D. students Larry Page and Sergey Brin, 
Google today is a top web property in all major global markets. 
Google's targeted advertising program, which is the largest and 
fastest growing in the industry, provides businesses of all sizes 
with measurable results, while enhancing the overall web 
experience for users. Google is headquartered in Silicon Valley 
with offices throughout North America, Europe, and Asia.
(source: company press release)

Why We Like It:
Our speculative high-risk play in GOOG is thus far paying off.  
Shares started the week on Monday with a gap higher following 
rumors of a stock split announcement.  GOOG then consolidated 
sideways with a minor up trend of higher lows.  We're not 
complaining.  Its MACD indicator finally produced the buy signal 
we were looking for and shares of GOOG look ready to breakout 
over resistance at $190 to charge toward the $200 level by year 
end.  Remember, our target is $199-200 and we do not want to hold 
over the February 14th lock up expiration of 176.8 million 
shares.  Small lock ups have not appeared to be a problem for 
GOOG so we're okay with the January 15th lock up expiration of 
just 24.9 million shares.

Suggested Options:
January strikes are available but we are going to suggest the 
February or March calls.

BUY CALL FEB 180 GOU-BP OI=1622 current ask $20.00
BUY CALL FEB 190 GOU-BR OI= 827 current ask $15.30
BUY CALL FEB 200 GOU-BT OI= 842 current ask $11.10

BUY CALL MAR 180 GOU-CP OI=7274 current ask $23.60
BUY CALL MAR 190 GOU-CR OI=3938 current ask $18.20
BUY CALL MAR 200 GOU-CT OI=6491 current ask $13.70

Annotated Chart:


Picked on December 20 at $183.01
Change since picked:      + 4.89
Earnings Date           01/20/05 (unconfirmed)
Average Daily Volume =        10 million  




---

Intl Business Mach. - IBM - close: 97.72 chg: +0.11 stop: 95.49     

Company Description:
IBM is the world's largest information technology company, with 
80 years of leadership in helping businesses innovate. Drawing on 
resources from across IBM and IBM Business partners, IBM offers a 
wide range of services, solutions and technologies that enable 
customers, large and small, to take full advantage of the new era 
of e-business. (source: company press release)

Why We Like It:
This is it!  Are we finally going to see IBM breakout of its 
current trading range and hit our profit target in the $99-100 
region?  Shares have been inching higher the last four sessions 
and look coiled for a move through resistance near $98.  We are 
not suggesting new bullish positions at this time.  Instead 
readers can choose to exit here near resistance or wait for IBM 
to breakout and hit our year-end target.

Suggested Options:
We are not suggesting bullish positions at this time.  Readers
may consider doing some profit taking 

Annotated chart:


Picked on October 27 at $90.00
Change since picked:    + 7.72
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 




---

M D C Holdings - MDC - close: 83.80 change: -0.97 stop: 82.00

Company Description:
MDC, whose subsidiaries build homes under the name "Richmond 
American Homes," is one of the largest homebuilders in the United 
States. The Company also provides mortgage financing, primarily 
for MDC's homebuyers, through its wholly owned subsidiary 
HomeAmerican Mortgage Corporation. MDC is a major regional 
homebuilder with a significant presence in some of the country's 
best housing markets. The Company is the largest homebuilder in 
Colorado; among the top five homebuilders in Northern Virginia, 
suburban Maryland, Phoenix, Tucson, Las Vegas and Salt Lake City; 
and among the top ten homebuilders in Jacksonville, Northern 
California and Southern California. MDC also has established 
operating divisions in Dallas/Fort Worth, Houston, West Florida, 
Philadelphia/Delaware Valley and Chicago.
(source: company press release)

Why We Like It:
MDC continues to consolidate sideways following the mid-December 
rally.  Shares dipped toward $82 a couple of days ago following a 
broker downgrade but MDC pared its losses with a sharp intraday 
rebound.  Unfortunately, that bounce stalled near the $86 level 
and today the homebuilders hit some profit taking on a negative 
new home sales report showing a stronger than expected decline.  
We remain positive but we're not suggesting new positions.    
More aggressive traders may want to consider a bounce as a new 
entry point. 

Suggested Options:
MDC has already exceeded our short-term target.  We are not 
suggesting new bullish positions.

Annotated Chart:


Picked on December 12 at $ 81.01
Change since picked:      + 2.79
Earnings Date           01/11/05 (unconfirmed)
Average Daily Volume =       435 thousand



--

Mohawk Industries - MHK - close: 89.62 chg: +0.36 stop: 86.99

Company Description:
Mohawk currently operates five facilities in South Carolina 
located in: Ulmer, Calhoun Falls, Dillon, Landrum and 
Bennettsville. The company is headquartered in Calhoun, GA and is 
traded on the New York Stock Exchange. Mohawk is a leader in the 
floor covering industry with over $5 billion in annual revenues 
and produces and distributes carpet, ceramic tile, rugs, 
laminate, hard wood and home accessories.
(source: company press release)

Why We Like It:
The recent pull back in MHK continues to look like a new bullish 
entry point.  Shares began to bounce at its four-week trend of 
higher lows and short-term stochastics are already turning 
higher.  More conservative traders can use a move over the $90.50 
level as a new entry point if they're not comfortable here.  Our 
six to eight-week target is still the $99-100 region.

Suggested Options:
We are going to suggest the February calls.  Januarys are 
available.

BUY CALL FEB 85 MHK-BQ OI= 376 current ask $6.50
BUY CALL FEB 90 MHK-BR OI=1341 current ask $3.30
BUY CALL FEB 95 MHK-BS OI= 261 current ask $1.30

Annotated Chart:


Picked on December 14 at $ 91.00
Change since picked:      - 1.38
Earnings Date           02/15/05 (confirmed)
Average Daily Volume =       319 thousand   



---

Reynolds American - RAI - close: 80.32 change: +0.07 stop: 75.99

Company Description:
R.J. Reynolds Tobacco Company (R.J. Reynolds) is an indirect 
wholly owned subsidiary of Reynolds American Inc. R.J. Reynolds 
is the second-largest tobacco company in the United States, 
manufacturing about one of every three cigarettes sold in the 
United States. R.J. Reynolds' product line includes five of the 
nation's 10 best-selling cigarette brands: Camel, Winston, Kool, 
Salem and Doral. (source: company press release)

Why We Like It:
RAI is a new addition to the play list as a momentum-relative 
strength candidate.  The entire tobacco sector has been 
exceptionally strong but RAI looked less extended than some of 
its peers.  We're impressed that the group continues to rally 
even after the recent court decision (today or yesterday) in 
favor of a flight attendant and her claim about second hand 
smoke.  Of course this case pales in comparison to the 
government's $289 billion racketeering suit, which a judge is 
currently looking at to see if the government's plan to go after 
past profits is legal or not.  We had a trigger to go long on a 
breakout over $80.00 with an entry point at $80.11.  This was hit 
yesterday.  

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

BUY CALL FEB 75 RAI-BO OI= 1862 current ask $7.20
BUY CALL FEB 80 RAI-BP OI= 2980 current ask $3.80
BUY CALL FEB 85 RAI-BQ OI=   60 current ask $1.55

Annotated chart:


Picked on December 22 at $ 80.11
Change since picked:      + 0.12
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       1.0 million  




---

Southwestern Energy - SWN - close: 51.30 chg: -0.20 stop: 49.50     

Company Description:
Southwestern Energy Company is an integrated natural gas company 
whose wholly-owned subsidiaries are engaged in oil and gas 
exploration and production, natural gas gathering, transmission, 
and marketing, and natural gas distribution.
(source: company press release)

Why We Like It:
We are not giving up yet.  Crude oil prices took a hit yesterday 
on some higher than expected inventory numbers but shares of SWN 
continue to inch higher.  As long as the stock holds above 
technical resistance at its simple 40-dma bulls should be okay.  
SWN continues to produce a pattern of higher lows and its MACD is 
suggesting a new buy signal soon.  We're only targeting a quick 
move toward the $55 region so buying the dip is the current game 
plan.  More aggressive traders might target a move toward $60. 

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

BUY CALL JAN 50 SWN-AJ OI=180 current ask $3.20
BUY CALL JAN 55 SWN-AK OI=401 current ask $1.05

BUY CALL MAR 50 SWN-CJ OI=385 current ask $4.70
BUY CALL MAR 55 SWN-CK OI=305 current ask $2.55

Annotated Chart:


Picked on December 14 at $ 51.05
Change since picked:      + 0.25
Earnings Date           00/00/04 (confirmed)
Average Daily Volume =       557 thousand   



---

United Tech. - UTX - close: 105.52 change: +0.51 stop: 99.95*new*

Company Description:
United Technologies Corp., based in Hartford, Connecticut, is a 
diversified company that provides a broad range of high 
technology products and support services to the building systems 
and aerospace industries.  (source: company press release)

Why We Like It:
UTX hit another all-time high on Thursday this time at $106.05.  
Given the stock's recent strength it's tempting to consider 
taking some profits off the table now.  That's not a bad idea 
although we continue to target a move toward $110.  UTX is 
beginning to look a little overbought and we wouldn't be 
surprised to see a dip back towards $104 before shares bounce 
again.  Conservative traders may also want to significantly 
tighten their stop.  We're moving ours to $99.95.  We 
continue to believe that UTX is a stock split announcement 
candidate since shares last split 2:1 in May of 1999.  

Suggested Options:
We like the January 2005 calls.  

BUY CALL JAN  95 UTX-AS OI=3098 current ask $11.00
BUY CALL JAN 100 UTX-AT OI=6876 current ask $6.10
BUY CALL JAN 105 UTX-AA OI=3499 current ask $2.25
BUY CALL JAN 110 UTX-AB OI=1467 current ask $0.45

Annotated chart


Picked on December 1 at $100.15
Change since picked:     + 5.37
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  



---

Whole Foods - WFMI - close: 96.13 chg: -0.49 stop: 91.49

Company Description:
Founded in 1980 in Austin, Texas, Whole Foods Market is the 
world's leading natural and organic foods supermarket and 
America's first national certified organic grocer. In fiscal year 
2004, the company had sales of $3.9 billion and currently has 166 
stores in the United States, Canada, and the United Kingdom. The 
Whole Foods Market motto, "Whole Foods, Whole People, Whole 
Planet"(TM) captures the company's mission to find success in 
customer satisfaction and wellness, employee excellence and 
happiness, enhanced shareholder value, community support and 
environmental improvement. Whole Foods Market, Harry's Farmers 
Market®, and Fresh & Wild® are trademarks owned by Whole Foods 
Market IP, LP. Whole Foods Market employs more than 30,000 team 
members and has been ranked for seven consecutive years as one of 
the "100 Best Companies to Work for" in America by Fortune 
magazine. (source: company press release)

Why We Like It: (Original Play Description from Wednesday)
All right.  We've had WFMI on the watch list long enough.  
Today's 2 percent rally on above average rising volume is a 
breakout over four-week old resistance at the $95 and $96 levels.  
WFMI actually hit a new all-time high today at $97.48 before 
paring its gains.  Technically the stock looks bullish with 
stochastics and RSI positive and its MACD nearing a new buy 
signal.  Plus the daily chart is arguably displaying a cup-and-
handle formation.  We are going to use a TRIGGER over today's 
high to open the play.  Our entry point will be $97.51.  
Hopefully the $100 level, which is usually round-number, 
psychological resistance, won't be a barrier for WFMI.  The P&F 
chart currently points to a $112 target but this is likely to 
grow as WFMI continues to rally.  Our initial target will be a 
move to $105 with a secondary target at $110.

Weekend Update:
There is not much to report on WFMI since we added the stock to
the play list on Wednesday night.  Shares dipped on Thursday in
some profit taking but traders jumped in to buy the dip and
WFMI crept up slowly throughout the remainder of the session. 
We continue to wait for shares to hit our trigger at $97.51.


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

BUY CALL FEB 90 FMQ-BR OI=1272 current ask $8.70
BUY CALL FEB 95 FMQ-BS OI=2243 current ask $5.50
BUY CALL FEB 100 FMQ-BT OI=402 current ask $3.00
BUY CALL FEB 105 FMQ-BA OI=307 current ask $1.65

Annotated chart:


Picked on December 22 at $ xx.xx <-- see TRIGGER 
Change since picked:      +00.00
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       880 thousand




--

Zebra Technologies - ZBRA - close: 56.04 chg: -0.23 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:
So far so good.  Traders bought the Monday dip near the 200-dma 
and ZBRA has been inching higher since.  Yes, there was some 
minor profit taking on Thursday but the stock remains above its 
100-dma and looks ready to climb.  If ZBRA surprises us with 
another dip the $55 level could act as round-number support.  
Point & Figure chart traders will note that the bullish triangle 
breakout buy signal now points to a $72 target, not a $66 one. 
Our target is 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= 91 current ask $8.90
BUY CALL JAN 55 ZBQ-AK OI=756 current ask $2.85
BUY CALL JAN 60 ZBQ-AL OI=448 current ask $0.80

BUY CALL FEB 55 ZBQ-BK OI=2277 current ask $4.00
BUY CALL FEB 60 ZBQ-BL OI= 749 current ask $1.65

Annotated chart:


Picked on December 15 at $ 55.21
Change since picked:      + 0.83
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       709 thousand 





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

Editor's note:  We are not adding any new candidates
to the call or put list this weekend.  Please see our
watch list tonight for potential trading ideas.


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for profiting from the QQQ - whether down or up!
 
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**************************************************************

 



*****************
CURRENT PUT PLAYS
*****************


Gannett Co Inc - GCI - close: 80.69 chg: -0.58 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:
We have been somewhat surprised at GCI's sudden strength but so 
far the overall bearish trend in the stock remains intact.  What 
surprises us the most is the rally came immediately following a 
new sell signal in its P&F chart.  Yet this was not just any sell 
signal but a triple-bottom breakdown (actually a spread 
quintuple-bottom breakdown) sell signal.  The P&F chart currently 
points to a $72 target. We agree but our short-term target is 
only $75.  Aggressive traders may want to use this new rebound as 
a potential entry point although we'd prefer to see GCI trade 
back under $80 before committing new capital.  More conservative 
types can wait for GCI to trade under $79 before entering the 
play. 

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

BUY PUT JAN 80 GCI-MP OI=2402 current ask $1.25
BUY PUT JAN 75 GCI-MO OI= 600 current ask $0.25

BUY PUT APR 80 GCI-PP OI= 878 current ask $2.85
BUY PUT APR 75 GCI-PO OI= 400 current ask $1.20

Annotated chart:


Picked on December 16 at $ 79.39
Change since picked:      + 1.30
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.0 million  



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

Editor's note:  We are not adding any new candidates
to the call or put list this weekend.  Please see our
watch list tonight for potential trading ideas.



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DISCLAIMER
**********

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The Option Investor Newsletter                   Sunday 12-26-2004
Sunday                                                      4 of 5

In Section Four:

Leaps:    Lightening The Sleigh
Spreads and Straddles:  

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*****
LEAPS
*****

Lightening The Sleigh

This will be an abbreviated LEAPS column this week due
to the shortened holiday deadlines.

We exited the DIA leaps this week when the DIA hit 
107.50 and several readers emailed with their thanks
for a very nice gain. I certainly hope everyone has
been playing more than the DIA leaps over the last 
couple months. We have had some nice gains in quite
a few positions. I will post a summary next weekend. 

For this week I am not adding anything new because 
I believe we are very close to my expected market 
highs for the next quarter. The Dow has some tough
resistance between 11000-11300 and the NDX is 
currently acting a lot weaker than the broader
market. I suspect there is some profit taking in
our future as we head into January. If it appears
we are going into January with less than full power
I will add some puts in the portfolio next week. 

Stops were raised on several positions. 

Until then, happy holidays to everyone. 

If you have any comments or suggestions about the
leaps section please email them to:

leaps @ OptionInvestor.com  


*******************   
New Plays
*******************   

None 


*******************   
Dropped Plays
*******************   

DIA - $108.12  Profit target reached


******************************     
New Watch List Plays Triggered
******************************  

None


****************************     
Current Portfolio: 
****************************    

Position Summary Table

 


*******************   
New Plays
*******************   


None



****************************     
Play Updates 
****************************  


SYMC $25.37 Symantec - Veritas  ** no stop **

Nothing new to report on SYMC other than the stock
is holding on the 200 day average and support as I
had hoped.  

I believe that the SYMC/VRTS merger is a match made in
heaven and analysts will come to that view as more plans
are announced. The companies have no overlapping products
but all their products are perfect fits for the others. 
With one company having anti-virus, data security, backup,
recovery and storage management it puts the other stand
alone companies in a very difficult position. EMC and 
QLGC both fell in the storage sector and Mcafee got
crushed in the ant-virus sector. 

There is no stop on this position. With the 2007 LEAP
Call any minor dips will not result in a material drop
in the leap. The April $22.50 insurance put will protect
us from any potential disaster. For me this is a buy and
forget play.  

BUY LEAP
2007 $25 LEAP Call OBL-AE @ $6.30

Insurance Put
BUY APR-2005 $22.50 PUT SYQ-PX @ $1.15

Entry $25.37 (12/19)

SYMC Chart


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


XLE - S&P Energy SPDR $36.51  ** No Stop **

The YUKOS deal is eventually going to send a shiver through
the oil market and I believe the XLE will continue to move
higher. This is a long-term play and we could see some
volatility but we have an insurance put to protect us.    

The XLE SPDR is composed of 27 energy stocks and represents
about 8% of the SPX. This is the 8% that helped push the 
SPX to the current levels with the rise in oil over the
last year. In fact the XLE has far exceeded the SPX in 
performance over the past year. 

I am not putting a stop loss on this play. I am suggesting
an insurance put to offset against any material drop. 
Because I believe oil is in a long term up trend I do
not want to get jerked out of this position. If we see
that oil is not moving higher by March I will reevaluate
the position. 


2006 $35 LEAP Call WHA-AI @ $3.60 
2007 $40 LEAP Call ORJ-AN @ $2.65
Drop insurance: March $34 Put XLE-OH @ $1.00 

Entry $35.55 on 12/12

Components of the XLE
http://www.OptionInvestor.com/charts/1218200414332AM_8.asp

XLE Chart



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

COP - Conoco Phillips $87.18    ** Stop 85.00 **

There were some positive developments in Russia with
COP this week. They signed several deals with various
oil/gas concerns including Gazprom. According to the
news sources COP officials had already met with Putin
and he blessed the current Lukoil transaction. COP
raised their stake to 10% in Lukoil and are rumored
to be considering a jump to 20%. According to analysts
Russia needs outlets for the Yukos oil and COP can 
give them those outlets plus management services.

I raised the stop on COP to $85 from $83. COP just
bought several billion in assets in Russia and the
Yukos problem is setting up a potential problem for
western oil companies. I believe Bush would lean on
Putkin if we saw him looking at western assets but
it is still a risk until the Yukos deal blows over. 

COP remains in the top three recommended investments
in the energy sector and it is racing to acquire new
properties. 

Conoco has been on a permanent uptick since October 2002.
That up trend accelerated in December 2003 and topped out
at $80 this August. The stock took a dive in early August
when Conoco released earnings that almost doubled but 
said they were selling some assets to reduce $1.5B in 
debt. Investors decided to take profits and see what 
Conoco had for future plans. 

COP, along with AHC, MRO and OXY, is working with Libya
to get assets frozen in 1986. This would be a favorable
event but would require some updating to return to full
production. At least that production would not need to 
be bought or bid on as any new leases in Libya currently
on the auction block. 

I am recommending a stop for COP at $83 and just under
the 100 day average as well as an insurance put because
the leaps are so expensive. If stopped the put will 
reduce any loss on the leaps. 

Current position:
Jan-2006 $90 LEAP Call YRO-AR at $5.90 
Jan-2007 $90 LEAP Call OJP-AR at $9.10
Insurance Put: Feb $80 PUT COP-NP at $1.75

Entry $84.74 Dec-12th   

COP Chart



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

MRO - $37.29 Marathon Oil    ** No Stop **

Marathon again did not show a decent bounce this week. 
We still have strong support at the 200dma and it appears
to be consolidating with an upward bias. I am still
positive on oil prices but the lack of movement in
MRO puzzles me. I am going to stick with it for at
last another week. With put insurance our downside
should be minimal.  

MRO is engaged in the worldwide exploration and production
of crude oil and natural gas, the domestic refining, 
marketing, & transportation of petroleum products, and 
other energy related businesses. For the 9 months ended
9/30/04, revenues rose 18% to $35.6B.

Currently MRO is purchasing Ashland's 38% interest in the
Marathon Ashland Petroleum refining venture. Marathon is
trying to consolidate assets and acquire more. Banc of
America just initiated coverage with a Buy.   

Marathons chart shows strong support at the 200-day 
average which has been tested three times over the 
past year. 

The potential for the next spike on MRO would be a price
target in the $45 range. 

2006 $40.00 LEAP Call WXM-AH @ $2.45
2007 $40.00 LEAP Call VXM-AH @ $3.80
Insurance Put: April $35 PUT MRO-PG @ $1.50 

Entry $36.67 (12/12)
MRO Chart




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

ETR - Entergy Corp. $65.20   ** Stop $65.50 **

ETR is still recovering nicely and hit a new high on
Thursday. The ETR trend is good after it brought the
nuclear plants back online after refueling.  

Entergy Corporation is an integrated company engaged 
primarily in electric power production, retail 
distribution operations, energy marketing and trading
and gas transportation.

ETR also manages nuclear power plants and with the 
current and coming energy crisis they will be hired
to run/manage any new plants coming online. This is 
a long term play and one that could be a strong
performer. 

The LEAPs are very cheap. 

Current position:
2007 $70 LEAP Call ODF-AN @ $5.20

Entry (11/22) $65.51

ETR Chart




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


FDX - Federal Express $99.72  **Stop $98.00**
Entry $91.93 (11/5)

FDX has dipped for two days after hitting a new high 
on Tuesday. I am concerned the end of the holidays 
could be causing traders to exit. I raised the stop
to $98 just in case.    

Federal Express announced it was going to expand Kinkos
across Asia and said it could be worth $1.5 billion on
an annual basis. That is a huge shot in the arm for
FedEx and shows they are on the right track with their
acquisition. China shipping volume grew +52% last quarter
and the addition of the Kinkos stores could increase
that as well.  

2006 $ 95 LEAP Call WFX-AS @ $8.00
2007 $100 LEAP Call VFX-AT @ $10.60 
SOLD 2005 Jan $95 Put FDX-MS @ $4.60 Closed
(Closed at $.75 +$3.65 profit 12/19)
(selling the put initially offset the price of the call)

Insurance Put: Jan $95.00 PUT FDX-MS $1.25

FDX Chart





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


TYC - Tyco Intl. $36.06  **Stop $34.50**

Tyco finally broke resistance at $35 and set new highs
for the last three days. This should be bullish into 
the year end as long as the Dow continues to move higher.

We closed the 2005 leap last week for a nice profit.
 

2005 $30 LEAP Call TYC-AF @ $2.15 12/19 $4.80 +2.65 123%
2006 $30 LEAP Call WPA-AF @ $4.00 
July $25 insurance put - expired - cost $.55

Entry 5/18 $28.32
http://members.OptionInvestor.com/leaps/Lp_051604_1.asp

Tyco Chart




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

LLL $75.93 L-3 Communications   ** Stop $74.00 **

L3 hit a new all time high this week at 77.26 but
fell slightly into Thursday's close. I raised the 
stop to $74 just in case we get further market 
weakness. $77 was uptrend resistance. 

L3 itself is on an acquisition binge with four 
acquisitions in just the last eight weeks. 

There was a $185 million cash purchase of the propulsion
systems business unit of General Dynamics, a $90 million
purchase of the electron dynamic devices business of 
Boeing, a $42 million purchase of the commercial infrared
business of Raytheon, and a $225 million purchase of the
marine controls division of CAE.

LLL is a maker of bomb detection systems and has a
strong backlog of contracts for the airlines. They
have several product lines besides these systems 
but explosives detection has become a worldwide
market. The company is enjoying the strong demand 
for secure communications and intelligence, surveillance,
and reconnaissance (ISR) systems, aircraft modernization
and aviation products.

Entry $71 (11/24)
2007 $75 LEAP Call OOY-AO @9.50

Insurance put: Jan $70 PUT LLL-MN $0.75 (12/12)

LLL Chart



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

HIG - Hartford Financial Services $68.64  ** Stop $66.50 **

Hartford is nearing resistance at $69 but a breakout 
there could really get things moving. I raised the stop
to $66.50 just in case disaster strikes. 

The Hartford Financial Services Group, Inc. is a diversified
insurance co. that provides property & casualty insurance 
and life insurance. For the 9 months ended 9/30/04, revenues
rose 19% to $16.59B. Net income totaled $1.52B.

Hartford took a serious hit when Elliott Spitzer started
attacking insurance companies but it has rebounded to 
resistance at $64 once again. This strength in the face
of several obstacles and the market suggests we could
see a breakout soon. 

That breakout occurred on Dec-1st and HIG is moving higher
with next resistance in the $69 range. 

Entry $65 (12/1)
2007 $70 LEAP Call OZJ-AN @ $6.20
(No insurance put)

HIG Chart




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


DIA  $108.12 Dow Diamonds Trust **Profit stop hit **

The Dow hit 10750 on Wednesday 12/22 and we exited the LEAP
calls for a nice profit. We cam very close to being stopped
out twice over the last two months but survived. 

We entered the position at Dow 9900 and exited at 10750.
I expect Dow 11000 to be a short-term top so that means
we captured nearly all of the move if that feeling turns
out to be true. 

2006 $100 LEAP Call YGF-AV @ $6.30 exit 10.90 +4.60, +73%
2006 $104 LEAP Call YGF-AZ @ $4.20 exit  8.40 +4.20, +100% 
2006 $108 LEAP Call YGF-AD @ $2.90 exit  6.00 +3.10, +107%
2006 $112 LEAP Call YGF-AH @ $2.00 exit  4.00 +2.00, +100%

Entry 10/14 @ $99.00

DIA Chart



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

QQQQ  $39.78 Nasdaq 100   **Stop $39.00**

I am getting even more nervous on the QQQQ. The NDX has 
failed to move higher despite gains by the Dow, SPX and
the Russell. It is really starting to look weak and next
week will be the key. 
 
Entry $36.50 (10/27)
2006 $35 LEAP Call YWZ-AI @ $5.10
2006 $37 LEAP Call YWZ-AD @ $3.90

QQQ Chart




****************************    
LEAPS Watch List
****************************    

No Luck At the Casino

We came very close to an entry on the only watch list
play at present when HET pulled back to $63.84 on 
Tuesday. The target was $63. Luck was not with us on
the casino stock.

I am not adding any new watch list stocks this week
but will start looking for some roll over candidates
next week.  

If you have some suggestions for plays please do
us all a favor and send me an email. I could use
another 100 pairs of eyes doing research!

leaps @ OptionInvestor.com 




***********************   
Dropped Entries 
***********************   

None


***********************   
New Watch List Entries 
***********************    

None 



*************************
Current Watch list
*************************    
   
HET $66.07 Harrah's Entertainment

HET operates hotel casinos in Reno, Lake Tahoe, Las 
Vegas and Laughlin, Nevada and Atlantic City, New 
Jersey. The company also operates riverboat, dockside
and Indian reservation casinos. Harrah's Entertainment,
owns or manages 28 casinos in the United States, 
primarily under the Harrah's and Horseshoe brand 
names. http://www.harrahs.com

Caesars Entertainment, (CZR) is an international 
gaming company which owns, operates or manages 27 
casino properties in the United States, Australia, 
Uruguay, Canada, South Africa and at sea

HET has agreed to pay $9.4 billion for Caesars and
will be the largest casino company in the world when
complete. 

I would look to go long on HET with a pullback to 
the 21 day average currently around $63.00

Buy 2006 $65 LEAP Call WBI-AM currently $7.30
Buy 2007 $70 LEAP Call VKH-AN currently $7.80

Insurance Put
Buy Feb-2005 $60 Put HET-NL currently $0.80 cents

HET Chart


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


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

A Wealth Of Good Souls & Good Spirits -- All In Good Hands
By Mike Parnos

It's been quite a year -- a year filled with fun, friends, family 
and profits.   I want to take this opportunity to wish you all an 
incredibly happy, healthy holiday season and new year.  Oh, I 
haven't forgotten "profitable."  If you're here, with me, I 
really like your chances of being profitable in 2005. 

To all those directional traders who have stumbled on our column 
by mistake, I would like to thank you for the money you have so 
generously donated to our cause.   At the CPTI, we have many 
converts and we invite you lost souls (or souls who have lost) to 
join the ranks of non-directional traders.   Don't worry, the 
other directional traders won't miss you.  There's a bottomless 
pit of dreamers.   In trading, the price for dreaming is a steep 
one. 

That Was The Year That Was (TWTYTW)
In 2004, I was very fortunate -- in many respects.  I watched my 
family grow closer and stronger than ever.  I watched (and paid 
for) my daughter, Jill, get married and my son, Brian, experience 
remarkable success (he's a daytrader, believe it or not).  We all 
have our health and couldn't ask for much more.  Even my cats are 
happy.

I'm particularly grateful for the many new friends I've made in 
the last year.  I met dozens of my readers in 2004 and hope to 
meet dozens more in 2005.  I listened in awe to countless stories 
of how our non-directional trading strategies have enabled CPTI 
readers to generate from a few hundred dollars to $10,000 a month 
in income.   Seeing the smiling faces and knowing I had a part in 
generating those smiles makes it all worthwhile.

Father Mike also heard confessions from many CPTI students about 
how they learned important (and expensive) trading lessons during 
the course the year -- and how they bounced back to 
profitability.   Learning to trade is a work in progress.  There 
are many lessons to be learned.  Some can be learned from other 
people's mistakes.  Some you just have to experience yourself.  
Be patient and persevere.  It's not like minute rice.  Remember, 
if you're going to make an omelet, you're going to have to break 
a few eggs.
____________________________________________________________  

The Temptation
Our trades for the January cycle are in good shape so far.   It 
appeared, for the last week, that the market was stalling a bit.  
It was oh so tempting to put some bear call spreads on top of our 
bull put spreads -- especially when the SPX opened a number of 
new strike prices.  I resisted, however.  I wasn't convinced that 
the market was done and I still think we have another leg up to 

Why chance it?  As I watch the cushion for our bull put spreads 
increase, I sleep a little sounder every night.  I don't count 
sheep.  I count hundred-dollar bills and, before you know it, I'm 
in La La Land.  And, you know what?  You're all there with me.
 
_________________________________________________________________

January CPTI Position #1 - SPX Iron Condor (Part 1) - 1210.13
We sold 20 January SPX 1125 puts and bought 20 January SPX 1110 
puts for a credit of about $.50 ($1,000).  Profit potential 
$1,000.  Maintenance: $30,000.  I know I said I prefer not to use 
anything larger than five or ten-point spreads, but this is 
almost 80 points out of the money that I'm going to make an 
exception.  This seems incredibly safe, but then we thought that 
before, didn't we?

January CPTI Position #2 - SPX Sure Thing Credit Spread - 1210.13
We're still in an up-trend and we might as well try to take 
advantage of it.  Our "sure thing" spread worked to perfection 
for the December cycle.  So, until the market tells us otherwise, 
we're going to continue with the strategy.  Again, remember that 
this strategy is for only those who have a lot of maintenance 
dollars available, because you may need them.  Eventually, we'll 
be right, but you may need that staying power (money, financial 
Viagara). You have to be able to withstand being whipsawed back 
and forth.


In last Thursday's column I suggested initiating the 
"hypothetical" position by placing the January 1195/1170 bull put 
spread for a credit of $6.30.  However, on Friday, the SPX headed 
down in the morning.   When it leveled out, we put on a two 
contract SPX 1190/1165 bull put spread instead and we were able 
to take in $$6.80 ($1,360).

We are still mildly bullish for the next month, but we couldn't 
pass up an opportunity to lower our short strike to 1090 -- plus 
get a little more premium.  Maintenance (initially): $5,000.

January CPTI Position #3 - MSH Iron Condor (Part 1) - 503.43
This is the Morgan Stanley High Tech Index.  We haven't traded it 
before, so now is as good a time as any.  Maybe it will turn out 
to be a usable replacement for the RUT.  We're going to continue 
to be conservative.

We sold 15 MSH January 450 puts and bought 15 MSH January 440 
puts for a credit and potential profit of about $.55 ($825). 
Maintenance: $15,000.

January CPTI Position #4 -- SPX Iron Condor  (Part 1) - 1210.13
Put on two weeks ago -- and a wise choice it was (so far).  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 (now over 100 points) 
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 -- $39.75
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.  
We rolled out the Dec. $34 calls at break even and then sold the 
January $40 puts for $.80 ($800).  Our new total premium is about 
$14,200.

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 
good conservative cash flow generating strategy. 

ZERO-PLUS Strategy. OEX - 576.06
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 Adjustment
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).  New cash total: 
$11,175.

The December bull put spread expired worthless.  We put on a five 
contract OEX 545/535 bull put spread for a credit of $.70.  If 
all goes well, we can, at January expiration, add another $350 to 
our cash total.
 
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. 




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

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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support




The Option Investor Newsletter                   Sunday 12-26-2004
Sunday                                                      5 of 5

In Section Five:

Traders Corner: Wedge Patterns; a recent bearish wedge formation?


************************Advertisement*************************
 
Get your FREE weekly charts of the NASDAQ!
 
Hot Stix’ stock market report reveals simple, powerful strategies 
for profiting from the QQQ - whether down or up!
 
http://www.hotstix.com/public/weekly.asp?aid=755
 
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 Wedge Patterns; a recent bearish wedge formation?
By Leigh Stevens
lstevens@OptionInvestor.com

FIRST - SOME WORDS FROM OUR SUBSCRIBERS...

SUBSCRIBER QUESTION: 
When you suggest buying calls or puts at certain support and 
resistance levels (such as calls at NDX 1560 if we correct to 
that level), what MONTH strike do you like to buy?

Do you buy front month (doesn't seem like it as you said you 
exited calls recently based on the current action - were these 
December, January, etc?). Also, when you do buy calls and puts, 
do you buy ITM-OTM or ATM?

RESPONSE: 
The way I trade, tending to buy markets at their infrequent 
extremes, either quite oversold or overbought, I want to go out 
beyond the lead month options if there is only a 2-3 weeks left 
to expiration. I prefer to have 4-6 weeks left to expiration and 
be able to stay with a trend, if one develops in the direction I 
anticipated. 

If I think we're at a bottom, I tend to buy At The Money (ATM) or 
slightly Out of The Money (OTM) calls.  If I think the market is 
at a top, it becomes a bit trickier. 

Bottoms are "easier" in a sense.  Selling tends to be more of a 
once or twice decision among the sellers.  Whereas there is 
multiple and piecemeal buying of stocks on the way up, selling 
tends to be more emotional and investors/traders exit frequently 
all at once - sell everything, get me out of the market kind of 
thing.  This dynamic creates a bottom that is often a one-time 
spike low - of course, sometimes you get a retest of the low and 
get a double bottom or a slightly lower low, then it rallies. 

Tops can take longer to form and in an advancing trend a rally 
can keep going for some time - this is where you see rolling 
tops.  The indexes tend to "hang" up there and it makes timing of 
put purchases a bit different.  I am more inclined to buy half 
the number of puts I want to end up with and have room to buy 
more, perhaps to price average. I am more inclined to buy ATM or 
In The Money (ITM) puts.  Again, I will tend to go out a month or 
so.   

SUBSCRIBER QUESTION: 
I would like to add your call to put chart to my Q-charts to go 
with my SPX chart. Your chart is very helpful to see the bearish 
and bullish extremes. Could you give me some guidance on how to 
add this chart or should I contact the Q-chart folks. Just 
thought I would ask the "source". 

I enjoy and count on following your column, especially the 
charts. I follow the SPX, NDX, RUT and the OEX primarily and use 
the information to sell out of the money puts and calls on a 
monthly basis.  

RESPONSE: 
I wish it was as simple as getting data for the particular chart 
I use from Q-charts.  You can get a regular put to call chart 
from them in which case it is a ratio of total daily equities AND 
Index option puts divided by total Index and Equities options 
calls.  

I however divide calls by puts in order to get a whole number and 
to make the overbought level (an "extreme" of bullishness) up 
toward the upper portion of the chart, in the same way that an 
oscillator like stochastics or RSI works.  Conversely, a low 
number is a bearish extreme in this way of doing it.  The other 
aspect of how I construct my chart is that I EXCLUDE Index option 
daily volume figures; e.g., OEX.  I use instead the total 
Equities (only) daily call volume and divide this by the daily 
total equities put volume on the CBOE.  Example - 



The reason for using only equities options volumes is that this 
method then takes out the Index option activity related to 
hedging done by stock portfolios or selling of covered calls - 
or, selling of puts as a way to participate in expected upside 
that is more investment related.  I am instead looking for the 
most speculative activity - the most activity that relates to a 
conviction among traders about future market direction. In effect 
a good measure of market "sentiment", which is why I call this 
model my Sentiment Indicator.  

Plotting this ratio (daily equities call volume versus daily 
calls) requires that I construct the indicator by inputting this 
call to put ratio into either an Excel spreadsheet and plotting 
it, or, by use of my TradeStation software's ability to create a 
"custom" item.  I thereby manually create and keep updated a data 
item that I can chart just like stocks or Indexes coming from my 
data provider.  

I have to get the CBOE figures daily via their e-mail options 
statistics service or look on their web site and do the division.  
Signing up for their e-mails is the easiest way as their web site 
takes a long time to open up.  This way of construction means 
that some consistent effort is required to keep up this graph.  
But, I find the resulting indicator to be well worth the effort 
involved, although it is only occasionally that we get the 
extremes that are often so useful in suggesting upcoming tops or 
bottoms.

WEDGE PATTERNS ON CHARTS - 
Wedge patterns are usually "reversal" patterns – meaning the 
existing trend is susceptible to a trend reversal. One such 
pattern, while not seen all that often, but which tends to be 
predictive for a bottom or top is the "wedge". 

The wedge pattern of a "rising" bearish type is usually seen 
after an uptrend has been underway for a while which is somewhat 
the case as an overall uptrend was underway for at least 3 months 
in the example of Microsoft above. 
  
[Sometimes, not as often, a wedge formation will suggest a 
potential trend reversal even before the emerging trend has gone 
on very long; e.g., only a month.] 

BULLISH FALLING WEDGES AND BEARISH RISING WEDGES - 

In a rising wedge, prices move gradually higher but form 
converging trendlines and a  "narrowing in" pattern of higher 
highs and lower lows, such as seen in first wedge pattern, a 
rising wedge, in the Dow chart below from earlier this year - 



The upward sloping or bearish wedge is normally bearish in 
its implications for future price action.

There is a "measuring" rule of thumb for a price objective 
also - above, in the case of the bearish rising wedge, prices 
should decline to the start of the formation, or at least to the 
lowest prior low - this is only a "minimum" downside objective. 

The wedge pattern should have at least 2-3 upswing highs and 
downswing lows that comprise the points through which the 
trendlines are drawn – the more points than this minimum number 
the better, in terms of drawing two well-defined converging 
lines. 

What is being suggested in the rising, bearish wedge is that 
buying is being met with stronger and stronger selling as prices 
edge higher.  When prices fall below the lower up trendline that 
of a rising wedge pattern, a trend reversal is suggested – prices 
may rebound to the trendline again, but will typically not get 
back above it.  

A declining or falling wedge is typically a bullish pattern as it 
suggests that selling is being met with increasing buying.  
Eventually, this sets the stage for an upside reversal as can be 
seen by the second wedge formation in the Dow chart shown above,  
and again here - 



ANOTHER EXAMPLE ...
a Bearish Falling Wedge - 




CURRENT MARKET - 

Is the current S&P 500 Index (SPX) in a bullish rising wedge 
pattern, suggesting a fairly steep fall ahead?  

Maybe - we have to see what happens when that lower trendline is 
broken and whether there follows a relative steep decline.  It 
doesn't seem like it could happen in the current circumstances, 
but then again, it never does - that is, when a market is a 
strong trend, the possibility that an equally strong trend will 
develop in the opposite direction usually seems like an unlikely 
future development -   



If I look at the S&P 100 (OEX) chart, I see the same rising wedge 
pattern.  However, looking at the much narrower Dow 30 (INDU) 
chart, something else shows up - a breakout to the upside of a 
rising wedge pattern - 


 
If the Dow is representative of the whole market, the rising 
wedge as a pattern foretelling a possible top and downside 
reversal is invalidated so to speak.  Of course the Dow may be 
the LEAST representative of the broader NYSE market.  Again, stay 
tuned! - the market is nearly always doing something interesting 
in some way or another.  

Good Trading Success!  




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