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Daily Newsletter, Wednesday, 12/29/2004

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The Option Investor Newsletter                Wednesday 12-29-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Looking Back  
Futures Wrap: See Note
Index Trader Wrap: See Note 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      12-29-2004           High     Low     Volume   Adv/Dcl
DJIA    10829.19 - 25.35 10853.72 10795.57 1.14 bln 1533/1277
NASDAQ   2177.00 -  0.19  2182.33  2170.99 1.49 bln 1415/1621
S&P 100   576.53 -  0.63   577.16   575.31   Totals 2948/2898
S&P 500  1213.45 -  0.09  1213.95  1210.95
SOX       430.53 +  3.78   432.29   425.62
RUS 2000  653.34 -  1.23   654.57   651.95
DJ TRANS 3810.29 -  1.33  3814.88  3801.21
VIX        11.62 -  0.38    11.79    11.61
VXO (VIX-O)12.47 +  0.16    12.84    12.46
VXN        17.72 -  0.07    19.31    17.69
Total Volume 2,634M
Total UpVol  1,457M
Total DnVol  1,117M
Total Adv  2948
Total Dcl  2898
52wk Highs  374 
52wk Lows    25
TRIN       0.69
PUT/CALL   0.93
******************************************************************

Looking Back
Linda Piazza

The year's end presents a time appropriate for looking back, for
taking stock of the year's developments and projecting those for
the next year.  Consider looking back further than the beginning
of 2004, however.  Consider looking all the way back to the
beginning of the millennium when ominous signs began appearing on
at least one monthly chart.  This year's end brings some indices
up to test resistance established then.  

Annotated Monthly Chart for the Dow:

 

Annotated Daily Chart for the Dow:

 

Buying breakouts above the neckline looks dangerous with the Dow
so far above its monthly 50-sma.  Expected resistance at 11,000
lies just ahead of the breakout, adding to the danger.  Let
volume help you determine whether to go long on such a breakout,
as volume should explode on such an important breakout.  

Those considering selling rollovers beneath the red trendlines,
perhaps to be confirmed by a drop beneath the blue trendline,
should protect profits near 10,600-10,635 if that level is
reached and then again at 10,400-10,416. A bounce might be
expected from one of those levels.

Rather than a nice directional move, however, these chart
conditions may be pointing to dreaded choppy trading conditions
ahead, at least for this index.  Massive forces seem pitted
against each other. Resistance should be presumed at a major
congestion zone from which the Dow fell to its bear-market low. 
A speculative fitted retracement bracket, seen above on the daily
chart, and inverse H&S hint at the possibility of much more
upside, although neither has been confirmed as valid formations. 
Bears might be emboldened and bulls cheered by separate chart
developments, with both nervously eyeing developments that oppose
their views.  Unfortunately, that can lead to choppy trading
conditions.

Choppy trading conditions certainly prevailed Wednesday.  The
morning saw many divergences develop, both in indicators and
equity index behaviors.  Individual stocks varied widely in their
performances.  

Early in the day, the RLX popped above a descending trendline off
the November high and the SOX made initial moves toward its
eventual challenge of its 200-sma.  The TRAN, often a leading
index for the S&P's and Dow, showed no particular strength early
in the day, however, and neither did some other former leaders
such as the BIX, GSO and GHA.  

A component of the Dow as well as other indices, Boeing (BA),
fell on news that China is not going to approve aircraft
purchases for 2005 since it has all the aircraft needed. 
Lockheed Martin (LMT) received similar bad news from the
Pentagon, with purchases of LMT's F/A-22 fighter being scaled
back.  Nike (NKE) will take a hit from the tsunami. TXN posted
strong gains after positive comments by CSFB.  PFE and General
Motors gained.  And so it went.

Other divergences developed as the morning passed, including
mixed breadth indicators.  As Jane Fox noted on the Futures
Monitor on OptionInvestor, the actions of TRIN, the volatility
indices and the advdec line did not always corroborate each other
in the usual manner, as should happen if traders are to have
confidence in picking a likely direction.  Also, advancers pulled
ahead on the NYSE, but decliners did on the Nasdaq.  By the end
of the day, many indices had produced doji, indicative of
indecision.

Annotated Daily Chart for the SPX:

 

Annotated Daily Chart for the Nasdaq:

 

Annotated Daily Chart for the Russell 2000:

 

Economic releases continued to be light on this week spanning two
holiday weekends, and that might have been part of the difficulty
with determining a market bias. Commentators mentioned that few
catalysts existed to drive markets one direction or another.  Yet
markets failed to react even when potential catalysts did appear. 
Two were pre-market moves in the currency markets and during-the-
market moves in crude and heating oil prices, but not even those
developments could produce anything but chop between resistance
and support. 

In economic releases, the usual Mortgage Bankers Association
information on mortgages and crude inventories numbers were
joined by the November Existing Home Sales.   The MBA reported
that mortgage applications fell a seasonally adjusted 1.7
percent, with a drop in refinancing activity appearing to be the
primary cause.  Refinancing applications fell 7.9 percent,
erasing all last week's gains and more.  Refi's have been
responsible for providing cash to consumers to spiff up homes and
increase consumer spending, so assume strong importance.  They
fell to 46.2 percent of all mortgage applications from last
week's 48.9 percent.  

The component of the MBA numbers that measures loan requests, the
purchase index, rose 2.7 percent but not enough to make up for
last week's loss.  Fixed 30-year mortgage rates rose three basis
points from the last week's number, to 5.72 percent from the
previous 5.69 percent.

Later in the morning, the National Association of Realtors
reported on the November sales of existing homes, with those
sales rising a seasonally adjusted record annualized rate of 6.94
million.  Home inventories rose, too, however, with inventories
at a 4.3-month supply.  The DJUSHB, the Dow Jones U.S. Home
Construction Index, bounced after the release of that number but
couldn't break out of its recent consolidation pattern.  After
touching 800 again, it fell back, joining other indices that
produced doji for the day.

Most attention focused on the crude inventories number to be
released near 10:30, however, with many expecting a dip in
inventories.  The Department of Energy's numbers proved
disappointing with crude oil supplies dropping 800,000 barrels
and distillates falling 800,000 barrels against expectations for
drops of 200,000 and 500,000 barrels, respectively.  These
results peg crude supplies at eight percent above year-ago levels
but distillate supplies thirteen percent below those year-ago
levels.  The American Petroleum Institute, the API, said
distillate inventories climbed, however.  Gasoline supplies rose
900,000 barrels, the DOE reported.  

Oil prices popped, with heating oil prices following shortly, but
both sank back again until an afternoon report of an explosion
near the Interior Ministry in central Riyadh sent them higher
into the Nymex close.  Equities showed little reaction, perhaps
because winter weather continues to be mild enough to head off
worries about tight heating-oil supplies.  Perhaps a chart-
related development reassured market-watchers that crude prices
might not rise far.

Annotated Daily Chart for Crude for February Delivery:

 

Volume should grow lighter as the week proceeds, making trading a
riskier endeavor than usual.  For those who want to trade, easy
benchmarks might be discovered by studying the five-minute
100/130-ema's.  For many indices, bounces from the five-minute
100/130-ema's have proven to be sound entries into new bullish
positions and bounces down from them have proven to be okay for
day-trading bearish positions.  The OEX was an exception today,
crisscrossing those averages all day, and anyone risking trading
in a light-volume environment might expect at least some such
whippy behavior until indices and indicators line up in some kind
of accord.  For the RLX, the two-minute averages have been needed
because it hasn't been retreating to the five-minute versions.  

Wednesday, many indices moved back below those averages, but many
stayed above, perhaps leading to the choppy trading behavior,
with some indices retaining bullish behavior and some not.  Some
indices, such as the Dow, infrequently stay below those averages
for more than a day, so that a continued bouncing back from them
might be leading into a more prolonged dip.  Perhaps watch
behavior relating to these averages on your preferred index,
using them as short-term bearish and bullish indicators. 
Experiment, as stronger indices such as the RLX have needed to be
watched on shorter-time intervals with respect to these averages,
but the five-minute interval works well for most.  If other
indices show the same lack of correlation seen today, perhaps
continue to expect choppy trading behavior in all indices and
trade only if you enjoy being frequently stopped out of
positions.

Thursday's economic releases pick up speed a little, with the
usual 8:30 release of jobless claims, the 10:00 release of
November's Help Wanted Index and December's Chicago Purchasing
Manager, the 10:30 peek at Natural Gas Inventories and a 4:00
release of Money Supply. 


********************************************
Option Investor End of Year Renewal Special
********************************************
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********************************
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********************************
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********************************
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********************************

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

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***************
FUTURES MARKETS
***************

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


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*****************
INDEX TRADER WRAP
*****************

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_122904_1.asp


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The monthly subscription price is $49.95. The quarterly
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The Option Investor Newsletter                Wednesday 12-29-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Watch List: Retailers to Oil and more!
Stop Loss Updates: BDK, JCI
Dropped Calls: None
Dropped Puts: GCI
New Calls: None
New Puts: None

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

Retailers to Oil 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.
___________________________________________________________________


Kmart Holding - KMRT - close: 99.94 change: +0.09

WHAT TO WATCH: Heads up!  KMRT is ready to move.  Shares of KMRT 
have been consolidating sideways for weeks but that consolidation 
has narrowed into a 50-cent range as of today.  We can't predict 
which direction the breakout will go so we suggested a straddle-
type strategy to our MarketMonitor readers this afternoon.  A 
break one way or the other is imminent.

Chart=


---

Federated Dept Stores - FD - close: 57.13 change: +0.88

WHAT TO WATCH: Shares of FD continue to bounce from its recent 
test of the 40-dma and the bottom of its six-week trading range.  
The technical picture is improving and its MACD is nearing a new 
buy signal.  A breakout over $58 would put FD at new all-time 
highs and offer bulls a new momentum entry point.  The P&F chart 
is bullish and points to a $62 target.

Chart=


---

Total Sa - TOT - close: 110.00 change: +0.73

WHAT TO WATCH: Oil and gas stock TOT has rebounded from the $105 
level and its technical picture has significantly improved.  
Shares are testing resistance at the $110 level and look poised 
to hit new all-time highs.  The P&F chart is bullish with a $141 
price target.  Look for a bounce from $109 or a breakout over 
$111. 

Chart=


---

L-3 Communications - LLL - close: 73.91 change: -1.28

WHAT TO WATCH: Longer-term the up trend in LLL is encouraging but 
short-term shares look overbought and extended.  The recent 
breakdown under $75 and its 21-dma have turned the technical 
picture negative.   Look for a dip back toward the $70 region or 
even lower towards its rising 200-dma.  

Chart=



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

PCAR $80.25 +0.50 - The strength in PCAR continues and shares 
look like a bullish candidate, especially with today's close over 
the $80 level.  We may go long if shares can clear the $81 mark.

BBY $59.45 +0.71 - BBY is showing strength with a bounce from the 
$55 level now nearing resistance at $60.  A move over $62.70 
would be a new all-time high.

APOL $81.60 +0.66 - Today's strength in APOL surprised us and 
aggressive traders can be watching for a failed rally under its 
200-dma.  More conservative traders may want to consider bearish 
plays on a drop under $79 or $78. 

PD $101.55 +1.62 - We've had PD on the watch list for a few days 
and now shares are breaking out over the $101 level to hit new 
highs.  The top of the rising channel appears to be near the $105 
region.

AZO $90.40 +0.58 - Strength in AZO continues to impress.  A move 
over $91.00-91.50 may be a new bullish entry point.

ANTP $45.00 +9.40 - We can't see any news to account for the 
incredible run up in ANTP but shares can't maintain its rocket-
like momentum forever.  ANTP does not have options.

NGPS $48.45 +3.39 - NGPS is another one we can't account for its 
meteoric rise but we know shares can't maintain this momentum 
forever.  Unfortunately, NGPS doesn't have options.


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



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

BDK - call play -
  BDK added another 1.3 percent as it surged toward
  the $90.00 level.  We are raising our stop loss to $84.50
  under the 40-dma.
 
 
JCI - call play -
  Today's gain was enough to trigger us at $63.51.


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

None


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

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

Gannett Co Inc - GCI - close: 81.28 chg: +0.39 stop: 82.51

GCI continues to show strength and we're choosing to cut our 
losses in the play before it gets away from us.  The overall down 
trend is still intact but GCI could trade to $82.50 before 
rolling over again.  We may try again if GCI trades under $79. 

Picked on December 16 at $ 79.39
Change since picked:      + 1.89
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.0 million  
Chart =



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

Insiders are Buying these 6 Rocket Stocks.


In the last few weeks, we have pinpointed insider buying on six 
stocks that have the potential to deliver stratospheric gains. 

Click here for our SPECIAL REPORT on these 6 stocks insiders are 
buying and why you should too. 


http://www.insidermoves.com/default.asp?aid=618

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

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

None


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

None


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

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

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

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

To subscribe you may go to our website at

www.OptionInvestor.com

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

 "Contact Support"

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

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


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

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


**************************************************************
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or any Premier Investor Network newsletter please contact:

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DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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