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Daily Newsletter, Sunday, 01/02/2005

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The Option Investor Newsletter                   Sunday 01-02-2005
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:  Going Out With A Whimper
Futures Wrap: See Note
Index Trader Wrap:  RING IN THE NEW!
Editor's Plays:  Sell Resistance, Second Try	
Market Sentiment:   Closing Near The Highs
Ask the Analyst: Time to rebalance with an end of year review
Coming Events: Earnings, Splits, Economic Events 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      12-30-2004           High     Low     Volume   Adv/Dcl
DJIA    10800.30 - 28.90 10850.18 10799.71 1.05 bln 1852/1311
NASDAQ   2178.34 +  1.30  2182.37  2176.40 1.42 bln 1725/1410
S&P 100   576.10 -  0.43   577.81   576.06   Totals 3577/2721
S&P 500  1213.55 +  0.10  1216.47  1213.41 
SOX       431.26 +  0.70   433.65   430.36
RUS 2000  653.06 -  0.28   654.45   652.99
DJ TRANS 3808.60 -  1.70  3823.96  3798.74
VIX        12.56 +  0.94    12.61    12.18
VXO (VIX-O)12.86 +  0.39    12.96    12.67
VXN        17.94 +  0.22    18.05    17.63  
Total Volume 2,635M
Total UpVol  1,490M
Total DnVol  1,007M
Total Adv  4140
Total Dcl  3079
52wk Highs  515
52wk Lows    13
TRIN       1.22
NAZTRIN    0.49
PUT/CALL   0.86
******************************************************************


Going Out With A Whimper 
by Jim Brown

The markets were listless on Thursday on very low volume
and you would have almost thought the market was already
closed for the year. While Friday is a normal trading day
it will be anything but normal with volume expected to 
slow to a trickle. The lack of excitement going into year
end suggests there could be dip in our immediate future. 

Dow Chart


Nasdaq Chart


SPX Chart


The last economic reports for the year provided a mixed
bag once again as our recovery continues to provide
conflicting signals. The Jobless Claims fell slightly 
to 326,000 from a downwardly revised 331,000 in the 
prior week. There was no specific reason and analysts
suggested it could still be a seasonal adjustment bug.
The consensus was for claims to be flat at 333,000. 
Continuing claims have risen slightly and suggests the
employment picture is still cloudy. 

Confirming this was the Help Wanted Index for November
which was released today. The Index fell one point to
36 and the low for the year. This represents the low
for this employment cycle and a failure of the attempted
bounce in October. This indexes the quantity of help
wanted ads in print newspapers across the nation. The
growth of online job shops has reduced dependence on
print advertising but the trends should still be the
same although at a lower level. This is a confirming
report rather than a leading report on the state of
the labor market. 

Adding to the negativity was a drop in the PMI to 61.2
from 65.2 in November. The consensus was again 65 and
it was not even close. Most components were lower with
employment taking the biggest drop from 60.8 to 49.1
and suggesting the October high for the headline number
at 68.5 was simply pre-holiday production. Any headline
number over 50 represents expansion so this dip to 
61.2 is not a death knell but just a caution point to
ponder as we enter 2005. New orders declined -5.5 points
suggesting the internal production components will also
decline in the coming months. 

The key to all these business indexes will be the ISM
report next week. This is the national version of all
the regional reports and tells us where the economy
is going. That report is due out on Monday morning. 

The NY-NAPM report contradicted the Chicago PMI drop
with yet another gain to a new high. Like the Empire
Index they both show the business conditions in the
New York region to be strong. The Empire report is
beginning to show some cracks in the foundation but
the region has had a very strong run over the last
two years with the rebound from the post 9/11 lows
and is due for a rest. It appears the New York managers
feel the same way with a monster drop in the six month
outlook component from 64.3 to 37.5 in December. The
manufacturing conditions component fell from 54.4 to
41.2. Buying of materials fell from a lead-time of
96 days to only 15 days and material on hand fell
to 30 days from 80 days. It definitely appears there
is some fear of 2005 showing in the outlook for the
region. This is the first month that manufacturing 
has slowed in over two years. 

The markets were very weak on Thursday with the Dow
failing to post any gains and barely avoiding a drop
back below 10800 at the close. The Nasdaq managed to
post a gain but it was only a point and well off the
highs. The S&P was the only index with any strength
but it also ended back at the flat line before the
day was over. 

This market weakness in a period where we typically
would be seeing a Santa Claus rally is troubling for
me. I have been expecting a potential minor dip next
week but the weakness heading into the year end is
suggesting that dip may be more severe. We are facing
some potential profit taking from the 4Q rebound off
the October lows. Funds who want to sell the overbought
winners also want to wait for the calendar to roll
over before kicking the winners out of their portfolio.
This insures their year end statements remain rosy and
enticing for the coming year. 

There are a lot of profits waiting to be taken. The
gains for the year for the various indexes are very
strong. 

TRAN +27% - despite the airline failures.
UTIL +26% - on higher energy prices
$RUT +17% - Funds inflows from retirement accts.
NASD +9%  - Led by Internets and biotechs
$SPX +9% - Mostly on gains in energy
DOW +4% - Mostly on gains in CAT, MO, UTX, MCD, DD, XOM

Now contrast those gains for the year with the fact
that the lows for the year were in October. Much of 
these gains were made in the last two months and the 
actual gains from those lows are much stronger. Several
of the indexes did make earlier lows than the Dow with
even stronger gains.  

Index Low Today Gain
Dow 9708 10800 +11.2% from October low
Nasd 1899 2178 +14.6% from October low
$SPX 1090 1213 +11.2% from October low
Nasd 1750 2178 +24.4% from August low  
TRAN 2959 3807 +28.6% from August low
$RUT 516 653 +26% from August low
UTIL 260 336 +29.2% from May low

I do believe we will see higher highs in January but
the potential for a profit taking dip next week is
very strong given those numbers above. It appears
from the lack of a real Santa Rally this week that
others are thinking the same thing. 

Last Thursday we hit a nine year low on the VIX at 
11.14. The last time the VIX was this low was Dec-29th,
1995 at 10.36. This was prior to Internet trading and
investors had to call their brokers to make trades. 
There were less than half the brokerage accounts then
as we have now. This extreme lack of volatility now has
not been a real lack of volatility because the markets
have been erratic over the last few weeks. It actually 
represents a lack of bearishness in the market. Nobody
has been buying puts until this week when put buying
suddenly found favor again. Investors Intelligence 
reported yesterday that newsletter writers were 
currently the most bullish since 1987. That year 
should ring a bell for many as it was the last major
market crash with the Dow losing -23% in one day. 

VIX Chart


Wilshire 5000 Chart



The extreme bullishness comes from the election being
over, no terrorist attacks, low interest rates, low
inflation and an economy that appears to be recovering.
Money is flowing into the markets from individuals with
+$3.7 billion of inflows to funds for the week ended
yesterday. Definitely no fear there. 84% of the top 
1500 stocks are over their 200-day average and a very
overbought condition.  This is yet another reason why
funds may be looking to lighten the load next week. 

If there is a dip next week or anywhere in January it
is not the end of the world. Actually there is a trend
in place that has lasted 120 years that will be tested
in 2005. 

According to the Stock Traders Almanac the markets have
closed higher every year that ended in a five since 1880. 

Astoundingly not only did they close higher but since 1900
they have been significantly higher. There is no concrete
evidence on why this trend exists but any trend that is
unbroken over 120+ years deserves some credit. 

Since 1880 these were the Dow changes in those years.

1885 +20.1%
1895 + 2.3%
1905 +38.2%
1915 +81.7%
1925 +30.0%
1935 +38.5%
1945 +26.6%
1955 +20.8%
1965 +10.9%
1975 +38.3%
1985 +27.7%
1995 +33.5%
2005 ?????

That is an average of a +30.7% gain for years ending 
in five. Also amazing is that virtually every year
saw its lows for the year in January. Only three years,
1915, 1935, 1965 saw a later dip below the January lows
with that dip normally lasting less than two weeks and
occurring in February (1915), March (1935) and June (1965).
The only real year to break the support from the January
lows was 1925 with a lot of time spent lower but the Dow
still rallied to close up +30% for the year. For those
trying to mentally do the math an average +30% gain for
the Dow from Thursday's close would put it over 14,000. 

While it is far too early to guess if 2005 will continue
the 120 year trend for market gains it is not too early
to take advantage of the warning for January. The average
date for the January low was January-22nd. The massive 
influx of retirement cash in the first two weeks tends
to prevent any early month dips from sticking. There is
normally a calendar sale in the first week where funds
have waited to take profits until the year was over. 
That brings us right back to where I started this train
of thought and the potential for volatility next week. 

While we can expect an opening dip for 2005 I believe
it is a dip that should be bought in hopes of a quick
bounce. Once that liquidity bounce occurs we can watch
for a continued long opportunity or a roll over in 
late January. While I am skeptical about any major
gains in 2005 I am not willing to throw caution to 
the wind in either direction. We need to see what 
January brings and then plan our strategy. Regardless
of direction there are a lot of trades ahead and I am
looking forward to the challenge. 

The market is open on Friday but the odds are very 
strong that it will be the lightest volume day of the
year and directionless. However, at todays close there
was a bout of futures selling that sent the indexes to
their lows. For funds or just traders in general the
ideal way to hedge against a calendar sale on Monday
would be to short futures on Friday. What we saw today
could have been an early entry by those hedgers. If I
were going to bet on a position for Friday it would be
to short any bounce and hold it over the weekend. We
have not seen any terrorist events in the U.S. for a
long time and our attention is wandering to other 
things. The holiday weekend is a prime opportunity 
for attacks and not just in the U.S. but also against
targets abroad. If you have long positions tonight it
might be good risk management to hedge them with a
short or a put position over the weekend. 

While the markets are open on Friday, Option Investor
will be closed. This newsletter tonight is the full
Sunday edition and we will not publish again until
Monday. This allows our staff to spend time with 
their families over the holiday. The Market Monitor
will be open for business as usual. 

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Happy New Year and I wish everyone a prosperous year.

Jim Brown
Editor


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


RING IN THE NEW!
By Leigh Stevens

THE BOTTOM LINE – 
It's hard to figure what the New Year will bring for index option 
players. On one hand the indices are going up on less volume, 
which may simply reflect the recent holiday period or could 
suggest distribution or selling by some savvy larger investors 
cashing in on some significant gains. 

There is also waning momentum, but this could be a consolidation 
and pause before there is another up leg. I continue to watch the 
bearish rising wedge pattern in the S&P indices and Dow charts as 
it suggests risk to the bulls for a reversal/downside correction. 

We have had no 2-3 day period yet of the concerted type selling 
that would go with a decline significantly profitable for puts. I 
don't know what news would drive prices lower.  But, hey, I never 
can predict what triggers a countertrend move worth trading - 
long puts in this case. 

As an investor I hope for a continued steady rise, as a trader I 
am wondering when I might have a put play, after cashing out of 
calls at levels lower than the recent highs - I always try to 
exit before I see the whites of their eyes.  

THURSDAY'S CLOSING NUMBERS – 

The S&P 500 (SPX) was up a fraction of a point to close at 
1,213.55. The Dow 30 Average (INDU) closed down 28.89 points 
(-0.3%) to 10,800.

The Nasdaq Composite Index (COMP) was up slightly, to 2,178.3, 
higher by a scant 1.3 points. 

THURSDAY'S TRADING  –
 
Jobless claims were reported as falling 5,000 in latest week - 
the U.S. Labor Department indicated that the number of Americans 
filing claims for unemployment was off 5,000, to 26,000,following 
a revised 331,000 claims in the week prior. Expectations seem to 
be for a figure around 335,000. 

The 4-week moving average of unemployment claims, a less-volatile 
statistic, fell to 333,500 from 339,500. The number of people 
collecting state unemployment benefits rose to 2.755 million in 
the week ended December 18th, from 2.751 million a week earlier.

These figures in the final two months of the year tend to be
volatile as the Department has a hard time to accurately adjust 
for the way that Thanksgiving, Christmas and New Years holidays 
fall, resulting in less confidence in forecasting the first few 
weeks in the new year. 

According to survey by Manpower Inc., one of the top two 
suppliers of temporary staff, 24% of 16,000 employers polled 
intend to increase their workforce from January through March - 
this, compared with 20% in Q1 of 2004.

The U.S. is anticipated to have had a 4.4% growth in 2004, better 
than any year since 1999.  According to a survey of forecasting 
economists, the U.S. economy could grow by 3.6% in 2005, which is 
(again) more than the 3.3% historical average.

PMI slips -
 
The Chicago Purchasing Managers Index (PMI) fell to 61.2 in 
December (below a forecasted 63.0) - this reading marks the 
second consecutive decline after the Chicago PMI's record high 
68.5 reading in October. Within the overall survey, new orders 
fell to 64.5 in December, after a 70 reading in November. 
Production rose to 66.8 from November's 68.4. Prices paid fell to 
84.4 from 89.8 in the prior month. 

The employment index of the PMI survey dropped sharply to 49.1 
from November's 60.8 figure, a number that should be viewed in 
the context of the pronounced tendency to delay new hires being 
considered from Thanksgiving through December, until the new 
year.

A Wall Street Journal story on China sent steel stocks lower - 
their article reported that after buying substantial steel stocks 
this past year, China may again start exporting steel in 2005. My 
old firm, UBS (formerly, PaineWebber), estimates that China's 
steel production grew over 20% in '04 and may increase 14% in 
2005. China's domestic demand for steel is slowing, as its 
blistering economic growth rate of recent years has cooled down 
some. 

The blue chips slipped into the red near the closing bell 
influenced by continued weakness in Alcoa (AA) on concerns about 
its upcoming Q4 earnings release.

Another Dow stock, Pfizer (PFE), fell nearly a percent after the 
WSJ reported prescriptions for Celebrex dropped 56 percent in the 
U.S. in the prior week.  This decline followed the company's 
admission that a federally funded study found a link between 
Celebrex, a major sales leader for the company, and a heightened 
risk of heart attacks/stokes.

Dow stocks Boeing (BA) and United Technologies (UTX) were being 
watched closely as China clarified its plane buying plans. A 
spokesperson there told the Wall Street Journal on Thursday that 
while the country won't approve new deliveries of airplanes for 
2005, orders will continue to be signed for delivery in 2006.

Stocks of the UXT and BA got hit on Wednesday on reports China 
would not allow new plane orders in '05. Also, Continental 
Airlines (CAL) placed a $1.3 billion order from Boeing - buy 
American!

A plus for stocks was a continued slide in crude oil prices to 
below $44, which had been recent support. The February contract 
fell 19 cents to close at $43.45.  Trading will be closed on the 
New York Mercantile on Friday. 

The dollar was down by three tenths of percent against the euro, 
to $1.364 and was off 0.8% against the Yen, which closed New York 
trading at 103.06.

The 10-year T-note rallied strongly after the release of the 
Chicago Purchasing Managers Index. It advanced 17/32 to 99 29/32, 
to yield 4.26%, down from 4.31% on Wednesday.


MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

In the week just ending, as of the Thursday (12/30) close, the 
S&P 500 (SPX) has continued to trade sideways to slightly higher 
and has not broken out of a tight narrowing range signified by 
the two trendlines (upper and lower) that narrow into a thin pie 
shaped pattern.  

This "wedge" type formation is often considered to be technically 
bearish as the price range contracts.  Trading is going through a 
kind of compression as the bulls can still take the index 
somewhat higher but the rate of upside momentum slows. This is 
often a market ripe for a selling if some perceived negative news 
comes into the picture. Meanwhile the trend is still up - no 
question there - but the market feels like its pausing and 
waiting for new influences.  

Resistance implied by the upper trendline is at 1224-1225. If 
1225 is pieced, there could be a run to as high as 1245-1250 
before SPX is at a major extreme again, which is when it trades 
at around 3.5% over its 21-day moving average. 

Very near support is at 1203-1200. If 1200 is penetrated, I 
anticipate next support at 1192 and more key/major support coming 
in down in the 1173-1l70 area.  



My sentiment indicator suggests one recent one-day bearish 
extreme in the week just past, through Thursday. Typically when 
there is a cluster of such days and when the 5-day average goes 
over 2, it signifies at least a warning that sentiment is at the 
kind of bullish, what me worry, kind of extreme often associated 
with at least interim tops.  However, I don't suggest acting on 
any one sole indicator, but this one bears watching.

NOTE: Seen above is not the well-known PUT/CALL ratio; i.e., 
total daily equities AND Index option puts divided by total Index 
and Equities options call volume.  

I EXCLUDE Index option daily volume figures (e.g., OEX) and so 
have to enter these figures into my own database and there is 
therefore no "symbol" I can give you for this chart. My way of 
doing the calculation takes out some Index option activity 
related to hedging, to better gauge speculative activity and 
conviction among traders - daily equities call versus put volume 
is then an even more useful measure of market "sentiment". 

You'll notice also that CALLS are divided by puts to get a whole 
number and to make the overbought and oversold levels ("extremes" 
of bullishness or bearishness) read at the upper and lower ends 
of the charts like seen with the Stochastics or RSI indicators.    

S&P 100 Index (OEX) – Daily chart:

The S&P 100 (OEX) is maintaining a bullish (chart) pattern, but 
the same explanation given for the S&P 500 (SPX) pertains exactly 
to the OEX - more so, as the bearish wedge pattern is more 
defined.  What I will watch for as to a bearish development is 
whether the S&P 100 can hold above the prior 12-month high at 
573. The longer it does this, the more likelihood of another up 
leg to, or near, the 600 level. 

Near resistance I calculate at 580. If OEX goes above this level, 
a next target is 590, where the Index would be again rather far 
above its 21-day moving average (not shown), a moving average 
daily length setting useful in gauging extremes.

Near support is implied by the prior high around 573; then, if 
exceeded, around 567. I peg the most significant or key technical 
support in the 560-558 area.  A close under 560, suggests further 
downside potential to 548-550.      



The OEX has been going up and its RSI trend has been lower in 
terms of this indicator's various highs.  This kind of divergence 
is often a sign of an impending reversal EXCEPT in very strong 
trends - in very strong moves, such a divergence will become one 
of the few instances where this pattern is not a useful warning - 
or, the lag time will be too long to be useful to position in 
puts. Nevertheless, it's something that keeps me watchful.

Dow 30 Average (INDU) - Daily: 

No further comment on the wedge pattern in the Dow 30 (INDU) 
chart, just note that it's like the S&P charts. The most recent 
INDU consolidation could be setting the stage for yet another 
spurt higher.  A short-term key is for the Dow to hold above 
10800, keeping this average's chart quite bullish.  

The prior 12-month highs in the 10730-10750 area bears watching - 
this should now "become" support if what we are seeing is really 
the Dow's next up leg.  11,000 is a next upside objective in INDU 
if the aforementioned support areas continue to find buying 
interest. Key lower support is at 10600.  A close under here 
would be bearish.  Major support is just above 10400, around 
10425. 

I peg near resistance at 10900 and more significant resistance 
and potential selling pressure coming in around 11,000.   
 


The 21-day stochastic, a longer length setting, doesn't too often  
"hang" up in an overbought area for so long.  The longer it goes 
this way, the higher the probability that the next 200 point move 
will be down rather than up.  

Probabilities are useful, but every so often the exception 
happens and someone gets "7's" on 7 rolls of the dice. A hot 
hand, a pretty hot market as the second up move now looks like it 
could equal the extent of the first spurt from the 9800 area to 
10400.  The same rally distance would make a target on this 
second stage advance to the 11000 area.        

Nasdaq Composite (COMP) Index  – Daily chart:

The Nasdaq chart and indicator patterns are similar to the S&P 
and Dow - the Index is bullishly holding above its old high and 
the continuing advance is mis-matched by the Relative Strength 
Index (RSI), which has been trending lower.  But, hey, if any 
particular pattern or divergence ALWAYS was predictable in what 
it supposedly forecast, this wouldn't be the stock market! The 
Market does the unpredictable enough to keep us humble.  

The key area to judge the strength of this uptrend is likely the 
old highs in the 2150-2153 area.  The longer the Nasdaq Composite 
(COMP) stays above its prior peak, the more it looks like this 
rally has staying power. I estimate next resistance in COMP at 
around 2200-2210. Above 2200, the Index would not reach a real 
extreme before the 2260 area, at my upper moving average envelope 
or trading band.  

2100-2105 is likely near support, an area of likely buying 
interest on a dip.  If the Index fell below 2100, I don't see 
major support coming in until the 2030-2050 area.  The Composite 
would fall back to its longer-term trend or rate of ascent in 
this area, at its up trendline. 




Nasdaq 100 (NDX) Index  – Daily and Hourly:

Hard to tell if the Nasdaq 100 (NDX) Index is building a minor 
top - a Head and Shoulders top is suggested at this point - or is 
consolidating by going sideways until its ready for a next move 
up.  I rate the chance of a substantial upswing, say to the 1700 
area, as less probably than a move lower, such as to around 1550.  

This Index answers: "don't give me odds"! The objective key will 
be the direction of the breakout above the well-defined trading 
range that has developed over the past few weeks, between 1630 
and 1580 and best seen on the hourly chart. 

Near resistance we'll define as 1630-1635; then, if exceeded - 
"resistance" is not the right term, rather a next potential  
upside target - to 1680. 

Support is at 1580-1585. Major support, as implied by the 
highlighted (green dashed) trendline, is around 1510.



NDX options may offer a trading opportunity on a breakout above 
or below it's well-defined past month price range, by buying 
calls on a move above 1630 or puts on a close below 1585. Of 
course, the professionals selling you these options have been 
looking at the same charts and any move above/below this range 
will cause a jump in the premium required by the seller (of the 
option). 

There have been profitable strategies based on NDX staying 
between 1630 and 1580.  At this juncture, the fact that the Index 
has been locked in this relatively narrow range for some weeks 
now suggests to me a break out move is coming. The indices, 
unlike individual stocks, are far less likely to go on for many 
weeks in such narrow ranges.    

The bottom like is also that both the daily and hourly charts 
remain bullish in their patterns absent breaking support. We 
should assume that the rectangle pattern (trading range) on the 
hourly chart is a consolidation for a further move higher in the 
direction of the trend - but, I want to let the Index move first.




Nasdaq 100 tracking Stock (QQQ) Daily chart:

Not much change to report with QQQ.  It has resistance in the 
40.5 area, then potential next resistance up at the trendline at 
41.24-41.40.  The recent rally is reminiscent of a bearish flag - 
a sharp rally, followed by a gradual creep back up - this pattern 
implies or suggests another downswing ahead, perhaps to 39-39.15.  

Near support is around 39, then in the 38.30 area, at the 
intersection of the up trendline, a key support technically - 
this price level is where the Q's "should" be if the stock was 
maintaining its average rate of price increase, which is what a 
trendline shows visually.



Unlike the other indexes, the RSI has matched price action, as it 
hit a double top also, then likewise trended sideways to lower.   

Have a Happy New Year and...  
Good Trading Success!
 



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

Sell Resistance, Second Try

The game plan from last week is still in place but 
we were not triggered. I considered keeping it the 
same but I am no longer expecting a strong end of
year bounce. In reality I am now concerned that we
will not get a Friday bounce at all. 

I am going to modify the game plan with lowered
expectations. 

Buy the DIA January $108 puts DIA-MD with a touch 
of 10850. Our new profit target will be 10700. 

You can read the setup and reasoning from last week 
here:

http://members.OptionInvestor.com/editorplays/edply_122604_1.asp 
 

BUY DIA JAN$108 Put DIA-MD with a Dow print at 10850.

Profit target Dow 10700. If the Dow is falling below
that level then wait for a bottom to appear before 
exiting.

There is no stop loss. 

Dow Chart 




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

RIMM - $83.00 Combination Play 

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

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

Closing Near The Highs
- J. Brown

Looking back at 2004 there are several issues that investors will 
remember.  The constant barrage of news covering the violence in 
Iraq; the potential terrorist targets with the 2004 Olympics in 
Athens, Greece; the Democratic National Convention, the 
Republican National Convention, and of course the results from 
the 2004 Presidential election.  Now sadly many across the world 
will remember the Christmas time tsunamis that have wiped out 
over 100,000 souls across Asia's various coastlines. 

Yet Wall Street will also remember another year of steady growth 
for home values, the return of the IPO, especially Google's, the 
falling U.S. dollar and how China became a huge factor in the 
commodities market.  In spite of all various headlines the one-
thing managers will be happy to remember is that we're closing 
the year at the highs.  The Dow Jones Industrials will be closing 
near 3 1/2 year highs.  The NASDAQ Composite and the S&P 500 will 
be closing at three-year highs.  Meanwhile the Russell 2000 small 
cap index (RUT), BIX banking index, BKX banking index, XBD 
broker-dealer index, XNG natural gas index, the DFI defense 
index, the CYC cyclical index, the RLX retail index, the HMO 
healthcare index, and the DJUSHB home construction index are all 
closing at or near new all-time highs.  Yes, 2004 was a pretty 
good year for stocks. 

The natural question to ask is how will stocks fare in 2005?  
There will be plenty of investors watching the first few days of 
January.  You may have heard the term "as January goes so goes 
the year".  This suggests that if January is net positive then we 
have a bullish year ahead of us and vice versa.  Yet some traders 
will be focused on just the first five trading days of January as 
sort of an early January barometer (thanks to the Stock Traders 
Almanac).  Fortunately, the first couple days of January tend to 
be bullish as a hangover affect from the Santa Claus rally.  
However, what might scare some traders is the fact that the major 
stocks indices do look a little overbought and the sentiment 
indicators like the volatility indices and the TRIN have been 
suggesting a top in the market for days (or months in the case of 
the VIX/VXO).  Stocks will eventually correct and odds are it 
could occur when the Q4 earnings season begins as investors "sell 
the news".  

However, far be it from me to leave you with a sour note as we 
head into the near year.  I present a bit of stock market trivia.  
Some of you have probably heard of the decennial cycle and how 
the fifth year in a decade tends to be one of the strongest years 
for stocks in the decade.  While I hesitate to put too much faith 
in any sort of pattern like this the cycle does have a very 
consistent track record with 12 up years or "wins" and zero 
losses for the fifth year over the last twelve decades.  Who am I 
to say it won't happen this year in 2005?  

Happy Holidays and may you have incredible trading success in 
2005.

-James Brown

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

Market Averages

DJIA ($INDU)

52-week High: 10868
52-week Low :  9708
Current     : 10800

Moving Averages:
(Simple)

 10-dma: 10767
 50-dma: 10437 
200-dma: 10257 



S&P 500 ($SPX)

52-week High: 1216
52-week Low : 1060
Current     : 1213

Moving Averages:
(Simple)

 10-dma: 1206
 50-dma: 1172
200-dma: 1128



Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1623

Moving Averages:
(Simple)

 10-dma: 1611
 50-dma: 1559
200-dma: 1458



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

CBOE Market Volatility Index (VIX) = 12.56 +0.94 
CBOE Mkt Volatility old VIX  (VXO) = 12.86 +0.39
Nasdaq Volatility Index (VXN)      = 17.94 +0.22 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.86        470,646       402,438
Equity Only    0.60        373,995       223,765
OEX            1.42          7,725        10,995
QQQQ           4.89          7,602        37,249


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

Bullish Percent Data

           Current   Change   Status
NYSE          77.2    + 0.4   Bear Correction
NASDAQ-100    80.0    + 0     Bull Confirmed
Dow Indust.   73.3    + 0     Bull Confirmed
S&P 500       78.2    + 0     Bull Confirmed
S&P 100       78.0    + 0     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: 0.76
10-dma: 0.88 
21-dma: 0.96
55-dma: 1.00


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    1545      1645
Decliners    1211      1341

New Highs     176       104
New Lows        6         5

Up Volume    523M      865M
Down Vol.    480M      426M

Total Vol.  1031M     1389M
M = millions


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

Commitments Of Traders Report: 12/21/04


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 are growing more bearish while small traders
are naturally moving the other direction and growing more 
bullish.

Commercials   Long      Short      Net     % Of OI
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%)
12/21/04      455,238   502,538   (47,300)   (4.9%)

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
11/30/04      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%
12/21/04      157,015   106,205    50,810    19.2%

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

There has been a dramatic reduction in open positions for
both longs and shorts for both the commercial traders and
small traders.  The net result has produced an increase
in bearishness for professionals and an increase in bullishness
for small traders.

Commercials   Long      Short      Net     % Of OI 
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%)
12/21/04      279,694   554,818   (275,124)  (32.9%)

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
11/30/04      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%
12/21/04      227,047     66,140   160,907    54.8%

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


NASDAQ-100

Hmm... we are seeing a dramatic reversal for both commercial
and small traders.  Commercials have significantly cut their
long positions reversing their bullishness into bearishness
for the NDX.  Small traders have drastically reduced their
short positions to flip-flop them from net bearish to net
bullish. 

Commercials   Long      Short      Net     % of OI 
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%
12/21/04       30,614     45,158   (14,544) (19.1%)

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%)
12/21/04       20,840     9,109    11,731    39.1%

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 have suddenly become a lot more bearish 
on the Dow Industrials.  Meanwhile small traders have
significantly cut their positions on both sides of the trade.


Commercials   Long      Short      Net     % of OI
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%)
12/21/04       24,850    31,920   (7,070)    (12.4%)
 
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
11/30/04        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%)
12/21/04        5,637     6,961   (1,324)   (10.5%)

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

Time to rebalance with an end of year review

It all started in late 2002 when we developed a rather simplistic 
portfolio, containing various asset classes, in an attempt to 
better understand where market participants were either investing 
their capital, or removing it, and what that movement of money 
might be saying about the U.S. economy.

As time passed, investors and traders alike began asking 
questions as we reviewed several asset classes, ranging from the 
U.S. Dollar to short-term, intermediate-term and longer-term 
Treasuries, not to forget high-grade corporate bonds and junk 
bonds.  Included among the asset classes were various stock 
market averages such as the Dow Industrials, the S&P 500 and the 
NASDAQ-100.  After years of lackluster performance, mining stocks 
perked up, and they were added as an asset class.

Hopefully, investors and traders have learned some things.  How 
money does move from asset class to asset class.  How one group 
of assets alone does not necessarily foretell the eventual 
outcome, or performance of a different asset class.  

Earlier this year (2004), one investor asked if rebalancing an 
investment portfolio could increase the return, or performance of 
that portfolio.

My answer, based on articles, and research papers I had read over 
the years, along with applying the discipline of rebalancing 
clients portfolios, was that rebalancing an investment portfolio, 
can enhance returns, and help reduce the volatility of a 
portfolio.

For those of you that have been subscribers to 
OptionInvestor.com, or premierinvestor.net over the years, bare 
with me for a moment to quickly explain to newer subscribers what 
we started in late 2002.

What I did is build a hypothetical investment portfolio called 
the "Beetle's Balanced Benchmark Fund."  You can't buy this 
"fund" anywhere.  But what we did was spread a hypothetical 
$10,000.00, in equal amounts, among 10 different asset classes 
($1,000.00 in each asset class).

Here is a look at what we did back on December 31, 2002.  Two 
years ago!  And what the $10,000.00 portfolio would look like 
today (Thursday December 30, 2004) at the market's close.  A pure 
"buy and hold" strategy of investing.

Beetle's Balanced Benchmark - 12/31/02 to 12/30/04



Almost 2 years to the date of inception, the Beetle's Balanced 
Benchmark would have gained roughly $2,139.00, or 21.43%.  That's 
not too bad considering a war in Iraq, high energy prices, a 
record high U.S. deficit.  

If the Beetle's Balanced Benchmark Fund has done anything for 
investors, it has disproved a lot of "theories," that have been 
presented the past few years.

When the dollar first began declining from record highs, that was 
certainly doom and gloom for bond investors and stock investors 
alike.  

The Beetle's Balanced Benchmark does not take into account any 
reinvestment of dividends, but has the 20.87% decline in the U.S. 
Dollar Index (dx00y) been doom and gloom?

Today we might hear, or read, that the dollar's decline will 
equate to higher stock prices!  However, this to in untrue, and 
the Beetle's Balanced Benchmark observations, as well as what 
took place with a rising dollar and rising stock prices, will 
disprove such nonsense.

But there are also those investors that "got burned" during the 
bear market of 2001 and 2002, where even today, still have the 
bulk of their assets in cash.  Fearful that they will once again 
get burned.

Meanwhile, in the past two years, the mighty greenback has lost 
just more than 20% of its purchasing power against a weighted 
basket of 6 major foreign currencies.  

And here again is where the Beetles Balanced Benchmark may have 
helped show longer-term investors the importance of some 
diversification.  While most investors capital would never be 
equally weighted among various asset classed (age, risk 
tolerance, etc.) we used this very basic strategy of equally 
weighting invested capital to better identify changes that took 
place over various intervals of time.

This year (2004) we decided to try and answer the "does 
rebalancing a portfolio enhance returns over time," by 
rebalancing the Beetles Balanced Benchmark Fund on a quarterly 
basis.  A quarterly rebalancing is by most measures more than 
sufficient to use a systematic approach of "buying low and 
selling high."  Forcing the investor, with no attempt at market 
timing, to take profits from those asset classes which may have 
outperformed other asset classes, and then buy, or reallocate 
assets to those that under performed.

As 2004 draws to a close, it is time for the fourth rebalancing 
of the Beetles Balanced Benchmark.  And once again, we will 
compare the rebalanced fund, to the same group of assets classes 
as if an investor had not rebalanced since December 26, 2003.

Beetles Balanced - No rebalance (top) / Qtrly rebalanced (bottom)



At the end of year 2003 (12/26/03), we reallocated $11,928.37 in 
the lower "rebalanced" portfolio.  Since that time, we have 
reallocated three different times, near the end of each calendar 
quarter (just ahead of an Ask the Analyst column).  

Here we are.  December 30, 2004 and the lower rebalanced 
portfolio would show a closing value of $12,153.20 versus the 
upper non-rebalanced value of $12,098.84.  

Please remember that neither portfolio takes into consideration 
the impact of dividends that the various asset classes would have 
paid for the full year.

And while the values of both portfolios seem rather similar, keep 
in mind that the comparison is based on a beginning value of 
$11,928.37.  Some investor's that have been building their future 
nest egg may be managing a larger portfolio.  Those investors 
just out of college may want consider future compounding of what 
reallocating their assets can have over time.

Also note the various P/L % changes that took place in the upper 
portfolio (roughly one year) and what took place in just the past 
three months!  Especially among the various equity asset classes 
as depicted by the DIA, SPY, QQQQ and $HUI.X.

Was the third quarter just a one-time event?  Not hardly.

Here's a table I put together to show this year's quarterly 
percentage changes in the 10 different asset classes represented 
in the Beetle's Balanced Benchmark at the time of rebalancing.  
While 2004 may have seemed like a "dull year," the following 
table depicts great volatility?

Quarterly % Change for Asset Classes (2004)



One quarter's percentage winner, wasn't necessarily the next 
quarter's percentage winner.  Neither was it the case that one 
quarter's loser, would become the following quarter's loser.

When considering the reallocation of assets, in general, what 
reallocation of assets did at the end of each quarter, was to 
take some profits in those asset classes that were green, and 
redistribute that capital to those that were red for the quarter.

The "worst" reallocation we made was at the end of the first 
quarter, we bought a little more AMEX Gold Bugs Index ($HUI.X), 
which was smacked for a 15.75% decline in the Q2.  But with eyes 
squinted and teeth clinched, we were once again "forced" to buy 
more $HUI.X at the end of Q2 and a nice reward was found by the 
end of Q3!  

With a nice quarterly gain in Q3 from the $HUI.X, some of that 
had to be reallocated to other asset classes, largely the DIA, 
SPY and QQQQ.  Boom!  

Can the perceived safety of bonds be an incorrect perception?  
The second quarter of 2004 would certainly suggest so.  Are gold 
stocks a safe haven?  Are gold stocks a "true" hedge against a 
falling dollar?  

No!

But these asset classes still play an important role in an 
investment portfolio.

The volatility of the asset classes can keep many investors 
preferring the safety of a savings account.  

But let's take the same data above, revert it back into dollar 
amounts, and now look at how proper allocating of assets (which 
the Beetle's Balanced does not portend to be), combined with the 
quarterly reallocation of assets can smooth out the bumps.  Note 
that Q2 was a losing quarter of 3.79% (Avg. Ttl) for the Beetle's 
Balanced.

The reason I mentioned that the Beetle's Balanced does not 
portend to be properly allocated (equal dollars in those asset 
classes covered) is that the equal weighting of capital among the 
various asset classes represented, aren't necessarily recommended 
for every investor.

Comparison Table of Rebalanced vs. No Rebalancing



Since we began the year (2004) with $11,928.37, it would make 
sense that both the rebalanced and non-rebalanced portfolios 
would perform the same up to their 03/26/04 benchmark.  On 
03/26/04 we did reallocation assets.

In Q2 is when the "fixed income" (SHY, IEF, TLT, LQD and PHF) 
along with the $HUI.X experienced declines.  

While this year we only witnessed one quarter's decline for the 
Beetles Balanced Benchmark fund, do you see that while a loss was 
experienced, the rebalanced portfolio did show a $5.90 amount of 
"out performance" over the non-rebalanced portfolio, on a 
quarter-to-quarter basis?  Rebalancing a portfolio is also a way 
to try and mitigate losses should a diversified portfolio still 
experience a decline.

In Q3 and then Q4, rebalancing, while trying to mitigate risk, 
still had the rebalanced portfolio outperforming the non-
rebalanced portfolio, even as both portfolios saw gains.

To be continued ....

I'm running late delivering this column to the editor, and I will 
continue this column next weekend.

However, this year I will make further changes to the Beetle's 
Balanced Benchmark.

In 2004, we saw some great disparity in the performance of 
various asset classes, when considering the market capitalization 
of equities.

Specifically the major out performance of small caps versus large 
caps.

The Beetle's Balanced Fund's equity representation is very 
focused on large cap stocks as depicted by the Dow Industrials, 
S&P 500 and NASDAQ-100.

For 2005, I would like to introduce both a mid-cap and small-cap 
equity asset class to the Beetle's Balanced Fund.

As we did in 2003 and 2004, we use the Beetle's Balanced Fund 
from time-to-time to step back and take a look at what the MARKET 
is doing among various asset classes, then try and interpret what 
the MARKET is actually saying.

I think it would be helpful to introduce some market 
capitalization into the equity portion of the Beetle's Balanced 
Fund.

I don't want to get too many more asset classes in the fund, as I 
would like to keep things as "simple" as possible, but if you 
have any suggestions as to an asset class that you feel is 
important, I'm always open to suggestions.

I had contemplated removing the AMEX Gold Bugs Index ($HUI.X) and 
replacing it with the StreetTracks Gold Trust (NYSE:GLD) $43.83, 
but we had too many traders say that they would prefer the 
continued following, and benchmarking of the $HUI.X in the 
Beetle's Benchmark, as many still would prefer to trade the 
equities than the GLD.

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

SONC  Sonic Corp          Mon, Jan 3rd  After the market     0.25
WAG   Walgreen            Mon, Jan 3rd  ----- n/a -----      0.29


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

AULT  Ault Inc            Tue, Jan 4th  After the market     n/a
BDAY  CelebrateExpress    Tue, Jan 4th  After the market     0.09
DLP   Delta & Pine Land   Tue, Jan 4th  Before the bell     -0.15
FINL  Finish Line         Tue, Jan 4th  After the market     0.06
LNDC  Landec Corp         Tue, Jan 4th  After the market    -0.06
OXM   Oxford Industries   Tue, Jan 4th  After the market     0.51

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

BSET  Bassett Furniture   Wed, Jan 5th  ----- n/a -----      0.25
LWSN  Lawson Software     Wed, Jan 5th  After the market     0.01
MON   Monsanto Co         Wed, Jan 5th  ----- n/a -----      0.13
RI    Ruby Tuesday        Wed, Jan 5th  After the market     0.30
UNF   UniFirst            Wed, Jan 5th  ----- n/a -----      0.52

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

ACN   Accenture           Thr, Jan 6th  After the market     0.31
AYI   Acuity Brands Inc.  Thr, Jan 6th  ----- n/a -----      0.32
BRLI  Bio-Reference Labs  Thr, Jan 6th  Before the bell      n/a
STZ   Constellation Brand Thr, Jan 6th  After the market     0.85
EMMS  Emmis Communication Thr, Jan 6th  ----- n/a -----      0.28
HELE  Helen of Troy       Thr, Jan 6th  Before the bell      0.93
TONS  Novamerican Steel   Thr, Jan 6th  ----- n/a -----      n/a
RPM   RPM Intl Inc        Thr, Jan 6th  Before the bell      0.33
SCHN  Schnitzer Steel     Thr, Jan 6th  Before the bell      1.30
TOPP  Topps               Thr, Jan 6th  ----- n/a -----      0.02
WDFC  WD-40 Company       Thr, Jan 6th  ----- n/a -----      0.30
XRTX  Xyratex Ltd         Thr, Jan 6th  Before the bell      0.18

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

CYCL  Centennial Comm.    Fri, Jan 7th  Before the bell      0.14
GAP   Great Atl/Pac Tea   Fri, Jan 7th  Before the bell     -1.19


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

Symbol  Company Name              Ratio    Payable     Executable

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
CCJ   Cameco                      3:1      Jan  6th    Jan  7th
MTH   Meritage Homes              2:1      Jan  7th    Jan 10th
LSTR  Landstar System             2:1      Jan  7th    Jan 10th
ACET  Aceto Corp                  3:2      Jan 10th    Jan 10th
CMC   Commercial Metals Co        2:1      Jan 10th    Jan 11th
WHI   W Holding Co                3:2      Jan 10th    Jan 11th

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

The fourth quarter earnings season begins soon but economic
reports like the ISM index will probably take the spotlight.
We'll also hear from multiple fed governors this week.  The
December Jobs report on Friday will be closely watched.


==============================================================
                       -For-           
----------------
Monday, 01/03/05
----------------
Construction spending for November
ISM Index for December
FOMC Governor Lacker speaks in N. Carolina

-----------------
Tuesday, 01/04/05
-----------------
Auto Sales for December
Truck Sales for December
Factory Orders for November

-------------------
Wednesday, 01/05/05
-------------------
ISM Services for December

------------------
Thursday, 01/06/05
------------------
Weekly Initial Jobless Claims
FOMC Governor Hoenig speaks in Missouri

----------------
Friday, 01/07/05
----------------
Non-farm Payrolls (Jobs) for December  Est: 175K  Last: 112K
Unemployment rate for December
Hourly Earnings for December
Average Workweek for December
Consumer Credit for November
FOMC Governor Santomero speaks..
FOMC Governor Ferguson speaks..


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**********

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The Option Investor Newsletter                   Sunday 01-02-2005
Sunday                                                      2 of 5

In Section Two:

Watch List: Bullish Candidates to Watch
Dropped Calls: IBM, ABK
Dropped Puts: None


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

TITLE: Bullish Candidates to Watch 

___________________________________________________________________

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.
___________________________________________________________________


Omnicom - OMC - close: 84.40 change: +1.89

WHAT TO WATCH: We strongly considered adding OMC to the play list 
as a call candidate this weekend.  The stock out performed the 
markets this Thursday and its MACD indicator produced a new buy 
signal after several weeks of consolidating sideways.  Yet OMC 
failed to breakout over the $85 level and looks ready to pull 
back again into the $83-84 range.  We'll watch for a breakout 
over $85 and target a move to $90.00.  




---

Cardinal Health - CAH - close: 58.55 change: +1.08

WHAT TO WATCH: CAH is no stranger to the watch list.  In the past 
month shares have pushed through the $55 level and its simple and 
exponential 200-dma's.  Now the stock is challenging what could 
be very tough resistance in the $59.25-60.00 level from its July 
gap down.  Once CAH breaks into the gap it can try to fill it 
giving bulls an upside target in the $68-70 region.  The P&F 
chart is extremely bullish with a $101 target.   We'd wait for 
the move over $60.00.




---

Morgan Stanley - MWD - close: 55.25 change: +0.01

WHAT TO WATCH: MWD has spent the last several months 
consolidating sideways between $47 and $56 although the current 
two-month trend looks bullish.  Longer-term it looks like MWD may 
have put in a significant base.  Readers may want to consider 
bullish positions if MWD can breakout above the $56.00 level.  
The P&F chart looks bullish with a similar basing pattern and a 
buy signal pointing to $66.  We would probably target a run 
toward $60 or its March highs near $62.




---

Invitrogen Corp - IVGN - close: 67.90 change: -0.11

WHAT TO WATCH:  IVGN has been digesting its early December gains 
for the past three weeks.  Now the recent strength in the BTK 
biotech index and the bounce from support at $65 for IVGN looks 
like a good combination.  Readers may want to consider new longs 
if IVGN can trade above $68.25.  The P&F chart is very bullish 
with an $81 target.  





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

RKY $75.86 +0.78 - After a month's worth of consolidating its 
November gains RKY looks ready for another leg higher.  Look for 
a move over the December 1st high at $76.55.  The next level of 
resistance would be $80 but its P&F chart points toward $100.

ACS $60.53 +0.03 - ACS is nearing major resistance at the $61.00 
level.  A breakout here could be a bullish entry point.  The 
bullish P&F chart points to $81.

KMRT $99.36 -0.58 - We're still watching KMRT for a big move now 
that the consolidation has narrowed into such a small range.  A 
straddle-type play could work well.

FD $57.76 +0.63 - FD has continued to rally and is now 
challenging resistance at the $58.00 level.  A breakout here 
would be a new all-time high and a potential momentum entry 
point.  The MACD is nearing a new buy signal. 

PCAR $79.91 -0.34 - We're still watching PCAR for a move through 
the $80-81 region.  The MACD is very close to a new buy signal. 

APOL $80.83 -0.77 - Thursday's failed rally at $82 and its 200-
dma could be an aggressive trader's bearish entry point.  We're 
still watching for a breakdown. 

AZO $90.69 +0.29 - AZO continues to inch higher.  A move over 
$91.50 would be a tempting momentum entry point for bulls.

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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
^^^^^

Ambac Fincl Group - ABK - cls: 82.77 chg: -0.08 stop: 79.89     

We're going to call it quits on ABK.  The stock has been stuck in 
a trading range between $81.80 and $83.40 for the last two weeks 
during one of the year's most bullish seasonal periods.  This is 
probably due to the lack of momentum in the IUX insurance index.  
More patient traders may want to hold on but we urge caution.  
The IUX looks poised for some consolidation and ABK is likely to 
follow.  Look for ABK to report earnings around January 26th.  
This is a probably but unconfirmed earnings date.

Picked on December 01 at $82.26
Change since picked:     + 0.51
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      490 thousand



---


 
Intl Business Mach. - IBM - close: 98.30 chg: +0.12 stop: 95.99  

Yeah!  IBM tried to breakout over the $99.00 level all day with 
an early surge higher.  Big blue then traded in a 20-cent range 
between $98.80 and $99.00 for most of the session hitting the 
bottom of our target range at $99.00 several times.  We are 
claiming victory and per our previously published guidelines are 
exiting at the $99.00 level.  Bulls still holding positions 
should be careful as we would expect shares pull back a bit given 
today's failed rally.

Picked on October 27 at $90.00
Change since picked:    + 8.30
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 




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.


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

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The Option Investor Newsletter                   Sunday 01-02-2005
Sunday                                                      3 of 5

In Section Three:

Current Calls: ZBRA, WFMI, UTX, RAI, MHK, JCI, GOOG, FSH, FRE, 
               ETR, CTX, COF, BIIB, BBOX, ACL
New Calls: 
Current Puts: None
New Puts: None

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

Alcon Inc - ACL - close: 80.35 chg: +0.04 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: 
We do not have much new to report on for ACL.  Shares have 
churned mostly sideways the past few days holding on to round-
number support at the $80 level.  Unfortunately, this level may 
not hold as technicals are looking weaker and a test of the $78 
level would not surprise us.  Keeping this in mind we would not 
suggest new positions until we saw signs of a bounce either from 
$78, $80 or over $82 depending on your style of trading.  
Fortunately, the bullish P&F chart with its quadruple-top 
breakout buy signal and $101 target has not changed.

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

BUY CALL FEB 80 ACL-BP OI= 608 current ask $3.80
BUY CALL FEB 85 ACL-BQ OI=2059 current ask $1.60

Annotated chart:


Picked on December 22 at $ 81.74 
Change since picked:      - 1.39
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       773 thousand




---

Black Box - BBOX - close: 47.63 change: +0.23 stop: 43.99     

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:
Good news for traders in BBOX.  This stock continues to out 
perform its peers in the NWX networking index.  However, we 
expect that BBOX will perform even better next week now that the 
NWX index looks poised to move higher with a new MACD buy signal.  
Should BBOX surprise us with a dip we'll look for support at the 
$46 level.  

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=559 current ask $4.30
BUY CALL FEB 50 QBX-BJ OI= 80 current ask $1.65

Annotated chart:


Picked on December 22 at $ 46.15 
Change since picked:      + 1.48
Earnings Date           01/18/05 (unconfirmed)
Average Daily Volume =       128 thousand




---


Black & Decker - BDK - close: 87.97 chg: -1.22 stop: 84.49*new*

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 continues to show its relative strength with another new all-
time high this week.  More importantly shares of BDK broke out 
above its recent trading range after testing technical support at 
its rising 40-dma four days ago.  The MACD indicator looks good 
with a buy signal just three days old.  Readers can look for a 
bounce from $87.00 or a breakout over $90.00 as their next entry 
point.  We're raising our stop to $84.49, still under the 40-dma.

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

BUY CALL FEB 85 BDK-BQ OI=520 current ask $5.20
BUY CALL FEB 90 BDK-BR OI=303 current ask $2.60
BUY CALL FEB 95 BDK-BS OI= 29 current ask $0.85

Annotated Chart:


Picked on December 22 at $ 87.01
Change since picked:      +  .96
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       656 thousand 




---

Biogen Idec - BIIB - close: 67.21 change: -0.71 stop: 64.49     

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:
The recent strength in the BTK biotech index is good news for 
BIIB and we expect both to continue climbing in the new year.  
BIIB spent most of the last three weeks digesting gains from its 
early December breakout and looks ready to run higher although a 
dip back to $66 would not be out of the question.  The P&F chart 
remains bullish with a $95 target.  Our short-term target remains 
$70.00 but we suspect BIIB can trade higher.

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=20972 current ask $7.60
BUY CALL JAN 65 IHD-AM OI=10964 current ask $3.30
BUY CALL JAN 70 IHD-AO OI=13309 current ask $0.65

BUY CALL APR 65 IHD-DM OI= 3710 current ask $6.10
BUY CALL APR 70 IHD-DN OI= 9868 current ask $3.50

Annotated chart


Picked on December 9 at $ 65.25
Change since picked:     + 1.96
Earnings Date          01/26/05 (unconfirmed)
Average Daily Volume =      3.5 million  



---

Capital One Financial - COF - cls: 83.79 chg: -0.37 stop: 79.50     

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:
COF turned in a decent week with a string of new all-time highs.  
Yesterday shares got a boost after Merrill Lynch reiterated their 
"buy" rating on the stock and raised their price target to $96.  
We remain bullish as well.  Readers can watch for a bounce from 
$82.00 or a move over $84.50 as a new entry point.  Our target 
remains in the $88-90 range.

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=3485 current ask $9.20
BUY CALL JAN 80 COF-AP OI=6035 current ask $4.60
BUY CALL JAN 85 COF-AQ OI=2712 current ask $1.30

BUY CALL MAR 80 COF-CP OI=1734 current ask $6.40
BUY CALL MAR 85 COF-CQ OI=1646 current ask $3.20
BUY CALL MAR 90 COF-CR OI=1962 current ask $1.35

Annotated Chart:


Picked on December 12 at $ 81.12
Change since picked:      + 2.67
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       1.4 million  



---


Centex - CTX - close: 59.50 change: +0.50 stop: 55.90

Company Description:
Dallas-based Centex Homes is one of the nation's leading 
homebuilders, operating in more than 90 U.S. markets in 26 
states. Its brands include entry-level builder Fox & Jacobs 
Homes, on-your-lot builder Wayne Homes and resort/second 
homebuilder Centex Destination Properties. Centex Homes delivered 
30,358 homes in the Unites States in its most recent fiscal year 
ended March 31, 2004. (source: company press release)

Why We Like It:
Homebuilders have continued to rebound as we expected they would 
and now CTX is challenging resistance at the $60.00 mark.  This 
is a crucial test and bulls need to see CTX breakout over $60 and 
hit new all-time highs.  If not we might get another chance to 
see CTX dip towards $58 before bouncing again otherwise this may 
begin to look like a top.  Readers can choose either region as a 
new entry point - bounce from $58 or breakout over $60.  
Remember, we plan to exit this play before CTX's January earnings 
announcement.

Suggested Options:
We are going to suggest the January and February calls even 
though we do not plan to hold past CTX's January earnings date.

BUY CALL JAN 55 CTX-AK OI=1781 current ask $5.20
BUY CALL JAN 60 CTX-AL OI=2331 current ask $1.70

BUY CALL FEB 60 CTX-BL OI= 224 current ask $2.85

Annotated Chart:


Picked on December 28 at $ 58.84
Change since picked:      + 0.66
Earnings Date           01/18/05 (unconfirmed)
Average Daily Volume =       1.4 million  



---

Entergy Corp - ETR - close: 68.16 chg: +0.30 stop: 64.95  

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:
This electric utility stock continues to show strength.  ETR 
broke out over major resistance at the $68.00 level on Thursday 
to close at a new all-time high.  While we wish shares had held 
its early morning gains the technical breakout still counts.  
Readers can look for a bounce from $68.00 or worse case $67 as a 
new entry point for bullish positions.  
   

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 $4.00
BUY CALL FEB 70 ETR-BN OI=27 current ask $0.90

BUY CALL MAR 65 ETR-CM OI=214 current ask $4.20
BUY CALL MAR 70 ETR-CN OI=166 current ask $1.25

Annotated chart:


Picked on December 21 at $ 67.62
Change since picked:      + 0.54
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.1 million  



---

Freddie Mac - FRE - close: 73.39 chg: +0.70 close: 67.99     

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:
The rally for mortgage lender FRE continues as we hit the last 
few days of 2004.  Shares are building a consistent trend of 
higher lows and closed at a new all-time high on Thursday.  When 
we consider that FRE's recent breakout over the $70-71 region 
broke through multi-year resistance we don't expect the up trend 
to pause any time soon.  A dip to $72 can probably be used as a 
new entry point.  We're going to raise our stop loss to $68.99.  
Our target is unchanged in the $77-80 range.

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

BUY CALL APR 65 FRE-DM OI=12649 current ask $9.40
BUY CALL APR 70 FRE-DN OI= 3225 current ask $5.30
BUY CALL APR 75 FRE-DO OI=15382 current ask $2.10

Annotated chart:


Picked on December 21 at $ 71.80
Change since picked:      + 1.59
Earnings Date           00/00/05 (unconfirmed)
Average Daily Volume =       2.8 million  



---

Fisher Scientific - FSH - cls: 62.37 chg: +0.02 stop: 57.95   

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:
The rally continues for FSH as well this past week.  Granted 
shares look like they've only traded sideways the past few days 
but the six-week up trend is still intact.  This recent test near 
its 10-dma is probably a new entry point for bulls.  However, one 
can be patient and wait to see the bounce or a possible dip 
toward previous resistance now new support in the $60-61 region.  
Short-term FSH's momentum oscillators are giving us a mixed 
picture but longer-term the P&F chart remains bullish with an $82 
target.
  
Suggested Options:
We are going to suggest the March calls.

BUY CALL MAR 55 FSH-CK OI= 281 current ask $8.50
BUY CALL MAR 60 FSH-CL OI=1935 current ask $4.70
BUY CALL MAR 65 FSH-CM OI=1827 current ask $1.80

Annotated chart:


Picked on December 21 at $ 61.70
Change since picked:      + 0.67
Earnings Date           02/02/05 (unconfirmed)
Average Daily Volume =       1.3 million  




---

Google Inc - GOOG - close: 197.60 change: +4.70 stop: 189.99*new*

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:
Shares of GOOG added another 2.4 percent in what looks like some 
end of year window dressing.  The stock had been consolidating 
sideways the past few sessions but shares suddenly broke out to 
the upside again on rising volume.  Our target has been the $199-
200 region and GOOG almost got there today with a high of 
$198.23.  Readers can prepare to exit.  We will exit at $199.00 
which could happen tomorrow (Friday).  More aggressive traders 
may want to hold on to GOOG but keep in mind the $200 level could 
be tough round-number, psychological resistance.  We are raising 
our stop loss to $189.99. 

Suggested Options:
We are not suggesting new bullish plays at this time. Readers
can prepare to exit at GOOG nears our target.

Annotated Chart:


Picked on December 20 at $183.01
Change since picked:      +14.59
Earnings Date           01/20/05 (unconfirmed)
Average Daily Volume =        10 million  




---

Johnson Controls Inc - JCI - cls: 63.83 chg: +0.18 stop: 60.49

Company Description:
Johnson Controls is a global market leader in automotive systems 
and facility management and control. In the automotive market, it 
is a major supplier of integrated seating and interior systems, 
and batteries. For non- residential facilities, Johnson Controls 
provides control systems and services, including comfort, energy 
and security management. Johnson Controls, founded in 1885, has 
headquarters in Milwaukee, Wisconsin (U.S.A.).
(source: company press release)

Why We Like It:
Excellent!  The rally in JCI continues and shares followed up the 
recent breakout over $63.00 with additional gains.  Our trigger 
to go long was at $63.51, which was hit yesterday.  The technical 
picture is bullish and its MACD just produced a new buy signal 
two days ago.  Meanwhile its P&F chart points to a $70.00 target. 
We agree and will also target the $70 level but the trick is for 
JCI to get there before its January earnings - an event we do not 
want to hold over.  We would consider longs at current levels or 
on a dip back to $63, which should now be support.

Suggested Options:
We are going to suggest the January and February options although
we plan to exit this play before JCI's January earnings report.

BUY CALL JAN 60 JCI-AL OI=1055 current ask $4.30
BUY CALL JAN 65 JCI-AM OI= 701 current ask $0.80

BUY CALL FEB 60 JCI-BL OI=   7 current ask $4.70
BUY CALL FEB 65 JCI-BM OI=  68 current ask $1.45

Annotated Chart:


Picked on December 29 at $ 63.51
Change since picked:      + 0.32
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       669 thousand 



---


Mohawk Industries - MHK - close: 91.50 chg: +0.90 stop: 87.95*new*

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 rebound in MHK continues as the stock builds on its two-month 
pattern of higher lows.  The technical picture is improving too 
with its MACD indicator producing a new buy signal with 
Thursday's gain.  Readers can choose to buy a dip back towards 
$90.00 or a breakout over $92.00.  Our target remains the $99-100 
range.  We are going to raise our stop loss to $87.95 just under 
the recent lows these past two weeks. 

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

BUY CALL FEB 85 MHK-BQ OI= 383 current ask $7.80
BUY CALL FEB 90 MHK-BR OI=1346 current ask $4.10
BUY CALL FEB 95 MHK-BS OI= 238 current ask $1.65

Annotated Chart:


Picked on December 14 at $ 91.00
Change since picked:      + 0.50
Earnings Date           02/15/05 (confirmed)
Average Daily Volume =       319 thousand   



---

Reynolds American - RAI - close: 79.12 change: -0.85 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:
Hmm... the tobacco industry hit some profit taking on Thursday 
lead by a one-percent decline in RAI.  The cause was new coverage 
by LEH who started RAI with an "equal weight" rating and an $80 
price target.  We need to be careful here.  Readers may want to 
wait and see if RAI bounces from the $78 level before considering 
new entries.  Technicals do look a bit bearish so watch for the 
dip.

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

BUY CALL FEB 75 RAI-BO OI= 2047 current ask $6.10
BUY CALL FEB 80 RAI-BP OI= 3137 current ask $2.90
BUY CALL FEB 85 RAI-BQ OI=  162 current ask $1.10

Annotated chart:


Picked on December 22 at $ 80.11
Change since picked:      - 0.99
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       1.0 million  




---

United Tech. - UTX - close: 103.76 change: -0.20 stop: 99.95  

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:
Defense stocks have been suffering lately with possible cuts for 
the F/A-22 fighter jet project lead by Lockheed Martin.  The 
recent pull back in UTX could be investors doing some profit 
taking in defense-related issues.  Plus, the Dow Industrials is 
looking a bit short-term overbought and vulnerable to more profit 
taking.  Thus the recent pull back in UTX is probably sparked by 
factors not of UTX's doing.  We do agree that the technical 
picture for UTX looks a bit overdone and its MACD just produced a 
new sell signal.  We expect that UTX will consolidate lower.  The 
question is how far will traders let it fall before buying the 
dip.  Remember that the latest mid-quarter update from UTX was 
very positive.  Management said business hasn't been this good in 
a very long time.  The first level of support should be near 
$101.50-102.00 but UTX could slip all the way back to $100.  If 
you're profitable you may want to consider taking some profits 
now (as we suggested when UTX was near $105-106) and re-enter on 
a bounce above $100.  Unfortunately the challenge is avoiding 
UTX's earnings report expected on or around January 18th.
   
Suggested Options:
We like the January 2005 calls.  

BUY CALL JAN  95 UTX-AS OI=2972 current ask $9.20 
BUY CALL JAN 100 UTX-AT OI=6789 current ask $4.50
BUY CALL JAN 105 UTX-AA OI=3631 current ask $1.20
BUY CALL JAN 110 UTX-AB OI=1445 current ask $0.20

Annotated chart


Picked on December 1 at $100.15
Change since picked:     + 3.61
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  



---

Whole Foods - WFMI - close: 95.91 chg: +0.55 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:
We continue to play the waiting game with WFMI.  We remain 
bullish on the stock but shares have been consolidating sideways 
near $95 the last few days.  We don't mind this as it makes any 
future breakout that much stronger.  Our trigger to go long is at 
$97.51 so that WFMI will have to break through resistance near 
$97 and hit a new all-time high.  The P&F chart looks bullish 
with a $112 target.

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

BUY CALL FEB 90 FMQ-BR OI=1259 current ask $8.20
BUY CALL FEB 95 FMQ-BS OI=2407 current ask $5.10
BUY CALL FEB 100 FMQ-BT OI=559 current ask $2.90
BUY CALL FEB 105 FMQ-BA OI=391 current ask $1.45

Annotated chart:


Picked on January xx 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: 56.60 chg: +0.31 stop: 52.99*new*

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:
We remain bullish on ZBRA even though we expected a better 
performance this past week.  Shares continue to consolidate 
sideways with traders buying the recent dip to $55.00.  The trend 
of higher lows is encouraging but more conservative traders may 
want to wait for ZBRA to trade over $57.25 before initiating new 
positions.  We are going to try and reduce our risk by raising 
the stop loss to $52.99, just under the dip two weeks ago.

Suggested Options:
We are going to suggest the January and February calls although
right now our preference would be for the February's.

BUY CALL JAN 50 ZBQ-AJ OI= 93 current ask $6.90
BUY CALL JAN 55 ZBQ-AK OI=766 current ask $2.75
BUY CALL JAN 60 ZBQ-AL OI=522 current ask $1.00

BUY CALL FEB 55 ZBQ-BK OI=2324 current ask $4.30
BUY CALL FEB 60 ZBQ-BL OI= 754 current ask $1.50

Annotated chart:


Picked on December 15 at $ 55.21
Change since picked:      + 1.39
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       709 thousand 





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



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

None

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

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The Option Investor Newsletter                   Sunday 01-02-2005
Sunday                                                      4 of 5

In Section Four:

Leaps:    Buying Opportunity Ahead
Spreads and Straddles:  The Fear Factor -- More Than Just Insects

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*****
LEAPS
*****


Buying Opportunity Ahead

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

We lost two more positions this week on stop losses 
with FDX and LLL both losing ground. I also dropped
Tyco after an entire week over $36 with no progress.
Given the profits over the past year I felt we could
see some early January selling. We can always reenter
again once we see what the market is going to give us
in 2005. I also closed the QQQQ position. The Qs have
not really been showing any strength and I think we
have more risk to the downside than potential upside
over the next week.  

I added several stocks to the watch list but I am
not really expecting an entry until later in January.
The first week of January dip is typically short and
sharp with a quick rebound. It is not really a leap 
buyers entry point. I am looking for a second dip in
late January to pickup some new positions. 

The current portfolio is protected with insurance
puts and should be insulated from any early January
surprise. 

I thought about speculating with some index puts to
further offset any weakness but with a weekly column
it just does not provide the flexibility for that
type of move. We are better off just waiting for
the next buying opportunity and picking off the
best ones on each dip. 

Stops were raised on several positions.

Happy New Year!

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

leaps @ OptionInvestor.com  


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

None 


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

FDX - Federal Express $98.67  **Stop hit $98.00**

TYC - Tyco Intl. $35.98  **dropped**

LLL - L-3 Communications $73.33 ** Stop hit $74.00 **

QQQQ - Nasdaq 100 $39.78    **Dropped**

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

None


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

Position Summary Table

 


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


None



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


SYMC $25.45 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.  

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 $36.23  ** No Stop **

Nothing new on the XLE. Oil is still hovering well above
its 200 day average at $40.50 and well above support. 

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 $86.80    ** Stop 85.00 **

No change for COP this week.

There were some positive developments in Russia with
COP last 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.

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 - $37.40 Marathon Oil    ** No Stop **

Marathon finally jumped off support just as it appeared
it was going to fail. 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. $68.16   **New Stop $66.50 **

ETR hit a new high on Friday and appears to be out
of its slump. I raised the stop to be safe.   

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 $98.67  **Stopped $98.00**
Entry $91.93 (11/5)

FDX finally rolled over with the holiday package season
now history. We did well on this position. 

If you followed the game plan and sold the put to start
the play and offset our cost in the LEAP calls then you
had a stellar profit. 

We closed the put on 12/19 for 75 cents and a +$3.65
profit. Adding that profit to the profit on the calls
looks like this. 

$ 95 LEAP, cost $8.00, exit 11.30, +3.30 +3.65 = $9.95 +124%
$100 LEAP, cost 10.60, exit 13.30, +2.70 +3.65 = $6.35 +60%

If you bought the Jan-$95 insurance put in December
for $1.25 there would be an 80 cents loss on that put. 
Very cheap insurance against a winning position. 

Closed when stopped on 12/27 at 11:30
2006 $ 95 LEAP Call WFX-AS @ $8.00 exit @ $11.30 
2007 $100 LEAP Call VFX-AT @ $10.60 exit @ $13.30
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. $35.98  **Dropped**

Tyco broke over $35 resistance two weeks ago and then
$36 but has failed to move after breaking that $36 barrier.
I am concerned that TYC could see some serious profit taking
after this week and decided to exit the play. That little
stutter step at the breakout highs was beginning to look
like a failure in progress. 

Tyco is up an even $10 for the year and +7.50 from our
entry point back in May. This has been like watching
paint dry but we ended with a nice gain. 
 

2005 $30 LEAP Call TYC-AF @ $2.15 12/19 $4.80 +$2.65 123%
2006 $30 LEAP Call WPA-AF @ $4.00 12/30 $7.60 +$3.60 90%
July $25 insurance put - expired - cost $.55

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

Tyco Chart




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

LLL $73.33 L-3 Communications   ** Stopped $74.00 **

I almost closed it last week with the new high over
$77 but defense stocks were on a roll. That was last week!
This week defense stocks are the forgotten heroes and 
definitely in the tank. 

LLL hit our $74 stop on Wednesday at the open with a
massive drop on the Pentagon news about cutbacks in
defense. We barely got out with a gain after the -3.50
drop in three days.  


Entry $71 (11/24)
2007 $75 LEAP Call OOY-AO @9.50, exit 12/29 11.20, +1.70

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

LLL Chart



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

HIG - Hartford Financial Services $68.98  ** Stop $67.50 **

Hartford is at resistance at $69 but a breakout there
could really get things moving. I raised the stop
to $67.50 just in case disaster strikes. Hartford 
continues to move higher every day but not in big
bites. Just a slow steady creep.   

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


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

QQQQ  $39.78 Nasdaq 100   **Dropped**

The QQQQ has taken two weeks to move +70 cents and the
NDX is looking weak. With the potential for calendar
selling next week I decided to take profits. 
 
 
Entry $36.50 (10/27)
2006 $35 LEAP Call YWZ-AI @ $5.10, exit $7.40, +2.30 +45%
2006 $37 LEAP Call YWZ-AK @ $3.90, exit $6.00, +2.10 +54%

QQQ Chart


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

Target Shooting

With the potential for a January dip I am going 
to start adding some stocks to the watch list. I
do not expect them to be hit on the first dip that
is expected next week. I am targeting a bigger dip
closer to the end of the month. 

I am not going to provide large play descriptions
on this target list until they get closer to our
actual targets. If they are hit before I get the
play description written then pick the LEAP you
like best and jump in. I hope to have a list of
about 20 possibles before mid January. 

Just put these on your radar screen and let's see
if we can get lucky before Valentines day.   

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

UNH - United Health Group  (Target $80.00)
DHI - D R Horton (Target $36.00)
DGX - Quest Diagnostic (Target $91.00) 
IBM - IBM (Target 94.00)
EBAY - eBay Inc (Target $110)
ADBE - Adobe Systems (Target $57.00)
XMSR - XM Satellite (Target $34.00)
RIMM - Research in Motion (Target $75.00)



*************************
Current Watch list
*************************    
   
HET $66.45 Harrah's Entertainment  **New Target $61.00**

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. 

Go long on HET with a pullback to $61.00

I changed the target to the 50-day average. 

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

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

HET Chart


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




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

The Fear Factor -- More Than Just Insects
By Mike Parnos

On TV's Fear Factor they have to jump out of airplanes, eat 
worms, or let snakes crawl over them to make money.  We don't 
have it so bad.  We just have to go up against market makers 
every day.  Not a lot different, but slightly more civilized.

Fear isn't any fun.  But, it's always there -- in one form or 
another -- from youth through adulthood.   It's how we deal with 
it that determines our quality of life.

The Origin Of Fear
When you were born, you were afraid of the doctor.  Hey, the SOB 
slapped you for no reason at all the minute you popped out of the 
womb.  Then, as a baby you were afraid of strained prunes (hell, 
I still am).  As you grew older, your fears change form -- you 
became afraid of the boogeyman.  He looked familiar, the image 
was blurry, but you knew he was hiding under your bed.  When your 
mom looked, he wasn't there.  Aha!  Then he must be in the 
closet.  Mom looked there and found a life-size replica of 
Michael Jackson (enough to scare anyone).

If that wasn't traumatic enough, when you started school you had 
the fear of fitting in with your classmates.  A few years later, 
you had to deal with the fear of rejection.

As an adult, whether you realize it or not, you're always dealing 
with the fear of being right or the fear of making the wrong 
decision.  Basically, it's FEAR that dominates many lives.  Why 
should that be any different in your trading?

Fear In Your Trading Life
There are four major trading fears - a) Fear of losing money; b) 
Fear of being wrong; c) Fear of missing out; and d) Fear of 
leaving money on the table.  All of these fears result from 
thinking you know what will happen next.   Just think, if you 
accept the fact that you really don't know what's going to happen 
next, you can alleviate yourself of these fears.

The problem is that many traders are "sure" they know what's 
going to happen.  If they weren't "sure," why would they bet on 
it?  Only an idiot bets on something that's no more certain than 
a coin-flip. Many of you are saying, "he can't be talking about ME
."  Wanna bet?

Needless to say, idiots line up at the trading craps table to 
place their bets and they are traumatized when they see the 
financial croupiers take their money away -- again and again.  
How can they be so wrong -- over and over and over?

Those four trading fears represent four little voices incessantly 
whispering in your ear while you're waiting for your trade to 
resolve itself.  Should I sell and take a profit?  No, it might 
go up more.  Should I sell and take a loss?  No, I'd have to 
admit that I was wrong.  And, what if it turns around and goes 
back up?  It's enough to drive you crazy -- and how can you 
function properly with these fears playing havoc with what's left 
of your sanity?  Besides, these are all decisions you need to 
consider before you even enter the trade.

Those are the thoughts of LOSERS.  Want to be one?  It's easy.  
Just keep trading directionally, without a plan, without skills, 
and without a perspective.  In the meantime, we at the CPTI, will 
be glad to book your bets.  CPTI Rules!!!
_______________________________________________________________

January Positions
The S&P seems to want to go up, but it lacks something -- buyers.  
They're probably out there and it will probably just be a matter 
of time before it continues up.  That's why I'm reluctant to 
suggest we put on the top of the condors.  
__________________________________________________________

That Time Of Year Again
I'm going to be away for a week - January 8 - 15.  It's one of 
those family cruises where you sandwich in visiting four islands 
between meals.  I'm not sure what I'm going to do without my 
couch and computer, but I'll likely be preoccupied with the 
buffet.  


_________________________________________________________________

JANUARY CPTI POSITIONS:
January CPTI Position #1 - SPX Iron Condor (Part 1) - 1213.55
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 - 1213.55
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 
Viagra). 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) - 508.19
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) - 1213.55
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 -- $39.99
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.

ZERO-PLUS Strategy. OEX - 576.10
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 
(even though many do). The portfolio represented here is 
hypothetical and for investment education purposes only. It is 
only an illustration of what type of gains a knowledgeable trader 
might receive utilizing these strategies.  If you don't get close 
to these results, it ain't the fault of the strategies.

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

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The Option Investor Newsletter                   Sunday 01-02-2005
Sunday                                                      5 of 5

In Section Five:

Covered Calls:  See note
Spreads and Straddles:  See note
Premium-Selling Plays: See note


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**************
COVERED CALLS
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Holiday Schedule
----------------
 
Due to the New Year's holiday the regular spreads/straddles and combos
sections were not available in time for publication Thursday night. Please
look for an update in this section next week.


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

Holiday Schedule
----------------
 
Due to the New Year's holiday the regular spreads/straddles and combos
sections were not available in time for publication Thursday night. Please
look for an update in this section next week.



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*****************************************
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
*****************************************

Holiday Schedule
----------------
 
Due to the New Year's holiday the regular spreads/straddles and combos
sections were not available in time for publication Thursday night. Please
look for an update in this section next week.


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