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Daily Newsletter, Tuesday, 01/04/2005

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The Option Investor Newsletter                 Tuesday 01-04-2005
Copyright 2005, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Why Worry? 
Futures Markets: See Note
Index Trader Wrap: Inflation is still a dirty word
Market Sentiment: Q4 Hangover


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      01-04-2005           High     Low     Volume   Adv/Dcl
DJIA    10630.78 - 98.70 10769.56 10605.15 2.13 bln  763/2420
NASDAQ   2107.86 - 44.30  2159.64  2100.56 2.73 bln  744/2414
S&P 100   566.77 -  5.56   574.49   565.51   Totals 1507/4834
S&P 500  1188.05 - 14.03  1205.84  1185.39 
SOX       410.36 - 13.90   426.10   406.08
RUS 2000  628.54 - 11.90   643.05   627.89
DJ TRANS 3678.33 - 82.00  3768.51  3674.94
VIX        13.98 -  0.10    14.45    13.93
VXO (VIX-O)14.13 -  0.07    14.96    13.89
VXN        20.06 +  0.56    20.81    19.57  
Total Volume 5,210M
Total UpVol    809M
Total DnVol  4,306M
Total Adv  1820
Total Dcl  5547
52wk Highs  142
52wk Lows    27
TRIN       1.68
NAZTRIN    1.34
PUT/CALL   0.77
************************************************************

Why Worry?
by Jim Brown

We expected a drop this week and I have reported those
expectations in this commentary more than once. After 
two days of decline the market pundits are suggesting 
the market conditions have changed and the bears are
coming out of the woods to feast on fresh hamburger.
Who is right and has investing as we knew it changed
over the last week?

Dow Chart

 
Nasdaq Chart

 
SPX Chart

 
Russell Chart

 


In my opinion nothing has changed. The economy is still
struggling along and the multitude of worries mentioned
on stock TV this week are just a rehash of the worries
the bulls trampled over the last quarter. I will try to
touch on the majority of those worries but first the
economics of the day. 

Chain Store sales fell back to mediocre at only a +0.2%
rate for the week ended Jan-1st. This is a very strong
shopping week and buyers failed to appear in droves but
the year over year number rose to +4.6%. Only a minor
increase week to week but strong gains over the prior
year. Retailers can now take their Rip Van Winkle nap
until next fall with only Valentines and Easter to 
provide any waking excitement. 

Factory Orders jumped only slightly more than expected 
at +1.2% for November. All components rose slightly with
the majority of the gains probably related to last minute
pre-holiday shipping and a rebuild cycle beginning for 
depleted year end inventories. No big excitement here. 

Auto sales rebounded strongly in December with red tag
specials and higher than ever cash back programs. The
annualized rate jumped to 18.4 million from 16.4 million
in November. This turned out to be the fourth strongest
year on record. Light trucks jumped +10.1% but Japanese
makers Toyota, Honda and Nissan topped the leader board
with even higher double digit gains as they increased 
their share of the market to greater than 40%. Hybrid 
vehicles are selling faster than they can make them as 
consumers try to avoid the high gas prices ahead. 

Economics were just like they have been for the last
three months with mixed messages across all components.
The biggest economic bombshell today did not come from
an economic report but from the Fed minutes from the
December FOMC meeting. The Fed stated that the economy
was expected to continue its leisurely pace of recovery
and the recovery was seen to be firmly entrenched. They
cited labor markets as improving and this should continue
to support consumer spending. 

The problems appeared in the interest rate outlook with
comments that the recent depreciation of the dollar, 
elevated energy costs and the possibility of slowing
growth as factors that could increase the risk of inflation.
They still see the risks to be balanced between inflation
and deflation but they are now leaning toward inflation
ahead. They said the increase in inflation signals over 
the last few months might be a warning sign that expectations
for low inflation were not as well founded as they had been
last summer. Fear is creeping into the Fed outlook and they
feel part of that creeping inflation is still being fueled
by excessive liquidity. In Fedspeak excessive liquidity
means interest rates are too low. 

"Some participants believed that the prolonged period of 
policy accommodation had generated a significant degree of
liquidity that might be contributing to signs of potentially
excessive risk-taking in financial markets evidenced by quite
narrow credit spreads, a pickup in initial public offerings, 
an upturn in mergers and acquisition activity, and anecdotal
reports that speculative demands were becoming apparent in 
the markets for single-family homes and condominiums." 

The bottom line for the report was a significant fear that
the Fed was losing control and could begin to ramp up the
rate hike cycle with more aggressive hikes. The Fed believes
that energy prices will remain low, a point I would argue is
in error, global growth will continue and trade deficits will
diminish due to the drop in the dollar. In general they are
nearly united in their view that the Goldilocks economy is
returning with the exception of a greater risk for inflation.

Where the Fed minutes should have painted a positive outlook
for investors given the Fed's rose colored glasses it also
shattered that outlook with worries that rates were going 
higher soon. There had been a near unanimous view that the
Fed would pause at the February meeting and take a longer
view of the economic picture before making any new changes.
After today's report the current 2.25% rate has now been
speculated to rise to as much as 4.25% by year's end. This
would mean at least one hike greater than 25 points or no
passes at any of the eight meetings scheduled for 2005. 

This sudden change from a no more hike sentiment to a full
and possibly aggressive hike scenario knocked the wind out
of the market this afternoon. The yield on the ten-year 
treasury spiked to 4.3% and the equity markets imploded. 
The Dow dropped -100 points on the 2:PM news to 10605 and
barely rebounded to close at 10632. The Nasdaq dropped 
another -21 points on top of an already steep decline to 
-59 off the highs at 2100. The Nasdaq only managed a very
weak +9 point bounce into the close. It was the worst day
for the Nasdaq in five months. 

Also helping the decline was a downgrade on AMZN to sell
at Smith Barney. Despite very strong sales this year the
analyst thinks other online firms are eating away at AMZN
market share and will continue to do so. Brick and mortar
retailers are reporting a much faster ramp in acceptance
of their online sites and the online retail space is 
becoming more crowded. AMZN dropped -2.38 on the news 
and took all the other Internet stocks with it. GOOG 
fell -8.21 from its all time high reached just yesterday. 

Another crowd favorite also took a major hit of -1.83 or
-14.8% after acknowledging accounting improprieties. The
company, Krispy Kreme Doughnuts, admitted it had padded
sales, double shipped, disguised problems at certain 
stores and misreported earnings. The stock dropped to $10
but my question is why not $1? This company appears to 
have committed multiple counts of fraud and could be
delisted very soon. Looks like the public still has a
sweet tooth for KKD. Maybe they should go back and look
up Boston Chicken, BOST. All the shareholders got greased
when BOST finally imploded after years of being the darling
of Wall Street.

Depending on which sentiment indicator you want to use the
2005 year is not off to a good start. Today was the last
day of the typical Santa Rally period following Christmas.
Needless to say the Dow or any of the indexes for that
matter did not see a visit from Santa. The Dow lost -200
points during the period after the Dec-23rd close. The
Nasdaq lost -53 points, Russell -22, -28 from its high
and the SOX -17 (-4%). If you were counting on Santa for
your sentiment then the Santa adage is running through 
your mind tonight. When Santa fails to call bears will 
come to Broad and Wall. It would appear on the surface
the door is open and the red carpet rolled out for their
arrival. 

The other market barometers include the first five days
scenario. Theoretically the first five days of January 
are supposed to predict the direction of the market for
the year. Not looking good for that one. Then there is 
the January barometer, as January goes so goes the year.
None of these predictors of market direction have very 
good records but they are all consistently prove more 
often right than wrong. Bah humbug!

We knew the market was going to sell off once the calendar
rolled over. We talked about it in this space several times.
When the indexes rally as they did in the fourth quarter
the money managers are just holding their breath hoping
to get to the new year before everybody pulls the rip 
cord on their profit parachute. Remember this table from
last Thursday?

Index Low 12/30 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   

Since August the Russell was up +26%, the Nasdaq +24%.
There were huge amounts of profit to be taken and the
managers are doing that this week. 

Whenever the market takes a sudden and unexpected (by
the uninformed) drop the talking heads on TV scramble 
to find the reason. Today we were told it was weakness
in China, unemployment in Germany, spiking oil prices,
sudden inflation fears and last but not least new Fed
fears. 

Obviously it was not oil since it fell over -$2 on Monday
and the market still tanked. Today it rebounded to erase
those losses but is still trading in exactly the same
range it has been trading for the last five weeks. Today
the oil worry is only smoke. It will eventually bite us
but not today.

The Fed outlook was blamed but there was really nothing
in the outlook that was different than any prior outlook.
The optimistic analysts had convinced themselves into
believing their own dreams that the Fed was done. The
Fed has never even hinted that it might pause. Every
comment has always been "accommodation will continue
to be removed at a measured pace." No change there. 

Some analysts blamed the drop on a lack of fund flows.
The $31B of expected money had failed to appear. This 
is also smoke. The money does not appear the first 
two days of the year. The majority appears over the 
second and third weeks of January. TrimTabs said today
they were still expecting $2.5B to $3B PER DAY over the
next two weeks. No change there. 

Are you starting to get the picture? Nothing has changed
and the current drop is just profit taking. Even Ralph
Acampora came out again today and affirmed his Dow 13K
forecast. Nobody expects a blowout market but they do
expect the markets to move higher over the next two 
quarters. 

Where to from here? The Nasdaq has been literally slammed
as funds took profit in techs. The index dropped back to
2100 today and decent support. It could stop there or it
could drop all the way back to 2050 but it will stop. 
When the rebound starts it is likely to be sharp and on
very strong volume. Be prepared.

The volume today was very strong and weighted heavily to
the downside. On the NYSE the down volume was 9:1 over
up volume with over 2B shares traded. Despite the beating
on the Nasdaq the down volume was only 4:1 over up volume.
The NYSE volume was drastically stronger because the 
majority of energy stocks are on the NYSE. Of the 350
energy stocks I cover in my Oil Crisis Report there are
only 36 listed on the Nasdaq. When you think about which
sector had the biggest gains the last six months it all
makes sense. The funds are taking profits in energy and 
tech. Crude was up nearly +$2 today but energy stocks
were down. This is clearly a buying opportunity in the
making. 

For the rest of the week I would look for a bounce but
possible not before even deeper support levels are tested. 
SPX 1175-1180, Nasdaq 2050 and Dow 10450 would be my worst
case support levels. I believe we will bounce before then
but these corrections nearly always get overdone as traders
react to the negative news in the press. The Nasdaq normally
corrects about -5% in January and even if you count from
Monday's high of 2191 to today's close at 2109 it is only
-3.7%. There could be some weakness remaining but once the
selling stops don't try to short the bounce. Managers will
not be under any pressure to buy until the real money flows
hit next week but they are generating a lot of cash from
these two days of selling. If somebody steps on the trip
wire we could change directions very quickly. Watch the
up volume. If we get a reversal in the volume from 9:1
negative to 4:1 or 5:1 positive then we have seen the
bottom. 

Pick your entry targets now. If you have no target you
will probably miss the bulls eye.  

Jim Brown
Editor


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

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


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

Inflation is still a dirty word

Call the FCC, cover the kid's ears, and press the sell button as 
the word "inflation" and thought of a proactive Fed still on the 
alert for threats to a steady pace of economic growth found 
Treasuries and stocks under heavy selling pressure on Tuesday.

Earlier this morning the European Union's statistics office said 
consumer prices rose 2.3% in December after a 2.2% increase in 
November, which sparked some fears of inflation overseas.

And while the dollar regained some lost ground against the euro 
in this morning's trade, as cash flowed back to U.S. assets, the 
dollar surged against a weighted basket of 6 major currencies as 
the session progressed, with the U.S. Dollar Index (dx00y) 82.52 
+1.50% jumping 1.22 points as I type (04:45 PM EST) after the 
release of the December 14 FOMC minutes.  A word count would 
reveal the word "inflation" was used 21 times, compared to 15 
times in the November 10 minutes.

Some notes from the December 14 meeting that traders and 
investors might want to be cognizant of were.... "The FOMC’s 
decision in November to raise the intended federal funds rate 25 
basis points and its attendant public statement were apparently 
anticipated by the market, so that the reaction was muted.  
Subsequently, higher-than-expected inflation data, remarks by the 
Chairman that were viewed as pointing to future rate increases, 
and the depreciation of the dollar all led market participants to 
price in a somewhat steeper path for future policy.  The upward 
revision in policy expectations prompted modest increases in 
shorter-term Treasury coupon security yields.  The yield on the 
ten-year Treasury note, however, was unchanged on net.  Yields on 
both investment-grade and speculative-grade corporate bonds edged 
lower.  The value of the dollar relative to other major 
currencies declined."

With that bit of Fed history being revealed, with was the 
following commentary that spooked investors, and more than likely 
had profitable bulls further locking in gains, as Treasuries and 
stocks extended losses from the 02:00 hour.

"With some economic slack persisting and longer-term inflation 
expectations well-anchored, inflation was anticipated to remain 
subdued.  A number of participants cited the recent depreciation 
of the dollar on foreign exchange markets, elevated energy costs, 
and the possibility of a slowing in underlying productivity 
growth as factors tending to boost the upside risks to their 
inflation outlook, though, on net, they saw the risks to stable 
underlying inflation as still balanced."

If I (Jeff Bailey) were to give a trader's translation to the 
above paragraph, I'd pick out the NEGATIVES (reason to take further 
profits in a declining session), and read the FOMC, 
even if inaccurate, or way out of context as, "Economic slack 
combined with the dollar's weakness and still high energy prices, 
combined with slowing productivity, will have the Fed continuing 
its path of raising rates as inflation could become a major 
problem!"

If you would like to read the full release of the FOMC December 
14, minutes, you can do so by clicking this 
http://www.federalreserve.gov/fomc/minutes/20041214.htm

U.S. Market Watch / Internals - 01/04/05 Close

 

A jump in November factory orders, which was released at 10:00 AM 
EST received a buy program premium and had the majors lifting to 
their best levels of the session.  But that buy program premium 
may have been out of politeness as I was bearishly surprised to 
see so few 52-week high highs, especially at the NYSE.  Even 
Google (NASDAQ:GOOG) $194.50 -4.05% was unable to best Monday's 
all-time high in early morning trade.

Note today's number of new highs at the big board versus a 
greater number at the NASDAQ.  This is a change, or some 
DIVERGENCE from the past, with the number of new highs at the 
NASDAQ suddenly outnumbering those at the NYSE.

What have we been observing in recent months and weeks?  The NYSE 
has "always" posted a greater number of new highs by the close.  

I just looked at yesterday's internals from last night's wrap and 
see that at 10:00 AM EST, the NASDAQ new highs were slightly 
better than that found at the NSYE, but by the close, the more 
institutionally held NYSE-listed stocks pressed their new highs 
further above.  I've always felt the NYSE was more 
institutionally HELD, while the NASDAQ is institutionally TRADED.

While the bullish % indications we track each morning in the 
09:00 AM EST update only track the percentage of stocks giving 
reversing higher point and figure buy signals, or reversing lower 
point and figure sell signals, I'll make a BEARISH note here that 
the number of new highs among 1, 2 and 3-lettered stocks starts 
to wane. 

I'll build on this in a minute, and something I looked at last 
week, but had forgotten about until late this afternoon as it 
relates to a chart we had built on the NYSE Composite ($NYA.X) 
7,090.52 -1.24% a couple of months ago.

Volumes were heavy, not "brisk" today, and selling was BROAD, as 
if bulls were poised to throw out the New Year's baby with the 
bathwater.

The NASDAQ Composite (COMPX) 2,107.86 -2.05% suffered its worst 
single-session decline in 5-months.

U.S. Market Watch - 01/04/05 Close

 

Dollar selling "usually translates" to foreign capital at least 
moving into Treasuries.  Nope.... not today, and over the past 5 
and 20-day's, we would have seen a net outflow of capital from 
the shorter-dated 5-year yield ($FVX.X) with jumped 7.7 basis 
points to 3.705%.  Corporate bonds didn't find much buying as a 
quick review of the Beetle's Balanced Benchmark had the iShares 
GS $ Invest (AMEX:LQD) $111.62 -0.56% down 63 cents.  "Junk 
Bonds" as depicted by the Pacholder High Yield (NYSE:PHF) $9.75 
-0.81%, despite its $0.075 per month dividend was also weak.

Hmmmm.... the FOMC notes mentioned all bond asset classes in 
their notes, how the markets treated each asset class, despite 
the FOMC's inflation-threatening thoughts that dollar weakness 
and still high energy prices might have on the economy going 
forward.

So if their is dollar strength (money coming back to the U.S. = 
demand) yet Treasuries, corporate bonds, junk bonds and equities 
were weak, where in the heck is the money going?

Likely answer:  To the sidelines!

Earlier in the wrap I said I wanted to build on the NYSE NH/NL 
observations as well as its bullish % ($BPNYA) readings.  Here's 
a chart we constructed a couple of months ago, when the NYSE 
looked poised to break out to all-time highs.  Target selling and 
profit taking?  Or sudden realization that "inflation" is a 
problem?  

My thoughts are that "inflation thoughts" were used as an excuse 
to take more profits, and kept would-be buyers on the sidelines.

NYSE Composite ($NYA.X) Chart - Daily Intervals

 

A sharp 2-day decline after the NYSE Comp. had achieved 100% of 
our fitted 38.2% retracement and a narrow "zone" from 7,258-7,273 
smells/looks like target selling and profit taking.  Add in a 
notably fewer number of new highs on the NYSE and important near-
term support from 7057-7,092 is identified.

I benchmarked the 12/14/04 date of the most recent FOMC meeting.

The above chart was displayed in the 11/04/04 Index Trader Wrap.  
As time has passed from that wrap, the current bullish vertical 
count from the point and figure chart (20-point box size), which 
has been fully constructed, hints at a longer-term bullish price 
objective of 7,540, which would be negated with a trade at 7,080.

Russell 2000 Growth iShares (AMEX:IWO) Chart - Daily Intervals

 

Index trading was "tough" in 2004 and it could be tough again in 
2005.  Today, traders may have been stopped out in their final 
1/2 bullish position from a seasonally bullish trade we had set
up back in late October.  

When reviewing the trade, one has to at least give thought that 
"target selling" and perhaps "tax gain selling" is playing a role 
in the markets right now.  

Today's close "two levels below" after closes right at $67.74 in 
late December, would be a signal for weakness based on tests we 
derived back in the October 31, 2004 Ask the Analyst column 
titled "Best 6 months starts in November."

Pivot Matrix - 

 

All equity-based indices in our WEEKLY Pivot matrix traded and 
CLOSED below their WEEKLY S2.  I've quickly gone back to earlier 
last year (2004), and it was for the WEEK of 03/08-03/12 that all 
of the equity-based indices traded below their WEEKLY S2.  

I'll post the 03/08-03/12 to 03/22-03/26 set of WEEKLY Pivots in 
tonight's Market Monitor when I'm done here, and try to the 
ranges, and levels of trade the following week, to try and 
ascertain further SIMILARITY or DIVERGENCE for the weeks ahead.

However, based on one of last night's observations of a lower 
trade in the MONTHLY Pivot matrix, which was DIVERGENCE to early 
January of last year, I would have to be more BEARISH, if not 
more cautious in my bullish thoughts currently.

Jeff Bailey


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

Q4 Hangover
- J. Brown

I've got one word for the first two trading days of 2005 - yuck!  
Market pundits blame it on profit taking after the very strong 
fourth quarter rally.  Correct or not the market technicals have 
been very bearish both Monday and Tuesday.  Today declining 
stocks outnumbered advancers about 11-to-3 on the NYSE and more 
than 3-to-1 on the NASDAQ.  New highs have evaporated and down 
volume outweighed up volume by 9-to-1 on the NYSE and more than 
4-to-1 on the NASDAQ.  Yucky seems like an appropriate 
description.  

The talking heads on TV pointed out that last quarter's winners 
seem to be this week's losers as investors do some profit taking.  
Yet one guest on CNBC today was more encouraging.  Biderman from 
TrimTabs, who watches mutual fund money inflows and outflows, 
said almost all the new money coming into the market this week 
(about $1 billion a day) has been going into global equity funds.  
He suggested that investors were putting money to work overseas 
to avoid the continuing decline in the U.S. dollar.  He went on 
to say that if inflows into foreign funds have reached these 
heights that it could be a top.  Thus the U.S. dollar could 
turnaround soon and U.S. stocks are likely to do well in the 
second half of January.  He went on to remind viewers that there 
is a lot of money on the sidelines and January, a seasonally 
bullish time of year for stocks, could see some $60 billion in 
inflows for the month.

Let's hope he's right.  Normally the first two trading days of 
January are bullish as part of the seven-day post-Christmas 
rally.  Plus, the first five days of January tend to be bullish 
due to the new inflow of money into retirement accounts but if 
all this money is going into global funds then the early January 
barometer (the first five days) could turn bearish.  As I 
mentioned last week some traders look at the first five days of 
January as an early barometer for the month. Let's hope stocks 
rebound soon.


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

Market Averages

DJIA ($INDU)

52-week High: 10868
52-week Low :  9708
Current     : 10630

Moving Averages:
(Simple)

 10-dma: 10780
 50-dma: 10489 
200-dma: 10264 



S&P 500 ($SPX)

52-week High: 1216
52-week Low : 1060
Current     : 1188

Moving Averages:
(Simple)

 10-dma: 1207
 50-dma: 1178
200-dma: 1129



Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1571

Moving Averages:
(Simple)

 10-dma: 1611
 50-dma: 1568
200-dma: 1461



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

CBOE Market Volatility Index (VIX) = 13.98 -0.10 
CBOE Mkt Volatility old VIX  (VXO) = 14.13 -0.07
Nasdaq Volatility Index (VXN)      = 20.06 +0.56 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.78      1,071,868       831,280
Equity Only    0.60        823,299       494,997
OEX            0.99         33,587        33,327
QQQQ           2.33         53,555       124,869


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.2    - 1     Bear Correction
NASDAQ-100    80.0    + 0     Bull Confirmed
Dow Indust.   73.3    + 0     Bull Confirmed
S&P 500       77.2    - 1     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: 1.44
10-dma: 1.04 
21-dma: 1.07
55-dma: 1.01


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     636       741
Decliners    2221      2340

New Highs      53        57
New Lows       15        12

Up Volume    228M      530M
Down Vol.   1853M     2175M

Total Vol.  2146M     2718M
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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The Option Investor Newsletter                  Tuesday 01-04-2005
Copyright 2005, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: ACL, BIIB, CTX
Dropped Puts: None
Call Play Updates: BBOX, BDK, COF, ETR, FRE, FSH, JCI, MHK, RAI, 
                   UTX, WFMI, ZBRA
New Calls Plays: None
Put Play Updates: None
New Put Plays: ADBE, CAI, FDX


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

Alcon Inc - ACL - close: 77.57 chg: -1.28 stop: 77.85

The drug sector has not escaped the pull back in the stock market 
and shares of ACL have broken down under support at the $78.00 
level.  We have been stopped out at $77.85.  

Picked on December 22 at $ 81.74 
Change since picked:      - 4.17
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       773 thousand
Chart =


---

Biogen Idec - BIIB - close: 64.76 change: -1.53 stop: 64.49     

Biotech stocks have been hit pretty hard the last two sessions 
during the current market sell-off.  BIIB is no exception 
especially with today's 2.3 percent decline.  Technicals are 
turning sour and shares are testing support near $64.00.  
Unfortunately that means BIIB has broken through the $65 level 
and its 21-dma while hitting our stop loss at $64.49.
In the news BIIB announced it will present at the JPMorgan 
Healthcare Conference in California on January 11th.

Picked on December 9 at $ 65.25
Change since picked:     - 0.49
Earnings Date          01/26/05 (unconfirmed)
Average Daily Volume =      3.5 million  
Chart =


---


Centex - CTX - close: 55.60 change: -3.05 stop: 55.90

Homebuilders were one of the hardest hit sectors on Tuesday with 
a 4.17 percent drop in the DJUSHB home construction index.  CTX 
fared even worse with a 5.2 percent decline on heavy volume.  The 
selling paused near round-number support at $55 but CTX has 
broken the three-week old support near the $56.00 level and 
shares hit our stop loss at $55.90.  Technicals have turned south 
with a new MACD sell signal. 

Picked on December 28 at $ 58.84
Change since picked:      - 3.24
Earnings Date           01/18/05 (unconfirmed)
Average Daily Volume =       1.4 million  
Chart =



PUTS:
*****

None


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********************
PLAY UPDATES - CALLS
********************

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

BBOX has not escaped the market's pull back this year but shares 
are holding up better than most tech stocks.  This is probably 
due to the positive analyst comments that came out on Monday.  
BBOX had its price target raised from $52 to $59.   Also in the 
news BBOX announced it would report earnings on February 1st.  
Right now, considering the tech sector weakness, we would expect 
BBOX to dip further.  Readers looking for bullish positions can 
wait for the bounce.  If BBOX breaks the $45 level we may exit 
early.

Picked on December 22 at $ 46.15 
Change since picked:      + 1.48
Earnings Date           02/01/05 (confirmed)
Average Daily Volume =       128 thousand
Chart =


---


Black & Decker - BDK - close: 86.60 chg: -1.15 stop: 84.49     

As expected BDK has continued to pull back after its failed rally 
at the $90 level.  Now we just need to see shares bounce from 
rising technical support at the 40-dma. Readers can choose to buy 
the bounce above $85.00 or wait for the breakout over $90.00.

Picked on December 22 at $ 87.01
Change since picked:      - 0.41
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       656 thousand 
Chart =


---

Capital One Financial - COF - cls: 82.25 chg: -1.55 stop: 79.50     

Financial stocks, like most of the market, have also pulled back 
the first two trading days in January.  COF has broken its 10-dma 
but is testing the $82 level, which was support in late December.  
Still we would not be surprised to see the consolidation continue 
and see COF trade to the $80 level.  The trick is to watch for 
the bounce from support at $80.00.  We are not suggesting new 
bullish positions until we see the bounce.

Picked on December 12 at $ 81.12
Change since picked:      + 1.13
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       1.4 million  
Chart =


---

Entergy Corp - ETR - close: 65.94 chg: -0.51 stop: 64.95  

Danger!  Bulls should be very careful here and cautious traders 
can be eyeing the exits.  ETR has broken through its rising 
simple 50-dma, which has been a technical level of support for 
weeks.  Its technical picture has worsened with a new MACD sell 
signal.  We would strongly consider exiting here because if the 
sell-off continues the recent failure in the $69 region is going 
to look like a double-top formation.  However, there is still a 
chance that ETR can bounce from the $65 level.  We are not 
suggesting new plays at this time. 

Picked on December 21 at $ 67.62
Change since picked:      - 1.68
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.1 million  
Chart =


---

Freddie Mac - FRE - close: 71.85 chg: -1.14 close: 69.49*new*

No surprises here.  FRE has pulled back with the market.  We 
would not suggest new bullish positions at this time.  Readers 
can be patient and look for FRE to retest the $70 region has 
support.  Then when traders buy the dip we can jump in on the 
bounce.  We are raising our stop loss to $69.49. 

Picked on December 21 at $ 71.80
Change since picked:      + 0.05
Earnings Date           00/00/05 (unconfirmed)
Average Daily Volume =       2.8 million  
Chart =


---

Fisher Scientific - FSH - cls: 60.72 chg: -0.41 stop: 57.95   

This is a crucial test of support for FSH.  The stock has spent 
the last two weeks digesting its December gains and breakout over 
long-term resistance in the $60-61 region.  Now FSH is testing 
the $60 level as support as we thought it would.  Readers can 
wait for the bounce before considering new positions.  More 
conservative traders may want to wait for a new high since the 
technical indicators have turned bearish with a new MACD Sell 
signal.

Picked on December 21 at $ 61.70
Change since picked:      - 0.98
Earnings Date           02/02/05 (unconfirmed)
Average Daily Volume =       1.3 million  
Chart =



---


Johnson Controls Inc - JCI - cls: 61.98 chg: -0.81 stop: 60.49

JCI is pulling back as expected.  In Monday's newsletter we 
suggested that readers watch for JCI to pull back toward its 40-
dma and the $62 level and that's exactly what shares have done.  
The question now is whether or not JCI bounces here or will the 
stock continue lower and bounce from support near its 50-dma and 
the $61 level.  We obviously don't know and the answer depends on 
the broader market indices at this time.  The up trend in JCI 
remains but technical indicators are turning south after being 
overbought.  More conservative traders may want to put a stop 
loss under $61.00.  More aggressive traders may want to widen 
their stop and put it under round-number support at $60.00.

Picked on December 29 at $ 63.51
Change since picked:      - 1.53
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       669 thousand 
Chart =


---


Mohawk Industries - MHK - close: 88.75 chg: -1.05 stop: 87.95     

As a flooring company MHK can sometimes trade in response to 
moves in the home building sector.  The homebuilders got hit 
pretty hard this week with a four-percent decline on Tuesday.  
Fortunately, MHK managed to hold its decline at the $88 level of 
support and its 50-dma.  This is an important test of support for 
MHK and if shares break the $88 level it will break the six-week 
trend of higher lows and probably hit our stop loss at $87.95. We 
would not suggest new bullish plays at this time.  

Picked on December 14 at $ 91.00
Change since picked:      - 2.25
Earnings Date           02/15/05 (confirmed)
Average Daily Volume =       319 thousand   
Chart =


---

Reynolds American - RAI - close: 77.75 change: -0.75 stop: 75.99

Tobacco has not been very defensive this year with shares of the 
major tobacco players sliding lower with the rest of the market 
in 2005.  Now that RAI has fallen five sessions in a row the 
stock is overdue for a bounce.  Readers can wait for the dip and 
bounce near $76.50-77.00 or wait for the rebound back over the 
$80 level before considering new bullish positions. 

Picked on December 22 at $ 80.11
Change since picked:      - 2.36
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       1.0 million  
Chart =



---

United Tech. - UTX - close: 101.81 change: -1.19 stop: 99.95  

No surprises here with UTX.  The Dow-component has continued to 
sell-off with the declines in the DJIA.  We would not suggest new 
bullish positions at this time.  Readers can wait for UTX to pull 
back toward the $100 level and then look for the bounce.  

Picked on December 1 at $100.15
Change since picked:     + 1.66
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  
Chart =


---

Whole Foods - WFMI - close: 93.58 chg: -0.13 stop: 91.49

We remain untriggered in WFMI as we wait for shares to hit our 
entry point at $97.51.  However, aggressive traders may want to 
look for a bounce from the $92 level as a high-risk entry point.  

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
Chart =



--

Zebra Technologies - ZBRA - close: 54.47 chg: -1.04 stop: 52.99    

ZBRA was not able to outrun the bears this week and shares fell 
lower with the rest of the pack.  Now the stock is bouncing ever 
so slightly this afternoon after shares tested support near $54 
and its simple 40, 50 and 200-dma's.  Aggressive traders can buy 
this bounce if it continues tomorrow.  The rest of us will 
probably feel more comfortable waiting for ZBRA to trade back 
over $56 before considering new positions. 

Picked on December 15 at $ 55.21
Change since picked:      - 0.74
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       709 thousand 
Chart =



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

None


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*******************
PLAY UPDATES - PUTS
*******************

None


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

Adobe Systems - ADBE - close: 60.06 change: -1.63 stop: 62.26

Company Description:
Adobe is the world's leading provider of software solutions to 
create, manage and deliver high-impact, reliable digital content.
(source: company press release)

Why We Like It:
We like ADBE because like the GSO software index shares of ADBE 
are overbought and look poised for some profit taking.  Both the 
GSO and ADBE have broken their rising channels.  Plus, ADBE has a 
huge bearish divergence on its MACD indicator.  Now after four 
weeks of consolidating sideways between $59.50 and $64 shares of 
ADBE looks ready to turn lower with today's test of support at 
its 50-dma and the $60.00 mark.  However, while we like the 
rising volume we want to see some confirmation before we 
(hypothetically) buy puts.  ADBE has tested support near $59.25-
59.50 before.  So we'll use a TRIGGER at $58.99 with a quick, 
short-term target of $55.00 and/or its 100-dma near $54.50.  We 
have a short-term time horizon of just a couple of weeks.
Coincidentally a pull back to $55 would be a 38.2 percent 
retracement of the July to December rally.

Suggested Options:
This is a short-term play.  We're going to suggest the January 
and February puts.

BUY PUT JAN 60 AEQ-ML OI=3954 current ask $1.55

BUY PUT FEB 60 AEQ-NL OI= 198 current ask $2.45

Annotated chart:



Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked:     - 0.00
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      2.3 million 
Chart =


---

CACI Intl - CAI - close: 62.92 change: -2.80 stop: 66.01

Company Description:
CACI International Inc provides the IT and network solutions 
needed to prevail in today's new era of defense, intelligence, 
and e-government. From systems integration and managed network 
solutions to knowledge management, engineering, simulation, and 
information assurance, we deliver the IT applications and 
infrastructures our federal customers use to improve 
communications and collaboration, secure the integrity of 
information systems and networks, enhance data collection and 
analysis, and increase efficiency and mission effectiveness. Our 
solutions lead the transformation of defense and intelligence, 
assure homeland security, enhance decision-making, and help 
government to work smarter, faster, and more responsively.
(source: company press release)

Why We Like It:
CAI is another tech stock that is taking a hit as investors 
rotate out of their Q4 winners.  Today's 4.2 percent decline in 
CAI was helped along by a downgrade to "out perform" but the 
high-volume sell-off began on Monday.  Technical traders will 
notice that CAI has a bearish divergence in its MACD indicator. 
We are going to use a TRIGGER at $61.95 to open the play.  If the 
play is opened we'll target a drop toward $55.00 which would be a 
50 percent Fibonacci retracement of its August to December rally.  
However, we do have to note that the top of the October gap 
higher could prove to be support near $58.  This is a short-term 
play.  We want to be out before CAI reports earnings on or around 
Jan. 19th.

Suggested Options:
This is a short-term play so we're suggesting the January or
February puts.

BUY PUT JAN 65 CAI-MM OI=121 current ask $3.40
BUY PUT JAN 60 CAI-ML OI= 62 current ask $1.05

BUY PUT FEB 65 CAI-NM OI= 10 current ask $4.40
BUY PUT FEB 60 CAI-NL OI= 30 current ask $2.05

Annotated chart:



Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked:     - 0.00
Earnings Date          01/19/05 (unconfirmed)
Average Daily Volume =      348 thousand
Chart =


---

Fedex Corp - FDX - close: 95.66 change: -1.74 stop: 97.51

Company Description:
FedEx Corp. provides customers and businesses worldwide with a 
broad portfolio of transportation, e-commerce and business 
services. With annual revenues of $27 billion, the company offers 
integrated business applications through operating companies 
competing collectively and managed collaboratively, under the 
respected FedEx brand. Consistently ranked among the world's most 
admired and trusted employers, FedEx inspires its more than 
250,000 employees and contractors to remain "absolutely, 
positively" focused on safety, the highest ethical and 
professional standards and the needs of their customers and 
communities. (source: company press release)

Why We Like It:
If investors are taking profits out of their Q4 winners then FDX 
is likely to be a big target.  Actually the whole Dow 
Transportation sector in general would be a big target for profit 
taking but FDX could see its own bout of selling without 
additional weakness from the sector index.  Technicals are 
bearish and volume has been rising on FDX's pull back.  Currently 
shares are testing support at $95.00 and its 50-dma.  We will use 
a TRIGGER at $94.95 to open the play to catch the breakdown.  Our 
short-term target is round-number support at $90.00 and its 100-
dma.  

Suggested Options:
We are going to suggest the January and February puts but
our preference would be February's.

BUY PUT JAN 95 FDX-MS OI=3049 current ask $1.30
BUY PUT JAN 90 FDX-MR OI=1943 current ask $0.30

BUY PUT FEB 95 FDX-NS OI= 288 current ask $2.30
BUY PUT FEB 90 FDX-NR OI= 338 current ask $0.75

Annotated chart:



Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked:     - 0.00
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      1.6 million 
Chart =



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**********

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The Option Investor Newsletter                  Tuesday 01-04-2005
Copyright 2005, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Breakdowns and potential breakdowns
Spreads & Straddles: Off To A Rough Start...
Premium Selling Plays: Naked Puts & Calls


**********
WATCH LIST
**********

Breakdowns and potential breakdowns

___________________________________________________________________

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.
___________________________________________________________________


Research In Motion - RIMM - close: 76.86 change: -2.39

WHAT TO WATCH: We came very close to adding RIMM to the play list 
as a put candidate tonight.  The high volume breakdown under 
round-number support at $80.00 yesterday and today's follow 
through breakdown through its 100-dma looks pretty tempting if 
you're a bear.  The next level of support looks like the $72 
level and it would take much to hit $70 or even its 200-dma's 
under the $70 level.  The P&F chart has already reversed into a 
sell signal with a $69 target.

Chart=


---

KLA-Tencor - KLAC - close: 43.83 change: -1.47

WHAT TO WATCH: Weakness in the semiconductor sector helped push 
KLAC to a 3.2 percent decline on big volume.  Shares broke 
support near $45 and its 200-dma near $44.  This looks like an 
entry point for a quick drop towards $40.00.  The P&F chart is 
bearish but it's falling backwards into a high-pole warning.

Chart=


---

Aetna Inc - AET - close: 120.65 change: -2.14

WHAT TO WATCH: If investors are taking profits from their Q4 
winners than AET is walking around with a big target.  Shares 
look vulnerable to $110 and maybe the $100 region if the market 
keeps dropping.  Consider using a trigger under $119.50 and 
target a drop towards $110 first. 

Chart=


---

Textron - TXT - close: 70.80 change: -1.52

WHAT TO WATCH: TXT is another stock that looks weak after several 
weeks of consolidating sideways.  Shares have already broken its 
50-dma and a drop under round-number support at $70.00 could be 
used as a trigger to open bearish plays.  We would target the 
$65-66 region, which is probably where bulls will try and defend 
it. 

Chart=



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

ERTS $59.14 -1.74 - We considered adding ERTS to the play list as 
a short candidate tonight.  The MACD is in a sell signal and the 
stock looks very overbought.  A trigger under $59.00 with a 
short-term target at $55.00 support could work well.

IGW $51.30 -1.60 - Readers may want to consider shorting the 
Goldman Sachs semiconductor Ishares with today's breakdown under 
its 50-dma on rising volume.  


************************Advertisement*************************
 
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In the last few weeks, we have pinpointed insider buying on six 
stocks that have the potential to deliver stratospheric gains. 
 
Click here for our SPECIAL REPORT on these 6 stocks insiders are 
buying and why you should too. 
 
 
http://www.insidermoves.com/default.asp?aid=618
 
**************************************************************


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

Off To A Rough Start...
By Ray Cummins

Stocks retreated again Tuesday on concerns about inflation and
oil prices.

Despite data suggesting economic growth remained on track, the
equity markets plunged as investors worried that a weak dollar,
rising energy costs, and a slowdown in productivity may lead
to higher prices.  The Dow Jones Industrial Average closed 98
points lower at 10,630, with Alcoa (NYSE:AA) leading the way on
fears China's demand for metal will slow.  The NASDAQ Composite
slid 43 points to 2,108, as semiconductor and Internet stocks
dropped sharply.  The S&P 500 index slumped 13 points to 1,189,
with airlines, homebuilding, retail and financial shares among
the most obvious losers.  Volume on the NYSE was 1.7 billion,
with decliners leading advancers by a 3 to 1 margin.  Breadth
on the technology exchange was similar with 2.7 billion shares
changing hands.  In the bond market, the 10-year note declined
18/32 while its yield rose to 4.28%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/04/05
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT-CREDIT SPREADS

Stock  Pick   Last   Mon  L/P   S/P  Credit   CB     G/L   Status

MRVL   31.53  32.78  JAN  25.0  27.5  0.40   27.10   0.40   Open
CFC    33.21  36.22  JAN  27.5  30.0  0.30   29.70   0.30   Open
EBAY  112.20 111.31  JAN  95.0 100.0  0.60   99.40   0.60   Open
LEND   46.85  47.45  JAN  35.0  40.0  0.50   39.50   0.50   Open
LEN    50.11  53.43  JAN  42.5  45.0  0.30   44.70   0.30   Open
PHM    59.65  60.84  JAN  50.0  55.0  0.75   54.25   0.75   Open
MRVL   34.89  32.78  JAN  27.5  30.0  0.30   29.70   0.30   Open
VRTS   27.38  27.77  JAN  22.5  25.0  0.45   24.55   0.45   Open
ERTS   61.71  59.14  JAN  55.0  57.5  0.35   57.15   0.35   Open
PENN   59.87  58.49  JAN  50.0  55.0  0.50   54.50   0.50   Open
NVT    47.90  42.70  JAN  40.0  45.0  0.55   44.45  (1.75) Closed
YHOO   37.90  36.58  JAN  32.5  35.0  0.30   34.70   0.30   Open

L/P = Long Put  S/P = Short Put  CB = Cost Basis  G/L = Gain/Loss

Navteq (NYSE:NVT) was closed after Tuesday's slump.  A number of
portfolio issues are potential "early-exit" candidates after the
widespread market decline.


CALL-CREDIT SPREADS

Stock  Pick   Last    Mon  L/C   S/C  Credit   CB    G/L   Status

SINA   37.93  30.50   JAN  50.0  45.0  0.60   45.60  0.60   Open
LLY    53.33  55.50   JAN  65.0  60.0  0.65   60.65  0.65   Open
NVLS   26.94  26.12   JAN  32.5  30.0  0.35   30.35  0.35   Open
CCU    33.15  32.55   JAN  40.0  35.0  0.50   35.50  0.50   Open
UVN    29.06  28.30   JAN  35.0  30.0  0.80   30.80  0.80   Open
ADI    36.42  35.40   JAN  45.0  40.0  0.50   40.50  0.50   Open
KOSP   35.13  35.72   JAN  45.0  40.0  0.55   40.55  0.55   Open
TTWO   33.45  33.90   JAN  40.0  37.5  0.30   37.80  0.30   Open
MSTR   56.22  56.83   JAN  70.0  65.0  0.65   65.65  0.65   Open
ABC    57.09  57.69   JAN  65.0  60.0  0.45   60.45  0.45   Open
RIMM   83.49  76.86   JAN 100.0  95.0  0.45   95.45  0.45   Open
PKZ    32.99  35.24   JAN  40.0  35.0  0.85   35.85  0.85   Open
UHS    44.51  43.72   JAN  50.0  45.0  0.60   45.60  0.85   Open

L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss


DEBIT STRADDLES

Stock   Pick   Last   Exp.   Long   Long  Initial   Max     Play
Symbol  Price  Price  Month  Call   Put    Debit   Value   Status

BZH    144.85  136.78  JAN   145.0  145.0  12.00   11.25    Open

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

ANF - Abercrombie & Fitch  $47.28  *** Bullish Retailer! ***

Abercrombie & Fitch (NYSE:ANF), through its many subsidiaries, is
primarily engaged in the purchase, distribution and sale of men's,
women's and kids' casual apparel.  The company's retail activities
are conducted under the Abercrombie & Fitch and Abercrombie trade
names through retail stores, a catalogue, a magazine/catalogue and
a web-site, all bearing some form of the Abercrombie name.  Retail
activities are also conducted under the Hollister Co. trade name
through retail stores and a lifestyle web-site.  Merchandise is
targeted to appeal to customers in specialty markets who have
distinctive consumer characteristics.  The company is a specialty
retailer of casual, classic American sportswear, targeted to men
and women approximately 15 to 50 years of age and kids up to 14
years of age.

ANF - Abercrombie & Fitch  $47.28

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-42.50  ANF-MV  OI=1321  ASK=$0.30
SELL PUT  JAN-45.00  ANF-MI  OI=2527  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=15% B/E=$44.65


__________________________________________________________________

KMRT - Kmart  $101.35  *** In A Comfort Zone? ***

Kmart Corporation (NASDAQ:KMRT) is a discount retailer operating
through Kmart stores and Supercenters across the U.S., Puerto
Rico, the United States Virgin Islands and Guam, and through an
e-commerce shopping site, www.kmart.com.  Its Kmart Supercenters
combine a full grocery, deli and bakery, along with the general
merchandise selection of a Kmart discount store.  The brands the
company markets include Martha Stewart, JOE BOXER, Jaclyn Smith,
Sesame Street and Thalia Sodi, among others.

KMRT - Kmart  $101.35

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-90.00  KTQ-MR  OI=3256  ASK=$0.25
SELL PUT  JAN-95.00  KTQ-MS  OI=3394  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$94.50



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

JNPR - Juniper Networks  $25.80  *** Profit-Taking Underway! ***

Juniper Networks (NASDAQ:JNPR) transforms the entire business of
networking by converting a commodity: bandwidth, into a dependable,
secure, and highly valuable corporate asset.  Founded in 1996 to
meet the stringent demands of service providers, Juniper Networks
is now relied upon by the world's leading network operators, such
as government agencies, research and education institutions, and
information-intensive enterprises as the foundation for stable,
uncompromising networks.

JNPR - Juniper Networks  $25.80

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-30.00  JUX-AF  OI=32187  ASK=$0.20
SELL CALL  JAN-27.50  JUX-AY  OI=7557   BID=$0.50
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=15% B/E=$27.85


__________________________________________________________________

DNA - Genentech  $51.75  *** Downgrade = Sell-Off! ***

Genentech (NYSE:DNA) is a biotechnology firm using human genetic
information to discover, develop, manufacture and commercialize
biotherapeutics for significant unmet medical needs.  The company
manufactures and commercializes biotechnology products directly
in the United States.  The company also licenses other products
to various partners and its development efforts, including those
of its collaborative firms, cover a range of medical conditions,
including cancer, respiratory disorders, cardiovascular diseases,
endocrine disorders and inflammatory and immune problems.

DNA - Genetech  $51.75

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-57.50  DNA-AY  OI=3272   ASK=$0.30
SELL CALL  JAN-55.00  DNA-AK  OI=12070  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$55.30



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.
_________________________________________________________________

No straddles or strangles today...

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


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

All of these issues have robust option premiums and favorable
technical indications.  However, current news and events, as
well as market sentiment, will have an effect on these stocks
so review each position thoroughly and make your own decision
about its outcome.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/04/05
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.
  
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
 
NAKED PUTS

Stock   Strike  Strike  Cost   Current   Gain    Max    Simple
Symbol  Month   Price   Basis   Price   (Loss)  Yield   Yield

VISG     JAN     7.50    7.10    8.74    0.40   7.51%   5.63%
RHAT     JAN    12.50   12.05   12.63    0.45   6.06%   3.73%
NCRX     JAN    25.00   24.40   30.79    0.60   4.78%   2.46%
NTGR     JAN    15.00   14.65   16.30    0.35   4.58%   2.39%
RMBS     JAN    17.50   17.10   21.48    0.40   4.87%   2.34%
TLCV     JAN    10.00    9.65   10.09    0.35   6.91%   3.63%
WITS     JAN    15.00   14.55   17.06    0.45   5.38%   3.09%
IDCC     JAN    17.50   16.95   20.72    0.55   6.62%   3.24%
NVTL     JAN    17.50   17.20   16.20   (1.00)  0.00%   0.00% *
MSO      JAN    17.50   17.05   28.77    0.45   5.62%   2.64%
MSO      JAN    20.00   19.60   28.77    0.40   5.28%   2.04%
ACF      JAN    22.50   21.65   23.70    0.85   6.54%   3.93%
USNA     JAN    30.00   29.00   33.55    1.00   6.12%   3.45%
DHB      JAN    15.00   14.35   16.53    0.65  10.38%   4.53%
MOGN     JAN    25.00   24.05   26.05    0.95   7.47%   3.95%
GTOP     JAN    12.50   12.05   16.15    0.45   8.45%   3.73%
CMVT     JAN    22.50   22.05   22.81    0.45   3.93%   2.04%
RMBS     JAN    20.00   19.35   21.48    0.65   8.12%   3.36%
IDCC     JAN    17.50   17.05   20.72    0.45   6.77%   2.64%
NFLD     JAN    17.50   17.05   22.54    0.45   6.15%   2.64%
NCRX     JAN    25.00   24.55   30.79    0.45   4.60%   1.83%
RMBS     JAN    20.00   19.45   21.48    0.55   7.18%   2.83%
NKTR     JAN    17.50   17.05   19.23    0.45   5.64%   2.66%
ALXN     JAN    20.00   19.65   23.44    0.35   4.51%   1.78%
AMLN     JAN    20.00   19.65   22.83    0.35   4.07%   1.78%
SWFT     JAN    20.00   19.65   20.43    0.35   4.60%   1.78%
NEOL     JAN    10.00    9.70   12.16    0.30  10.31%   3.09%
ARBA     JAN    15.00   14.70   14.74    0.04   0.75%   2.04%
KFX      JAN    12.50   12.20   13.06    0.30   7.80%   2.46%
NAVR     JAN    15.00   14.50   17.74    0.50   8.94%   3.45%
IDCC     JAN    17.50   17.25   20.72    0.25   5.28%   1.45%
NTGR     JAN    15.00   14.60   16.30    0.40   7.61%   2.74%
CTIC     JAN     7.50    7.00    7.51    0.50  16.41%   7.14%
FXEN     JAN    10.00    9.30   12.90    0.70  20.65%   7.53%
NTMD     JAN    22.50   22.25   24.78    0.25   4.52%   1.12%
ELN      JAN    25.00   24.45   27.40    0.55   7.06%   2.25%
VRX      JAN    25.00   24.55   25.45    0.45   5.78%   1.83%
JUPM     JAN    20.00   19.65   21.86    0.35   6.81%   1.78%
IDCC     JAN    20.00   19.75   20.72    0.25   4.84%   1.27%
MOGN     JAN    25.00   24.75   26.05    0.25   3.59%   1.01%
MSO      JAN    25.00   24.60   28.77    0.40   7.12%   1.63%
 
The position in Novatel (NASDAQ:NVTL) should have been closed
during Monday's sell-off.  Adolor (NASDAQ:ADLR) was closed
after its stock price declined sharply on reports that an
advanced trial of a key gastrointestinal drug failed to meet
initial goals.  A number of portfolio issues are "early-exit"
candidates after the widespread market decline.


NAKED CALLS

Stock   Strike  Strike  Break  Current   Gain    Max    Simple
Symbol  Month   Price   Even    Price   (Loss)  Yield   Yield

XLNX     JAN    32.50   33.00   28.44    0.50   3.96%   1.52%
SCSS     JAN    17.50   18.05   17.15    0.55   7.68%   3.05%
PLAY     JAN    35.00   36.05   24.11    1.05  12.22%   2.91%
AFCO     JAN    22.50   22.80   20.61    0.30   3.92%   1.32%
SYMC     JAN    32.50   33.00   25.41    0.50   6.06%   1.52%
PDII     JAN    30.00   30.30   21.00    0.30   4.64%   0.99%
AGIX     JAN    30.00   30.30   18.24    0.30   5.80%   0.99%
EPIX     JAN    20.00   20.45   16.91    0.45   8.03%   2.20%
SWIR     JAN    20.00   20.50   15.68    0.50   8.74%   2.44%
CTAS     JAN    45.00   45.45   42.55    0.45   3.30%   0.99%
SPW      JAN    42.50   42.90   39.00    0.40   3.47%   0.93%

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NEW NAKED-PUT CANDIDATES

Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

ALVR   13.49  JAN 12.50  QBY-MY 0.35  467 12.15  18   4.9%  12.4%
JUPM   21.86  JAN 20.00  EUU-MD 0.40  133 19.60  18   3.4%   9.3%
NFLD   22.54  JAN 20.00  DHQ-MD 0.35  957 19.65  18   3.0%   8.7%
BCSI   19.48  JAN 17.50  IYU-MW 0.30  495 17.20  18   2.9%   8.3%
HLEX   15.99  JAN 15.00  HUE-MC 0.25   20 14.75  18   2.9%   7.5%
FLML   19.60  JAN 17.50  FLU-MW 0.25 1395 17.25  18   2.4%   7.1%
SONC   31.44  JAN 30.00  ZSQ-MF 0.35  108 29.65  18   2.0%   5.1%

Abbreviations:

LB-Last Bid price, OI-Open Interest, CB-Cost Basis (or break-even
point), DE-Days to Expiry, SY-Simple Yield (monthly basis without
margin), MY-Maximum Yield (monthly basis with margin), TS-Target
Shoot.
_________________________________________________________________

ALVR - Alvarion  $13.49  *** Trading Range? ***

Alvarion (NASDAQ:ALVR) is a provider of wireless broadband
connectivity infrastructure.  The company's solutions are
used by telecom carriers and service providers worldwide.
Its products are used to provide broadband data and voice
services, for subscribers in the last mile of connectivity,
for feeding cellular networks and for private networks.
With the firm's product offerings, it provides integrated
wireless broadband solutions, addressing different markets
and frequency bands, designed to address various business
models of carriers and service providers.

ALVR - Alvarion  $13.49

JAN 12.50 QBY-MY LB=0.35 OI=467 CB=12.15 DE=18 TY=4.9% MY=12.4%


_________________________________________________________________

JUPM - Jupitermedia  $21.86  *** Entry Point? ***

Jupitermedia (NASDAQ:JUPM) is a global provider of original
online information, images, research and events for information
technology, business and creative professionals.  The company
operates four major interrelated and complementary businesses.
JupiterWeb is its online media business.  JupiterImages is its
online images business.  JupiterResearch is the firm's market
research and consulting business.  JupiterEvents is an offline
conference and trade show business.

JUPM - Jupitermedia  $21.86

JAN 20.00 EUU-MD LB=0.40 OI=133 CB=19.60 DE=18 TY=3.4% MY=9.3%


_________________________________________________________________

NFLD - Northfield Labs  $22.54  *** Rally Mode! ***

Northfield Laboratories (NASDAQ:NFLD) is engaged in the production
of a safe and effective alternative to transfused blood for use in
the treatment of acute blood loss.  Its PolyHeme blood substitute
product is a solution of chemically modified hemoglobin derived
from human blood.  PolyHeme simultaneously restores lost blood 
volume and hemoglobin levels and is designed for rapid, massive 
infusion.  PolyHeme requires no cross-matching and is therefore
immediately available and compatible with all blood types.  It
has an extended shelf life compared to blood.  Northfield Labs
purchases indated and outdated blood from The American Red Cross 
and Blood Centers of America for use as the starting material for
PolyHeme.  It uses a proprietary process of separation, filtration
and chemical modification to produce PolyHeme.

NFLD - Northfield Labs  $22.54

JAN 20.00 DHQ-MD LB=0.35 OI=957 CB=19.65 DE=18 TY=3.0% MY=8.7%


_________________________________________________________________

BCSI - Blue Coat Systems  $19.48  *** Bottom-Fishing Only! ***

Blue Coat Systems (NASDAQ:BCSI) designs, develops, markets
and supports proxy appliances.  Based on Blue Coat SGOS, a
custom, object-based operating system with integrated caching,
these proxy appliances leverage existing authentication
systems to enable flexible policy enforcement down to the
individual user.  The Blue Coat ProxySG appliances combine
proxy support of most Web protocols with integrated uniform
resource locator (URL) filtering, content security, Web-virus
scanning, instant messaging control, peer-to-peer control and
streaming control.

BCSI - Blue Coat Systems  $19.48

JAN 17.50 IYU-MW LB=0.30 OI=495 CB=17.20 DE=18 TY=2.9% MY=8.3%


_________________________________________________________________

HLEX - HealthExtras  $15.99  *** Uptrend Intact! ***

HealthExtras (NASDAQ:HLEX) is a provider of pharmacy benefit
management services and supplemental benefit programs.  The
company's PBM clients include managed-care organizations,
self-insured employers and third-party administrators who
contract with HealthExtras to cost-effectively administer
the prescription drug component of their overall health
benefit plans.  The supplemental benefits segment generates
revenue from the sale of membership programs that provide
insurance and other benefits.  Individual customers are the
major purchasers of the firm's supplemental benefit programs.
The PBM segment, which operates under the brand name Catalyst
Rx, generates the majority of the company's revenues.

HLEX - HealthExtras  $15.99

JAN 15.00 HUE-MC LB=0.25 OI=20 CB=14.75 DE=18 TY=2.9% MY=7.5%


_________________________________________________________________

FLML - Flamel Technologies  $19.60  *** More Bottom-Fishing! ***

Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company
engaged mainly in the development of two polymer-based delivery
technologies for medical applications.  The company's Micro-pump
technology is a multi-particulate technology for oral ingestion
of small molecule drugs with applications in controlled release,
tastemasking and bioavailability enhancement.  The company has
three major products based on its Micropump technology: Asacard,
a controlled-release formulation of aspirin for the treatment of
cardiovascular disease; Metformin XL, a controlled-release form
of Metformin that is in development for use for the treatment of
Type II diabetes, and Genvir, a controlled-release acyclovir for
the treatment of genital herpes.  In addition, FLML has developed
new herbicide delivery systems and has patented a biomaterial,
ColCys.

FLML - Flamel Technologies  $19.60

JAN 17.50 FLU-MW LB=0.25 OI=1395 CB=17.25 DE=18 TY=2.4% MY=7.1%



_________________________________________________________________

SONC - Sonic  $31.44  *** Solid Earnings! ***

Sonic (NASDAQ:SONC) operates drive-in restaurants in the United
States.  The company currently has nearly 3,000 Sonic Drive-Ins
in operation, consisting of over 500 Partner Drive-Ins and about
2,300 Franchise Drive-Ins, principally in the southern two-thirds
of the United States.  Partner Drive-Ins are owned and operated
by either a limited liability company or a general partnership.
Sonic owns a majority interest, typically at least 60%, and the
supervisor and manager of the drive-in own a minority interest
in each Partner Drive-In limited liability company or general
partnership.  Franchise Drive-Ins are owned and operated by its
franchisees.

SONC - Sonic  $31.44

JAN 30.00 ZSQ-MF LB=0.35 OI=108 CB=29.65 DE=18 TY=2.0% MY=5.1%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is
no more than twice the original premium received from the sold
option.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CELG - Celgene  $25.17  *** Next Leg Down? ***

Celgene (NASDAQ:CELG) is an integrated biopharmaceutical firm
engaged in the discovery, development and commercialization of
therapies designed to treat cancer and immunological diseases
through regulation of cellular, genomic and proteomic targets.
Celgene has built a discovery, development and commercialization
platform for drug- and cell-based therapies that allows it to
both create and retain significant value within its therapeutic
franchise areas of cancer and immune/inflammatory diseases.

CELG - Celgene  $25.17

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 27.5  LQH-AY    11K+   0.35  27.85   7.3%   1.3%


_________________________________________________________________

FHRX - First Horizon Pharma  $20.95  *** Premium-Selling Only! ***

First Horizon Pharmaceutical (NASDAQ:FHRX) is a specialty
pharmaceutical company that markets and sells brand name
prescription products.  Its primary products are Sular,
Nitrolingual, Prenate, Tanafed, Robinul and Ponstel.  Most
of these products treat recurring or chronic conditions or
disorders, which results in repeated use over an extended
period of time.  They focus on two therapeutic categories,
which are cardiology and women's health/pediatric.  First
Horizon markets its products to high-prescribing primary
care physicians, cardiologists, obstetricians, gynecologists
and pediatricians.

FHRX - First Horizon Pharma  $20.95

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 22.5  FUF-AX    206    0.25  22.75   6.0%   1.1%


_________________________________________________________________

MACR - Macromedia  $27.47  *** Trend Reversal? ***

Macromedia (NASDAQ:MACR) is an independent software company
providing software that empowers designers, developers and
business users to create and deliver effective user experiences
on the Internet, fixed media and wireless and digital devices.
The company's integrated family of technologies enables the
development of Internet solutions, including Websites, rich
media content and Internet applications across multiple
platforms and devices.

MACR - Macromedia  $27.47

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JAN 30    MRQ-AF    1763   0.35  30.35   6.7%   1.2%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


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