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Daily Newsletter, Sunday, 01/23/2005

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The Option Investor Newsletter                   Sunday 01-23-2005
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:  Turn Out The Lights
Futures Wrap: See Note
Index Trader Wrap:  NO REAL CHANGE
Editor's Plays: See Note
Market Sentiment: Sentiment Is Turning Sour
Ask the Analyst: Equity put/call ratio
Coming Events: Earnings, Splits, Economic Events 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 01-21        WE 01-14        WE 01-07        WE 12-31 
DOW    10392.99 -165.01 10558.0 - 45.96 10603.9 -179.34 - 43.82  
Nasdaq  2034.27 - 53.64 2087.91 -  0.70 2088.61 - 86.16 + 14.15 
S&P-100  557.32 -  7.12  564.44 -  1.94  566.38 -  8.64 -  1.04 
S&P-500 1167.87 - 16.65 1184.52 -  1.67 1186.19 - 25.46 +  1.52 
W5000  11507.29 -145.45 11652.7 +  3.85 11648.9 -323.90 + 38.98 
SOX      389.66 - 13.48  403.14 -  4.42  407.56 - 25.72 +  6.85 
RUT      611.08 -  6.40  617.48 +  4.27  613.21 - 37.87 -  1.71 
TRAN    3471.17 - 97.99 3569.16 - 67.62 3636.78 -160.56 +  9.56 
VXO       14.55           12.43           13.85           13.58 
VXN       19.37           18.57           19.15           18.37
******************************************************************


Turn Out The Lights
by Jim Brown

Will the last bull out the door please turn out the lights.
The party may be over if this week's market action is any 
guide. The major indexes secured a place in the history 
books with their 2005 performance. The Dow, SPX and Nasdaq
have NEVER been down three consecutive weeks in January. 
You have to go back to 1977 for both the Dow and SPX to 
start the year with a three week drop. By itself the Dow
was the last index to string three but it was back in 1982.
This is not the way to start a happy New Year. 

Dow Charts


Nasdaq Chart

  
Without any major news on the stock front or the world scene
the indexes continued their swoon on Friday and all closed
at new lows for the year. The only material economic report
was Consumer Sentiment which fell slightly to 95.8 from 97.1
but that was hardly a market mover. The fear of higher rates
is beginning to weigh on consumers but not enough to push
the sentiment significantly lower. The falling market has
become a bigger fear factor and the next revision to the
sentiment survey is sure to be significantly lower. 

The ECRI Weekly Leading Index stopped its multi-week drop
and rebounded to 133.3 from 130.7. This is a very strong
bounce that was mostly in part from the unexplained drop
in jobless claims early this week. This should have been
slightly positive but this is not normally an indicator
that traders watch. 

Bearishness abounded on Friday despite a successful 
conclusion to the inauguration. The major indexes all
closed at their lows for the year and stock TV was full
of bearish interviews suggesting that the market weakness
is going to continue. Actually this could be a contrarian
indicator as the number of bears has dramatically increased
over the last couple of weeks. 

With the market setting records for ugly performance those
bears should be very happy. This is the worst January in
over 20 years and the complete lack of cash inflows is
really upsetting the strategy of fund managers. Normally
there are withdrawals in January as some investors pull
out cash once the prior tax year is over in order to use
it for other reasons like taxes. The massive inflow of year
end retirement contributions offsets this smaller outflow
of withdrawals and gives fund managers liquidity to handle
the outflows without having to close positions. The complete
lack of inflows this year has upset those patterns and fund
managers are having to trim positions to cover withdrawals.
TrimTabs said again on Friday we are on track to see nearly
-$5B of cash outflows in January and this is unprecedented
in recent years. January 2004 saw inflows of +$43.8B. 

There is no single reason for the lack of cash other than
investors waiting for the profit taking from the Q4 rally
to ease. We had a huge bounce off the October lows and 
most funds/investors were fully invested. With expectations
for 2005 less than exciting many investors are deciding to
put money in other places than the market. Bond funds are
seeing huge inflows of cash and funds that invest overseas
are receiving new money. 

The challenge is not earnings but the guidance. 115 S&P
companies have reported earnings and 65% beat estimates,
18% reported inline and only 17% missed analyst estimates.
For this reporting cycle the GAAP earnings are running 
about +9.4% growth over 2004. Proforma earnings are about
+18.2% over last year. This performance both in percentage
of companies beating the street and percentage of earnings
growth are both really good given the strong comparisons
from 2004. Unfortunately many companies that beat the street
this quarter are warning for Q2 or longer and few are raising
guidance. 

For instance GE beat the street by a penny and said they
were confident they would return to double digit growth in
2005 and the market yawned. It was really good earnings from
a corporate giant and they said good things about the economy.
Immelt said the breadth and depth of the economic momentum
is very positive. However they only predicted +10%-15%
earnings growth for 2005. That is not bad but it is not
exciting enough to make investors rush into the stock. GE
closed down a quarter and well off the highs of the day.

Oil also came back to haunt investors with a return to 
$48.95 after a one-day dip. Speculators are betting that
the Iraq elections next week will see a huge spike in
attacks on oil facilities. Sabotage in Iraq has completely
halted exports from the northern fields since an attack
more than a month ago. Barclay's Capital said Friday the
inability to keep pipelines and wells operating in Iraq 
was a growing indication of serious reservoir damage 
caused by under investment, misuse and neglect. They said
the outlook for Iraqi oil production is getting dimmer. 
Output is currently -21% under pre invasion levels. 

Also, another snowstorm for this weekend is expected to
deplete even further the heating oil supplies which are
already -13% below last years levels. 

OPEC said on Friday that demand is continuing to rise 
unexpectedly but they would still be able to meet that 
demand. It may cost us $55 or $60 but if we pay they will
pump it. OPEC meets again next Sunday to discuss the next
round of production cuts but it is looking less likely
it will happen with oil already near $50. They said their
current projections for demand show an increase of 1.65
mbpd for 2005. That would push the daily global demand to
83.64 million barrels per day. This jump in demand is more
than OPEC had predicted just a month ago. OPEC expects 
demand from China to only grow +7.2% in 2005 to 6.9mbpd 
after a +15.5% jump in 2004. I would bet against that low
number. With the rapid internal growth and the huge ramp
in the delivery of autos it could actually exceed the 15%
jump from 2004. High growth countries expand oil usage 
much quicker than those already stable. The Venezula Oil
Minster said he would support a million barrel cut because
current oil prices are just given the growing demand. 
Makes sense to me. Demand is growing unexpectedly fast so
lets cut production and charge more. We will be hearing a
lot of this in the not to distant future. 

With the worst three-week start in recent history to set
the stage we have some serious decisions in front of us. 
There are a growing list of problems and although none of
them are serious they seem to take on added importance 
when the market is performing exactly the opposite of what
analysts expect. The bears claim it is the slowing economy
and we have seen several instances of that in just the 
last week. They also point to the rising inflation and 
the potential for higher rates as a wet blanket on stocks.
Add in the deceleration in earnings guidance, higher oil 
and the coming Iraqi elections and we have a witches brew
of trouble.

I thought the market would shake off all these problems
with a swish of its bullish tail and continue higher on
the January cash flow. That lack of cash flow now has me
singing a more cautious tune. My critical market levels
of SPX 1175 and Dow 10425 have failed and the next stop
could be a long drop lower. As long as the market was
consolidating above those critical levels there was still
hope. Once broken that hope turns into despair and more 
traders will begin throwing in the towel until some sanity
returns to the market. It is not that there is insanity 
now but when historical market trends are broken with no
specific reason the average trader tends to panic and 
over react. 

The Dow closed under 10400 on Friday and there was not
any material driving force. It was simply a lack of buyers
and steady selling across the board. Once the 10500 level
was severely broken on Thursday and buyers did not appear
the sentiment of the market changed drastically. We could
call it an option expiration event and that could be right.
We already knew this expiration cycle would produce negative
market pressure but I don't believe that is the only reason.
It may have been a contributing factor but not the cause.
Sentiment has turned nasty in just the last two days. The
lack of inflows has caused traders to question their beliefs
and assumptions. What does $40 billion in retirement cash 
know that we don't? It is very strange that this many people
would suddenly pull the plug on that much money with no 
warning. This has really spooked many traders. 

With the Dow close under 10400 it appears the next minor
support level at 10350 will only be a speed bump. I don't
know how many times I have said it over the years but 
Monday will be a key day. If the down trend confirms with
post OpEx move lower then funds could begin to dump stocks
in volume. Once we pass 10286 and the 50% retracement
level for the October rally the next support could be
9800. Yes, 9800. Once a real correction takes hold we
tend to aggressively over correct and the drop accelerates
even faster. It could get really ugly if sentiment does not
change almost immediately. 

The Nasdaq appears much weaker than the Dow and the weak
book-to-bill number on chips on Thursday has not helped.
The Nasdaq closed well under 2050 at 2034 and below all
material support levels with the possible exception of
the 38% retracement at 2022 and the 100 day average at
2019. That is weak at best on my chart and the most likely
target now would be 1900-1920 if we break that 2020 level.

The SPX closed well under my 1175 line in the sand and 
right on 1167 which some analysts are calling terminal
support. Terminal because a break here could be deadly
to the future outlook. I see that level as 1160 but that
difference of opinion is what makes a market. We are
already under my "get flat" level at 1175 and under 1160
I will switch to a strong short bias. Under 1160 we could
see pause points at 1140 and 1100 but the next real support
is not until 1060. Funny how 1300 and 1325 were all the
rage last week on stock TV and this week 1060 is now the
silver bullet for killing the bear. That would be the 100%
retracement of the October rally and a concept I have 
trouble grasping at present. 

SPX Chart - Daily


SPX Chart - Weekly



I am sure there are others scratching their head today
and trying to figure out why we are not moving higher.
As long as you are scratching your head and not buying
the dips you will be ok. Once the market breaks critical
support levels the best thing bulls can do is stand aside.
Those who can make the mental switch to the potential
plunge can don their chutes and go along for the ride.

The key point to remember is "don't fight the trend." We 
should be in "short the rally" mode under SPX 1175 instead
of buy the dips. Until historical trends return to the
market we need to remain focused on short term positions.
Monday could be pivotal for sentiment but we just need
to keep our eyes on the 1175 level for direction and not
listen to all the analysis on stock TV. It is our red 
light, green light indicator and we all know what happens
when we ignore red lights. The result is not pretty. Cheer
up! The last time the Dow started the year with three down
weeks was 1982. Actually the first three months were down
for the Dow but it came back to gain +20% for the year.
This is also 2005 and we have not finished negative since
1880 on a year ending in five. A 120-year trend may be
just a long anomaly but it does exist. Unfortunately the
first year of a second term president also has a rocky
history so we are right back where we started watching
1175 for direction. 

Jim Brown

"Nothing is more exhausting than searching for
easy ways to make a living"



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

NO REAL CHANGE
By Leigh Stevens

THE BOTTOM LINE – 
There's no real change in my view that this current correction 
has further to go and is the result of the August – December 
advance going well beyond a reasonable expectations of earnings 
growth in the year ahead. Technically, the tip off for the top 
were the key reversals made early this month (1/3) – in the case 
of the Nasdaq 100 (NDX) which trades quite "technically", there 
was an obvious triple top. 

For a discussion of "key reversals" see my 1/13 Trader's Corner - 
http://www.OptionInvestor.com/traderscorner/tc_011305_1.asp 

Regarding the NDX - it reached and exceeded expected support in 
the 1510-1525 area already. This was a minor support and 
objective, as the Nas 100 would ideally re-test 1470-1475, which 
looks to offer more substantial support or buying interest. 

As to the rest of the indices and per my last week's comments, 
the S&P 500 (SPX) appears headed to the 1160 area and to around 
548-550 in the S&P 100 (OEX). A revised target and anticipated 
support in the Dow 30 (INDU), which looked to me last week that 
it would have greater weakness than the broader S&P indices, is 
now to the 10,300 area, support implied by its 200-day moving 
average – and, close to a 50% retracement. Well actually, exactly 
half of its October – December advance would be to 10,287, but 
what's 13 points in the Dow!    


THE WEEK'S CLOSING NUMBERS – 

The S&P 500 Index (SPX) fell 7.5 points on Friday to 1,167.8. SPX 
ended 1.4% lower on the week and is now down 2.3% since January 
began. The Dow Jones 30 Average (INDU) was off 78.5 points at 
10,392.9 and was off 1.6% on the week – INDU has fallen 3.6% year 
to date. This is not necessarily a harbinger of the year to come, 
as the market has had weak Januaries, but finished up 
substantially on the year. Still, "what me worry!?" did not 
prevail all over on Friday. 

The Nasdaq Composite (COMP) fell 11.6 points to 2,034.3 for a 
loss of 2.6% on the week. COMP is now down 6.5% since the start 
of the year – of course, the backdrop of this is the sort of 
irrational straight up run of the weeks up to January. 
 
GE had some early gains on a better than expected earnings 
report, but finished off a fraction of a percent. United 
Technologies (UTX), another Dow stock, did manage to buck the 
trend on some strong earnings numbers and closed up 3 tenths of a 
percent.

FRIDAY'S TRADING  –

The market was lower Friday, and in a 3rd straight week (1st time 
since the early '80's) - strong earnings reports from General 
Electric and United Technologies were not enough to offset an 
otherwise very mixed picture on earnings in general.

There was also news that spooked the market in regards to 
consumer sentiment. Stocks came off its early highs after the 
University of Michigan said its consumer sentiment latest survey 
showed an erosion of confidence in January.  U of M's sentiment 
index fell to 95.8 in January from 97.1 in December. The increase 
was below the Street consensus forecast at 97.4.

A significant bearish impact from midweek on was provided by 
market action related to unwinding stock and index positions 
ahead of the end of trading of January options – add to equity 
and index options the fact that we had an annual LEAPS 
expiration. Investors holding LEAPS over the last couple of 
profitable years were without an anticipated January rally and 
profit-taking from LEAPS added significant selling volume. 

January is the only month with the LEAP expiration factor added 
to the equation. As Jim Brown pointed out in his Thursday wrap 
up, the lack of a January bounce left many market participants 
with long positions and with fading hope of a rally – opps, time 
to panic! And, with great disappointment about Nasdaq darling 
EBAY, investors and traders were dumping losing positions in all 
sectors.

OTHER MARKETS – 

In FX trading in New York, the U.S. dollar extended its losses 
against the euro and turned lower against the Japanese yen as the 
weak sentiment data led to speculation that the U.S. Federal 
Reserve might pause its policy of raising interest rates at a 
measured pace. 

The greenback was down .7% against the euro compared with 
Thursday and closed at $1.3046. The euro has fallen some 4% from 
an all-time peak at $1.36 (Dec). The dollar reversed a modest 
gain against the yen in the wake of the University of Michigan's 
consumer sentiment results. The dollar closed at 102.70 against 
the yen, also off 0.7% from New York trade on Thursday.

With currencies, being a 22-hour a day market, it becomes 
necessary to delineate what trading day you are talking about in 
terms of domestic markets here; e.g., there is an Asian "day", a 
London "day" and a New York "day" – but the official FX day 
begins in New Zealand and ends in New York and encompasses 22 
hours. I know FX traders in New York who might get up throughout 
the night to check their positions – not me, I need my sleep!    

Treasury bonds ended higher as stocks pulled back and seeking 
some safety ahead of the weekend. The 10-year T-note ended up 
6/32 to 100 28/32 to yield 4.14%.

Crude futures ended higher after the OPEC raised its 2005 demand 
forecast – hey, keep buying those SUV's! And, oil stocks!! This 
week's cold in the US, along with expectations of an OPEC output 
cut and continuing violence in Iraq gave support to oil futures – 
the March Crude Oil contract was up $1.22, at $48.53 a barrel. On 
the week, the contract was unchanged. 

Does anyone else notice that oil keeps floating back up toward 50 
bucks and that kind of passes for NORMAL now!? 

MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

I had been noticing and commenting some on the upward sloping 
wedge pattern highlighted on the chart below (pie shape) that was 
developing on the advance in the S&P 500 (SPX) – it’s generally a 
sign of declining buying power/interest to have the daily price 
RANGE narrowing as prices continue to climb. Perhaps you may want 
to file this shape away for the time when you see it again. It's 
not common, but fairly predictable in its outcome!

The break below the 21-day moving average support, a very useful 
length (21) for index traders, led to a rally back to it where 
the line acted as resistance.  What had been support, now was 
resistance.    

What next? 
Well, the 3 percent moving average "envelope" lines (a line equal 
each day to 3% above/below the average), was a definite target 
reached on the upside and becomes a possible next price objective 
on the downside – maybe after a rebound first – at the green 
arrow.  This area also coincides with a 50% retracement of the 
Oct – Dec advance.  Pretty common to see indexes and stocks give 
back half of their prior advance or decline.   



I also find it telling that bearishness has not built up more as 
represented by greater activity in equities put options.  That's 
what my indicator above shows.  Daily equities call to put 
volume.  This takes out the index options volume, where a lot of 
hedging is going on, to give a more pure speculative measure of 
trading "sentiment" or opinion on future market direction. 

I'll mention here, for those who haven't run into this study 
before, that there's NO symbol I can provide for the above 
indicator, as it involves me inputting the daily ratio into a 
spreadsheet kind of format in order to then graph it. 

S&P 100 Index (OEX) – Daily chart:

I mentioned last week 570 in S&P 100 (OEX) as KEY resistance – 
this level had previously been the "breakdown" point where prices 
accelerated to the downside. And how - the rebound to this area 
provided an excellent opportunity to buy puts. Especially so, 
since an exit point was so close at hand, as a close above 570 
would have suggested a bullish turnaround. When risk is so small 
relative to reward – and the subsequent decline has been 12 
points – it creates the optimal trading opportunity.   

This past week decline has taken prices to below near support at 
558-560 area, the low end of November's consolidation. With 
another week's action, it's clearer that the 550-551 area is a 
next plausible target.  I also see 548 as significant, being at 
two prior tops. Prior resistance in this area, may now prove to 
be or become support and an area where enough buying could 
surface to steady the index.

Near resistance is at 560, especially on a closing basis, 
extending to 563.  The near-term trend is down as long as OEX 
trades under 570. Early week trading will be interesting – there 
may be some attempt to rally I suspect as the index is oversold 
short-term.  On the other hand, the close at the low on Friday 
implies accelerating downside momentum – however, this was so 
tied into options expirations it's a wild card in forecasting. 



The OEX is not oversold on a longer-term (wkly) chart basis, but 
the RSI is edging down toward its lower extreme on the daily 
charts as you can see above.  Generally the 30 area is especially 
oversold on a 14 period daily chart basis.  The Relative Strength 
Index (RSI) in the S&P 100 has rarely done more than dip very 
briefly to that kind of low in recent months. Stay tuned on that! 

I wrote on the tendency for prior support or resistance areas to 
later bring in the opposite activity – an area that got sold 
before, becomes an area of buying interest later on.  For my take 
on this you can visit my last week's Trader's Corner piece at – 
http://www.OptionInvestor.com/traderscorner/tc_012005_1.asp  

Dow 30 Average (INDU) - Daily: 

I mentioned last time the 10600-10650 area in the Dow 30 (INDU) 
average as near overhead resistance and that zone was the 
definite stopper last Tues/Wed.   

I continue to see the 10300 area as a more major support.  It is 
the area where prices would both retrace half of the gains of the 
prior advance and where the important 200-day moving average 
currently intersects. If INDU reaches the 10300 area and you are 
long puts from higher levels, exiting some of them makes sense to 
me in my trading strategy. I may not stay in for all that a move 
might get me – as my (trading) mentor used to say, if you buy 
(options) right you don't have to fight to the end of the trend. 
 


Couldn't say this better than last week: the Dow is into an 
oversold reading on the longer range stochastic (length = 21, 
measuring 21-days), but the first time there is often not the 
last.  

Nasdaq Composite (COMP) Index  – Hourly chart:

As I mentioned last week resistance began in the 2100 in the 
Nasdaq Composite (COMP) and a move into this area brought in 
enough selling to take the Composite lower down into new low 
territory.  Looking at where COMP might go from here – provided 
the index does NOT get back above the low end of its recent 
hourly trading range, at 2066, a downside target is to the 2000 
area at a minimum I think. 

A "measured move" objective is to around 1985-1983 per my 
explanation on the chart below. A 50% retracement of the prior 
advance is to 1971 and is a benchmark area.  



I mentioned that prior support, once broken, becoming later 
resistance – the same is true of prior support trendlines – once 
broken, for some reason internal to index and market dynamics, 
there is a tendency for a return to such a previously broken 
trendline to be the kiss of death to a rally.  Hey, this might be 
why Michael Jenkins, an old Street maven, called em "kiss of 
death" trendlines! – that's at the red (down) arrow above. 

Nasdaq 100 (NDX) Index  – Daily and Hourly:

I mistakenly wrote last, in one place, not the other, that near 
support might be found in the 1575 area of the Nasdaq 100 (NDX), 
rather than the intended 1525. I also was looking at 1510 as 
significant, representing a 38% retracement level of the August – 
December advance and NDX blew through there, although not by 
much. 

The above and prior analysis was before seeing the downside price 
"gap" (gap between low of one day, high of the next) that 
developed last week.  This gap area, between 1545 and 1535, might  
be only half-way in a move lower as measured from the peak at 
1536; i.e., a so-called "measuring" gap.  

Since the top, was quite definite with three rallies failing in 
the same area, I look at some worst-case scenarios on where this 
Index might be headed. Possible downside objectives are to 1470 
and beyond, to 1450. 

On the upside, the gap area assumes a key trading significance 
with rallies possibly or likely to meet tough resistance starting 
at 1535 and extending to 1545. A close, or better two consecutive 
closes, above 1545 is needed to suggest that put holders ought to 
exit. 




Nasdaq 100 tracking Stock (QQQ) Daily chart:

38, not any longer 39, is the key technical resistance, at the 
top end of the downside gap of last week.  Some support might 
have been reached with the move to 37 – this level was a downside 
objective I had before last week's action developed.  

I could see a bounce developing back up to 38, with QQQ (now 
symbol: QQQQ) heading sill lower after that, perhaps even to an 
eventual re-test of the 3535 area, a significant low before the 
Q's blasted off in a strong 6-week advance. 

These kind of bearish objectives are off the table if there the 
stock can get back above 38 and stay more or less at this level 
and higher.   



I made some notes on the chart about the very marked divergence 
between the rally of late-December versus the sharply declining 
volume.  When you see this in a stock, it’s a divergence to pay 
attention to as less and less buying is putting prices up.  This 
is the classic definition of an overbought market and one that 
falls of its own weight, so to speak, when there are no more 
buyers.   

Good Trading Success!
 


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

No editors play tonight

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

Sentiment Is Turning Sour
- J. Brown

 
Investors are turning from puzzled to panicked as the normal 
January trends have failed to show up this year.  As a matter of 
fact the Dow Industrials haven't closed down the first three 
weeks of January since 1982.  What's worse, as Jim points out in 
his wrap, the Dow and the S&P 500 haven't both closed lower the 
first three weeks of the year since 1977.  Normally, the early 
January barometer of the first five days, when it closes lower it 
forecasts a down month.  The pattern follows that if January 
closes lower then the year tends to end lower.  While January 
isn't over yet we don't have much hope of a positive month.  

Of course these January trends are seasonal patterns and one 
thing we noticed through the first half of 2004 was a breakdown 
of seasonal patterns and 2004 turned out okay.  I wouldn't put 
too much stock in January forecasting the year but I would be 
cautious and try to avoid fighting the trend.  Right now the 
short-term trend is down.  Fortunately, if you look back to 1982 
the Dow actually turned higher in the latter part of the year to 
close up for a significant gain so I wouldn't panic yet.  

What I would worry about is the missing catalyst to spark any 
sort of buying interest in stocks.  I remember just two weeks ago 
stating in this column that I couldn't think of a reason that 
might inspire investors to buy stocks and I still can't.  
Earnings this season have been relatively good but the earnings 
guidance going forward has been disappointing.  The combination 
of an earnings slow down combined with rising rates and concerns 
over rising inflation could make this a tough road ahead for the 
bulls.  




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

Market Averages

DJIA ($INDU)

52-week High: 10868
52-week Low :  9708
Current     : 10392

Moving Averages:
(Simple)

 10-dma: 10549
 50-dma: 10596 
200-dma: 10279 



S&P 500 ($SPX)

52-week High: 1217
52-week Low : 1060
Current     : 1167

Moving Averages:
(Simple)

 10-dma: 1183
 50-dma: 1189
200-dma: 1133



Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1503

Moving Averages:
(Simple)

 10-dma: 1549
 50-dma: 1582
200-dma: 1467 



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

CBOE Market Volatility Index (VIX) = 14.36 +0.53	
CBOE Mkt Volatility old VIX  (VXO) = 14.55 +0.21
Nasdaq Volatility Index (VXN)      = 19.37 -0.13 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.87      1,432,744     1,243,714
Equity Only    0.64      1,173,847       751,545
OEX            0.93         74,982        70,223
QQQQ           1.46         72,182       105,688


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

Bullish Percent Data

           Current   Change   Status
NYSE          72.9    - 0.4   Bear Correction
NASDAQ-100    67.0    - 5     Bear Alert*** 
Dow Indust.   66.6    - 0     Bull Confirmed
S&P 500       72.2    - 1.2   Bull Confirmed
S&P 100       76.0    + 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: 1.14
10-dma: 1.20 
21-dma: 1.13
55-dma: 1.03


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    1311      1302
Decliners    1492      1697

New Highs      75        64
New Lows       33        44

Up Volume    676M      714M
Down Vol.   1288M     1280M

Total Vol.  2015M     2035M
M = millions


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

Commitments Of Traders Report: 01/11/05


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

Not much happening in the big S&P futures contracts.  Commercials
remain slightly net bearish.  Small traders remain net bullish.

Commercials   Long      Short      Net     % Of OI
12/21/04      455,238   502,538   (47,300)   (4.9%)
01/04/05      456,255   505,042   (48,787)   (5.0%)
01/11/05      457,383   509,892   (52,509)   (5.4%)
01/18/05      456,248   511,754   (55,506)   (5.7%)

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
12/21/04      157,015   106,205    50,810    19.2%
01/04/05      159,197   111,900    47,297    17.4%
01/11/05      157,131   110,174    46,957    17.5%
01/18/05      141,673    99,751    41,922    17.3%

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 hasn't been that much action in the e-minis either.  
Commercial traders have grown a little less bearish while small
traders remain staunchly net bullish.

Commercials   Long      Short      Net     % Of OI 
12/21/04      279,694   554,818   (275,124)  (32.9%)
01/04/05      302,339   620,759   (318,420)  (34.5%)
01/11/05      322,800   622,509   (299,709)  (31.7%)
01/18/05      349,260   632,509   (283,249)  (28.8%)

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
12/21/04      227,047     66,140   160,907    54.8%
01/04/05      279,274     71,151   208,123    59.4%
01/11/05      277,808     73,288   204,520    58.2%
01/18/05      295,226     76,618   218,608    58.7%

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


NASDAQ-100

Commercial traders added to both their longs and shorts but
remain strongly net bearish.  Meanwhile small traders turned
more optimistic with a jump in bullishness. 

Commercials   Long      Short      Net     % of OI 
12/21/04       30,614     45,158   (14,544) (19.1%)
01/04/05       27,226     44,600   (17,374) (24.1%)
01/11/05       31,984     49,244   (17,260) (21.2%)
01/18/05       33,629     51,060   (17,431) (20.5%)

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
12/21/04       20,840     9,109    11,731    39.1%
01/04/05       22,227     8,293    13,934    45.6%
01/11/05       27,186     8,470    18,716    52.4%
01/18/05       32,423     8,590    23,833    58.1%

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 haven't made many changes but small traders
have been turning more bullish on the Dow the last two weeks
and actually turned positive with the latest data.  

Commercials   Long      Short      Net     % of OI
12/21/04       24,850    31,920   (7,070)    (12.4%)
01/04/05       24,704    32,916   (8,212)    (14.2%)
01/11/05       25,254    32,568   (7,314)    (12.6%)
01/18/05       25,371    32,236   (6,869)    (11.9%)
 
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
12/21/04        5,637     6,961   (1,324)   (10.5%)
01/04/05        5,166     7,596   (2,430)   (19.0%)
01/11/05        5,141     5,389   (  248)   ( 2.3%)
01/18/05        6,251     5,588      663      5.6%

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

Equity put/call ratio

Could you please give some insight on the Equity Put/Call Ratio 
($CPCE), how you can use it in one's trading, what extremes could 
be good indicators, what other indicators would be good to use 
this ratio with?  Thanks Darrin

Reply:

This may be the toughest question I get this year.  Why is it so 
tough?  Read on and you'll find out.

First off, let's tackle the basics of just what the Equity 
Put/Call Ratio (Stockcharts.com symbol $CPCE) is measuring.

Like any ratio, the end value is simply the number of EQUITY puts 
bought/sold versus the number of EQUITY calls bought/sold during 
a session.  For every buyer there is a seller, so for simplicity 
sake, the number of contracts traded equates to volume.  The 
Put/Call ratio is mathematically derived by dividing the number 
of puts traded versus the number of calls traded.

For instance, if 500 puts were TRADED in one hour (or 50,000 in a 
day) and 1,000 calls were TRADED in the same hour (or 100,000 in 
a day), then the put/call ratio would equal 0.50.  Conversely, if 
1,000 puts were TRADED in one hour and 500 calls were TRADED in 
one hour, the put/call ratio would equal 20.

I think it VERY important for traders and investors to understand 
my stressing of the work TRADED.  Here's why.

It is GENERALLY thought that a low put/call ratio (like 0.50 
calculated above), which is derived by more calls being traded 
than puts, indicates a bullish stance from the market.  It is 
then thought that a higher put/call ratio (like 20 calculated 
above), which is derived by more puts being traded than calls, 
indicates a bearish stance from the market.

To complicate things a bit, it is also thought that whatever the 
put/call ratio is at, is then a CONTRARIAN indicator!  That's 
right.  If the market is trading more puts (bearish?) than calls 
(bullish?) then we should think the equity markets should soon 
trade BULLISH as too many puts are being traded.

There have been a lot of accounts "blown up" when 
traders/investors continually trade CONTRARIAN to what the market 
is doing, or thinking.

One should also remember that the Equity Put/Call Ratio is 
measuring ALL the puts and calls being TRADED at a single point 
of time.  If a stock like Merck (NYSE:MRK) $24.48, which is a 
component of the Dow Industrials, the S&P 500 and the S&P 100 
Index gaps down in price from $45 to $34 because it pulls a major 
drug from the market, we might expect high PUT VOLUME that day.  
This can "skew" the Equity Put/Call Ratio that first hour of 
trade, or the entire day.

My point for focusing on the word TRADED is this.  It is ASSUMED 
that high call volume, or put volume, is BUY SIDE INFLUENCE of 
the calls, or puts.  And while I do believe that most "retail" 
traders/investors ONLY BUY puts and calls, I do NOT believe that 
just because there are more puts being TRADED in a session than 
calls, necessarily means that more puts are being BOUGHT than 
calls.

Last week, in the OptionInvestor.com Market Monitor (01/11/05 
09:48:10), I profiled a BEARISH trade, and thought it might be 
profitable to SELL naked a couple of Dow Diamond (AMEX:DIA) 
$103.84 February $104 Calls (we had infinite risk exposure) for 
$2.75.  That trade would have created call VOLUME, but that was a 
BEARISH trade.  In Friday's Market Monitor (01/21/05), I thought 
it a good idea to BUY back those calls for $1.60, which also 
created some call volume.  This bearish trade would have returned 
a 41.82% gain.

Perhaps the closing of the trade would be considered BULLISH, but 
understand that the first part of the trade, even though it 
created call volume, was BEARISH.  You can see now that just by 
seeing a high or low put/call ratio, you, nor I, really know if 
the VOLUME is from the BUY or SELL side of things.

"How can one use this ratio in their trading?"  I think a 
trader/investor can use this ratio to try and get an INITIAL 
understanding as to what traders are most interested in at the 
time.  Are they more interested in CALLS, or PUTS?  But to assume 
a put/call ratio above 1.0 is BULLISH (more puts traded than 
calls traded), if looking at things from a CONTRARIAN point of 
view, can be a mistake.  Use this indicator to get an INITIAL 
perspective on things, ask yourself "why are the calls (or puts) 
finding more interest, but check other indications (look for 
other clues) to then try and piece together just what the market 
is really "saying."

Think of 1.0 as a "neutral" stance, if ASSUMING that 1,000 calls 
were BOUGHT and 1,000 puts were BOUGHT.  Makes sense doesn't it?  
That would give us a ratio of 1.0.

Aha!  What other indicator do you know of that has a "neutral" 
reading of 1.0?  How about the NYSE Short Term Trade Index 
($TRIN)?  Readings above 1.0 are thought to indicate more SELL 
volume than BUY volume.  Readings below 1.0 are thought to 
indicate more BUY volume than SELL volume.  TRIN is mostly used 
for short-term trading.

"What extremes could be good indicators?"  Boy... this is a tough 
one.  The reason I say this is from prior teachings regarding the 
Market Volatility Index ($VIX) 14.36, which measures option price 
volatility.  It had been thought that readings below 14.00 were 
"too BULLISH" and some CONTRARIONS took the opportunity to become 
VERY BEARISH on the markets.  In December of 2004, the VIX.X fell 
to as low as 11.14.  Some may not be so sure that VIX.X readings 
below 14.00 are "too BULLISH" anymore.

All I know is that the Equity put/call ratio can fall to as low 
as 0.00% (extremely bullish) and rise to infinity (extremely 
bearish).  If you were to twist my arm, I'd say readings below 
0.50 might be "too bullish" and readings above 0.90 might be "too 
bearish."

Here's what we'll do now.  Let's look at a weekly interval chart 
comparisons of the CBOE Options Equity Put/Call Ratio ($CPCE) and 
the S&P 500 Index ($SPX.X).  Is it a "false" assumption to think 
that a high put/call ratio is "too bearish" and that a low 
put/call ratio is "too bullish?"  Should the $CPCE be used by 
itself, or simply as a tool to understand what options (put or 
call) is of most interest to traders at a point in time, then go 
looking for clues? 

$CPCE and $SPX.X comparisons - Weekly Intervals



Two areas of interest I found were that of early June and then 
early July, when the $CPCE jumped above 0.90, perhaps indicating 
"too bearish."  For the most part, the SPX traded between 1,125 
and 1,150 the entire month.  The $CPCE is all over the place 
isn't it?  Even with a 4-week SMA overlaid, to try and smooth out 
some of the noise, the $CPCE whips back and forth.

On a shorter-term basis, just on Friday, 01/21/05, we see that 
the Open for the $CPCE was 0.67, it reached a High of 0.76 intra-
day, to then Close at its Low of the session.  That would be 
somewhat BULLISH intra-day action to the close if the p/c ratio 
was falling wouldn't it?  Now look how inaccurate that line of 
thinking would be when comparing the SPX intra-day action and 
O/H/L/C.

I will confess that I don't rely or monitor the Put/Call Ratio 
($CPCE), but it is largely because I'm usually "looking around" 
at option chains during the day.  I can get a general feel for 
what type of option action is being found from the Market 
Volatility Index (VIX.X) when it's rising or falling, and when I 
pull up an option chain, on the SPX.X, or DIA, or OEX, or QQQQ, I 
can see what calls, or puts are being traded.

Here would be an example of what I'm talking about.  In Friday's 
OptionInvestor.com Market Monitor, here is something I saw, that 
did seem to have a BEARISH outcome.  

Options Market Monitor - 01/21/05 



I make some additional notes as to my thoughts on some of the 
things I will look at during the course of a day.  At 01:25:16, I 
had just completed some observations regarding option activity in 
the Dow Diamonds (AMEX:DIA) as it was nearing the $104.40 and 
$104 levels, which was a bearish target I had had in mind for the 
naked put trade I had profiled last week.  No sooner had I type 
that entry, than the DIA Feb. $106 puts (DIA-NB) suddenly jumped 
to the top of the most active options for the DIA.  Almost out of 
nowhere!  

You see.  I'll keep an eye on the VIX.X, which I view rather 
simplisticly.  If its rising, then I associate that with put 
buying, and/or call selling.  If it is falling, then I associate 
that will call buying, and/or put selling.  I kind of keep an 
open mind about things, but us it to go looking for "clues" or 
unusual option action.  If I find any unusual option action, then 
I go back to the VIX.X to see if it confirms what might have been 
taking place.  Is a sudden burst of buying in the Feb. $106 puts 
bullish or bearish?  Watch the VIX.X and perhaps find out.  

One could use the $CPCE also.

OK... that DIA Feb. $106 put jumped to the top of the most active 
at about 01:27 PM EST.  Here's an intra-day chart of the $CPCE 
for Friday, January 21, 2005.

$CPCE Chart - 5-minute intervals (01/21/05)



Friday's intra-day Market Monitor observation, along with an 
intra-day chart of the $CPCE may really drive home the thought 
that the $CPCE is only telling us about put/call volume, and not 
a predictor of PRICE direction.  What's really interesting, and 
something I wouldn't have noticed, is that at just about 01:30 PM 
EST, the $CPCE makes somewhat of a "low" then trends higher.  
It's as if the MARKET switch a bit from call volume to put 
volume.  Coincidence when I just happened to have been looking at 
the DIA option chain and saw the jump in action on the DIA Feb. 
$106 puts?  Maybe, maybe not.

But if you're an OptionInvestor.com subscriber, you might 
remember my notes from last week regarding the "suspicious" CALL 
SELLING in the Feb. $104 calls, when the DIA was trading upwards 
of $106.  "Good gravy!" I thought to myself.  Why did somebody 
just trade 600 contracts of the DIA Feb. $104 calls at $2.60?  If 
you wanted to buy the DIA at $104 + 2.60 = $106.60, just buy the 
DIA.  Hmmmm.... maybe they weren't BUYING the Feb. $104 calls.  
Maybe they were SELLING THEM with the thought the DIA was going 
to drop!  

On Friday, when the DIA is down near $104, suddenly the Feb. $106 
puts see some unusual and sudden volume $106 - $2.15 = $103.85.  
"Good gravy!" I thought to myself.  Why did somebody just trade a 
large amount of DIA Feb. $106 puts, just sell the DIA if you want 
out that bad.  Hmmmm.... maybe they weren't BUYING the Feb. $106 
puts.  Maybe they were SELLING THEM with the thought the DIA is 
going to rebound!

It could be that a large institutional player had been buying 
some Dow components stocks into inventory to provide liquidity 
for market participants that needed/wanted to sell, and all 
option action is simply "hedging" taking place.  We can just 
never be certain about anything.  

I would think that a trader/investor that does utilize the $CPCE, 
should probably at least marry that observation with the $VIX.  

Use the $CPCE to tell you what the market is interested in (call 
or puts) and then try and use the $VIX observation to tell you if 
it is put buying/call selling (rising $VIX) or put selling/call 
buying (falling $VIX) to get a feel if the option action you're 
seeing in the $CPCE is BUY SIDE influenced, or SELL SIDE 
influenced.

Again, call BUYING is thought to be BULLISH.  However, put 
SELLING can also be bullish.  The $CPCE by itself only tells you 
what the market is more interested in trading at that time.  

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

ALTR  Altera Corp         Mon, Jan 24  After the market     0.13
ACF   AmeriCredit         Mon, Jan 24  After the market     0.35
CAI   CACI Intl           Mon, Jan 24  After the market     0.67
CR    Crane               Mon, Jan 24  After the market     0.48
ETN   Eaton               Mon, Jan 24  ----- n/a -----      1.13
JDAS  JDA Software        Mon, Jan 24  After the market     0.06
LXK   Lexmark             Mon, Jan 24  Before the bell      1.13
OXY   Occidental Petrol   Mon, Jan 24  ----- n/a -----      1.95
PPC   Pilgrim's Pride     Mon, Jan 24  Before the bell      0.70
SLAB  Silicon Labs        Mon, Jan 24  After the market     0.21
STN   Station Casinos     Mon, Jan 24  ----- n/a -----      0.51
TZOO  TravelZoo           Mon, Jan 24  Before the bell      0.13

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

AAI   AirTran Holdings    Tue, Jan 25  ----- n/a -----     -0.08
ABC   AmeriSourceBergen   Tue, Jan 25  Before the bell      0.63
ASH   Ashland             Tue, Jan 25  Before the bell      1.06
AV    Avaya               Tue, Jan 25  After the market     0.18
BLS   BellSouth           Tue, Jan 25  Before the bell      0.41
CNI   Canadian Ntl Railwy Tue, Jan 25  After the market     0.97
CDWC  CDW Computer        Tue, Jan 25  Before the bell      0.73
CTX   Centex              Tue, Jan 25  After the market     1.88
COH   Coach Inc           Tue, Jan 25  Before the bell      0.68
CPWR  Compuware           Tue, Jan 25  After the market     0.06
GLW   Corning             Tue, Jan 25  After the market     0.12
CSX   CSX                 Tue, Jan 25  Before the bell      0.62
CYMI  Cymer Inc           Tue, Jan 25  ----- n/a -----      0.10
DD    DuPont              Tue, Jan 25  Before the bell      0.33
ERTS  Electronic Arts     Tue, Jan 25  After the market     1.17
FCS   Fairchild Semi      Tue, Jan 25  Before the bell      0.14
FLEX  Flextronics         Tue, Jan 25  After the market     0.19
INSP  Infospace           Tue, Jan 25  After the market     0.40
LSCC  Lattice Semi        Tue, Jan 25  ----- n/a -----     -0.07
LSS   Lone Star Tech.     Tue, Jan 25  ----- n/a -----      0.91
MER   Merrill Lynch       Tue, Jan 25  Before the bell      1.10
MCHP  Microchip Tech.     Tue, Jan 25  After the market     0.25
OSK   Oshkosk Truck       Tue, Jan 25  Before the bell      0.75
RFMD  RF Micro Devices    Tue, Jan 25  After the market     0.01
SGP   Schering Plough     Tue, Jan 25  Before the bell     -0.01
STK   Storage Tech.       Tue, Jan 25  After the market     0.67
TLAB  Tellabs             Tue, Jan 25  Before the bell      0.09
TXN   Texas Instruments   Tue, Jan 25  After the market     0.26
SSP   The E.W.Scripps Co  Tue, Jan 25  Before the bell      0.53
MHP   The McGraw Hill     Tue, Jan 25  Before the bell      0.90
X     United States Steel Tue, Jan 25  ----- n/a -----      2.71
VTSS  Vitesse Semi        Tue, Jan 25  After the market    -0.04
XRX   Xerox Corp          Tue, Jan 25  Before the bell      0.22
ZOLL  Zoll Medical        Tue, Jan 25  Before the bell     -0.08


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

AFFX  Affymetrix          Wed, Jan 26  After the market     0.37
MO    Altria Group        Wed, Jan 26  ----- n/a -----      1.06
ABK   Ambac Financial     Wed, Jan 26  Before the bell      1.61
AMCC  Applied Micro Cir.  Wed, Jan 26  After the market    -0.01
BMS   Bemis Company       Wed, Jan 26  Before the bell      0.40
BSTE  Biosite Inc         Wed, Jan 26  After the market     0.59
BDK   Black & Decker      Wed, Jan 26  ----- n/a -----      1.57
BVSN  Broadvision         Wed, Jan 26  After the market    -0.02
BR    Burlington Res.     Wed, Jan 26  After the market     1.14
BCR   C.R.Bard            Wed, Jan 26  After the market     0.62
CPC   Central Parking     Wed, Jan 26  After the market     0.16
CHIR  Chiron              Wed, Jan 26  After the market     0.10
CPS   ChoicePoint         Wed, Jan 26  Before the bell      0.43
CRUS  Cirrus Logic        Wed, Jan 26  After the market    -0.05
COP   ConocoPhillips      Wed, Jan 26  Before the bell      3.07
DBD   Diebold             Wed, Jan 26  Before the bell      0.89
DPMI  DuPont Photomask    Wed, Jan 26  ----- n/a -----      0.01
ET    E*Trade             Wed, Jan 26  Before the bell      0.22
EK    Eastman Kodak       Wed, Jan 26  Before the bell      0.66
FBN   Furniture Brands    Wed, Jan 26  After the market     0.36
GD    General Dynamics    Wed, Jan 26  Before the bell      1.63
GNSS  Gensis Microchip    Wed, Jan 26  After the market     0.05
HAR   Harman Intl Ind.    Wed, Jan 26  ----- n/a -----      0.77
HSY   Hershey Foods       Wed, Jan 26  Before the bell      0.66
IMCL  ImClone Systems     Wed, Jan 26  ----- n/a -----      0.38
JDSU  JDS Uniphase        Wed, Jan 26  After the market    -0.01
KRI   Knight Ridder       Wed, Jan 26  Before the bell      1.29
LSI   LSI Logic           Wed, Jan 26  After the market     0.01
PJC   Piper Jaffray       Wed, Jan 26  Before the bell      n/a
RNWK  RealNetworks        Wed, Jan 26  ----- n/a -----     -0.01
RBAK  Redback Networks    Wed, Jan 26  ----- n/a -----     -0.10
ROK   Rockwell Automat.   Wed, Jan 26  Before the bell      0.65
COL   Rockwell Collins    Wed, Jan 26  Before the bell      0.45
SAP   SAP Ag              Wed, Jan 26  Before the bell      0.55
STJ   St. Jude Medical    Wed, Jan 26  ----- n/a -----      0.32
SBUX  Starbucks           Wed, Jan 26  ----- n/a -----      0.34
TRMB  Trimble Navigation  Wed, Jan 26  ----- n/a -----      0.17
VAR   Varian Medical      Wed, Jan 26  After the market     0.25
WWY   Wm Wrigley Jr.      Wed, Jan 26  ----- n/a -----      0.55


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

SE    7-Eleven            Thr, Jan 27  Before the bell      0.08
ADPT  Adaptec, Inc.       Thr, Jan 27  After the market     0.05
ACV   Alberto-Culver      Thr, Jan 27  ----- n/a -----      0.54
AMGN  Amgen               Thr, Jan 27  Before the bell      0.61
AU    Anglogold Ashanti   Thr, Jan 27  ----- n/a -----      0.18
ABFS  Arkansas Best       Thr, Jan 27  Before the bell      0.93
AZN   AstraZeneca         Thr, Jan 27  Before the bell      0.59
BLL   Ball Corp           Thr, Jan 27  Before the bell      0.49
BZH   Beazer Homes        Thr, Jan 27  Before the bell      4.36
BRCM  Broadcom            Thr, Jan 27  After the market     0.22
CCMP  Cabot Microelec.    Thr, Jan 27  Before the bell      0.49
CAT   Caterpillar         Thr, Jan 27  Before the bell      1.63
CELG  Celgene             Thr, Jan 27  ----- n/a -----      0.09
CTXS  Citrix Systems      Thr, Jan 27  Before the bell      0.27
COLM  Columbia Sportswr.  Thr, Jan 27  After the market     0.94
ED    Consolidated Edis.  Thr, Jan 27  ----- n/a -----      0.51
CY    Cypress Semi.       Thr, Jan 27  Before the bell     -0.09
DLX   Deluxe Corp         Thr, Jan 27  Before the bell      0.90
FDRY  Foundry Networks    Thr, Jan 27  After the market     0.12
GTW   Gateway Inc.        Thr, Jan 27  After the market     0.02
GYI   Getty Images        Thr, Jan 27  After the market     0.43
GILD  Gilead Sciences     Thr, Jan 27  ----- n/a -----      0.23
GDT   Guidant             Thr, Jan 27  Before the bell      0.66
IRF   Intl Rectifier      Thr, Jan 27  After the market     0.58
JBLU  JetBlue Airways     Thr, Jan 27  Before the bell     -0.04
LMT   Lockheed Martin     Thr, Jan 27  Before the bell      0.71
MRO   Marathon Oil        Thr, Jan 27  ----- n/a -----      0.94
MSTR  MicroStrategy       Thr, Jan 27  After the market     0.88
MLNM  Millennium Pharma   Thr, Jan 27  Before the bell     -0.25
NOK   Nokia               Thr, Jan 27  ----- n/a -----      0.23
OSTK  Overstock.com       Thr, Jan 27  After the market     0.08
BTU   Peabody Energy      Thr, Jan 27  Before the bell      0.99
PD    Phelps Dodge        Thr, Jan 27  Before the bell      3.53
PMCS  PMC-Sierra          Thr, Jan 27  ----- n/a -----      0.01
PII   Polaris Industries  Thr, Jan 27  Before the bell      1.02
RBK   Reebok              Thr, Jan 27  Before the bell      0.52
SNDK  SanDisk             Thr, Jan 27  After the market     0.28
SANM  Sanima-SCI          Thr, Jan 27  After the market     0.10
SEPR  Sepracor            Thr, Jan 27  ----- n/a -----     -0.66
SU    Suncor Energy       Thr, Jan 27  Before the bell      0.47
EL    Estee Lauder        Thr, Jan 27  Before the bell      0.57
VSEA  Varian Semicond.    Thr, Jan 27  After the market     0.36
GWW   W.W.Grainger        Thr, Jan 27  Before the bell      0.84
WDC   Western Digital     Thr, Jan 27  After the market     0.18
YELL  Yellow Roadway      Thr, Jan 27  After the market     1.22

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

ALK   Alaska Airlines     Fri, Jan 28  During the market   -0.65
BEC   Beckman Coulter     Fri, Jan 28  Before the bell      0.98
CVX   ChevronTexaco       Fri, Jan 28  Before the bell      1.40
FRNT  Frontier Airlines   Fri, Jan 28  ----- n/a -----     -0.16
HAL   Halliburton         Fri, Jan 28  Before the bell      0.47
MYG   Maytag              Fri, Jan 28  Before the bell      0.17
MCD   McDonalds           Fri, Jan 28  Before the bell      0.45
PG    Procter & Gamble    Fri, Jan 28  ----- n/a -----      0.72
TRB   Tribune             Fri, Jan 28  Before the bell      0.70


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

Symbol  Company Name              Ratio    Payable     Executable

CPO   Corn Products               2:1      Jan 25th    Jan 26th
BRN   Barnwell Industries         2:1      Jan 28th    Jan 31st
CVCO  Cavco Industries            2:1      Jan 31st    Feb  1st
WWW   Wolverine Worldwide         3:2      Feb  1st    Feb  2nd
MCRS  MICROS Systems              2:1      Feb  1st    Feb  2nd
FLIR  FLIR Systems                2:1      Feb  2nd    Feb  3rd
MATR  Matria Healthcare           3:2      Feb  4th    Feb  7th
FDS   Factset Research            3:2      Feb  4th    Feb  7th


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

Earnings season is still in full swing but Wall Street will
also be listening to the various economic reports out this week.


==============================================================
                       -For-           
----------------
Monday, 01/24/05
----------------
FOMC Governor Guynn speaks on U.S. Economy

-----------------
Tuesday, 01/25/05
-----------------
Consumer Confidence for January
Existing Home Sales for December
FOMC Governor Hoenig speaks on Monetary Policy

-------------------
Wednesday, 01/26/05
-------------------
..none..

------------------
Thursday, 01/27/05
------------------
Weekly Initial Jobless Claims
Durable Orders for December
Help Wanted Index for December


----------------
Friday, 01/28/05
----------------
Q4 GDP numbers     estimate: +3.5%
Q4 Chain Deflator  estimate: +2.1%
Employment Cost Index




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The Option Investor Newsletter                   Sunday 01-23-2005
Sunday                                                      2 of 5

In Section Two:

Watch List: Oil Service, Metals, Insurance and more!
Dropped Calls: RAI, FRO, GOOG, BBOX, AMGN
Dropped Puts: CAI


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

Oil Service, Metals, Insurance and more!

___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or 
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


Amerada Hess - AHC - close: 84.26 change: +0.84

WHAT TO WATCH: The oil service stocks have been showing decent 
relative strength the last couple of weeks while the rest of the 
market has declined.  On Friday the OSX index was one of the few 
that managed to close in the green.  AHC out performed its peers 
with a one-percent gain on Friday.  The stock has broken its 3 
1/2 month trend of lower highs and its short-term RSI indicator 
looks bullish.  Readers may want to consider bullish plays on a 
move over $85.00 or wait for a breakout over $86.00 which would 
produce a new triple-top breakout buy signal on its P&F chart.  
We would wait until after AHC's earnings report on January 26th 
before initiating new positions. 




---

Rio Tinto - RTP - close: 122.00 change: +4.28

WHAT TO WATCH: RTP was one of the big winners on Friday with a 
3.6 percent rally and a breakout over the $120 level to hit new 
all-time highs.  We strongly considered adding RTP to the play 
list as a new bullish candidate, especially with the breakout 
through the top of its eleven-week trading range between $110 and 
$120.  The P&F chart also shows a new buy signal with a triple-
top breakout pointing to a $130 target.  We chose to wait given 
the bearish market environment and that RTP looks short-term 
overbought. 




---

Research In Motion - RIMM - close: 70.30 change: -2.40

WHAT TO WATCH: It looks like RIMM has produced a possible double-
top with the peaks in November and December.  The peak in 
December looks like a blow-off top.  Since then the stock has 
been consistently trading lower under a pattern of lower highs.  
Now the oversold bounce from the $70 level has failed and shares 
are testing this round-number, psychological mark again.  
Directly below is the 200-dma near $68.50.  We would watch for a 
drop under the 200-dma as a potential bearish entry point.  The 
next level of support is probably the $55-60 range.  




---

Progressive Corp - PGR - close: 82.80 change: -0.85

WHAT TO WATCH: PGR recently reported earnings and beat Wall 
Street estimates by 34 cents yet this was not enough to spark any 
sort of rebound in the stock.  Shares turned lower and now the 
stock has broken below its December lows.  The MACD indicator has 
rolled over into a new sell signal and the P&F chart has produced 
a new triple-bottom breakdown sell signal.  We suggest watching 
for a drop under the $82.00 level as a new bearish entry point 
with an eye on the $77.50 region as a possible target.  





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

ITW $87.70 -1.70 - ITW continues to look like a bearish candidate 
given its breakdown below major support on Thursday.  Watch out 
for earnings expected on January 27th.

CME $192.23 -4.82 - As expected CME continues to show weakness 
given Thursday's breakdown below the $200.00 mark.  We would 
expected the 100-dma to offer support but that means traders 
could try and capture the $7 drop toward this moving average.

SLGN $60.29 +1.01 - SLGN is showing relative strength with a 1.7 
percent rally on Friday.  Volume has been pretty strong on the 
current two-day bounce.  Short-term technicals are positive and 
its MACD is nearing a new buy signal.  

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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
^^^^^

Amgen Inc - AMGN - close: 62.57 change: +0.01 stop: 62.00

We are going to cut our losses on AMGN and close the play early.  
We are somewhat encouraged by the lack of weakness during 
Friday's session but the BTK biotech index doesn't look healthy 
and the NASDAQ composite and NDX-100 both look poised for more 
weakness.  Furthermore the NDX bullish-percent data has turned 
into a bear alert status, which suggests traders should take 
defensive action if bullish.  If you are tempted to remain long 
don't forget that AMGN's earnings are coming up on Wednesday, 
January 26th and we do not suggest holding over the report. 

Picked on January 13 at $ 65.05
Change since picked:     - 2.48
Earnings Date          01/26/05 (confirmed)
Average Daily Volume =      7.3 million  



---

Black Box - BBOX - close: 46.15 change: +0.25 stop: 44.99      

Given the breakdown in the NASDAQ and the new bear alert status 
in the NDX-100 bullish percent data we're choosing to turn 
defensive and exit BBOX early.  One could argue that the stock's 
lack of weakness or relative strength during the sharp breakdown 
in the NWX networking index is good news and we wouldn't 
disagree.  Yet holding the stock while it churns sideways has 
been painful enough for option traders.  Earnings are expected on 
February 1st.  We may consider playing it again after the report 
if BBOX can breakout over the $48.50 level. 

Picked on December 22 at $ 46.15 
Change since picked:      + 0.00
Earnings Date           02/01/05 (confirmed)
Average Daily Volume =       128 thousand



---

Google Inc - GOOG - close: 188.28 change: -5.64 stop: 190.00

Weakness in the Internet stocks has been a major contributor to 
the overall tech weakness seen in the NASDAQ.  Granted EBAY is a 
major culprit for the downdraft but investors seem to be shying 
away from the group.  GOOG has not been able to avoid the profit 
taking and has broken the $190.00 level.  Per our suggestion on 
Thursday we're going to close this play unopened as GOOG never 
hit our trigger to go long at $205.51. 

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          02/01/05 (confirmed)
Average Daily Volume =     11.3 million 



---

Frontline Ltd - FRO - close: 44.78 chg: -0.17 stop: 43.49     

It's disappointing after coming so close to our target near 
$50.00 on Tuesday but we're choosing to exit early and minimize 
our losses in FRO.  The sudden, unexplained gap down on Thursday 
hit the entire industry and given the overall bearish market 
environment we doubt it will payoff to hold on to FRO at this 
time.  We will re-evaluate the stock if shares manage to bounce 
from its rising 200-dma again near $42.  Kudos to anyone who took 
our suggestion in the MarketMonitor on Tuesday and close the play 
for a profit. 

Picked on January 12 at $ 46.06
Change since picked:     - 1.28
Earnings Date          02/00/05 (unconfirmed)
Average Daily Volume =      1.1 million  



---

Reynolds American - RAI - close: 79.25 change: -0.82 stop: 76.75     

The tobacco industry has weathered this January's storm in the 
stock market better than most but the group succumbed to profit 
taking on Friday.  Shares of RAI broke down under the $80.00 mark 
again, which contributed to the weakness in its technical 
oscillators.  Per our trading plan we are closing RAI as of 
Friday afternoon to avoid the company's earnings report, which is 
suspected to be released on Monday morning.  Unfortunately, we 
can't confirm the earnings date.

Picked on December 22 at $ 80.11
Change since picked:      - 0.86
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       1.0 million  



PUTS
^^^^

CACI Intl - CAI - close: 59.30 change: -0.80 stop: 62.11     

CAI is another play we have to close to avoid the company's 
earnings report.  The company recently confirmed that it would 
report earnings on Monday after the closing bell and hold its 
conference call on Tuesday.  Aggressive traders who want to hold 
over the report (something we do not suggest) should be 
encouraged by CAI's drop under round-number support at the $60.00 
mark.  Plus, the point & figure chart is bearish with a $46 
target.  

Picked on January 05 at $ 61.95
Change since picked:     - 2.65
Earnings Date          01/24/05 (unconfirmed)
Average Daily Volume =      348 thousand
Chart =



***********
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 01-23-2005
Sunday                                                      3 of 5

In Section Three:

Current Calls: WFMI, TXI, PIXR, PHM, PD, KBH, CMI, ARLP, AET
New Calls: None
Current Puts: ADBE
New Puts: APOL, KMRT

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

Aetna Inc - AET - close: 127.27 change: +1.11 stop: 119.99
 
Company Description:
As one of the nation's leading providers of health care, dental, 
pharmacy, group life, disability and long-term care benefits, 
Aetna puts information and helpful resources to work for its 
approximately 13.6 million medical members, 11.6 million dental 
members, 8.3 million pharmacy members and 13.3 million group 
insurance members to help them make better informed decisions 
about their health care and protect their finances against 
health-related risks. Aetna provides easy access to cost-
effective health care through a nationwide network of more than 
646,000 health care professionals, including over 385,000 primary 
care and specialist doctors and 3,908 hospitals. (source: company 
press release)

Why We Like It:
This has been a very tough month for the bulls but those trading 
AET can take comfort in the stock's relative strength.  Shares 
even bucked the market downtrend on Friday with a decent gain.  
While the lack of AET is good news we remain cautious with all of 
our long plays.  The IUX insurance index has fallen three days in 
a row and looks ready to test technical support at both its 50-
dma and 200-dma, which are converging together.  If the IUX 
breaks down below this level it could easily weigh on shares of 
AET.  Aggressive traders can still use a bounce from the $125 
level as an entry point but at this point in time we'd probably 
suggest readers wait for AET to breakout over resistance at the 
$130 level before considering new bullish positions.  

Suggested Options:
We are not planning on holding any options over the February 10th 
earnings report so we're only suggesting the February calls.

BUY CALL FEB 125 AET-BE OI=2149 current ask $6.10
BUY CALL FEB 130 AET-BY OI= 637 current ask $3.40
BUY CALL FEB 135 AET-BX OI= 451 current ask $1.60

Annotated Chart:



Picked on January 13 at $127.61
Change since picked:     - 0.34
Earnings Date          02/10/05 (confirmed)
Average Daily Volume =      2.2 million  



---

Alliance Resource - ARLP - close: 71.30 chg: +2.01 stop: 67.99     

Company Description:
Alliance Resource Partners is the nation's only publicly traded 
master limited partnership involved in the production and 
marketing of coal. Alliance Resource Partners currently operates 
mining complexes in Illinois, Indiana, Kentucky and Maryland. 
(source: company press release)

Why We Like It:
Bulls can breathe a bit easier now.  ARLP is bouncing off 
technical support once again.  Shares of this coal producer have 
been rebounding from its simple 50-dma for many months and 
traders bought the dip again on Friday to produce a decent 2.9 
percent rally versus the overall weakness in the major indices.  
This looks like a new bullish entry point for interested traders.  
Our stop loss will remain at $67.99 under the 50-dma.  Momentum 
traders may feel more comfortable waiting for ARLP to breakout 
over resistance in the $74-75 range instead.  Please note that 
the risk of a surprise earnings release has increased 
substantially.  Throughout the life of the play we have been 
unable to find a firm earnings date.  The best data we can locate 
suggests that ARLP will report earnings between January 24th and 
February 3rd.  If you're not willing to hold over the event, and 
normally we strongly suggest you don't, then readers may want to 
exit now for a small gain (assuming you didn't exit when ARLP hit 
our initial target last week).  Something else to consider is 
that ARLP could announce a stock split with its coming earnings 
report.  While the company does not have any history of previous 
splits the share price has risen substantially over the last year 
or two. 

Suggested Options:
We're going to suggest the February calls because this a short-
term trade.

BUY CALL FEB 65 AFV-BM OI= 34 current ask $7.50
BUY CALL FEB 70 AFV-BN OI=145 current ask $3.90
BUY CALL FEB 75 AFV-BO OI= 90 current ask $1.60

Annotated Chart:


Picked on January 10 at $ 69.80
Change since picked:     + 1.50
Earnings Date          10/28/04 (confirmed)
Average Daily Volume =      115 thousand 



---

Cummins Inc - CMI - close: 74.77 chg: -0.90 stop: 73.99

Company Description:
Cummins Inc., a global power leader, is a corporation of 
complementary business units that design, manufacture, distribute 
and service engines and related technologies, including fuel 
systems, controls, air handling, filtration, emission solutions 
and electrical power generation systems. Headquartered in 
Columbus, Indiana, (USA) Cummins serves its customers through 
more than 680 company-owned and independent distributor locations 
in 137 countries and territories. Cummins also provides service 
through a dealer network of more than 5,000 facilities in 197 
countries and territories. With more than 24,000 employees 
worldwide, Cummins reported sales of $6.3 billion in 2003. 
(source: company press release)

Why We Like It:
Red alert!  The market sell-off has reversed the recent bounce in 
shares of CMI.  Originally, we added CMI for its bounce from 
technical support near the 100-dma and its rising trendline.  The 
stock has been channeling higher for months that is easy to see 
on its daily chart and P&F chart.  Yet now the bounce is failing 
as the broader indices sink to new lows for the year (2005).  
Friday's drop under the $75.00 mark for CMI is very bad news.  
Our only hope is that traders buy the dip to support near $74 
like they did on January 10-11th.  We are not suggesting new 
bullish positions at this time.  Conservative traders may want to 
exit early. 

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

Annotated Chart:


Picked on January 16 at $ 76.40
Change since picked:     - 1.63
Earnings Date          02/01/05 (confirmed)
Average Daily Volume =      785 thousand 



---

KB Home - KBH - close: 105.90 change: -0.15 stop: 99.50

Company Description:
Building homes for nearly half a century, KB Home is one of 
America's premier homebuilders with domestic operating divisions 
in some of the fastest-growing regions and states: West Coast-
California; Southwest-Arizona, Nevada and New Mexico; Central-
Colorado, Illinois, Indiana and Texas; and Southeast-Florida, 
Georgia, North Carolina and South Carolina. Kaufman & Broad S.A., 
the Company's majority-owned subsidiary, is one of the largest 
homebuilders in France. In fiscal 2004, the Company delivered 
homes to 31,646 families in the United States and France. It also 
operates a full-service mortgage company for the convenience of 
its buyers. Founded in 1957, and winner of the 2004 American 
Business Award for Best Overall Company.  (source: company press 
release) 

Why We Like It: 
Even the momentum-charged homebuilders were unable to avoid the 
market pull back this past week.  Fortunately, both the DJUSHB 
home construction index and shares of KBH have pulled back toward 
support and now provide an opportunity to bounce.  In our 
Thursday update we suggested that readers watch for a pull back 
into the $105 region and that's exactly what happened on Friday 
with traders buying the dip on Friday morning.  Now if KBH will 
provide some follow through we can use the pull back as a new 
bullish entry point.  Seeing some follow through here is very 
important.  Given the broader-market weakness we do not want to 
be initiating new bullish positions if the Dow and NASDAQ 
continue to free fall lower.  We would look for KBH to trade back 
over the $108 level to confirm the bounce.  Also keep an eye on 
the DJUSHB index, which needs to rebound from the 800 level.  

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

BUY CALL APR 100 KBH-DT OI= 996 current ask $11.20
BUY CALL APR 110 KBH-DU OI= 466 current ask $ 5.80
BUY CALL APR 115 KBH-DC OI= 584 current ask $ 3.90
BUY CALL APR 120 KBH-DV OI=  179current ask $ 2.55

Annotated Chart:


Picked on January 13 at $106.00
Change since picked:     - 0.10
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      1.1 million  



---

Phelps Dodge - PD - close: 98.49 change: -0.01 stop: 93.50*new*

Company Description:
Phelps Dodge Corp. is the world's second-largest producer of 
copper, a world leader in the production of molybdenum, the 
largest producer of molybdenum-based chemicals and continuous-
cast copper rod, and among the leading producers of magnet wire 
and carbon black. The company and its two divisions, Phelps Dodge 
Mining Co. and Phelps Dodge Industries, employ more than 14,000 
people worldwide. (source: company press release)

Why We Like It:
Shares of PD appear to be in no-man's land at the moment.  The 
market pull back has pulled PD back under the $100 level but the 
stock is holding above short-term support near $98.00.  We 
initially added PD after its rebound from the bottom of its long-
term rising channel and its relative strength during the market 
weakness during the past few weeks.  We still believe that PD can 
out perform the broader indices but if the market in general 
continues to decline then PD is likely to slide lower with it.  
That may prove advantageous if PD slips back toward the bottom of 
its rising channel.  Readers can look for a dip toward $94 as a 
new bullish entry point although we would wait for the bounce to 
begin before initiating positions.  On the other hand if PD does 
not dip then a move back over $100 or the $102 level may prove to 
be a momentum-style entry point.  The recent high over $102 has 
produced a new triple-top breakout buy signal on its P&F chart 
that points to a $123.00 price target.  Unfortunately, all of 
this is pretty much a moot point because we're quickly running 
out of time to avoid PD's earnings report expected on Thursday 
morning, January 27th.  Even though we expect PD's earnings to be 
positive and there is the possibility of a stock split 
announcement (since shares haven't split since 1992 and PD is now 
trading near triple-digit territory) it doesn't justify the risk 
to hold over the event.  Conservative traders may want to exit 
now to avoid further risk since the market environment is 
bearish.  We're going to hold the play open for a couple of more 
days and see how the stock fares although we will raise our stop 
loss to $93.50. 

Suggested Options:
We are running out of time with PD's earnings report this week.  
We are not suggesting new plays at this time.

Annotated chart:


Picked on January 09 at $ 97.65
Change since picked:     + 0.84
Earnings Date          01/27/05 (confirmed)
Average Daily Volume =      2.2 million  



---

Pulte Homes - PHM - close: 64.40 chg: -0.18 stop: 61.00


Company Description:
Pulte Homes, Inc., based in Bloomfield Hills, Mich., has 
operations in 45 markets across the U.S. Under its Del Webb 
(www.delwebb.com) brand, the company is the nation's leading 
builder of active adult communities for people age 55 and older. 
Over its history, the company has constructed more than 370,000 
homes. In 2004, J.D. Power and Associates ranked Pulte Homes No. 
1 in customer satisfaction in 14 U.S. markets, and among the top 
three homebuilders in 23 of 25 total markets surveyed. J.D. Power 
and Associates also named Pulte Homes the inaugural recipient of 
its Platinum Award for Excellence in Customer Service among the 
nation's largest new homebuilders in 2004. Pulte Mortgage LLC is 
a nationwide lender committed to meeting the financing needs of 
Pulte Homes' customers by offering a wide variety of loan 
products and superior customer service.
(source: company press release)

Why We Like It:
PHM, much like its high-flying cousin KBH, has pulled back with 
the market and the DJUSHB home construction index in the last 
couple of sessions.  While we are not excited with the breakdown 
under previous resistance at $65.00 shares of PHM have held minor 
support at the $64.00 level.  We would keep an eye on the $64 
level just as we would the 800 level for the DJUSHB index.  If 
either breaks down then conservative traders may want to strongly 
consider an early exit to avoid further losses.  Thus far the 
homebuilders have been a beacon of strength during a very tough 
month for stocks but after two weeks of gains we're not surprised 
to see some profit taking.  Wait for the bounce back over $65 or 
even $66 before considering new positions. 

Suggested Options:
This is a short-term momentum play and we're suggesting the 
February calls.

BUY CALL FEB 65 PHM-BM OI=2721 current ask $2.75
BUY CALL FEB 70 PHM-BN OI=1760 current ask $0.90

Annotated Chart:


Picked on January 16 at $ 65.99
Change since picked:     - 1.59
Earnings Date          02/02/05 (confirmed)
Average Daily Volume =      1.5 million 



---

Pixar - PIXR - close: 87.56 change: -0.35 stop: 84.00

Company Description:
Pixar Animation Studios  combines creative and technical artistry 
to create original stories in the medium of computer animation. 
Pixar has created and produced six of the most successful and 
beloved animated films of all time: Academy Award®-winning Toy 
Story (1995); A Bug's Life (1998); Golden Globe-winner Toy Story 
2 (1999); the Academy Award®-winning Monsters, Inc. (2001); the 
Academy Award®-winning Finding Nemo (2003); and The Incredibles 
(2004). Pixar's six films have earned more than $3 billion at the 
worldwide box office to date. The Northern California studio's 
next film release is Cars (June 9, 2006). (source: company press 
release)

Why We Like It:
We continue to be impressed by PIXR's relative strength or should 
we say lack of weakness during this past week.  The stock has 
been consolidating sideways the last few sessions under 
resistance at $90.00 but for the most part above its previous 
multi-week trading range.  The P&F chart shows a new triple-top 
breakout buy signal with a $100 target.  Aggressive traders can 
look for a bounce from the $86-87 level as a new entry point but 
considering the overall bearish market environment readers may be 
better off waiting for a breakout over the $90.00 mark.  

Suggested Options:
This is a short-term play.  We want to be out before PIXR's Feb. 
10th earnings report.

BUY CALL FEB 85 PQJ-BQ OI= 336 current ask $5.10
BUY CALL FEB 90 PQJ-BR OI=1671 current ask $2.50

Annotated chart:


Picked on January 18 at $ 88.24
Change since picked:     - 0.68
Earnings Date          02/10/05 (confirmed)
Average Daily Volume =      934 thousand



---

Texas Industries - TXI - close: 63.14 change: -0.30 stop: 59.00     

Company Description:
TXI is a leading supplier of building materials, primarily cement 
and structural steel. Cement operations serve Texas and 
California, the two largest cement markets in the nation. 
Structural steel products are distributed throughout North 
America. (source: company press release)

Why We Like It:
TXI remains one of the few stocks that looks relatively 
unaffected by the market pull back this past week and past month.  
Instead it would appear that TXI has a shortage of willing 
sellers, at least for now and that's good news for the bulls.  We 
continue to suggest that short-term traders prepare to exit for a 
profit in the $64.50-65.00 range, our initial target that was hit 
last Tuesday.  We remain optimistic that TXI can eventually 
breakout over the $65.00 level and trade toward the $70 region.  
Our suggestion for new positions would be to wait for a possible 
dip into the $60-61 range and then buy the bounce.  Or if you 
prefer a momentum entry then wait for a breakout over the $65.00 
mark.  We're going to raise our stop loss to $59.50 so it remains 
under technical support at the simple 50-dma. 

Suggested Options:
We are going to suggest the February and April calls.  March 
calls have just recently become available although we don't see 
any volume or open interest.

BUY CALL FEB 55 TXI-BK OI= 3 current ask $8.70
BUY CALL FEB 60 TXI-BL OI=13 current ask $4.50
BUY CALL FEB 65 TXI-BM OI=63 current ask $1.75

BUY CALL APR 60 TXI-DL OI=80 current ask $6.20
BUY CALL APR 65 TXI-DM OI=65 current ask $3.60

Annotated chart:


Picked on January 09 at $ 60.18
Change since picked:     + 2.96
Earnings Date          12/16/04 (confirmed)
Average Daily Volume =      238 thousand 



---

Whole Foods - WFMI - close: 93.89 change: -2.18 stop: 93.00

Company Description:
Founded in 1980 in Austin, Texas, Whole Foods Market 
(http://www.wholefoodsmarket.com) 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 167 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 
eighth 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 remain untriggered in WFMI.  The stock has failed to hit our 
trigger to go long at $98.01 so we wait on the sidelines as 
impassive spectators.  Well, impassive may be the wrong word.  
Friday's 2.2 percent drop looks like bad news for WFMI.  The 
descent stalled at its 50-dma but it may only be a temporary 
reprieve.  There are only 2 1/2 weeks left before WFMI's earnings 
report and that doesn't give us much time.  If WFMI trades under 
the $93 level we will probably close this play unopened.  

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

Annotated chart:


Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          02/09/05 (unconfirmed)
Average Daily Volume =      880 thousand



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

None

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

Adobe Systems - ADBE - close: 57.07 change: -1.00 stop: 60.11    

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:
The overall market weakness, especially in the tech-related 
sectors, is finally starting to pull on ADBE's recent 
consolidation.  We see a new short-term trend of lower highs and 
lower lows, which is good news for the bears.  Yet we remain 
somewhat cautious as ADBE has a big following and the 100-dma 
could still act as support.  Currently that 100-dma is near 
$55.85 and short-term traders may want to consider exiting for a 
profits if ADBE can trade near it.  The 100-dma has been our 
initial target but given the bearish market we suspect that ADBE 
can reach the $55 level, which would also be a 38.2 percent 
Fibonnaci retracement level of its July to December rally.  FYI: 
the point and figure chart's triple-bottom breakdown sell signal 
now points to a $50.00 target.

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

Annotated chart:


Picked on January 06 at $ 58.99
Change since picked:     - 1.92
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      2.3 million 



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

Apollo Group - APOL - close: 77.61 chg: -1.92 stop: 81.01

Company Description:
Apollo Group, Inc. has been providing higher education programs 
to working adults for over 25 years. Apollo Group, Inc., operates 
through its subsidiaries The University of Phoenix, Inc., 
Institute for Professional Development, The College for Financial 
Planning Institutes Corporation, and Western International 
University, Inc. The consolidated enrollment in its educational 
programs makes it the largest private institution of higher 
education in the United States. It offers educational programs 
and services at 85 campuses and 142 learning centers in 39 
states, Puerto Rico and Vancouver, British Columbia. Combined 
degree enrollment was 267,900 students as of November 30, 2004.
(source: company press release)

Why We Like It:
It looks like investors are giving APOL pretty low scores.  The 
stock soared in November and early December but was punished 
harshly for only beating estimates by a penny.  The stock gapped 
down after its December 16th earnings report despite pretty 
strong growth.  Since then shares have consolidated mostly 
sideways until the last couple of sessions.  The broad market 
weakness and wide spread concerns over earnings deceleration has 
pushed APOL through the bottom of its trading range to break 
technical support at the simple 50-dma.  Together this has 
produced a bearish triangle breakdown on its point and figure 
chart with a $72 target.  The triangle breakdown is one of the 
most successful P&F patterns to trade in a declining market so 
we're electing to buy puts on APOL's new relative low.  We'll 
target a drop into the $72-70 range since the $70 level should be 
round-number, psychological support.  

Suggested Options:
We are going to suggest the February and May puts. 

BUY PUT FEB 80 OAQ-NP OI=3738 current ask $4.40
BUY PUT FEB 75 OAQ-NO OI=1490 current ask $2.20
BUY PUT FEB 70 OAQ-NN OI=1647 current ask $0.85

BUY PUT MAY 80 OAQ-QP OI= 414 current ask $7.00
BUY PUT MAY 75 OAQ-QO OI= 862 current ask $4.60
BUY PUT MAY 70 OAQ-QN OI= 345 current ask $2.85

Annotated Chart:


Picked on January 23 at $ 77.61
Change since picked:     - 0.00
Earnings Date          12/16/04 (confirmed)
Average Daily Volume =      2.4 million  



---

Kmart Holdings - KMRT - close: 91.67 chg: -0.71 stop: 92.49

Company Description:
Kmart Holding Corporation and its subsidiaries (together, 
"Kmart") is a mass merchandising company that offers customers 
quality products through a portfolio of exclusive brands that 
include Thalia Sodi, Jaclyn Smith, Joe Boxer, Martha Stewart 
Everyday and Route 66.  (source: company press release)

Why We Like It:
KMRT was on a rampage in 2004.  The stock steamrolled over the 
bears left and right leaving a wake of injured shorts in its 
path.  Until the company's November 17th announcement it would 
buy/merge with Sears in an $11 billion deal.  That announcement 
killed the momentum as a wave of skepticism washed through the 
financial media.  Analysts left and right were doubting whether 
two struggling retailers could find the economies of scale to 
make the new, larger company a winner.  Shares of KMRT slowly 
withered into a bearish consolidation of lower highs that 
blossomed into a breakdown below the $100 level and its rising 
50-dma.  Now three weeks later the stock's oversold bounce from 
the $92 level has failed and shares are trading under the 100-
dma.  Plus, its P&F chart has produced a descending triple-bottom 
breakdown sell signal.  We believe the overall negativity about 
the Sears merger combined with a bearish market environment is a 
recipe for puts.  However, we want to catch the next leg down so 
we're going to use a TRIGGER under round-number, psychological 
support at the $90 level.  Our entry point will be $89.90.  Once 
triggered we'll target a drop toward the $82-80 level and its 
200-dma's.  Short-term traders may want to consider a quick exit 
near $85, which does look like potential support.  

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

BUY PUT MAR 95 KTQ-OS OI= 1908 current ask $7.60
BUY PUT MAR 90 KTQ-OR OI= 6609 current ask $5.00
BUY PUT MAR 85 KTQ-OQ OI= 2197 current ask $3.10

Annotated chart:


Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked:     - 0.00
Earnings Date          03/16/05 (unconfirmed)
Average Daily Volume =      2.4 million  




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The Option Investor Newsletter                   Sunday 01-23-2005
Sunday                                                      4 of 5

In Section Four:

Leaps:    Always Expect the Unexpected
Spreads and Straddles:  That's More Like It!!  Let's Add 'Em Up

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*****
LEAPS
*****

Always Expect the Unexpected

Those times when you expect it least are normally the
time when the unexpected causes the most trouble. This
week EBAY, the strongest horse in the race, tripped and
was promptly shot, butchered and fed to the bears. 

The EBAY leap play did not have an insurance put because
I did not expect any scenario where EBAY would lose -$20
on an earnings miss of a penny. That is a painful lesson
that I will refer back to many times in the future. 

The markets have completed their roll over and the outlook
is very cloudy from my perspective. The Dow has broken 
below critical support at 10425 and the S&P broke support
at 1175. There is no specific news impacting the markets
but it appears the bulls have picked up a new form of 
chronic wasting disease called Mad Bull. 

Analysts are at a loss to explain the complete lack of 
fund flows and a $40 billion shortfall in retirement 
contributions. Many reasons have been suggested for the
shortfall but the only one that has not already been
proved wrong are the Iraq elections. I seriously doubt
Ma and Pa investor are putting their investment dollars
under a mattress because the elections might go badly. 

That leaves the obvious reasons that markets go down. 
Earnings are slowing, the economy is slowing and the Fed
is making noises that they could escalate their rate hikes.
This uncertainty casts a cloud on the market outlook and
suggests we lighten the load once again to protect against
a potential market event. 

Fortunately the majority of our plays are protected by
insurance so we don't have a high risk on anything left
in the portfolio. I am going to tighten the stops on some
and if stopped we will exit only the LONG LEAP Calls. We
will keep the insurance puts. 

Considering this has been the worst January for the markets
since 1977 the portfolio is in very decent shape. 



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

EBAY - $86.12 


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

None


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

DGX - Quest Diagnostic $89.95 

QCOM - Qualcomm $37.80


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

Position Summary Table

 


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

DGX - Quest Diagnostic $89.95 (Stop loss $85.00) 

Quest held last weeks bounce like it was defending the
Alamo but the market weakness on Thr/Fri was just too
much to bear. Quest dipped to our entry target of $91
on Friday. DGX came to rest on the 100-day average at
$90 at Friday's close and has even stronger support at
the 200 day average at $87. We have an $85 insurance put
and I am placing the stop loss at $85, -$2 under the 200
day. This average has held on both dips over the last
year. If stopped close only the LEAP Call. Keep the
insurance put.

Quest Diagnostics Incorporated is the nation's leading
provider of diagnostic testing, information and services,
providing insights that enable healthcare professionals 
to make decisions that improve health. The company offers
the broadest access to diagnostic testing services through
its national network of laboratories and patient service 
centers, and provides interpretive consultation through 
its extensive medical and scientific staff. 

Quest Diagnostics is also the leading provider of esoteric
testing, including gene-based medical testing, and provides
advanced information technology solutions to improve patient
care. (Source DGX)

2006 $95 LEAP Call YFK-AS @ $6.40

Insurance put
Feb-$85 Put DGX-NQ @ 50 cents. 

Entry $91.00 (01/21)
DGX Chart




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

QCOM - Qualcomm $37.80           ** No Stop Loss **

Our target on QCOM was $41 and we came very close on 
Wednesday but never touched during market hours. The 
gap down on Thursday provided everyone with a great
entry point with one exception. The insurance put I
chose for this play was the April $40 at $1.50. The
gap open below $40 sent that put into orbit with a 
jump to $3.00. The good news is that it has retained
its value and is still over that level. It was offset
by the drop in the LEAP to $3.20 from the $4.40 we
saw last Sunday. 

In our current position with the Put in the money we
are very well protected with a total cost of entry
only slightly above the $5.90 we were looking at last
Sunday. I think this is about as good as it gets with 
our April put and plenty of time to run. I am going to 
set a stop on the put at $40 to prevent a complete
giveback if QCOM suddenly finds traction. Since our
LEAP will also escalate we should not lose much if
the put is stopped. 

QCOM closed Friday at $37.80, which is exactly the 200
day average and it should be strong support. 

Qualcomm is a leading technology provider for wireless
communications and pioneered the CDMA standard used in
many phones today.  
 
There was a symbol error last week on the Leap. This
is the correct symbol. 

2006 $42.50 LEAP Call WLU-AV @ $3.20 

Insurance put
April $40.00 Put AAO-PH @ $3.00

Stop Loss on Put QCOM at $40.00
No stop on LEAP

Entry $38.00 (01/20)
QCOM Chart





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

HET $64.50 Harrah's Entertainment  **Stop loss $62.00**

Harrah's has been on a roll since August and has recently
set a new high at just over $67. We saw a pullback last
week to $64.50 but it is still well above support at the
50 day average at $63. 

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. 

2006 $65 LEAP Call WBI-AM @ $6.20
2007 $70 LEAP Call VKH-AN @ $7.00

Insurance Put
Feb-2005 $60 Put HET-NL @ $0.85

Entry (01/10) $64.00
HET Chart


 

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

ELN - Elan Pharma $26.66   **Stop loss $23.00**

You know the market weakness is profit taking when the
leaders are the ones hurt the worst. ELN fell back to
$26.50 from $29 in only two days on Thr/Fri. Funds are
chopping winners to raise cash for withdrawals. 

I am adding a cheap insurance put after the EBAY drop.
ELAN has earnings on Feb-8th and we don't want any
negative surprises. 

Elan is a neuroscience-based biotechnology company that
is focused on discovering, developing, manufacturing, 
selling and marketing advanced therapies in 
neurodegenerative diseases, autoimmune diseases 
and severe pain.

In neurology, Elan is focused on building upon its 
breakthrough research and extensive experience in the
area of neuropathology-based disorders. In addition 
to Alzheimer’s disease, Elan is also studying other 
neurodegenerative diseases, such as Parkinson's disease. 

On December 28, 2004, the U.S. Food and Drug Administration
approved Prialt for the management of severe chronic pain.

On November 23, 2004, the U.S. Food and Drug Administration
approved TYSABRI, formerly referred to as Antegren, as 
treatment for relapsing forms of multiple sclerosis (MS) 
to reduce the frequency of clinical relapses.

2006 $30 LEAP Call WTB-AF @ $5.30

Insurance Put - added Jan-23rd
Feb $25 Put ELN-NE currently 90 cents. 

Stop Loss ELN $23.00

With the addition of the put I lowered the stop on the
LEAP Call to ELN @ $23.00. This is just under the 200
day average at 24.00.

Entry $28.50 (01/11)
ELN Chart



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


IBM - IBM $92.37              ** No Stop **

IBM held at our entry point of $94 for four days but the
market weakness finally took it down. In retrospect the
drop has been pretty steep and it is showing no signs of
slowing. I considered closing the play this weekend with
us down about 70 cents but we got into the Leap fairly
cheap and the insurance put is April and almost exactly
offsetting the drop in the Leap. 

We are approaching the 100 day average at $91.50 and 
there is horizontal support at $91. If the market did
decide to reverse IBM could find buyers as a safe big
cap with increasing earnings. I think we are safe from
any material loss and have plenty of upside potential
if the market turns around.  

IBM is moving strongly into even more areas of system
and software services and maintains a huge backlog
of orders. 

IBM is the world's largest information technology company,
with 80 years of leadership in helping businesses innovate.
IBM Software offers a wide range of middleware and operating
systems for all types of computing platforms, allowing 
customers to take full advantage of the on demand era 


2006 $100 LEAP Calls WIB-AT @ $5.00

Insurance put
April $90 Put IBM-PR @ $1.40

Entry $94.00 (01/13)
IBM Chart



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

IWM - $121.61 Russell Index Ishares

The Russell Ishares are holding the high ground relative
to the rest of the market. The IWM dipped back to test
support at $120 back on the 12th and continues to hold
over $121.50. The 100 day average is at $120 and this
should continue to be strong support. 

If you bought the January inauguration insurance put on
Tuesday afternoon it would have cost you between 20-30
cents. It expired at 40 cents so no loss there. 

I hesitate to add another insurance put because the
drop in the markets has inflated the prices considerably.
The Feb $120 for instance is $2.05. Well above the cheap
January insurance. We are currently down about 80 cents
on the call and $1.50 above strong support at $120. We
do not have as much disaster risk on the IWM as we would
have on an individual stock. I am going to leave it with
no insurance and a stop at $118.50. If that is too much
risk for you then exit early.  

I am not using LEAPS for this play because I do not expect
to keep it more than 4-6 weeks and LEAPS are very expensive.
We will look to get into LEAPS on a dip later in the
summer.  


IWM MAY-$125 Call Option DIW-EU currently $5.20 

Insurance put
Buy IWM Jan-$122 Put Option DIW-MR 30 cents 
The put expired at 40 for no loss/gain. 

Stop loss IWM $118.50 

Entry $123.05 (Jan-18th)
IWM Chart




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


ADBE - Adobe Systems $57.08     ** No Stop **

ADBE is struggling to hold at $58 and closed slightly
under that level on Friday. We have an insurance put 
and the 100 day average is at $56. ADBE remains one
of the stronger stocks and we have no earnings risk.

Adobe is the king of the document and image business
and continues to announce new products. The company
announced earnings in December that rose +33% and beat
estimates. Income for the year rose +69% on a +29%
increase in revenue. Adobe affirmed guidance for 2005
and the stock has been beating the Nasdaq in percentage
gains. In 2004 the stock rose +60%. Since they have
already announced earnings we have very little event
risk over the next month. 

I am recommending the February $55 put as insurance
at 80 cents. That gives us six weeks for the Q1 earnings
to cycle and for ADBE to pick a direction. If we are
not profitable by Feb-18th expiration we will close
and take our lumps.  

Jan-06 $60 LEAP Call WAE-AL @ $7.50

Put Insurance
Feb-05 $55 Put AEQ-NK @ 80 cents

Entry $58.78 (01/09)
ADBE Chart



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

EBAY - eBay Inc $86.14    ** Stop $80.00 **

We were stopped out of the initial play at Thursday's
open when EBAY gapped down to $85. The Leap opened
at $5.50 with a low of $5.20 and closed Friday at $5.70.

I did not have an insurance put on EBAY because I did
not conceive of a scenario that would take $20 off the
price with a penny miss. We lost $9.60 on the stop. 

I strongly believe that the selling is grossly overdone
and EBAY will recover. It may take a while but once the
market finds support EBAY should recover as fast or faster
than the other tech stocks. 

Ebay did announce a 2:1 split as expected and this should
help power the recovery. The split date is mid February
for holders on Jan-31st. 

I am reinstating the EBAY play at the current location
and with the same $115 Leap Call. The object of this
play will be to recover the loss with a return by EBAY
to $105-$110. 

I am not going to put an insurance put on this play and
use a stop instead. The damage is over. What else can
happen? With the stop at $80 we should lose another buck
on the option and that is less than the put would cost.

Loss on initial entry before earnings -$9.60


Jan-06 $110 LEAP Call YRL-AB currently $5.70  

No insurance put

Stop loss $80.00

Entry 86.14 (01/23)
EBAY Chart




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

RIMM - Research in Motion $70.28  ** No Stop **

Everything looked so good prior to Thursday. Suddenly
the world turned red and RIMM lost -$6 in two days. 
Those funds that had hoped for a recovery from the 
initial crash threw in the towel and took profits to
raise cash.   

The $70 insurance put is moving higher but not enough
to offset the loss in the Leap. Once RIMM moves under
$70 that problem should be remedied.

I am going to stick with it one more week. We have the
200 day average at $68.50 and uptrend support at $69.
I would hate to bail when we are this close only to
have it bounce from that level.  

The court case will be back in court for a long time
and RIMM is still selling and improving the Blackberry.
They are escrowing a required portion of the sales to
satisfy the judgment should the case eventually go 
against them. 

RIMM is very profitable and should continue to be
profitable. Hardly a week goes by that we don't see
some new development in their product line. 

This is not for those with a low risk profile.

Jan-06 $80 LEAP Call WLJ-AP @ $12.40

Insurance put
Buy Feb-$70 Put RUP-NN currently $3.50. 
 

Entry $74.30 (01/09)
RIMM Chart



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

XMSR - XM Satellite $34.08   ** Stop $32.00 **

XMSR is holding its ground at $34 and resisting the
selling. I am very happy with the way XMSR is performing.
We had a great entry and we are holding at that entry. 
The 100 day average is $33.50.

As the radio wars progress it is SIRI that is 
announcing some new effort almost daily and spending
itself into a hole. XMSR has three times the subscribers
as SIRI and SIRI's market cap is $2.5 billion more than
XMSR. 

There are a lot of differing views on this battle but
I am sticking on the biggest of the two. I believe
SIRI is overbought and XMSR is oversold. As long as
XMSR continues to put the subscribers in the seats
it will win in the end. XMSR is the only one with a
satellite portable iPod like device. At $349 it offers
the capability of all the channels plus a recording
capability of five hours of streaming content when 
you can't listen live. 

Jan-06 $35 LEAP Call YLX-AG currently $6.20

Insurance Put
Buy Feb-$32.50 Put QSY-NZ currently $1.75

Stop loss $32 

Entry $34.09 (01/09)
XMSR Chart



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


SYMC $23.38 Symantec - Veritas  ** no stop **

SYMC had rebounded to $25.25 by Wednesday but caved in
on the weak markets on Thr/Fri to lose about a buck for
the week. We have a good position here with support at 
$23 and an April $22.50 insurance put. Very little risk
and plenty of potential. 

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 $36.41  ** No Stop **

The XLE continues to outperform the market and is holding
near the $37 resistance. We have very little risk here and
strong rising support. I do expect oil prices to come down
after the Iraq elections so snug up your stop next week to
a decent level and we will take profits if oil drops. 

I do not want to exit before the elections because anything
is possible. There could be a disaster that impacts oil
for a long time.  

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



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

MRO - $38.07 Marathon Oil    ** Stop Loss $37.50 **

Marathon is still not performing with the rest of the
oil sector. I am raising the stop to $37.50 and will exit
the Leaps for a breakeven at that level. I want to hold 
the put for a potential drop in oil prices after the
Iraqi elections. 

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. 


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





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

Time For Caution

Normally a period of market instability would be the
time to add positions to the leap portfolio. This is
not the case for me today. I am concerned we could 
see additional weakness and a break below our current
levels could easily send us plunging significantly
lower. 

Our last two watch list entries from last week were
triggered on the market drop and about the only stocks
I would risk adding would be home builders and only if
they drop substantially from their lofty levels. 

I am adding TOL, DHI and RYL as potential entries but
I hope we are not triggered. That would mean the rest
of the portfolio was severely trashed. However, if
funds need to take profits to raise cash they have
huge amounts of stored value in the builders. Maybe
we will get lucky. 



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

None

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

RYL $60.39 Target $55.00

TOL $73.44 Target $67.00

DHI $38.80 Target $37.00


*************************
Current Watch list
*************************    

RYL - $60.39 Ryland Group   ** Target $55.00 **

Buy 2006 $60 LEAP Call YRX-AL currently $9.00, target $7.00

Insurance put
Buy Apr-$52.50 Put RYL-PX currently $1.50 

RYL Chart




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

TOL - Tol Brothers $73.44 (Target $67.00)

Buy 2006 $75.50 LEAP Call YKW-AO currently $9.80 

Insurance put
Buy March $65.00 Put TOL-OM currently $1.55

TOL Chart



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

DHI $38.80 Target $37.00

Buy 2006 $40.00 LEAP Call YRI-AH currently $5.60 

Insurance put
Buy Feb $35.00 Put DHI-NG currently $0.55

TOL Chart







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

That's More Like It!!  Let's Add 'Em Up
By Mike Parnos

It seems like old times.  With four positions all 100% 
profitable, our tushes are, once again, firmly planted on the 
CPTI profit train.   The profit train bears an uncanny 
resemblance to a couch.  It runs on money and goes from your 
house to the bank -- hopefully about 12 times a year -- stopping 
only occasionally at the refrigerator and the pizza place (for 
sustenance, of course)!

Below is a summary of the January positions.  A profit of $4,475 
feels r-e-a-l-l-y g-o-o-d!  It brought us back to positive 
territory for the year.   Through three months in tracking year 
number three, we're now $2,990 to the positive.   We're going to 
continue to be conservative and to trade smart.  The profits will 
follow.

January Trade Summary
SPX - 1125/1110 Bull Put Spread - Profit: $1,000
SPX - 1100/1090 Bull Put Spread - Profit: $1,050
MSH - 450/440 Bull Put Spread - Profit: $825
SPX - 1190/1215 Sure Thing Credit Spread - Profit: $1,600
TOTAL JANUARY RESULTS: Profit: $4,475
____________________________________________________________

February Position #1 - SPX Iron Condor - 1167.87
We sold 10 SPX Feb. 1255 calls and bought 10 SPX Feb. 1265 calls 
for a credit of about: $.50 ($500).  Then we sold 10 SPX Feb. 
1140 puts and bought 10 SPX Feb. 1130 puts for a credit of about: 
$1.00 ($1,000).  Our total net credit was $1.50 ($1,500).  
Maintenance of $10,000.  We've created a maximum profit range of 
1140 to 1255 -- that's 115 points.  If everything works out as 
planned, our return on risk will be 17.6%.  We're still 
conservative and defensive minded.  That's why we're limiting our 
spread size to 10 points or less.  

February Position #2 - OEX Bull Put Spread - 557.32
We sold 15 OEX Feb 530 puts and bought 15 OEX Feb 520 puts for a 
credit of about $.50 ($750).  Our net credit and potential profit 
is $750.  Maintenance of $15,000.  We're going to be content to 
put on the bull put spread for now.  If/when the time is right, 
we'll put on the bear call spread to complete the Iron Condor.

February Position #3 - MSH Iron Condor - 464.28
We sold 10 MSH February 430 puts and bought 10 MSH February 420 
puts for a credit of about $.60 ($600).  Then we sold 10 MSH 
February 510 calls and bought 10 MSH February 520 calls for a 
credit of about $.55 ($550).  We have a net credit and profit 
potential of about $1.15 ($1,150).  Our maximum profit range is 
430 to 510.  510 looks like solid resistance and 430 is 
comfortably below other support levels.  Maintenance is $10,000.


February Position #4 - SPX Iron Condor - 1167.87
We sold 10 SPX February 1230 calls and bought 10 SPX February 
1240 calls for a credit of about $.40 ($400).  Then we sold 10 
SPX February 1120 puts and bought 10 SPX February 1110 puts for a 
credit of about $.65 ($650).  Our total credit and potential 
profit is$1.05 ($1,050.)  We've created a maximum profit range of 
1120 to 1230.   Maintenance of $10,000.
___________________________________________________________

RECAP OF JANUARY POSITIONS
January Position #1 - SPX Iron Condor Bull Put Spread - 1167.87
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.  Expired worthless with a profit of $1,000.

January Position #2 - SPX Sure Thing Credit Spread - 1167.87
We originally put on the "hypothetical" position by placing the 
January 1195/1170 bull put spread for a credit of $1,360.   The 
market trend reversed, so we closed out our two contracts of the 
1190/1165 bull put spread for $13.90 ($2,780).  We then put on 
five contracts of the January 1190/1215 bear call spread for 
$6.15 ($3,050). The new potential profit was $1,600.  Expired 
worthless for a profit of $1,600.

January Position #3 - MSH Bull Put Spread - 464.28
We sold 15 MSH January 450 puts and bought 15 MSH January 440 
puts for a credit and potential profit of about $.55 ($825). 
Expired worthless for a profit of $825.

January Position #4 -- SPX Bull Put Spread - 1167.87
We sold 15 SPX January 1100 puts and bought 15 SPX January 1090 
puts for a credit of about $.70 ($1,050).  Expired worthless for 
a profit of $1,050.
____________________________________________________________

ZERO-PLUS Strategy. OEX - 561.19
In my Feb. 8, 2004 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. 

In last year's position, we used the $26,000 to buy 3 OEX 
December 2006 540 calls and then use the remainder for 
maintenance on some small credit spreads.   We generated a total 
of $11,525 in cash from our little credit spreads.   

For this year, we're going to use the entire $26,000 of extra 
cash as maintenance for some Iron Condors.  That should enable us 
to generate substantially more profit on this "no risk" strategy.

February Zero Plus Iron Condor Position
We'll start with our February position #4.  However, we're going 
to sell 20 contracts of the SPX 1120/1110 bull put spread and buy 
20 contracts of the SPX 1230/1240 bear call spread for a net 
credit $1.05 -- giving us a potential profit of $2,100.
____________________________________________________________

QQQ ITM Strangle
We closed out our entire QQQ ITM Strangle position at Friday's 
January expiration.  Below is the breakdown.  Remember, there was 
only $5,200 at risk.  All the rest of the money was intrinsic 
value -- which went right back into our pocket.
Bought back January $34 calls @ $3.00
Bought back January $40 puts @ $2.90
Total of $5.90 x 10 contracts = $5,900
Premium decay of Jan. 2005 LEAPS = $5,200
Total give back: $5,900 + $5,200 = $11,100
Premium taken in: $14,200 (in 16 months).
Profit of $3,100 ($14,200 - $11,100)
Return on the actual $5,200 risked = 60% -- in only 16 months!
Return on the total $15,200 invested = 20.4%

These results are pretty good considering I did not always roll 
out the monthly short positions particularly well.  We'll likely 
establish another QQQ ITM Strangle strategy soon.  Watch for the 
discussion in Thursday's newsletter (or possibly sooner).

 
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.





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

In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  NONE
Premium-Selling Plays: Naked Puts and Calls


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**************
COVERED CALLS
**************

No COVERED CALLS Plays tonight


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

No Combos/Straddles tonight


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

No Premium-Selling Plays tonight


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