Stock Market Newsletter - STOCK MARKET DIRECTION by Steve Zito has
Technical Indicator Analysis of the Dow and Nasdaq Composite Index
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STOCK MARKET DIRECTION by Steve Zito Newsletter for Friday, Oct. 22, 2004

AMD traded as high as my target 15.99 Thursday, close out Jan 10 calls at 6.
Those who can take more risk, sell your AMDAB and buy 3 times as many AMDAC.
AMD went down to 15.80 in after hours following release of Google's earnings.
Readers bought AMD under 11 and AMD January 10 calls in Sept. which made 400%.
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Intel did not close above 22, short positions from Jan 9 at 34.50 COVER at 22.
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The Dow traded down to 9,800 again, for an hour 1 PM to 2 PM, then rallied 65.
Continue to hold DJX puts, sell 1/2 when the Dow breaks 9,800 to recover cost.
Readers of my stock market newsletter made 5-to-1 on DJX (Dow Jones Index) put
options bought at Dow 10,300. I wrote the Dow would fall just before election.
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QQQ has been rising on strength from Google (up 68%), Yahoo, Ebay, and Amazon.
Expectations for 50% increase in online sales at Christmas on high gas prices.
When the Yankees led Red Sox 3 games to none, expectations were a Yankees win.
Buying on expectations turns stock trading into nothing more than crap shoots.
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Information in this newsletter based on prices from Thursday, Oct. 21, 2004
Dow Jones Industrial Average
----------------------------------------- 9,865.76 -21.17 (-0.21%)
Nasdaq Composite Index
----------------------------------------- 1,953.62 +20.65 (+1.07%)
Standard and Poors 500 Index
----------------------------------------- 1,106.49 + 2.83 (+0.26%)
10-Year Treasury Note yield
-------------------------------------------- 3.997% +0.006

DOW JONES INDUSTRIAL AVERAGE analysis
The Dow closed 9,865.76 -21.17 at 0.63% below the Dow's 7-day moving average and
Dow stochastics fell from 33%/31% to 29%/30%. N.Y. Attorney General Eliot Spitzer
is investigating AIG and large insurance firms. His probe widened to a grand jury.
Since no one really knows what is going on with Aetna, AIG (in the Dow) and Marsh,
except their Boards seem to have related parties on them (smells like antitrust),
the press is sensationalizing what little info has been leaked to them, insurance
stocks are getting crushed. This scandal follows on heels of Merck and Pfizer with
the Vioxx recall and a heart specialist smear campaign against Celebrex and Bextra.

Traders did come back to trash Dow stocks after watching the NY Yankees get lost.
Yankees accomplished the greatest swoon in baseball history by losing 4 straight.
That allowed the Boston Red Sox, Kerry's adopted team, to go to the World Series.
Not to worry, the only remaining Texas team, the Houston Astros, were eliminated.
It leaves no team for Bush to cheer, which was his profession as college freshman.
While most freshmen mid-1960's were reading Playboy, Bush was singing Sis-Boom-Bah.

The Dow Jones is suffering one body blow after another, bouncing off 9,800 like an
unkillable trick-or-treat character villain in Friday the 13th or Halloween movies.
The TV media, the wannabe home technical analysts who watch CNBC for an education,
the lunch time crowd buying Google at 147 on Thursday, and Yankees fans are buying
when the Dow nears 9,800 because that is the Dow's low from the 2nd week of August.
The logic is as valid as any other, in the absence of time to do a decent analysis.
Not studying and comparing alternative opinions makes holding Dow stocks a gamble.

Trouble in Dow land is not restraining Nasdaq tech stocks, which I thought it would.
For the simple reason the Dow stocks are the top rated, largest, most liquid stocks
in the world. When a mutual fund has to dump 10 million IBM or sell 20 million Intel,
there are always buyers. If a fund is dumping 10 million Netflix or 20 million TASR,
those stocks nosedive and the buzz sends Nasdaq into a funk. At 1950, Nasdaq is ripe.

Won't happen soon for Google, earnings out after the close, which pushed GOOG up 8%.
Google earns about the same per share as Yahoo YHOO, yet GOOG is now 161 up from 96.
Yahoo is about 35. Why the difference? Buyers of Google believe Google will triple
earnings to more than $2 a share next year, while Yahoo won't. Both are in the same
business of sending billions of websurfers to many sites when doing keyword search.
I know because I get hundreds of web visitors looking for, "CNBC University cost".
Or web surfers searching keywords, "Bill Clinton never created 22 million jobs".

The Dow is making my readers holding DJX put options happy, not only with doubles
but with daily action as opposed to holders of equity funds who lost 4% this year.
Will the Dow break down well below 9,800 any time soon? The Presidential election
is November 2, and the latest polls have Bush and Kerry tied, no other candidates.
Stocks often fall in years following elections, and in weeks before the elections.

If Bush gets the win, oil stocks will be hot for years. If Kerry wins, tech flies.
Bush has been seen on TV with a chainsaw clearing brush on his Crawford Texas ranch.
Bush has been seen on aircraft carriers in jumpsuits cheerleading U.S. Armed Forces.
Bush is NEVER shown using a cellphone, PDA, PC, laptop, notebook, iPod, or gadgets.
Kerry was shown hunting a goose in Ohio on Thursday. That's to make Kerry look like
an ordinary guy that a voter would want to have a beer with, which is Bush's motif.

If you ask me, I would not want an ordinary beer guzzling duck hunter as President.
That is why democracy, majority rule, may lead to mediocre leaders, like Guiliani.
If most of the voters are average intelligence, they vote average leaders in power.
Putting Ronald Reagan or George Bush on dollar bills or coin won't make them smart.
Who really wants to have the man entrusted with nuclear disarmament drinking beer?

DJX closed 98.66 -0.21 (-0.21%) open 98.85 with Thursday's range 98.01 to 99.03.
Nov 99 put DJVWU last 1.55 +0.05 Bid 1.45 Ask 1.65 volume 516 open interest 7,123
opened at 1.60 traded to high 1.95 and low 1.45. Readers bought at 0.95 on Tuesday.
Nov 100 put DJVWV last 2.10 unch Bid 2.00 Ask 2.20 volume 240 open interest 11,899
opened at 2.05 traded to high 2.70 and low 1.80. Readers bought it at 1.65 Oct. 14.
Just after readers sold October DJX puts at expiration for a 3-to-1 gain in 2 weeks.

OIL SERVICE looking for a double top at 125 ------ GOLD index moving up toward 110.

Oil Service index OSX last 122.89 +1.51 (+1.24%) open 121.98 low 121.96 high 123.84.
OSX spiked close to its annual high 125, at 2.19% over uptrend, stochastics 90%/76%.
Why would oil service go down? Input costs like steel to build oil rigs are rising.

OSX Dec 90 put OSXXR last 0.10 -0.05 No Bid Ask 0.20 vol 200 all at 0.10 open 1176.
Thursday's contract low 0.10, is the Bid price recommended for readers to buy OSXXR.
OSX Dec 95 put OSXXS last 0.30 unch, No Bid, Ask 0.20 volume 0 open interest 5130.
Sell 1/2 OSXXR at 0.30 and sell 1/2 OSXXS at 0.70 to recover the initial put cost.
Then hold the rest and hope a Presidential election sends oil service stocks south.
Or hope a Texas Attorney General does to oil firms what AG Spitzer did to insurance.
Despite Bush handing Halliburton billion dollar meal and gasoline contracts in Iraq,
the whole no-bid contract taxpayer moneyflow to Texas oil service could be reversed.

Gold Silver index XAU last 102.23 +0.41 (+0.40%) open 101.68 low 101.28 high 102.95.
The XAU moved close to 9-month high 103, at 1.62% over uptrend, stochastics 82%/80%.
XAU March 100 put XAVOT last 6.80 unch Bid 6.30 Ask 6.70 volume 0 open interest 283.
The XAU Jan 100 put has not traded yet, so no information on MT option is available.
When XAUMT begins to quote Bid and Ask, place buy orders to go when XAU clears 110.

NASDAQ COMPOSITE INDEX analysis
The Nasdaq Composite closed 1,953.62 +20.65 at 1.01% above its 7-day moving average.
Nasdaq stochastics rose from 70%/69% on Wednesday to an overbought 93%/71% Thursday.
Not only did Google's earnings send Google soaring in after hours, money flowed to
Internet search engines, and directory stock Yahoo, online sellers eBay and Amazon,
and infrastructure hardware Sun Microsystems as well as AMD. SUNW +5.2% AMD +3.5%.
Sun Micro was recommended to buy at 3.99 in the March 8 and March 15 newsletters.
AMD was recommended to buy under 11, also buy AMD Jan 10 calls, in early September.

Remain long on AMD, recommended to readers to buy under 11, and AMD Jan call options.
If AMD breaks 16 Friday, close out AMDAB, and roll to 3 times as many of the AMDAC.
When AMD closes above 16, place a stop loss order on AMD at 6% to 10% below close.
AMD last 15.95 +0.54 (+3.50%) but fell -0.15 to 15.80 in after hours (Google news).

QQQ closed 36.60 +0.55 (+1.53%) at 1.52% above slight uptrend, stochastics 84%/69%.
Nasdaq 100 tracking stock QQQ opened 36.24 with Thursday range low 36.10 high 36.79.
QAVWH closed at 0.15 -0.05 Bid 0.10 Ask 0.15 volume 10,600 open interest 365,044.
About 40% of Wednesday's volume were new contracts being opened, that's a neutral.
Unlike the OSX and XAU put contract open interest which is shrinking (bearish S/T),
open interest in QQQ puts for November is rising slightly, not bullish, nor bearish.

Still looking for a sharp breakdown in the Dow prior to the Nov. 2 election, which
could take Nasdaq kicking and screaming to the woodshed for bidding Google so high.
It's like investors in Google never remembered how they partied like it was 1999.
Watch CNBC on Friday after Google's earnings, touting price target $200, even $250.
Remember Maria Bartiromo screaming from NYSE exchange floor, "How high can we go?"

Thanks for reading this edition of Stock Market Direction by Steve Zito.
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