Leverage Alert: AMAzon

LEVERAGE ALERT

WEDNESDAY, JANUARY 5, 2005
NEW RECOMMENDATION!

PLACE A DAY-LIMIT ORDER TO BUY (TO OPEN) THE AMAZON.COM FEBRUARY 45.00 PUT
(ZQNNI) AT A MAXIMUM ENTRY PRICE OF 4.60 OR LESS.

*** IF YOU ARE UNABLE TO ENTER THIS POSITION BEFORE THE CLOSE TODAY, WE
RECOMMEND THAT YOU REPEAT THIS PROCEDURE THROUGH THE NEXT TRADING DAY. DO
NOT ATTEMPT TO GET INTO THIS TRADE AFTER THE NEXT TRADING DAY’S CLOSE. ***

THIS OPTION IS CURRENTLY BID AT 4.30, OFFERED AT 4.40.

AMZN IS CURRENTLY TRADING AT 41.90.

DO NOT PLACE A GOOD-TIL-CANCELLED ORDER TO EXIT THE POSITION UNTIL WE
FOLLOW UP WITH FURTHER INSTRUCTIONS, AS WE MAY ALLOW PROFITS TO RUN IF OUR
INDICATORS SUGGEST THE POSITION HAS MORE PROFIT POTENTIAL.

NEVER PAY MORE THAN THE MAXIMUM ENTRY PRICE FOR THIS OR ANY OTHER
RECOMMENDATION. DO NOT INVEST MORE THAN 10%-20% OF YOUR AVAILABLE CASH
ALLOCATED TO THIS PROGRAM IN ANY ONE TRADE.

YOU WILL NOT RECEIVE FURTHER COMMUNICATION CONCERNING THIS TRADE, INCLUDING
CLOSEOUT INSTRUCTIONS, IF YOUR SUBSCRIPTION IS NOT ACTIVE AT THE TIME WE
ISSUE FOLLOW-UP INSTRUCTIONS.

LEVERAGE ALERT COMMENTARY
RECOMMENDED ON WEDNESDAY, JANUARY 5, 2005


AMAZON.COM (AMZN) TRADE DRIVERS:

* Yesterday, a major brokerage firm downgraded AMZN to "sell" from "hold"
stating that the company faces competition and will have to spend more on
marketing and technology, resulting in lower profits.

* Despite this downgrade, analysts have become more positive on the company
in each of the past two months.

* Elsewhere in AMZN's sentiment backdrop, the stock's Schaeffer's put/call
open interest ratio recently dropped to a three-week low of 1.03 as
investors continue to add calls at a faster rate than calls in the front
three months of options. This reading has been in a protracted downtrend,
falling from 1.50 five months ago.

* Despite AMZN's relatively high short-interest ratio and short interest as
a percentage of float, short interest has also trended lower. The number
of AMZN shares sold short has fallen in five of the past eight months and
stands near a three-year low.

* Technically speaking, yesterday's brokerage downgrade caused the stock to
gap lower, creating a bearish "island reversal" pattern following last
Monday's gap higher.

* Furthermore, the equity's 10-month moving average recently completed a
bearish cross below its 20-month moving average (see the chart). When this
last happened in 2000, AMZN plunged more than 80 percent. What’s more, the
security's 20-month moving average is now capping any rally attempts.
REVIEW OF RECOMMENDATION: Buy the Amazon.com February 45 put (ZQNNI) at a
maximum entry price of 4.60. We will closely monitor this position and
contact you immediately with updated instructions should our expectations
change.
CURRENT OPEN POSITIONS: Fannie Mae January 2005 75 put (FNMMO) partial
position; TASER International February 27.50 call (QURBY); iShares Lehman
20+ Year Treasury Bond Fund January 2005 88 call (TLTAJ); Urban Outfitters
March 40 call (URQCH); Wynn Resorts March 65 call (UWYCM). The Delta Air
Lines January 2005 5.00 call (DALAA) was opened today.
You will not receive further communication concerning this trade, including
closeout instructions,
if your subscription is not active at the time we issue follow-up
instructions.
©Copyright 2005 Schaeffer’s Investment Research. All rights reserved.