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Daily Newsletter, Tuesday, 01/12/1999

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The Option Investor Newsletter         Tuesday  1-12-98  
Copyright 1998, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com

Also provided as a service to The Online Investor Advantage

Published three times weekly, Sunday, Tuesday, Thursday evenings.
************************************************************
MARKET WRAP
************************************************************
        1-12-98         High     Low     Volume   Advances Decline
DOW     9474.68 -145.21 9620.15  9451.77  794,492k    882   2,171
Nasdaq  2320.70 - 63.80 2396.30  2320.21 1109,400k  1,648   2,474 
S&P-100  616.49 - 12.93  630.04   616.02   Totals   2,530   4,645
S&P-500 1239.51 - 24.37 1264.45  1238.25            35.2%   64.8%
$RUT     427.36 -  5.77  434.72   427.22
$TRAN   3206.65 - 79.67 3286.32  3203.80
VIX       29.68 +  3.30   29.82    27.22
Put/Call Ratio      .43
*************************************************************

Is it a dip or is it something else?


That is the way the argument went around the office tonight. It 
happens everytime the market makes a u-turn. Those of us that feel
the overall market is just resting and taking a much needed profit
taking siesta are beleaguered by the bears beating on the desk.

It is so seldom that the bears get to come out of their cages around
here that they tend to take every chance to warn about the coming
(in their mind) market correction.

So what is it? Dip or beginning of a correction? In my humble opinion
it is a dip. I have been wrong before and will be wrong again. You
as investors must consider the facts and make your own decision.

The growing weight of the declining stocks in the major averages
finally snow balled into a full fledged rout today. The decliners
beat advancers almost 2:1. But in doing so a good thing happened.
The leaders, who have been immune to the recent weakness, finally
capitulated. MSFT -5.31, IBM -4.19, INTC -4.19. Until the leaders
give up some of their profits the corrections are not complete.

Other leaders also suffered but there was a story behind the loss.
Lucent -5.06 has fallen for two days on news that it may be paying
a stiff premium for Ascend. Investors are worried about dilution
caused by Lucent's buying spree. Cisco also lost -6.56 because of
Lucent/Ascend deal. Investors have substantial profits in CSCO and
concerns that Lucent is now going to be a stronger competitor has
them selling to lock in those profits.

The Internets gave back some gains today but in view of the huge
profits they generated in the last three weeks a -5.00 (CMGI)
loss or a -13.00 (YHOO) is chump change. It is amazing how the
media can make a big thing out of any change. +71 Monday for
CMGI and it is all hype, -5.00 today and it is "big" losses. I
guess if it is sensational it sells. The tip of the real iceberg
for the Internet related stocks may have started to appear. An
analyst at Morgan Stanley downgraded BRCM on "extreme valuations" 
and the stock took a severe hit. I know this is not a real Internet
stock but in your wildest imagination do you not think some real 
Internet stocks are huge targets for impending "extreme valuation"
downgrades? If a brokerage or two, trying to make a name for 
themselves, suddenly start downgrading these stocks then the bubble
may burst. Just be careful if you continue trading these time bombs.

Giving substance to my dip view is the strong performance by some
consumer and cyclical stocks today. Eastman Kodak rose +4.81
after saying sales of film over the holidays was stronger than 
expected. Disney added +2.31 after launching it's GO web portal
site and Gillette tacked on +2.44 on stronger sales. What is 
significant here is these guys could have been considered possible
for the Dogs of the Dow list. They have been shunned for some time
and now the strengthening economy are giving them new life.

Every where you look there is increased evidence of a stronger 
economy, a recovering Asia, a global warming of sorts. But then
when you least expect it, a fly in the soup. Brazil. The excuse
for the sinking market today was the sinking Brazil economy. Two
Brazilian states have said they can't pay their taxes and traders
are worried Brazil will not be able to make good on it's IMF
promises. The Bovespa dropped -7% on the bleak outlook. Does this
really concern us? Yes, but only if they devalue their currency.
Now I am not a global economist but it seems that the view is
Brazil will do what it has to do to make good. There has been
several warnings for some time that a devaluation is possible but
Cardosa always does something to reassure the world. Eventually
this may bite us but I think it is priced into the current market
and only an outright devalue will impact us further.

So, if the world is recovering, as evidenced by stronger commodity
prices and increasing consumption, and the U.S. economy is picking
up speed then where is the problem. Why should the market crash?
The only valid point is over valuation. Compared to what? The
current market rally is being fueled by enormous inflows of cash.
The tidal wave of currency is the result of the low unemployment
and strong consumer spending. Consumer confidence is very high.
Interest rates are low. Home buying is setting records. Now
before I start sounding like Elaine Garzarelli, Abbey Joseph
Cohen or Joe Battaglia I will get off the runaway bull market
express. But give me a reason for a correction. I don't see any.

You probably already heard that the Producer Price Index numbers
were accidentally released on the Internet again for the second
month in a row. The market was "shocked" at the runaway inflation
as evidenced by the +.4% increase. The estimates were for +.3%.
Runaway?? The core rates skyrocketed to +1.0% in stead of the 
+.6% expected. Oh what will Greenspan do! The markets will surely
react tomorrow! (CNBC rhetoric) S&P futures that had been +1.50
suddenly dropped to -1.50. BUT! Shortly thereafter the real inside
numbers revealed that one component caused the huge catastrophic
move. Tobacco! Hardly a crisis. Tobacco prices soared a whopping
+31% and when taken out of the core rate the rate DROPPED to -.1%.
Far below the +.6% expected. Now where was that inflation again?
Put down that red phone. No need to call Greenspan just yet.

Now if you ignore the CNBC hype about the huge loss today, who
are you going to call? Floor traders maybe? Floor traders were
completely UNCONCERNED. Normal, expected, no rush to the exits.
Simply normal profit taking. Sure there was not a rush to buy
the dip in the last 30 minutes but there was not a rush to sell
either. There was two tests of 9500 during the day but the barrier
was not really broken until a large sell program came through
around 3:PM. The sell program took us down to -166 but only
for a brief period. We immediately bounced back up and then 
rested as if to see if there would be another round of selling.
Didn't happen. The day closed quietly, no panic, no screaming.

Positive signs abound. Intel announced earnings after the bell and
beat the whisper numbers by a wide margin. They announced +1.19
and the estimates were only +1.07. Intel cited strong high end
product sales and new high end products coming to market. INTC
traded up strongly after hours. Yahoo also announced better than
expected earnings and a 2:1 split. Yahoo had been expected by the
retail crowd to maybe announce a 3:1 split so there was some
disappointment. Yahoo traded down in after hours and could go 
either way tomorrow. Which way YHOO goes will determine the
sector direction. They are expecting an additional 35 million
Internet users next year alone. Their forecast for 1999 revenue
is an astounding $2.7 bln. This is a huge increase from this
year. The positive forecasts given by Yahoo in the conference
call could cover a multitude of sins. Also there is an Internet
investor conference the next three days and analysts will be
treated to every manner of positive press designed to convince
them that the current valuations are cheap. Good trick if they
can do it. We expect this to help the Internet sector as well.

After realization that the PPI numbers are not that bad, the 
S&P futures are now back up +1.00. As I have said repeatedly
this does not mean we are destined for a positive open tomorrow.
What it does tell us is that investors are not running for the
exits yelling fire. There is still complacency and good feelings
under the market. I bought the dip today. Until there is a 
reason to turn bearish I remain a bull. What is does not make
me is right. We will not know fore sure until the week is over.
My recommendation is as always, look for stocks that did not
go down today or went down very little. These are the leaders
when the market returns. SUNW, T, SLR, UTX, LOW, MYG, would be
good choices.


Good Luck

Jim Brown  
 

JIMS PLAYS
*******************************************************

I closed out an OEX put position today after the market bounced
off the 9500 level twice. In starting the OEX Trading Pit I
jumped into the OEX FEB-630 calls when the market appeared to 
be firming at the end of the day. Putting my money where my 
recommendations are is the surest way to vouch for the newest
feature of the newsletter.


Sold   (4)  FEB 630-PUTS OEY-NF @ $24.00 cost $18.00 profit $2,400
Bought (10) FEB 630-CALL OEY-BF @ $16.00 

Current option positions still include open naked puts on INKT
at $130 and $150. With INKT at $164 I think these are a safe bet
to expire worthless for full profit.

I still have the MCHP and NEON credit spreads open as well and
it looks like they will also expire worthless for full profit.

Check the Sunday newsletter for the details on the spreads.

I am also holding the (10) ATI-75 calls and hoping for another
bid soon. Heck, they are January calls, I have plenty of time,
right??

I still don't have options approval on my new account (believe it?)
and so I am limited to trading stock until Etrade recovers from
their nap and realizes I have approval on the account I transferred
money from. Compliance is a killer headache for them.

Current stock;

I swapped KMAG for the AFCI position I had on Sunday and sold CS
outright. I added on the dip today SUNW, FTL, SRCM, PSIX, NDB.

KMAG 5000 @ 13.56 current 13.88 Seagate sympathy play
FLC  5000 @  8.31 current  8.63 
GLM  5000 @ 10.10 current  9.63 What happened to the oil revival
SUNW 3000 @ 89.78 current 93.38 Earnings/split next week
FTL 10000 @ 17.88 current 17.63 Strong support at $17.50
SRCM 5000 @ 22.75 current 23.63 AOL rumor surfaced again
PSIX 5000 @ 29.00 current 29.13 Cheap Internet play
NDB  5000 @ 22.56 current 22.38 At least they have earnings!




OEX TRADING PIT
*******************************************************
We finally kicked off the OEX Trading Pit today and launched our
first trade. Stop by and see how it works. 

Here is some of the general ideas behind what we are trying to do.

We are not swinging for the fences and trying to make a home run
out of every play. If that is how you want to trade then this is
not for you. We want consistent base hits and will focus on being
in the market only when there is a reason to be there.

Because of space limitations traders with very small screens
will have trouble. Please do not email us. we made it as small
as we can. 17" monitors are only $299. Get one.


OEX Trading Pit Theory:

The theory behind the Option Investor OEX Trading pit is to 
trade the OEX when it makes major moves.

It is not our intention to be in some trade every day from 
open to close. 

The various factors that impact the OEX such as support, 
resistance, overbought, oversold, news events, etc will all
be taken into account before suggesting a trade.

It is conceivable that we can be in multiple trades in one
day and it is also likely that we can go days without a trade.

The object of trading the OEX is to make money. The object 
is not to trade just for the sake of trading. 

We are not going to try and make $.50 here and $.25 there. 
We are targeting only the major moves and will try to ignore
the noise between moves.

The Pit will trade both calls and puts depending on the market
direction.

The options recommended will be within $10 of the money 
depending on the length of time remaining in the month.

You are free of course to purchase farther out of the money
or deeper in the money as your risk profile permits.

We are planning to use money management techniques with stop
losses and partial sells at profit stops of 50%, 75% and 100%.

Operation:

The bottom of the Trading Pit screen will contain a running 
commentary of the play in progress or the next play contemplated.  

This window will be updated automatically whenever something occurs. 

Plays will be given in the format:

The market appears to have bounced off resistance at 9350 and 
volume is increasing. Fundamentals include advances beating 
decliners 2102 to 1300. Traders bought the dip again and profit
taking appears to be over. OEX is now 627.20 Next resistance is
at 639.  

01/11 10:41 BUY Call OEX-630 at $18.00,  Stop loss at $14.00 
            Target $24.00





Market Posture
*******************************************************
As of Market Close - Tuesday, January 12, 1999 

                   Major Support
Broad Market         /Resistance    Last    Posture/Since  Alert
****************************************************************

DOW Industrials    9,400   9,760   9,475    Neutral   1.12 *           
SPX S&P 500        1,200   1,280   1,239    Neutral   1.12 *   
OEX S&P 100          580     635     617    Neutral   1.12 *  
RUT Russell 2000     400     435     427    Neutral   1.12 * 

NDX NASD 100       1,900   2,010   1,940    Neutral   1.08   
MSH High Tech        870     980     945    Neutral   1.08   

                   Major Support
Technology           /Resistance    Last    Posture/Since  Alert
****************************************************************
XCI Hardware         800     875     849    Neutral   1.08    
CWX Software         600     665     629    Neutral   1.08         
SOX Semiconductor    360     400     388    Neutral   1.08        
NWX Networking       400     450     429    Neutral   1.08         
INX Internet         425     570     520    Neutral   1.08    

                   Major Support
Financial            /Resistance    Last    Posture/Since  Alert
****************************************************************
BIX Banking          610     710     677    Neutral   1.12 *             
XBD Brokerage        525     590     701    BULLISH  12.24  
IUX Insurance        555     620     631    Neutral   1.12 *       

                   Major Support
Other                /Resistance    Last    Posture/Since  Alert
****************************************************************
RLX Retail           800     860     821    Neutral   1.08  
DRG Drug             720     795     746    Neutral   1.08    
HCX Healthcare       710     780     730    Neutral   1.08            
XAL Airline          310     350     327    Neutral   1.12 *             
OIX Oil & Gas        245     260     247    Neutral   1.07              



Posture Alert

After selling-off more than 145 on Tuesday (1/12) and flashing 
a short-term reversal signal, we have turned Neutral across
the broad based indices including the DOW, S&P 100, S&P 500
and the Russell 2000.  We have also turned Neutral across
Banking, Insurance and Airline sectors.

A detailed description of our Market Posture and its
applications can be found at:

www.OptionInvestor.com/marketposture
 

Market Sentiment - By Pinnacle Capital Advisors
******************************************************************  
Tuesday, January 12, 1999

 
Pinnacle's Sentiment Analysis Presages Market Sell-off

On Sunday (1/10), Pinnacle Capital Advisors alerted subscribers
to keep on eye on the market volatility index (VIX).  If the VIX
traded above its declining 50-day moving average, we would
likely see the near-term high and a precipitous sell-off.  On 
Monday (1/11), this key benchmark was violated and it provided an
early warning sign before Tuesday's 145 point downdraft.  
OptionInvestor.com was the first advisory firm to turn Neutral 
(1/8) across many key industry sectors helping many bullish 
subscribers stand aside and it is possible that a near-high has 
been put in place on the DOW at 9,759.

From a market sentiment standpoint, we are at a key moment in the
market.  If option speculators rush in after this initial sell
off with heavy call volume, we have likely seen the highs over the
 near-term.  If instead, option speculators climb the wall of
worry with heavy put volume, we are likely to see a resumption
of the current trend.  The problem is we won't know until more
information is available.  Stayed Tuned.  Now, more than ever,
OptionInvestor.com can help you keep a step ahead of other
investors.

Pinnacle's short-term indicators are still flashing bearish
overtones over the near-term (sentiment survey data from Investor
Intelligence) so we advise subscribers to tightly protect their 
long positions.  Any questions regarding market sentiment can be 
directed at:

pinnacle@OptionInvestor.com


Market Sentiment at a Glance
********************************************************************   
                                Friday    Tues    Thurs  
Indicator                       (1/8)    (1/12)   (1/14)   Alert
********************************************************************

Pinnacle Index (OEX):          
-----------------------------------------------------------------
Overhead Resistance (620-635)             1.3                 
Underlying Support  (595-610)             2.4


Put/Call Ratios:
-----------------------------------------------------------------
CBOE Total P/C Ratio               .5      .5
CBOE Equity P/C Ratio              .4      .4              *                      
OEX P/C Ratio                     1.2     1.2


Peak Open Interest (OEX):
-----------------------------------------------------------------
 
Puts                              575     575
Calls                             620     630
P/C Ratio                         1.3     1.0


Market Volatility Index (VIX):	
-----------------------------------------------------------------
CBOE VIX                         24.8    26.4               *




Investors Intelligence:
-----------------------------------------------------------------
Bullish                          58.3%   58.3%              *  
Bearish                          30.0%   30.0%
		



The Power of Expectation Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

 
Pinnacle Index
-----------------------------------------------------------------
OEX                             Friday    Tues     Thurs
Benchmark                       (1/8)     (1/12)   (1/14)
-----------------------------------------------------------------

               
                    (630-635)               1.9  
                    (620-625)                .8
Overhead Resistance (620-635)               1.3     

OEX Close                        636.0    616.5

Underlying Support  (595-610)               2.4 
                    (605-610)               1.5
                    (595-600)               4.1

Average ratings: 
Resistance levels 2.0 / Support .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is Moderate at the OEX 620/635
level while the underlying support is moderately firm.



Put/Call Ratio 
-----------------------------------------------------------------
                                Friday    Tues     Thurs
Strike/Contracts                (1/8)     (1/12)   (1/14) 
-----------------------------------------------------------------
CBOE Total P/C Ratio              .50     .49
CBOE Equity P/C Ratio             .38     .36
OEX P/C Ratio                    1.16    1.19



Peak Open Interest (OEX)
-----------------------------------------------------------------
                     Friday          Tuesday          Thurs
Strike/Contracts     (1/8)           (1/12)           (1/14)
-----------------------------------------------------------------
Puts                 575 / 12,419    575 / 13,004
Calls                630 / 10,341    630 / 12,009

 
Put/Call Ratio       1.20            1.03



Volatility Index (VIX)
-----------------------------------------------------------------
                    Major
Date                Turning Point       VIX
-----------------------------------------------------------------
October 97          Bottom              54.60      
July 20, 1998       Top                 16.88         
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38



 



Investors Intelligence Survey
-----------------------------------------------------------------
                    Major             Percent     Percent
Date                Turning Point     Bullish     Bearish
-----------------------------------------------------------------
October 97          Bottom            22.0        48.3       
July 20, 1998       Top               52.0        24.0         
October 8, 1998     Bottom            38.5        42.7
?                   Top               58.3        30.0





Please view this in COURIER 10 font for alignment
*****************************************************
RESULTS THIS WEEK

Index	Last	Mon	Tue	Week		
Dow	9475	-23.4	-145.2	-168.64		
Nasdq	2321	40.18	-63.84	-23.66		
$OEX	616	-6.60	-12.93	-19.53		
$SPX	1240	-11.2	-24.37	-35.58		
$RUT	427	 1.90	- 5.77	-3.87		
$TRAN	3207	-73.9	-79.67	-153.63		
$VIX	29.68	 2.50	3.30			
						
Stock	Last	Mon	Tue	Week		
				 		
CMGI	130.7	71.75	-5.25	66.50	Can't pick a direction!	
AOL	153.6	18.63	-11.5	7.13	New Price Target from Merrill	
GDT	112.1	10.94	-5.81	5.13	New FDA approval	
ASND	74.94	5.25	-1.75	3.50	Finally being bought by LU	
AMZN	163.3	24.38	-21.2	3.13	Profit-taking	
DELL	80.44	4.19	-1.56	2.63	Light Volume still a problem	
SUNW	93.38	3.13	-0.63	2.50	Showing it's Strength	
ATI	79.50	1.00	-0.50	0.50	Takeover Play	
MYG	64.00	0.25	-0.25	0.00	Cool, calm, and collected	
LXK	100.3	1.75	-1.94	-0.19	Profit-taking	
XIRC	37.88	1.25	-1.88	-0.63	52 week High on Monday	
T	84.25	0.31	-1.13	-0.82	Volume is heavy	
FTL	17.63	0.44	-1.31	-0.87	CEO sounds ready to sell	
SLR	88.50	-1.06	-0.06	-1.12	Split candidate with earnings	
EDS	49.44	0.00	-1.25	-1.25	Dropped	
LOW	53.19	-1.44	-0.06	-1.50	Pullback is slowing	
JBL	72.75	0.56	-2.69	-2.13	Look for direction	
WCOM	72.50	0.00	-2.50	-2.50	Won next segment of contract	
JPM	111.8	0.00	-2.63	-2.63	SEC probe is over	
KSS	58.88	-0.81	-2.06	-2.87	Dropped	
EMC	90.50	1.31	-4.38	-3.07	Profit-taking	
WMT	80.38	-1.88	-1.25	-3.13	Dropped	
UTX	111.2	-2.50	-0.94	-3.44	Dow sensitive	
CREE	48.50	-1.88	-2.25	-4.13	Dropped	
LU	107.8	-2.31	-5.06	-7.37	Dropped	
MSFT	142.1	-2.38	-5.31	-7.69	M-Pire's turn to defend itself	
CSCO	98.13	-2.00	-6.56	-8.56	Dropped	
BRCM	138.0	-22.0	-19.2	-41.2	Dropped	
						
Puts						
						
MRK	147.9	-3.13	-2.75	-5.88		
WLA	69.75	-3.25	-1.88	-5.13		
LLY	76.50	-2.69	0.31	-2.38		
AVT	44.75	0.56	-2.25	-1.69		
ERTS	45.56	-0.69	-1.00	-1.69		
BDX	40.63	-0.50	-0.44	-0.94		
BMCS	40.00	0.69	-0.94	-0.25		



***** Play updates in section two *****


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*************************************************************
                      DISCLAIMER
*************************************************************
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.





The Option Investor Newsletter         Tuesday  1-12-98  
Copyright 1998, All rights reserved. 
Redistribution in any form strictly prohibited.


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

CALLS:
******

EDS $49.44 –1.25 (-1.25) Amid heavy profit taking today, 
EDS lost its technical support of $50.00.  Even with positive
news, the Computer Services Industries expects strong profits
this quarter, EDS could not endure.  EDS has all the 
technical and fundamentals of a good stock, it's just that we
feel there are better plays in the coming weeks. So we are
dropping EDS as a play at this time.

BRCM $138.00 -$19.25 (-41.25)  In Sunday's letter, we stated
"...the past week's run-up was HUGE. Profit taking could bring 
the price down quickly, so watch your stops closely if 
you play this one. High risk."  We didn't know just how 
quickly BRCM was going to correct.   Nearly all the Internet 
stocks, BRCM included, were sharply lower today on 
profit taking. Morgan Stanley Dean Witter downgraded 
BRCM based on "enormous" valuation from outperform to 
neutral (although fundamentals still look good). BRCM 
lost over 40 points in two days, almost half of it 
today.  Time to cut them loose.

WMT $80.38 -$1.25 (-3.12)  Since it's intra-day high of 
$85.06 on Thursday, WMT has been down for the last three 
trading days in a row. Today it gapped down at the open, and 
although it managed to close higher than it opened, it 
was still off $1.25 from yesterday's close. Wait for the 
market to turn around and the consolidation in WMT to 
end before initiating new positions. Wal-Mart announced 
some promotions, the most important of which is that of 
H. Lee Scott, who was promoted to chief operating 
officer and vice-chairman. This makes him the front-
runner to be the next CEO. Mr. Scott has helped WMT 
return to the position of "increasing its profits faster 
than its sales." 

KSS $61.75 –2.06 (-2.87) We are dropping KSS. They have gone 
down four straight days. This, ironically, has occurred after 
the sales figures came out so positively. The market is a 
strange place. It is funny how two companies announced similar 
results and one tanks, the other takes off. (Compare to LOW) 
 
LU $107.88 -5.06 (-7.37) LU is a great company, with stock 
split possibilities, and earnings coming up: so why are we 
dropping it? LU is in talks with Ascend to buy the company. 
Unfortunately, the company doing the buying tends to suffer. 
This has been the case with LU. Once this buyout news plays 
out, LU could become a play again. For those of you risk 
adverse, LU could be considered a good buy at current prices. 
We don't feel it is a good play while this news is playing out.

CREE $48.50 –2.25 (-4.13) Bad timing! CREE has done nothing but
drop since we picked it. Yes, the NASDAQ is down, but CREE went
down on Monday with an extremely good NASDAQ market. CREE does 
have earnings this week and could announce a stock split, but
we feel there are better plays out there.

CSCO  $98.13 -$6.56 (-$8.56)  Heresy!  We're dropping Cisco 
today.  Just like MSFT, CSCO figures largely into the performance 
of the NASDAQ 100.  As go these 2, so goes the index.  CSCO 
got pounded heavily today in big profit taking (and some panic) 
with almost 25 million shares trading hands.  Their average 
is about 14.5 million shares.  This is not the end of the 
world and CSCO is still a great company largely responsible 
for developing the equipment needed to build the Internet.  
Still a Morgan Stanley top 1999 pick, targeted by DLJ at $125 
and a split candidate.  Zack's estimates earnings to be 
announced February 2nd, a likely date to announce a split, 
too.  Not helping Cisco's case is the market's fear that, 
if Lucent is successful in purchasing Ascend, competition 
in Cisco's market will greatly heat up, causing damage to 
Cisco's earnings.  Furthermore, for us traders, it may be 
a few more days (we hope not weeks) before the market determines 
the impact on CSCO.  We're not waiting around to find out, so 
we're dropping CSCO for now until they give us a clear signal.


PUTS:
******
None


*******************************************************
PICK NEWS - CALLS
*******************************************************

SUNW $93.38 -0.63 (+2.50)  After jumping up a total of $5.25 
last week, Sun Microsystems continued the run on Monday by 
popping up another $3.13.  Tuesday's slight set back of only 
-$0.63 might be your chance to buy on the dip.  But, wait for
confirmation of upward movement before initiating any new 
plays.  SUN is shining.  Some analysts believe SUNW will have 
decent earnings announcements after a solid quarter.  Sun is 
also a split candidate and might even announce one on Jan. 
21st with their earnings.  So far this week, SUNW released 
news on their latest developments for the expanding tele-
communications industry.  SUNW  produced an upgraded version 
of its Netra computer along with several other products, 
programs, services, software, and initiatives. 

EMC $90.50 –4.38 (-3.06) EMC gapped open on Monday, but has
traded down since then.  EMC is still above its 10 day moving
average which is currently around $88.  We continue to read
articles that discuss EMC being in model portfolios of 20 to 30
stocks.  There was an article in MSN MoneyCentral about EMC
being one of the top 30 growth stocks.  So it would appear,
that once the market starts cooperating, EMC will still be an
"in favor" stock.  Until then, wait for the market to start
moving up again.

JBL $72.75 –2.69 (-2.13) JBL closed below its 10 day moving
average today.  This raises a caution flag on JBL.  It has done
this a couple of times during the run its been on since mid-
October.  What make us a little more cautious on JBL is the
press during the past couple of weeks that the sector might be
overvalued.  Couple this with the fact that the sector goes in
and out of favor with the Street, and there are a couple of
reasons to be cautious.  Wait for upward movement before
playing from the long side.

ASND $74.94 –1.75 (+3.50) The rumors started on Monday that
Lucent was acquiring ASND, and it was confirmed today by an
article that indicated ASND's Board is meeting to consider
Lucent's offer.  The rumored price is at more than $80 a share,
but this has not been confirmed.  It is reported that ASND
would be a very good fit for Lucent because Lucent does not
have the product portfolio of data networking equipment ASND 
does.  The merger could also speed up product development by 
fostering even more competition between Lucent and Cisco.  
ASND gapped open on Monday and had gotten as low as $73 
towards the end of trading today, but then jumped back up to 
$75.  Keep an eye on the news, this could be a fun one.

UTX $111.25 -.94 (-3.44) UTX has pretty much traded down for
the last two days.  UTX is a good example of how a stock with
no news will be subject to the movement of the market.  We have
not had any news on UTX and it has followed the Dow down.  UTX
closed today just above its 10 day moving average and closed
below what we considered to be minor support at $112.50.  The
caution flags are definitely up on UTX, so only play it if the
Dow is moving up

CMGI $130.75 -5.25 (+66.50) Well, it happened.  Today the 
several Internets had their day in court and CMGI got off on
time served.  Instead of serious profit-taking, CMGI opened
up + $20 ($40 pre-split) at a dizzying $155.00 then promptly
stepped off the cliff into oblivion and plummeted to $87.25
(-47 points).  Yet bounce it did.  Right back to $135 and 
slowly slipped throughout the day to close down 5.25.  CMGI 
showed some amazing resiliency for a net stock even in the 
face of a strongly negative Nasdaq.  This week, CMGI has a
new joint investment in ONElist Inc., a leader in the email
services area.  

FTL $17.62 -$1.31 (-.88)  It's like we said on Sunday, this
is a rumored take over target. Option interest has 
definitely been notable.  After scouring all our sources of 
news, we have yet to find any news of an announcement yet.  
The story was to expect an announcement Monday or Tuesday.  
Instead of dropping it as a play, we are looking at today's
slip as a buying opportunity.  Takeover plays do carry a 
higher level of risk (if the deal never comes through), but
we are willing to give it a little more time.  There was 
an article in the NY Post today that confirmed FTL's CEO
Bill Farley might be ready to sell his company.  Currently
he has over $22 mln worth of stock options but they are 
worthless if FTL's stock price doesn't hit $41.  It is 
quite a jump from $17, but the fastest way to get there 
would be a sale.

JPM $111.81 -$2.63 (-2.63) The financial stocks (except the
online brokers) were lower with the rest of the market in 
profit-taking.  In addition, they suffered from the economic
and political trouble in Brazil, where U.S. financial
institutions have sizeable operations.  A large state in
Brazil stopped payments to the central government last week.
Any further weakness in Brazil could continue to hurt this
sector. Meanwhile, the SEC "probe into Nasdaq market trading
abuses is now over.  JPM was hit with $1.3 million of the
$26 million in fines levied on the 28 Wall Street Firms
involved.  This investigation has been ongoing, and
knowledge of it is built into the stock. In fact, putting
this chapter behind them should be positive for these
stocks.

GDT $112.13 -$5.81 (+5.13) Still working on its pre-split 
run, GDT hit $119.75 yesterday, before closing at $117.94. 
Today it lost ground in overall market profit taking.  GDT 
said yesterday that it has received FDA approval to market 
its ACS RX Gemini heart catheter in the U.S.  The coronary
dilation catheter has been used to clear clogged arteries in
the heart since October in Europe.  At this time of the
year, many well-known stock-pickers list their picks for the
coming year. Guidant appears on a number of them.

SLR $88.50 -.06 (-1.13) SLR had an up and down day on Tuesday, 
mostly down though. SLR did end up flat on the day. We still
have not heard any news on the shareholder meeting today.
The agenda included a vote on increasing the authorized shares.
There was news on SLR's shelf registration. S&P rated SLR's
bonds BBB and BBB-. These ratings were based on SLR's strength
in its industry with the idea that SLR is in a very competitive
field. SLR is at its 10-dma. This average has held all two-day
closes since early October. We also heard from someone that 
works for SLR and they stated that SLR has been hard pressed
to keep up with all the orders they have. This could bode well
for the next earnings report. There still is a chance that SLR
will announce a stock split in the next few days.

LXK $100.38 –1.94 (-.18) LXK gave back Tuesday what it had
gained on Monday. LXK has earnings scheduled for January 
20th and could start to see an earnings run. The possibility
for a stock split is still strong also. Abbey Cohen gave 
LXK a push over the weekend by stating that LXK was one of 
the small to mid-cap stocks she really likes. There was a 
bit of news on the LXK front today when LXK announced they 
have extended their leasing program until the end of March. 
This program allowed leasing of its higher end printers. The 
10-dma is at $98 and has been strong support.

LOW $53.19 -.06 (-1.50) LOW's traded in a $1.25 range today. 
One nice thing is that LOW came back a dollar off its lows 
(no pun intended). On Monday, LOW traded as high as $55.88, 
a new 52-week high. LOW's announced today the appointment of 
Betsy J. Annese to the position of Vice President of Corporate 
Communications. She previously ran her own business and had 
worked for RJR Nabisco for 16 years. LOW bounced off its 10-
dma ($52.25)again today. Further sales figures are due out
on Thursday. This could provide some additional buying 
pressure.

ATI $79.50 -.50 (+.50) ATI has been relatively quiet the last
few trading days. It has a range of $77.63 to $81.00, which
isn't much of a range for a takeover candidate. There isn't
any news to account for the last few days, but with a play
like this, news will drive the price. Takeover plays are 
risky, but can be profitable if the takeover actually takes
place. Watch for dips if you feel like playing ATI. 

XIRC $37.88 –1.88 (-.62) XIRC did achieve a 52-week high of 
$40.25 intraday on Monday.  XIRC is the world leader in 
connectivity solutions for mobile computing professionals.
They announced today plans of focused efforts in the Latin 
America market through the establishment of a sales and 
marketing office in St. Petersburg, Fla. According to 
International Data Corporation (IDC), notebook PC sales in 
Latin America are expected to have an average annual growth 
rate of 17% through 2002, the highest rate forecasted worldwide; 
thus providing an important market for Xircom's wide range 
of mobile communications devices.  XIRC, though down today, has
held strong compared to its industry average.  XIRC 10-dma is
at $36.13.

MSFT  $142.19 -$5.31 (-$7.69)  It had to happen sooner or 
later.  After 7 new all-time highs on the NASDAQ, profit 
taking happened.  MSFT, a significant part of the NASDAQ 
100 index, ended yesterday down $2.38 on less than average
volume of 11.6 million shares.  Today was a little rougher 
with a $5.31 loss on 14.5 million shares (slightly above 
average of 13.6 million shares).  The price drop with 
bigger than average volume indicates (some) panic, not 
rationality, making this a "buy the dip" opportunity.  
Having said that, don't try to "catch a falling knife".  
MSFT is still a great company with a good story.  MSFT 
begins telling their side of the anti-trust case tomorrow, 
after which they will seek a dismissal of the Justice 
Department's charges.  To that end, wait for MSFT to 
recover +/-25% of its total loss from the high (to about 
+/-$144, assuming it starts moving up again at tomorrow's 
open).  If it falls another day, let it fall.  The point is 
to catch a good entry on the way up, not on the way down.  
MSFT is still a major split candidate at $140.  We look for 
the announcement along with earnings (anticipated 1-21-99), 
barring a surprise in the trial 

AOL  $154.50 -$10.58 (+$8.00)  In case you're just joining 
us for the first time since Sunday, AOL is up $8.00 for the 
week.  For the gunslingers following the daily action, AOL 
behaved like a true Internet stock, and in comparison, 
traded mildly to the $70+ price rises for the Yahoo's and 
CMGI's.  AOL tacked on $18.53 yesterday, but gave back 
$10.58 today on 20.7 million shares.  Throughout the 
market, profit takers couldn't stay away and that goes for 
AOL too.  The rise yesterday, attributable to Internet 
stocks in general, was exacerbated by Merrill Lynch raising 
their target price to $195 from $75, which sent the shares 
soaring.  We view today's pullback as healthy, given the 
heavy volume and indicative of a bit of panic too.  
Remember, funds still need to buy AOL to accurately reflect 
the S&P 500 index and AOL is a split candidate at the $120 
level.  To us this is a buying opportunity when the stock 
begins to recover.  Wait for the recovery, then execute 
your plan.  In the news, AOL said its explosively growing 
ICQ Internet chat and messaging service has doubled to 25 
million users in the seven months since AOL bought the 
communications service last June.

WCOM  $72.50 –$2.50 ($2.50)  WCOM traded flat yesterday, 
but today, a different story.  They could not overcome the 
down draft in the market and succumbed to profit taking on 
average volume.  It appears to have stalled a bit and may 
consolidate some before taking off again.  Wait for WCOM to 
penetrate and hold over $75 before entering a new play.  
The following may help.  Today, WCOM announced they had won 
the second phase of FTS2000, the contract to supply the 
U.S. government with communications services for the next 
eight years, estimated to be worth $5 billion over the 
term.  Confirm market direction before playing and protect 
your profits by using stops.  Discipline will pay off here.

T  $84.25 -$1.13 (-$0.88)  Just a bit of profit taking 
given last weeks stellar performance.  Volume was heavy 
both yesterday and today with 11.8 million and 7.9 million 
shares traded, respectively.  Average is 4.9 million.  AT&T 
continues to melt the copper in favor of fiber replacement 
at every turn.  Today, they announced a deal with 
PlanetDirect, a division of CMGI, which enables AT&T 
WorldNet users to custom tailor their home pages for 
Internet use.  TCI merger still on track, CSCO providing 
infrastructure to enable those cable modems for the "last 
mile" to your home.  AT&T still has a compelling story and 
should continue up as the market shakes off its top-heavy 
jitters.  Confirm market direction before playing.

DELL  $80.44 -$1.56 (+$2.63)  Nice performance from DELL 
yesterday: up $4.19 on volume of 14.6 million shares.  
Today, they gave a little back on 13.4 million shares.  
Candidly, these volumes are pretty weak and could use some 
improvement.  Though DELL is giving us a nice play, 
especially in light of market jitters, we still think DELL 
is a great pick and should give us another run into 
earnings as they issue more press releases for investor's 
radar screens to notice. See Sunday's write up for the 
rationale on this play.  Yesterday, they entered an 
agreement with a unit of GTE to integrate GTE.net's 
Internet access service into Dell personal computers.  
Today, they announced they would collaborate with SBC to 
offer more convenient DSL service (speedier Internet 
access) to SBC customers.  As the news grows, we'll report 
it.  Remember, confirm market direction before entering a 
play.  It's a little rough out there today.

AMZN $163.38 -21.25 (+3.13)  It looks like for once Amazon 
is mirroring the Internet sector instead of leading it!  On 
Monday, Amazon flew $24.38 most likely in sympathy to Yahoo's 
earnings run and CMGI's amazing finish for their 2:1 
split.  However, cautious investors decided to take some 
profits on Tuesday just in case YHOO's earnings report wasn't 
up to par (they beat estimates by 5 cents).  The whole Internet 
sector took a hit as a result and Amazon returned $21.25 of 
its Monday gains.  Set your stops tight if you are still 
holding Amazon.  With the NASDAQ in correction mode, anything 
can happen.

MYG $64.00 -0.25 (+0.00)  Maytag managed to post a twenty-five 
cent gain on Monday but turned right around and gave the 
quarter back from market pressure on Tuesday.  The market is 
still moving at incredibly high levels and a sell off can come 
at any time.  Set your stop losses tight to prepare and protect 
any gains you might have.  We still believe that Maytag will
eventually split 3:2.  Earnings are scheduled for Feb. 4th and 
there is a shareholder meeting in May.

PICK NEWS - PUTS
*******************************************************

AVT $44.75 -2.25 (-1.75) Stock experiencing continued weakness
off of recent earnings warning.  Stock now under short and 
long-term moving averages.  Lots of overhead.  Likely to retest
52 week lows at $35. 

BDX $40.625 -.50 (-1.00) Topside consolidation makes for 
conservative play.  Stock is unlikely to go much higher than 
the trading range of about $43 in the next 3-6 months.  Earnings
are projected to be $1.57 share for fiscal 99 with a PE of 24.5,
fairly pricey.

BMCS $40.00 -1.00 (-1.25)  Stock breaking down and couldn't
rally above $44, an important resistance.  Look for more
downside action. Stock showing classic signs of a failed rally 
trading below its declining 50, 100 and 200-day moving average 
and is dangerously testing it prior support of $40.  If BMCS 
breaks below $40, could garner additional profits.

ERTS $45.50 -1.00 (-1.75) The stock is likely to struggle 
under recent consolidation levels and test recent lows just a 
few months back.  Whisper number of $1.18 per share for 
earnings due to be released on 1/21/99.  Pinnacle believes 
that holiday enthusiasm, if any, will be short-lived by the 
realities of an increasing complex and competitive market for
entertainment software.

LLY $76.25 +.25 (-2.25) A leading healthcare management
services provider recent topped out at its 52-week high of
$91.31 and showing classic signs of a failed rally trading
above its 50, 100 and 200-day moving averages.  Retracement
target $70-75 after climbing 30% over the past three months.
Stock is selling off despite favorable industry report by
OrbiMed Advisors on Monday projecting for strong year of year
growth rates.

WLA $71.625 -1.88 (-5.13) Top side consolidation since July 
may be difficult to overcome in extended market conditions.  
Given that the drug sector has and will continue to be a 
strong performing sector, we recommend a modest sell-off price 
targets of $55 to 60.  Stock is selling off despite favorable 
industry report by OrbiMed Advisors on Monday projecting for
strong year of year growth rates.



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

None today


******************
NEW PUT PLAYS  
******************
New Recommendations at a Glance:

Failed Rallies:
Bank of America (BAC) - $66.94 -3.00 (-3.00)
Cooper Industries (CBE) - $44.25  -1.13  (-3.25)
Campbell Soup Company (CPB) - $44.88  -.50  (-7.38)
DuPont de Nemours (DD) - $57.81  -1.69 (-1.69)
Merck (MRK) - $147.94 -2.75 (-5.88)         
Perkin-Elmer Corporation (PKN) - $93.88  -3.31  (-2.06)

Overbought / Overextended:
Excite, Inc. (XCIT) - $75.13  -8.63 (+15.125)


**** Puts and Combos are in section three



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This newsletter is a publication dedicated to the education 
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newsletter picks are not to be considered a recommendation 
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The Option Investor Newsletter         Tuesday  1-12-98  
Copyright 1998, All rights reserved. 
Redistribution in any form strictly prohibited.

**************************************************************
PUTS - Failed Rallies:
**************************************************************
Bank of America (BAC) - $66.94 (-3.00) (-3.00)
Banking

Bank of America (BAC) is a multi-bank holding company that
provides banking and related services throughout the Mid
Atlantic, Midwest and South. For the nine months ended
9/30/98, total interest income rose 4% to $28.95 billion. 
Net interest income after loan loss provision fell 10% to
$11.28 billion.  Net income applicable to Common fell 20% to
$4 billion.  Results reflect increased earning assets, offset
by a lower net interest yield and $1.19 billion in merger and
restructuring costs.

U.S. bank and broker shares are experiencing weakness on
renewed signs of economic and political trouble in Brazil,
where U.S. financial institutions have sizeable operations,
and profit-taking. Brazilian markets were roiled after a
large state within the country last week decided to halt
payments on its debt to the central government.  Some of this
concern carried over to U.S. markets, knocking financial
stocks off highs hit earlier in 1999.  The Bovespa has been
weak, and concerns about Brazil will cool the financial
sector.

Stock likely to test trading range of $55-60, still continues
to underperform sector, has declining relative strength, and
failed at the 200 moving day average.
 
Play:  Failed Rally
 
BUY PUT FEB-75  BAC-NO OI=321 @ $8.63 SL=6.00
BUY PUT FEB-70  BAC-NN OI=709 @ $4.75 SL=3.00

Chart = http://quote.yahoo.com/q?s=BAC&d=3m
**************************************************************
Cooper Industries (CBE) - $44.25  -1.13  (-3.25)
Industrial

Cooper Industries (CBE) is a worldwide, diversified
manufacturer with three business segments: Electrical
Products, Tools and Hardware, and Automotive Products.  For
the nine months ended 9/98, revenues rose 7% to $2.77
billion.  Net income from continuing operations fell 8% to
$207 million. Revenues reflect acquisition activity and
improved Electrical Products segment sales.  Earnings were
offset by additional debt and the absence of gains on the
sale of the window treatment business.

Recent company performance reflects the softening demand in
certain industrial markets and the divestiture of the
Automotive Products segment. Modest growth in the domestic
economy,  modest European market performance,  further
deterioration in the Far East markets and/or U.S. industrial
markets, concerns over construction spending worldwide, raw
material costs; and currency issues continue to weigh on
company.  

Stock recently failed at rally/ consolidation price point of
$50. Likely to test lows. 

Play: Failed Rally

BUY PUT FEB-45  CBE-NI OI=7   @ $2.00 SL=1.00

Chart = http://quote.yahoo.com/q?s=CBE&d=3m
**************************************************************

Campbell Soup Company (CPB) - $44.88  -.50  (-7.38)
Consumer

Campbell Soup Company is a global manufacturer and marketer of
branded convenience food products operating in three business
segments: Soup and Sauces, Biscuits and Confectionery, and
Foodservice. Campbell Soup Company is the world's largest
maker and marketer of soup with fiscal 1998 sales of $6.7
billion.  

Warm weather, flat sales, inefficient supply chain, and
company's ability to achieve costs savings and capacity
utilization are being called into question by analysts. 
Increased marketing and selling expenses, increased store

level inventory levels, encroachment from private label (store
brand) products, reduced consumption levels and a recent
announce of new cost-cutting initiatives will cause fiscal
1999 earnings to fall short of analysts' estimates by 18 to
23 cents per share.  Analysts surveyed by First Call Corp.,
which tracks such estimates, had expected the company to earn
$2.13 a share during the year, which ends July 31. Campbell
earned $1.90 a share in the prior year. Campbell Soup Co.
said it now expects U.S. soup consumption to rise by only 1
to 2 percent in the second quarter from the previous year,
not 4 to 5 percent.

Stock recently failed at $59 and then broke key support at
$54.00 on news of earnings shortfall. Excessive call buying
today is bearish and may provide continued overhead
resistance. 

Play: Earnings Warnings

BUY PUT FEB-50  CPB-NJ OI=111 @ $4.88 SL=3.25
BUY PUT FEB-45  CPB-NI OI=39  @ $2.00 SL=1.00

Chart = http://quote.yahoo.com/q?s=CPB&d=3m
**************************************************************

DuPont de Nemours (DD) - $57.81  -1.69 (-1.69)
Chemicals

E.I. DuPont de Nemours and Company operates in fiveprincipal
industry segments: Chemicals, Fibers, Polymers,Life
Sciences, and Diversified Businesses.  For the 9 monthsended
9/30/98, total revenues rose 1% to $19.29B.  Netincome from
continuing operations before extraordinary itemand
applicable to Common fell 37% to $859M.  Revenuesbenefited
from acquisitions. Earnings were offset by a$651M
increase in purchased in-process R&D charges.

Pricing pressures from overcapacity continue to weigh on the
chemical group.  Street has been busy cutting the group's
earnings estimates for the next couple of quarters, as
troubled economies in Asia and Latin America suggest that
demand/pricing conditions won't improve any time soon. 
Commodity chemicals such as ethylene hardest hit, with prices
falling by as much as 50% over past year.  Stocks have seen
some buying interest in recent weeks on hopes that lower
interest rates will jumpstart sagging global economy.  But


gains appear more a function of underlying market strength and
light bargain hunting than any sea change in expectations for
a sustained earnings recovery.  Chemical companies are
cutting jobs and reducing production to adjust to challenging
conditions.  Comparison periods will also become more
attractive by mid-CY99. However, until that time there is no
reason to suspect the group to do anything but underperform
the market.  Given existing oversupply, declining earnings
growth, slowing worldwide economic growth and the market's
preference for momentum over turnaround situations, DD could
be under pressure over the near-term.  After advancing $7
over the past couple of weeks, DuPont signaled a failed rally
at its declining 200-day moving average.  Target - $53.

Play: Failed Rally

BUY PUT FEB-60  DD-NL OI=260 @ $4.25 SL=2.75
BUY PUT FEB-55  DD-NK OI=647 @ $1.75 SL= .75

Chart = http://quote.yahoo.com/q?s=DD&d=3m
**************************************************************

Hershey Foods (HSY) - $60.25   -.94  (-2.75)
Consumer

Hershey Foods (HSY) manufactures, distributes, and sells a
broad line of chocolate and non-chocolate confectionery,
pasta and grocery products.  For the nine months ended
10/4/98, net sales rose 4% to $3.2 billion.  Net income rose
5% to $230.9 million.  Revenues reflect higher sales of core
confectionery brands and incremental sales from the
introduction of new confectionery products.  Earnings also
reflect reduced marketing costs for existing brands and lower
selling costs in foreign markets.

Stock continues to struggle following analyst downgrades and
Q4 weakness. Margins are likely to be under pressure with
increased costs. 

Stock simply seems to be out of favor and relative strength 
is declining. Likely to test lows at $48.

Play: Sector  Weakness

BUY PUT FEB-60  HSY-NL OI=75  @ $2.00 SL=1.00

Chart = http://quote.yahoo.com/q?s=HSY&d=3m
**************************************************************

Merck (MRK) - $147.94 -2.75 (-5.88)         
Pharmaceutical

Merck is a pharmaceutical company that discovers,develops,

produces and markets human/animal health productsand
services.  Merck also provides pharmaceutical benefit
services. For the 9 months ended 9/30/98, sales rose 11%
to$19.37B.  Net income rose 14% to $3.85B. Revenues
reflecthigher sales of established major products & newer
products,and growth from the Merck Medco Managed Care
business. Earnings also reflect gains on the sales of
businesses.

After climbing 38% over the past four months, this leading
pharmaceutical company is showing signs of potential
failed rally below its 52-week high of $161.75.  Retracement
target $136-$140. Pinnacle's sentiment indicator is reaching
extreme levels (4.7) setting this high tech company up for a
precipitous sell-off if expectations don't measure up within
the drug sector.   

Play: Failed Rally
 
BUY PUT FEB-145 MRK-NI OI=1266 at $5.00 SL= 3.25
BUY PUT FEB-140 MRK-NH OI= 761 at $3.13 SL= 2.25

Chart = http://quote.yahoo.com/q?s=MRK&d=3m
**************************************************************

Perkin-Elmer Corporation (PKN) - $93.88  -3.31  (-2.06)
Healthcare

Perkin-Elmer Corporation (PKN) develops, manufactures and
markets life science systems and analytical instruments for
the pharmaceutical, biotech, environmental, agricultural, 
forensics and chemical industries. For the three months ended
9/98, revenues rose 16% to $375.8 billion. Net income fell
21% to $17 million. Revenues reflect higher sales of biotech
products in the U.S. and Europe. Earnings suffered from
higher R&D, merger charges, decreased interest income, a $3.1
million loss at Tecan and a higher tax rate.

PKN operates internationally, with manufacturing and
distribution facilities in various countries throughout the
world and derives approximately 53% of its revenues from
countries outside of the United States. Results continue to
be affected by market risk, including fluctuations in foreign
currency exchange rates and changes in economic conditions in
foreign markets. Company is in the process of reorganizing
the Company's capital structure to help move Perkin-Elmer
toward a market leader in biomedical and genomics
information. They are currently evaluating strategic
alternatives for our analytical instruments business. 

Distribution among top institutional shareholders is taking
place as stock is likely to trade back into trading range of
$65-75. Stock moving up in anticipation of  Celera Genomics
spinoff but sale of the AI division may be dragging on. 
Questions also remain about suitable valuation level after 
spinoff.  Today's price action attributable to possible delays
in Celera Genomics spinoff.

Play: Failed rally

BUY PUT FEB-100 PKN-NT OI=10  @ $8.25 SL=6.00
BUY PUT FEB-95  PKN-NS OI=154 @ $4.50 SL=3.00

Chart = http://quote.yahoo.com/q?s=PKN&d=3m
**************************************************************


Overbought / Overextended:
**************************************************************

Excite, Inc. (XCIT) - $75.13  -8.63 (+15.125)
Internet

Excite, Inc. (XCIT) is a global media Company offering
consumers and advertisers comprehensive Internet navigation
services with extensive personalization capabilities. The
Company's services include the Excite and WebCrawler brands.
For the nine months ended 9/30/98, revenues totalled $100
million, up from $33.6 million. Net loss rose 40% to $39.7
million. Results reflect a greater number of advertisers
purchasing banners, offset by a $10.1 million amortization
charge and higher technology costs.

Stock likely to move in sympathy with Internet selloff on 
earnings news.  Excite is a 2nd tier stock that has
consolidated and for which heavy call activity may provide
overhead resistance in near term. Gravity-defying Internet
stock valuations may be nearing culmination- a correction in
the sector will create winners and losers, intensifying
competitive pressure and drive companies to consolidate.

Limited operating history; no assurance of profitability, 
potential fluctuations in quarterly results; unpredictability
of future revenues, risks associated with banner advertising, 
intense competition in the sale of advertising on the web, 
risks related to sponsorships, and risks related to netcenter 
agreement are just a few of the many risk factors that investors
will soon reckon with.

Play:  Overbought / Overextended 
EXTREMELY RISKY! Trade accordingly

BUY PUT FEB-80 QKB-NP OI=26  @ $14.50 SL=10.00
BUY PUT FEB-75 KQB-NO OI=25  @ $10.50 SL=7.00

Chart = http://quote.yahoo.com/q?s=XCIT&d=3m


******************************************************************
COMBO PLAYS - MARKET RECAP 
******************************************************************
Market slumps as investors cash-in! 

U.S. blue-chip stocks fell on Monday amid pressure from a weak
dollar, but shares of technology companies continued to soar to
new highs. The Dow ended down 23 points at 9619.89, coming back
late in the day from a 111 point loss. Technology stocks like INTC
led the NASDAQ higher even as the dollar was hurt by worries about
Brazil's economy, the impeachment trial of President Bill Clinton
and the repatriation of Japanese funds.

From our Sunday portfolio plays, Advanced Micro Devices rose $3.87
as investors geared up for the release of the companies' fourth
quarter results in the next couple of days. Analysts expect good
earnings, based on reports that PC sales are strong and some chip
companies like AMD are expected to benefit. The opening position
on the JAN22P/25P credit spread was around $0.31 but could not be
verified as there was no volume. (Everyone was buying calls!) We
will just take the credit for playing the right side of the fence
this time. AOL was another big mover as the short drought ended.
The stock priced opened about $7 higher and traded in a range for
part of the morning. The FEB155C/160C debit spread was available
for $2.50 on a couple of occasions. It could've easily been closed
later in the day for a $0.50 profit but this play is very safe and
we will hold to a target of $3.50. FTL was the bullish speculation
play on rumors of a takeover. The stock price consolidated in the
morning and started to show some strength again around midday. The
opening debit for the FEB15C/20C of $1.87 (around 6:00AM) actually
held up even after the stock dipped because the short option lost
some value during the day. There may have been some other (short)
transactions like covered-calls. OXHP was this week's long-term
spread and the stock consolidated today as money poured into tech
and Internet stocks. We favor the calendar position (selling time)
and our opening play was the MAY20C/JAN20C at a debit of $2.75.
Those of you playing the call-debit position; FEB17C/20C, should
have achieved about a $1.38 debit. MEL moved down at the open and
never really found support or buying interest. The bank sector was
lower in sympathy with the weak dollar. The closing price, (if you
tried to pick the bottom) was about $3.00 debit for the FEB65C/70C
bull-call spread but we will wait until the stock price finds some 
stability before opening any positions. (The trend is your friend;
even with spreads!) Our last play was the NXTL straddle and the
best we could do (without legging-in) was $8.12 debit for both
options; MAY30C/MAY30P. The initial GTC closing target is $12.00.

Other portfolio activities; General Motors stock jumped after J.P.
Morgan raised its earnings forecasts/price target amid unexpected
strength in U.S. vehicle sales. GM's shares were $6 higher at $86
near the close of trade, having climbed to a 52-wk high of $87.25
during the session. We have a calendar position at $70 and with
the recent price climb, our initial edge in the play is now gone
but we will roll-up into the new range and hope the stock doesn't
correct too severely before the March expiration. Other impressive
calendar spreads include CPQ, PCS, ATI and T (future stock-split).
ESCMF, our credit straddle closed right on $10 and the exit cost
is around $1.25. We recommend you close this play for a 100%, one
week profit!

On Tuesday, U.S. stocks ended sharply lower. The New Year's rally
faded and the tech-heavy Nasdaq suffered the worst losses, down
63 points to 2321. Traders cited the economic problems in Brazil,
and the dollar comments by Rubin as the leading cause of today's
sell-off and money appeared to flow out of stocks to safe-haven
U.S.Treasury bonds.

In our spread portfolio, MEL continued lower as other U.S. bank
and broker shares slipped again amid renewed signs of economic
and political trouble in Brazil. Analysts were slightly puzzled
by the weakness in smaller, regional banking companies (like MEL)
that did little if any business in Latin America. We chose to
remain on the sidelines until the panic subsides. Good Luck!
******************************************************************
				- NEW PLAYS -
******************************************************************
LU - Lucent Technologies  $107.87     Call-Debit Spread

LU designs, develops, manufactures and services systems which
enable network operators and other service providers to provide
wireline and wireless access, local and long distance voice, data
and video services and cable service. The merger speculation is
very strong with the boards of Lucent and Ascend meeting Tuesday
to consider Lucent's possible acquisition of Ascend in a deal
valued at $17-$21 billion. An agreement could be announced as soon
as Wednesday, depending on the outcome of the meetings. Upgraded
by CS First Boston with a new fiscal 1999 earnings outlook and
Lucent may also benefit from AT&T Corp.'s plan to increase its
capital spending and enhanced wireless/local service initiatives.
Although other dates have been rumored, LU will probably report
fiscal first quarter earnings around 1/21. Today's pullback to the
25 dma may be just the entry point we need but wait for a positive
move before playing.
 
PLAY (conservative):

BUY  CALL FEB-105 LU-BA OI=1330 A=$10.25
SELL CALL FEB-110 LU-BB OI=3224 B=$7.75
NET DEBIT TARGET=$2.25 ROI(max)=120%

Chart = http://quote.yahoo.com/q?s=LU&d=3m
******************************************************************
LUV - Southwest Airlines  $26.06     Call-Debit Spread

LUV provides shorthaul, high frequency, point-to-point, low fare
air transportation services between 51 cities/25 states throughout
the U.S. The low-price airline operator took-off last week after
Morgan Stanley Dean Witter raised its rating to "strong buy" from
"outperform" and boosted the firm's fiscal 1999 earnings estimate
by a nickel to $1.35 per share. Solid route expansion, industry
growth, increasing revenues and a possible stock split are all
contributing to the positive movement. Technically, just a nice
break-out with support near the long position.

PLAY (conservative):

BUY  CALL FEB-22.50 LUV-BX OI=233  A=$4.38
SELL CALL FEB-25.00 LUV-BE OI=1684 B=$2.68
NET DEBIT TARGET=$1.50 ROI(max)=66%

Chart = http://quote.yahoo.com/q?s=LUV&d=3m
******************************************************************
LEVL - Level One Comm.  $38.00     Call-Debit Spread

LEVL designs, develops, and markets mixed-signal application
specific standard integrated circuit products for communications
connectivity solutions. LEVL customers are manufacturers of PC's,
workstations, network peripheral equipment. Just a good, sound
company with improving fundamentals. Recent acquisitions have
broadened the product line and given them a solid and growing
share of the hot "fast Ethernet" networking market. One of the
most conservatively run chip companies and during during the
recent industry downturn, the company still managed to record
book-to-bill ratios well above one, showing that even as things
were at their toughest, the company could find new sales faster
than it filled existing orders. Technically poised to make $40
but we will use the support in the current trading range around
$38 to offer this as a favorable play.

PLAY (conservative/technicals only):

BUY  CALL FEB-30 LVQ-BF OI=291 A=$8.87
SELL CALL FEB-35 LVQ-BG OI=227 B=$4.87
NET DEBIT TARGET=$3.75 ROI(max)=33%

Chart = http://quote.yahoo.com/q?s=LEVL&d=3m
******************************************************************
DIS - Disney  $38.00     Calendar Spread/LEAPS

DIS, a diversified worldwide entertainment company, operates in
three segments: Creative Content, Broadcasting, and Theme Parks
and Resorts. The Walt Disney Co. joined the cyber-flying Internet
stocks on Tuesday as the company's long-planned launch of an
Internet portal service gave Wall Street analysts reason to raise
Disney's rating. Salomon Smith Barney analyst Jill Krutick, who
last week cut Disney's fiscal first quarter earnings estimate due
to weakness in broadcast TV and filmmaking, upgraded the stock as
Disney unveiled its new Internet portal service, the Go Network,
with partner Infoseek Inc. On its first day, the site will have
more than eight million registered users and will be one of the
top five sites on the Internet by audience share. Other analysts
also upgraded the stock and said they now have rising confidence
in Disney's long-term outlook, especially as it relates to the
company's Internet initiatives and other values. Previously, the
stock was comfortable at $40 and should easily move back to that
range over the next few months.

PLAY (conservative):

BUY  CALL JAN00-40 LWD-AH OI=7903 A=$5.75
SELL CALL FEB-40   DIS-BH OI=884  B=$1.43
NET DEBIT TARGET=$4.12 ROI TARGET=100%

Note: In the long-term calendar spread, we are reducing the net
cost of the LEAP by the amount of credit from the sale of the
nearer term call. If the near-term call expires worthless, we will
sell the MAR call to further reduce our debit. If your short-term
position is ITM on the last day of the strike, you need to buy it
back so that you DON'T have to exercise the long-term position. In
that case, your LEAP is going up in value also and on the last day
of the strike period, the short call will shrink down to intrinsic
value so you will be ahead in the play even after you buy it back.

Chart = http://quote.yahoo.com/q?s=DIS&d=3m
******************************************************************


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