Option Investor
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Daily Newsletter, Thursday, 01/21/1999

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The Option Investor Newsletter         Thursday  1-21-98  
Copyright 1998, All rights reserved. 

Published three times weekly, Sunday, Tuesday, Thursday evenings.


MARKET WRAP  (view in courier font for table alignment)
************************************************************
        1-21-98         High     Low     Volume   Advances Decline
DOW     9264.08 - 71.83 9377.36  9228.55  870,642k  1,127   1,932
Nasdaq  2344.72 - 70.77 2403.52  2335.75 1084,400k  1,598   2,475 
S&P-100  617.08 -  8.93  626.84   615.27   Totals   2,725   4,407
S&P-500 1235.16 - 21.46 1256.94  1232.19            38.2%   61.8%
$RUT     424.05 -  6.57  430.79   422.37
$TRAN   3094.81 - 16.61 3132.70  3088.32
VIX       31.95 +  2.52   33.26    29.73
Put/Call Ratio      .57


The Internets all suffered from circuit failure with investors
today.

Bearish comments from George Soros, Ralph Acompora and Barton 
Biggs along with restrictions placed on trading Internet stocks 
by the brokerages all worked together to slam the prices back 
to last years levels. 

Every other news article on CNBC and in my email today was about
the bursting of the Internet price bubble. Think for a minute,
how much would have heard about the overvalued Internet bubble
if it was never reported on CNBC? I doubt it would even be a
topic at the dinner table without their daily "extensive"
coverage. Don't get me wrong. They do a good job reporting on
the market but they have a negative bias toward these stocks.

In any event the leaders all dropped double digit numbers with
the exception of AOL. The largest Internet blue chip, AOL, did
drop as low as -9.50 but had recovered to -$5.00 until the 
market drop at the close. It finally settled at -7.50.

AOL has firmly established itself as the favorite of analysts
who follow this group. With 23,000 new subscribers every day
AOL has power. We view this as a buying opportunity before
next weeks earnings.

The real culprit today was profit taking on worries over the
global currency problems. Brazil's lower house passed the 
pension reform law last night but the Bovespa dropped -6% at
the open. The Real lost value again on the open market and
started putting pressure on other world currencies. The large
market drop at midday was caused by a rumor that China or
Hong Kong were going to devalue based on losses in Brazil's
currency. The rumor was so strong that China made a formal
statement that denied it completely. (remember my comment
last week about never believing anything from any country
under currency attack. They will say anything to protect their
options.) After the denial the market recover significantly
from the days lows. Fear of the dark manifested itself with
global rumors still circulating and profits still on the
table. Another rumor that Greenspan was going to leave office
also put a scare into the markets. Even though the market
holds it's breath every time My G. speaks, they still respect
the work he has done in the last few years.

The Nasdaq got hammered. The sixth biggest point loss ever. 
Down -80 at one time it rebounded in late afternoon to only 
-38 but when the bottom fell out at the close it sank to -70.
Put this in perspective. It had just set another record high 
yesterday. The Nasdaq was up +215 in the last three weeks. 
It has been going straight up since the October 8th lows. 
It was due for a sell off. 

Chart http://www.OptionInvestor.com/marketwrap/0121nasdaq.gif

Remember in the Wednesday commentary on the website we talked
about the Microsoft gap open on earnings. I warned again about
holding over earnings and the dire consequences. I advised
watching LU, IBM and SUNW today for signs of the gap down
effect. The results are in! IBM +2.50 in regular trading,
beat the street by +.02, failed to announce a split and traded
down -7.50 in after hours. Lucent announced earnings that beat
the street by +.04 and issued strong profit forecasts for the
next two quarters. They did fail to announce a split and
analysts felt the current sales were lacking. Lucent dropped
-8.56 today after gapping down -6.00 at the open. SUNW
announced after the close and beat the street by +.01 and
issued a strong profit forecast AND announced a 2:1 split.
SUNW had suffered strong profit taking during the Nasdaq
sell off today and was down almost -9.00 at the low of the
day. The most active stock on the Nasdaq today with 27 million
shares, SUNW closed at 98.63 in after hours trading, gaining
+.38 after the close. Because SUN suffered so much today
and announced a split they did not suffer after hours but
could drop tomorrow. The stock split will help but the 
timing is in March, a long way off.

The point here is "everybody beat estimates but IBM and LU
got killed in afer hours and SUNW will probably suffer
tomorrow." It is just not safe to hold over earnings.

The S&P Futures dropped -17 points in the last hour of trading
on global worries. Since the close they are only down -.30.
If we do not have a negative global currency event overnight
then we could get a strong rebound in the morning. The key
word here is "could". We could also suffer another round
of profit taking in front of the weekend. Many traders will
want to get flat before the close so plan your trades
accordingly.


Good Luck

Jim Brown


 


Market Posture
**************
As of Market Close - Thursday, January 21, 1999 

                   Key Support
Broad Market         /Resistance    Last    Posture/Since  Alert


DOW Industrials    9,100   9,730   9,264    Neutral   1.15            
SPX S&P 500        1,210   1,280   1,235    Neutral   1.12    
OEX S&P 100          600     635     617    Neutral   1.12   
RUT Russell 2000     420     435     431    Neutral   1.12  

NDX NASD 100       1,900   2,010   1,962    Neutral   1.21 *   
MSH High Tech        930     980     958    Neutral   1.21 *   

                   Key Support
Technology           /Resistance    Last    Posture/Since  Alert
****************************************************************
XCI Hardware         830     875     889    BULLISH   1.19     
CWX Software         610     665     648    Neutral   1.21 *         
SOX Semiconductor    360     410     398    Neutral   1.8        
NWX Networking       420     450     430    Neutral   1.8         
INX Internet         470     570     473    Neutral   1.8    

                   Key Support
Financial            /Resistance    Last    Posture/Since  Alert
****************************************************************
BIX Banking          650     710     658    Neutral   1.15              
XBD Brokerage        630     725     661    Neutral   1.14   
IUX Insurance        590     620     582    BEARISH   1.21 *        

                   Key Support
Other                /Resistance    Last    Posture/Since  Alert
****************************************************************
RLX Retail           800     860     820    Neutral   1.8  
DRG Drug             740     795     745    Neutral   1.8    
HCX Healthcare       720     780     722    Neutral   1.8            
XAL Airline          310     350     310    Neutral   1.12              
OIX Oil & Gas        245     260     240    BEARISH   1.14               


Posture Alert

After selling off at an important benchmark, we have turned
Neutral on the hot Technology sector and Bearish on the
Insurance sector after breaking below it 50-day moving
average.  We caution investors that we have received a near
term reversal signal across many sectors and that many are
trading at 50-day moving averages.



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

www.OptionInvestor.com/marketposture
 



Market Sentiment - By Pinnacle Capital Advisors
****************

Thursday, January 21, 1999

Are you Complacent?  Are you Fearless Buying the Dip?  

Are any of your long positions unprotected?  If you answered yes
to any of these questions, you are among the growing number who
will feel the sting of the next market sell-off.

Many of our trusted sentiment indicators are suggesting that if a
sell-off materializes, the general investing community will have
NO fear of buying the dip, particularly after the favorable
experience of last October's strong and profitable advance.  But
if the rallies DON'T hold, most investors won't recognize the
trap until it's too late.  

Write these numbers down and commit them to memory.

Dow Jones Industrial Average / 9,400
Market Volatility (VIX) / 30.0%

First, If the Dow Jones Industrial average has trouble getting
back over 9,400, begin developing a balanced attack and build
some hedge positions.  The market broke into record territory in
the first week of January on strong volume, yet failed to hold
the gain.  This is a bearish development.

Next, the Market Volatility Index (VIX) is a powerful short-term
sentiment indicator that will help presage what will happen next
in the market.  The VIX closed Thursday at 31.95 - above the 50
day moving average.  Everyday above 30% means that the recent
declining trend on the VIX has been broken. 

Pinnacle Capital Advisors was among the first advisory firm to
alert investors that the VIX had violated a key benchmark on
Monday, January 11, 1999 which preceded the 145 point sell-off
the next day.  Pinnacle believes that this action marked the
near-term top.

The final straw will be the value of our Pinnacle Index on the
S&P 100 (OEX) and S&P 500 (SPX).  If these begin to climb, it
means that option speculators are ignoring early warning signs
and buying excessive out-of-the-money call options believing th
at the market will reach higher levels.  This is when savvy and
experienced investors will know its time to go to cash and get
short.

Pinnacle's short-term indicators are still flashing BEARISH
overtones over the near-term 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                       (1/15)     (1/19)   (1/21)   Alert

Pinnacle Index (OEX):          
-----------------------------------------------------------------
Overhead Resistance (620-635)     1.7        1.8       1.5         
Underlying Support  (595-610)     1.0        1.1       1.2


Put/Call Ratios:
-----------------------------------------------------------------
CBOE Total P/C Ratio               .5         .5        .5
CBOE Equity P/C Ratio              .4         .4        .4     *                      
OEX P/C Ratio                     1.2        1.2       1.1

Peak Open Interest (OEX):
-----------------------------------------------------------------
 
Puts                              610        610       610
Calls                             610        610       610
P/C Ratio                         1.0         .8       1.1


Market Volatility Index (VIX):	
-----------------------------------------------------------------
CBOE VIX                         29.75     31.42     30.66    *

Investors Intelligence:
-----------------------------------------------------------------
Bullish                          60.0%     60.0%     60.0%    *  
Bearish                          30.0%     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                       (1/15)     (1/19)   (1/21)
               
                    (630-635)      2.6       3.0       2.6
                    (620-625)      1.1       1.3       1.0
Overhead Resistance (620-635)      1.7       1.8       1.5

OEX Close                        616.5    622.12    616.21

Underlying Support  (595-610)      1.0       1.1       1.2 
                    (605-610)       .9        .9       1.0
                    (595-600)      1.0       1.7       1.9

Average ratings: 
Resistance levels 2.0 / Support .5

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



Put/Call Ratio                  Friday     Tues     Thurs
Strike/Contracts                (1/15)     (1/17)   (1/19) 
-----------------------------------------------------------------
CBOE Total P/C Ratio              .52        .54       .52  
CBOE Equity P/C Ratio             .38        .39       .39
OEX P/C Ratio                    1.23       1.19      1.10



Peak Open Interest (OEX)
                     Friday         Tues           Thurs
Strike/Contracts     (1/15)         (1/17)         (1/21)
-----------------------------------------------------------------
Puts                 610 / 8,152    610 /  9,959   610 / 11,553
Calls                610 / 8,360    610 / 11,799   610 / 12,036

 
Put/Call Ratio       .97            .84            .96



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

January 15, 1999                        29.75
January 19, 1999                        31.42
January 21, 1999                        31.42

 



 



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
January 11, 1999    Top ?             58.3        30.0

January 21, 1999                      60.0        30.0   *





Great Expectations - By Pinnacle Capital Advisors
******************
Thursday, January 21, 1999


The Power of Sentiment Analysis 

On Tuesday (1/19), we provided a closer sentiment analysis on 
companies reporting earnings this week and alerted subscribers 
that several companies revealed excessive optimism as reflected 
by our Pinnacle Index.  It's worth taking a minute and looking 
at how each of the following stock's reacted after they released
their numbers.  All the companies gapped down or sold off 
precipitously even though many reported favorable news.  The 
bottom line:  It's all about expectations.  Pinnacle Capital 
Advisors will be providing another analysis this weekend.


Reporting                            Estimated   Pinnacle
Date       Company                         EPS      Index
--------------------------------------------------------------

Hardware:
1/21 SUNW  Sun Microsystems, Inc.         0.66       10.6
1/21 IOM   Iomega Corp.                   0.05        8.3
1/20 QNTM  Quantum Corp.                  0.24        6.2     
1/19 WDC   Western Digital Corp.         -1.01        5.4

Software:
1/19 CTXS  Citrix Systems Inc             0.49       15.1 
1/20 CHKPE Check Point Software           0.47       13.0    
1/19 CPWR  Compuware Corp.                0.45       11.6

Semiconductor:
1/19 XLNX  Xilinx                         0.40       13.2
1/20 CRUS  Cirrus Logic                   0.04        6.6
1/20 TXN   Texas Instruments              0.54        6.5
1/21 LSCC  Lattice Semiconductor Corp     0.43        9.9  

Networking:
1/19 FORE  FORE Systems                   0.10        9.5
1/19 QCOM  Qualcom Inc.                   0.59        8.7
1/19 ASND  Ascend Communications          0.31        5.3
1/21 LU    Lucent Technologies            1.00        4.5
1/19 NVLS  Novellus Systems               0.23        3.0
1/19 NETA  Network Associates             0.46        1.3

Internet:
1/19 ONSL  Onsale Inc                    -0.16        7.0
1/20 SPYG  SpyGlass Inc.                 -0.15        5.2
1/21 XCIT  Excite Inc.                    0.04        5.0
1/20 ATHM  At Home Corporation           -0.06        4.4





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

Index  Last    Tue   Wed   Thu    Week
Dow   9264.08 14.67-19.31 -71.83-76.47
Nasdq 2344.72 59.97  7.32 -70.72 -3.43
$OEX   617.08  6.86  2.69  -8.93  0.62
$SPX  1235.16  8.74  4.62 -21.46  -8.1
$RUT   424.05  3.84 -0.27  -6.57    -3
$TRAN 3094.81 29.32-66.43 -16.61-53.72
$VIX    31.95  0.05 -0.37   2.52

Stock  Price   Tue   Wed   Thu    Week

VOD    190.31  8.50 10.50  -4.31 14.31  Replacing ATI & Split candidate
ATI     94.13  9.25  5.25  -3.75 10.75  Dropped to play VOD
MSFT   158.31  5.88  7.00  -4.31  8.57  New target $200
NOK/A  145.00  5.38  6.00  -5.00  6.38  Split candidate for Jan. 29th.
DELL    84.19  3.13  3.19  -1.13  5.19  Showed lots of strength
UTX    113.94 -0.69  3.00   1.94  4.25  Beat earnings by a nickel
T       88.13  7.13  0.13  -3.38  3.88  New target $105
QWST    59.38  2.88  1.06  -0.88  3.07  New Play
LXK     99.88  4.31  1.31  -3.81  1.81  Split candidate for Monday
PRIA    36.25  1.00  1.44  -0.69  1.75  Held up very well
FTL     17.81  1.31  0.13  -0.31  1.13  Hanging on to support
XIRC    40.75  2.13 -1.38   0.13  0.88  Beat earnings and the Nasdaq
COF    131.00  1.06  3.50  -4.00  0.56  Profit taking
ETH     48.75  0.63 -0.88   0.06 -0.19  Showing strength
CSCO   101.31  4.69 -0.25  -4.81 -0.37  Gave into Nasdaq weakness
CCU     60.00  2.69  1.13  -4.25 -0.43  Has it's own Internet play now
MYG     63.75  0.44 -0.75  -0.19 -0.50  Wearing thin?
JBL     73.13 -0.13 -0.56  -0.06 -0.75  Showing strength
WCOM    73.88  2.19  0.25  -3.63 -1.19  Still beating the Bells
DIS     34.56  0.50 -0.50  -1.44 -1.44  Dropped
MU      69.81  1.69  0.00  -3.19 -1.50  Market weakness
TLAB    84.25 -1.31 -0.88   0.50 -1.69  Bucking the trend
SUNW    98.25  4.88  0.06  -6.75 -1.81  Announced 2:1 split
LU     106.63  3.81  1.44  -8.88 -3.63  Dropped
EMC     96.00  2.06 -2.13  -4.00 -4.07  Profit taking, no split
QCOM    59.50  2.63 -4.50  -2.50 -4.37  Dropped
AOL    141.00  4.00 -2.00  -7.50 -5.50  Best of the Internets
CHKPF   40.25  4.25-10.50  -4.75-11.00  Dropped
YHOO   265.00  6.00-35.81 -22.19-52.00  Dropped

PUTS

MCHP    31.19 -1.75 -0.63  -1.56 -3.94
EK      65.25 -0.25 -0.63  -2.88 -3.76
HSY     58.00 -0.38 -1.13  -1.75 -3.26
LLY     78.06 -1.75  2.75  -4.19 -3.19
DD      54.00 -1.06 -1.44  -0.50 -3.00
BDX     36.81 -1.38 -3.13   1.56 -2.95
RMBS    86.75 -2.25  2.69  -3.19 -2.75
WLA     67.19 -3.38 -1.38   2.13 -2.63
PKN     94.19 -1.38  0.25  -0.06 -1.19
CPB     44.06 -0.88 -0.63   0.44 -1.07
MRK    146.31  0.63  1.13  -2.56 -0.80
AVT     45.50 -0.25  0.31  -0.81 -0.75
CBE     44.13 -0.19 -0.50   0.00 -0.69
ERTS    46.50  0.50 -1.44   0.44 -0.50
BAC     65.50 -0.56  2.00  -0.50  0.94


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:
******

QCOM $59.50 –2.50 (-4.38) Go figure.  QCOM announces great
earnings and beat estimates, and then trades down after the
announcement.  The downgrade QCOM received Wednesday morning
certainly didn't help the situation.  A weak market today added
to the losses.  Since the run into the earnings announcement
wasn't followed through, we are going to drop QCOM as a pick. 

DIS $34.56 –1.44 (-1.44) We picked up Disney last week 
because of its multiple upgrades and because it had become 
a bit of an Internet play with its GO Network portal site 
launch.  Unfortunately, Disney came late to the party in 
the Internet game. The internets have been selling off all 
week, and analysts are talking about the bubble bursting. 
Although Disney hit $36.00 today, it ended the day at only
$34.56 - down $1.44. We are dropping it for lack of 
performance.

YHOO $265.00 –22.19 (-52.00) It doesn't seem that YHOO is 
ready to reverse paths as of yet.  We just don't see any
news pending that will possibly start YHOO up again other
than its stock split coming up.  This could change at any
time, but a few internet earnings announcements of late have
just met estimates and this just isn't enough to keep these
stocks afloat.  We'll watch for a reversal and possibly add
YHOO back when the split run starts, if ever 

CHKPF $40.25 -4.75 (-11.00) Watch out below!!!  CHKPF is being
dropped.  CHKPF met earnings estimates on the 20th.  This just 
didn't cut it.  CHKPF has a history of destroying earning 
estimates and this just took the wind out of their sails.  The 
company also sees 1Q revenues in the single digits.  Though 
this may be an extreme sell-off, the near term prospects just 
don't seem positive.  CHKPF hopefully didn't catch any of you
off guard when it moved it's earnings announcement up a day.

LU $106.94 -8.56 (-3.31) We can't seem to get this one right.
We have decided to drop LU in case the big drop today was
more than an over reaction.  LU announced earnings before the
open today and beat analyst estimates by a nickel, then 
proceeded to go down close to $9. Go figure.  It seems that
investors are concerned about the addition to income because
of some accounting issues with the pension play.  What people
are failing to realize is that this practice was figured into
the estimates and also caused LU to show better earnings in
the past to keep up with competitors accounting methods.  We 
feel it's too risky to guess on this falling knife.  For those
that like LU, waiting for a bounce off the bottom could be
very profitable.

ATI $94.13 –3.75 (+10.75) Since ATI's price is basically
contingent on the price of VOD, we have decided to drop ATI
and pick VOD. ATI will increase approximately 1/2 of what VOD
increases.  We feel ATI is a still a good play, so don't sell
current holding in ATI just because we are dropping it.  We
just feel we might as well get more bang for the buck. 



PUTS:
******

NONE




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

UTX $113.94 +1.94 (+4.25) UTX reported earnings today of $1.16
per share which beat the estimates of $1.11 per share.  This
represented an 18% increase above the same quarter a year ago. 
Strong showings in its aircraft and refrigeration businesses
were factors in the increase.  What probably helped the stock
more than the earnings announcement was UTX saying that it has
hired Goldman Sachs to explore strategic alternatives for its
automotive components business.  The automotive components
business is consolidating, operating profits are falling and
revenues are flat.  The Street liked that announcement.  After
the gap up this morning, UTX traded down in what looked like
profit taking.  We would wait for some upward movement before
initiating any new trades

CCU $60.00 -$4.25 (-$0.43)  Well now everyone is getting 
into the act. CCU announced this week, they had opened up
their 3D interactive mall which allows shopping from 
your desktop for just about anything. Actually, it is not
really CCU, but National Media.  National Media is owned 
by Jacor who in turn is merging with CCU.  So in an indirect
way, CCU has got it's own Internet play.  They expect 15,000 
stores to join them.  The difference in their mall compared 
to the others is, each store is downloadable separately,
saving disc space on your PC and your time at the mall.
You will stroll into the mall, go to the store of choice,
pull an item from the shelf and purchase it on line. 
Weakness in today's market didn't help us take any big 
steps up again, but CCU showed strength anyway.  CCU opened at 
its high of $63.50, dropping to $59.00.  The rest of the 
market held it back and made it rest on it's support at a 
close of $60.00 for the day.

F $62.06 -2.63 (+$0.06) Ford announced it's earnings today, 
nearly a 7% rise in 4th Qtr earnings.  F posted its 11th 
consecutive quarter of beating the street estimates and 
reporting earnings of $1.35 a fully diluted share.  Up from 
$1.6 billion or $1.27 a share a year ago. Ford says, they 
more than doubled their cost cutting goal by reducing costs 
by $2.2 billion last year.  Ford's operating profit was up 
10%, this means about 160,000 U.S. employees will receive 
profit sharing checks averaging $6,100 on March 3rd.  Stocks 
did close generally lower today and F was no exception.  F 
opened at $64.00 just below it's high of $64.31 finished off 
of it's low of $61.56 to $62.06.  We may see a continued up 
trend after the market digests the figures and regains it's 
momentum.

FTL $17.81 -$0.31 (+1.13) What is going on with FTL?  We're
asking the same question. Wednesday's and Thursday's call 
options again, showed signs of increased volatility.  Some
take over plays happen over night, and others want to tease
you into doing something rash.  We peeked in on the insider 
trading and found none to speak of.  In some cases the 
principles are advised not to do anything that would cast 
suspicion, one way or the other if something is in the 
works.  On todays' trading, FTL had a good open at $18.25, 
clawed its way to $18.75 amidst a downturn in the S&P and 
settled at $17.81 for the close. Be careful, with a weak 
market, even if this is a takeout, it could be postponed
for a better time and price.

EMC $96.00 –4.00 (-4.06) EMC set a new 52 week high on
Wednesday, and then started trading down.  It tried to recover
towards the end of the day today, but to no avail.  In the
news, Staples, the world's largest operator of office
superstores, announced that they have standardized their data
storage needs on an EMC system.  The reasons they gave were to
more effectively manage rapid business growth, reduce
information management costs, and improve customer service.  We
have done some more research into EMC announcing a split with
earnings next week, and it doesn't appear likely.  They do not
have enough shares authorized and their shareholder meeting is
not expected until April.  Repeat – No split announcement 
with earnings.

MU $69.81 –3.19 (-1.50) Almost the entire tech sector was
down today.  Intel, Texas Instruments, and Micron Technology 
all lost ground.  ALTR suffered from two downgrades, even 
though it's earnings beat consensus estimates, and that helped
pull the sector lower.  Even upgrades today on both TXN and 
MU did not help these stocks.  Warburg Dillon Read raised MU
from hold to buy.  It's analyst, Gregory Mischou, upped his 
1999 earnings estimate to $.12 from a loss of $.11, and his
fiscal 2000 forecast from $1.95 to $2.31. He believes MU 
could trade up into the mid-90s in the current market. Intel,
which has already invested in MU, has just established a 
relationship with Samsung, and may do so with Hyundai as well.
It wants to insure Direct Rambus DRAM production in the 
future, and hopes to expand cooperation in the next-generation
memory chip industry.  The Koreans have been drastically 
cutting production.  The chip sector is still recovering from 
a dismal year, and its turn-around is showing up in increasing
chip stock prices. They may trend lower with the Internet
stocks.  However, confirm upward movement in the sector and 
in MU before initiating new plays. Current quarter ends in
February.

JBL $73.13 -.06 (-.75) JBL actually held up pretty well today.
As we discussed on Tuesday, its chart is starting to flatten,
and it looks like its momentum is slowing.  JBL's 3, 10, and 21
day moving averages have all converged at this point.  A lot of
times a momentum stock will base for a period, and then start
its move again.  Wait for confirmation of upward movement
before initiating any new trades.

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



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The Option Investor Newsletter         Thursday  1-21-98  
Copyright 1999, All rights reserved. 


PICK NEWS - CALLS, continued

PRIA $36.25 -.69 (+1.75) Yesterday, PRIA gapped up and set a 
new 52 week high of $37.50 shortly after the open. It finished
slightly higher on the day. Today, however, it succumbed to 
market pressure and headed lower with the rest of the chip 
sector. (We are including PRIA in the chip sector, since it
makes the automation systems that chip makers use in their 
clean-room manufacturing operations.) Even though PRI 
Automation was lower today, it is still up from its close on 
Tuesday, and that shows a lot more strength than many of the 
other technology stocks are showing. This stock keeps a low 
news profile – it's momentum is what we are watching. Earnings
are January 28th.

NOKA $145.00 –5.00 (+6.38) After rising to a another new 52 
week high of $155.38 by mid-day yesterday, Nokia sold off, 
along with the rest of the market. Today, though, it lost $5.00 
in a market that saw most of the telecommunication and tech 
stocks sell off sharply.  There was no bad news on Nokia to 
point a finger at; investors simply wanted to lock in profits 
when they saw the market moving down.  Nokia is supplying the 
products that will hasten the coming wave of digital data 
transmission over mobile phones.  We are playing Nokia both 
on momentum, and as a split candidate.  

Earnings are due out before the open on  January 29th, and 
that represents a strong possibility for a split announcement. 
If it doesn't occur then, we may have to wait until the 
shareholders meeting at the end of March.
(We doubt we'll have to wait for the shareholder meeting.  
NOKA has unlimited authorization for shares outstanding).

DELL Computer $84.19 -1.13 (+5.19)  Pump up the volume!  
The market got that message in yesterday's action sent Dell 
up over $3 on 25 million shares.  Average is 19 million.  
If Microsoft has blowout earnings, Dell is partially 
responsible and should have big earnings too.  Today, Dell 
lost just $1.13 on 20 million shares; actually a victory in 
light of the 70 point loss on the NASDAQ today (remember 
Dell is the 4th most weighted stock in the NASDAQ 100).  
Dell still offering little news.  When they do, the news is 
big, though (recently) sometimes unnoticed.  For those with 
patience, Dell should ultimately give us one of the better 
plays, market willing.  Wait for pullbacks, then the bounce
to scale into a position.  Earnings to be announced
February 16th.

CSCO - Cisco Systems $101.13 -4.81 (-0.38)  What goes up 
must come down, or so the cliché goes.    We stated 
Tuesday, "looking strong, but after 3 days of higher 
closings, keep an eye out for the dip".  Dip happens.  CSCO 
closed flat yesterday at $106.13 after rising as high as 
$109 inter-day, at what looked like would be an excellent 
week.  CSCO couldn't hold the new high yesterday and gave 
up all of this week's profits on 19 million shares in 
today's trading.  No analyst has chosen to downgrade CSCO, 
but off-handed remarks, like "overextended", pop into news 
service comments.  Still an excellent play when fund managers
put that 401K cash to work.  Resistance is $108.  Still a 
split candidate.  Look for earnings February 2.

AOL - America Online $141.00 -7.50 (-5.50)  Whoosh!  That's 
the sound of the rug being pulled from underneath the 
Internet stocks.  AOL suffered too.  Honestly, it could be 
a lot worse.  AMZN and YHOO are down approximately 46% and 
40% respectively from their highs, while AOL's price looks 
more like consolidation.  AOL is sitting near its 30 day 
moving average and should bounce off it if the internet 
sector doesn't experience complete meltdown from here.  
With internets already well off their highs, a lot of air 
has now escaped the bubble.  A further huge sell-off is not 
as likely.  Bottom line:  AOL has rapidly growing real 
earnings from an outstanding Christmas and is a split 
candidate at these price levels (over $120).  We anticipate 
a split along with earnings to be announced January 27 
after 5:00pm ET.  Only 4 trading days left.  We think an 
earnings run has got to start soon.  Confirm market 
direction backed by strong volume before playing, or target
shoot for a better entry.  Still an Internet; iron stomach 
and ice in the veins required. [almost every commentator
about the internet stock meltdown today made an exception
for AOL.  They all felt that AOL would comeback and was
the best play in the entire sector]

WCOM - MCIWorldCom $73.88 -3.63 (-1.18)  Not much news to 
report, just Brazil/China/Greenspan jitters and profit 
taking.  We still like WCOM as a fast growing 
internet/broadband play.  Big Three long distance 
providers, WCOM included, are winning court battles against 
Baby Bells and eating their lunch in the process.  WCOM is 
sitting above support of $72.  Real resistance is at $79.  
Weighted at number 5 in the NASDAQ 100 makes WCOM a target 
for fund managers with $9 billion in fresh cash.  Today, 
Morgan Stanley upped the price target to $95.  Confirm 
market direction before playing.  As we said Tuesday, don't 
try to catch a falling knife if (more) profit taking sets 
in.

T - AT&T $88.06 -3.44 (+3.81)  Tuesday, we cautioned, 
"Watch out for profit taking on such a large 1-day run-up, 
and buy the dip".  We hope you protected your profits.  The 
dip may not yet be over.  AT&T held up relatively well in 
yesterday afternoon's and today's sell-off by gaining $0.38 
yesterday and losing only $3.44 today, both on heavy 
volume.  This indicates real strength since T was up $7.50 
in Tuesday's trading - the market could have taken it all 
back, but didn't.  Though largely forgotten today, AT&T is 
a big beneficiary of @Home's offer to purchase Excite.  
Here's why:  @Home's largest shareholder is TCI who is 
about to be absorbed into AT&T.  With Excite, AT&T now has 
a substantial "portal" to the internet which can be 
delivered over TCI's cable infrastructure.  Today Morgan 
Stanley raised their price target to $105.  Near term 
resistance is $91.75, it's all-time closing high; $96 
thereafter.  Wait for market reversal and confirm direction 
before playing. 

MSFT - Microsoft $158.31 -4.31 (+8.56)  What a day for MSFT 
on Wednesday in the wake of blow-out earnings; up as much 
as $12 to $167.75 inter-day from Tuesday's closing price of 
$155.63. Justice Depart or not, MSFT is firing on all 
cylinders.  Look mom!  No material effect on earnings!  
Despite giving some back in today's down-draft, fund 
managers can't argue with a 73% earnings increase and will 
put new cash to work shortly, keeping demand (and volume) 
high, which should push the price further.  Salomon Smith 
Barney raised their price target to $200 while reiterating 
their "buy" rating.   We view this pullback as a buying 
opportunity.  As always, confirm market direction before 
playing.

TLAB - Tellabs $84.25 +0.50 (-0.31)  No news again, but 
we'll take trading volume with a price increase in the face 
of overall market loss any day.  That's what we got with 
TLAB.  TLAB had a bad day yesterday, giving up a $4 gain 
inter-day, to close with a loss of $0.88.  Today was a 
different story as TLAB experienced a 21% increase in 
volume with a small gain while the rest of the market 
headed bearishly south.  Since Lucent exceeded earnings, 
TLAB should have a strong showing too, when they announce 
after the closing bell January 25.  We surmise that 
Lucent's earnings news ($.05 over estimates) coupled with 
yesterday's dip presented a buying opportunity continuing 
the earnings run.  We think it will run further but caution 
against holding through earnings since, 70% of the time, 
they fall back after the announcement.  Confirm market 
direction before playing

MYG $63.75 -0.19 (-0.50)  Maytag really needs the market to 
string a few positive finishes together.  Our rock is 
weathering.  Its resistance level of $66.00 isn't far away.  
But, market weakness is making the breakthrough a real 
challenge.  Maytag is on our split candidate list and 
earnings are approaching.  Feb. 4th is the expected date.  
Wait for market momentum to aid MYG in ascending to new 
heights before scaling into new plays.

SUNW $98.25 -7.13 (-2.19)  Do you want the good news or the 
bad news first?  We will go with the good news.  As we 
predicted, SUNW announced a 2:1 stock split along with it's 
earnings that beat the street by a penny and crushed last 
year's Q2 number.  Their net income for the second quarter 
also increased 22% over last year's results.  The bad news 
is profit taking in anticipation of the announcements dropped 
SUNW -$7.13 on Thursday at a trade volume level that was four 
times its norm of 6.88 million.  In after hours trading, the 
stock continued to fall.  As reported by Joe Kernen from CNBC, 
the additional plunge may have been due to confusion.  Some 
thought that SUNW would miss the estimates and sold.  In an 
article published just today, their CFO predicted months ago 
not to expect SUNW to have earnings that beat their first 
fiscal quarter.  Others thought that SUNW would crush 
estimates since they are in such a hot sector.  Built up 
expectations led to disappointment in the reality and may 
have contributed to the sell-off.   In any case, SUNW is now 
way off its intraday high of $115.75 hit on Wednesday.  Once 
investors realize that SUNW is still in great shape, the stock 
should resume its upward course.  If the market turns and works 
its way uphill again, this pull back could be to our advantage 
and a great time to buy on the dip.  Wait to see Sun's upward 
trend re-established.

LXK $99.88 –3.81 (+1.82) LXK held up reasonably well for most
of the day, but couldn't hold on at the end and lost over 3%.
LXK will announce earnings before market on Monday the 25th. 
This date has been confirmed with LXK's investor relations.
We feel there is a good chance of a stock split announcement,
though there are no guarantees.  For those of you that have
watched the earnings announcements this last week, you have
probably noticed the punishment many stocks have taken on the
announcement. It seems many have bought the anticipation and
when a stock fails to beat the expectation, they are being 
punished. This makes holding LXK over earnings a risky play.

XIRC $40.75 +.13 (+.87) XIRC held up extremely well today
considering the carnage the NASDAQ took.  XIRC traded as high
as 41.88 before falling off for a small gain.  XIRC did gap
open on Wednesday, but fell with the market. After announcing
great earnings on Tuesday, XIRC should continue to trend 
higher, market permitting.  XIRC's 10-dma is around $39.00. 
XIRC option prices should deflate slightly for those interested
in buying in.  This tends to happen after an anticipated event
like earnings.  

COF $131.00 –4.00 (+.56) COF has held up extremely well in
comparison to the market. On Wednesday, COF traded as high
as $140 before closing at $135. COF is an example of a stock
that didn't have the huge expectation to blow away earnings.
This, in turn, gave COF the opportunity to rise after the
earnings announcement. When the market firms, COF should 
continue to move higher and should eclipse its high of $140.
COF's 10-dma is around $129.00.  COF's sector sidekick PVN
did well today after beating estimates yesterday.

ETH $48.75 +.06 (-.19) ETH hasn't done much this week, but did
hold strong in a negative market on Thursday.  This strength
was possibly derived from the statements from the CEO that
there is a "tremendous pent-up demand".  ETH also stated they
are targeting a strategy to have quicker delivery.  This all
points toward a positive future. ETH is still $18 from its
52-week high.


PICK NEWS - PUTS

AVT $45.50 -.81 (­.75) Stock experiencing continued weakness off of
recent earnings warning. Stock now under short and long-term moving
averages. Lots of overhead. Could to retest 52 week lows at $35 
if the stock trades below $45. Tighten protective stop loss - $48. 

BAC $65.69 -.31 (1.13) The financial sector under pressure because of
Brazil. Stock gave up -.56 on Tuesday (1/19). Recommend
staying with position while BAC stays below $65.

BDX $36.81 1.56 (­2.95) Medical device maker reported a 16 percent 
rise in fiscal first-quarter profits, matching wall street expectations.
The company also forecasted faster sales growth in fiscal 1999, fueled 
by its prefillable syringe and infusion therapy business. BDX upgraded
by Merrill Lynch. Tighten protective stop loss - $38. 

CPB $44.06 .44 (-1.07) Moved up over key $44 level during DOW
sell-off but still under pressure and overhead at $49.
Tighten protective stop at $46.25.

DD $54.25 ­.25 (­2.75) Stock beginning to break down again
under its declining moving average. Tighten protective sell
stop to $56.25.

EK $65.25 ­2.88 (­3.25) Stock gave up another 2.88 today after
Polaroid reported Thursday a 4Q98 loss of more than $75 million, 
closing out a difficult year for the stuggling maker of instant
cameras. Stock still trading below key benchmark support of $70.
Stock also downgraded by Morgan Stanley Dean Witter.

ERTS $46.50 +.44 (-.00) The stock up fractionally during Thursdayıs
tech sell-off. Still sitting precariously at it 200-day
moving average. Tighten protective sell stop to $49.25. ERTS
Thursday reported 3Q98 results of $1.15 vs. .84. Whisper number
of $1.18 per share for earnings due. Pinnacle believes that holiday
enthusiasm, if any, will be short-lived by the realities of an 
increasing complex and competitive market for entertainment software.
If ERTS trades below $44, could retest prior low of $34-39.

HSY $58.00 -1.75 (­3.26) Stock breaking down again and 
trading below key $62 benchmark. Tighten protective stop to $62.25

LLY $78.06 ­4.19 (-2.94) 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. Stock breaking down
again after recent rally. Stock now just trading
above key $77 benchmark. Tighten protective sell stop to
$80.25.

MCHP $31.18 ­1.56 (­3.94) Stock breaking down again and now trading
below $33. Tighten protective stop to $35.25.

MRK $146.31 -2.56 (-.81) Keep an eye on MRKıs key benchmark
at $145. If MRK trades below this key benchmark, it could
re-test support at $136 at its 200-day moving average. MRK trading
very close to key benchmark level after Thursdayıs market sell-off.

PKN $94.19 -.06 (-1.19) Beginning to sell off after consolidating
tightly in upper range ($90-98). We still anticipate a sell-off and
retracement to $86.

RMBS $86.75 ­3.19 (­2.75). Stock traded lower today after the high
flying chip company whose technology speeds the action of Nintendo
game machines, said its near-term earnings faced a slowdown.

WLA $67.19 ­2.13 (­2.63). Stock traded higher after gapping down 
Tuesday (1/19) following Salomon Smith Barneyıs downgrade. Stock
trading near key $67 support benchmark. Tighten protective sell
stop to $70.25.



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

VOD – Vodafone Group PLC $190.31 –4.31 (+14.31)

The vote is in, and Vodafone Group is the UK's #1 mobile 
telecommunications company, serving about four million 
customers. It operates analog and digital cellular networks 
offering voice communications, messaging, paging, and mobile 
data services. Vodafone sells its cellular phone services 
through three distribution businesses: Vodafone Retail,    
Vodafone Connect, and Vodafone Corporate. The company provides
cellular services in 12 countries outside the UK; international 
operations account for 28% of total revenues. Vodafone will 
nearly double its size with the purchase of US-based AirTouch
Communications.

For those of you living in a cave or that were abducted by 
aliens, VOD recently merged with ATI. The deal calls for ATI
shareholders to receive 1/2 share of VOD plus $9 in cash. Simple
math says it's better to trade the stock that moves point for
point, not a half for a point. Vodafone's phones are owned by 
1 in 15 people in the U.K.  The deal with ATI has been applauded 
by most, thus the nice run that VOD has had even though it was 
the purchaser. VOD took a dip today and this might present a 
good buying opportunity. Watch for a direction on Friday. 

A European official stated that the VOD-ATI merger is a perfect
fit. The only problem seemed to be in Germany, where both 
companies have ownership in competing firms.  VOD has mentioned
they are willing to sell the ownership they have in one of
the companies.  Projected annual sales for the combined company
is around $10 billion.  Pretty impressive.

*OI is low because the stock moves so quickly.
BUY CALL FEB-190 VOD-BR OI=31 at $ 9.50 SL= 7.25 
BUY CALL FEB-195 VOD-BS OI= 0 at $ 7.38 SL= 5.75
BUY CALL MAR-190 VOD-CR OI=22 at $13.13 SL= 9.00
BUY CALL APR-190 VOD-DR OI= 3 at $15.88 SL=12.00 

Picked on Jan 21st at $190.31   PE=66
Change since picked     +0.00   52 week low =$ 75.19
Analysts Ratings    3-2-2-0-0   52 week high=$197.00
NEXT   earnings  01/99 est= ?      actual=.61
Future earnings  05-27 est= 1.56   versus= 1.21
Chart = http://quote.yahoo.com/q?s=VOD&d=3m

*****

QWST - Qwest Communications $59.38 -.88  (+3.07)

The Colorado based Qwest Communications International is the
fifth largest local and long distance telephone company in 
the United States.  It is also secures broadband 
Internet-based data and provides voice and image 
communication capabilities to businesses and consumers.  
It is currently expanding its reach into Mexico and most of
Europe. In the US, QWST is building its Internet 
Protocol-based fiber-optic network which will connect 
over 130 cities by mid 1999.

The telecom service sector has been on Wall Street's good 
side as of late.  U.S. telecommunication companies are 
expected to meet or slightly beat estimates due to the 
increased demand for phone lines, Internet access, and 
other phone services.  Qwest is projected to announce its
earnings in three weeks on February 11th.  Even though QWST 
was set back slightly on Thursday in a weak market, we feel 
Qwest has the potential to make a run.  Wait for confirmation 
of positive movement before positioning yourself for earnings
movement.  [note: Zack's has earnings date as the 11th. 
QWST's investor relations said they have not released a 
date yet.]
  
News:  Qwest has recently formed relationships with several 
companies.  The most recent is with Verio Inc.  QWST was 
awarded a contract worth up to $60 million to provide Verio 
with additional broadband capabilities.  Qwest will also help 
Ford, the car company, with its domestic and international 
communication needs.  Hometown Connections and Qwest will work 
together to provide community owned electric utilities voice 
and data telecommunication services.  Qwest will also invest 
$15 million in Covad Communications Group Inc, a company that 
provides high-speed digital communication services, to extend 
its ability to provide users with nationwide connectivity.  

BUY CALL FEB-55 QWA-BK OI=921 at $6.88 SL=5.25
BUY CALL FEB-60 QWA-BL OI=801 at $4.00 SL=2.50
BUY CALL MAR-55 QWA-CK OI= 80 at $8.25 SL=6.50
BUY CALL MAR-60 QWA-CL OI=242 at $5.75 SL=4.25

Picked on January 21st at $59.38      PE= N/A
Change since picked      +$ 0.00      52 week low =$22.00
Analysts Ratings       7-6-3-0-0      52 week high=$63.37
Last earnings 09/98 est -0.06  actual -0.02 
Next earnings 02-11 est  0.02  actual  0.07
Chart = http://quote.yahoo.com/q?s=qwst&d=3m


COMBO PLAYS
***********
U.S. stocks ended mixed on Wednesday, as technology issues rallied
on Microsoft Corp.'s strong earnings report, but the Dow fell back
from early gains to close with a loss. Investors grew cautious in
the trading session when Federal Reserve Chairman Alan Greenspan
warned that financial markets were still fragile and a drop in U.S.
exports posed a risk to the economy. He said that recent gains in
stock prices may be difficult to sustain, based on the relative
growth of corporate profits. The late session sell-off was boosted
by computer driven trading programs and some technical selling as
the market dropped through support levels. Strong earnings at MSFT
helped push the Nasdaq to a record high. The Nasdaq index closed
with a gain of 7 points after being up 59 points in early trading.
The strength of MSFT's earnings was surprising and welcomed news.

Our Tuesday spreads were all available near the recommended entry
points. PTEK was the first of the speculation plays and the debit
for the MAR12C/FEB12C was $0.50. OMPT was the next position and
the MAR15C/FEB15C spread traded near $0.87 debit for much of the
morning. Our initial entry was slightly better at $0.81. SCUR was
a bullish debit spread and the FEB20C/25C opened and traded near
the target price of $3.50. Our position was not quite as good at
$3.75. The last position was RHD and although the stock price fell,
the debit for the MAR15C/17C bull-call spread remained near $1.12.

Other portfolio activities: LEVL shot up almost $3, allowing us to
take the early exit at $4.38 credit and a $1.12 profit. PCS also
moved $3 higher but that won't help us as it is now in danger of
closing well above the sold strike for this month. Remember, we
lose our edge (in a calendar spread) when the stock price moves
significantly higher in a short time. Both positions become deep
in-the-money with little time value and we have to roll-up to the
next higher strike at the end of the month.

Wall Street stocks fell Thursday as fears over the global economy
reined in the U.S. bull market. High technology issues suffered as
a sell-off in Internet stocks sent the Nasdaq tumbling. The DJIA
closed unofficially down 71 points to 9264.08 and the Nasdaq index
fell 70 points to 2344.89. The Dow had mounted a late rally from
the day's lows, cutting losses by half, before succumbing to the
general malaise. Worries about Brazil, earnings and the trade
deficit got the better of stocks and profit-taking also had an
affect on the downward movement.

On Thursday, the spreads portfolio weathered the storm as did most
of us traders. Some of the positions were obvious candidates for
"double-downs" but none were in danger of being closed-out. The
most significant moves came from AOL, AAPL, and DIS. Although some
positions were down, (SUNW and WCOM) those were actually favorable
when compared to our "sold strikes". Others that survived the day
included GM, PCS and OMPT. Hopefully, it will get better tomorrow!


NEW PLAYS -

Diagonal Spreads - In these plays, the purchased position has a
longer maturity than the written option as well as a different
strike price. Be sure your understand the necessary collateral
requirements (if any) before opening a position.

****

CTXS - Citrix Systems  $89.00     *** Earnings Slam! ***

Citrix Systems is a supplier of thin client/server application
server products and technologies that enable the effective and
efficient enterprise-wide deployment of applications designed for
Windows operating systems. The WinFrame software allows networked
computers, (even non-Windows-based computers such as Macintoshes,
UNIX machines, pre-Windows PCs, and stripped-down "thin clients")
to run Windows-based applications from a central server. Citrix's
3,000 clients include Sears Tire Centers, Hewlett-Packard Europe,
and Canadian wireless telecommunications provider Bell Mobility.
IBM, Sharp Electronics and Microsoft, (which owns about 6% of the
company) also licenses Citrix's technology.

On Wednesday, Citrix said it earned $0.52 a share in the fourth
quarter, $0.03 more than the consensus estimate from analysts. The
report came after CS First Boston reiterated its "strong buy" on
the compnay but the stock fell $13 anyway. The stock held ground
on Thursday is now trading right at the 30 dma. This stock should
eventually rebound and continue its upward momentum.

PLAY (aggressive):

BUY  CALL MAR-90 XSQ-CR OI=197 A=$11.00
SELL CALL FEB-95 XSQ-BX OI=718 B=$5.75
NET DEBIT TARGET=$5.00 TARGET ROI=35%

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

****

RDRT - Read-Rite  $18.93     *** Positive Earnings ***

Read-Rite is the world's #1 maker of magnetic recording heads used
in hard disk drives. It also makes thin-film magnetoresistive (MR)
tape heads used in quarter-inch cartridge tape drives. Read-Rite's
heads, which record and retrieve information from the surface of
computer disks, are sold to disk drive makers as head gimbal
assemblies (recording heads combined with suspension arms) or
headstack assemblies (modules of multiple-head gimbal assemblies).
Read-Rite is increasingly basing its products on high-capacity
technologies such as MR. Key customers include Western Digital
(its largest customer), Quantum, and Maxtor.
 
On Wednesday, the company posted a profit of $0.02 a share in the
fiscal first quarter. Analysts expected a loss of $0.17, according
to the consensus of six brokers polled by First Call. The company
also reported strong sequential growth in the quarter, with sales
up 31% from the third quarter. Some consolidation is in order but
the stock price looks poised for further upward movement.

PLAY (aggressive):

BUY  CALL MAR-17.50 RDQ-CW OI=53   A=$3.25
SELL CALL FEB-20.00 RDQ-BD OI=2725 B=$1.12
NET DEBIT TARGET=$1.87 ROI TARGET=30%

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

****

LVLT - Level 3 Communications  $44.19     *** Telecom ***

LVLT is a telecommunications and information services company that
plans to build and operate advanced fiber networks across the U.S.
using Internet technology. Acting as a stepping stone for Craig
McCaw will take Level 3 Communications to the next level. Level 3
is developing a national fiber-optic network, which an investment
firm and McCaw-controlled Nextel and Nextlink will stake for $700
million in return for network capacity. Level 3 will use Internet
technology to offer local and long-distance services, provided
initially through an 8,000-mile network leased from Frontier. LVLT
also provides computer outsourcing and systems integration through
subsidiary PKS Information Services. A spinoff of a construction
firm, the company owns large stakes in Kiewit Coal, Commonwealth
Telephone Enterprises of Pennsylvania, and RCN (telecom provider).

The company just announced Tuesday that it will begin providing
select telecommunications services in the Boston metropolitan area
as part of its national city roll-out. The plan is to construct
local city networks that directly serve businesses in 25 cities
within the next three years. The company plans to offer service
capabilities over its own fiber facilities in 50 U.S. cities.
Additionally, the company is currently building an approximately
16,000 mile long distance national network to interconnect these
cities. 

Coverage was initiated by Salomon Smith Barney in early January
with an "Outperform" rating.

PLAY (conservative/debit-spread):

BUY  CALL MAR-37.50 QHN-CU OI=240  A=$8.62
SELL CALL MAR-45.00 QHN-CI OI=2062 B=$3.75
NET DEBIT TARGET=$4.62 ROI(max)=62%

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

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SEPR - Sepracor  $99.62     *** LEAPS/Covered-Calls ***

Sepracor develops and commercializes improved chemical entities
that are new, patented forms of existing pharmaceuticals. These
products can offer reduced side effects, improved safety, new uses,
and improved dosage forms over traditional compounds. Sepracor is
developing pharmaceuticals to address asthma, allergies, pain,
urological disorders, sleep disorders, periodontal disease, and
depression. It developed Allegra as an alternative to Seldane (the
FDA withdrew its approval of Seldane in 1997). The company is also
developing antihistamines similar to Claritin and Hismanal. SEPR
has licensed to J&J the rights to an improved version of Propulsid
heartburn medication.

Sepracor said last week, it planned to begin clinical trials on
hopefully safer versions of drugs now on the market, including
obesity drug Meridia and J&J's antifungal drug Sporanox. They also
said the ambitious plan signaled determination by Sepracor, which
previously has licensed its patented drug formulations to large
pharmaceutical companies, to conduct its own clinical trials and
thereby become an independent drug developer and marketer.

The fundamental outlook for 1999 is very good and the long-term
chart reflects an excellent bullish pattern.

PLAY (conservative/long-term):

BUY  CALL JAN00-100 LGD-AT OI=4   A=$25.25
SELL CALL FEB-100   ERQ-BT OI=361 B=$5.25
NET DEBIT TARGET=$19.50 TARGET ROI=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=SEPR&d=3m



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