Option Investor

Daily Newsletter, Tuesday, 02/09/1999

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The Option Investor Newsletter         Tuesday  2-09-99  
Copyright 1999, 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  (view in courier font for table alignment)
        2-09-99         High     Low     Volume   Advances Decline
DOW     9133.03 -158.08 9305.02  9123.25  713,624k    982   1,997
Nasdaq  2310.79 - 94.13 2403.95  2310.64  910,815k  1,216   2,820 
S&P-100  606.52 - 15.18  622.14   606.22   Totals   2,198   4,817
S&P-500 1216.14 - 27.63 1244.06  1215.58            31.3%   68.7%
$RUT     403.13 -  8.20  411.33   402.78
$TRAN   3155.14 - 54.11 3216.52  3148.27
VIX       32.51 +  2.08   32.66    30.05
Put/Call Ratio      .84

It is always darkest before the dawn...

Or at least that is how the old saying goes.  Today was another
record setting trading session as the Nasdaq beat last week's 
one day dive of 83 points to set a new 3rd biggest point drop 
today with a loss of 94 points.  That is the equivalent of a
drop of 470 Dow points.  No wonder the tech heavy Nasdaq is
blamed for dragging the whole market down.  But, the American
markets may not be the only ones to blame.  World indexes were
mostly negative as the Brazil Bovespa fell dropped 1.7% in 
profit taking after a 4.6% rally Monday.  Plus, the European
markets were suffering a widespread downturn as earnings season
opened and investors worried over potential earnings surprises.

So how bad was the damage over here?  The Dow closed down 1.7%
to 9133 after fighting all day to hold above 9180.  The last 
hour plummet put the Dow negative for 1999 by 0.5%.  The Nasdaq
did not fair much better.  While it remains positive for the year
by almost 5.4%, it still fell to a discouraging 2310 after twice
bouncing off the 2345 level.  Other U.S. indexes followed their
lead and the S&P 500 is down 1.1% for the year while the real
loser is the Russell 2000.  The RUT is down 4.5% for the year!
What happened to the January effect? 

I'm sure most quote screens today were painted a bright red.
Winners were few and far between.  The chip sector did an
about face from yesterday and posted a sector wide loss.  The
software sector was equally weak while the telecoms, the 
biotechs, and the financials all followed suit.  Only 3 of the
Dow 30 components posted any type of gain while 6 of the Nasdaq
100 managed to close the day with a gain.  

Leading the losers today were the Internet stocks.  Almost all
of the big name companies posted a loss.  ATHM down 7.94,
AOL lost 11 points, AMZN dropped 9.13, CMGI fell 14.75,
XCIT slipped 8 points, giant YHOO lost 17.88, and NSOL dove
26.13 under news that regulators are looking into creating
some competition.  The big loser today was LCOS who fell 
33 points to 94.25.  Evidently, traders were unhappy with
the deal between LCOS and USA Networks/Ticketmaster.  In a 
deal worth about $22 bln, the merger will create quite the
cyberspace powerhouse.  The combined marketing muscle and
e-commerce presence between LCOS/Ticketmaster and its 
citysearch website in addition to USA Networks cable 
operations (which include the successful Home Shopping network)
will be formidable indeed.  This merger leaves YHOO as the
last remaining (big name) independent Internet portal.
What we can say about this sector wide losing streak is that 
it might be over soon.  Many of these Internet stocks have 
corrected close to 50% from their highs.  Once they find a 
bottom the leaders should start trending positive again.
INKT may have already started.

However, if this is to happen, if the Internets are to 
recover, the market needs to find some form of acceptable
valuation.  This seems to be the transition many see the
market moving to.  No longer are investors buying into 
the momentum stocks but rather they are looking at "value"
stocks.  Of course if the market continues to dip at this
rate many of the stocks previously referred to as momentum
will be considered "value" plays as PE(s) start to drop with
their stock price.  

So when is a sell off not a sell off?  When it is not produced
on strong volume.  Probably the only saving grace here is the
fact that volume was light on both exchanges today.  The NYSE
traded on volume of 713 mln while normal is between 850 and
900 mln and the Nasdaq traded on 910 mln which is below its
normal 1.2 bln shares (as of late).  What we are seeing is 
not a rush of sellers but really a lack of buyers.  All of 
the money is sitting on the sidelines waiting for the 
correction to be over.  Guaranteed, when the market finds a
bottom they will be rushing in to grab all of the leaders.

So were is this money going in the mean time?  Mutual funds
are sticking it into money market accounts.  Last year at 
this time managers were sticking 20% of their money into
money markets while this year it's over half (about $37 bln)
is moving into money market accounts.  As soon as they feel
this correction is done they will be pulling it out just as 
fast to play stocks again.

So what can we expect for tomorrow?  Probably more selling.
As one pundit put it, institutional investors are demonstrating
a more disciplined approach and letting the market fall to 
their predetermined price levels before they buy in.  Many
of the major indexes are approaching their 50 dma(s).  Investors
are expecting a bounce, if not, we'd all better practice our 
put buying.  Currently the Dow is at 9133 which is actually 
below its 50 dma of 9189.  The Nasdaq is at 2310 while its
50 dma is 2225.  However, support for the Nasdaq is going to
be close at 2300 or we could freefall to 2200 (2225) and 
mental support for the Dow is at 9100.

The good news is Ralph Acompora.  Yup, read that again.  
While we can credit him with any number of negative market
occurrences, his predictions for a 5% to 10% correction
puts the market bottom between 9100 and 8700.  We are 
awfully close to 9100 now which could put us at the end
of this nastiness.  

If the market is going to turn itself around we will have
to see a redemption of the advance/decline line.  Traders
continue to worry over its growing erosion.  Between the
NYSE and the Nasdaq, decliners beat advances by a greater
than 2:1 margin (4827 to 2206) and the new lows beat 
new highs by better than 3:1 (160 to 51).  To truly see
the market turn around, we are going to need a broad market

However, things don't always look as bad as they seem.
One prudential analyst said he sees this as merely a 
speed bump in a bull market rally.  We definitely like
his attitude.  Current events that might pull the market
up this week is the possible end of President Clinton's
trial.  The senate met behind closed doors today to 
deliberate the president's fate.  The outcome is expected
to be pro-Clinton which would keep him in office and
the markets would see this as a positive to keeping the
status quo.  Another event occurring this week in New York
is the Goldman Sachs technology conference.  It was kicked
off today and continues through to Friday.  Over 160 companies
will be presenting themselves and it is quite possible that
all of the positive press likely to come out of the conference
will pick up the beleaguered Nasdaq.  

We do expect the correction to end, but whether it occurs 
tomorrow or next week is unsure.  The end of the president's
trial, the tech conference, WCOM's earnings Thursday, 
Dell's earnings next Tuesday, and a host of splits near the
end of the month are all positives (assuming the earnings
are strong).  But momentum is negative and the advance/
decline line shows no signs of improving (soon).  We suggest
sitting on the sidelines like the fund managers and let the
market come to you.  As Jim likes to say, avoid emotional 
trading, make your decisions when the market is closed so
you are not clouded by the intraday swings, and if you 
must trade practice the art of stop losses.  Your most 
important trading resource is at stake.  Your capital!
Don't fool around with it, there will always be another

Good luck and be patient,


assistant editor.

P.S. We are going to have our next broker's chat tomorrow 
in our chat rooms at 7:00 pm ET.  Alan and Andy from 
Rosenthal Securities will be leading the discussion on
money management, stop-loss/profit orders, and asset
allocation.  The session will last about 90 minutes with 
the last 45 minutes dedicated to taking questions from the
audience.  The is a great resource to pick the minds of 
a couple of successful brokers.  

Market Posture

As of Market Close - Tuesday, February 9, 1999 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert

DOW Industrials    9,200   9,500   9,133    BEARISH   2.9 *           
SPX S&P 500        1,240   1,280   1,216    BEARISH   2.5    
OEX S&P 100          625     635     607    BEARISH   2.5     
RUT Russell 2000     420     435     403    BEARISH   2.4    

NDX NASD 100       1,900   2,150   1,935    Neutral   2.2  
MSH High Tech        930   1,040     922    BEARISH   2.9 *     

                   Key Benchmarks
Technology         Bearish/Bullish  Last    Posture/Since  Alert
XCI Hardware         900     970     862    BEARISH   2.5        
CWX Software         650     680     624    BEARISH   2.5           
SOX Semiconductor    390     420     374    BEARISH   2.5   
NWX Networking       420     450     393    BEARISH   2.5           
INX Internet         470     570     448    BEARISH   2.9     

                   Key Benchmarks
Financial          Bearish/Bullish  Last    Posture/Since  Alert
BIX Banking          630     675     612    BEARISH   2.4                 
XBD Brokerage        630     700     648    Neutral   2.5      
IUX Insurance        570     610     560    BEARISH   2.5           

                   Key Benchmarks
Other              Bearish/Bullish  Last    Posture/Since  Alert
RLX Retail           840     880     833    BEARISH   2.9 *    
DRG Drug             750     795     750    BEARISH   2.9 *     
HCX Healthcare       750     780     746    BEARISH   2.9 *             
XAL Airline          300     330     309    Neutral   1.29                
OIX Oil & Gas        230     250     239    Neutral   2.4                 

Posture Alert

OptionInvestor.com was among the first advisory service to
turn Bearish across the Technology sectors (2/5) and we
maintain our negative posture until these sectors find
support.  Today, we have also turned BEARISH across industry
sectors that have violated their 50-day moving average
including Drugs and Healthcare. 

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


Market Sentiment - By Pinnacle Capital Advisors
Tuesday, February 9, 1999

Pinnacle Calls Major Turning Point  

Although many investors felt the downdraft today (2/9), Pinnacle 
Capital Advisors alerted subscribers about the market major
turning point way back on January 11th.  That was the day that
the market volatility index (VIX) crossed over its declining 50
day moving average and our trusted sentiment indicators began
flashing early warning signs.  Among these signs were our own
Pinnacle Index, put/call ratios and investor sentiment surveys
that revealed excessive optimism.  Tonight, the DOW closed below
9,200 erasing all of 1999 gains.

As we highlighted in our Sunday (2/7) newsletter, an index or
stock cannot sell-off precipitously without reversing FIRST. 
That is why the focus of our technical and sentiment analysis is
on measuring extreme or excessive optimism at key turning points
because things can change quickly.

On Monday (2/8), after profit taking appeared to be over, take 
look at how many speculators bought out-of-the money call options
at the OEX 660 strike.  It jumped 16% since Friday.  What is
amazing is that that they bought a deep OTM 660 strike with less
than two weeks to go until expiration.  Now that is really
aggressive and Tuesday's (2/9) action underscores what can
happen when optimism is left unchecked.

Peak Open Interest (OEX)
Strike/Contracts     Friday (2/5)   Tuesday (2/9)          
Puts                 610 / 14,679   610 / 15,136
Calls                660 / 12,988   660 / 15,139

Tonight, we want to caution subscribers not to brush off this
sell-off as merely profit taking.  The media has a way of
putting a spin on it to make it sound healthy -  "destined to
more higher after some initiate backing and filling" and
"underlying long-term trend still in tact" 

Unlike the sell-off last October, it is our view that one is
different.  The advance-decline line has been deteriorating and
excessive optimism has come into the market.  And when you
really think about it, we have not had that much bad news to
deal with.  Just think what will happen to the market when we
get a major negative news item.

A detail breakdown of Pinnacle Capital Advisors' market
sentiment analysis together with supporting charts, graphs,
tables and explanations can be accessed through OI's
website at:


Market Sentiment at a Glance
                                Friday     Tues      Thurs  
Indicator                       (2/5)      (2/9)     (2/11)   Alert

Pinnacle Index (OEX):          
Overhead Resistance (640-655)    10.0        13.1
                    (620-635)                 1.2

Underlying Support  (605-620)     1.9         1.2
                    (585-600)                 3.1

Put/Call Ratios:
CBOE Total P/C Ratio               .6          .5     
CBOE Equity P/C Ratio              .4          .4                              
OEX P/C Ratio                     1.3          .8             *  

Peak Open Interest (OEX):
Puts                              610         610     
Calls                             660         660    
P/C Ratio                        1.13        1.19     

Market Volatility Index (VIX):	
CBOE VIX                        30.47       32.51             *

Investors Intelligence:
Bullish                          60.0%       60.0%            *  
Bearish                          26.7%       26.7%            *

The Power of Sentiment 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                       (2/5)      (2/9)    (2/11)
                    (650-655)     45.5
                    (640-645)      4.6
Overhead Resistance (640-655)     10.0      13.1

OEX Close                       617.67    606.52

Underlying Support  (605-620)      1.9       1.2
                    (615-620)      1.9
                    (605-610)      1.8

Average ratings: 
Resistance levels 2.0 / Support .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is Heavy at the OEX 640/655
level while the underlying support is weak at the
OEX 605/620 level.

Put/Call Ratio 
                                Friday     Tues      Thurs
Strike/Contracts                (2/5)      (2/9)     (2/11) 
CBOE Total P/C Ratio              .64        .52     
CBOE Equity P/C Ratio             .42        .37
OEX P/C Ratio                    1.28        .81

Peak Open Interest (OEX)
                     Friday         Tues           Thurs
Strike/Contracts     (2/5)          (2/9)          (2/11)
Puts                 610 / 14,679   610 / 15,136
Calls                660 / 12,988   660 / 15,139

(see chart on the website version)

Put/Call Ratio       1.13           .84

(see OEX chart on website version)

Market Volatility Index (VIX)
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

February 9, 1999                        32.51   *

(see VIX chart on website)

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

February 3, 1999                      60.0        26.7   *

Please view this in COURIER 10 font for alignment

Index   Last    Mon     Tue     Week
Dow      9133.03  -13.13 -158.08 -171.21
Nasdaq   2310.79   31.30  -94.13  -62.83
$OEX      606.52    4.03  -15.18  -11.15
$SPX     1216.14    4.37  -27.63  -23.26
$RUT      403.13   -1.39   -8.20   -9.59
$TRAN    3155.14  -38.41  -54.11  -92.52
$VIX       32.51   -0.04    2.08    2.04

Stock   Price   Mon     Tue     Week
CLX       123.00   -1.00    3.13    2.13 Defensive play surge?
LVLT       57.69    3.06   -1.06    2.00 Resisted profit taking
WCOM       76.75    2.81   -2.31    0.50 Earnings are Thursday
MSFT      160.06    5.25   -5.19    0.06 Be patient
ANF        73.63    4.88   -4.88    0.00 Market reaction
MCD        80.25    0.56   -0.63   -0.07 Holding steady
VISX       58.75    1.19   -1.63   -0.44 Holding steady
AA         88.13   -1.00   -0.38   -1.38 It's aluminum
ORCL       54.63    1.19   -2.75   -1.56 Tech sell off
WAG        58.69   -1.25   -0.75   -2.00 Splits Friday
WMT        82.13    1.19   -3.31   -2.12 Dow reactive
LOW        52.88   -1.06   -1.06   -2.12 Wait for bounce
DH         59.63   -0.75   -1.75   -2.50 Wait for bounce
DELL       97.81    3.63   -6.25   -2.62 Earnings are next Tues.
VAI.B      81.50   -1.50   -1.19   -2.69
MEDI       49.69   -0.81   -1.94   -2.75 Tech sell off
SUNW       97.63    3.88   -6.88   -3.00 Tech sell off
MWD        85.75   -0.44   -2.81   -3.25 Financials were down
MDT        82.56   -2.06   -2.13   -4.19 Profit taking
PSIX       32.63   -1.38   -3.38   -4.76 Earnings 2/16
CC         54.88   -3.75   -3.75   -7.50 Getting hammered
AOL       147.94   -5.00  -11.00  -16.00 Internet profit taking

SPLN       38.00           -4.63   -6.38 Investors rethink valuations
MCHP       31.50           -1.81   -2.44 Sympathy tech sell off
ADBE       46.06           -2.69   -2.38 Sell-off still in tact
AXP        98.13           -1.13   -2.19 Stock broke key support at $98.
BDX        36.56           -1.00   -1.81 Declining relative strength
BAC        60.75           -0.25   -1.00 Consolidating 
ERTS       40.06           -0.94   -1.00 Look for more downside action
BKB        35.19           -0.19   -0.69 Trading below resistance at $35
PHSYB      68.81           -1.81   -0.62 Breaking down
AVT        38.00            0.19    0.38 Sector still out of  favor
HSY        56.94            1.88    0.50 Dropped
PG         84.88           -0.06    1.38 Pausing to determine direction

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.


HSY $57.50 +1.88 (.00) Stock found support at $56 and managed 
to rally on day when overall market was down.  Stopped out 
of position at  $58.




ORCL $54.63 -2.75 (-1.56) ORCL has held up pretty well this
week considering the selling pressure the techs have been
under.  It closed today below its 10 dma which
is at $56.50.  In the news, ORCL and CPQ announced a strategic
alignment of their partner programs.  The combination of the
programs offers partners free dual certifications on ORCL and
CPQ technologies and exclusive access to customer leads that
result from the combined programs.  

UTX $120.25 +.25 (-4.75) UTX took a big drop in early trading
on Monday in what looks like profit taking after the high it
set on Friday, and recovered a little today.  UTX is sitting
just below its 10 day moving average which is at $120.50.  In
the news, Warburg Dillon Read initiated coverage on UTX with a
buy rating and a 12 month price target of $145.  They also
indicated that they were highly confident in the company's
ability to deliver 15 percent earning per share growth in 1999.  

LOW $52.88 -1.06 (-2.13) LOW has continued to trade down. 
Today LOW closed below its 30 dma.  We are going
to leave them on the play list looking for a bounce off support
at $51 and its 50 dma at $50.  Do not initiate
any new plays on LOW from the long side until we get some
upward movement and / or the bounce off the support mentioned
above.  In the news, LOW purchased the naming rights to
Charlotte Motor Speedway, making LOW the first company to
purchase naming rights at a major auto racing facility.  

AA $88.13 -.38 (-1.38) AA gapped down at the open on Monday,
and has traded pretty flat since.  It is still above its 10
dma which is at $85.  There was an article today
at CBSMarketWatch that discussed how cyclical stocks, AA
included, usually do better in an environment of rising
interest rates and a rising dollar.  The article also mentioned
that AA was the most impressive of the group and could possibly
break $90, which is the high it set back in 1997.  AA tried to
break $90 on the spike it had in early January.  In other news,
there was an article that said they expect alumina prices to
ease later this year after holding firmer than metal markets
last year.  

WMT $82.13 -3.31 (-2.12) Even the retail king is not immune 
from profit-taking in a market like this. WMT managed to gain 
more than a dollar on Monday, but today it gapped down at the 
open and closed even lower for a $3.31 loss. Be patient. As 
you saw from the January's sales numbers, which we wrote about 
last week, WMT is enjoying robust sales that are increasing 
faster than at any other large department store or retail 
discounter. When the market turns around, WMT should head 
higher. We are still hoping for a split announcement with 
earnings on Feb. 24.

MDT $82.56 -2.13 (-4.19) The reasons we chose this stock on 
Sunday have not changed, but the market has continued to 
deteriorate. MDT rose almost 22% on positive news in only 2 
weeks, so some profit taking in a down market is not 
unexpected. MDT was down both yesterday and today. Wait for 
the market and the stock to turn around before starting a new 
play on this one. There could be resistance at $89.25, it's 
recently set high.

MEDI $49.69 -1.94 (-2.75) MEDI gapped up at the open on Monday 
and hit $53.50. It then slid lower for the rest of the day 
and throughout most of today. A bounce off its 30-day moving 
average at the end of trading today gave us a glimmer of hope, 
and suggests possible support at $49.13. We need to see a 
rising stock market to take this one higher. Use patience. 
Look for a turn around on good volume before starting new 

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

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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  2-09-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

PICK NEWS - CALLS (continued)

DELL $100.44 -6.25 (-2.63)  We cautioned Sunday, "Profit 
taking has been severe and may resume Monday as some analysts 
may turn market bearish this weekend".  Dell gave us the big 
head-fake yesterday by rising over 3 points.  The bears 
crushed Dell today in spite of Michael Dell leading off the 
Goldman Sachs Technology Symposium today when he mentioned 
that 50% of Dell's sales would come from the web within 2 
years.  We are playing Dell for earnings and split announcement.
Earnings will be announced February 16 after the close.  
We may get a bonus with a 2:1 split announcement if Dell can 
hold at $110.  It looks ugly now, but Dell will be one of the 
first to reverse when the market reverses.  We can not make 
a stronger recommendation for stop loss orders.  As always, 
we urge not to start a new play until you've confirmed market
direction.  Target shooting is still risky.  Again, wait 
for market reversal and keep your powder dry.

AOL $147.94 -11.06 (-16.06)  We are playing AOL for the 2:1 
split effective February 22.  Split plays begin to show the 
first signs of life about 2 weeks before the split, but not 
in a market like this.  Almost, needless to say, despite the 
news that AOL achieved an additional 1 million customers since
December 30 for a total of 16 million, AOL has been crushed 
with the rest of the market.  We can't stress it enough: wait 
for a clear market reversal and for volume to return to the 
stock before making a play.  Even a split run can not make 
AOL run against the market and internet-sector direction.  
AOL is still the strongest Internet play there is.  "They've 
got a pretty good model for world domination," said Jim Cramer 
of Cramer Berkowitz. However, gamblers may be violated.

WCOM $76.75 -2.31 (+0.50)  Simply amazing; an actual gain 
for the week.  Though WCOM reported winning a US military 
contract worth $1.5 billion today, their earnings play is 
running out of time.  They announce Thursday morning before 
the market opens, which means there is only tomorrow left to 
make the play.  OI recommends you check your level of risk 
tolerance before holding over earnings since, roughly 70% of 
all reporting companies suffer a bit after earnings.  Even a 
big surprise may be met with investors' "so what?"  Technically, 
WCOM has good support at his level, but has strong resistance 
at $80. If the news is good, and market willing, WCOM should 
make a great play when it breaks $80 with volume and holds.  
Again we caution, confirm market direction before playing and 
use stop orders.

MSFT $160.06 -5.19 (+0.06)  Up $5 yesterday, down $5 today.  
If you started this play yesterday, we hope you used stop 
orders to cut the losses.  As bad as it seems, MSFT is still 
the darling of fund managers for its stellar earnings, growth 
and performance.  Please note 2 newsworthy items: They have 
now shipped over 25 million licenses for Windows 98, 3 million 
of them over the holidays; and they announced an alliance with
British Telecom to develop wireless Internet service in Europe 
-- a big deal in the wireless revolution.  The current market
correction is providing us a discount price for a new entry, 
but don't try to catch the falling knife.  As we said Sunday 
night, "It may be jittery for a few days, but there is plenty 
of time for a play.  Be patient".  Wait for the market to 
reverse before you start a new play; MSFT will be one of the
leaders on the way up.  Again, patience will be rewarded.

DH $59.63 -1.75 (-2.50)  Down with the rest of the market 
and the retail sector, DH is a bit battered.  Frankly, it 
could have been worse -- volume was quit low today indicating 
no selling interest.  There is nothing in the news to move 
the price and we expect DH to head up again when the market 
turns around.  As one of the strongest of the retailers, 
especially with fund managers, it will be one of the first 
to rebound when investors come off the sidelines.  Wait for 
the reversal with volume to take a new position

CC $54.88 -3.75 (-7.50)  CC has been hammered hard this week.
There is no news driving the decline; only market correction.
However, there is more volume than we'd like to see indicating 
it may have further to fall.  As a major participant the 
digital revolution, the Internet, 15% growth rates of the PC
business, PCS telephony, etc., fund managers are tripping over
themselves not to miss out on the distribution channel.  Its 
arch-competitor, Best Buy actually gained $1.50 on the day.  
Our Sunday advice still holds today: confirm direction with 
volume before playing and use stop orders to protect your 
profits if action dries up.  We need to see a clear market
reversal before getting in.

CLX $123.00 +3.13 (+2.12) Count your blessings if you are
invested in CLX.  It was one of the few companies that closed
positive for the day.  These wasn't any news to account for
the strong move today, but in a down market some investors 
see companies like CLX as a defensive play, thus the move up 
today.  We have found that CLX has the shares to announce a 
split, but there isn't a board of directors meeting scheduled 
that we can find and earnings aren't until April.  We discussed 
in the weekend update that CLX was at a key moment and we
expected a strong move in one direction or the other.  We did 
feel the direction would be up and in this case we ended up
being correct.

VISX $58.75 -1.63 (-.44) After a nice gain on Monday, VISX
succumbed to the profit taking theme on Tuesday.  Though VISX 
closed at its low of the day, it is sitting right on its 20-dma.
Hopefully this will provide some support on Wednesday.  Omega
Health announced on Monday that they will be buying 12 of VISX's
excimer lasers.  Make sure VISX confirms a bounce off its 20-dma
before jumping in.

LVLT $57.69 -1.06 (+2.00) LVLT wants to run, but the market
has placed shackles on its feet.  With 15 minutes left to 
trade on Tuesday, LVLT was up about $1, but by the close it
couldn't carry the weight of the down draft any longer and
closed down a $1.00.  It seems that when the market decides
to give us a nice up move, LVLT will take off.  We saw signs
of this on Monday when the NASDAQ closed up just under 1%, yet
LVLT closed up 5.5%.  Remember, earnings are before market on
the 18th of February. 

PSIX $32.63 -3.38 (-4.75) PSIX has been a free fall along
with its Internet brethren for the last few trading days.  
We are keeping this as a pick because we feel PSIX will be
a leader when the NASDAQ recovers, especially the Internets.
Since we picked this last Thursday, PSIX has not been able
to hold, so hopefully no one has had to bear this drop.  As
always, confirm a move up before initiating new plays.  We
don't like the fact that PSIX has fallen below its 10 and
20-dma, but we'll watch this one for a bounce before its

MWD $85.75 -2.81 (-3.25)  Another casualty of the markets
weakness.  MWD announced today that they are in an online
brokerage marketing pact with Yahoo!  They will be doing
a lot of banners and advertising on different Yahoo! pages.
Like a lot of stocks today, MWD closed at its low of the
day.  We like the fact that its support at $85.00 has held.
Watch for a move up on strong volume before initiating new

ANF $73.63 -4.88 (+0.00)  ANF is a fighter.  It gets knocked 
down but keeps on getting back up.  After it bumbled -3.13 
last Friday, ANF jumped back up +$4.88 on Monday.  However, on 
Tuesday the market crumbled 158 points and was easily enough 
to cause ANF to lay back down in a stunned stupor.  With such a 
huge drop, look for a bounce and then a sustained recovery 
before opening any new plays.  Abercrombie and Fitch will 
report their earnings on Feb. 17th.

MCD $80.25 -0.63 (-0.06)  It was nice to see McDonald's end 
last week with a +$1.50 gain.  It continued the uptrend in 
trading on Monday by adding another +$0.56.  On Tuesday it was 
punished by the jealous market and reprimanded to -$0.63 loss.
McDonald's is splitting 2:1 on March 5th.  But, wait for 
things to settle.  Don't try to fight the trend of the markets.  
If they are down, let them go down.  Wait for the momentum to 
shift before involving yourself in any new option plays. 

SUNW $97.63 -6.88 (-3.00)  Sun Microsystems tried to make a 
come-back by surging +$3.88 Monday.  But on Tuesday, it 
got killed -$6.88 as the NASDAQ nose dived into a 94.13 point 
hole.  With a huge drop like this, there is often a bounce.  
But we want more than just a bounce.  We will be watching to 
see it hold and begin another uptrend.  Only then would feel 
safe in starting new plays instead of being tricked into 
another false rally.  So definitely keep watching SUNW.  It 
is splitting on April 8th and we have plenty of time to play.  

VIA.B $81.50 -1.19 (-2.69)  Hopefully you got stopped out 
before Viacom suffered from two days of consolidation.  It is 
down -$2.69 in Monday and Tuesday's action after holding up 
surprisingly well in the shaky markets of last week.  A slight 
dip was due especially since the markets seem to be continuing 
their corrective tendencies this week.  Earnings are expected 
for the company on 2/25/99.  Wait for some consecutive
positive closes for Viacom before opening any new positions.   

WAG $58.69 -0.75 (-2.00)  Walgreen's is struggling so far 
this week.  Even though it is splitting its stock 2:1 this 
Friday, it is being beaten down by the extremely moody market.  
This has now dwindled into a two day play if and only if the 
markets can turn green.  Since we are so close to the actual 
split, this is a risky play.  Also remember that we don't 
recommend holding over splits.  Profit taking seems to 
knock the price down an average 7 out of 10 times immediately 
after the split occurs.   


ADBE $43.50 ­2.50 (-2.00)
Stock broker below key support level at 50-day moving average.  
Sell -off still in tact with a target of $40.  If the stock 
breaks $40, the software firm could slide all the way down 
to $30.

AVT $38.38  +.25 (-.50) Stock consolidating under protective 
stop loss of $40. Sector still out of  favor.

AXP $96.00  -1.13 (-2.00)  Stock broke key support at 
$98-100.  Tighten protective stop to $98.  Stock could sell 
off back near support in October near $70-80.

BAC $59.75 -.25 (.00)  Stock continues to sell-off under 
overhead consolidation and resistance at $60-65.  Financial 
sector still under pressure.

BDX $34.25 ­1.00 (-1.50) Declining relative strength still 
in tact and continued downward pressure. Following recent 
precipitous sell-off.  Stock still trading below 50-day 
moving average. Tighten protective stop loss to $38.

BKB $34.50 -.25 (-.50)  Stock trading below resistance at 
$35 and suffering the same fate as other stocks within the 
Banking sector.

ERTS $39.00  -1.00 (-1.25) Look for more downside action 
after consolidating and recently failing at $41.

MCHP $29.07 ­1.75 (-1.75) Relief rally failed at $35 the 
last week and stock now selling off in sympathy with 
technology sell-off.  Now testing lows at $29.

PG $86.25 -.00 (1.00)  Stock showed strength on day of 
broad market weakness. Stock trading below its declining 
50-dma and jsut above key support at $85.

PHSYB $68.25 ­.1.25 (-1.25) Stock breaking down and still 
trading below 50-dma and key price point of $75. Tighten 
stop to $70.25

SPLN $36.38 -4.63 (-3.50)  Sector under pressure as investor 
rethink valuations.  Stock trading under key price point  
of $40.

New Put Plays

Tuesday, February 9, 1999

New Recommendations at a Glance:
BMCS - BMC Software $42.94 (-3.19)
MRK - Merck $145.13 (-3.63)
Warner Lambert (WLA) - $69.81 (­2.75)

BMCS - BMC Software $42.94 (-3.19)

Company Description:
BMC Software provides systems management software solutions
for host mainframe and distributed information systems, and
also offers maintenance, enhancement & support services
The distributed systems and application management markets in
which the Company operates are far more crowded and
competitive than its traditional mainframe systems management

Play Description:
A leader in enterprise-level software was downgraded by
Soundview in October 98 and by Morgan Stanley in December.
The Company has experienced long development cycles
and product delays in the past, particularly with some of its
distributed systems products, and expects to have delays in
the future. Delays in new mainframe or distributed systems
product introductions or less-than-anticipated market
acceptance of these new products are possible and would have
an adverse effect on the Company's revenues and earnings.
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 break
below $40, could garner additional profits

BUY PUT MAR-45 BCQ-OI OI=74   at $4.75 SL= 2.75
BUY PUT MAR-40 BCQ-OH OI=244  at $2.19 SL= 1.25


MRK - Merck $145.13 (-3.63)

Company Description:
Merck is a pharmaceutical company that discovers, develops,
produces and markets human/animal health products and
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
reflect higher sales of established major products & newer
products, and growth from the Merck Medco Managed Care
business.  Earnings also reflect gains on the sales of

Play Description:
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. Pinnaclešs sentiment indicator is reaching
extreme levels (4.7) setting this high tech company up for a
precipitous sell-off if expectations donšt measure up within
the drug sector.

BUY PUT MRK-150 MRK-OJ OI=286 at $8.75 SL= 6.25
BUY PUT MRK-140 MRK-OH OI=517 at $4.25 SL= 2.75


Warner Lambert (WLA) - $69.81 (­2.75)

Company Description:
Warner Lambert is a manufacturer of ethical pharmaceuticals,
biologicals, capsules, consumer health care products and
confectionary products.

Play Description:
Shares of large U.S. drug companies are being hurt by profit
taking and concerns about proposed changes to the Medicare
payment system. Recent inquiries regarding the
safety of Rezulin received nationally televised attention and
may give rise to  investor concern.   Also, it may be
difficult to sustain the growth rates for Lipitor, Rezulin
and Neurontin products that WLA has enjoyed this past year.
Stockšs recent rallied failed just under its declining 50-day
moving average with overhead resistance building between $70-75.

BUY PUT MAR-70  WLA-ON OI=186 @ $3.50 SL=1.50
BUY PUT MAR-65  WLA-OM OI=497 @ $1.06 SL=.50




Stocks overpriced? Investor's fear the worst...

Tuesday, February 9

U.S. stocks tumbled Tuesday and Internet shares contributed to the
broad market decline. The DJIA closed down 158 points at 9133.03,
erasing all 1999 gains, and the Nasdaq Index of technology issues
plunged 94 points to 2310.79 in its third-worst point drop ever.
Negative comments about the sky-high valuations of stocks by some
key Wall Street analysts and questions about a big Internet merger
sparked the sell-off. The fear was broad-based and all groups had
steep declines. Declining stocks outpaced advances by two-to-one.

Other portfolio news:

We are still having problems with the automated summary for the
spreads section. As you know, this section has grown much larger
in recent weeks and the old manual methods are no longer viable.
The time it takes to track all of the various positions and their
relative cost/value basis to the entry price is overwhelmimg and
thus we are working with a new Interquote/Excel format to reduce
the human contribution. In the meantime, I will try to keep you
apprised of our various entry/exit points with the narrative just
as we did in the beginning.

From an overall perspective, it is safe to say that many of the
bullish plays (definitely the techs!) are sufferring and most of
the bearish plays are successful.

Previously closed positions from Friday include: MRK, FEB160C at
$0.75 (should have took the early exit at a higher price). JMED,
MAR35C at $1.12 (same goes for that one!) but you have until the
March expiration if you expect it to come back. CNTO, MAR35C/40C
at 1.75, AAPL, FEB37P at $1.75, SDTI, FEB20P at $1.50. We expect
to close the long positions on AAPL, and SDTI this week.

Monday's big news occured when shares of NRC surged 15% after the
company confirmed it may acquired by Bermuda insurer XL Capital.
They declined to give details about the discussions, but industry
sources said a deal was likely to be valued at $1 billion. Our
current position is a MAR50C/FEB50C time spread at $1.12 debit. It
will be profitable if the stock price remains near $50 for the
next 10 days.

Tuesday's exits included: AAPL, FEB35P at $0.50; SDTI, FEB17P at
$1.00; COF, FEB110P at $2.75 (and later, FEB105P at $1.75) and
SNC fell through our STOP at $1.75 on the FEB35C, the FEB30P is
bid at $0.25. What a day!

Sunday's new plays:

NWAC  JUN25C/FEB25C   $2.75  debit  (moved lower most of the day)
HAL   LJAN30C/MAR35C  $6.25  debit 
SGP   LJAN55C/FEB55C  $7.38  debit  (probably $7.25 around 11 am)
KSU   MAR30C/MAR40C   $8.25  debit  (about $8.12 in the afternoon)
YHOO  FEB130P/FEB140P $0.00  credit (no disparity after split)
LXK   FEB85P/FEB90P   $0.38  credit (no play if order limit $0.50)
QTRN  MAR45C/50C/55C  $1.87  debit  (plan a roll-out of each side)
				- NEW PLAYS -
AMP - Amp Inc. $51.06     *** Merger/Technicals ***

AMP designs, manufactures and markets a broad range of electronic,
electrical and electro-optic connection devices, interconnection
systems and connector-intensive assemblies. Last year, Tyco Intl.
Ltd (TYC) a diversified manufacturing company, announced that the
companies unanimously approved a definitive agreement pursuant to
which AMP will merge with a subsidiary of Tyco. This tax-free,
stock-for-stock transaction is valued at roughly $51-$55 share to
the AMP shareholders. The merger is subject to the approval of
both companies' shareholders and customary regulatory approvals.
The companies anticipate that the transaction will be completed
in the first calendar quarter of 1999.

The TYC chart is fairly active but still retains good support near
$65. The buying pressure has been moving slowly towards neutral
and actually finished on the accumulation side today. Volume has
also been moving steadily higher and should support the stock in
near-term volatile market.

PLAY (conservative/debit spread):

BUY  CALL MAR-45 AMP-CI OI=2375  A=$6.87
SELL CALL MAR-50 AMP-CJ OI=14439 B=$3.38
NET DEBIT TARGET=$3.38 ROI(max)=47% B/E=48.38

Chart = http://quote.yahoo.com/q?s=AMP&d=3m
AMR - American Airlines  $57.00     *** Flight Delays ***

AMR is the holding company for American Airlines, the US's #2 air
carrier. With major hubs in Chicago, Dallas, and New York City,
American Airlines serves about 160 destinations in the Americas
and Europe. The airline also leads Oneworld, a global alliance
with British Airways and other carriers and also operates American
Eagle, a group of small regional airlines. They own more than 80%
of The SABRE Group, operator of the #1 travel reservation system.

More than 1,300 American flights have been canceled since talks
bogged down between the airline and the Allied Pilots Association
late Friday. Nearly one-third of American's 2,250 flights were
expected to be canceled Tuesday, with Miami and New York the
hardest-hit regions. Federal law does not allow American pilots
to strike over the issue, but scores of pilots have called in sick
and refused overtime on extra flights, creating a severe shortage
of cockpit crews.

The dispute between American Airlines and its pilots drove implied
volatility on options higher recently and much of the activity is
revolving around call selling. Volume was heaviest in the February
55 and February 60 calls. The call-credit spread is too small but
we can play the momentum with a conservative put-debit position.
This is speculation based on the unresolved pilot/company dispute.
Plan to close the spread as soon as a small profit is available.

PLAY (momentum only/debit spread):

BUY  PUT FEB-60P OI=1029 A=$5.25
SELL PUT FEB-55P OI=1696 B=$1.62
INITIAL NET DEBIT TARGET=$3.50 ROI(max)=42% B/E=56.50

Chart = http://quote.yahoo.com/q?s=AMR&d=3m
USAI - USA Networks  $41.62     *** More Merger Stuff ***

USA Networks (formerly HSN) entertains the masses and satisfies
shopaholics through its USA Network, home of the Sci-Fi Channel
and the Home Shopping Network. The company also produces and
distributes made-for-TV movies and miniseries through its Studios
USA division, and it owns or has interests in 18 local television
stations through its USA Station Group. Seagram owns a 45% stake
in USA Networks, which itself owns Ticketmaster, the US's largest
automated ticket retailer.

USA Networks and Lycos agreed to merge today, forging a e-commerce
giant. The combination will create a new powerhouse; The USA/Lycos
Interactive Networks, and will combine various operating units,
which include Home Shopping Network, Internet Shopping Network and
its majority interest in Ticketmaster with more $1.5 billion in
annual revenues and the capacity to reach 70 million TV households
and 30 million Internet users. The deal offers enormous potential
for cross-promotion between television and the Internet.

The deal got a mixed reception as investors were disappointed the
merger apparently would not carry a handsome premium for the Lycos
stockholders. Lycos shares tumbled while USA Networks stock rose.

We think the initial excitement may wear off but eventually, this
merger should be a benefit to both companies. This is a reasonably
safe speculation play.

PLAY (aggressive/time-spread):

BUY  CALL MAR-40 QTH-CH OI=282 A=$4.87
SELL CALL FEB-40 QTH-BH OI=105 B=$3.00

Chart = http://quote.yahoo.com/q?s=USAI&d=3m
ONE - Bank One  $47.50     *** Technicals Only ***

Bank One is a super-regional bank with some 2000 branches in 14
states located mostly in the Midwest and Southwest. The product
of BANC ONE's acquisition of First Chicago NBD, the company is #2
both in deposits and in number of credit cards issued. The company
activities are in the US and 11 other countries and include groups
devoted to commercial, corporate, institutional and retail banking
as well as services for retail and small-business customers; loan
and leasing services; and investment and insurance services.

Not much news on this stock and the play is strictly technical. It
is just a bearish chart in a poor group and the close below $48
may be the start of a new downleg. Plan to exit the position when
a reasonable profit is available.

PLAY (conservative/debit spread):

BUY  PUT FEB-50.00 OI=2317 A=$3.00
SELL PUT FEB-47.50 OI=254  B=$1.25
NET DEBIT TARGET=$1.62 ROI(max)=53%

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

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