Option Investor
Newsletter

Daily Newsletter, Thursday, 04/08/1999

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The Option Investor Newsletter         Thursday  4-8-99  
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)
************************************************************
        4-8-99           High     Low    Volume  Advances Decline
DOW    10197.70 +112.39 10209.08 10059.78  844,384k  1,698   1,260
Nasdaq  2573.39 + 28.96  2573.97  2514.27 1148,400k  2,014   1,995 
S&P-100  679.49 +  6.65   679.92   668.63   Totals   3,712   3,255
S&P-500 2343.98 + 17.09  1344.08  1321.61            53.3%   46.7%
$RUT     399.89 +  2.12   399.89   396.29
$TRAN   3329.40 -  9.47  3351.20  3290.86
VIX       23.33 -   .20    24.72    23.20
Put/Call Ratio      .60
*************************************************************

Earnings are coming in strong and the Nasdaq charges again!

General Electric, one of the first Dow companies to announce
earnings, met analyst's estimates this morning with a record
$.65 which equates to a $2.15 bln profit for the quarter. This
came on the heels of Alcoa, which announced yesterday, 
beating analyst's estimates of $.54 with an actual of $.60. 
On the Nasdaq side Yahoo announced last night $.11 vs estimates
of $.08 by analysts.

The blue chips are still leading the way and the techs are next.
Baring any earnings disaster we could continue to see the market
set new records. However, there was a warning or sorts recently
when several analysts expressed concern about Compaq and Hewlett
Packard. Some analysts expect them to show weakness in sales and
an increase in inventory when they announce soon. This would be
a bearish event but is it a symptom of the market or just a
symptom of poorly run, non-competitive companies being beat by
Dell and Gateway?

Michael Dell, at the analysts meeting today, expressed confidence
in the coming results and did not give any negative guidance
to analysts. Michael said he was confident at a +35% to +40%
growth rate. The Dell.com website now amounts to over $14 mln in
sales daily, over 25% of Dell's total. The Gigabuys.com site
has been receiving over 100,000 visitors per week since the
recent launch. Michael said sales of the new under $1,000 PC
were encouraging. The Tuesday prophecy of a drop by Dell after
the meeting came to pass with a -1.44 drop even on a record
setting day. The prime example of "buy the rumor, sell the fact".

The rally today was inspired in part by a rate cut by the 
European Central Bank, which lowered, rates by 50 basis points.
They had expected a 25 point cut and the larger cut convinced
traders that the European economy would rebound quicker than
expected. Also U.S. traders felt the cut would prevent the
Fed from touching U.S. interest rates anytime soon. This 
lit a fire under the financials which had been lagging the 
recent rally.

Bond yields slipped to 5.44%, under the mental 5.5% bar which
prompts investors to buy bonds instead of stocks.

Another log on the rally fire was the strong same store sales
results this morning. Mild weather and an early Easter pushed
more sales into March which boosted retailers profits for the
quarter. Wal-Mart total sales was up +18% and same store sales
was up +11.3%. Wal-Mart sold over $2.2 bln more this qtr than
the same qtr last year. They sold over $14 bln last month alone.
Other store sales increases were Kmart +8.1%, Sears +2.1%,
Dayton Hudson +12.9%, Gap +21%, Ann Taylor +21%, The Limited 
+18%, and the winner and a current play, American Eagle +33%.

The triple digit Dow record close, was joined by records in
the Nasdaq and S&P-500. All closed at record highs and near
their highs of the day. 

The sickest sector today was health care after Humana warned
that higher costs would impact profits by as much as $.10 this
quarter. The sector sold off strongly but the weakness was not 
contagious.

The rally may have another week or two of life if earnings
continue to surprise to the upside. The advancers found new 
life today and beat decliners by a decent margin. The trouble
spots continue to be the Russell-2000, still under 400, and the
transports, which are suffering the results of $16 oil. 

Clinton and Zhu played friends on TV today as each joked about
campaign finance contributions and stolen nuclear secrets. Zhu
said the campaign contributions were a joke because he had $168
bln in U.S. dollars and if he had wanted to influence the U.S.
elections in that way he would have invested at least $10 bln.
The amount reported by many sources was only $300,000. I think
$10 bln would have been a little easier to trace personally.
He also admitted that China only had 15 to 20 nuclear missiles,
and he did not know the correct number but compared to the 6,000
the U.S. has, he felt China was not a threat. Could that have
been 15 to 20 PROTOTYPES mister Zhu??

Before you rush out to buy more calls on Friday let me remind
you that the Dow is up +411 points in the last five days and
is due for a pullback for profit taking soon. I do expect it
to be brief and met with bargain hunters who missed the rally
the beginning of the week. Fortunately at 10,197 we can now
lose a lot of ground and still be above 10,000. If you see a
sharp intraday pullback on Friday I would call it buyable. If
we get another up day Friday then Monday should follow. Tuesday
would then be my pick for a profit taking pullback. 

The only speed bump on the highway is the PPI on Friday morning
but unless it is an clear disaster it will be ignored.

Plan your plays and your exits. Sell too soon.

Good Luck

Jim Brown
Editor

 



*******************************************************
Market Posture
*******************************************************
As of Market Close - Thursday, April 8, 1999 

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

DOW Industrials    9,500  10,000  10,198    BULLISH   4.7  *               
SPX S&P 500        1,250   1,325   1,344    BULLISH   4.7  *     
OEX S&P 100          630     660     679    BULLISH   4.6        
RUT Russell 2000     400     435     400    Neutral   4.6     

NDX NASD 100       2,000   2,100   2,225    BULLISH   3.29       
MSH High Tech        900   1,000   1,097    BULLISH   3.29              

                   Key Benchmarks
Technology         Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
XCI Hardware         800     900     938    BULLISH   4.6                
CWX Software         600     650     638    Neutral   4.6                  
SOX Semiconductor    350     400     410    BULLISH   4.6          
NWX Networking       420     450     489    BULLISH   4.1               
INX Internet         500     580     631    BULLISH   3.29        

                   Key Benchmarks
Financial          Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
BIX Banking          650     710     707    Neutral   3.19                      
XBD Brokerage        350     415     463    BULLISH   4.6            
IUX Insurance        600     655     643    Neutral   3.19                

                   Key Benchmarks
Other              Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
RLX Retail           875     940     947    BULLISH   4.8  *        
DRG Drug             390     420     417    Neutral   3.25         
HCX Healthcare       775     835     826    Neutral   3.25                  
XAL Airline          170     185     172    Neutral   3.30      
OIX Oil & Gas        250     260     269    BULLISH   3.30                        



Posture Alert

Broad market continuing to advance higher after short 
pause. We have turned Bullish across the DOW and S&P 500
and the Retail sector after breaking out of current
trading range. 

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

www.OptionInvestor.com/marketposture 



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

Interest Rates: Key Pillar of the Market


Take a look at what happened today to the yield on the 30-year
interest rates - it fell nearly 1.5% to 5.428% breaking below
the key 5.50% level.  As we have been documenting, a key factor
to the continuing rally is interest rates - a pillar of the
market.  Today, Thursday (4/8), it reverse its recent negative
trend and cross over the 200-dma.  Assuming it can stay below
5.50 level, it can be viewed as a bullish development.  Pinnacle
is still concerned, however, about Russell 2000.  After peaking
its head above the key 400 level on Tuesday (4/6), it actually
drifted below 400 again while the broad market has been
advancing.  This key indicator has moved once again over to the
bearish development camp.  Another bearish development is the
ratio of calls to puts at overhead strike levels.  As reflected
by our Pinnacle Index, this ratio is reaching extreme levels
between OEX 680-695 and could serve as resistance over the near
term.



BULLISH Signs:

Interest Rates            Broke BELOW 200dma and 5.50% benchmark. 
                          (5.438%)

Higher Highs              Several industry sectors advancing 
                          higher and took out prior
                          highs including the DOW and the S&P 

Peak Open Interest        April's peak open interest (1.56)
                          climbed higher indicating that Put open
                          is building.

Market Volatility (VIX)   Trading BELOW 50-day moving average
                          (23.44).



BEARISH Signs:


Russell 2000              Trading below key 400 level.  Troops
                          beginning to follow Generals.

Pinnacle Index            Reaching extreme levels at the OEX
                          680-695 strike.

Advance/Decline Line      Enormous gap between INDU and A/D line. 


 


 

 


OTM Call Analysis

As we move through April's expiration cycle, Pinnacle is tracking 
the level of call buying (OTM) between 650-700 among option
speculators. As we have been documenting, out-of-the-money
(OTM) call buying has been climbing and may serve as overhead resistance.

March Expiration Cycle
OEX OTM Call Analysis (Open Interest MAR 650-700)
-----------------------------------------------------------------
Date                 Open Interest     Change %    Alert
-----------------------------------------------------------------
Friday, March 5             58,085         -
Friday, March 12            68,675      +18.2%
Thursday, March 18          85,124      +47.6%     *    
   

April Expiration Cycle
OEX OTM Call Analysis (Open Interest Apr 650-700)
-----------------------------------------------------------------
Date                 Open Interest     Change %    Alert
-----------------------------------------------------------------
Friday, March 19            35,626         -
Friday, March 26            60,266      +69.2%     
Friday, April 2             70,952      +99.2%     
Tuesday, April 6            74,683     +109.6%     *
Tuesday, April 8            73,966     +107.6%     *
 

Market Sentiment at a Glance
********************************************************************   
                                Friday     Tues      Thurs  
Indicator                       (4/2)     (4/6)      (4/8) Alert
********************************************************************

Pinnacle Index (OEX):          
-----------------------------------------------------------------
Overhead Resistance (660-675)     5.1       2.5         
Underlying Support  (635-650)     1.8       1.9         

Overhead Resistance (680-695)                         27.6  *   
Underlying Support  (645-660)                          1.7   


Put/Call Ratios:
-----------------------------------------------------------------
CBOE Total P/C Ratio               .6         .6        .5
CBOE Equity P/C Ratio              .5         .4        .4   *   
OEX P/C Ratio                     1.5        1.5       1.7   *                


Peak Open Interest (OEX):
-----------------------------------------------------------------
Puts                              520        520       520
Calls                             700        700       700
P/C Ratio                        1.41       1.55      1.56   *


Market Volatility Index (VIX):	
-----------------------------------------------------------------
CBOE VIX                        23.34       23.04     23.44  *



Investors Intelligence:
-----------------------------------------------------------------
Bullish                         55.6%       55.6%     55.6%  *  
Bearish                         31.6%       31.6%     31.6%  *
		



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                       (4/2)       (4/6)     (4/8)
-----------------------------------------------------------------
               
                    (690-695)     31.9       10.8      33.8
                    (680-685)      3.2        1.6      22.6
Overhead Resistance (660-675)      5.1        2.5      27.6

OEX Close                       649.92     665.29    679.49

Underlying Support  (645-660)      1.8        1.9       1.7
                    (655-660)      1.4        1.6       1.5
                    (645-650)      2.0        2.4       1.9
 
Average ratings: 
Resistance levels 2.0 / Support .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is Heavy at the OEX 680/695 level 
while the underlying support is moderate at the OEX 645/660 level.


Put/Call Ratio 
-----------------------------------------------------------------
                                Friday      Tues       Thurs
Strike/Contracts                 (4/2)      (4/6)      (4/8)
-----------------------------------------------------------------
CBOE Total P/C Ratio               .63       .56        .51
CBOE Equity P/C Ratio              .47       .40        .37
OEX P/C Ratio                     1.43      1.50       1.68


Peak Open Interest (OEX)
-----------------------------------------------------------------
                     Friday         Tues         Thurs
Strike/Contracts     (4/2)         (4/6)         (4/8)
-----------------------------------------------------------------
Puts                 520 / 15,222   520 / 16,579  520 / 16,370
Calls                700 / 10,780   700 / 10,704  700 / 10,698
Put/Call Ratio       1.41           1.55          1.56


 
 


Market 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
March 4, 1999       Bottom              28.15   

April 1, 1999                           23.34
April 6, 1999                           23.04
April , 1999                            23.44



 


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   6, 1999                     58.3        30.0   
January  13, 1999                     60.0        30.0   
January  20, 1999                     61.7        25.9   
January  27, 1999                     60.7        28.2   

February  3, 1999                     60.0        26.7   
February 10, 1999                     61.7        25.9   
February 17, 1999                     55.7        28.7   
February 24, 1999                     54.1        31.5   

March 3, 1999                         50.9        32.1   
March 10, 1999                        49.1        32.5   
March 17, 1999                        52.6        17.6     
March 24, 1999                        55.9        29.7     
March 31, 1999                        55.6        31.6  *   





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

Index     Last    Mon    Tue    Wed   Thur   Week
Dow    10197.70 174.82 -43.84 121.82 112.39 365.19
Nasdaq  2573.39  66.69   3.11 -18.74  28.96  80.02
$OEX     679.49  14.94   0.43   7.55   6.65  29.57
$SPX    1344.00  27.40  -3.23   9.00  17.11  50.28
$RUT     399.89   3.55  -1.21  -3.31   2.12   1.15
$TRAN   3329.40  44.24 -28.28  13.75  -9.47  20.24
$VIX      23.33  -0.53   0.14   0.58  -0.20  -0.01

Stock          Mon    Tue    Wed   Thur  Week

CMGI  246.50  28.69  13.63   1.75 15.13 59.20 Unbelievable
RNWK  213.75  -3.38  40.94   3.31 15.00 55.87 Speculation $$$$$
EGRP   92.88  11.75   3.38   8.50  8.38 32.01 Earnings 4/12
SCH   116.00   9.13   3.88   8.75  0.00 21.76 Earnings 4/15
SUNW  143.00   3.81  10.63  -1.88  4.25 16.81 Dropped, split 2:1
VISX  129.94   9.00   6.00  -3.25  4.69 16.44 Earnings 4/14
TLAB  113.00   4.88   3.81   3.50  2.25 14.44 Earnings 4/14
UNPH  130.00   8.13  -3.81   4.31  4.06 12.69 Earnings 4/26
QCOM  148.38  11.88  -2.94  -7.44  9.88 11.38 Hard to keep down
AOL   160.50  16.94   0.56  -9.00  2.50 11.00 Only for the brave
MER    97.00   3.19   0.19   5.38  0.50  9.26 Earnings 4/13
VOD   195.75   3.63   1.88   2.00  1.75  9.26 Waking up
LVLT   81.44   4.75   4.19  -2.19  2.44  9.19 What a week!
WMT   102.25   2.13   0.31   1.81  4.75  9.00 Starting split run
CMVT   94.25   5.44  -2.50   0.81  4.50  8.25 Splits 3:2 next week
AMZN  179.00  15.50  -3.63  -7.06  3.19  8.00 Internets are hot!
MWD   107.50   2.94   1.94   3.75 -1.06  7.57 Split Candidate
JPM   130.00   1.31  -1.87   3.50  2.56  5.50 New, Earnins 4/19
PVN   114.69   2.31   1.25   1.31  0.38  5.25 Not bad
EMC   133.69   4.75  -2.19   3.19 -0.69  5.06 Merely resting
AEOSD  76.88   2.00   1.00   0.50  0.00  3.50 New symbol is AEOSD
JNJ    97.25   0.75  -0.63   0.63  2.38  3.12 New, Earnins 4/26
ALD    52.63   1.94  -0.75   1.50 -0.31  2.38 Dropped,not fast enough
COF   156.50   0.00  -0.44   3.25 -0.69  2.12 Earnings 4/15
MSFT   94.56   2.25  -0.88  -0.75  1.25  1.87 Lagging the market
BBBY   38.56  -0.94  -0.56  -0.38  2.81  0.93 Waking up
WHR    53.50  -1.19   2.13  -1.00  0.50  0.44 Earnings 4/15
YUM    71.25  -1.25   0.06  -0.88 -0.19 -2.26 Dropped, not moving

Puts

ABS    50.44  -0.06  -1.69  -0.81 -0.06 -2.62 What rally?
LTR    71.06   0.50   0.38  -2.63 -0.19 -1.94 Still going.
LHSG   27.88  -0.13  -0.94  -2.69  1.88 -1.88 Entry point?



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:
******

YUM $71.25 -.19 (-2.31) We picked up YUM on Sunday as a momentum 
play. With good fundamentals and a recent price target increase, 
we expected a better performance from this stock. It is down 
$2.31 so far this week even as the market is setting new highs, 
and today it traded below its 10 dma. While it will probably turn 
around and start an earnings run soon, we can't wait around for 
it, so we are dropping YUM. For those of you who are in this 
stock, it is about to test its 22 dma, which provided strong 
support in March. You could get a nice bounce.

ALD $52.63 (+2.38)  Fairly strong volume has kept ALD 
above $51, its old resistance, and climbing to new highs.  
However, the gains have been too slow and we're dropping it.  
In this bullish environment we expect greater performances 
from our picks.

SUNW $143.00 +4.25 (+16.81) Only on principle do we say good
bye to SUNW (we never recommend holding over a split). 
SUNW has been a great play as a call and we now will take our 
profits and say goodbye.  Since SUNW split is reflected on Friday, 
we are dropping it as a current call play.  SUNW has given us 
+$26.50 since we picked on the 28th of March.  Though SUNW 
is a good company, we feel there will be some post-split 
depression.



PUTS:
******

None



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

RNWK $213.75 +15.00 (+55.87)  RNWK has continued its awesome
trend this week.  On Wednesday, RNWK traded as high $220.63
before trading negative on the day.  On Thursday, RNWK again
traded in a very broad range and closed near its high of the
day.  Though gravity has to come into play, RNWK still has
earnings coming up at the end of April and the likelihood of
a stock split announcement is very high.  Watch for dips to
buy new calls.  Only for the brave at this point considering
the size of the run up!

TLAB $113.00 +2.25 (+14.44)  TLAB continues to trade higher
and higher.  There are a lot of analysts that feel the 
telecommunication sector is looking very strong and should
report strong earnings.  There is a lot of newsy events 
happening with TLAB's that should help it continue forward.
Earnings are on the 14th of April and if a stock split is
not announced, there is a good chance of one being announced
at the shareholder meeting on April 22nd.   

CMGI $246.50 +15.13 (+59.19) CMGI has had an outstanding
week with close to a $60 gain.  Amazingly, CMGI traded as 
high as $259 today, which is a new 52-week high.  There is
a lot of talk on the street about how to value these high
flying Internet stocks.  Many analysts are making the point
that one can not use the tradition methods.  The only value
investors have been looking at is the huge gains these stocks
have given them.  Watch for profit taking dips before adding
new plays.  Qualifies as a high risk play after the huge
rise!

MWD $107.50 -1.06 (+7.56) MWD gave back a few gains today,
but has had a good week.  MWD has a shareholder meeting on
Friday (9:00 am) and there is a possibility of a stock split.  
MWD is well above prior split levels.  The financials have been 
strong based on earnings forecasts and the interest rate
economy.  With a stock split announcement on Friday, MWD 
could take off for even bigger gains.  MWD did reach another
52-week high of $110.38 today before tailing off.

QCOM $148.38 +9.88 (+11.38) On Monday when FAC Equities 
upgraded QCOM and announced a price target of $170, QCOM took 
off into outer space and even set a new all time high of 
$155.25. However, a total of -$10.38 of profit taking ensued 
on Tuesday and Wednesday. After adding over $80 in as little 
as two and a half weeks, the profit taking can be considered 
minor. QCOM was right back on track on Thursday. It added 
an incredible +9.38 in trading and positive move could be 
considered a buy signal. There are great hopes that Premier 
Zhu Rongji will announce sometime during his visit to the US 
this week that China will open its mobile market to CDMA systems. 
This will be highly beneficial to QCOM who stands to gain large 
royalties on equipment and handsets. Remember, QCOM is on our 
split candidate list. Earnings are April 21st (First Call).

WHR $53.50 +0.50 (+0.44) After Tuesday's pop up, profit
takers again attacked WHR for a dollar loss on Wednesday.
WHR is now caught in a trading range. It seems to be
fluctuating between $52-$54. When a stock gets in a trading
pattern, a breakout in one direction or the other is usually
not far off. But keep in mind it could break to the
downside just as easily as the upside. Wait for a break
above $54 before initiating any new plays in WHR.  Earnings
are April 15th (First Call).

COF $156.50 -0.69 (+2.13) COF was a big mover on Wednesday. 
It climbed +$3.25 and almost reached its all time high of 
$158.50. On Thursday, investors sold at these levels and 
the stock dipped -$0.69. Earnings are right around the 
corner on April 15th. The financials have been strong and 
COF could turn in some nice numbers. However, remember that 
we never recommend holding over the actual announcement.

WMT $102.38 +4.88 (+9.25) WMT blew past its previous $98.38 
high today, finally starting its split run with a bang. It 
gained $4.88 on strong volume. The catalyst was the release of 
very healthy sales numbers for the month of March. WMT reported 
that same store sales increased 11.3% and total sales climbed 
from $11.7 billion to $13.89 billion, an increase of 18.3%. This 
compares to an increase of only 6.2% last March. An early Easter 
helped all the retailers and may cause April sales to be off a 
little. Still, investors loved the news! Look for more new highs 
as the Retail King heads toward its April 19th split.

MER $97.00 +.50 (+9.25) MER was up a big $5.25 in a strong 
brokerage group yesterday. Today it added another $.50, and 
traded as high as $98.69. Guy Moszkowski, of Salomon Smith 
Barney, raised his long-term price target to $110 from $105. 
He said that MER's current price is based on the company's 
poor performance in the second half of 1998, but it should now 
provide a 20% return on equity. He thinks that compared to Morgan 
Stanley Dean Witter, shares of MER are undervalued. We believe 
MER will announce earnings on Tuesday, April 13th, the date 
shown by First Call, but MER will not confirm this. Keep this 
in mind as you plan your trades.

SCH $116.00 +0.00 (+21.75) Incredible! Yesterday SCH added 
another $9.00, stringing together 3 days of powerful gains 
after an already long run-up. It was really due for some profit 
taking today, but after an early dip to $113.50, buyers moved 
in and sent the stock to $119.94. It settled down after that 
and traded flat for the rest of the day, closing exactly even 
with yesterday. Volume was more than twice the average. There 
were simply too many buyers to let profit-takers send Schwab any 
lower. The whole sector is sizzling hot and it looks like SCH 
has the strength and momentum to keep on going!


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



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







The Option Investor Newsletter         Thursday  4-8-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


PICK NEWS - CALLS (continued)
*******************************************************

PVN $114.69 +.38 (+1.69) PVN keeps tacking on small gains each 
day, although we would like to see volume pick up a bit. The 
news that two banks in Europe lowered rates is positive for 
this financial stock. It makes the possibility of higher rates 
in this country less likely any time soon. Financial stocks 
remain strong. Earnings for PVN are still over 2 weeks away.

BBBY $38.56 +2.81 (+.93) After 3 days of profit-taking, BBBY 
turned up again today. It bounced off its 10 dma, adding $2.81, 
which was nearly an 8% gain. It appears that investors have 
finally shaken off news that the company's co-chairs are selling 
2 million shares. BBBY looks ready to run and all the positive 
things we mentioned in our Sunday write-up should now send the 
stock higher. 

AMZN $179.00 +3.19 (+8.00)  Amazon felt a little squeeze on 
Wednesday when music giants, Seagram's Universal Music Group 
and Bertelsmann's BMG, announced their joint venture to go
online with getmusic.com!  A little bit of competition and 
some expected profit-taking caused AMZN to shed a slight 
-7.07.  Today was quite a different story for the stock - 
target shooting was in season! Intraday trading provided 
some really nice entry points as AMZN dipped to $166 and 
then peaked at $184.13 giving lots of room for profit.  
Remember, this is an aggressive earnings play and the Internet 
stocks are very volatile. Protect your profits with stops!  
Earnings are around on April 27th. 

VISX $129.94 +4.69 (+16.44)  VISX is sizzling with profits!  
With no resistance in the way, VISX set another new high 
yesterday at $134.13, but closed slightly down. As expected, 
it seems the profit-takers reared their ugly heads.  But 
there is always a silver lining.  The consolidation provided 
solid entry points in the low $120 range.  Today the stock 
regained its momentum and advanced almost 5 points on 
moderate volume.  Note that earnings are due April 14th and 
we never recommend holding over an earning report.

AEOSD $77.38 +0.50 (+4.00)  There was a big change for 
American Eagle Outfitters today - its trading symbol is now 
"AEOSD" on the Nasdaq.  The change didn't seem to shake 
things up too much and the stock tacked on a small gain 
again today.  Now that the stock has broken through its old 
resistance at $74-75 and kept above that mark, it needs more 
momentum.  Look for stronger volume before initiating a new 
position on this split play.  AEOSD is splitting 2:1 on 
May 3rd.    

CMVT $94.25 +4.50 (+8.25)  The excitement is growing in 
anticipation of the 3:2 stock split next Thursday and so is 
CMVT.  The stock has made consistent advances since last week.  
And today, on strong volume, the stock spiked +4.50 and hit 
$95.13 to set yet another 52 week high. This split run could 
easily continue to provide stellar profits, but as always, put 
your stops in place.

LVLT $81.44 +2.44 (+9.19)  Yesterday LVLT hit $83.25 during 
intraday trading to put another mark in the record books.  
This is the third time this week the stock has set a new high! 
But there's always more than one side of a story in a day's 
trading.  Yesterday, the conservative players also found the 
slight pullback they may have been looking for as LVLT dipped 
to $78.31 and settled for the day at $79.  Then upward 
confirmation came today as LVLT gained it all back plus a 
little more for fun.  Again, the charts and other technicals
are supportive of a continued uptrend, but always be prepared 
for market volatility and earth-shattering news events to 
shake up things up.

MSFT $94.56 +1.25 (+1.88) Don't' get us wrong; we'll take a 
gain any day.  The challenge here is that MSFT hasn't 
advanced in the manner that a leader of a record setting 
index should.  This is 1 general that is currently 
comfortable hanging out with the troops, while other 
generals lead the charge into the record book.  
Technically, MSFT is getting a bit long of tooth as MACD 
has fallen to neutral leading the other indicators to roll 
over into a descent.  Their positive state would not last 
much longer were it not for their forthcoming earnings 
announcement coming April 22, only 2 weeks away.  
Historically, MSFT really starts to shine during this 
period of the run.  That said, there is a good opportunity 
to scale into a position without getting caught in a 
feeding frenzy.  Target shoot if you like, but confirm 
market direction before starting the play.

AOL $160.50 +2.50 (+10.50) Despite its stellar rise, we 
cautioned Tuesday, "be prepared to exit on any downturn by 
keeping a trailing stop in place".  If you were in the play 
yesterday, you felt the pain of watching your in-the-money 
option drop by $8 in 20 minutes, as someone sold over 1 
mln. shares not wanting to get creamed by YHOO reporting 
what could have been less than expected earnings.  
Fortunately, buyers stepped back in quickly to recover 
about half the loss.  Volume today was 30% greater than 
average, but we got "only" +$2.50 on a record setting day.  
Technically, MACD is in steep descent toward neutral while 
RSI is telling us to push the "sell" button.  Never trust 
just 1 indicator.  After all, they are just indicators and 
can't predict an earnings run or a stock split.  
Fortunately AOL reports earnings April 27 and is in split 
territory again.  AOL may need a few days to catch its 
breath, but investors still love the Internet and AOL rules 
their roost.  Scale into AOL when you confirm market and 
sector direction, and keep your stops in place.

EMC $133.69 -0.69 (+5.06) EMC was one of those fortunate 
companies that Merrill Lynch picked yesterday to have a 
good shot at exceeding the Street's earnings expectations 
this quarter.  The good news sifted another $3 into 
investors pockets.  While the market got up early today to 
set new records, EMC hit the snooze button and traded only 
82% of normal volume.  It may nap a few more days as its 
technical indicators are rolling over, though still 
positive.  No need for panic as EMC will wake up to the 
earnings run alarm clock (due April 20 before the open).  
With volume low, gravity defying price rises won't occur 
immediately.  So target shoot your way in.  The run will 
continue, market willing.  Oh, we almost forgot, EMC splits 
May 28, but it won't effect the immediate play.

VOD $195.75 +1.75 (+9.25) Wow!  Nice gapping action on 
Wednesday, and an actual intraday rise of $3.44 today.  VOD 
made a clear break from its 30 and 50 dma this week, easily 
clearing its previous resistance of $190.  It's nearing its 
all-time high of $200 which will act as resistance.  With 
the overall market on a bullish snort and AirTouch Cellular 
(VOD's "betrothed" in a Q2 or Q3 wedding of the 2) due to 
report earnings on April 22, plus an exceptionally positive 
technical chart, VOD could punch right through into orbit.  
Stops are tough on a gapping stock, but use them to 
increase your chances of capital preservation in a 
reversal.  Confirm market direction 

EGRP $92.88 +8.38 (+32.00) Let's see. . . +$24 the first 3 
days. . .Thursday is the fourth trading day of the week. . 
. .Hmmmmm. . .EGRP must be up another $8.  Whaddaya know! 
It is!  For those counting, that is 58% so far this month 
(7 days).  The technical chart can only be described as 
stellar.  The price graph is vertical.  As long as the 
market sets new records and Internet brokers remain hot, 
which we expect until the end of earnings season for this 
sector, EGRP will show us the money.  Now, our standard 
words of caution: gravity will take over.  Nothing can 
escape it.  Keep your stops set for the reversal that can 
come at any time and enjoy the ride.  Repeat gravity will
eventually take over.  Expect profit taking on any market
weakness.  Earnings are April 12th (First Call), this means
you should sell either tomorrow, or Monday assuming they
announce after the bell (unfortunately, we could not get
confirmation of before the bell or after the close).

UNPH $130.00 +4.06 (+8.44) This laser component 
manufacturer is lighting up the market skies in the telco 
industry.  They are to the Internet and fiber 
communications what Intel was to the rise of PC's.  Though 
their volume has been average for most of the week, we got 
a buying opportunity yesterday as UNPH remained flat 
yesterday and shot ahead $4 today.  UNPH runs in 1 to 2 
week cycles and may be ready to run again since its 
technical chart is completely positive.  Also, an earnings 
run should begin soon as they report on April 26.  We could 
get a split announcement then since their last split was 
2:1 In November 1997 at about $70.  Confirm market 
direction first and protect your $$$ with stops.  Looking strong.


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

LHSG $27.88 +1.88 (-1.87) A record breaking day will pull 
even the sluggards along for the ride.  Such was the case 
with LHSG today, though yesterday they took a $2.69 hit.  
Unfortunately, volume really swelled on today's rise given 
us caution that the descent may be over or at least halted 
for now.  Confusingly, Lehman Bros. downgraded the stock 
today stating, "they were concerned about license growth at 
the company in the near-term, and believed that competition 
in the customer-care and billing-space market had 
intensified" (Reuters).  Shouldn't the price go down?  We 
think so, but as we've said in the past, don't fight the 
tape.  Keep your stops set in case any good news shows up.

LTR $71.06 -.19 (-1.94) LTR has been a pretty decent put
play considering the strength in the market this week.  The
only news to report is that LTR will be taking about a $120
million charge due to accounting changes.  We did see a new
52-week low today at $70.75.  We still see no reason for LTR
to reverse course.  		

ABS $50.44 -.06 (-3.00)  ABS has continued to trend downward,
which is very bearish considering the opposite course the
market has taken.  ABS is trading well below its 50 and 200-
dma and we feel it is on course to reach a new 52-week low
at around $44.  No current news to report.



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

JPM - JP Morgan & Co $130.00 +2.56 (+5.50 for the wk)(+1.62)

JPM is a premier international banking firm headquartered in
the US. It is a holding company for subsidiaries engaged in 
global banking and investment.  They offer services to 
corporations, institutions, and, of course, the very wealthy.

Along with other financial institutions and brokerage firms, 
this leader in the industry powered ahead the past two days.  
There is strong optimism amongst the analysts that 1Q results 
are promising for JPM.  They are expecting companies strong 
in capital market activity, such as investment banking, to 
show solid growth for the first part of 1999 and make up any 
losses they may have suffered this past fall.  JPM spiked 
+3.50 yesterday on strong volume to push through its 
resistance at $124-125.  Today the stock's momentum kept 
going and it increased another +2.56.  Earnings are due 
April 19th.

(This is basically an earnings run play with the added
boost of a strong financial sector fueled by stable interest
rates here and the rate cut overseas.  Normally we would not
recommend the April options, but since JPM's earnings
are the 19th, you should sell on or before Friday anyway.
Those traders uncomfortable playing this close should play 
May or June.)

The interest rate cut by Bank of England and the European
Central Bank was also good news for large financial institutions
in America.  Lowering the interest rates overseas means the 
FED is likely to leave interest rates alone over here.
Also in the news, JPM topped the advisors list during the 1Q for 
mergers & acquisitions in both Europe and Latin America 
according to IFR Securities Data.

-April options expire next Friday-

BUY CALL APR-125 JPM-DE OI=1075 at $ 6.00 SL= 4.25
BUY CALL APR-130*JPM-DF OI=2972 at $ 2.94 SL= 1.50
BUY CALL APR-135 JPM-DG OI=1780 at $ 1.06 SL= 0.00
BUY CALL MAY-130*JPM-EF OI=1106 at $ 7.63 SL= 6.00
BUY CALL JUN-130 JPM-FF OI= 459 at $ 9.50 SL= 7.00

Picked on March 14 at $130.00     PE = 25
Change since picked     +0.00     52 week low = $ 72.12
Analysts Ratings    1-5-8-0-0     52 week high= $148.75
Last earnings 12/98 est=  .37     actual= .42
Next earnings 04-19 est= 1.47     versus= 1.80
Average Daily Volume = 978.8k
Chart = http://quote.yahoo.com/q?s=JPM&d=3m

***********

JNJ - Johnson & Johnson $97.25 +2.38 (+3.12)

Johnson & Johnson is one of the world's largest and most 
diversified health care product makers. The company operates 
in three sectors: consumer products (with brands like Tylenol 
and Motrin analgesics, Reach toothbrushes, Band-Aid bandages),
professional products (AcuVue contact lenses, surgical 
instruments, joint replacements), and pharmaceuticals 
including Ergamisol cancer treatment, Hismanal antihistamine, 
and Ortho-Novum oral contraceptives). JNJ expands its product 
line through acquisitions (it has made more than 30 this 
decade) and partnerships with smaller firms (they provide 
the technology; JNJ provides the marketing muscle).
(from Hoovers Online)

JNJ has a beautiful up-trending chart pattern.  JNJ reached
a new 52-week high today and did it on pretty strong volume.
Earnings are scheduled for the 26th of April and we feel
the strong economy will benefit JNJ's earnings.  Make sure
to watch for a bit of profit taking after reaching new highs.
JNJ's last split was in June of 1996 in the $100 range.  The
problem is that they don't have enough shares and the share-
holder meeting on the 22nd of April doesn't have a vote 
on additional shares listed in the proxy. But, we all know 
how easy it is for management to put a vote to shareholders,
so JNJ will be added to our Split Candidate list.

With earnings only 2 weeks away, we see no reason why the
run should stop. 

BUY CALL MAY- 95 JNJ-ES OI=1527 at $4.50 SL=3.25 ITM $2.25
BUY CALL MAY-100*JNJ-ET OI=2924 at $2.13 SL=1.00
BUY CALL JUL-100 JNJ-GT OI=1480 at $4.13 SL=2.50

Picked on April 8th at $97.25   PE = 42
Change since picked     +0.00   52 week low =$67.06
Analysts Ratings    1-4-0-0-0   52 week high=$97.25
Last earnings 01/99  est= .51   actual= .50
Next earnings 04-26  est= .80   versus= .73
Average daily volume = 2.14 mln
Chart = http://quote.com/q?s=JNJ&d=3m




******************
NEW PUT PLAYS 
******************

None


*****************************************************
COMBINATION PLAYS   
*****************************************************
The Market Roars...

Wednesday, April 7

The Dow rallied to another new high on Wednesday as speculation
of positive corporate earnings drove investors back into a bullish 
mentality. The Dow was up 121 points at 10085, breaking the record
set last Monday. The Nasdaq index did not participate in the rally
and actually fell 18 points to 2544. Market breadth was slightly
worse, as declining issues led advances 16 to 13 on active volume
of 815 million shares on the NYSE.

Tuesday's new plays (positions/prices):

CBS  MAY42C/APR45C  $2.87 debit (target was $1.75; No Play)
CBS  MAY42C/MAY45C  $1.25 debit (target was $0.62; No Play)
DELL MAY45C/MAY47C  $1.31 debit (slightly below our target)
DELL MAY40P/MAY42P  $0.56 debit (slightly below out target)
NXTL MAY30C/MAY35C  $3.62 debit (slightly below out target)

The disparity in the CBS MAY-42C was adjusted immediately after
the open as the the stock gapped-up $1.25. Both plays were well
below our target entry prices thus no positions were opened.

Thursday, April 8

The Dow finished strong with its third record close of the week
Thursday, buoyed by strong sales at the nation's retailers and
optimism about earnings from financial services companies. The
Dow ended up 112 points at 10197, beating the record set on
Wednesday. The Nasdaq index rose 28 points to 2573, the S&P 500
stock index also reached a new high at 1344. In the broad market,
advancing issues led declines 16 to 12 on active volume of 842
million shares on the NYSE.

Portfolio plays:

HUM took a serious blow today after the company warned its first
quarter earnings won't meet Wall Street's expectations. Humana
said it now expects a profit of 20 to 24 cents per share, well
below estimates of 34 cents. The stock ended the day down $4.
We only have a $0.12 debit in this position (MAY20C) so there is
still a good possibility for a profitable outcome.

******************************************************************
NEW PLAYS 
******************************************************************
KLAC - KLA Tencor  $55.50     *** Volatility Play ***

KLA-Tencor is the world's largest maker of tools that identify
defects on computer chips during manufacturing. Its systems
monitor and analyze production of the semiconductor process and
provide feedback so that fabrication problems can be identified
and corrected. KLA-Tencor gets 56% of its sales from outside the
US and acquisitions are helping the company expand its products.
KLA-Tencor was formed through the 1997 merger of the industry
segment's two biggest players, KLA Instruments and Tencor.

Not much news on this one other than the recent volatility in the
chip sector. The company currently involved in a stock re-purchase
plan with the expectation to buy an additional 250,000 shares of
its common stock on the open market from time to time. This plan
is a continuing plan to partially offset the dilution created by
employee stock option programs.

The play is based on technicals. We like the steady, sideways
history of the stock chart and this gives us a favorable edge
when used with the recent volatility of the options. This is an
excellent opportunity to speculate on where the stock will be in
3 months. Plan to 'roll-forward' to a JUN/MAY position at the end
of next week.

PLAY (conservative/time spread):

BUY  CALL JUN-55 KCQ-FK OI=310  A=$7.12
SELL CALL APR-55 KCQ-DK OI=2264 B=$2.62
INITIAL NET DEBIT TARGET=$4.25 TARGET ROI=40%

Chart = http://quote.yahoo.com/q?s=KLAC&d=3m
******************************************************************
MER - Merrill Lynch  $97.00     *** Hot Sector! ***

Merrill Lynch is the US's leading brokerage firm (Morgan Stanley
Dean Witter is #2). The firm combines retail brokerage and cash
management with investment banking, clearing services, retail
banking, and insurance. Merrill Lynch also deals in government
bonds and derivatives and provides insurance services. They are
a giant in the US mergers and acquisitions market. It also has a
large presence overseas, where it has particularly targeted the
Asian markets, and provides investment and financing services to
companies outside the US and Canada. It is also one of the world's
largest mutual fund managers.

The big banks and brokers have been on a streak this week and both
kept climbing today in a sector-wide rally. Financials have been
playing catch-up to the broader market recently, and the largest
players are now seeing most of the gains with the positive outlook
for first-quarter earnings. The near-term view is excellent and
Salomon Smith Barney just raised its long-term price target on MER
to $110 a share. Analyst Guy Moszkowski expects Merrill to deliver
20% return on equity this quarter and says the company's shares
are undervalued relative to its nearest competitor, Morgan Stanley
Dean Witter.

PLAY (conservative/debit spread):

BUY  CALL MAY-90 MER-ER OI=1071 A=$10.62
SELL CALL MAY-95 MER-ES OI=1615 B=$7.25
INITIAL NET DEBIT TARGET=$3.12 ROI(max)=59% B/E=$93.12

PLAY (Covered-Calls/LEAPS):

BUY  CALL JAN00-100 LME-AT OI=2975 A=$14.75
SELL CALL APR-100   MER-DT OI=5650 B=$1.62
INITIAL NET DEBIT TARGET=$12.75 TARGET ROI=50%

Note: In the long-term calendar spread, we are reducing the net
cost of the long option by the amount of credit from the sale of
the nearer-term option. If the near-term call expires worthless,
we will sell the May call to further reduce our debit. If the
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 long position 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 should be ahead
in the play even after you buy it back.

Chart = http://quote.yahoo.com/q?s=MER&d=3m
******************************************************************
IDTC - IDT Corp.  $23.81     *** Merger or IPO? ***

IDT is a leader in Internet telephony and their telephone system
allows overseas callers to bypass non-US long-distance companies,
which often charge exorbitant rates for international calls. They
also provide Internet services and prepaid calling cards, and its
Net2Phone software connects live calls between PCs and telephones
via the Internet, charging by the minute. IDT also offers Net2Fax,
which routes faxes over the Internet without a computer, and the
Click2Talk software connects Web-shoppers to sales representatives.

Speculation that IDT would spin off Net2Phone in an initial public
offering has helped boost the company's stock in recent weeks. IDT
has yet to file for an IPO but a bond deal late last month may be
the signal that a move is near. Another Internet company, Softbank
is in negotiations with IDT to invest in Net2Phone, a further sign
that IDT plans to spin off the unit into a IPO. There is nothing
official yet but most analysts think it will eventually become a
reality and the deal may close within the next two weeks. Softbank
owns big stakes in some of the giant Internet companies like Yahoo
and E-Trade.

PLAY (very speculative/debit spread):

BUY  CALL APR-20.00 IQJ-DD OI=2568 A=$4.25
SELL CALL APR-22.50 IQJ-DX OI=1166 B=$2.43
INITIAL NET DEBIT TARGET=$1.62 ROI(max)=53% B/E=$21.62

PLAY (very conservative/debit spread):

BUY  CALL MAY-15.00 IQJ-EC OI=64  A=$9.38
SELL CALL MAY-17.50 IQC-EW OI=238 B=$7.25
INITIAL NET DEBIT TARGET=$1.87 ROI(max)=33%

Note: Do not open this position for more than $1.87 debit.

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





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








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