Option Investor

Daily Newsletter, Thursday, 04/15/1999

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The Option Investor Newsletter         Thursday  4-15-99  
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)
        4-15-99           High     Low    Volume  Advances Decline
DOW    10462.72 + 51.06 10500.74 10378.63 1085,400k  1,757   1,272
Nasdaq  2521.77 + 14.49  2536.34  2443.02 1235,400k  2,033   2,076 
S&P-100  669.61 +   .68   672.49   659.44   Totals   3,790   3,348
S&P-500 1322.85 -  5.59  1333.60  1308.38            53.0%   47.0%
$RUT     417.77 +   .38   419.25   411.54
$TRAN   3453.57 + 10.25  3519.09  3424.90
VIX       24.77 -  2.66    29.40    24.28
Put/Call Ratio      .67

Nasdaq profit taking over?

WOW! The selling was sharp and serious. The major Nasdaq gainers
from the last two weeks gave a large percentage back in two
days of very high volume trading. The Internets were especially
hard hit with huge double digit loses. The good news in my mind
is the apparent bottom formed between 10:30 and 2:00 today.

The Nasdaq was down -64 at 10:30 and this was on top of the
-70 from yesterday. The Nasdaq had been due for some profit 
taking after the big gains the net stocks had turned in
recently. The index turned upward at 2:20 and buying was heavy
into the close at +14.49. While we had been bouncing off 
resistance at 2600 for several days, we bounced off strong 
support at 2460 today. This strong bounce bodes well for Friday
and next week. This 5% correction from the 2600 level is a
welcome event only if you were not long Nasdaq stocks. In my
commentary last Tuesday I warned that the Nasdaq looked weak
and I urged caution on Nasdaq stocks for the rest of the week.
Still I got deluged with email about the "dramatic losses"
and how could we make so many bad picks. Give me a break!
Every major play we had the last two weeks was up $25-$75.
We constantly warn on these that profit taking could occur
at any time. We strongly recommend constantly that you should
wait for an entry point AND set stop losses to protect your
profits and capital. EVERY stock that runs up strongly WILL
correct when the market cycles. If this is too hard to 
comprehend and handle then please invest in mutual funds. 

The Nasdaq volume yesterday was the heaviest in history and 
the 1.24 bln today was the fourth highest in history. The
Dow turned in a very heavy 1.1 bln today as well. The good 
news again is the positive numbers the indexes turned in on
a high volume day. Advances beat decliners today and were
positive even when the indexes were negative. We view this
as a positive event. The strong performance of the Dow and
Nasdaq today was not confirmed by the S&P-500 on the surface
but the details show otherwise. Only 198 of the 500 stocks
were down for the day, only 98 lost more than $1.00. 

The culprits were several big market leaders that gave back 
huge recent gains. For instance, EMC was downgraded today and 
lost -9.00. COF posted record earnings of $1.18 vs $.91 last 
year but missed estimates by $.06. COF lost -12.00 on the news. 

Schwab announced earnings of $.34 beating estimates by only
$.01 and while these are record earnings traders were expecting
something stronger like the recent Ameritrade results. SCH
lost -14 today to $124. In reality the stock was up from $85
to over $150 in the last three weeks since we picked it. Was
it a bad pick because it dropped -14 after the announcement
after gaining +$70 in three weeks? Not hardly! Anybody that
follows our recommendations to sell before the earnings 
announcements would have not suffered this drop. 

Other S&P major drops were PFE which lost -14 today after 
announcing weak earnings. Do you see a pattern here? The rest 
of the big losers were PVN -$6 on the COF earnings, PKN -8, 
TLAB -8, AOL -7. AOL had doubled from $90 to $180 in the last 
five weeks since it has been a pick. The Internet profit taking
took back -$15 this week. Was this a bad pick? A net of +$75,
not hardly! AOL dipped as low as $135 today but was met with
a huge number of buyers pushing the stock back up to close
at $143. Over 40 mln shares were traded today alone. The
largest volume traded in the last six months as buyers jumped
at the chance to buy at a significant discount to recent

My point here is that eight large S&P-500 stocks lost a combined
total of 78 points while 302 of the S&P-500 stocks closed up
for the day. 

The Dow leaders today were not the usual suspects. The sector
rotation out of techs and into cyclical stocks was dramatic.
Leaders MMM, IP, UTX, CHV, BA are not the most loved stocks
recently. The usual leaders MER, T, AOL, PFE were suffering
from profit taking and a shift of funds from techs and financials
and into economically sensitive stocks. The apparent coming
recovery of global economies is pointing to improvement
in these issues. 

A Nasdaq stock that has been dropping like a rock this week
is SUNW. Sun Micro split it's stock 2:1 last week and was
under going the post split depression syndrome and pre-earnings
flight. After they posted earnings today that only beat estimates
by $.01 they traded down another -$3 after hours. We had a great
pre-split run by SUNW and it deserves a rest. We dropped it last
Thursday the day before the split at $143 after a +$25.50 
pre-split pre-earnings run. In after hours trading today SUNW
traded as low as $117 pre-split. Do you see why we suggest
selling before splits and earnings?

I hate to keep preaching to the choir here but every time we
get these price drops we get a barrage of emails complaining
about the picks. Subscribers that have been reading for some
time understand our position. We feel it is new readers
that do not understand our position or do not understand the
volatility of option trading that need this reinforcement.
I know there are thousands of readers that have profited
handsomely from these picks and we will continue to print
some of the emails as they arrive. It helps us tremendously
to get positive feedback from our efforts. We print some of
these because we believe the new readers will believe your
success stories and reasons for success more than they will
believe us. With all the scam sites popping up daily, the
positive reader email helps set us apart from the crowd. We
continue to believe we have the best readers and probably
some of the most successful traders in the market today.

Fearless Friday forecast: I wish it was fearless but we
need to remember the Dow set another record close today and
is now up +678 points in the last nine trading days. Whether
you like it or not, there will be profit taking soon. The
intraday dips we have been seeing are like a daily, rolling
correction but the piper will eventually have to be paid.
I am leaning to a positive day Friday after the big Nasdaq
sell off and recovery but there could still be some weakness
in individual tech stocks but hopefully the positive bounce 
today will carry through Friday. I would expect the normal 
Friday routine, up in the morning, flat to down at lunch and
up at the end of the day. A positive run all day would be a
nice surprise. If we get a positive Friday then my next
target for profit taking would be Tuesday. The current
market is being fueled by the tax contributions and that
will slack off soon. Take profits when you can!

Good Luck,
Sell too soon.

Jim Brown

An email from today ****************

Subj: AOL
Date: 4/15/99 6:06:08 AM 
From:  (Leo D.)

To: comments@OptionInvestor.com

How did you blow AOL? I want an answer as to what you 
missed! I'm not looking for any disclaimer or other 
bull shit about "profit taking"

I want an erudite, hindsight answer to this. And if you
can't give me one, then I'll consider this newsletter as
nothing more than a racing form tout sheet, and I will 
make this fact known from the WSJ to every chat room I 
can contact!

And I won't wait 72 hours for an answer!!!

Leo D.

Our Response:

Leo, I take it from the tone of your email that you had
a losing trade on AOL. I am sorry you were not successful.
I am reprinting the recommendation from Sunday below for
your review.

Sunday 4/11

 Volume was huge last week as funds continue their scramble 
 to take a position.  The late week fallback that halved 
 early week gains is attributable to profit taking from 
 those already in the stock, in other words a big rotation 
 to new investors.  Retirement money still needs to be put 
 to work, and AOL is still the Internet darling funds will 
 buy.  In short, when profit taking hits, buyers are willing 
 to step in.  Technically, MACD has fallen off a bit, but is 
 still positive.  AOL's been on a steep ascent and needs to 
 take a deep breath.  It shouldn't last long, as AOL will 
 begin its run to earnings scheduled April 27, after the 
 close (company confirmed).  We may also get another split 
 announcement since, historically, AOL has split at or above 
 $120.  There are enough shares for a 3:2, but a 2:1 would 
 require shareholder approval.   The current consolidation 
 is giving us a buying opportunity.  Careful.  Since the 
 market has been setting new records and runs in cycles 
 (3,5,7, etc. days), we could get a market wide profit 
 taking day this week.  Internets are particularly 
 vulnerable.  Confirm market direction before playing.  

I think it should be obvious that there are several cautions
listed above. The stock was up +$80 in the last five weeks.
We specifically cautioned that Internets were vulnerable
and an Internet correction could take place this week. I
fail to see where we led you astray. Successful investing 
requires that the investor be aware of the recent history
of the market AND the stock AND be willing to wait for an
entry point based on market AND stock cycles. I personally
viewed the recent sell off of AOL as a buying opportunity
as we suggested above. I bought AOL as it bounced off the 
$140 level today and it met my criteria for a successful entry
point. I hope you continue to read the newsletter and we 
will try to continue to teach these principles. Good luck 
on your future option trades.

Jim Brown

If any reader would like to respond to Leo we would be
happy to forward your emails to him.


Market Posture
As of Market Close - Thursday, April 15, 1999 

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

DOW Industrials    9,750  10,000  10,463    BULLISH   4.7                 
SPX S&P 500        1,300   1,350   1,323    Neutral   4.14 *      
OEX S&P 100          660     580     670    Neutral   4.14 *        
RUT Russell 2000     390     400     418    BULLISH   4.9       

NDX NASD 100       2,075   2,250   2,135    Neutral   4.12        
MSH High Tech        975   1,115   1,029    Neutral   4.12               

                   Key Benchmarks
Technology         Bearish/Bullish  Last    Posture/Since  Alert
XCI Hardware         875     900     873    BEARISH   4.14 *                
CWX Software         600     650     618    Neutral   4.6                  
SOX Semiconductor    375     420     402    Neutral   4.12            
NWX Networking       420     490     475    Neutral   4.12                
INX Internet         550     700     618    Neutral   4.15 *        

                   Key Benchmarks
Financial          Bearish/Bullish  Last    Posture/Since  Alert
BIX Banking          675     720     712    Neutral   4.14 *                       
XBD Brokerage        400     540     471    Neutral   4.14 *            
IUX Insurance        625     655     631    Neutral   3.19                

                   Key Benchmarks
Other              Bearish/Bullish  Last    Posture/Since  Alert
RLX Retail           900     970     907    Neutral   4.14 *          
DRG Drug             390     425     387    BEARISH   4.14 *           
HCX Healthcare       780     850     779    BEARISH   4.14 *                    
XAL Airline          170     185     178    Neutral   3.30      
OIX Oil & Gas        250     260     280    BULLISH   3.30                        

Posture Alert

Although the Dow Jones Industrial average has closed into 
record territory, we have turned Neutral across select
broad market indices and Bearish across Hardware, Drug and 
Healthcare sectors after crossing over their respective 50
day moving averages.

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


Market Sentiment - By Pinnacle Capital Advisors

Another Train?

In case you missed the Elm Street train you might hop on at Wall 
Street train.  After retracing back to its breakout levels,
several industry sectors may provide another entry when they 
reveal clear bottom reversal signals.  On Tuesday (4/13),
Pinnacle alerted subscribers to follow the action of the Market
Volatility Index (VIX) -- a short term indicator than can
presage the direction of the market.  We were concerned that if
the VIX closed above its 50-day moving average that it would
likely signal the start of a correction.  After jumping as high
as 29% on Wednesday (4/14), the VIX evaporated quickly to 24.89 
on today (4/15) thereby forming a reversal pattern UNDER the 50
day moving average and keeping the broad market rally intact. 
Provided that OTM money call buying does NOT build to excessive
levels, we could see a continued rally. Another encouraging
sign, is what occurred with the OEX P/C ratio.  This contrarian
indicator jumped from 1.5 on Tuesday to 2.2 on Thursday or a 46%
increase.  What this means is that there was an increase in put
buying and could serve as underlying support.   


Market Volatility (VIX)   After jumping as high as 29% on
                          Wednesday, the VIX quickly evaporated
                          and closed below the 50-dma at 24.89.

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

Peak Open Interest        April's peak open interest (1.32)
                          climbed higher indicating that Put open
                          is building.

Advance/Decline Line      Beginning to flatten out. 


Interest Rates            Trading ABOVE 200dma and 5.50%
                          Benchmark. (5.525%)


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 

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%     
Friday, April 9             74,028     +107.8%     
Tuesday, April 13           79,656     +123.6%     
Tuesday, April 15           82,010     +130.2%     *

Friday, April 9             74,028        -     
Tuesday, April 15           82,010      +10.8%     *

Market Sentiment at a Glance
                                Friday     Tues      Thurs  
Indicator                       (4/9)     (4/13)     (4/15) Alert

Pinnacle Index (OEX):          
Overhead Resistance (680-695)     8.7        2.3       2.6  *   
Underlying Support  (645-660)     1.9        2.5       3.5  *

Put/Call Ratios:
CBOE Total P/C Ratio               .5         .5        .6
CBOE Equity P/C Ratio              .4         .4        .4                 
OEX P/C Ratio                     1.7        1.5       2.2  *                             

Peak Open Interest (OEX):
Puts                              520        520       520
Calls                             700        700       695
P/C Ratio                        1.56       1.32      1.19                

Market Volatility Index (VIX):	
CBOE VIX                        23.44      24.94     24.89                  

Investors Intelligence:
Bullish                         56.4%      56.4%     55.9% *  
Bearish                         31.6%      31.6%     30.5% *		

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                       (4/9)       (4/13)    (4/15)
                    (690-695)     20.0        6.2       8.1
                    (680-685)      4.9        1.1       1.4
Overhead Resistance (660-675)      8.7        2.3       2.6

OEX Close                       679.49     681.45    669.61  

Underlying Support  (645-660)      1.9        2.5       3.5
                    (655-660)      1.6        1.9       2.9
                    (645-650)      2.3        3.5       4.3
Average ratings: 
Resistance levels 2.0 / Support .5

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

Put/Call Ratio 
                                Friday      Tues       Thurs
Strike/Contracts                 (4/9)      (4/13)     (4/15)
CBOE Total P/C Ratio               .50        .51        .62
CBOE Equity P/C Ratio              .38        .35        .39
OEX P/C Ratio                     1.68       1.50       2.19

Peak Open Interest (OEX)
                     Friday         Tues         Thurs
Strike/Contracts     (4/9)         (4/13)        (4/15)
Puts                 520 / 16,370  520 / 16,370  520 / 16,335
Calls                700 / 10,818  700 / 12,363  695 / 13,700
Put/Call Ratio       1.51          1.32          1.19



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
March 4, 1999       Bottom              28.15   

April 9, 1999                           22.91
April 13, 1999                          24.94 
April 13, 1999                          24.89 *


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     

April 7, 1999                         56.4        31.6     
April 14, 1999                        55.9        30.5  *   

Please view this in COURIER 10 font for alignment

Index     Last    Mon    Tue    Wed  Thur  Week
Dow    10462.72 165.67  55.50  16.65 51.06 288.88
Nasdaq  2521.77   5.76 -15.31 -76.22 14.49 -71.28
$OEX     669.61   4.11  -4.00 -12.52  0.68 -11.73
$SPX    1322.85  10.28  -8.82 -21.38 -5.59 -25.51
$RUT     417.77   6.46   4.92   0.15  0.38  11.91
$TRAN   3453.57 -34.51 -39.45 146.88 10.25  83.17
$VIX      24.77   0.75   0.76   3.01 -2.66   1.86

Stock         Mon    Tue   Wed   Thur  Week

QCOM  157.75 15.31  8.88 -11.81 -0.19 12.19 Earnings are 4/20
CMGI  276.25 37.63 -4.19 -42.69 21.13 11.88 Look at intraday chart
EGRP  101.44  5.88 29.50 -12.63-11.44 11.31 Earnings are 4/20
AEOSD  83.13  7.75 -2.63  -1.00 -1.00  3.12 Two weeks til 2:1 split
DCX    95.75  2.69  1.38  -2.19 -0.69  1.19 Be Cautious
COF   159.19  2.06  7.63   2.94-12.31  0.32 Dropped, earnings today
LVLT   84.88  5.25  3.06 -10.56  2.38  0.13 Earnings are 4/23
PVN   118.88  0.44 -1.44   7.56 -6.69 -0.13 Sympathy move with COF
MFNX   67.13  0.63  9.94  -7.56 -3.25 -0.24 Confirm direction
UNPH  128.94 -2.63 -2.13   4.94 -1.00 -0.82 Major intraday comeback
CMVT   90.31  1.69 -2.81   1.13 -4.56 -4.55 Dropped, splits today
QWST   84.13  1.88  5.25  -9.25 -2.75 -4.87 Earnings are 4/28
WMT    97.75  2.13 -0.31  -5.94 -0.88 -5.00 Dropped, splits Monday
JBL    43.88 -0.13 -2.25  -0.69 -2.19 -5.26 Wait for Confirmation
JNJ    92.19  1.63 -1.00  -3.94 -2.50 -5.81 Dropped, drugs are weak
MWD   104.75  0.50  2.19  -4.20 -5.00 -6.51 Dropped, needs rest
VOD   187.81  0.38  0.31  -2.63 -6.38 -8.32 Intraday Comeback
BRCM   65.50 -0.56 -1.38  -6.56  0.00 -8.50 Earnings are 4/20
AMZN  167.25  1.56 -6.06 -10.38 -0.75-15.63 Look at Intraday chart
AOL   143.88 -2.06  1.44  -8.44 -7.00-16.06 Earnings are 4/27
EMC   115.88 -4.31  0.56  -6.06 -9.19-19.00 Buying Opportunity
RNWK  180.00 39.50-18.00 -39.50 -9.50-27.50 Earnings are 4/20


SEPR   93.06 -0.13  -9.25  -3.75-11.19-24.32 New, falling fast
BGEN  105.00  1.06  -2.13  -9.00  0.63 -9.44 Hit $101.50 today!
RMBS   66.94 -3.06  -1.00  -4.38  3.44 -5.00 Hit $60.75 today!
AET    76.94  1.00  -0.69  -0.56 -1.44 -1.31 New, Healthcare is weak
HWP    70.75 -1.25   2.44   0.19 -0.25  1.13 Dropped, not moving
LTR    74.31  0.31   0.25   0.13  3.38  4.07 Dropped, found bottom
PPG    58.88  1.31   1.44   3.13  4.94 10.82 Dropped, beat estimates

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.


COF $159.19 -12.31 (+0.31)  COF made an incredible earnings 
run up until they announced on Thursday.  Even though they 
reported record first quarter earnings with a 25% jump in net 
income and matched analyst estimates,  the stock fell -$12.31 
from profit taking anyway.  Hopefully you sold ahead of time 
as we had recommended.  Holding over earnings is extremely 
risky.  COF is just another example of a great company that 
still sinks after announcing decent numbers.  We are now 
dropping COF until it recovers.  The company definitely has 
a bright outlook and it shouldn't be long before we re-add 
it as a play.  

WMT $97.75 -0.88 (-5.00)  After surging to an all time high 
of $106.81 on Tuesday, WMT has since slipped back considerably.  
It looks like the retail king is suffering from major profit 
taking before it splits on Monday April 19th.  We added WMT 
back on January 26th at the price of $83.56.  The company 
proceeded to perform extremely well for us by adding over $20 
when it reached its all time high.  Unfortunately, we now have 
to drop it as a play until it recovers.  We could very well 
add it again for an earnings run since it will announce its 
quarterly results on May 11th. 

CMVT $90.31 -4.56 (-4.57)  CMVT split 3:2 after the bell 
today.  Yesterday the stock rallied in expected pre-split 
fashion and advanced +1.13.  The finale wouldn't have been 
complete without another new 52 week high. CMVT peaked at 
$99.63 to set the record. Today was a different story.  
Following a typical pattern for splitting stocks, CMVT 
dipped as low as -6.25 and closed down for the day. 
Remember, we recommend never to hold over a split date and 
so CMVT is being dropped.

MWD $104.75 -5.00 (-6.75) We have had MWD for a while now, 
and have decided it is time to set it free.  MWD has suffered
some profit taking this week, and we feel there isn't much
left in the tank.  A stock split could still be announced, but
we don't know when.  With earnings over with and the share-
holder meeting behind us, there doesn't seem to be any news
to take MWD higher.  Although a lot of readers enjoyed the
trip from $89 to $116.

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

If you like the results you have been receiving we 
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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         Thursday  4-15-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

Calls Dropped Continued....

JNJ $92.19 -2.50 (-5.81) JNJ showed a great chart when we
first picked it up, but that chart has broken down.  JNJ's
chart seemed to have support at $94, but it blew right through
support on strong volume today.  JNJ could turn around, but 
we don't like the looks of things in the short term.  The
huge turn around in sector rotation has been violent for
many of the drug stocks.


PPG $58.88 +4.94 (+10.82) The general consensus has been 
that PPG and others in its industry would fall short of 
earnings forecast.  Thus, the long downtrend.  Well today, 
1Q earnings did in fact come in short.  Earnings were down
34% but PPG did manage to beat estimates of $.78 with $.81.
This surprise has given the stock life again.  Not the
desired state for a put play.

HWP $70.75 -0.25 (+1.12) We still don't believe the hype 
about the stock's upcoming earnings on May 17th.  And the 
company's retraction of its CEO's statements regarding 1999 
earnings after the bell on Tuesday correlates this sentiment. 
We're dropping HWP because its not moving fast enough and time 
is money in the options game!

LTR $74.31 +3.38 (+4.06) LTR is being dropped for obvious 
reasons.  A gain of $4 this week as a put just doesn't cut
it.  LTR seems to have found a short-term bottom at $70.
If tobacco lawsuits resurface in the news in the future, 
LTR will suffer, but as of now we are dropping LTR as a pick.


QCOM $157.75 -0.19 (+12.19)  In the past three weeks of 
trading, QCOM has sky rocketed over +$85.00.  After noting 
that fact, it is much easier to put QCOM's actions the past 
two trading days into perspective.  The company has "dipped" 
-$12.00 from simple profit taking.  Look at it this way, the 
stock is providing us with an entry point before it splits 
2:1 on May 10th.  That's right!  On Wednesday, QCOM 
announced their split- as we had long been projecting.  Wait 
for the profit taking to subside then feel free to enter new 
positions as the stock makes its split run.  Although, we do
not recommend holding a position over earnings which are
scheduled for 4/20/99 (company confirmed).  So time your entry
play with stops

DCX $95.75 -0.69 (+1.19)  Since we added DCX on Tuesday, the 
stock has dropped -$2.88.  It was just our luck that the 
European Commission finally decided to open legal proceedings 
against DCX on Wednesday after two years of investigating the 
company.  DCX is accused of breaking European Union antitrust 
rules and price fixing back between 1985 and 1996.  If found 
guilty, DCX could face heavy fines.  We are now issuing 
caution with this play.  Even though DCX is cooperating with 
the investigation and is denying breaking any rules, we would 
like to see DCX begin another uptrend before suggesting any 
new plays.  On the lighter side, DCX announced a 25% jump in 
European car sales during the month of March.  Their worldwide 
sales of Mercedes-Benz vehicles increase by 17% in the first 

PVN $118.88 -6.69 (-0.12)  PVN will announce its earnings on 
April 26th(First Call).  The company had been surging ahead 
until investors decided to take some profits.  PVN reached an 
all time high of $129.75 on Wednesday April 14th but then 
dropped back down on Thursday.  It may have fell in sympathy 
as investors cashed in on COF since they announced today.  We 
expect PVN to quickly recover and make a final surge heading 
into its earnings.  As always, wait for the upward confirmation 

QWST $84.13 -2.75 (-4.88) QWST is another company we are 
covering that has made an incredible run.  It has added over 
$21 in the last week and a half.  However, it currently seems 
to be consolidating due to profit taking.  This could be your 
chance to buy at a discount. The company is going to release 
their earnings numbers on April 28th.  QWST has also said that 
they will make several announcements in the upcoming months 
regarding new business deals.  QWST remains one of or split 
candidates.  We are hoping for a split announcement with 
their earnings or at their shareholder meeting in May.  

AMZN $167.25 -0.75 (-15.63)  The losses have been steep for 
the leading Nasdaq stocks.  Yesterday, investors backed 
off the internets and began selling shares in record numbers.  
On very strong volume AMZN lost -9.62 along with AOL, Yahoo, 
and Ebay.  But this afternoon, the Nasdaq bargain hunters 
came to the rescue. AMZN was able to steady itself with a 
great intraday comeback and only took a fractional loss. The 
stock is sitting on its 21 dma and we need a bounce to push 
it back over its resistance at $186-187.  Look for this 
confirmation before beginning a new play on this volatile 

AEOSD $83.13 -1.00 (+3.13)  Low volume has kept this stock in 
check the past two days.  Perhaps some confusion regarding 
the recent symbol change has hampered its trading. 
Nevertheless, AEOSD needs a surge of strong volume to propel 
it upwards again.  So wait for the bounce and confirm 
direction before initiating a new play. The 2:1 stock split 
is still scheduled for May 3rd (about 2 weeks).

LVLT $84.88 +2.38 (+0.13)  This stock got leveled yesterday!  
LVLT sacrificed 10.56 points by the close.  The volume was 
strong on the Nasdaq and many other tech stocks got knocked 
down too.  This is a prime example of why we consistently 
advocate the importance of putting stops in place. This 
morning things looked bleak, but LVLT rebounded and 
recaptured +2.38 points. In the news, Metromedia Fiber 
Network announced they will lease to Level3 a local loop 
infrastructure in New York City and Washington DC providing 
high-speed, high-bandwidth capabilities. This stocks strong 
sector, solid fundamentals, and upcoming earnings on April 
23rd should keep it on an uphill track.

JBL $43.88 -2.19 (-5.25)  There's an old saying to be 
careful for what you wish for.  Well we were looking for 
the security of a pullback and did we ever get one. JBL is 
now positioned right on its 10 dma at $43-44.  Even though 
the stock has not dipped below its old resistance of $41-42, 
confirm upward movement before beginning a new play.  Perhaps 
the recent financial summary by JBL's management will help 
boost the stock.  The company reported net revenue for the 
2Q was up 49% at 494 mln from the same quarter in 1998 at 
331 mln.  The increase was attributed to expansion in 
production of communication products and incremental revenue 
from recent acquisitions.  

AOL $144.00 -6.88(-15.94) As AOL fell out of the 
stratosphere over the last 2 days, we felt a bit like Slim 
Pickens riding the A-bomb in the movie, Dr. Strangelove, 
the only difference being his stop order was at ground 
zero.  This has been a tough week, and a textbook example 
of why we use stop orders.  AOL's descent is simply a 
function of severe rotation accompanied (unfortunately) by 
strong volume.  When rotation is over, the bloom will still 
be on AOL.  They have real revenue and real earnings that 
will keep investors coming back to pay homage to the king.  
Meanwhile, technical chart isn't pretty.  There may be more 
to fall despite AOL's comeback today from -$13.  Word is 
traders flocked to the AOL pit to sell before the close 
today.  Wait for the dust to settle in this tumultuous 
period before venturing in.  Earnings are on April 27 after 
the close.  AOL is in split territory over $120.  Confirm 
market direction before playing and use stops.  **for iron 
stomachs only.

EMC $115.88 -9.19 (-19.00) All suffer at man's inhumanity to 
man.  Our warning of a profit taking day or two didn't 
include this.  EMC had really tacked on the profits over 
the past few weeks and was due for a breather.  Today's 
downgrade by NB Montgomery from buy to hold followed 
today's earnings warning from Storage Technology and Paine 
Webber's rating change on the company from buy to 
accumulate.  EMC came out with their own survey from 250 of 
its customers polled earlier this year, showing strong 
storage demand throughout 1999.  Their press release 
reiterated their "expectation that revenue and net income 
growth will exceed 30% in 1999, as organizations continue 
to rely on EMC's leadership enterprise storage systems and 
software to provide the infrastructure for their growing 
volumes of information" (Business Wire).  Baby is still out 
with the bath water until the parents figure it out.  Nice 
comeback from intraday lows, but the volume says we have a 
bit more selling before things firm up.  Earnings are April 
20 before the market opens - 2 trading days away.  It won't 
help much now, but EMC splits May 28. Most traders who 
follow this stock see this as a great buying opportunity.
Confirm market direction before playing.  

VOD $187.81 -6.38 (-8.31) Whew!  Escaped by the hair on its 
chinny-chin-chin.  VOD was headed for the drop zone until 
the last 2 hours of trading when it had a $3.56 recovery.  
You ask, "So what?  Lots of companies did that today."  The 
difference is VOD closed after bouncing off its 50 DMA and 
above its near-term support level of $186.  The volume 
buying shown on the chart is really apparent.  Add to that 
Airtouch (earnings run, merger partner) who reports April 
22 before the open, and a favorable IRS ruling on the 
merger, we could yet see some action, market willing.  
Resistance is $197.75.  Target shooters who acted on our 
Sunday comments may have been filled for a great entry.  If 
you weren't, confirm market direction before playing and 
keep your stops set.

EGRP $101.44 -11.44 (+11.31)  Wow!  That profit taking we 
warned of Tuesday came a little early beginning yesterday 
and didn't stop until today.  In the end, gravity still 
wins.  There may be more to go considering that even with a 
$24 drop in the last 2 days, we're still up over $11 for 
the week!  EGRP reports earnings next Tuesday before the 
open.  If Ameritrade's results are any indicator, E*trade 
results will be great.  Still, on principle we caution 
against holding a position through earnings.  The technical 
chart is still positive despite the re-tracement.  
Sometimes it's better to sit out and wait until the water 
is a little safer.  Confirm market direction before playing 
and remember those stops. 

UNPH $128.94 -1.00 (-0.81) Anyone catch this one?  Great 
strength and a strong bounce off the 30 DMA.  "The next 
Intel" was up $4.94 yesterday to a new high and only gave 
back $1 today on more than twice the average volume despite 
dipping to $108 intraday.  Stops should have taken us out, 
but getting back in on a 30% recovery still would have 
given us a nice gain in today's action. If tomorrow's an up 
day, we could see a continuation upward to UNPH's earnings 
which are announced April 26 after the close.  We are 
expecting a 2:1 split announcement too.  Confirm market 
direction before playing. (Of course if you had set a 
limit sell, you were probably taken out yesterday in the
spike to $135.)

MFNX $67.13 -3.25 (-0.25) Can you say 2:1 stock split?  
Sure, we knew you could.  Those were our words Tuesday, but 
no one seemed to care yesterday or today as MFNX and the 
other fiber competitive local exchange carriers (CLEC) gave 
back most, if not all of their early week gains.  The good 
news is they closed up $4.50 from their low of the day. 
Earnings won't be announced until May 17 (per Zacks and 
First Call).  It's interesting to us that Zacks and First 
Call publish this date (we're glad they do for a frame of 
reference), since MFNX investor relations department has a 
policy of not announcing their earnings date at all.  They 
just haven't set it yet, but we'll let you know as the date 
gets closer.  The split is scheduled for May 18.  
Technically, the chart is positive, even after the last 2 
days of action.  The sector is hot, and Level 3 has just 
reached an agreement to lease capacity from MFNX.  Looking 
strong.  Keep your stops set and confirm market direction 
before playing.

RNWK $180.00 -9.50 (-27.50)  Gravity rules!  Even the great
RNWK has to live by the laws of the universe.  After being
as high as $263 two days ago, RNWK has fallen.  The positive
news is that RNWK did reach a low of $157 on Thursday and 
fought back to close at $180.  Nothing like a $38 range.  
RNWK announced that they will buy XING, Inc.  XING provides 
MP3 software.  This will close in the 3rd quarter of 1999.  
It seems that everyday, numerous companies announce the use 
of RNWK's technology.  Options are very pricey, but we have 
all witnessed the moves a stock like RNWK can achieve.  Make 
sure of market direction before buying new calls.

CMGI $276.25 +21.13 (+11.87) CMGI had a very wild ride today.
The stock gapped open to $260 then traded as low as $222 
before making an astounding $50 reversal late in the day. 
There wasn't any news to spur the turnaround, other then
the late day reversal of the Nasdaq.  CMGI is still a ways
away from its high of $330.  The Internet industry in 
general was down today.  CMGI might be benefiting from the
conference it has been participating in the last few days.
Target shoot to get a better fill. 

BRCM $65.50 +0.00 (-8.50)  BRCM has had a rough week, but
we are keeping it for a few reasons.  On Thursday, BRCM 
traded as low at $60, a point of support, and bounced back $5.  
The 2nd reason is that earnings are after the market on 
the 20th of April.  We feel we will still get the rest of an 
earnings run.  Make sure of market direction before buying 
or play a bounce off $60.  (Remember, we don't recommend 
holding over earnings.)


RMBS $66.94 +3.44 (-5.00)  After being battered for several 
days of trading, RMBS finally decided to turn things around.  
It added +$3.44 in trading on Thursday as they announced their 
earnings that came in at $0.08 versus $0.07 for the second 
quarter.  Even though they were up, we are keeping them as one 
of our put plays.  Rambus projected "its quarterly results for 
the remainder of calendar year 1999 to be no better than flat
compared to its second quarter figures released Wednesday."
(-Reuters)  Hambrecht & Quist downgraded the company from a 
buy to a market perform.  Wait for this transient positive 
move to reverse before opening any new positions.  

BGEN $105.00 +.63 (-9.44)  BGEN finished slightly up on
Thursday, but made up very little of its $9 loss on Wednesday.
This is just a continuation of the high valuation BGEN had
attained without showing it can continue.  The chart shows
that it very easily could continue to the $100 level.




SEPR - Sepracor, Inc $93.06 -11.19 (-24.32 for the week)(+0.38)

Sepracor researches, develops, and commercializes improved 
compounds of existing pharmaceuticals and biopharmaceuticals.  
These products are new and patented formulas.  They can 
provide the consumer with fewer side effects, improved 
safety, new uses, and even improved dosages.  For instance, 
Sepracor made Allegra as an alternative to Seldane, which 
the FDA had pulled its approval of in 1997.

SEPR began its downtrend at the beginning of April. The 
descent was amid a broader market decline and this was all 
the stock needed push it into a spiral.  SEPR found resistance 
around $117-119 and couldn't seem to break support at about 
$111-112 until this past Tuesday. The market sentiment on the 
Nasdaq seemed to be the missing ingredient and since then it 
has lost over 24 points.  SEPR is sliding towards the bearish 
200 dma indicator which is presently at $82-83 and for further
evidence, the MACD technical also shows a down tick.  
MSN.MoneyCentral reported on April 5th that analysts for 
biotech industry don't expect this stock to show any profits  
for a few years.  As always, confirm the direction - especially 
since SEPR had such a big downward spike today - and put your 
stops in place for protection.  

BUY PUT MAY-90*ERQ-QS OI=10 at $ 7.88 SL=6.00 
BUY PUT MAY-95 ERQ-QT OI= 6 at $10.50 SL=8.25

Chart = http://quote.yahoo.com/Q?s=sepr&d=3m


AET - Aetna $76.94 -1.43 (-1.31 this wk)

Aetna is traditionally known as one of the leading providers 
of insurance in the U.S. It has also diversified to become 
one of the largest financial services, health insurance, and 
managed-care providers. Aetna's products include retirement 
services, variable life annuities, long-term care insurance, 
and pension administration just to name a few. These products 
and services are offered in countries all over the world.

Right now Aetna is suffering a double case of the blues. The 
first is in the healthcare industry which has seen profits 
stunted by higher medical costs. Humana was the first large 
provider to warn about future earnings and has seen its stock 
price trimmed in half. The second is with potential regulatory 
problems in their pending merger with Prudential. Taxpayer 
groups have been urging the Federal government to stop the 
merger based on Anti-trust laws. Both of these have sent 
AET shares grinding back below their 50-dma. Volume has been 
heavy recently as the stock dropped below key support at $80.

BUY PUT MAY 75*AET-QO OI=155 at $2.62 SL=1.38
BUY PUT MAY 85 AET-QQ OI= 10 at $9.12 SL=4.75 Vol=300 Thursday
vol and OI was too low for MAY-80, and there are no MAY-70s

Average Daily Volume = 722K

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

Tax Day Arrives...

Wednesday, April 14

The Dow achieved its third consecutive record close Wednesday
after a day of extreme volatility but technology stocks were
thumped by profit-taking after the recent gains. The Blue-chip
index ended 16 points higher at 10,411 after trading in a wide
range of nearly 160 points. The technology-laced Nasdaq index
plummeted 76 points to 2,507. In the broader market, advancing
issues led declines 17 to 12 on heavy volume of 955 million
shares on the New York Stock Exchange.

Tuesday's new plays (positions/prices):

FLT   JUL45C/APR45C  $2.25 debit (near the target price)
PTEK  MAY15C/MAY17C  $1.00 debit (big mover - very volatile)
WCII  MAY40C/MAY45C  $3.75 debit (finished $3 lower - careful!)

Fleet Financial Group decided to report earnings today, They
said first-quarter earnings rose 36%, and the results beat the
average estimate of $0.69 a share. Luckily, even with an upgrade
from BT Alex Brown, the stock price remained near $44.

Portfolio plays:

OXHP made a nice bounce and that allowed us to sell our remaining
position (MAY20C) for $0.56, giving us a total profit of $1.62
for the calendar spread. The upcoming PRD earnings kept the stock
well above our sold position and today the debit spread was easily
closed at $2.25 debit. MER started to slide with the rest of the
financial stocks on profit taking from the recent rally. We exited
the bullish debit spread with a small loss, giving Murphy's law
another chance to prove us wrong. INTU was very exciting! First
the electronic filing system for TurboTax broke down for 14 hours
on Tuesday (the outage created some unhappy customers among users
of the service). Then INTU crashed $7 around 1 pm on Wednesday. It
almost seemed like a "sell on news" issue so we decided to watch
that position closely. It had one quick rebound then continued to
fall as we neared the end of the day. That was enough for us! We
closed the debit spread for a loss and started to look around for
the next falling knife. Luckily, there were no other threatening

Thursday, April 15

Wall Street continued the roller coaster ride Thursday as tech
stocks rebounded and blue-chip issue lifted the Dow to a new high.
The Dow finished up 51 points at 10,462, its seventh record in
eight trading sessions. The Nasdaq index rose 14 points to 2,522
after climbing back from a morning loss of nearly 65 points. In
the broader market, advancing issues led declines 17 to 12 with
very heavy volume of 1.06 billion shares on the NYSE. It was the
the fourth heaviest turnover in market history.

Portfolio plays:

Another volatile day and now the bears have started to come out!
Some of our long term positions need a correction but we rarely
like seeing "red" on the quote screen. Tomorrow is the strike day
so we expect the excitement to continue. Most of our volatility
plays are performing well and the remaining credit spreads should
expire. Some of our speculation plays are on the edge but most of
the debit positions are profitable. Remember to buy-back any short
positions that are in-the-money on the long term calendar spreads
(and Covered-Calls with LEAPS plays).

Good Luck!
				- NEW PLAYS -
The CBOE was down this afternoon (which means our option pricing
disparity software didn't produce any candidates) and the spreads
editor continues to receive a large number of Email requests for
general spread trading concepts and strategies so, we decided to
review the basic goals and guidelines we follow in this section.

As far as SPREADS and COMBINATION plays, I highly recommend these
strategies in this market as they are certainly a hedge against
the volatile trends and many of the techniques can take advantage
of the excess premiums in various options.

Our target ROI in these strategies is really an abstract figure
but basically we attempt to achieve a return of about 20%-25% per
month on most of the basic spread techniques. We try to construct
our plays/positions (and closing orders) to reflect that goal. Of
course, not every play is a winner so your main goal is to limit
losses (closing the losing plays before they become costly) thus
preserving your capital for the next success. Most professional
traders make money by taking small profits regularly and using
"smart" trading techniques to maximize profits on winning plays.

Before you begin trading spreads, read Jim's "Top-Ten" rules for
options trading (on the website). It will give you a general idea
of how to profit in the options market. Experienced traders will
examine our wide range of candidates and narrow them down using
"due diligence" until they find favorable plays that meet their
own risk/tolerance levels. Once you have established a list of
possible spreads, there are basically two ways to enter a play.
Some traders open and close positions using an aggressive method
called "legging" (in and out). Basically, you just try to use the
daily movement of the underlying stock to your advantage, buying
a long position when it is cheaper and selling a short position
when it is more expensive. This becomes easier when you are more
familiar with the daily stock/sector/market trends and utilize
the appropriate trading tools. Many of our new readers (beginning
spread traders) just place the order as a "spread" and that's why
we always list a suggested "net-credit" or "net-debit" target to
help them open the play. This is just a recommended entry point,
(simply my opinion of what you should use as an initial "limit"
for the spread order) and it should be a reasonable price to open
the play even with small changes in the stock and option quotes.
Now that doesn't mean you would open a BULLISH play in the face
of a market collapse or initiate a BEARISH credit spread at the
open when the stock gaps up. Many of our plays are based on the
current technicals and position of the stock, option and strike
prices but we can't predict what's going to happen a day later so
use good judgement and remember that YOU are always responsible
for any trades you make. Do your own research and be knowledgable
of the facts surrounding the play!

After you take a position in a particular issue, stay informed by
monitoring all the news and announcements affecting your play.
Follow the company daily and check the calendar (upcoming events,
earnings dates, scheduled announcements etc) for items that could
change the character of the underlying issue. When you have a good
knowledge of a stock and its industry, the chance of an unexpected
surprise is greatly reduced. Remember, "knowledge is power!" and
with the tools on the Internet, there's no excuse for not being
well informed about any company or industry group.

Determining when to exit a play is generally a matter of personal
preference and YOU are the only one who can decide how you will
trade. Most professional traders are happy with consistent monthly
returns of 10% to 15% but your risk/reward attitude may require a
less aggressive approach. The most painful lesson comes when you
close a losing trade. It's very difficult to learn to exit losing
plays early but the simple fact is; there is no reason to hang on
to a losing position when there are so many other profitable plays
that deserve your time and money. Accept your losses, learn from
your mistakes (and evaluate each one critically) then move on!
Success will come when you create a favorable balance of trading
strategies and that requires lots of hard work and patience. Too
many traders give up after a few losing plays, long before they
have time to learn (and absorb!) the various methods required for
profitable trading.

Here are two of the best books on the subject (considered by 
most to be the "bibles" of option trading) and they are both 
available in the OIN bookstore:

Natenburg, Sheldon, "Option Volatility & Pricing", 
Probus Publishing, Chicago, 1994

McMillan, Lawrence G., "Options As A Strategic Investment", 
New York Institute of Finance, 3rd edition, New York, 1993

Please send your questions on spreads and combination plays to:

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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
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