Option Investor
Newsletter

Daily Newsletter, Tuesday, 04/20/1999

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The Option Investor Newsletter         Tuesday  4-20-99
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)
************************************************************
        4-20-99          High     Low     Volume   Advances Decline
DOW    10448.55 +  8.02 10496.37 10333.15  980,349k  1,369   1,670
Nasdaq  2409.64 + 64.03  2409.78  2329.87 1149,400k  2,057   1,943 
S&P-100  662.08 +  9.19   662.82   651.41   Totals   3,426   3,613
S&P-500 1306.17 + 16.69  1306.25  1288.28            48.7%   51.3%
$RUT     415.34 +  2.93   416.25   410.44
$TRAN   3493.92 - 72.79  3605.25  3488.99
VIX       26.93 +  1.45    28.33    26.51
Put/Call Ratio      .50    
*************************************************************
 
Technical bounce anyone?

You know where I am going from here... Any major market move, up 
or down, is normally followed by a move in the opposite direction.
The tremendous oversold condition of the Nasdaq just begged for
an upside bounce. Monday was the second worst day ever on the
Nasdaq and it only makes sense to see it recover some the next 
day. It will take several days to see if it can hold these gains.
If you took advantage of the Monday entry point to start new 
plays, don't start counting your profits unless you already 
closed the trade. We could easily go down again before we 
continue up.

The hot cyclical stocks cycled out of favor again today. Their
15 minutes of fame were fleeting at best. The market was without
a leadership group today although financials and drugs did ok
after some of the majors announced earnings that beat the street.

Citigroup, announced earnings yesterday but followed up today with
a 3:2 stock split. C was +2.19 today. Chase announced today and
their profit jumped +62% but Merrill immediately downgraded them
due to the internals behind the numbers. Investments were up
strongly and were viewed as a one time event. CMB finished -2.00.

Oil prices retreated and the oil stocks and oil service stocks
took a quick hit. No loyalty there. Dow component Chevron was 
downgraded by Schroder and DLJ on price and promptly gave back
-$5 of its recent gains and took the Dow and the other major oil
stocks down also.

After the close today the 800 pound gorilla, Microsoft, announced
earnings. They beat the street by three cents with a $.35 vs
estimates of $.32. However they only matched the whisper number.
The normal conservative forecast was for a guarded outlook and
possible reduced revenue due to Y2K concerns. Are you seeing a
pattern here? Microsoft is known for being cautious but the Y2K
warning is being repeated almost daily now and we are still eight
months away. Another cause for concern was the larger than usual
investment returns. $720 million, up from $190 million last year.
This larger than normal return held up the declining revenue from
weak Office97 sales. Analysts are not excited by investment returns
but by increasing sales. Some analysts were expecting $4.5 bln in
revenue and MSFT only managed $4.33 bln. MSFT did trade down -1.50
in after hours trading. While the results were respectable they
were not in the category of the blowout from last quarter. Traders
may be disappointed tomorrow. Microsoft failed to acknowledge the
coming flood of Linux sales and what impact it would have on MSFT.
The big four computer manufacturers have all begun offering Linux
along with the Windows NT/2000 operating system. IBM said Linux
is very stable, robust and powerful for networking and webserving
applications. Linux is free and Windows NT is expensive and 
plagued with many technical problems. We view Linux as a problem
that Microsoft had better react to quickly or we will have some
not so pretty quarterly results soon.

The Fidelity and Strong funds continue to sell tech and move into
other sectors. The large block sales are responsible for some of
the huge moves we saw in some stocks. Several stocks have posted
record daily volume as the funds left quickly. Other tech funds
went on record calling this a buying opportunity. Several tech
stocks were down as much as -30% from their recent highs. Remember
the "window dressing buying rally" we had three weeks ago? This is
the liquidation of those positions and the move back into cash now
that earnings expectations are over.

Another possible negative for tomorrow was the pronouncement from
Abbey Cohen that the S&P was currently "fairly valued". This is
a departure from the previous claims that the S&P stocks were
undervalued and good buys. Even though she thinks the S&P is 
fairly valued she did not think investors should be worried or
rushing to sell at this point. We all know that no one wants to
be the last person holding a stock so the S&P could start leaking
soon.    

The NYSE announced after the close today that they would push
the expected date for night trading up to match the Nasdaq. 
Richard Grasso said it did not make sense for the Nasdaq to be
open for business from 5:PM to 11:PM daily without the NYSE 
being open also. There are still several levels of approvals
required before either can actually open for business but there
is no reason for it to be withheld. Get your NoDoz ready.

Web broker E*Trade beat estimates today with a loss of -$.12
instead of estimates of -$.17. The broker energized the entire
group after reporting record account growth. They added 233,000
accounts last qtr which was more than they added in all of 1998.
Revenue more than doubled to $127 mln. DLJ immediately upgraded 
EGRP to a buy and sent the entire sector soaring. We will 
patiently wait and see if it holds for the rest of the week.

Earnings tomorrow could be a problem. IBM is expected to post
$1.41 vs $1.06 last year. IBM has been having trouble recently
in making their numbers and without massive share buybacks they 
would have missed several quarters. We know they have been losing
money on PC sales and they could also be impacted by the slowing
of Y2K sales. If they miss the estimates, we could see another
tech massacre. Coke also reports but they have already warned
of a -15% drop in earnings. AMR reports and we could see an -80%
drop due to strikes and sick outs. Exxon will report something
in the range of $.46 vs $.76 last year. This string of weak
earnings from major companies may drown out any positive results
from smaller firms.

As I reported Sunday the trend to sell just before earnings and
immediately after could be a strong selling factor this week.
Traders sold into the strong Dow rally on Monday knocking the
index down over -300 points from the high. The -100 point drop
today and then a recovery back to positive territory was 
encouraging. This could have been prompted by the Nasdaq bounce.
Futures are down -2.00 at present and I would consider the
markets tomorrow to be very fragile. If you have a chance to 
lock in profits I would do so. You can always buy back in again
if the market continues upward. A good way to accomplish this
is with trailing stops. This means setting a stop loss and raising
it incrementally if the stock moves upward. A falling stock price 
will take you out of the play while you still get the benefits
of any increase. In any event, sell too soon.


Good Luck

Jim Brown
Editor


Editorial:

RE: Littleton CO.

If you don't live in a closet you have probably heard of the
school shooting tragedy here in Littleton today. Two misguided
students stormed the school killing 25 students and wounding 
20 others before taking their own lives. The stories coming 
to us from friends are very traumatic. They took pleasure in 
the shootings and actually shot some students multiple times 
just to hear them scream each time they were hit. While no 
one connected with OIN had any family member injured in any 
way, many of us have kids who knew kids that were killed. It 
is very unfortunate and I am sure somebody will pass another 
law to try and prevent future incidents. Last I checked it was 
already illegal for minors to have guns, to carry guns in 
school and to shoot another person. Further laws will impact 
only law abiding people and have no impact on people planning 
this type of act. This is a family problem not a gun problem. 
You will undoubtedly hear lawmakers everywhere blame the event 
on guns. It is simply another failure of the family unit and 
lack of parents to take responsibility to impart morals and 
values to their children. We have had many calls and emails 
asking if any of our family and friends were injured and 
offering their prayers. We deeply appreciate your thoughts 
and we strongly ask for your prayers for the injured and the 
families of the dead. One family lost twin daughters. The 
perpetrators will face eternal judgement but their relatives 
will have to experience hell on earth. I ask that you pray 
for them as well. They need our prayers as much as the 
families of the victims. The next time you see your kids do 
me a favor, hug them and tell them you love them and give 
them the chance to see that somebody cares for them. Who knows, 
it may be a turning point in the life of a teenager you love.

Jim Brown

 




***************
Market Posture
***************
As of Market Close - Tuesday, April 20, 1999 

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

DOW Industrials    9,750  10,000  10,449    BULLISH   4.7                 
SPX S&P 500        1,300   1,350   1,306    Neutral   4.14       
OEX S&P 100          660     680     662    Neutral   4.14         
RUT Russell 2000     390     420     415    Neutral   4.20 * 

NDX NASD 100       2,075   2,250   2,030    BEARISH   4.20 *        
MSH High Tech      1,000   1,100     971    BEARISH   4.20 *               

                   Key Benchmarks
Technology         Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
XCI Hardware         875     900     826    BEARISH   4.14                 
CWX Software         600     650     586    BEARISH   4.20 *                  
SOX Semiconductor    375     420     381    Neutral   4.12            
NWX Networking       450     490     457    Neutral   4.12                
INX Internet         550     700     505    BEARISH   4.20 *         

                   Key Benchmarks
Financial          Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
BIX Banking          675     720     719    Neutral   4.14                        
XBD Brokerage        400     540     438    Neutral   4.14             
IUX Insurance        625     655     648    Neutral   3.19                

                   Key Benchmarks
Other              Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
RLX Retail           900     970     881    BEARISH   4.16            
DRG Drug             390     425     377    BEARISH   4.14           
HCX Healthcare       780     850     758    BEARISH   4.14                     
XAL Airline          170     185     182    Neutral   3.30      
OIX Oil & Gas        250     260     286    BULLISH   3.30                        



Posture Alert

After violating short-term 50 day moving averages, we have 
turned Bearish across select market indices and industry
sectors including Nasdaq, Software and Internet.  We have
also turned Neutral on the Russell 2000 after failing to
climb above the key 425 level.

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

www.OptionInvestor.com/marketposture



***********************************************
Market Sentiment - By Pinnacle Capital Advisors
***********************************************
Tuesday, April 20, 1999

Chat Rooms / Message Boards vs. Option Speculators

After several technology selectors sold off precipitously, the 
chat rooms and message boards are filled with online investors
asking themselves whether the recent action is the simply profit
taking or the start of the correction - Who you base your
trading plan on?  Most online investors (who have never been
through a bear market) are quick to dismiss the sell-off as
simply profit taken and talk about pouring more money into the
market.  That should raise some flags among experienced option 
traders.  One of the benefits of sentiment analysis is that we 
can measure, empirically, the level of optimism among option 
speculators to help determine the likely direction of the market 
over the near term.  As Pinnacle has outlined on several
occasions, you know that a trend has changed once investors
ignore shifting signals and continue to buy Deep out of the
money (OTM) call options. Since Friday (4/16) the level of OTM 
call options has jumped 34% suggesting that most option 
speculators are beginning to bet on another market rally.  Keep 
an eye on this indicator.  If open interest continues to climb,
it could serve as overhead resistance.   


OEX OTM Call Analysis (Open Interest May 680-740)
-----------------------------------------------------------------
Date                 Open Interest       Change %    Alert
-----------------------------------------------------------------
Friday, April 16            30,697          -
Tuesday, April 20           41,209         34.2      *


Separately, Pinnacle is concerned about the recent action by the 
Russell 2000 (RUT) and the Market Volatility Index (VIX).  Many
analysts have been encouraged that the advanced/decline line has
flatten and begun to recover.  Yet the Russell 2000 failed at
the key 425 benchmark and closed Tuesday at 415.34  Pinnacle
believes that it will be unlikely for the broader market to climb 
higher WITHOUT the troops. Also the VIX closed above its 50-day 
moving average (27.16) at 28.56 on Monday (4/19) before pulling
back just under this mark today (4/20) at 26.93. 

Finally, some analysts explained the recent tech sell-off as
Mutual fund managers and institutions selling their tech
holdings positions.  Just remember, it takes several week for
many of these institution to execute their trading plans. 
Pinnacle advises subscribers to wait until you see evidence that 
the institutions are sponsoring any subsequent rallies before
running back into the market. 


BULLISH Signs:

Advance/Decline Line      The action among advancers and
                          decliners is encouraging. 


BEARISH Signs:

Market Volatility (VIX)   Challenging 50-day moving average
                          (27.16) after backing up on Friday
                          (4/17) and Monday (4/19) at 26.93.

Russell 2000              Failed to climb above the key 425
                          level.  Recent action now represents
                          a lower high.

Interest Rates            Trading ABOVE 200dma and 5.50%
                          Benchmark. (5.509%)









OTM Call Analysis

As we move through May's expiration cycle, Pinnacle is tracking 
the level of call buying (OTM) between 680-740 among option
speculators. As we have been documenting, excessive out-of-the-
money (OTM) call may serve as overhead resistance.


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%     

May Expiration Cycle
OEX OTM Call Analysis (Open Interest May 680-740)
-----------------------------------------------------------------
Date                 Open Interest       Change %    Alert
-----------------------------------------------------------------
Friday, April 16            30,697          -
Tuesday, April 20           41,209         34.2      *







Market Sentiment at a Glance
***************************************************************** 
                                Friday     Tues      Thurs  
Indicator                       (4/16)     (4/20)    (4/22) Alert
*****************************************************************

Pinnacle Index (OEX):          
-----------------------------------------------------------------
Overhead Resistance (680-695)     2.6       3.7 
Underlying Support  (645-660)     1.4       1.7

Put/Call Ratios:
-----------------------------------------------------------------
CBOE Total P/C Ratio               .7        .5 
CBOE Equity P/C Ratio              .5        .4           
OEX P/C Ratio                     1.6       2.4


Peak Open Interest (OEX):
-----------------------------------------------------------------
Puts                              520       660
Calls                             695       720
P/C Ratio                        1.19      1.36           



Market Volatility Index (VIX):	
-----------------------------------------------------------------
CBOE VIX                        25.48     26.93 *                




Investors Intelligence:
-----------------------------------------------------------------
Bullish                         55.9%     55.9% *  
Bearish                         30.5%     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                       (4/16)      (4/20)    (4/22)
-----------------------------------------------------------------
               
                    (690-695)      8.8        7.4
                    (680-685)      1.5        2.5
Overhead Resistance (680-695)      2.6        3.7

OEX Close                       668.65     662.08

Underlying Support  (645-660)      1.4        1.7
(655-660)	1.7        2.0
                    (645-650)      1.2        1.4
 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

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


Put/Call Ratio 
-----------------------------------------------------------------
                                Friday      Tues       Thurs
Strike/Contracts                 (4/16)     (4/20)     (4/22)
-----------------------------------------------------------------
CBOE Total P/C Ratio               .67        .54
CBOE Equity P/C Ratio              .47        .36
OEX P/C Ratio                     1.64       2.40


Peak Open Interest (OEX)
-----------------------------------------------------------------
                     Friday         Tues         Thurs
Strike/Contracts     (4/16)         (4/20)        (4/22)
-----------------------------------------------------------------
Puts                 650 / 7,383    660 / 9,480
Calls                720 / 6,754    720 / 6,964
Put/Call Ratio       1.09           1.36

 
 


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 16, 1999                          25.48 
April 20, 1999                          26.93 *



 



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
*****************************************************
Results THIS WEEK

Index     Last     Mon    Tue  Week
Dow    10448.55  -53.36   8.02 -45.34
Nasdaq  2409.64 -138.43  64.03 -74.40
$OEX     662.08  -15.76   9.19  -6.57
$SPX    1306.17  -29.52  16.69 -12.83
$RUT     415.34   -9.17   2.93  -6.24
$TRAN   3493.92   38.01 -72.79 -34.78
$VIX      26.93    3.08   1.45   4.53

Stock            Mon    Tue    Week

DCX     82.25    0.06   1.50   1.56 Earnings are suspected on 4/28
LVLT    83.00   -5.69   7.00   1.31 Let the recovery begin!
MOB    102.88    2.88  -1.63   1.25 Merely profit taking
CI      90.00   -0.56   0.63   0.07 Holding firm!
DELL    38.19   -2.81   2.75  -0.06 Did you target shoot?
F       63.88    0.13  -1.13  -1.00 Merely profit taking
UCL     39.69    0.56  -1.75  -1.19 Needed to take a breath
MFNX    62.00   -9.19   4.44  -4.75 Ouch! Confirm upward movement
PVN    114.50   -2.94  -1.81  -4.75 Dropped, not moving
AVP     51.31   -0.69  -4.19  -4.88 Dropped, brokerage downgrade
AEOSD   74.63   -5.63  -0.88  -6.51 Dropped, may still have split run
AOL    128.69  -23.75  12.81 -10.94 Still time for an earnings run
AMZN   172.00  -31.06  13.06 -18.00 Still time for an earnings run
CMGI   206.00  -46.88  -8.00 -54.88 Dropped, Looking for a bottom

Puts

NSOL    60.00  -19.25 -10.50 -29.75 The free fall continues
AMTD   111.13  -38.13  23.25 -14.88 Just a very large bounce
ATHM   132.75  -26.00  13.81 -12.19 Technical bounce
BGEN    97.25  -13.13   4.88  -8.25 Technical bounce
SCH    106.75  -12.81   4.75  -8.06 Technical bounce
DLJ     72.75   -8.75   2.13  -6.62 Technical bounce
RMBS    60.50   -3.13  -2.13  -5.26 Feeling unloved?
ELNK    65.25   -8.56   5.06  -3.50 Dropped, support at $60 too strong
SEPR    90.50   -8.13   4.63  -3.50 Technical bounce
MSFT    83.13   -5.63  +2.13  -3.50 New, Nothing left to really hold it up!
EGRP    89.81  -18.75  16.00  -2.75 Just a very large bounce
GTW     61.50   -4.69   2.00  -2.69 Still looking weak
CAH     66.00   -1.13   0.06  -1.07 Not showing any real strength
IBM    169.75   -3.63   3.00  -0.63 Earnings are tomorrow
VIA.B   41.00    1.19  -1.06   0.13 Still undecided
WCOM    84.88   -2.50   2.63   0.13 Confirm downward movement
ELN     60.50   -4.50   5.00   0.50 Just a very large bounce
COST    82.25   -3.69   4.25   0.56 Confirm downward movement
AET     77.94   -0.31   2.06   1.75 Dropped, might have bottomed
AMGN    69.00   -5.88   8.06   2.18 Announced earnings, down after hours
GDT     55.06    0.69   1.75   2.44 Dropped, the dreaded broker upgrade





*****************************************************
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:
******

PVN $114.50 -1.81 (-4.75)  PVN will announce its earnings on 
Thursday April 22nd as confirmed by the company.  Like many 
of the companies in the financial sector, PVN is now off its 
highs from last week. We see PVN recovering from this 
consolidation but have to drop it as a play for now anyway
since we never recommend holding over earnings reports.   

AEOSD $74.63 -0.88 (-6.50)  The past two days haven't sparked 
any new excitement for this stock.  On the contrary, investors 
seem to be cashing in on the recent gains.  We still expect
a pre-split rally as we approach the split date, but for 
now AEOSD is a drop (we can't sit around waiting for it to start).
The stock is splitting 2:1 on May 3rd.


PUTS:
******

GDT $55.06 +1.75 (+2.43) We are dropping GDT as a put for
the simple fact that two brokerage firms have recently
upgraded the stock.  The reasoning is low valuation.  GDT
has dropped so much, that a few brokers feel it is now 
worth buying (Gee, do you think maybe there was a reason
for the drop?). We'll keep an eye on the biotechs to see if
further weakness surfaces.

AET $77.94 +2.06 (+1.75) AET appears to have regained some 
strength with an announcement after the close on Monday 
that they are selling their Aetna Canada operations to 
Maritime Life for $300 million U.S. dollars.  This 
announcement came right on time for AET as an article 
announcing a racketeering lawsuit brought by three Aetna 
members and a consumer group followed shortly after.  This 
litigation could have a substantial effect on their 
advertising and future operations model.  But right now 
investors are basking in the joy of $300 million dollars in 
cash.  With so much market volatility this week, we 
recommend plays with a more clear market direction.

ELNK $65.25 +5.06 (-3.75) ELNK bounced back with its peers 
on Tuesday, though it didn't make up for the big loss from 
Monday.  ELNK has a terrible chart pattern, but the chart 
does show some pretty strong support at the $60 level.  The 
stock has bounced three times on that support without it 
breaking.  Every time a stock hits support and can't 
penetrate makes that level even more difficult for the 
stock to break through.  The risk is outweighing the reward 
so for this reason we are dropping ELNK despite weakness in 
the Internets.




 
***** 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         Tuesday  4-20-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

CMGI $206.00 -8.00 (-54.88) CMGI has been on a roller
coaster ride the last few days.  Monday saw CMGI trade in a
$58.50 range, while closing down $46.88.  CMGI traded Tuesday
in a range from $185 to $229, but ultimately closed down
$8.00 at $206.  The Faber report talked today about the USA/
Lycos deal.  It sounds like USA is looking for partners to 
possibly sweeten the deal for Lycos.  CMGI is also looking
for possible buyers.  CMGI is a 18% shareholder in Lycos.
We still like CMGI, but this stock can tear your heart out.
There is support at around $190.  However, at this point
in the game, everyone should have been stopped out.  We are 
looking for a FIRM bottom.  Do not play until we find a bottom.  
Then look for the split run to begin. 
REPEAT !!! WAIT FOR A NEW TREND TO BEGIN !!! VERY HIGH RISK

AVP $51.31 -4.19 (-4.88) AVP suffered the dreaded brokerage
downgrade on Tuesday which sent the shares down over $4.
AVP announces earnings on the 22nd, which is Thursday.  This
is definitely a short term play, but we could see a dead cat
bounce on the drop today.  We also could see some brokers
defending their ratings on AVP.  Remember, AVP pre-announced
better than expected earnings on the 13th of April.  We 
always suggest not holding over earnings and we'll be dropping
this stock on Thursday.

CI $90.00 +.63 (+.06) CI has stayed flat this week.  The $90
level has been a bit of resistance.  CI has broken it mid
day, but hasn't been able to hold.  Watch for a break above
$90 on strong volume to initiate new plays.  The insurance
industry traded down today, which shows the strength CI has.
CI has earnings in a couple of weeks and has a history of 
beating estimates.  This should give us an earnings run.

F $63.88 -1.13 (-1.00)  Ford has stayed pretty strong 
through the volatility of the market.  On Monday, Ford
traded as high as $67.88, but fell with the market to 
close slightly positive.  Ford closed down on Tuesday, 
but closed over a dollar off its lows of the day.  We
feel the pullback today was just profit taking and that
Ford is still poised to trend higher.  Only resistance
is Ford's 52 week high from Monday at $67.88.  

DCX $98.50 +1.50 (+1.56)  The age of fuel-cell powered cars 
is here!  DaimlerChrysler AG will work with several companies 
(including Ford, Ballard Power Systems Inc., ARCO, Shell, and 
Texaco) to develop environmentally friendly automobiles.  "The 
vehicles will use a fuel cell to drive an electric motor.  The 
cell turns hydrogen gas into electricity and leaves only water 
vapor in its exhaust."(-Reuters)  The technology is predicted 
to revolutionize the auto industry in upcoming years.  DCX has 
thus far added +$1.56 on the week.  (We still don't have 
confirmation from the company, but earnings will most likely 
fall near or on April 28th.) 

MOB $102.88 -1.63 (+1.25)  The oil sector has been performing 
extremely well in recent trading.  Mobil added +$7.63 last 
week.  It added another +$2.88 on Monday and set a new all 
time high at $106.63.  When looking at the big gains, it is 
easier to understand the profit taking that followed on Tuesday.  
We feel this is only temporary but you still need to wait for 
the resumption of an upward course before opening any other 
positions.  Improving crude prices should continue to push the 
oils higher.  Also keep in mind that Mobil will report its 
earnings on Friday 4/23 (First Call).  Remember that we 
recommend closing your positions ahead of time.

UCL $39.69 -1.75 (-1.19)  Profit taking finally came to visit 
UCL.  After adding approximately $6 in the past 6 trading days, 
the company was due for a pullback.  UCL will report its 
earnings on April 28th before the market opens as confirmed 
by the company.  This pullback could prove to be an entry point 
to get in on UCL's earnings run.  However, wait for UCL to 
begin another move to the upside before initiating any new 
positions.   

AMZN $172.00 +13.06 (-18.00)  AMZN's freefall yesterday was 
ugly and not for the faint of heart. The pull-back was sharp 
and the stock plummeted -31.06 as investors unloaded the 
high-flying internets.  Today, AMZN was all over the map with 
over a 20 point spread in heavy trading.  However, the stock 
was able to stay afloat and close on the positive side.  
Leading Canadian Internet Analyst, Adam Adamou, reiterated 
today that AMZN is still in his "favorite basket" for 
continued growth.  Earnings are next week on April 28th 
after the bell.  As we warned on Sunday, the Internets are 
very difficult to predict so be prepared for extreme volatility.

LVLT $83.00 +7.00 (+1.31)  LVLT held up fairly well 
considering how many techs were massacred on the Nasdaq 
yesterday.  Level3 only shed -5.69 and rebounded very nicely 
in today's trading.  The volume was strong and LVLT added on 
7 points to put it ahead for the week. In the news, the 
company announced it will provide Information-Highway.com with 
the network facilities they need to expand Internet access in 
20 US cities and states. There's only a couple more days until
earnings.  Level3 confirmed they will report this Friday, 
April 23rd, before the bell.

AOL  $128.69 +12.81 (-11.06) From Sunday's letter, 
"Remember, the DOW has set 5 consecutive new highs and 
could free-fall at the slightest provocation.  AOL isn't 
immune".  Sector rotation turned out to be real as 
investors sold off the Internet stocks in droves, which 
sent the price of AOL over a cliff for -$25 yesterday.  We 
got resurgence today, but not a full recovery as AOL rose 
$12.81 on heavy volume.  Don't let today's partial recovery 
fool you into complacency.  Though Internets showed some 
resiliency, AOL pierced strong support (30 DMA of $133) 
yesterday and didn't recover it today.  It may be just a 
dead cat bounce.  Don't get us wrong, we'll take a $12.81 
gain any day.  But until we get back over $133 
convincingly, AOL is still technically negative.  
Indicators MACD, stochastic, momentum and RSI look weak 
too.  The saving grace that will get us out of the hole, 
market willing: earnings run.  AOL reports earnings April 
27 after the close.  Confirm market direction before playing
Monday was a great entry point but we need to see confirmation
before starting a new play. 

MFNX $62.00 +4.44 (-4.75) Yesterday sure was painful.  
Today was much better as MFNX hit support and bounced right 
off!  Intraday, MFNX traded as low as $53.75 during the 
first hour, but came back strong late in the morning and 
held near its high of the day.  The whole fiber sector has 
showed nice relative strength.  MFNX splits 2:1 May 18 and 
reports earnings about then too.  They won't set an exact 
date until after May 1.  Other than today's strength, the 
technical chart is pretty weak.  QWST, an MFNX competitor 
announced they would sell 10% of the company to Bell South, 
keeping the M&A rumors swirling in the sector.  Fiber 
telecom is still the wave of the future and is the most 
researched sector listed by Multex, indicating lots of 
interest.  Confirm market direction first; it should be 
choppy through the rest of the week.

DELL $38.19 +2.75 (-0.06) Did you target shoot this at $36?  
Yesterday presented a great buying opportunity during the 
second part of the day as $36 offered great support on 3 
different bounces.  Dell opened there this morning but 
quickly rose to $38 for a quick gain, and closed just $0.06 
down from its high of the day.  Dell's technically negative 
chart is showing signs of strength, but isn't positive yet.  
As noted Sunday, since Dell will be one of the last big-cap 
techs to report earnings on May 18, investors will bid up 
Dell in hopes that they will lead the tech industry from 
darkness to light.  While it doesn't sound like much, Dell 
could easily reach $45 by then.  You still have time to 
target shoot it if you missed it yesterday.  No chasing!  
Let it come to you.  Confirm market direction before 
playing. (On Sunday, we inadvertently told you that we
expected Dell to reach $40 by earnings.  That is a given.
We actually expect Dell to reach $45 or more by May 18th).



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

BGEN $97.25 +4.88 (-8.25)  BGEN really took a hit on Monday,
and then had a bounce back on Tuesday.  For the week BGEN
is still down over $8.  Most the biotechs battled back 
on Tuesday.  After the market, AMGN announced better than
expected earnings, so be careful about adding new plays
until we see how this effects BGEN.  BGEN has a long ways
until it hits its 200-dma at $77.  In any case, take your
profits too early not too late.  When BGEN has gone down,
it has done it in huge chunks.

AMGN $69.00 +8.06 (+2.19) On Monday we saw a trading day 
that separated the strong from the weak.  Unfortunately for 
AMGN they fell into the latter category.  Granted the 
market came unglued but to fall nearly six points on a day 
that CIBC upgrades you to a strong buy has to be 
frustrating to AMGN investors.  We saw its first rebound 
today ahead of earnings that were reported after the bell.  
The company beat First Call estimates by .02 cents.  
Tomorrow will tell if that is enough to kick the industry 
downtrend or more likely it will give back some of the 
technical rebound we saw today.  (NOTE, AMGN was trading
down a few points in after hours trading).

CAH $66.00 +.06 (-1.06)	Trading in Cardinal has been quiet
compared to the overall market.  The stock continues to 
show little strength as it drifts lower.  Most investors 
are taking a wait-and-see attitude towards the earnings 
report scheduled to be released on 4/21.  This is not the 
approach to take in the midst of so many other earnings 
bombs from major health care providers.  We expect to get 
some insight about the recent slide that washed out 20 
points in a matter of weeks.  It could be in the form of 
cautious comments about future earnings.  The estimate is 
for .55 cents.   

COST $82.25 +4.25 (+.56) Costco decided to take a breather 
today from its rapid descent which saw the stock drop over 
13% in five trading days.  This is common as traders try to 
guess at a bottom and get adjusted to the new altitude.  
Keep in mind the big drops we've seen recently.  The P/E is 
not nearly as lofty as it was last week but we see another 
test of the short-term lows coming again soon.  The rebound 
today will bring it back near its 10-dma where it should 
find new resistance.  Watch for resistance to hold before 
starting a new play.  

NSOL $60.00 -10.50 (-29.75) Things have progressed from bad 
to worse to outright ugly for Network Solutions.  The 
government announced Monday that they will be releasing the 
names of 5 companies that will compete for business in 
registering Internet addresses.  This announcement is 
expected on Wednesday.  NSOL appears very reluctant to give 
up their previous monopoly, as they haven't agreed yet with 
the government to what data and software they must share 
and at what price.  The stock has been cut in half in just 
six days.  Most of that came Monday when it plunged over 19 
points.  It would be wise to protect your profits by 
tightening up the stops.  We may see a bounce as most of 
the short-term bad news has been played out.  But look for 
any rally, as an opportunity to get aboard as NSOL's future 
business outlook is bleak.

WCOM $84.88 +2.63 (+.12) MCI Worldcom was able to bounce back 
from its drop on Monday.  The stock is struggling to recover 
from market woes about valuation which has dragged its price 
well under its 50-dma.  Trading has been heavy everywhere this 
week and WCOM has been no exception.  The stock isn't painting 
a very bright outlook in its current trading pattern ahead of
earnings.  But it has been especially volatile which will help 
if you are looking to start a new position.  In the news, 
rumors are still circulating around a possible acquisition of 
Nextel but there has, of course, been no company comment. 

DLJ $72.75 +2.13 (-6.63)  DLJ has fallen considerably from 
its all time high of $100.75 reached before its earnings 
announcement last week.  After losing another -$8.75 on Monday, 
DLJ managed to recover +2.13 on Tuesday.  DLJ is now resting 
slightly above its 30 dma.  It could fall back again if the 
markets continue to correct.  However, after giving back -$28 
since reaching its all time high, a turn around could be 
imminent.  If you continue to hold your put positions, be 
sure to set your trailing stop losses.  

GTW $61.50 +2.00 (-2.69)  After dropping for eight consecutive 
trading days in a row, GTW somehow pulled a rabbit out of its 
hat and added +2.00 in trading on Tuesday.  The company will 
report its earnings on April 22nd after the market closes and 
we aren't expecting any fireworks.  We never recommend holding 
over earnings.  It usually doesn't work to your favor.  If you 
are looking at some nice profits, it may be smarter to cash out 
ahead of the announcements. 

RMBS $60.50 -2.13 (-5.25)  RMBS continues to sink deeper into 
the abyss.  It has fallen another -$5.25 so far this week.  It 
is well below its 50 dma and shows now sign of floating back up.  
Even though there hasn't been any news to rescue RMBS, simple 
cycling could cause a slight turn around.  RMBS has fallen for 
three trading days in a row so a slight bounce up for a day is 
a possibility.  Make sure to set those trailing stop losses. 

SCH $106.75 +4.75 (-8.06)  Online brokers have been hit hard 
in recent trading.  On Monday, SCH continued its downhill 
slide by falling another -$12.81.  On Tuesday, SCH recouped 
a proportionately small bit of those losses.  Some of SCH's 
recovery on Tuesday may have been from sympathy to E*Trade's 
earnings that beat Wall Street's estimates.  SCH looks to 
have bounced off its 30 dma.  However, we are still 
predicting a pull back in the greater market and this 
temporary gain for SCH could be a false alarm to those of 
us playing SCH as a put.  In any case, make sure to protect 
your profits with stop losses.   

ATHM $132.75 +13.81 (-12.19)  And the tumble continued on 
Monday.  ATHM lost a whopping -26 points to close at $118.94. 
ATHM has lost over 63 points in just 4 trade days!  A 
correction is in order for this stock  and today we may have 
seen part of it.  The stock bounced up almost 14 points. The 
bounce provides a good entry point, but keep your eyes open 
and be cautious.  @Home announced today they will add 
"Click Cinema" to their service.  It's short-form online 
video entertainment and they expect it will do for film making 
what the internet did for publishing.  As always evaluate the 
market and stock direction before opening a new position.   

ELN $60.50 +5.00 (+0.50)  For the sixth straight day, ELN was 
down.  Yesterday the stock dipped -4.50 to close at $55.50.  
Its only barrier is its 52 week low at $54.56.  Today, ELN 
got pumped up and advanced +5 for the day. There was no news 
event behind this increase only the market momentum. Consider 
this a possible entry point.  Remember to confirm direction 
before initiating any new play.

VIA.B $41.00 -1.06 (+0.12)  VIA.B made no big moves either 
way the past two days.  It traded in a tight 2 point range.  
The stock is below its old resistance of $42-43, but we need 
to see it break out from here and move towards its 200 dma 
at $36-37.  The technicals still point down, but wait for 
definite confirmation.  

EGRP $89.81 +16.00 (-2.75) No whining about a $16.00 gain!  
We warned on Sunday that EGRP was a high-risk play.  We 
expected the sell-off to begin early in anticipation of 
today's earnings announcement and it did, beginning 
yesterday morning.  EGRP shed $18 by yesterday's close.  
Today, they announced earnings of -$0.12, $0.05 narrower 
than analysts estimates of -$0.17.  We believe that today's 
bounce was dead cat only.  Remember, this was a $60 stock 
only 2 weeks ago.  There just isn't anything left to hold 
up the price.  This is still a tricky play on a technically 
weak stock.  We expect the rest of the week to remain 
choppy.  Gun-slinging action hero types can make a killing 
on the fluctuations, but low risk gamblers and conservative 
investors should stay away from this one.  Confirm market 
direction before playing.

IBM $169.75 +3.00 (-0.63) Still a high risk play, and what 
a nice loss yesterday to $166.  Today dead cat bounces 
could be found all over the tech stocks.  Technically 
though, IBM is still very weak and we expect IBM to begin 
another descent after it reports earnings tomorrow.  If 
MSFT earnings (they matched the whisper # and warned of 
revenue slowdown) didn't surprise anyone, IBM likely won't 
either.  Careful.  IBM has strong support at $165.  Confirm 
market direction before playing

AMTD $111.13 +23.25 (-14.87)  Again, just like EGRP, no 
whining about today's gain!  Yesterday was a hands-down 
winner as AMTD lost $38.  There is just nothing left to 
support high stock prices.  We think today was only a 
technical bounce and expect AMTD to fall again.  Support is 
way down south at $80 (30 DMA).  Many talking-head analyst 
types are saying that the Internet sell-off isn't over.  
Also in the news, since some journalists like some insult 
with that injury, E*Trade's CEO announced on CNBC they had 
replaced AMTD as the #2 player behind Schwab.  Like Sunday, 
we caution that AMTD is a high-risk play.  Teflon coating 
and flak jacket required.  Confirm market direction before 
playing.

SEPR $90.50 +4.63 (-3.50)  SEPR was in the trenches yesterday.  
At one point it was down over 16 points!  And Bear Stearns 
downgraded the stock from "neutral" to "unattractive" and set 
the target price at $65.  Also, the company announced they had 
received a warning letter from the FDA regarding Xopenex 
(dated 3-26) - a pertinent piece of information that was not 
revealed with their earnings.  With such negative news, we 
didn't expect SEPR to make any gains today.  Looks like another
technical bounce.  Confirm downward movement.


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

No new calls today



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

MSFT - Microsoft $83.13 +2.13 (-3.50 this wk)(-7.62)

From their own words, "Microsoft Rules." Although it's 
current reign is being rocked with revolution, the Evil 
M-pire (as some programmers and anti-Internet Explorer 
browser patriots call it), has been fighting the Federal 
government on anti-trust grounds for months. The line to 
take their turn and bad mouth the bully was long and 
distinguished.  Their defense was pitiful.  The fact is, 
MSFT is good at what they do.  They are the world's #1 
software company (Y2K compliant or not!) and their 
operating systems dominate the PC landscape. 

MSFT announced earnings today of $0.35, beating analysts' 
estimates of $0.32 by $0.03.  Coincidentally, this is the 
whisper #, but it didn't help MSFT in after hours trading 
where it moved down another $1.50.  Their sequential 
percentage revenue gain fell below 15% and they warned not 
to get optimistic about future revenue due to Y2K spending
having run its course.  Corporate spending for that solution
will slow down.  Technical indicators are negative; MSFT 
has dropped below its 30 DMA and remains there.  Nothing is 
left to support the price and the trial will resume in a few 
weeks.
  
The point is that MSFT didn't give investors any hope of a 
tech recovery anytime soon and the price will suffer as the 
stock consolidates.  This play carries a bit more risk 
since a tech recovery could come at any time.  Investors 
can't currently find any news to move this sector up, but 
they sure would like to.  

Confirm market direction and stock direction before 
playing and keep your stops set in case good news hits.

*This is considered another High Risk play due to the
recent tech volatility.

!!! WAIT FOR STOCK TO SHOW WEAKNESS !!!

BUY PUT MAY-85*MSQ-QQ OI=9951 at $5.75 SL=3.50
BUY PUT MAY-80 MSQ-QP OI=7509 at $3.38 SL=1.75

Average Daily Volume = 34.4 mln.

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



*****************************************************
COMBINATION PLAYS   
*****************************************************

The spreads editor is attending an option trading seminar this
week and as a result, I missed most of the market excitement. I
managed to get the opening prices for our Sunday positions but
have had little time to manage the portfolio. I would appreciate
any entry/exit activities from those of you participating in the
current plays.

Please send your information to ray@OptionInvestor.com

*****************************************************
Introduction to Combination Strategies 
*****************************************************

Last Thursday's narrative stirred some interest from the readers
and I received lots of requests for more information on advanced
option techniques. Here are some of the basic ideas behind spread
and combination strategies:

In option markets there are many ways to trade for profit. One
strategy involves speculating on the direction in which the
underlying security will move. If a trader correctly predicts
the market direction and takes the appropriate position he can
expect to make a profit. But even when the market moves in the
predicted direction, owning the correct position (CALL or PUT)
in an option market will not necessarily be profitable. The
reason is, over short periods of time, (while the trader is 
waiting for the option price to move towards the theoretical
value) the position is at risk from a variety of changes in the
market which threaten his potential profit.

The majority of successful option traders engage in some form
of combination, position or spread trading. These methods are
simply a way of enabling an option trader to take advantage of
mis-priced options, while at the same time reducing the effects
of short-term changes in market conditions so that he can safely
hold an option position to maturity.

A spread is a technique which involves the buying and selling of
simultaneous but opposing positions in different option series.
An experienced trader knows there is an identifiable relationship
between the different series and when the relationship appears to
be temporarily mis-priced, the spread trader will try to buy the
under-priced position and sell the overpriced position. The trader
expects to maximize his profits as the prices of the instruments
return to a linear relationship. Another type of spread involves
the price relationship between different time periods or strike
dates. In its simplest form, it is called a calendar spread. When
this relationship is violated in the marketplace, a potential
opportunity again exists by selling the overpriced contract and
buying the under-priced contract.

Much of the sophisticated trading in stock/option markets involves
identifying and tracking spread relationships. When a trader finds
that a spread position is mis-priced, it can be just as profitable
to buy or sell the spread as to take an outright long (or short)
position in a single instrument. A trader will sometimes have to
hold a correctly positioned option contract for an extended period
in order to profit from the movement of the underlying security.
Unfortunately, over short periods of time, he may have to endure
adverse movements in the positions value. The price fluctuations
might even be severe enough that the trader, (because of capital
requirements) will not be able to maintain the position. If he is
forced to liquidate the position prior to expiration, there is no
guarantee that he will profit from a correct directional forecast
of the underlying security.

Basically, spread trading is an attempt to reduce the effects of
short-term volatility that goes with any investment. The strategy
benefits from the law of probability by enabling a trader to hold
option positions over longer periods of time and most of these
techniques will help maintain profit potential while reducing the
short-term risk. While there is no perfect position for the option
trader, successful investors learn to hedge their risk in as many
different ways as possible, minimizing the effects of short-term
bad luck. You may not be able completely eliminate risk, but you
can reduce it much more than that of a inexperienced trader who
does not utilize all of the available strategies.

When I return, we will review some of the new position trading 
and spread techniques I learned from the experts in this field.

Good Luck!



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                      DISCLAIMER
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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 
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editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
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information provided has been obtained from sources deemed 
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The newsletter staff makes every effort to provide timely 
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