Option Investor

Daily Newsletter, Tuesday, 05/11/1999

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The Option Investor Newsletter         Tuesday  5-11-99
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)
        5-11-99          High     Low     Volume   Advances Decline
DOW    11026.15 + 18.90 11102.32 10970.59  841,361k  1,709   1,276
Nasdaq  2566.68 + 40.29  2574.37  2542.42  956,217k  2,220   1,803 
S&P-100  683.77 +  5.85   687.10   677.92   Totals   3,929   3,079
S&P-500 1355.61 + 15.31  1360.03  1340.30            56.0%   44.0%
$RUT     446.81 +  4.96   446.94   441.85
$TRAN   3770.91 + 39.01  3775.06  3733.01
VIX       26.37 -  1.05    27.66    26.10
Put/Call Ratio      .51    
Internet turnaround sparks Nasdaq rally again.

An upgrade to AOL by Mary Meeker at Morgan Stanley to "strong
buy" lit a fire under the Internet sector. Calling the -27%
drop from it's recent highs a "buying opportunity" and calling
AOL a "must have" helped AOL add +13.13 after large gains on
Monday as well. Yahoo! also benefited from strong language 
from Henry Blodget at Merrill Lynch. He called Yahoo! a great
buy with many new features coming up including several 
acquisitions. Yahoo! announced Yahoo! Radio today in a joint
deal with Broadcast.com and Spinner.com. 

This just shows you what a few well placed words can do to a 
stock/sector heading south at a rapid rate. On Sunday the 
Internet sector was crashing and YHOO was leading the slide.
On Monday several positive comments and the rumor that the
Lycos/USA deal was terminated stopped the sector cold
and signs of life appeared. Today the comments by Merrill
and Morgan Stanley overcame all the negativity reversed the
entire sector. Was YHOO a bad pick as some emails have
suggested? Sure it was if we had know in advance about the
upgrades. Just like the stocks you choose yourself, what
looks good one day can be the worst play possible the next.
Some you win, some you lose and you never know in advance
which is which.


Bonds out of control or in control?

The productivity numbers out today were very strong and
beat estimates easily. The +4% increase in productivity
on top of the +4.3% last qtr is amazing. The wage costs
were up only an insignificant +.3%. The reasons were the
same Greenspan gave last week. Better technology, more
educated workers producing more goods in less time. The
bad news, and you knew there was a negative side, is that
we continue to be at full employment. 4.3% unemployed is
about as low as you can go before you start dragging the
bottom of the barrel. The chronically unemployable, the
under motivated. The people that you would never hire if
given a choice are all that is left. These workers require
more training, produce less and tend to change jobs more 
often. This increases wage costs that have to be added to
the price of goods. I know this is stretching some to
provide a reason for bond yields going up again in the
face of very favorable economic numbers but this is the
reason given. There is just a fear in the bond market that
Greenspan will raise rates eventually. 

Bond yields ended the day at 5.83% and several analysts
are forecasting a 6% yield soon. This is very bad news
for the market. Above 5.5% wary investors tend to start
moving cash into the safety of bonds and at 6.0% the
trickle could become a flood. The DOW was up over 90 
points today until the five year note auction was met
with lackluster demand. Reports of the auction results
sent the average back to negative territory to trade
close to zero the rest of the day. Tomorrow the ten year
note auction will determine market direction again. The
PPI and CPI reports later this week will also cause traders
to hold off buying. The constant search for any sign of
inflation is going to be our undoing. Is the glass half
full or half empty? Eventually some report when scrutinized
under a magnifying glass will show some faint sign of
inflation and it will be like yelling fire in a crowded
theater. Until then trade the rally!

Another Dow record?

Not quite! After trading in record territory most of the
day the Dow closed just five points under the record. The
Nasdaq is making up recent lost ground. The rotation back
into techs is slowing the recent cyclical rally. The
recent big DOW gainers all gave up some profits today as
money rotated out of drugs, paper, metals and back into
Nasdaq techs. IBM continues to power forward and lead the
NYSE tech charge and added +2.38 to another new record high.
The transports set another new record as oil drifted back
under $18 a barrel. 

The biggest gainer today was of course an Internet IPO.
TheStreet.com went public at $19 a share after teasing 
investors with $13, $15, $17 price ranges over the last
few weeks. Sorry, Kramer, I did not hold my allotment. I
took the opportunity to sell at $61 when the price started
sliding from the +$70 price range. IPOs like this make me
want to start looking for an investment banker for OIN!

Several people questioned the recent claim I made about
May and June not being good months for the market (S&P). 
According to The Stock Traders Almanac, by Yale Hirsch, 
the following are the results by month since 1950.

This book has 190 pages of info like this and is the acknowledged
reference book for market statistics. If you would like one I
have ten left over from the seminars at $14.95 each.

Tomorrow we have the ten year note auction which will drive
the market depending on the results. Thursday we have the
Producer Price Index (PPI) and Friday the Consumer Price
Index (CPI). Next Tuesday is the Fed FOMC meeting and even
though nothing negative is expected from any of these events
there "should" not be any meaningful buying before they are over. 
Of course the market has not been acting rationally lately and 
anything is possible. The DOW has failed to pass 11,100 twice 
this week only to drop immediately after touching the mark. 
Whether or not this means anything or will continue remains to 
be seen but technical traders will read something ominous into 
every repeated market event. The number of "reputable" analysts
now calling this a market top is assuming epidemic proportions.
Since the larger market is continuing to post broad advances 
and the small caps as evidenced by the Russell-2000 are making
good progress, it seems like the "toppers" are being used as
contrarian indicators and stepping stones to the next level.
Even if the toppers are being ignored in public there is still
the knowledge lurking in the back of traders minds that they
could be right. This will provide a weak bottom as we move
forward. Professional traders will insure their fire escapes 
(stops) are in place and take profits quickly. We should do 
the same. Trade the rally but lock in profits when available.

CSCO announced earnings after the close and beat estimates by
.01 with $.38 vs est of $.37 and missed the whisper number of
$.39. They did announce a 2:1 split and traded up +4.13 in after
hours. The conference call was positive and we could benefit from
it at the open tomorrow. Watch for any weakness in the market
after the opening bump before making new plays.

Wait for an entry point, sell too soon.

Jim Brown

Market Posture
As of Market Close - Tuesday, May 11, 1999 

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

DOW Industrials    9,750  11,000  11,026    BULLISH   5.7
SPX S&P 500        1,300   1,360   1,356    Neutral   4.29
OEX S&P 100          660     690     684    Neutral   4.29
RUT Russell 2000     390     435     447    BULLISH   5.7

NDX NASD 100       2,100   2,250   2,176    Neutral   5.7
MSH High Tech      1,000   1,100   1,042    Neutral   5.11 *

                   Key Benchmarks
Technology         Bearish/Bullish  Last    Posture/Since  Alert
XCI Hardware         900     920     896    BEARISH   4.29
CWX Software         600     650     638    Neutral   4.22
SOX Semiconductor    390     420     395    Neutral   5.11 *
NWX Networking       450     490     526    BULLISH   4.22
INX Internet         550     650     575    Neutral   5.11 *

                   Key Benchmarks
Financial          Bearish/Bullish  Last    Posture/Since  Alert
BIX Banking          700     720     711    Neutral   4.30
XBD Brokerage        425     475     457    Neutral   4.14
IUX Insurance        630     660     666    BULLISH   5.11 *

                   Key Benchmarks
Other              Bearish/Bullish  Last    Posture/Since  Alert
RLX Retail           900     970     896    BEARISH   4.29
DRG Drug             390     425     372    BEARISH   4.29
HCX Healthcare       780     850     760    BEARISH   4.29 
XAL Airline          170     180     185    BULLISH   5.04
OIX Oil & Gas        260     285     302    BULLISH   3.30

Posture Alert

An Internet IPO and upgrade sparked a tech-led rally above 
key benchmark levels.  As such we have turned Neutral
across select industry sectors.  We want to alert
investors, however, about potential failed rallies for the 
S&P 100 and 500.

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


Market Sentiment - By Pinnacle Capital Advisors
Tuesday, May 16, 1999

Divergence Between Bond and Equity Market

Don't ignore what's happening in the bond market when you form your 
strategy for the equity market.  Despite the favorable news within the
technology sector (AOL upgrade, CSCO earnings), Pinnacle believes that
the backup in the bond market will cause the equity market to stall in
its tracks.

What's more, the S&P 100 and 500 is dead centered in the potential 
failed rally zone and could lead to a precipitous sell-off.  Pay close
attention to where the market is trading AFTER the opening Wednesday
morning (5/12).  If the broad market indices is trading BELOW the
open, it's a classic news reversal and investors should protect their
positions tightly. 

Highlighted below are our potential failed rallies as outlined in 
Sunday's (5/9) including Tuesday's close.

       52-Week   Recent  Friday's  Potential         Tuesday's (5/11) 
        High      Low     Close  Failed Rally Zone   close
SPX    1,372     1,320    1,345   1,346 - 1,354       1,355
OEX      695       670      682     683 -   687        684

The potential failed rally zone is an area defined by a retracement of
50-66% above its previous low.  As shown above,  the S&P 500 and
100 is currently approaching this zone and investors should pay close
attention to what these indices do.  If the indices fail within this
zone and give a reversal signal, GET OUT.  Don't be a hero.  You will
have another opportunity to get in.



The reason for Pinnacle's caution is based, in part, on our other 
trusted indicators are telling us including our Pinnacle Index and
Investor Intelligence survey results. Take a look, for example, at the
level of out-of-the-money calls over the past week alone - it jumped

May Expiration Cycle
OEX OTM Call Analysis (Open Interest May 680-750)
Date                 Open Interest      Change %    
Friday, April 30            65,936        -       
Friday, May 7               89,736      +36.0% 
Tuesday, May 11             96,388      +46.2% 
These indicators suggest that option speculators are betting that the
S&P 500 and 100 will follow the DOW into record territory.  This could
still happen but if it doesn't, savvy investors should be on the right
side of the trade.


Russell 2000: 
Breaking out above key 435 level.  After consolidating just below 
the key 435 level, the Russell 2000 index (RUT) is breaking out
above 435 indicating that the troops are following the Generals. 

Advance/Decline Line:
Slowing recovering after its long decline. 

Market Volatility (VIX):  
After trading above its 50-day moving average (25.72) for the 
past week, the VIX has evaporated back to its short-term moving


Interest Rates:           
Trading ABOVE 200dma and 5.50 Benchmark. (5.837%)

Pinnacle Index:  
Our Pinnacle Index has spiked to 5.5 on the OEX (680-750)
suggesting that option speculators are expecting the market to
advance higher.

Peak Open Interest:  
A contraian put-call ratio clocking in at .78 a contrarian indicator, 
the percent of Bullish investor spiked from a week ago suggesting 
bullish sentiment picking up steam.

Investor Intelligence:  
As a contraian indicator, the percent of Bullish investor spiked 
from a week ago suggesting bullish sentiment picking up steam. 



OTM Call Analysis

As we move through May's expiration cycle, Pinnacle is tracking 
the level of call buying (OTM) between 680-750 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 680-750)
Date                 Open Interest      Change %    Alert
Friday, April 16            30,697          -
Friday, April 23            53,887       +75.5%      
Friday, April 30            65,936      +114.8%       
Friday, May 7               89,736      +192.3%     
Tuesday, May 11             96,388      +213.9%     *

Market Sentiment at a Glance
                                Friday     Tues      Thurs  
Indicator                       (5/7)     (5/11)     (5/13)Alert

Pinnacle Index (OEX):          
Overhead Resistance (680-700)     2.3      2.6
Underlying Support  (645-660)     2.7      2.9

Put/Call Ratios:
CBOE Total P/C Ratio               .5       .6
CBOE Equity P/C Ratio              .4       .5
OEX P/C Ratio                     1.8      1.6

Peak Open Interest (OEX):
Puts                              650      650
Calls                             700      700
P/C Ratio                         .88      .78

Market Volatility Index (VIX):	
CBOE VIX                        26.72    26.37          

Investors Intelligence:
Bullish                         58.6%    58.6% *
Bearish                         27.6%    27.6% *	

The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

Pinnacle Index
OEX                             Friday      Tues      Thurs
Benchmark                        (5/7)     (5/11)     (5/13)
Overhead Resistance (680-695)      2.1        2.6

OEX Close                       674.54     683.70

Underlying Support  (645-660)      2.6        2.9

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 holding at the
OEX 645/660 level.

Put/Call Ratio 
                                Friday      Tues       Thurs
Strike/Contracts                 (5/7)     (5/11)     (5/13)
CBOE Total P/C Ratio               .54       .60
CBOE Equity P/C Ratio              .36       .46
OEX P/C Ratio                     1.84      1.56

Peak Open Interest (OEX)
                     Friday         Tues          Thurs
Strike/Contracts     (5/7)          (5/11)        (5/13)
Puts                 650 / 12,841   650 / 15,219
Calls                700 / 15,350   700 / 19,430
Put/Call Ratio      .84             .78

Market Volatility Index 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 30, 1999                          26.07 
May 7, 1999                             26.72 


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
March 4, 1999       Bottom            49.1        32.5


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
April 21, 1999                        56.4        30.8
April 28, 1999                        56.1        30.7

May 5, 1999                           58.1        27.6  *

Please view this in COURIER 10 font for alignment

Index     Last    Mon   Tue   Week
Dow    11026.15 -24.34 18.90 -5.44
Nasdaq  2566.68  22.77 40.29 63.06
$OEX     683.77  -3.82  5.85  2.03
$SPX    1355.61  -4.70 15.31 10.61
$RUT     446.81   5.74  4.96 10.70
$TRAN   3770.91 -10.83 39.01 28.18
$VIX      26.37   0.70 -1.05 -0.35

Stock             Mon   Tue   Week

NTBK     184.50   5.50 14.00 19.50 Split run in progress
EMC      107.25   3.63  6.31  9.94 Starting its split run
NITE     154.50  11.69 -2.44  9.25 Dropped, looking weak before split
BRCM      92.69   0.31  8.69  9.00 Taking off
MFNX      84.00   2.44  4.50  6.94 Dropped for possible earnings
VISX     134.38   0.70  5.19  5.89 Dropped, splits tomorrow
EGRP     115.00   9.44 -4.81  4.63 Volatile she goes
CTXS      47.00   2.81  1.56  4.37 Reiterated "buy" ratings
CMVT      71.38   1.38  2.56  3.94 Strong and steady
IBM      221.00   1.38  2.38  3.76 Hard to keep Big blue down
ROK       61.88   2.00  1.25  3.25 Leaving BA in the dust
COF      172.00  -4.06  6.78  2.72 Starting its split run
QWST      92.75   1.38  1.25  2.63 Split run in progress
LU        60.13   1.25  1.31  2.56 Looking better than last week
DELL      42.63   2.06  0.38  2.44 That is more like it!
AET       97.00   4.25 -2.25  2.00 Reaction to the Dow
TBH      101.00   4.50 -3.00  1.50 More profit taking
EMR       70.94   0.81  0.06  0.87 Confirm direction first
HWP       80.56   0.44  0.19  0.63 Is this run ever going to start?
PPG       68.63  -0.44 -0.38 -0.82 Necessary profit taking
BA        43.44  -1.69  0.63 -1.06 Profit taking
ALD       63.56   0.31 -1.38 -1.07 Dow sensitive
MCHP      43.00  -2.31  1.00 -1.31 Was that our dip?
TMX       86.13  -0.25 -1.75 -2.00 Dropped, merger news dying
TV        46.81  -0.38 -1.69 -2.07 Necessary profit taking
GT        64.25  -1.19 -1.31 -2.50 Necessary profit taking
UNP       63.31  -1.00 -2.69 -3.69 Possible reaction to Dow


JNJ       92.81  -2.75 -0.56 -3.31 Dropped for possible web pop up
LVLT      88.50   0.19 -0.19  0.00 Top of its channel
MSPG      88.50   1.75 -1.25  0.50 Not participating in rally
FNM       72.88   0.50  0.25  0.75 Top of its channel
TX        68.63  -1.38  2.75  1.37 Dropped, play over
SEEK      53.88   1.25  1.50  2.75 Still looks weak
BVSN      51.75   3.00  0.75  3.75 Not participating in rally
TBFC      99.06   0.88  5.06  5.94 Look for bounce downward
SFE       86.75  10.50  4.75 15.25 Did you get the license of that truck?
YHOO     174.00   8.25 18.31 26.56 Next time we grill Blodget first!

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.


NITE $154.50 -2.44 (+9.25) Knight was able to push through
resistance in the upper $140 range on Monday and triggered a
move back to new highs.  This is exactly what we talked about
over the weekend.  But a late day selloff plus comments on
CNBC caused the stock to close lower.  The CEO for Island ECN,
Electronics Communications Network, appeared on the show Power
Lunch to talk about the company's growth and future prospects.  
They announced today a $25 million dollar investment from 
Waterhouse Securities.  This raises questions as to whether 
Waterhouse will continue to use NITE to clear most of their
trades or whether they will send business to ECN.  Whether its
future business concerns or just profit-taking, we are unimpressed
with today's results in such a strong market so we are dropping
it for the time being.  Remember, don't hold over the split!

MFNX $84.00 +4.50 (+6.94) Dear John (Kluge): We like the 
prospects for your company since you are one of a few great 
bandwidth developers in the U.S. and Europe.  We also 
remember that you have a 2:1 split planned for May 19 after 
the close.  Unfortunately, your investor relations 
department says that you will release earnings for MFNX 
"most likely tomorrow morning (Wednesday) with a remote 
chance that it could slide to later in the day or 
Thursday".  "Most likely"?  Sorry John, as astute option 
traders, we never recommend holding a position through 
earnings, so we'll suggest to our readers that they take 
their profits and run.  Of course we will also remind them 
that if MFNX doesn't suffer any appreciable post-earnings 
loss, it may be safe to take another position for a split 
play.  In short John, we're leaving you and MFNX (for now 

VISX $134.38 +5.19 (+12.63)  VISX came through for us with a 
nice finish to its split run--up almost $13 in 2 days! Actually, 
it might still climb a little higher tomorrow, as the split 
occurs after the close. Please note: the stock will split May 
12th as we stated in Sunday's letter, but that is Wednesday, 
not Friday. (Apologies for listing the wrong day.) Plan to be 
out of your options by tomorrow's close, as most stocks experience 
some post-split depression. With the split run over, we are 
dropping VISX as a play.

TMX $86.13 -1.75 (-1.75) After hitting a new high yesterday 
morning, TMX headed down for the rest of the day and today lost 
a little more ground. Although the $86 intraday bottom today 
was still comfortably above its 10 dma, we are concerned that 
the stock may come under some profit-taking pressure if the 
merger news evaporates, as the "talking heads" on T.V. suggest 
might happen. (TMX denies that it and SBC, its American partner, 
are in merger talks with Spain's Telefonica, a suggestion that 
has driven the stock price up sharply in recent trading.) In 
addition, TMX was downgraded today at Salomon Smith Barney 
from "buy" to "outperform". We feel it is best to drop TMX at 
this time.


YHOO $174.00 +18.31 (+26.56) Yahoo has regained life this week
thanks to the help of Merrill Lynch analyst Henry Blodget.  He 
commented on Tuesday that the recent weakness is nothing more
than a buying opportunity.  Blodget is one of the more respected
Internet analysts and obviously his comments carry some weight.
The stock rebounded from an under-performing status last week to 
a clearly over-performing stock this week.  With the renewed 
interest in the NASDAQ and Internets, we are removing Yahoo from 
the put list.  (if you waited to confirm direction first, we
really didn't get a chance to jump in).

TX $68.63 +2.75 (+1.38) We've had lots of action this week in 
trading on Texaco.  Today alone produced a more than 5 point 
move.  There are lots of rumors and articles commenting on any 
possible offer or alliance but as of mid-day Tuesday company
officials are still silent.  The drop to a day low of $64.50
was encouraging and justified the play but the steady late day
rebound has us concerned that speculators will take the stock
higher. This was a short term play and it appears the bulls 
are winning.

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

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

The Option Investor Newsletter         Tuesday  5-11-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

PUT DROPS (continued)

JNJ $92.81 -0.56 (-3.32)  Since Friday, JNJ has fallen more 
than 3 points below its newly formed support of $96-97.  Now 
the stock's descent has been on strong volume and this implies 
a bearish sentiment. Today, the stock finished a point 
below its 50 dma. So far, it's still hush-hush about the 
possibility of a $3 bln stock deal with Centacor.  Also on 
the news front, Johnson & Johnson is going "online".  News
of a commercial JNJ website came out late this afternoon.
We don't want anyone to get hammered by an unexpected pop
due to any Internet fever.

SFE $86.75 +4.75 (+15.25)  No explanation necessary.  Two 
consecutive days of such huge gains puts this stock right onto 
our drop list.  There was no press on Monday that could have 
caused this stock to spike up $10.50.  But today two news releases 
may have had some influence.  First, 4anything.com (an alliance 
of SFE) announced they launched the World's largest network of 
vertical portals providing quicker and easier access to Internet 
data.  Plus, SFE announced that they filed registration with the 
SEC for an IPO offering for their Internet Capital Group.  
This play turned out to be one of those "Thank God for stop
losses" kind of plays.


DELL $42.63 +0.38 (+2.44) That's more like it.  Dell is 
just 5 trading days away from announcing earnings (May 18), 
and we are looking for an earnings run that could easily 
take DELL to $45, market willing.  Dell tacked on over $2 
yesterday and followed up with $0.38 today.  There is still 
room for more appreciation as Dell received 2 very welcome 
upgrades yesterday from BT Alex Brown issuing a "buy" 
rating and CS First Boston reiterating its "strong buy" 
rating.  CSFB thinks DELL will beat their $0.15 EPS 
estimate and possibly exceed their 11% operating margin 
goal (briefing.com).  Given Compaq's woes, their assessment 
may be accurate.  Nonetheless, trade smart by first 
confirming market direction, then use stops to protect 

EGRP $115.00 -4.81 (+4.62) The technical pennant is still 
forming.  Even though EGRP gave us what appeared to be a 
breakout yesterday (+9), today, it gave back over half 
yesterday's gain.  The time is still good to scale into a 
position, as EGRP will split 2:1 after the close May 21.  
In addition Volpe Brown reiterated its "buy" rating 
yesterday.  Remember, INTERNET = RISK!  Big swings are 
normal.  Like we noted Sunday, "More conservative traders 
will wait for a clean break with volume over $123.  
Confirm market direction first.

IBM $221.00 +2.38 (+3.75) Still at the front of investors 
minds when looking for tech sector winners, IBM had great 
earnings, announced a stock repurchase, increased the 
dividend and received broker upgrades.  They also have a 
2:1 split planned for May 26, which is what this play is 
all about.  Technically, IBM is well into positive 
territory, even though volume has been a bit light.  It 
doesn't look like a reversal is coming soon.  That said, 
nothing goes up in a straight line and IBM will see an 
occasional "taking of the profits" before the split.  So 
keep those trailing stops in place and confirm market 
direction before jumping in.  

ROK $61.88 +1.25 (+3.25) Frankly, this is one of the 
prettiest technical charts we've seen in a while - 10 
straight days of sequential gains!  That of course should 
raise a red flag telling us that profit taking could hit 
any time.  Even so, trading volume has been over twice the 
daily average over the last 2 days, telling us that buying 
pressure is still strong.  Not really any news worth noting 
except that they've made their web site easier to use, 
though we doubt this has any effect on the price.  Confirm 
market direction before taking a position and enjoy the 
ride.  You may want to wait for the pullback before making 
the play, or keep a trailing stop in place if you're 
already in it.

BA $43.44 -0.63 (-2.31) We noted on the ROK write-up Sunday 
that ROK has been evenly tracking BA.  Murphy stepped in to 
break up that relationship first thing Monday morning and 
continued into Tuesday.  Unfortunately, Boeing took the 
nosedive of divergence, while Rockwell continued its rise.  
What investors didn't suspect was that Boeing lost a 
National Labor Relations Board ruling that now allows 460 
engineers to vote on whether to join the SPEEA, a Seattle 
based engineering union.  No big deal by itself, but it 
could have deeper repercussions, which the news isn't 
conveying.  Keep your eyes open for an entry since BA's 
fundamental business of aircraft construction is receiving 
many new orders.  Business is still good and the technical 
chart is still in the positive zone.  Confirm market 
direction before playing.

CMVT $71.38 +2.57 (+3.94) CMVT has performed very well this
week.  The stock is at new all time highs and closed very 
near its high of the day.  Earnings are expected in early
June, so an earnings run could help the stock even higher.
As always, any weakness in the market could cause some profit
taking.  It seems that the NASDAQ is ready to make an assault
on its highs, which should see CMVT follow.

AET $97.00 -2.25 (+2.00) AET made strong gains on Monday, as
the stock rose to another 52 week high, just shy of the $100
level.  On Tuesday, the stock gave back $2.25 of its $4.25 
rise on Monday.  AET's new high is at $99.88.  There will be 
resistance at the $100 level, for no other reason then 
psychologically.  The only news on AET is that it is involved
with the President's tour to help bring investment to inner
city business.  One of AET's chief executives is flying along
with many other large companies, with the President.

GT $64.25 -1.31 (-2.50) GT has suffered some profit taking
this week.  Not unlikely, considering the strong gains the
stock had last week.  The best entry point would be a bounce
off of $62.75, if the stock drops that low.  There is also
reports that GT's "run-flat" tires are not bringing in the 
revenue the company had anticipated.  These things aside,
GT has made strides in cutting costs and still seems set
to make up some room from the drop the stock has taken over
the last year. 

PPG $68.63 -.38 (-.81) PPG has had a bit of profit taking
this week, but has seemed to find new support at just above
$68.  The stock has hit and bounced off this level for the
last three days.  A little consolidation after nice gains
is a good sign for the stock going forward.  As we mentioned
in the weekend edition, long term charts show PPG having nice
runs into the summer almost every year.

MCHP $43.00 +1.00 (-1.31) MCHP had a profit taking day on
Monday this week, as the stock lost $2.31.  On Tuesday, the
stock gained $1.00, but stayed in a very narrow range.  The
stock has support in the $41.50 to $42.00 range.  A bounce
off these levels would be a nice opportunity to buy.  The
semi-conductor industry is pushing up against some short
term resistance, if it breaks this level, a nice run could

TV $46.81 -1.69 (-2.07) TV took a little off its latest gains,
as the stock dropped as low as $46.63 and closed just slightly
above this mark.  Mexican stocks in general declined today, 
bringing with it, a decline in TV.  This was the first drop in
over four days.  The decline came mainly from retailing stocks,
as two of Mexico's biggest retailers had decreasing same store
sales.  News that the daughter of Emilio Azcarraga, the late 
CEO of TV, has hired two U.S. law firms to investigate a sale 
of stock in the company and to find out how much her billionaire
father's estate is worth.  The Mexican market still seems very
strong in the short term.

ALD $63.56 -1.38 (-1.07)  ALD kept a fractional +0.31 gain in
yesterday's mixed market and set another new high - for the third 
day in a row!  The record is now at $65.75. Today the stock did 
trade above the $65 mark and the volume continues to be strong 
on this momentum play.  Unfortunately, some investors were 
looking to cash in some profits late this afternoon and ALD 
closed on the negative.  Remember, don't look for a homerun 
here.  Confirm direction, grab a couple points, and get out.  

CTXS $47.00 +1.56 (+4.37)  The stock has performed well since 
Sunday's newsletter.  CTXS broke its proximate resistance at 
$43-44 on Monday with a $2.81 advance.  Even today its low was 
above yesterday's closing price by half a point.  The market 
momentum is certainly one factor driving this stock and the 
other is those coveted "buy" ratings.  On Monday, Lehman Brothers 
and Hambrecht & Quist both reiterated their "buy" position on 
CTXS.  Also, Michael Stanek, analyst for Lehman Brothers, set 
a 12-month target price of $63.  Now the only opposition standing 
in the way is the barrier at $53.75 - its 52-week high.  Remember 
to watch the market direction and CTXS's volume as this is a 
straight momentum play.

LU $60.13 +1.31 (+2.37)  This stocks been a trooper the past 
two days making claims it can go higher.  For one thing LU 
hasn't dipped below its closing price of $57.75 on Friday which 
is a positive sign.  And today it broke through its support 
range of $57-58 and popped over its 10 dma at $59.  LU still 
faces resistance at $62-63. Yesterday Lucent announced they 
are the first to develop a single-chip Internet telephone 
solution.  This product will drop Internet phone prices from 
$250 to the $150 range.  Also, Viatel will use Lucent's AllWave
Fiber for its intra-city fiber links in Europe.  

NTBK $184.50 +14.00 (+19.50)  There's a renewed interest in 
the Internet stocks and NTBK is on the top of the list. Yesterday 
the stock tacked on +5.50 points at the finish and today was even
better.  NTBK added on another $14 and topped out at a high of 
$187.  The 3:1 stock split is this Friday and you should be out 
of your positions by then.  Remember we never recommend holding 
over a split date.  The rest of the week will likely be very 
VOLATILE and difficult to time because of the huge intraday 
swings.  Good Luck for a successful play.

TBH $101.00 -3.00 (+1.50)  This ADR benefited from foreign 
interests yesterday according to the "Emerging Markets Highlights".
The security gained +4.50 points and closed right near its daily 
high on moderate volume.  Today the volume was again only moderate, 
but it dipped late in the afternoon with the DOW.  Time will tell 
if it's forming new support in this $101 range.  This is purely a
momentum play and today's dip does offer a solid entry point.  
However, a conservative player will look for upward confirmation 
and stronger volume before initiating a new play.

UNP $63.31 -2.69 (-3.69)  The downgrade yesterday is putting 
this stock to the test. PaineWebber announced before the 
opening bell it had cut UNP from an "attractive" rating down 
to "neutral", yet offered no explanation.  Just this Friday, 
UNP set a new daily high at $67.  The trading has been heavy 
both days and with profit-takers demanding their share.  The 
word on this play is now "caution".  Consolidation is reasonable 
after the recent gains last week, but confirm direction before 
you open a new position. 

BRCM $92.69 +8.69 (+9.00)  Yesterday BRCM traded almost flat 
on the day, gaining only $.31, but today it was up a whopping 
$8.69--over 10%. It sure helped to have analysts talk up Internet 
stocks like AOL and Yahoo. CSCO came out with decent numbers and 
a 2:1 stock split after the bell tonight, and that should help 
Internet-related stocks, too. Tonight BRCM will unveil its new 
technology that will enable 80% of today's enterprise networks 
to receive data at ten times the current speed at the NetWorld+
Interop '99 convention. Looks as if the stage is set for a 
continued rise in this stock. Beware of possible profit-taking 
after the big move today, however. BRCM is only a few dollars 
below its all-time high of $95.63, and could see resistance at 
that level. Above that is breakout territory.

HWP $80.56 +.19 (+.62) The rally in HWP yesterday died in the 
afternoon and the big earnings run we hope to see in HWP remains 
elusive as HWP continues to tack on only small gains. It is not 
for lack of news on the company. H-P itself has been bombarding 
the news wires with a flurry of PR news releases, sometimes a 
half dozen of them in just a few minutes. They tout products, 
product awards, business alliances, and new technology developments. 
H-P is painting itself as less conservative than it has been in 
the past and ready to move into e-commerce and e-services in a 
big way. (Analysts agree with this picture.) The latest alliance 
is a pact between HWP, SAP America (a software company) and QWST 
(the # 4 long-distance company and another O.I. recommendation). 
Together these companies will offer SAP's software for accounting, 
billing, and human resource functions over Qwest's network. HWP 
will invest $500 mln in server hardware, software, and support 
services for its part of the deal, and will receive monthly fees 
in return. HWP also invested $20 mln in the Intel 64 fund--a fund 
of about $250 mln that will invest in smaller technology companies 
in an effort to shape the future of enterprise and Internet 
computing. H-P hopes its investment will pay off in benefits to 
its e-services plans. HWP reports earnings on Monday, May 17th.

QWST $92.75 +1.25 (+2.62) QWST continued its nice move up both 
Monday and Tuesday. The company has entered a strategic 
relationship with SAP America and HWP that will make use of 
Qwest's high-speed network to allow SAP to offer business 
solutions over the Internet. HWP will be paid monthly to provide 
$500 mln worth of server technology and services. Qwest also 
says it has completed over 16,200 miles of its 18,500 mile U.S. 
network--the first nationwide fiber-optic network designed for 
Internet-Protocol applications and services. The network will be 
finished by June 30th. Qwst is riding the wave of the future, 
and its stock should continue to reflect that.

EMR $70.94 +.06 (+.88) EMR motored steadily higher this week. 
After setting a new high Friday, it set another new high on 
Monday and then topped that today by reaching $71.94. EMR closed 
off its high, but its chart still looks beautiful and momentum 
is with it. Technicals are all positive, indicating a continued 
climb in price, always watch out for profit-taking in a stock 
that has moved up this many days in a row.

COF $172.00 +6.81 (+6.69)  COF finally shot out of the gate 
today as it began its split run. We recommended patience on 
this play and on Sunday we said any substantial move above $168 
could indicate the beginnings of a split run. Today's low was 
$165.44 at the open and it traded as high as $174.38, before 
closing at $172.00. Volume was strong. Looks like this is it! 
Use trailing stops on this one to prevent losses should the 
inflation fears rear up again. COF splits 3:1 June 1st.  Be sure
to confirm both stock and market direction before starting
a new play.


BVSN $51.75 +.75 (+3.75) BVSN didn't show much energy today as
the NASDAQ and Internet group powered ahead.  The stock has 
struggled to post gains despite positive news and market sentiment.
This stems from the technical weakness and the recent descent 
through the 50-dma.  Traders are selling into the gains as they
exit BVSN for momentum driven plays.  No news this week worth
mentioning.  We look for the stock to start lower again with 
any weakness in the sector or NASDAQ.  As we mentioned before,
there isn't any clearly defined support until the 200-dma around 

SEEK $53.88 +1.12 (+2.75) A rebound in the Internets has SEEK
in the positive for the week.  The stock moved up on both Monday
and Tuesday as the NASDAQ rallied.  But the gains it has posted
have been light and one glimpse at the chart will remind you 
why it's on the put list.  What we are seeing now is nothing 
more than a bounce after along drop.  The rally is unconvincing 
with volume only half of the daily average.  And we expect to 
see another assault on the 200-dma at the $45 level soon. 
MSPG $88.50 -1.25 (+.50) Mindspring continues to show weakness.  
After a brief opening rally, the stock turned lower on Tuesday
despite the Internet strength.  This is encouraging to us since 
AOL and YHOO are storming higher.  Technical indicators are pointing
to a continued decline as the stock is still far from any support.
There is little news to trade on and the volume is slowing back
down as investors are losing interest.  Use the market opening 
rallies we've been seeing as an entry point and keep the stops 
set in case MSPG decides to participate with the sector.    

TBFC $99.06 +5.06 (+5.94) After quiet trading early this week,
Telebanc made a statement with a mid-day rally on Tuesday.  The
stock had made little progress this week until it caught fire
with the rest of the group today.  The rebound took it to the 
top of the recent trading range but was unable to move higher.
We expect resistance to hold near $100 if the current downtrend
is to remain.  That would mean this is a good entry point for 
anyone interested in opening a play on TBFC.  But with others 
in the group (COF) at new highs, we urge caution as the industry
strength may take TBFC along for the ride.       

FNM $72.88 +.25 (+.75) FNM is still sitting at the upper
range of its channel, as the stock rose Monday, and stayed
about even on Tuesday.  Tuesday did bring a lot of volatility
in FNM, as the stock traded from $71.88 to $73.81.  We still
feel the stock is within a channel, but don't try to guess
the top.  Wait for the stock to start a downturn, before
buying puts.  We don't need to catch the whole move. 

LVLT $88.50 -0.19 (0.00) Now accepting the stand-still 
award of the week. . . LVLT!  Seriously, volume here (thus 
buying pressure) is really low.  There is simply no 
investor interest in LVLT right now.  It means too there 
are no sellers itching to get out either.  LVLT has been in 
a rolling pattern between $90 and $83.  Technically, we 
expect a fall back to remain consistent with the cycle.  
That said, keep your eyes open for a breakout over $90 that 
would effectively put the kibosh on this play.  Wait to see 
some selling volume once the price rises to $90 (or 
higher).  This is a tricky play but can be a profitable one 
of we can get a good entry.  Confirm the market direction 
before starting this play.


EMC - EMC Corp. $107.25 +6.31 (+9.94 This Week)

EMC can emcee your memory.  EMC is the #1 maker (ahead of IBM) 
of mainframe computer disk memory hardware and software.  The 
company makes RAID (redundant array of independent disks) 
memory storage and retrieval systems for larger mainframe 
computers as well as desktop PCs.  EMC markets its memory 
products under the name Symmetrix.  Other products let users 
manage remote data and share information across networks of 
different computers.  EMC continues to broaden its product 
portfolio, strengthen alliances, and expand its global presence  
to create more platform-independent systems. (from Hoovers)

We are adding EMC back to the call list.  The stock has been
very strong this week, and we feel the negative impacts of
losing some business with Hewlett Packard is over.  The stock
has filled a bearish gap created in early May, and we feel the
stock will have a nice split run.  The split is scheduled for
June 1st.  EMC is well off its high of $134.94, obtained in
early April.  With the NASDAQ making a move and a split ahead,
EMC should make up a good portion of its recent losses.
You may want to look for a dip (may be intraday) before jumping
into this one.

BUY CALL JUN-105 EMB-FA OI=1015 at $10.13 SL= 7.75 ITM $2.25
BUY CALL JUN-110*EMB-FB OI=1984 at $ 7.75 SL= 5.75
BUY CALL JUN-115 EMB-FC OI= 886 at $ 5.88 SL= 4.25 
BUY CALL JUL-110 EMB-GB OI=2466 at $10.88 SL= 8.25

Picked on May 11th at $107.25    PE = 54
Change since picked   +$ 0.00    52 week low =$ 40.19
Analysts Ratings   10-5-2-0-0    52 week high=$134.94
Last earnings  04/99 est 0.40    actual 0.41 
Next earnings  07-22 est 0.48    versus 0.36
Average daily volume = 4.95 mln
Chart = http://quote.yahoo.com/q?s=EMC&d=3m



Rise In Bond Rates Plagues The Market...

Monday, May 10

U.S stocks were mixed Monday, as the technology sector rebounded
on bargain hunting while blue chips fell further on concern over
the recent jump in bond interest rates. The Nasdaq index of high
tech stocks was up 22 points to 2,526 while the DJIA ended down
24 points at 11,007. In the broader market, advancing issues led
declines 17 to 13 on active trading of 767 million shares on the
New York Stock Exchange.

Sunday's new plays (positions/prices):

TX   JUN70C/MAY70C  $1.50 debit  (premium was gone at the open)
UCL  OCT45C/MAY45C  $2.50 debit  (easy entry at target price)
MACR JUN40C/MAY40C  $1.87 debit  (slightly less than target)
TXN  MAY115C/MAY90P $2.25 credit (possibly $2.38 at 9:55 am)
KMT  SEP30C/SEP30P  $6.50 debit  (call side was overpriced)

Portfolio plays:

TX was our big-play candidate but those hopes faded with the
option disparity at the open. The stock gapped-up almost $2 but
the May-$70C deflated immediately. We were unable to achieve a
debit anywhere near the target price and NO PLAY was initiated.
However, we will track the play at the higher debit to observe
where the stock price finishes.

The UCL spread did allow a favorable entry and that position
should move similar to TX. AOL jumped almost $10 and AEOS is
also trending up; both of these credit spreads appear safe for
now. The PZL debit straddle is $1.50 ITM after only two weeks
and you may consider taking that profit rather than holding
the position for higher, long-term gains.

Tuesday, May 11

The Dow closed with only a slight gain Tuesday after a volatile
session driven by nervous investors concerned about the rise in
bond interest rates. The Blue-chip average was up 18 points at
11,026, erasing a 100 point gain earlier in the day. The Nasdaq
rebounded again, moving 40 points higher to 2,566 as Internet
stocks continued to resurface from recent lows. In the broader
market, advancers led declines 17 to 12 on active trading of 841
million shares on the NYSE.

Portfolio plays:

BRCM moved $8 higher and the profit for that play is now $3.25.
We suggest you consider closing that position for an excellent
two-week return. WCII also climbed $6, moving the debit spread
to a $1.25 profit. MACR moved through some previous resistance
at $45; we are watching that one closely to determine if a roll
-up will be necessary. Quantum announced today it would acquire
Meridian Data, a network-storage company for approximately $85
million to expand its storage business. The stock price actually
moved higher, finishing almost exactly at the sold strike. We
will watch this one closely as the merger arrangements unfold.

Good Luck!



The Russell 2000 is showing signs of strength and has started a
new upleg with the small-cap stocks outperforming the blue chip
cyclicals and the high-profile tech issues. The recent concerns
about the market's lofty perch has convinced us to try some plays
on lower priced stocks.

OMX - Office Max  $11.25     *** On The Rebound? ***

OfficeMax operates 852 full-size superstores in over 360 markets
in the United States, Puerto Rico and the U.S. Virgin Islands.
The company also features in-store units CopyMax & FurnitureMax,
devoted to print-for-pay services and office furniture. Through
joint venture partnerships, OfficeMax currently operates a total
of 18 international locations in Japan and Mexico, and expects
to launch operations in Brazil this year. In addition, they have
18 delivery centers throughout the United States to serve catalog
and direct marketing businesses. OfficeMax.com on the Internet,
enables individual consumers and businesses to buy merchandise

Today the stock priced surged as the company announced that Q1
earnings jumped 27% from the prior year. The improvement may be
the result of their focus on enhancing gross profit margin with
a better product assortment and the reduction of their computer
promotions. The company previously suffered in this low margin
business from spending too much money in an attempt to boost PC
sales. Their sales increased but profits didn't because computer
prices continued to decline. Now they have moved to a new plan,
achieving gross profit improvement for the ninth consecutive
quarter over the same periods in previous years. The company has
the proper merchandise strategies in place to continue growing.

They also announced the hiring of a retail consulting firm; Kurt
Salmon Associates. OfficeMax hopes to get some new ideas that
can improve performance quickly. These initiatives will be in
addition to longer-term programs such as the implementation of
SAP software and a new supply management system that is already

Today's move should help us gain a favorable entry into a long
term speculation play with minimal risk.

PLAY (conservative/calendar spread):

BUY  CALL SEP-12.50 OMX-IV OI=624 A=$1.18
SELL CALL MAY-12.50 OMX-EV OI=39  B=$0.25

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


USWB - USWeb/CKS  $26.31     *** A Recent Fall From Glory! ***

USWB is a professional services firm that works with companies
to define strategies and implement innovative ways to build their
businesses by strategically combining Internet technology and
marketing communications. USWeb/CKS helps clients differentiate
their products and services, strengthen customer relationships,
leverage human capital, and improve business efficiency in the
new digital economy. USWeb/CKS has helped hundreds of businesses
advance their marketing communications programs with everything
from brand development and advertising to process automation and
e-commerce solutions.

One of the biggest upcoming tasks for USWB will be the venture
with E*OFFERING to create a dynamic interactive web site for the
new online bank's customers. USWeb/CKS is working with E*OFFERING
to construct an internet service where investors will be able to
conduct market and industry research, and receive alerts on IPO's.
USWeb/CKS is developing systems and site features including the
technical foundation, user interface and database logic. They are
also seamlessly integrating E*OFFERING's site with E*TRADE Group.
USWB was selected because of its ability to converge technical,
creative and consulting capabilities necessary in building a
compelling and engaging commercial web site. The site will be
launched in June and that should bring some new attention to the

Today, Prudential Securities initiated coverage of USWeb with a
"Strong Buy" rating. We think this is a good opportunity to enter
a low risk position on a great company.

PLAY (conservative/debit spread):

BUY  CALL JUN-22.50 QWB-FX OI=115 A=$5.87
SELL CALL JUN-25.00 QWB-FE OI=417 B=$4.12
INITIAL NET DEBIT TARGET=$1.50 ROI(max)=66% B/E=$24.00

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


PRD - Polaroid  $23.62     *** A Picture Is Worth... ***

Polaroid Corporation is the worldwide leader in instant imaging.
They supply instant photographic cameras and films; digital
imaging hardware, software and media; secure identification
systems; graphics imaging systems; sunglasses and polarizers
to markets worldwide.

In mid April, Polaroid announced mediocre earnings, meeting the
analysts estimates but failing to prove any short-term growth had
occured. The first quarter is traditionally the period in which
Polaroid's revenues and profits are the lowest. The company was
able to reduce its operating loss from the first quarter of 1998
to the first quarter of 1999 largely because of the lower costs
resulting from the company's restructuring.

They are now focusing on revitalizing core business profitability
and increasing revenue growth with new products. In this quarter,
worldwide shipments of cameras rose 30%, compared with the first
quarter of 1998, led by the instant pocket camera and the JoyCam
& Hipparay. Japan is leading the new product drive with nearly
four times as many cameras shipped as those of the first quarter
of 1998, and film unit shipments there were up in the low double
digits compared with the same period a year ago.

Today, Polaroid declared a regular quarterly dividend of $0.15 per
share on the company's common stock for shareholders of record at
the close of business on May 28, 1999.

PLAY (conservative/debit spread):

BUY  CALL JUN-20.00 PRD-FD OI=27  A=$3.50
SELL CALL JUN-22.50 PRD-FX OI=244 B=$1.75
INITIAL NET DEBIT TARGET=$1.50 ROI(max)=66% B/E=$21.50

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



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