Option Investor
Newsletter

Daily Newsletter, Thursday, 05/13/1999

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter         Tuesday  6-3-99
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)
************************************************************
        6-3-99          High     Low     Volume   Advances Decline
DOW    10663.69 + 85.80 10667.18 10577.26  720,290k  1,595   1,309
Nasdaq  2403.32 - 29.09  2444.04  2402.29  819,074k  1,895   1,913 
S&P-100  657.66 +  1.97   661.62   654.15   Totals   3,490   3,222
S&P-500 1299.54 +  4.73  1304.12  1294.23            52.0%   48.0%
$RUT     435.98 -   .76   438.82   435.62
$TRAN   3420.96 -  6.64  3427.32  3397.44
VIX       27.52 +  1.29    28.28    26.44
Put/Call Ratio      .55    
*************************************************************

The jobs are coming, the jobs are coming!

This market wrap could be summed up in two words, "jobs report."
The monthly non-farm payrolls report is due out tomorrow before
the market open and you would think the fate of the entire world
rested on the outcome. Traders are worried that the jobs report
tomorrow morning will be a blowout and the Fed will pull the 
trigger on a rate increase. Some even feel they won't wait for
the next FOMC meeting on Jun-29th. The estimate for new jobs is
225,000. Any number close to that should bring on a relief rally
and because of the severe anguish going into the report it may
take a huge number to cause a sell off. I have seen blowouts
in the past generate no reaction but with the Fed changing their
bias to increase rates it could be the spark needed.

In the things can't get worse dept, Alice Rivlin, the vice chair
of the Fed committee, announced she was resigning after the close
today and would not take part in the Jun FOMC rate meeting. Alice
is seen as a dove on the committee and favored pro-growth policies
instead of tighter rates. With Alice out of the picture it leaves
10 of the 12 governors to vote on the rates. The 12th position is
currently unfilled. While the stated reason for the resignation
was "to spend more time with her family", there are some who said
they saw it coming. Other Fed heads had been seen as distancing
themselves from her recently and feel there could have been some
disagreements among the group as to direction. In reality the 
decision comes down to Mr. Greenspan and whether or not he wants
to fight the market at this time. The Fed group has been dishing
out Fed speak in volumes the last two weeks and some feel that
any rate increase at the June meeting would be the most advertised
increase in history. The market has easily already factored in
a +.25% increase but the way it is delivered and the tone of the
bias will determine market direction after an announcement.

Another signpost on the Fed highway is the recently scheduled
testimony by Greenspan to the joint economic committee in Congress.
He basically has an open invitation to speak whenever he deems it
necessary. Rumor has it that Mr. G. just called up and requested
June-17th as a meeting date. This date is relative since it is the
day after the next CPI report. If the Fed policy was going to change
it would be an ideal opportunity for the Fed chief to explain his
reasons to Congress and the world. For the ever present conspiracy
theorists this now represents "I" day. Even if he did not announce
the actual increase, his speech would provide the justifications.
If you disagree with the conspiracy theory, I have only one warning.
Alan Greenspan NEVER does anything unplanned. Trust me.

The good news today was the market. In the face of what market
economists are calling a sure jobs blowout, the DOW held 10,600
and even bounced strongly off this magic number at the close to
post a great +86 point gain. Three days this week we broke under
10,500 yet today we held over 10,600 with a potential disaster
only hours away. This is a victory in my book. The advance/decline
line was technically positive today with 268 more advancers then
decliners. As you can see from the chart the technical halt of
the A/D slide of the last two weeks is a small victory but one
sorely needed. 


 
 


The Nasdaq also won a victory of sorts today by holding off
a late day flurry of sellers and holding the critical 2400
level. The average was in trouble from the start this morning
and only traded in positive territory twice before going
negative on the backs of the sinking Internet stocks. The
Nasdaq held to single digit losses until the last hour of 
trading when sellers fled from Internets in droves. 


 

 
The Internet sector is regarded as the most likely to suffer
if the interest rates are raised. Personally I think this is 
crazy at these levels but of course I don't have a corner on 
irrational thought in these matters. What I think we are 
seeing here is pull back to the support levels from the
drops on each of the last two Wednesdays. If you look at
the Ebay chart here you can see what I mean. Most of the
charts on Internet stocks look exactly like this. It is not
a stock fundamental thing but a sector pull back. If we
do get a mild jobs report I feel the Internet sector will
be the first and the strongest to react from it's heavily
oversold position. 


 
Another sector I think is primed and ready to rock is the
broker sector. After the Merrill Lynch announcement last
Tuesday the carnage has been severe and some of these 
stocks are way oversold. Even Merrill finished flat today
at -.75.


 
I was more convinced earlier in the day but EGRP gave 
back some of it's gains at the close. Still EGRP at -.88, 
NDB +.38, MWD -.25 and SCH -0- would lead me to believe 
the selling is over. EGRP would be my preference because 
of their size, market position, stock price and new 
Telebank relationship. Their new E*Offering site for 
IPO's is now up and running and is sure to help their 
exposure. They have a dual purpose investor draw as a 
broker and an Internet play. The way to play it is through
Telebank (TBFC). With Etrade paying 2.1 shares of EGRP
for every TBFC share that means a $1 rise in EGRP will
cause a $2.10 rise in TBFC. Leverage is what it is all
about. 

You can return the NoDoz to the store because the NYSE
decided to day to delay the extended hours until the second
quarter of 2000. They are going to wait until after Y2K and
make the transition at the same time they go to decimals
for prices. 

A side note on a past play. Dell computer has traded as low
as $31.38 this week. A far cry from their recent high of
$55. Since their fall from grace Dell has lost $55 billion
in market cap. $55 BILLION !! Their PE is still a 57 and 
they are still regarded as the best player in their field.
When they were positive earlier today I thought they might
have found a bottom but the sellers are still lurking in
force. Wait for the next earnings cycle and I would bet
on $45 again. On the down side some analysts are projecting
a $28-29 price soon. I do not see it. If you are a long
term stock holder this may be the best shot you get for
a long time.

Today was a tough one for emotional trading. Several traders
here in the office, including me, wanted desperately to be
in the market today. Of course, we also view that as suicidal
in light of the pending jobs report but we still fought the
battle. It does not matter what the number is, IF you are 
out of the market. If you are in the market it matters a
lot. As professional traders we need to only trade when we
the majority of factors line up in our favor. Holding over
an important economic event is like holding over earnings,
sudden death. Why gamble with your capital when you do not
have to? Patience is very hard but also very rewarding.

The S&P futures are down -2.00 from the close on the 
Rivlin resignation but the die has already been cast for 
tomorrow. The numbers are etched in stone. We just have to 
wait for the jobs report to be made public to see our fate.

Have a great weekend!

Jim Brown
Editor



HOT NEW Summer Seminar Series for OIN readers

As part of the new alliance with George Fontanills, 
OptionInvestor.com is presenting a new series of in-depth option 
training seminars to be taught by George Fontanills. George has 
two options training books on the Amazon.com top ten list. 
He has been teaching options trading since 1993 and is the pioneer 
of the delta neutral approach to trading options. His nationally 
known Optionetics Course is state of the art. We are very pleased 
to have George teach our readers how to maximize their returns. 

Seminar Schedule

June 21 & 22
BOSTON /Crown Plaza

June 27 & 28
LOS ANGELES / Burbank Airport Hilton

July 18 & 19
DALLAS / Airport Marriott

July 25 & 26
SAN FRANCISCO / Crown Plaza


THE COURSES ARE LIMITED TO 100 PERSONS PER EVENT !!!!!

In the past our seminars have filled up quickly and we expect 
these to be the same. If you are tired fighting the market and 
are ready to step up to the next level then we strongly suggest 
you attend. There is a full money back guarantee and we will 
allow you to retake the seminar for free as many times as you 
feel necessary to grasp and implement all the techniques taught. 
People fly from around the world to hear George speak and you 
can have two full days of personal attention at the OIN seminars.

Go here for details: 
http://www.OptionInvestor.com/seminar/index.asp

We guarantee you will not be disappointed!

Jim






Market Posture
***************
As of Market Close - Thursday, June 3, 1999 

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

DOW Industrials   10,500  11,000  10,664    Neutral   5.28
SPX S&P 500        1,325   1,360   1,300    BEARISH   5.25
OEX S&P 100          660     690     658    BEARISH   5.25
RUT Russell 2000     435     450     436    Neutral   5.28

NDX NASD 100       2,100   2,250   2,030    BEARISH   5.25
MSH High Tech      1,000   1,100   1,006    Neutral   5.28

XCI Hardware         900     920     850    BEARISH   5.20
CWX Software         600     675     666    Neutral   6.03 *
SOX Semiconductor    390     420     387    BEARISH   5.25
NWX Networking       450     490     530    BULLISH   4.22
INX Internet         550     650     451    BEARISH   5.20

BIX Banking          700     720     662    BEARISH   5.18
XBD Brokerage        450     475     395    BEARISH   5.21
IUX Insurance        645     660     647    Neutral   6.03 *

RLX Retail           900     970     883    BEARISH   4.29
DRG Drug             390     425     359    BEARISH   4.29
HCX Healthcare       780     850     730    BEARISH   4.29
XAL Airline          180     210     167    BEARISH   5.21
OIX Oil & Gas        285     310     294    Neutral   5.13



Posture Alert

Employment Data due out Friday led to a light trading day on 
Thursday. We have turned Neutral on Software as the index broke 
below key levels. We have also turned Neutral on Insurance as 
that index broke above resistance.


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

/members/marketposture




Market Sentiment
Pinnacle Capital Advisors
*************************
Thursday, June 03, 1999 

The SKY is FALLING!

With key Employment figures due out tomorrow, the markets have been
trading very cautiously the last couple of days. You have witnessed 
much bloodshed in internet and various other high-tech sectors. 
There hasn't been much change of Pinnacle's opinion on the markets, 
however, one aspect of trading that Pinnacle Capital keeps a close 
eye on is Market Sentiment. A statistic that jumps out at us today, 
was the amount of Put Buying for the June contract, that is WAY OUT 
of the money. With the OEX trading at 657, we saw increased activity 
down around the 600 level. These speculators will need to see a pretty 
nice correction in the next two weeks just to be break-even. Considering
that these speculators are usually wrong-way, and with such bearish 
sentiment between 600-645, we are not too concerned with a major drop 
(unless Robbie Rubin resigned so he can buy front-end month, 
out-of-the-money puts). On the other side of this equation is the 
increase in out-of-the-money call buying? We saw a nice pick-up in 
call speculation between 680-750. What this tells us is that the 
bullish wrong-way traders are trying to get into the act as well. 
When you combine these two groups of wrong-ways, what you get is a 
market trading between key benchmarks. Until the Fed takes action, 
or corporate earning start piling in, or some other ground-breaking 
news, these two groups described above, will have to put in some 
OVERTIME at work to make up for their Option Losses.... 


 

 

 

Bullish Signs:
None.

Mixed Signs:

Market Volatility (VIX):  
Trading at its 50-day moving average (26.35).   Next move above or 
below key benchmark will likely determine market direction over the
near-term.  

Advance/Decline Line:
After flattening and rolling over last week, the A/D line is beginning 
to check up and could prove Bullish if advancers can out pace decliners
in the week ahead. 

Russell 2000: 
Climbed back above the key 435 benchmark. The small cap
stocks are beginning to show strength just above its 50/100 day moving
average. 


BEARISH Signs:

Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors spiked 
from a week ago suggesting Bullish sentiment is picking up steam 
and investors are ignoring the selloff. 

Interest Rates:
Trading ABOVE 200dma and 5.50 Benchmark (5.936%).

Pinnacle Index:  
Overhead resistance (OEX 680-750) clocking in at 6.7 
suggesting that option speculators are expecting the market to 
advance higher.

Peak Open Interest:  
The contraian put-call ratio clocking in at .86 suggesting bullish
sentiment picking up steam.




OTM Call Analysis

As we move through June'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%     
Friday, May 14              97,861      +218.8%     
Friday, May 21             115,336      +275.0%     


June Expiration Cycle
OEX OTM Call Analysis (Open Interest June 680-750)
Date                 Open Interest     Change %    Alert

Friday, May 28           53,502        -
Tuesday, June 1          53,293        -.4%
Thursday, June 03        58,515        +9.7%  *



Market Sentiment at a Glance    Friday     Tues      Thurs  
Indicator                       (5/28)     (6/1)     (6/3)Alert

Pinnacle Index (OEX):          

                    (680-750)      6.8       6.7      9.47 *
Overhead Resistance (680-700)      3.7       3.5      5.21 *
Underlying Support  (645-660)      1.3       1.2       .85 *
                    (510-660)      3.8       3.7       .26 *

Put/Call Ratios:

CBOE Total P/C Ratio              .6          .5         .6 *
CBOE Equity P/C Ratio             .5          .4         .4 *
OEX P/C Ratio                     .8         1.2        1.1 *


Peak Open Interest (OEX):

Puts                              650        650        600 *
Calls                             670        670        670 *
P/C Ratio                         .82        .86        .93 *

Market Volatility Index (VIX):	

CBOE VIX                        26.38      27.92      27.08 *



Investors Intelligence:

Bullish                         60.90%     60.90%     61.60% *
Bearish                         28.70%     28.70%     27.70% *



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                        (5/28)     (6/1)     (6/3)

                    (680-750)      6.8       6.7      9.47 *     
Overhead Resistance (680-700)      3.7       3.5      5.21 *

OEX Close                       658.66    654.21    657.66
 
Underlying Support  (645-660)      1.3       1.2       .85 *
                    (510-660)      3.8       3.7       .26 *

 
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                 (5/28)     (6/1)     (6/3)

CBOE Total P/C Ratio               .63      .54        .58
CBOE Equity P/C Ratio              .50      .41        .42
OEX P/C Ratio                      .83     1.24       1.09


OEX
Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (5/28)           (6/1)           (6/3)

Puts                 650 / 10,950    650  /  10,967   600/ 11,475
Calls                670 / 12,700    670  /  12,750   670/ 12,308
Put/Call Ratio       .82             .86              .93


 

 


VIX
Market Volatility   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   

May 21, 1999                            25.36 
May 28, 1999                            26.38
June 1, 1999                            27.92
June 3, 1999                            27.08


 


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 07, 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 05, 1999                          58.1        27.6     
May 12, 1999                          56.9        31.0     
May 19, 1999                          60.9        28.7      
May 26, 1999                          61.6        27.7 *




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

Index     Last    Tue    Wed   Thur   Week
Dow    10663.69  36.52 -18.37  85.80 103.95
Nasdaq  2403.32 -58.49  20.38 -29.09 -67.20
$OEX     657.66  -4.45   1.48   1.97  -1.00
$SPX    1299.54  -7.58   0.55   4.73  -2.30
$RUT     435.98  -1.22  -0.72  -0.76  -2.70
$TRAN   3420.96  50.90 -39.00  -6.64   5.26
$VIX      27.52   1.54  -1.69  -0.40  -0.55

Stock             Tue    Wed   Thur   Week

MEDI      67.25  -0.75   1.75   2.63   3.63  Off and running!
ORCL      27.50   0.69   0.69   1.31   2.69  New, earnings run?
SCI       43.50  -0.81   1.12   1.69   2.00  New, recovering 
ADPT      31.31   1.06  -0.63   0.00   0.43  Bullish breakout?
BVSN      51.88  -0.13   0.50  -0.50  -0.13  Technicals positive
SONE      38.13   2.00  -0.50  -1.75  -0.25  Bullish signs
SLR       54.31  -0.69  -0.69   0.94  -0.44  Flat!
FNM       67.19  -0.63  -0.25   0.13  -0.75  Not much action
LGTO      53.81  -1.50  -0.38   0.94  -0.94  Slightly down
HWP       91.44  -4.19  -0.38   1.69  -2.88  Analyst meeting
BGEN     106.13  -1.06  -2.50   0.56  -3.00  $146 price target
ABOV      30.06  -1.13  -0.44  -1.63  -3.20  Dropped
BMCS      45.88   0.06   1.06  -4.69  -3.57  Support at $44.50
LXK      132.13  -1.44  -1.81  -0.75  -4.00  Splits June 10th
EGRP      37.38  -5.19  -1.06  -0.88  -7.13  Undervalued
CUST      51.13  -3.75  -1.63  -3.50  -8.88  Dropped
PVN       82.31  -2.38  -3.75  -7.44 -13.57  Dropped
EBAY     161.31 -10.69   2.00  -7.50 -16.19  Dropped

Puts

CVC       74.69  -2.88  -1.88   0.56  -4.20  Dow rally?
INTC      50.50  -3.38   1.25  -1.44  -3.57  Mixed sentiments
EK        67.38  -0.50  -0.31   0.56  -0.25  Ceiling at 10 dma?
UNM       54.38   0.06   0.56  -0.06   0.56  Range bound
TBH       84.63  -0.50   1.25   0.38   1.13  Lock in profits!
MEA       39.50   1.94   0.38  -0.19   2.13  Sitting still
IR        66.06   2.19  -0.63   0.81   2.37  Use stops!
IP        52.44   2.75   1.06  -1.38   2.43  Back to selling
ABF       28.56  -0.50  -0.69   3.88   2.69  Dropped
CLX      104.06   2.94  -0.44   0.63   3.13  Volume dwindling
DOW      126.00   4.94   1.75  -2.19   4.50  Nice haircut!


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

CUST $51.13 -3.50 (-8.87)  We continued to carry CUST this 
week with cautions. A big turnaround in the Internets with 
volume returning to the sector could still send it higher, as 
could the website previewing of its new product. However, the 
preview could be as late as the very end of June, and who knows 
how soon big buying volume will return to the Internets? The 
stock has been slipping lower each day. We have to drop CUST, 
but we will be watching it for another opportunity. 

PVN  $82.31 -7.44 (-13.57)  In the three trading sessions so 
far this week, PVN has given back more than the $12.50 it 
added last Thursday and Friday after all the upgrades. Negative 
articles quoting customers and employees continue to paint the 
company in a bad light. Stockholders are afraid to remain in 
the stock and new investors are afraid to buy. Even bargain 
hunters who agree with all the analysts that this is a buying 
opportunity stayed away ahead of tomorrow's employment report. 
PVN is a rate-sensitive stock, and inflation fears are thwarting 
any rally. A non-inflationary report tomorrow could result in 
buying, but a negative report could just as easily send this 
stock further south. We have to drop PVN.

EBAY $161.31 -7.50 (-16.19) Did we add EBAY to the calls list
this week?  Wasn't a good move.  EBAY has been unable to show
strength and it seems the Barron's article on AMZN has placed
an anchor around EBAY's neck.  Though we feel the Internet is
poised to run soon, we just don't feel confident in keeping
EBAY on the call list.  When EBAY and AMZN, among others, 
decide to make their move, we will look at adding them again.

ABOV $30.06 -1.63 (-3.20)  ABOV creeped lower again in trading 
on Thursday.  Even though it has received upgrades from some 
analysts, its upward movement has been hampered by the overall 
market conditions.  The Internet sector is still being picked 
on as investors shy away in light of a possible interest rate 
hike.  The job reports to be released on Friday morning could 
further impact the markets and thus affect ABOV.  We have to 
drop ABOV as a call.  We gave it ample time to make a move.  
Right now, there are better plays out there and we are tired 
of waiting for investor confidence to return to the 
Internet sector.



PUTS:
******

ABF $28.56 +3.88 (+2.68) Today we got the inevitable bounce 
in ABF's stock.  The downward spiral that begun more than two
weeks ago finally came to an end.  There was an article that
hit the news around 11:00am EST about the U.S. Postal Service 
teaming up with ABF to deliver packages.  It sounds like a good 
deal for ABF and it sparked a convincing rally.  It also triggered
a sell off for ABF's competitors like Federal Express.  Although
the news article was interesting and positive, the real story 
is in the stock's decline.  It had pierced its 200-dma with 
ease and just kept going.  When a stock is sinking that quickly
its nice go along for the ride.  But it also provides a good 
example of the importance of stop losses.  If you had them set, 
you should have been successfully taken out of the play.  So 
we are going to drop ABF from the put list fearing the bounce
may be as violent as the drop.


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




*******************
FREE TRIAL READERS
*******************
If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an email to

 "subscribe@OptionInvestor.com" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333



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



The Option Investor Newsletter         Thursday  5-13-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

ROK $61.56 +1.31 (+2.93) As we noted in Tuesday's update, 
following 10 straight days of gains, we were due for some 
profit taking.  Such was the case yesterday, as ROK gave up 
$1.63 on 65% greater than average volume.  Don't be 
alarmed; volume has been high all week on the up days too.  
Today, ROK released its 10Q showing income from continuing 
operations up 17% over same quarter last year from $122 
mln. to $143 mln.  Technical chart is still strongly in 
positive territory, however there is still lots of profit 
to be wrung out.  Keep stops set to protect those profits 
and confirm market direction before playing. 

BRCM $96.44 -.19 (+12.75)  On Wednesday, BRCM blew past resistance 
at $95.63 and broke out to a new high of $100.63. Its new 
networking chip, unveiled Tuesday night, is 10 times faster than 
any existing networking chip. It can deliver video, voice, and 
data over ordinary copper wire at 1 gigabit/second--no expensive 
fiber-optic wires required. It can also correct transmission 
errors, filter out interference, and send 2-way data transmissions 
over wires that previously only carried 1-way traffic. CEO Henry 
Nicholas said it is "probably the most significant technology 
demonstration in the history of the company." Cisco, 3-Com, and 
Nortel already have working products that will use the chip as 
soon as it is produced. Toward the end of the day on Wednesday, 
investors took some profits and a little more profits came out 
today (although BRCM traded as high as $99.75 today.) A word of 
caution: BRCM can gain or lose a lot in a given day and often 
trades more like an Internet stock than a chip stock. Confirm 
direction before starting new plays.

QWST $88.50 -4.31 (-1.63) QWST was up 6 days in a row prior to 
today, so a little profit-taking is not unwarranted. Still, 
$4.61 is more than we like to see, especially when the stock 
closed right at its low of the day today. Volume has been a 
little light for the last couple of days. Broadcom's newest 
chip makes it possible to send data over ordinary copper wires 
as fast as it can be sent over newer and more expensive fiber 
optic cable. Are investors worried that all the money being 
spent by Qwest on its fiber optic network will be wasted? If 
it worries you, just imagine how fast data will be transmitted 
over fiber optic cable when the next generation chips come out 
for that medium. (BRCM is working on those, too.) Try to target 
shoot or wait for upward movement in the stock before initiating 
new plays. Support in the $78 to $79 range. QWST splits May 
24th, 11 days from now. 

TBH $103.44 +2.44 (+3.94)  Brazilian ADR's rallied in today's 
market and are considered to be "back in the groove" according 
to one trader on the floor. Today two major events occurred in 
Latin America today that contributed to this rejuvenation.  The 
Nations Central Bank cut the key market rate to 27% from 29.5% 
and the Brazilian GDP 1Q measurement came in at a higher-than-
expected 1.02%. Benchmark Telebras responded well to this news. 
It was up $4 at one point today reaching a daily high of $105.  
Yesterday TBH closed flat at $101, but the trading volume was 
just as healthy as today at over 2 mln shares.  

CTXS $49.75 +0.03 (+7.12) Yesterday CTXS surged ahead +2.72 
points and pushed through the $50 mark in intraday trading.  
Today it also flirted in that range. Perhaps we're seeing a hint 
that, market permitting, it may try to push through its 52-week 
high of $53.75. The most recent 12-month target price on CTXS 
is $63. This momentum play did get an extra boost on Monday 
from the reiterated "buy" ratings by Lehman Brothers and 
Hambrecht & Quist.  Expect regular stock cycles.

LU $61.00 -0.88 (+3.25)  Wednesday LU tested its resistance by 
driving through $62 near the close.  The stock pushed the 
limits a little farther today and peaked at $63.19 during the 
late morning rally.  Unfortunately towards the end of trading it 
tightened up and shed a fraction.  If LU can hold this level, 
its next obstacle is its recent 52-week high at $67.  Lucent 
is always developing new technology and on Wednesday they 
announced another new addition - Intelligent Network (IN) 
software.  Basically, it provides Internet-based dialing 
services and advanced voice and calling services for data 
networks.    

CMVT $70.31 -3.19 (+2.87) CMVT took part in the NASDAQ profit 
taking on Thursday, though it did reach another 52 week high
of $74.38 before fading.  We are encouraged that CMVT closed
above support at $70.  CMVT's chart shows a history of profit
taking after 3-4 up days, sometimes the profit taking is just
one day, but does vary.  CMVT did announce on Wednesday that
they are dividing the company into two divisions.  This really
should have no effect on the stock price.  Watch for a bounce
off $70 as a possible entry point.

AET $96.44 -1.38 (+1.44) AET went down today, but on very, very
light volume.  AET's chart shows a decreasing triangle.  This 
means the stock has shown lower highs and lower lows.  This is
usually a precursor to a substantial move.  Though this move
could be up or down, AET seems poised to break out higher.  
AET is in stock split territory, but has already had its 
annual shareholder meeting.  A likely split announcement
would be with earnings in July.  

PPG $69.69 +.81 (+.25) PPG rose about a dollar today, but had
a hard time breaking through the $70 level.  We need to see
this resistance broken on strong volume to feel the rise will
continue higher.  We did see PPG bounce off its 10-DMA($68)on 
Wednesday. 

GT $64.00 +.06 (-2.75) GT has struggled this week, but has 
held above its 10-dma.  The stock has been down every day
this week until today.  GT's 10-DMA is about $63.50, and a
bounce off this level might be a good entry point.  We are
holding this one to see what Friday gives us, but make sure
of direction before buying calls.  Don Wolanchuk, a noted
market timer, announced on Wednesday that he foresees a 
strong move in several stocks, one of them being GT.  

MCHP $43.19 +.81 (-1.12) MCHP closed positive on Thursday, 
but closed well off its high of $44.88.  MCHP did announce
Wednesday that they are comfortable with analyst estimates,
and see an improving trend in their business.  This news
shot the stock up out of the gates, but with the weakness in
the NASDAQ, MCHP fell with the market.  We still like MCHP
going forward, especially after the positive comments out
of company headquarters but we really need to see a 
confirmation of its uphill momentum.  Wait for the move up.

EMC $105.69 -5.31 (+8.38) EMC took a beating today, but still
is up over $8 on the week.  After four straight up days, EMC 
was victim of some heavy profit taking.  We do like the fact
that EMC bounced off its support at $105.  After the market
close, EMC's CEO talked with CNBC about the Hewlett Packard
situation and he stated that he feels it will have very little
impact on EMC's future profits.  This should help resolve any
lingering concerns about the issue.

COF $178.06 +4.06 (+8.68)  COF is up this week - and big!  It 
has added +$8.68 and we still have a day to go.  It even set 
a new all time high of $180.75 in intraday trading on Thursday 
before settling back to close at $178.06.  Looks like the split 
run has begun.  The company will split is stock 3:1 on June 2nd.  
That still gives us plenty of time to initiate plays.  However, 
since COF has added a substantial amount this week, a pullback 
could be around the corner.  If you already own some calls, 
set those stop losses tight.  If you aren't in the play yet, 
wait for a dip.   

BA $42.81 +0.25 (-2.94)  After adding +$5.13 last week, BA 
decided to take most of this week off.  Since Monday, it had 
been decreasing its altitude.  On Thursday, it added a mere 
+$0.25 as the market had a big day by adding +106.82. 
Although we were happy to see BA turn it around by finishing 
the day of trading with a gain, it wasn't a particularly 
strong move to the upside considering the strength of the 
DOW.  We are issuing some caution with BA for the moment. 
If it can add a decent amount on Friday, then feel free to 
jump in.  However, it may have some more consolidating to 
do before making its next run.  Be patient and wait for a 
confirmed entry point.  

TV $47.50 +2.25 (-1.38)  Back on Monday, Mexico's OBSA 
brokerage downgraded TV to a hold from a buy due to valuation.  
TV crept lower for three consecutive days of trading.  On 
Thursday, it was an entirely different story.  Salomon Smith 
Barney upgraded the stock to a buy from an outperform.  They 
also increased their 12 month price target to $61, up from a 
significantly lower $38.  They feel "that the company's near 
term growth is only a shadow of potential upside."(-Reuters) 
Efficiency and increased sales are fueling the company's 
gains.  TV added +$2.25 on twice its normal trade volume 
Thursday.  Over 1 mln shares traded hands when the average 
is only 500 K.  The increase in volume is normally a good
sign.


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

LVLT $87.13 -5.88 (-1.37) Did we say tricky but potentially 
profitable play?  You bet!  LVLT rose $4.50 to $93 
yesterday on substantial volume and wasn't looking very 
put-like.  Today, just the opposite as LVLT gave up -$5.88 
on high volume.  Remember, we are playing LVLT as a 
channeling stock with a range between $90 and $83.  LVLT is 
now technically on the down-stroke, having handily broken 
up to $95 and then back down through $90 to finish the day 
at $87 (about an $8 trading range today).  If the NASDAQ 
behaves tomorrow like it did today, LVLT could fall again. 
This is still a tricky play, so confirm market direction 
before playing. 

FNM $71.69 -.44 (-.44) FNM has been taking its time to begin
the next leg down in its $6 channel.  This might throw some
caution flags up in the air.  However, considering what the
Dow has been doing, it is understandable.  If the Dow does
correct tomorrow, FNM is likely to head towards the bottom
of its channel in a hurry.  Remember that channeling stocks
are a challenge because there is always the risk of news
or overwhelming market conditions that will force the stock
out of its channel. Good luck.

MSPG $85.50 -4.00 (-2.50)  After rallying +$1.00 on Wednesday, 
MSPG recoiled -$4.00 on Thursday to give back those gains, and 
then some.  The entire Internet sector was hit hard on the 13th 
of May.  Unlucky for some.  Good for us playing MSPG as a put.  
We feel that the Internet sector as a whole remains weak.  
MSPG itself doesn't have support until the $80 level.  As 
always, keep those stop losses tight if you are already 
profitable!  Still no new news. 

BVSN $48.25 -2.50 (+.25) Lack of news and lack of volume has
left BVSN drifting lower.  The stock fell off the $50 support
level that had been holding it up this week.  With no new news
to trade on, we've seen the stock trading in line with the sector.
We still see further declines in the Internets ahead, especially 
the second tier companies.  Look for support around $46 where
the stock had a double bottom last week.  Also tighten up the
stops to avoid a Friday NASDAQ rally.   

SEEK $49.31 -2.56 (-1.81) SEEK dropped today along with most of
the Internet stocks and any weakness should continue for the time
being.  Infoseek did announce Wednesday morning a new version 
of the 'Go' network that is 30% faster but that failed to spark 
any interest and was really already priced into the stock.  We
are back under $50 for the first time since the rally last week 
and are looking for a retest of the short-term low at $45.  That
is also where the 200-dma is providing support.
    
TBFC $95.63 -2.12 (+2.50) TBFC held below the resistance just
above $100 that we talked about on Tuesday.  That is a positive
sign for a put play.  The stock was buoyed early this week by 
others in the group such as COF that is hitting new highs.  But 
TBFC was sold off today despite the market and sector advances.  
We still expect more in the way of announcements from TBFC's 
competitors entering the online banking business.  Look for the 
downtrend to continue as the stock heads toward support at the 
50-DMA around $82.  Keep the stops in place to avoid another rally 
like we had early this week. 


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

NONE TODAY


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

AXP - American Express $124.75 -1.25 (-9.94 this wk)

American Express is one of the oldest travel and financial 
services companies in the U.S.  It deals in credit cards, 
Travelers cheques, financial planning, travel, small business 
products and services, insurance and international banking.  The 
company is broken into three segments to separate their 
diversified product line.  Travel Related Services (TRS), 
American Express Financial Corporation (AEFC), and American 
Express Bank.  The stock is also a component of the Dow 
Industrials.

American Express has been victimized by interest rates as the 
weak bond market weighs on their stock price.  Actually the 
entire industry has rolled over recently as many financial stocks 
have pierced their 50-dma.  AXP is no exception as it dropped 
through its 50-dma yesterday (all of this despite the recent 
run in the Dow Jones).  Also the positive PPI numbers should 
have provided some strength, but didn't.  With these factors 
in mind, we see any correction from the markets new highs to 
knock AXP down farther.  The stock has room to come down thanks 
to a healthy run since January.  Watch the $120 level though 
as it may provide some support and keep your eye on the CPI 
report due Friday which may strengthen the bond market.

This is a short term play.  AXP might give us a relief
rally next Tuesday if the FOMC meeting does not produce a 
rise in interest rates.  Not recommended to hold over the
meeting.

BUY PUT MAY-125*AXP-QE OI=876 at $3.25 SL=1.75
BUY PUT JUN-120 AXP-RD OI=166 at $4.25 SL=3.00

Average Daily Volume = 1.57 mln

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



*****************************************************
COMBINATION PLAYS   
*****************************************************
Big Blue Leads The Way...

Wednesday, May 12

U.S. markets rebounded quickly from the news that U.S. Treasury
Secretary Robert Rubin is resigning. The Dow ended only 25 points
lower at 11K after rebounding from a loss of more than 200 points.
The technology-heavy Nasdaq Composite index was up 39 points on
big gains in technology stocks. The S&P 500 index rose to a new
record of 1,363.92. In the broader market, declining issues led
advances 16 to 13 on active trading of 827 million shares on the
New York Stock Exchange.

Tuesday's new plays (positions/prices):

OMX   SEP12C/MAY12C $0.00 debit (disparity gone at the open)
PRD   JUN20C/JUN22C $1.50 debit (easy entry at the target)
USWB  JUN22C/JUN25C $1.50 debit (possibly $1.38 near 10:25 am)

The volatility spread on OMX was unavailable (that makes two
this week) but both of the other positions were easily opened
at the target prices.

Portfolio plays:

The market was extremely volatile on Wednesday and many of our
spreads benefitted from the recovering tech issues. Big movers
included BRCM, CNCX, CSCO, SKYT and SUNW. Profitable exits were
available on CNMT, JUN12C/17C @ $4.38 credit & CNCX, MAY65C/70C
@ $4.50 credit. TXN was also on the move, rallying with the tech
stocks to its current resistance near $115. The last time we ran
that credit strangle, TXN went right on through to about $117
before it came back down. The only negative news today came on
CNTO, as merger talks between Johnson & Johnson and Centocor
were called off for the time being. The calendar spread suffered
a loss but it still remains profitable. The question is; what new
action do we take from here based on the revised outlook for the
play.

Thursday, May 13

The Dow jumped to a new high Thursday as IBM climbed skyward on
news that it expects to benefit significantly from the spiraling
Internet growth. The DJIA ended up 106 points at 11,107 but the
Nasdaq index consolidated 24 points to 2,582. The S&P 500 index
also set another new high, rising 3 points to 1,367. In the broad
market, advancing issues led declines 17 to 12 on active trading
of 791 million shares on the NYSE.

Portfolio plays:

ETH jumped almost $4 today moving our debit straddle to a $1.12
profit for only 2 weeks. Another neutral position; LRW, is $0.75
ITM after one week. Consider taking small profits early on these
plays if there is any change in the current trend. CNTO escaped
further punishment (for the moment) and TXN came back to earth,
allowing us time to make decisions about both of these issues.
If tomorrow is a good day for techs, we will probably close the
TXN play to prevent a loss. On CNTO, we expect to buy-back the
short June position to increase our gain if the stock rebounds.

Good Luck!
 
******************************************************************
				- NEW PLAYS -

In-the-money debit spreads continue to dominate my email requests
and there are some favorable momentum/takeover plays available...
******************************************************************
EGRP - Etrade Group  $111.68     *** Another Split! ***

Most of us know this stock very well! To the general public,
E*TRADE is one of the top web sites for self-directed investors.
The company offers independent investors the convenience of stock,
option and mutual fund trading at low commission rates. EGRP also
has a number of other services that can be personalized, such as
portfolio tracking, real-time stock quotes, Smart Alerts, market
commentary and analysis, news, and investor community areas.

In their most recent earnings report, the company incurred a
quarterly operating loss because of an aggressive brand-building
and account acquisition strategy that included major marketing
expenditures and investments in technology and customer service.
However, the company achieved its 27th consecutive quarter of
revenue growth and added 233,000 new accounts, an increase of 77%
over the previous quarter. This represents more new accounts than
the company added in all of 1998.

The big news came a few days later when EGRP announced a two-for-
one stock split for shareholders of record on May 7, 1999. Shares
resulting from the split are expected to be payable after market
close on May 21, 1999. They have already split their stock once
this year.

E*TRADE also announced recently that it has a new agreement with
American Online from an additional multimillion-dollar marketing
investment. E*TRADE gains a significant percentage of customers
through its relationship with AOL and has become a valued part
of many of their members' financial activities. Other new deals
include a co-branding agreement with Owners.com, the largest U.S.
by-owner real estate service. Owners.com's real estate services,
including online classifieds and home marketing services, will be
added to E*TRADE's Mortgage Center. Enabling families to manage
their home sale or purchase online is a natural next step for
E*TRADE customers.

PLAY (aggressive/debit spread):

BUY  CALL MAY-95  QGZ-ES OI=472 A=$17.87
SELL CALL MAY-105 QGZ-EA OI=791 B=$10.12
INITIAL NET DEBIT TARGET=$7.50 ROI(max)=33% B/E=$102.50

Chart = http://quote.yahoo.com/q?s=EGRP&d=3m
******************************************************************
KEY - Key Corp Bank  $36.63     *** Merger/Takeover ***

Cleveland-based KeyCorp is one of the nation's largest financial
services companies, with assets of about $80 billion. Through a
nationwide network of offices, Key companies provide investment
management, retail and commercial banking, consumer finance, and
investment banking products and services to individuals and
companies across the U.S.

KeyCorp shares rallied this week amid market speculation it may
merge or combine with local rival National City Corp. National
City has been named any number of times as a possible merger
partner and KEY has also previously been considered a possible
takeover candidate. Spokesman for both bank holding companies
declined to comment on the speculation or the move in their
stock prices. KeyCorp chairman, Robert Gillespie, has said in
the past, he prefers to go it alone. His current plan is to keep
transforming Key from a commercial bank to a financial services
company.

A resumption of merger activity in the bank industry bodes well
for this speculation play and the implied volatility in options
advanced this week with call volume rising as buyers entered
bullish positions. Market makers at the major exchanges noted
the late buildup in call option volume and said the banking
acquisition target is drawing excellent attention from both
retail traders and institutions.

PLAY (speculative/debit spread):

BUY  CALL JUN-30 KEY-FF OI=196  A=$7.37
SELL CALL JUN-35 KEY-FG OI=4190 B=$3.25
INITIAL NET DEBIT TARGET=$3.87 ROI(max)=28% B/E=$33.87

Chart = http://quote.yahoo.com/q?s=KEY&d=3m
******************************************************************
CSE - Case Corp.  $43.00    *** Merger/Takeover ***

Case Corporation is a leading worldwide designer, manufacturer
and distributor of agricultural and construction equipment, and
offers a broad array of financial products and services.

Case stock has been active this week amid talk of a takeover or
merger. Case is rumored to be a target and analysts have said New
Holland, based in the Netherlands, would be a likely acquirer.
Some analysts said Deere & Co, the world's largest farm machinery
maker, was too large to be an obvious takeover candidate but a
merged Case and New Holland would immediately challenge Deere for
overall market share. New Holland, the world's largest tractor
maker, has 80% of its sales in farm equipment, with the rest in
industrial equipment, while Case is more evenly spread with 62%
of sales from farm equipment and the rest from industrial. Market
rumors have also suggested that Sweden's AB Volvo , which sold
its car operations to Ford earlier this year, might be interested
in acquiring Case. All of the involved companies declined to
comment on the market speculation.

Once again, implied volatility in options on Case has increased
significantly with volume slowly accumulating in "at-the-money"
calls. A small disparity in the ITM June positions will help us
open a favorable speculation play.

PLAY (speculative/debit spread):

BUY  CALL JUN-35 CSE-FG OI=167 A=$9.62
SELL CALL JUN-40 CSE-FH OI=309 B=$6.25
INITIAL NET DEBIT TARGET=$3.12 ROI(max)=59% B/E=$38.12

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



*****************************************************
FREE TRIAL READERS
*****************************************************
If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $10 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an email to

 "subscribe@OptionInvestor.com" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333


*************************************************************
                      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.


DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives