Option Investor

Daily Newsletter, Thursday, 05/27/1999

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The Option Investor Newsletter         Thursday  5-27-99
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)
        5-27-99          High     Low     Volume   Advances Decline
DOW    10466.93 -235.23 10701.28 10434.26  813,703k  1,042   1,897
Nasdaq  2419.15 -  8.03  2440.08  2400.94  834,343k  1,615   2,214 
S&P-100  647.78 - 11.80   659.58   645.57   Totals   2,657   4,111
S&P-500 1281.41 - 23.35  1304.76  1277.31            39.3%   60.7%
$RUT     432.92 -  2.49   435.41   431.72
$TRAN   3378.77 - 75.11  3468.13  3374.76
VIX       28.69 +   .41    30.56    28.16
Put/Call Ratio      .63    

Pre-emptive strike by the Fed on the way?

A major Fed watch firm released a report today that called for
the Fed to raise interest rates soon. Their analysis pointed
to a rate increase as soon as the June FOMC meeting. A rumor
at Prudential had the Fed raising rates in a pre-strike tomorrow!
The combination of these two factors terminated the technical
bounce from Wednesday. 

The last three days have left investors undecided as to which
way to jump. Tuesday -123, Wednesday +171, Thursday -235, whiplash
anyone? On Wednesday I said I expected a technical bounce soon and
Wednesday was a textbook example. The Nasdaq performed as if on
command and bounced strongly off my 2350 bottom target. The Dow
however did not break 10,500 Wednesday, much less my 10,300 dip 
target, before rebounding. I personally hope it does not hit it 
but after bottoming at 10,434 today it is still possible. I think
that is the level where buyers will not be able to resist taking
the bait.



The Nasdaq showed remarkable strength today in the face of the
Dow sell off and I think that is where the plays will be on Tuesday.
With the long weekend ahead of us, and interest rate worries I don't
think we will get a major move up on Friday but Tuesday starts a
new week.

The GDP came in today with a tame +4.1% increase after estimates
were calling for +4.5%. The big inflation number today showed that
consumer spending rose at it's highest rate in 11 years. This is
bad news for the Fed which sees runaway spending as fuel for inflation.
The jobs report was unchanged at +300,000 and had no impact on traders.



The Dow is not looking very healthy and the advance/decline
line is accelerating with decliners beating advancers 6:4
today. The interest rate club that the Fed uses has always
had a dramatic impact on a bull market. You can see with
the results of the past week that even a simple mention
of a change in bias has rippled around the world.

Worries of an interest rate hike has caused the markets
to bleed fund cash as investors run for safety. Another
blow that I wrote about several weeks ago is also coming to
pass. The two words a small investor dreads, "margin call".
When markets are rising and showing no signs of changing,
the small investor leverages his account by purchasing
more and more stock on margin as his stock appreciates in
his account. When the markets turn, and most new investors
have never lived through a serious correction, the stock
drops below the margin requirements and you get the dreaded
call. Your only choice, sell something. On Monday one online
broker reported that margin calls were running +20% over
normal and as of today they were running +50% over normal.
This causes two problems. The first is additional selling 
pressure on a market already under pressure. The second is
the change in psychology of the trader. Suffering from the
loss of a forced sell, they are reluctant to venture out and
buy aggressively again. This creates a lack of buying pressure
when the market turns upward again. A down market also causes
fund managers to be more restrained about buying. They hate
to sell positions to meet redemption's and would rather hoard

The flip side is good also. Sharp corrections take out the
weak investors above and put stocks back into the strong
hands of the bigger more stable buyers. This gives us a more
stable market in the long term. Some analysts are now calling
the last two weeks of drops as the culmination of the needed
profit taking and are now looking for the next uptrend.

Bank Boston analyst Keith Benjamin, today said the recent
drop in the Internet stocks and then the relative strength
in the Nasdaq today as proof that the quarterly Internet
drop cycle was over. The cycle he was referring to is the
trend for the Internet stocks to run up +100% in the month
before earnings and then drop -40% the month after on profit
taking. He called for buys on all the major Internet stocks
and said he was recommending to his clients to load up now.
We are are also optimistic on Internets. We just want to get
past Friday before making any new Internet plays. Almost all
are down -30% to -50% and we want to see who the leaders are
going to be coming out of the slump. Just because YHOO is down
-45% from it's recent high does not make it a buy. Check back
Sunday for the five best choices in our opinion.

Get out the caffeine and send the kids to bed early, the Nasdaq
has decided to open for an evening session starting in September.
If the high stress, high anxiety, daytime session is not enough
to keep your Prozac prescription current then extended hours
will surely ruin your day. The new hours will be from 5:30ET
to 9:00 or 10:00 each night. The NYSE has already said they
would match any move by the Nasdaq. While this is a good thing
for traders it may be a bad thing for families. At least now,
when the market closes at 4:ET you can breath a sigh of relief
that nothing else can crater your portfolio until 9:30ET the
next day. You have time to decompress and actually start using
full sentences to the spouse again. During daytime hours Johnny
and Susie are in school and are not a distraction. Yes, I know
most of you work a full time job and don't have the luxury of
trading from home. Did I say "work" a full time job? At least
you are at the office full time. I know most of the work gets
done after 4:ET but trust me, I won't tell your boss. Trading
at home, at night, with the spouse and kids watching could be
a whole new experience for most. Just remember, you are trading
for them, not in spite of them.

As for Friday we have several negative factors gaining speed.
The S&P is trading under 1300 and the Russell-2000 looks like
it did a double top at 450 and has now reversed downward. We
are definitely at a critical point in the market direction and
we have a long weekend staring us in the face. We dropped a
bunch of plays tonight and are going into the Sunday newsletter
lean and focused. Friday should be a low volume day and pressure
in either direction could magnify the move. A good day to just 
watch or simply take the day off. These last two weeks have been
tough to trade and I am sure some of you wish you had taken them 
off as well. My trading plan is to trade "only when profitable"
not "whenever the market is open". There is a difference!

Have a great weekend!

Jim Brown

Market Posture
As of Market Close - Thursday, May 27, 1999 

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

DOW Industrials   10,500  11,000  10,467    BEARISH   5.27 *
SPX S&P 500        1,325   1,360   1,281    BEARISH   5.25
OEX S&P 100          660     690     648    BEARISH   5.25
RUT Russell 2000     435     450     433    BEARISH   5.25

NDX NASD 100       2,100   2,250   2,050    BEARISH   5.25
MSH High Tech      1,000   1,100     994    BEARISH   5.25

XCI Hardware         900     920     860    BEARISH   5.20
CWX Software         600     675     663    Neutral   5.25
SOX Semiconductor    390     420     388    BEARISH   5.25
NWX Networking       450     490     517    BULLISH   4.22
INX Internet         550     650     479    BEARISH   5.20

BIX Banking          700     720     655    BEARISH   5.18
XBD Brokerage        450     475     427    BEARISH   5.21
IUX Insurance        645     660     632    BEARISH   5.25 *

RLX Retail           900     970     836    BEARISH   4.29
DRG Drug             390     425     349    BEARISH   4.29
HCX Healthcare       780     850     710    BEARISH   4.29
XAL Airline          180     210     164    BEARISH   5.21
OIX Oil & Gas        285     310     291    Neutral   5.13

Posture Alert

Broad market selloff due to fears of inflation and rising 
interest rates. Cyclical issues were punished across the 
board, while select semiconductors and technology issues 
showed surprising strength. After violating near term 
support, we have turned Bearish on the DJIA.

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


Market Sentiment - By Pinnacle Capital Advisors
Thursday, May 27, 1999

Market Leader Pop Quiz? 

After today's (5/27) precipitous market sell off, can you name the 
only four industry sectors that remain ABOVE the 50-day moving average?
- Russell 2000 (RUT), Software (CWX), Networking (NWX) and Oil & Gas
(OIX).  That's it. And not by much.  Today (5/27), the DJIA
crossed over and closed BELOW its near-term average (50dma) and
its next real support level is not until D10K.  So we may be in for
some rough waters ahead given how bad some of our other industry
sector charts look.

And if you are thinking about buying this dip, better think twice.  
Several of our trusted technical and sentiment indicators are
suggesting that investors are ignoring the deteriorating market
internals and blindly assuming that the market will bounce.  Take one
look at Retail (RLX), Drug (DRG) and Healthcare (HCX) and show us the

Pinnacle is advising its clients to resist the temptation of buying
this dip and wait until certain market internals find support levels. 
The next couple of months are historically quiet for technology
companies and if the FED accelerates its interest rate hike, the broad
market may come under continued pressure.




Market Volatility (VIX):  
Trading ABOVE its 50-day moving average (27.65) indicating an 
end to the current bullish trend that began on March 5th.  

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. 

Advance/Decline Line:
After recovering from its low on April 1st, the A/D line is 
beginning to flatten and roll over.  

Russell 2000: 
Trading ABOVE its 50dma but BELOW the key 435 benchmark level.  Could 
prove problematic from a technical standpoint if the Russell 2000 
Continues to break down below 435. 

Interest Rates:
Trading ABOVE 200dma and 5.50 Benchmark (5.818%).

Pinnacle Index:  
Overhead resistance (OEX 680-750) clocking in at 5.5 
suggesting that option speculators are expecting the market to 
advance higher.

Peak Open Interest:  
The contraian put-call ratio clocking in at .95 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%     
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

Tuesday, March 25          42,999        -
Thursday, March 27         49,391       14.9%

Market Sentiment at a Glance
                                Friday     Tues      Thurs  
Indicator                       (5/21)     (5/25)     (5/27)Alert

Pinnacle Index (OEX):          

                    (680-750)               4.3        5.5
Overhead Resistance (680-700)      2.5 *    1.5        2.8
Underlying Support  (640-660)      4.2
                    (625-640)               3.2        4.6

Put/Call Ratios:

CBOE Total P/C Ratio                .5       .5         .5
CBOE Equity P/C Ratio               .3       .4         .4
OEX P/C Ratio                      1.1      1.1        1.3

Peak Open Interest (OEX):

Puts                              600       670        650
Calls                             680       670        670 
P/C Ratio                         .78       .95        .87 *

Market Volatility Index (VIX):	

CBOE VIX                        25.36     29.58      29.01 *

Investors Intelligence:

Bullish                         60.9%      60.9% *
Bearish                         28.7%      28.7% *	

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                        (5/21)     (5/25)     (5/27)

                    (680-750)                            5.5             
Overhead Resistance (680-695)      2.5        1.5        2.8

OEX Close                       671.76     647.40     647.78
Underlying Support  (645-660)      4.2        
                    (645-660)                 3.2        1.4

Average ratings: 
Resistance levels 2.0 / Support Levels .5

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

Put/Call Ratio 
                                Friday      Tues       Thurs
Strike/Contracts                 (5/21)     (5/25)     (5/27)

CBOE Total P/C Ratio               .55        .54       .55
CBOE Equity P/C Ratio              .38        .41       .43
OEX P/C Ratio                     1.29       1.14      1.25

Peak Open Interest (OEX)
                     Friday         Tues          Thurs
Strike/Contracts     (5/21)          (5/25)        (5/27)

Puts                 680 / 14,217     670 / 10,963   650 / 10,567
Calls                650 / 21,162     670 / 11,525   670 / 12,212
Put/Call Ratio      .67              .95             .87 


Market Volatility Index (VIX)
Date                Turning Point       VIX

October 97          Bottom              54.60      
July 20, 1998       Top                 16.88         
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15   


May 21, 1999                            25.36 
May 25, 1999                            29.58 
May 27, 1999                            29.01 

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     
May 12, 1999                          56.9        31.0     
May 19, 1999                          60.9        28.7 *     

Please view this in COURIER 10 font for alignment

Index     Last   Mon    Tue   Wed    Thur    Week
Dow   10466.93 -174.6 -123.5 171.07 -235.23 -362.35
Nasdaq 2419.15 -66.48 -72.76  46.28   -8.03 -100.99
$OEX    647.78 -13.37 -10.94  12.13  -11.80 -23.98
$SPX   1281.41 -23.64 -22.25  20.36  -23.35 -48.88
$RUT    432.92  -8.75  -5.94   0.96   -2.49 -16.22
$TRAN  3378.77 -77.46 -20.47   0.55  -75.11 -172.49
$VIX     28.69   3.29   0.93  -1.30    0.41   3.33

Stock            Mon     Tue   Wed    Thur    Week

LXK     142.69   3.31  -2.44   3.19    5.25   9.31  Outstanding!
BGEN    109.56   2.63   1.94   1.63    0.88   7.08  New, rising
FNM      67.06   0.50  -0.44   2.19   -1.44   0.81  Channeling
DRMD     14.56   0.69  -0.38  -0.38    0.13   0.06  Treading water
KEA      30.44   1.06  -1.69  -1.13    1.56  -0.20  Share buyback
BMCS     47.94  -2.56  -0.63  -0.56    3.00  -0.75  Resistance at $49
PEP      36.00  -0.50  -0.31  -0.75   -0.75  -2.31  Dropped
CUST     58.25  15.06 -19.25  -2.00    3.50  -2.69  Huge volume
PG       94.00  -3.31   0.63   1.19   -1.75  -3.24  Support at $93.75
BA       41.31  -0.56  -1.31  -1.75    0.00  -3.62  Dropped
ASND     89.56  -2.25  -1.19   1.56   -2.06  -3.94  Dropped
CB       70.19  -1.00  -0.13  -0.31   -2.88  -4.32  Intraday bottom?
NT       71.81  -2.88  -1.50  -0.75   -3.00  -8.13  Dropped


DCLK     85.00  -9.63 -12.25   4.63   -5.25 -22.50  Still falling
AMTD     86.88 -10.56 -11.56  10.38   -5.38 -17.12  Profit taking
INKT     97.81 -10.69 -17.31  12.00   -0.19 -16.19  New agreement
GNET     99.25 -14.56  -3.13   4.00   -2.00 -15.69  Lack of support
RNWK     67.06  -9.25 -13.75  12.19   -3.13 -13.94  Risky
TBH      84.00  -5.63  -4.31   4.94   -3.63  -8.63  Still struggling
SEPR     61.00  -6.75  -2.00   3.44   -2.44  -7.75  Support at $60
XCIT    126.00 -14.88  -1.13  13.06   -4.00  -6.95  Mirroring sector
TBFC     62.25  -0.88  -6.31   4.81   -4.25  -6.63  Rate fears
PFE     103.88  -4.00  -4.13  -1.13    2.88  -6.38  Temporary bounce?
DOW     121.44   2.31  -4.44   0.69   -3.31  -4.75  New, cyclicals tired
EK       68.81  -1.50  -1.00  -0.31   -0.94  -3.75  Down again
AXP     116.88  -3.44  -2.31   5.06   -2.69  -3.38  Inflation scares
LLY      69.00  -0.31  -2.25  -1.75    2.00  -2.31  Dreaded upgrade

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.


BA $41.31 +0.00 (-3.63)  BA had been holding on to a gain 
throughout most of Thursday.  However, in the last hour of 
trading it gave back those profits and finished the day flat.  
The sell of was a bit disconcerting and we are saying goodbye 
to BA.  BA is now below its 30 dma and could head in either 
direction from here.  The market sell off could continue and 
drag Boeing lower as we draw near the holiday weekend.  Or, 
BA could head higher if the company can close some deals 
overseas.  BA has been trying to win several contracts abroad 
but the competition from Lockheed Martin has been stiff.  It 
remains to be seen whether BA will get the nod in deals with 
Israel, China, and Kuwait.  With so much up in the air, we 
feel there are better plays out there.   

PEP $36.00 -0.75 (-2.31)   Last week, PEP managed to weather 
the weakened market conditions.  This week is different.  The 
DOW is down over 360 points and is pulling the majority of 
stocks with it.  PEP has fallen -$2.31 and is now below  
several of its moving averages.  We had hoped that Pepsi's 
sales would increase since it had the exclusive rights to use 
Star Wars characters on its products.  However, the fear 
rampaging through the markets has caused investors to turn 
hesitant and shy away from even potentially strong stocks.  
As a result, Pepsi has suffered.  We are dropping it as a play.

NT $71.81 -3.00 (-8.13)  After NT reached an all time high 
of $79.94 back on Monday, the negative market conditions 
pushed NT back down to its 30 dma.  When the market gives up 
over 360 points in four days of trading, stocks can't help 
but be affected.  If investors want to pull out, all a 
fundamentally sound company can do is forge ahead with 
business and wait for investor confidence to return to the 
markets.  Even though NT has been signed to some new deals 
that could bring in a substantial amount of money, we have 
to drop NT due to the unpredictability of the current 
markets.  NT could possibly drop lower just as easily 
as it could head higher. 

ASND - $89.56 -2.06 (-3.94)  Ascend has been a little weak for 
a while. We cautioned you Tuesday to wait for upward movement 
with good volume. We got a little rise during yesterday's market, 
but only on average volume and today the morning gap up pattern 
broke down. We are dropping ASND in favor of more promising 




LXK $142.69 +5.25 (+9.31) LXK had an outstanding day on 
Thursday, as the stock gained over $5 and traded up $7.50 at
one time.  LXK has held strong through out the Dow drop,
and has now reached a new 52 week high.  The stock still looks
strong going forward, with what looks to be a time for a Tech
rally.  Also, LXK's stock splits on June 11th.  Target shoot 
an entry point, because profit taking is bound to happen.

KEA $30.44 +1.56 (-0.19)  Go KEA!  Keane was able to buck the 
trend by climbing higher on Thursday even though the market 
headed south once again.  KEA added +$1.56 on the news that 
its Board of Directors authorized the company to repurchase 
up to one million shares of common stock over the next 12 
months.  Buybacks are usually a bullish sign from management 
since they feel that their stock is undervalued.  However, KEA 
could have some resistance at its 200 dma at approximately 
$33.44.  Conservative players may want to wait until KEA 
breaks above this level before opening any new positions. 
Of course that is almost a 10% move from here.

DRMD $14.56 +0.13 (+0.13) Amidst market turbulence, DRMD 
has managed to keep its head above water pretty well.  
Today, DRMD was FDA-approved to market a new calcium 
channel blocker used the treatment of some heart disorders 
and sick sinus syndrome. The drug, Verapamil, is 
interchangeable with Calin and Isoptin.  Nonetheless, the 
announcement had no effect.  Volume has fallen off.  With 
traders headed out for an extended weekend, we don't think 
there will be much improvement tomorrow.  Also note that 
this stock got a flattop haircut at $15 and $14.75 in 
today's trading.  Technical indicators are flat too.  Wait 
for volume to increase again and the stock (along with the 
market) to resume upward momentum before entering a new 

BMCS $47.94 +3.00 (-.75) BMCS had a nice day on Thursday on 
pretty heavy volume.  All this when the NASDAQ traded down on
the day.  BMCS has some resistance at $49, so watch for a
possible struggle at this level.  We would like to see BMCS
jump through this point on strong volume.  We do feel BMCS is
in a great position, as Tech stocks seemed poised for a rally.
BMCS was in the news on Wednesday, as an article in Business
Wire noted the number one position BMCS has obtained in middle
management solutions.
FNM $67.06 -1.44 (+.81) FNM took off on Wednesday for a gain 
of over $2.  This was as expected seeing that the stock had
reached the bottom of its channel.  Thursday was a different
story, as worries surface again that the Fed's might raise 
interest rates quicker than anticipated.  FNM has given those
that missed the first entry point, another chance.  Though we
feel these worries are unfounded, what we think is immaterial, 
and we must see how the street interprets the news.  Wait for
the right time by either target shooting or waiting for a move
up in the financials.

***** 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         Thursday  5-27-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

PICK NEWS - CALLS (continued)

PG $94.56 -1.19 (-2.69) PG has built up some nice support in
the $93.75 range, which is the site of PG's 30-dma.  Three of 
the last four days, the stock has bounced off this mark.  PG 
just couldn't hold on today as the Dow took a big hit on interest 
rate worries.  The Dow is now 700 points off its high of the 
year.  Watch for renewed strength in the Dow and in consumer
staples before jumping in.  For those with a little more risk
tolerance, buy when PG bounces off $94 again.

CUST $58.25 +3.50 (-2.69)  After 2 down days in a row, CUST 
closed in the middle of the day's trading range and gained 
$3.50 today. Volume was about 3 times average. The long-term 
high growth prospects for the Internet security market is 
attracting more competition, from the likes of Entrust 
Technologies and Equifax. The digital certificate market is 
growing 100% to 200% per year. Also in the news: CUST is suing 
Critical Path Inc. for violating trade secrets and 
confidentiality agreements. (If you remember our coverage of 
VRSN, we reported recently that VRSN, the leading Internet 
secure certificate provider, had partnered with Critical Path.)

CB $70.19 -2.88 (-4.31)  CB lost a little more today as 
investors continue to hear reports that Warren Buffet may be 
selling the Chubb shares he had purchased recently for Berkshire 
Hathaway. It has not been confirmed yet whether he has actually 
begun to sell the stock. Hathaway's holding is between 2.5 mln. 
and 5 mln. shares. Another fund manager, Timothy M. Ghriskey, 
of Dreyfus Corp, thinks suggestions that insurance rate price 
cuts are abating are very positive signs for the industry, 
which has been in a slump. He has been buying insurance firms 
and selling banks and brokers. CB's loss today was on below 
average volume. Wait for advancing price on strong volume 
before starting new options. (considering what happened in
the Dow, a drop like this is expected.  It may have found
a bottom intraday at $70.)


PFE $103.88 +2.88 (-6.37)  PFE had been drifting lower 
throughout most of the week.  We feel that the +$2.88 bounce 
on Thursday was just that - a bounce.  Stocks tend to cycle.  
PFE had dropped for 7 consecutive trading days in a row before 
rebounding on Thursday.  Based on simple stock cycling, PFE 
could technically head higher for two more days before resuming 
its downward trek.  However, traders should consider that PFE
may have moved up in a knee jerk reaction to the Dow's slide.
Investors tend to think of PFE as a "defensive" play.  So when
the Dow dives, everyone buys the defensives (so how come they
were not buying during the first 500 points down?).  The company 
is still facing negative news of serious liver injuries in 
patients using Trovan, an antibiotic.  PFE is expected to add 
new safety information on the drug's labeling to warn users.  
As always, wait for the downward confirmation before opening 
any new put positions.   

SEPR $61.00 -2.44 (-7.75) A big run-up to $67 gave 
investors a great opportunity to purchase puts as sell 
volume kicked in, dropping SEPR to $63.44, where it closed 
yesterday.  Today, it gave up another $2.44.  Technically, 
SEPR is still negative.  Support is at $60.  We expect the 
downward trend to continue, all things remaining equal.  
But, keep an eye out, as there is another analyst 
conference in California wherein a CIBC Oppenheimer was to 
have covered SEPR today.  We haven't seen any news yet, but 
analysts rarely talk down a company at these meetings.  The 
point is that you don't want to get sideswiped by a piece 
of speeding news, so keep your stops set.  Of course, 
confirm market direction before entering a new play.

LLY $69.00 +2.00 ( )LLY gave us a loss of $1.75 yesterday 
but earned it back today.  LLY traded 1.5 times greater 
than average shares today, presumably on news of Credit 
Lyonnais raising LLY to a "buy" with a new price target of 
$88. . . the dreaded upgrade.  Even so, after 7 straight 
days of losses, LLY deserved a day off.  It may carry a bit 
of momentum into tomorrow as well, even though traders will 
be departing for the weekend a bit early.  As noted in 
Tuesday's update, support is around $68.  Keep your stops 
set so you don't give anything back, and confirm direction 
before playing

AXP $116.88 -2.69 (-3.37) Following 4 down days, AXP tacked 
on $5 yesterday.  If you were following the rules, you 
never entered this play yesterday, or even early this 
morning.  If you got in mid-day today, you already have a 
nice return, as AXP dropped $5 from today's intra-day high.  
Technicals are still in negative territory, thanks in part 
to another inflation scare report issued this morning.  
Surprisingly, from our news sources, there is no news to 
report.  As we noted Tuesday night, some short-term support 
occurs at $117.50, than again at $115.  Here we sit.  With 
light volume expected tomorrow market-wide, AXP probably 
won't experience conviction, either up or down.  Wait until 
you see negative conditions coupled with volume before you 
enter a new play.  If bullish enthusiasm returns, have your 
stops in place to get you out, as AXP will likely make a 
recovery with the rest of the market.

TBFC $62.25 -4.25 (-6.62) Speculation that the Federal Reserve
may raise interest rates and an earnings warning issued by 
First Union continues to haunt the sector.  Most financial 
stocks were down on Thursday and TBFC was leading the way.  
The Merrill Lynch upgrade earlier in the week seems to have
worn off.  It will be interesting to see if TBFC can finally
establish a bottom here in the low $60 range.  It has been
trying to curb the recent fall.  Tighten your stops to lock
in the profits.  And confirm market direction before opening 
any new plays in this area.  If the stock breaks $59 which 
is the short-term low established earlier this week, we should 
see further downside.  
TBH $84.00 -3.62 (-8.62) News out of Brazil and Argentina  
has finally calmed after a week of currency fears and political 
scandals.  The Brazilian Bovespa index was overdue for a bounce 
and it got that bounce on the Wednesday when no new news came
forward.  But TBH was only was able to bounce up to its 50-dma at 
$87.50.  This is now the resistance level.  The technical pattern
is in place and will be tough to push back above that level.  
With the South America markets coming under fire again on 
Thursday, we have already dropped back near the lows for the
week, not to mention closing at the day low.  Look for more 
dips ahead because of the hefty profits in Latin America this 
year but play with stops just in case.    

XCIT $126.00 -4.00 (-6.94) Wednesday produced a much needed 
bounce for the Internet group.  After six down days in a row 
fot XCIT, the stock moved up on a relief rally.  The question 
now is whether or not this is the end of the selling?  Many 
analysts have come out to voice their opinion but each view 
is wildly different.  Some expect another 20% drop while others
feel the stocks are grossly undervauled.  Our feeling is that
many Internet stocks aren't that far now from a bottom and we 
may see lots of institutional money ready to come back in.  
But there is no way to know.  We could continue down until 
they hit the 200-dma which is not that far away for some.  
Either way we would avoid opening any new plays unless the
sector shows strong signs of a further drop.  With no specific 
market moving news by XCIT, the stock will move with the sector. 

GNET $99.25 -2.00 (-15.69) GNET had a relatively weak bounce 
on Wednesday as most Internets were able to recover some recent
losses.  This is a good sign for our play.  The lack of support 
for this stock is the real diamond in the rough.  That is not
to say that the Internets can't get hot and we could watch GNET
rally also.  Remember we are already at a 50% discount for the
year high.  But it's in this price range that we can't find any
support.  It went from $60 to $95 in a week.  The 200-dma is at 
$60 where the breakout occurred in March.  Take a look at a one 
year chart and you'll see what we mean.  More volatility is bound
to be in the forecast.  Have your entry and exit points mapped
out before opening new plays.           

INKT $97.81 -.18 (-16.18) Today Inktomi announced that it has 
inked a new agreement with four European companies to integrate 
its search services.  Financial terms were not disclosed but it
is considered to be a substantial pact.  That is why we have 
seen such strength on Wednesday and into Thursday.  Unfortunately
the news wore off late in the day and the stock closed 
fractionally lower.  Friday should be an interesting day ahead 
of the holiday.  The stock rebounded to its 10-dma around $105 
intraday but was rejected.  It tried to hold at $100 but fell 
right before the close.  So market willing, we could see another 
down move on INKT.  Of course any Internet rally could turn the 
stock higher.       

DCLK $85.00 -5.25 (-22.50) DCLK fell again today after a timid
rebound on Wednesday.  The stock has been unable to gather any
strength.  The NASDAQ faired pretty well relative to other major 
averages but it didn't help DCLK.  The problem is another case
of a rapid rise and no sign of big buyers.  Reports indicate 
that institutions continued to stay on the sidelines.  Its 
tough to blame them.  The technical indicators are very weak
and support is non existent.  We anticipate that investors are 
waiting for evidence that the free fall has ended or until it
hits support.  We show that support to be the 200-dma down near 
$50.  Use caution in this highly volatile market before opening
any new plays.  The strength in the NASDAQ could translate into 
gains for the Internets.      

AMTD $86.88 -5.38 (-17.12) Post split depression is in full 
swing for the online brokers.  EGRP and NITE have already split
and Schwab is still over a month away.  This have left the 
door open for profit taking by investors.  AMTD did rebound 
on Wednesday but it was unable to carry that momentum forward 
to Thursday.  Valuations are still way above what is considered
standard for this group.  We expect stock prices to continue 
to fall.  Use the Internet sector as a gauge for market direction
since they are now lumped with that group.  Cautious investors
may want to hold off on new plays heading into the three day 

RNWK $67.06 -3.13 (-13.94) RNWK had a huge day on Wednesday,
as the stock run up $12.19.  This was the largest percentage
gain of any of the Internet stocks we track.  Thursday saw
RNWK give back some of those gains, but only a fraction.  MACD
is still very negative, but be careful jumping in blindly.
Watch to see if further weakness is evident.  The stock could
easily fall to the $58 range again and if broken, could fall 
to $38.  As always, Internet play are extremely risky, but we
could see some further sell off on Friday and into next week.

EK - $68.81 -.88 (-4.19)  Kodak was down again in each of the 
last 2 trading sessions. All major technical indicators remain 
negative and today it broke below its 50 dma. Recent support 
is at the low $60s it hit in early April. In the news, EK is 
touting Kodak PhotoNet online. Customers can drop off and pick 
up finished film at a store, but the digital pictures will also 
be available at a secure website, where reprints , etc. can be 
ordered online. Kodak also announced that it will increase its 
number of onsite photo developing centers in Japan in an effort 
to gain market share there. Fuji revealed that it is planning 
to announce next month a major expansion of its U.S. plants. 
The competition intensifies...


BGEN - Biogen $109.56 +.88 (+7.06)

This biopharmaceutical company develops, manufactures, and 
markets drugs for humans. Biogen's main drug is Avonex, an 
interferon beta used to slow the progression of multiple 
sclerosis (MS). 

After a month-long correction, shares of Biogen began to rise 
the second week in May as results began to come in for BGEN's 
experimental new drug for psoriasis, Amevive. Critics had called 
BGEN a "one-horse" company with Avonex pulling all the load. 
Even with revenues up 50% last quarter and profits up 65%, BGEN 
needed another product. The new once/week dosing for Avonex 
would help, but the catalyst for the rise in share price was 
the fact that Amevive was successful in phase II trials and 
is now entering phase III trials for FDA approval. The drug 
promises to achieve peak sales of at least that of Avonex:  $395 
mln, according to analysts. Two other drugs are in the pipeline, 
but are farther in the future:  Adentri, for edema, and Antova, 
primarily for the treatment of lupus. Potential competition for 
the Antova market was just eliminated when La Jolla and Abbott 
Labs pulled their Lupus drug out of phase II/III trials. Also 
helping the stock was speculation that BGEN was a buyout 
candidate. (JNJ was mentioned as a possible suitor after its 
failed bid for Centocor.)

BGEN just moved back above its 50 dma and is looking technically 
strong once again.  It has closed up each of the last 4 days 
in a row despite terrible weakness in the Nasdaq. In recent 
news, Biogen said on Tuesday that Amevive showed positive results 
in dosing trial on humans. The drug was safe and effective and 
had minimal side effects. Coverage was initiated May 26th by 
Bear Stearns with a "buy" rating. ING Baring Furman upgraded 
the stock the same day to "strong buy" from "buy". In addition, 
Piper Jaffray reiterated its "buy" rating.

BUY CALL JUN-105 BGQ-FA OI=194 at $7.75 SL=6.00
BUY CALL JUN-110*BGQ-FB OI=467 at $5.00 SL=3.25
BUY CALL JUN-115 BGQ-FC OI=161 at $2.88 SL=1.50
BUY CALL JUL-110 BGQ-FB OI=559 at $7.75 SL=6.00
BUY CALL JUL-115 BGQ-GC OI=210 at $5.63 SL=4.00

Picked on May 27th at $109.56    PE = 40
Change since picked   +$ 0.00    52 week low =$ 41.75 
Analysts Ratings    9-8-4-0-0    52 week high=$120.50
Last earnings 03/99 est  0.58    actual 0.56 surprise=+0%
Next earnings 07-09 est  0.64    versus 0.41
Average daily volume = 1.30 mln.
Chart = http://quote.yahoo.com/q?s=BGEN&d=3m


DOW - Dow Chem. $121.44 (-3.38)(-4.75 this wk.)

Surprise!  Dow is a chemicals company. . .no "dot-com" here.  
But you already knew that, didn't you?  Of course, they 
manufacture and sell chemicals, plastics, including 
agricultural and consumer products.  Production facilities 
are in Canada, North, Central and South America, Europe and 
the Pacific.

Get ready for a rotation out of cyclicals.  The cyclical 
lift that DOW received, along with the rest of the group, 
has about crested the top of the mountain.  In 60 days, DOW 
rose from $91 to $138, a 52% gain.  Just like the 
Internets, some air is being let out of the bubble.  All 
technical indicators are in solid negative territory.  
Thanks too to the rapid rise in price, there isn't much 
support anywhere on the way down until it gets to $112.  
The 10-day chart looks awful with no relief in site.  In 
fact, 3 days ago, DOW crossed south below its 30 dma.  Look 
for further weakness.  Be cautious.  Bargain hunters are 
coming out with the smell of blood.  One upgrade or 
favorable piece of news could send DOW back up again.  
Confirm market direction before playing.

No news, just a jittery market tired of cyclicals.

BUY PUT JUN-125 DOW-RE OI=146 at $6.25 SL=4.50
BUY PUT JUN-120 DOW-RD OI=572 at $3.50 SL=1.75

Picked on May 27 at   121.44    PE=23
Change since picked    +0.00    52 week low =$ 74.69
Analysts Ratings   0-4-6-1-0    52 week high=$138.00
Last earnings 04/99 est 1.32    actual 1.47  Surprise=11.4%
Next earnings 07-22 est 1.61    versus 1.86
Average Daily Volume = 1.01 mln.
Chart = http://quote.yahoo.com/q?s=DOW&d=3m

Dow Drowns In Interest Rate Woes...

U.S. stocks took another beating Thursday as bond interest rates
moved higher; the Dow suffered its biggest point drop of the year.

Wednesday, May 26

The index of blue-chip stocks rebounded Wednesday as shares of
IBM jumped almost $15 to a new high. The Dow closed 171 points
higher at 10,702. The Nasdaq index also regained some of its
recent losses, moving 45 points higher to 2,426. In the broader
market, declining issues still edged out advances by a small
margin on active volume of 874 million shares on the NYSE.

Tuesday's new plays (positions/prices):

AAPL  JUN47C/JUN45C  $0.68  credit (Up $2.56 on tech rebound!)
NOVL  AUG25C/JUN25C  $1.37  debit  (unable to achieve target)
SGI   AUG15C/JUN15C  $0.81  debit  (unable to achieve target)
CD    JUN17C/JUN20C  $1.43  debit  (down $1.75 by mid-morning)

AAPL rebounded strong with the tech rally, moving too close to
our sold strike for comfort. Lets hope the technicals win that
battle eventually. CD fell lower at the open without any news.
We went looking for the reason and found out that traders are
again speculating on stock price manipulation. CD's history of
insider selling and confidential information leaks doesn't bode
well for them in this case; the company is still under scrutiny
from the SEC. It appears that everyone avoided the position when
the stock price fell prior to the opening of the option market
but we will track it's performance just as if we had opened the
play. Option premiums on both NOVL and SGI deflated, leaving us
far from our target prices for those plays, but still with a
favorable opening debit.

Portfolio plays:

A nice recovery for most of the large-cap and technology issues.
AMZN was one of the hardest hit recently and it rebounded some,
but we are certainly not out of the woods yet. Expect further
selling in the Internet stocks as investors try to come to a
consensus for their correct valuation.

Thursday, May 27

U.S. stocks took another beating Thursday as bond interest rates
moved higher. The Dow suffered its biggest point drop of the year,
finishing down 235 points at 10,466. The Nasdaq index managed to
avoid serious losses, closing down only 8 points at 2,419. In the
broader market, declining issues outnumbered advances by a 2-to-1
margin on active volume of 799 million shares on the NYSE.

Portfolio plays:

Capital One (COF) bounced back today, even in the wake of the
DOW sell-off. Merrill Lynch was another standout, climbing $5 to
our sold strike for June. News of a possible merger is driving
that issue higher and today we a have a new 'speculation' play
based on those rumors.

Good Luck!

				- NEW PLAYS -
MER - Merrill Lynch  $83.00     *** Merger In The Works? ***

Merrill Lynch is one of the world's leading financial management
and advisory companies with offices in 41 countries and total
client assets exceeding $1.4 trillion. As an investment bank, it
is the top global underwriter and market maker of debt and equity
securities and a leading strategic advisor to corporations,
governments, institutions and individuals worldwide. Through
Merrill Lynch Asset Management and Merrill Lynch Mercury Asset
Management, the company is one of the world's largest managers
of financial assets.

Even as banking stocks are falling amid fears of an interest rate
hike and a broad downturn in the market, Merrill Lynch stock rose
higher for the second straight day on rumors of a possible merger.
Wednesday, journalist Dan Dorfman reported in his Internet column
that Chase Manhattan Bank is close to purchasing the brokerage.

This kind of speculation has been circulating for over a year and
Chase has discussed plans with Merrill in the past. Although this
arrangement is not completely impossible to forsee, most analysts
believe that the exchange ratio would not be consistent with what
CMB would be willing to accept. The CEO recently said he is more
interested in mergers of equals than in paying big premiums.

The rumors continue to drive implied volatility and volume in
the front-month call options higher and that has left us with a
favorable disparity for a three-week calendar spread. There are
two positions listed; both can be successful depending on the
outcome of the merger speculation.

PLAY (neutral/calendar spread):

BUY  CALL JUL-85 MER-GQ OI=1646 A=$7.50
SELL CALL JUN-85 MER-FQ OI=5114 B=$5.12

PLAY (bullish/calendar spread):

BUY  CALL JUL-90 MER-GR OI=5982 A=$5.62
SELL CALL JUN-90 MER-FR OI=3050 B=$3.37

Chart = http://quote.yahoo.com/q?s=MER&d=3m
WMB - Williams Companies  $51.62     *** Outstanding Growth ***

Williams provides a unique combination of communications & energy
services. Williams Communications owns and operates a nationwide
fiber-optic network, sells, installs and maintains communications
equipment and provides other services throughout the U.S. & Canada.
Williams Communications' nationwide fiber-optic network has 17,600
route miles in service, 20,000 miles of fiber in the ground and
plans to complete 32,000 route miles connecting 125 cities by the
end of 2000. Their Multi-Service Broadband Network is a integrated
fiber-optic network whose architecture couples ATM core switching
with advanced optical networking technologies to provide carriers
with data, voice, video and Internet services over the platform
they choose.

The growth of the company continues with new contracts and other
investments on a regular basis. Yesterday, the Mexican phone group
Telefonos de Mexico announced they will invest up to $100 million
in the company and the two will connect their long distance fiber
optic networks. This is the latest deal the company has made for
investments that will occur simultaneously with its planned IPO.
INTC is also planning a $200 million investment in exchange for
network transmission services for Web-hosting computer centers. In
February, SBC Communications also agreed to an alliance with WMB,
for up to 10% of the IPO in exchange for network space. Through
these deals, WMB is ensuring future traffic for its high-capacity,
fiber optic network.

A small disparity in the ITM July options along with the excellent
technical outlook makes this play favorable.

PLAY (conservative/debit spread):

BUY  CALL JUL-45 WMB-GI OI=155  A=$8.00
SELL CALL JUL-50 WMB-GJ OI=1572 B=$4.87

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

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