Option Investor
Newsletter

Daily Newsletter, Tuesday, 06/01/1999

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The Option Investor Newsletter         Thursday  6-03-99
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)
************************************************************
        6-01-99          High     Low     Volume   Advances Decline
DOW    10596.30 + 36.60 10597.50 10409.10  685,304k  1,404   1,558
Nasdaq  2412.03 - 58.49  2470.53  2411.97  743,199k  1,674   2,211 
S&P-100  654.21 -  4.45   658.69   647.99   Totals   3,078   3,769
S&P-500 1294.26 -  7.58  1301.74  1281.49            44.9%   55.1%
$RUT     437.46 -  1.22   439.05   435.13
$TRAN   3466.60 + 50.90  3474.07  3414.04
VIX       27.60 +  1.22    29.32    27.42
Put/Call Ratio      .52    
*************************************************************

Amazon bombs Internets and Merrill Lynch scuttles Internet brokers.

What a difference a day makes! Friday things were looking up
and expectations were high for the Internet stocks and the
market in general. Today was a nightmare for most investors
as every sector was systematically destroyed with laser guided
precision.

First, Barrons, not content with their previous slam article
on Amazon two weeks ago, featured them in their new cover story
as the "Amazon.bomb". Not only did they bomb the price of AMZN
stock but all other Internet stocks as well. We all know that
as a leader goes so goes the sector. The hatchet job was an
in depth rebuttal to the heat they got two weeks ago with their
last Amazon article. Seventeen of the twenty three brokers that
follow Amazon rate it a strong buy or buy. Barrons had taken
some heat dished out by these brokers as each reiterated their
recommendations after the last article. Proving the pen is
mightier than the recommendations they again clobbered Amazon
and Amazon CEO, Jeff Bezos. Calling Amazon grossly overvalued
and worth only $10 per share, they indirectly called into question
the value of other Internet enterprises. AMZN dropped -13 to
lead the entire sector lower. I guess slams like this is why 
they call the publication "Bear-ons" instead of "Bull-ons".

Second, Merrill Lynch, the 800lb gorilla of the brokerage sector,
announced they were reversing a previous decision not to enter
the Internet broker war. With commissions over $300 for a stock
trade, the drop to discount broker status and $29 trades was 
strongly resisted. With Etrade now boasting over 1 mln accounts,
and many of those accounts came from Merrill, and other web
brokers doing the same, the handwriting was on the wall. Join
the battle or continue with shrinking revenues. Now that the 
battle is joined the sector rankings are up for grabs. Merrill
has vast resources and name recognition not available to the
other web brokers. With $29 trades, or a $1500 annual trade all
you want fee, they will be a tough competitor. Merrill has research
and other services available that other Internet brokers can
never hope to match. Merrill dropped -8.75 on downgrades related
to revenue worries. Some analysts feared the drop from $300
commissions to $29 trades would put pressure on revenue and I
can see why. The cannonball into the Internet broker pond
swamped the rest of the brokers as the expected competition
could hurt their growth as well. EGRP -5.19, AMTD -9.94, NDB -4.31.

On a side note, EGRP announced the purchase of Telebanc (TBFC)
today for $1.8 bln to give them a foothold in the Internet 
banking arena. While this may be a good idea in their mind I
question $1.8 bln for a bank with 60,000 customers. Wells Fargo
for instance has almost 1 mln online customers and expects to
have 3 mln by next year end. BancOne is moving fast to capture
this market as well as dozens of others. While analysts feel
Etrade will gain 6-9 months over its rivals, it had to give up
13% of its stock in the deal. We were going to drop EGRP tonight
but after I read all the press back several weeks I think this
may be a real buying opportunity. The Merrill announcement did
cloud the water but it is entirely possible that EGRP will rise
above the sector backlash simply because of their new acquisition.
I would not start a new play on EGRP until it shows some strength
but coming off a stock split last week and the Merrill whammy we
could be near it's low. EGRP has strong support at $30 but I 
do not see it going that far if the market in general holds steady.

As if the above was not enough the same analyst that torpedoed
Dell recently, took aim at Nasdaq heavyweight Intel. BancBoston
analyst Niles, said that he feels the product mix is shifting
at Intel and is being weighted toward the cheaper, lower margin,
products. His estimate of $.53 for Q2 is already the lowest on
the street and he is now contemplating something in the $.50
range. He feels Intel will miss their numbers next quarter and
may even warn. Intel dropped -3.38 in heavy trading. 

Banc America analyst, Kurt King, took aim at the tech sector 
today with downgrades on HWP and SUNW. He cut them to a hold from
a buy. His basis was an internal survey of 50 executives in charge
of information technology at a "cross-section" of U.S. companies.
Half of these executives expected to spend less this year than last
in the fourth quarter. His survey showed a fall off in spending for
I.T. due to Y2K changes already completed or almost done. He also
cut estimates for CPQ and DELL but maintained a "buy" rating on both.

But wait, we are not done yet! After the close today American Home
Products kicked off the earnings warning cycle with a whopper. 
They said they would miss 2Q earnings by $.07 to $.11 and the
stock took another -$4 dive after hours in addition to the -5.63
regular day trading loss. This warning may ripple the markets for
several days as investors are shocked back to reality that real
companies must still report real earnings next month to maintain
the current rally.

Still not done with the bad news. Remember last week when the 
Chicago Purchasing Managers report showed lower prices paid and
the market rallied on the hope that the NAPM (national) report
today would also show slowing inflation? April fools became June
fools today as the NAPM report showed the first rise in prices
for raw materials in 16 months. The prices paid index jumped from
49.9 in April to 52.2 in May and sparked new worries that inflation
and interest rate increases were right around the corner. If that
was not bad enough two Fed heads spoke today and both alluded to 
an interest rate hike soon. Several strong rumors raced through
the markets that the Fed may move in a pre-emptive strike BEFORE
the next FOMC meeting on Jun-29th.

The interest rate worries drove the bond yields even closer to
the 6% crisis level, closing today at 5.93%. The financial sector
was not immune from downgrades today either. JP Morgan was downgraded
on Y2K concerns with the analyst citing an expected drop off of
business as the year progresses. The sector was rocked for losses
across the board.

Not every sector suffered. Since we picked several cyclical stocks
that had fallen out of favor for puts on Sunday, one enterprising
analyst from PaineWebber upgraded Georgia Pacific to a buy and 
said good things about the sector. Cyclicals soared on the news
with GP adding +8.44. Yes, $8.44, and not an Internet stock. The
real question now is can they hold it. The cyclicals pulled the
DOW back from a -145 loss at midday to a +36 gain at the close.

This was not a good day for our new recommendations. Almost every
stock we recommended as a new play on Sunday was trashed by an
unforeseen downgrade or news event. Fortunately they all happened
before the open today and not tomorrow after everyone had a chance
to start a new position. If you follow our advice and wait for a
positive market with positive advancers and positive sectors then
today was a non-event. Your cash should still be burning a whole
in your pocket. While we are dropping MWD until the smoke clears, 
we are maintaining the cyclical puts. We do not feel the cyclical 
spike from today will hold. Do not start new plays until they actually
roll over!

The markets in general look weaker today than Friday but I am not
running for the hills yet. The Nasdaq got hammered by the Internet
reaction to the Amazon.bomb and the Dow got hammered by the HWP
downgrade, IBM following suit and the JPM downgrade. The cyclicals 
held it up to allow us to get over the initial reactions. The outcome 
tomorrow will be on the quantity of bargain hunters we see come 
into the market. If the interest rate worries continue then we 
could see some more weakness as traders wait on the sidelines. Many 
now think a rate increase at the June meeting is already priced into
the market and they wish the Fed would just "do it" and get the
uncertainty out of the way.

The wildcard is of course the earnings warning from AHP. If this
sets the tone for tomorrow then look out below. We still have not
hit my 10,300 bottom for the DOW but have now twice brushed the 
10,400 level. Since we closed at almost 10,600 today I would hope
10,500 holds as new support and we do not retest below that again.
Cash is good right now and I would not rush back into the market 
until we get confirmation of the rally continuing. Remember,
the last two times we got multiple days of 200 points swings back 
should not have to be repeated over and over to be learned.

While the daily chart shows a definite slide the 10 day may be
showing a new bottom forming at 10,500. Wait for confirmation
above 10,600.


 

 

The Nasdaq has tested sub 2400 levels twice in the last three
months. After closing at 2412 today we are right at the pivot
point. If the Internets can recover then it should be up from
here but the keyword is "IF". 


 
The Internet drop today blunted the three day rally but we
are sitting near the bottom of our recent trading range.


 

Definitely, pick your entry points carefully and sell
too soon until a new direction is established.

Jim Brown
Editor


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***************
Market Posture
***************
As of Market Close - Tuesday, June 1, 1999 

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

DOW Industrials   10,500  11,000  10,596    Neutral   5.28
SPX S&P 500        1,325   1,360   1,294    BEARISH   5.25
OEX S&P 100          660     690     654    BEARISH   5.25
RUT Russell 2000     435     450     437    Neutral   5.28

NDX NASD 100       2,100   2,250   2,026    BEARISH   5.25
MSH High Tech      1,000   1,100     994    Neutral   5.28

XCI Hardware         900     920     847    BEARISH   5.20
CWX Software         600     675     668    BULLISH   5.28
SOX Semiconductor    390     420     376    BEARISH   5.25
NWX Networking       450     490     522    BULLISH   4.22
INX Internet         550     650     470    BEARISH   5.20

BIX Banking          700     720     660    BEARISH   5.18
XBD Brokerage        450     475     412    BEARISH   5.21
IUX Insurance        645     660     636    BEARISH   5.25

RLX Retail           900     970     860    BEARISH   4.29
DRG Drug             390     425     358    BEARISH   4.29
HCX Healthcare       780     850     727    BEARISH   4.29
XAL Airline          180     210     169    BEARISH   5.21
OIX Oil & Gas        285     310     291    Neutral   5.13



Posture Alert

Interest rate worries sparked by key economic indicators 
led to a sharp decline in the High-Tech and Internet 
sectors while Cyclical stocks led an afternoon rally in the 
Dow.

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

members.OptionInvestor.com/marketposture




Market Sentiment
Pinnacle Capital Advisors
*************************

Strap on Your Seatbelts 

After Friday's pre-holiday rally, investors thought it was clear 
sailing ahead Tuesday, with S&P Futures showing some strength off the 
open. However, many investors buying off the open were not very happy 
once the NAPM came out with their figures. Their numbers shook up the 
bond market, and the feeling is that the Fed will have to raise rates. 
With the 30-Treasury once again nearing 6.00%, any other negative 
economic indicators that surface, will likely cause a panic, so 
buckle up and be prepared. 

Pinnacle Capital Advisors has been alerting investors about all the 
bearish signs that this market has been hinting at. The Pinnacle Index  
has been clocking in at 6.7, which suggests that option speculators are 
expecting the market to advance higher. When you combine this stat with 
the fact that interest rates are rising, and optimism is running 
rampant, you have recipe for disappointment.

Pinnacle has been advising its clients to resist the temptations 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 which seems 
more likely than ever, the broad market may come under continued 
pressure.


 

 

 


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)

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)

Friday, May 28           53,502        -
Tuesday, June 1          53,293        -.4%


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
Overhead Resistance (680-700)      3.7       3.5
Underlying Support  (645-660)      1.3       1.2
                    (510-660)      3.8       3.7

Put/Call Ratios:

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


Peak Open Interest (OEX):

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

Market Volatility Index (VIX):	

CBOE VIX                        26.38     27.92  *



Investors Intelligence:

Bullish                         60.9%     60.90% *
Bearish                         28.7%     28.70% *



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
Benchmark                        (5/28)     (6/1)
*************************************************

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

OEX Close                       658.66    654.21    
 
Underlying Support  (645-660)      1.3       1.2    
                    (510-660)      3.8       3.7

 
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
Strike/Contracts                 (5/28)     (6/1)

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


Peak Open Interest (OEX)

Puts                 650 / 10,950    650  /  10,967
Calls                670 / 12,700    670  /  12,750
Put/Call Ratio       .82             .86 



 

 



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


 


 



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
*****************************************************
CHANGES THIS WEEK

Index     Last   Tue   Week
Dow    10596.26 36.52  36.52
Nasdaq  2412.03-58.49 -58.49
$OEX     654.21 -4.45  -4.45
$SPX    1294.26 -7.58  -7.58
$RUT     437.46 -1.22  -1.22
$TRAN   3466.60 50.90  50.90
$VIX      27.92  1.54   1.54

Stock            Tue   Week

SONE      40.38  2.00   2.00  Strong even in a weak market
ADPT      31.94  1.06   1.06  Reached a new 52 week high
BMCS      49.50  0.06   0.06  Continues to show strength
BVSN      51.88 -0.13  -0.13  Less expensive to play the Net
FNM       67.31 -0.63  -0.63  Formed a new alliance
SLR       54.06 -0.69  -0.69  Earnings on June 14th
MEDI      62.88 -0.75  -0.75  Wait for the selling to end
BGEN     108.06 -1.06  -1.06  Analyst price target at $146
ABOV      32.13 -1.13  -1.13  Catching the eye of some brokers
LXK      134.69 -1.44  -1.44  Splits June 10th
LGTO      53.25 -1.50  -1.50  Technical chart still positive
PVN       93.50 -2.38  -2.38  Relatively small profit taking
CUST      56.25 -3.75  -3.75  Confirm direction and use stops
HWP       90.13 -4.19  -4.19  Will begin selling online
MWD       91.75 -4.75  -4.75  Dropped, affected by MER's news
EGRP      39.31 -5.19  -5.19  Buying opportunity
EBAY     166.50-10.69 -10.69  Fell in sympathy to Amazon

Puts

INTC      50.69 -3.38  -3.38  New, weak due to profit concerns
CVC       76.00 -2.88  -2.88  New, dipped below its 50 dma
ABF       25.38 -0.50  -0.50  Seventh down day in a row
EK        67.13 -0.50  -0.50  Still dropping
TBH       83.00 -0.50  -0.50  Continued Brazilian uncertainty
UNM       53.88  0.06   0.06  Insurance sector weak again
MEA       39.31  1.94   1.94  Paper producers rallied Tuesday
IR        65.88  2.19   2.19  Cyclical relief rally?
IP        52.75  2.75   2.75  Made a technical bounce
CLX      103.88  2.94   2.94  Use caution, pick entry carefully
DOW      126.44  4.94   4.94  Cyclicals surprise upgrade



****************
PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
******

MWD $91.75 -4.75 (-4.75)  On Tuesday, MWD headed lower from 
the get go as the financials were hit again in trading.  Fears 
of an interest rate hike continued to haunt the sector.  News 
from Merrill Lynch (MER) also appeared to add fuel to the 
fire.  MER announced that it will offer online trading to its 
customers.  The financial stocks reacted poorly to the news as 
many investors seem to feel that the increased competition 
will impact profit margins.  Even though MWD could have some 
strong support around $90-$91 and bounce back up, we have to 
drop this brokerage for the time being.  Merrill's move 
does not strengthen the position of traditional brokers 
while it casts a huge shadow of competition on those brokers
in the online industry.


PUTS:
******

None


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




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





The Option Investor Newsletter         Tuesday  6-1-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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


MEDI $62.88 -.75 (-.75)  We told you in Sunday's letter to 
expect MEDI to pause for a day or 2 following 5 up days in a 
row. It did. After opening higher today, MEDI slipped to just 
over $62 and hovered there all day until 2:45. Investors 
realized they weren't going to get any more of a dip today and 
a small flurry of buying sent the stock to $65.56 before it 
dropped in the last few minutes of trading to $62.88 on light 
volume. Wait for the selling to end before taking a new 
position. No new news.

PVN $94.00 -1.88 (-1.88)  After gaining $12.50 in the previous 
2 trading sessions on multiple upgrades, a loss of $1.88 today 
on profit-taking was relatively small. Volume was fairly strong, 
however, and there were also 2 other reasons for the drop. 
First, was the heightening of interest rate fears today. Second 
was an article in the San Francisco Chronicle (picked up by 
Reuters) quoting several current and former employees of PVN 
who portrayed the company's business practices in a negative 
light, even if those practices were not technically illegal. 
PVN caters to poor credit customers, and has been accused of 
charging higher than normal fees and duping customers into 
buying unneeded insurance and other services. PVN says it will 
refund money to any customers who were not completely satisfied 
or who felt pressured to buy add-on products they did not want. 
One analyst suggested that selling today was merely investors 
who were stung by the recent plunge in stock price grabbing the 
first opportunity to get out, and that the stock should continue 
to recover in price. Look for upward momentum on good volume 
before starting new positions and keep an eye on inflationary 
pressures with this interest sensitive stock.

LGTO $53.25 -1.25 (-1.25) The market and the sector did not 
go in our favor today, so we should not have started a new 
play here.  Target shooters may have thought differently, 
and used today's weakness as a buying opportunity.  That 
LGTO's volume was only 60% of average tells us that nobody 
was running for the exit.  The technical chart is still 
deep in the positive (see Sunday's full write-up for 
details).  Though this looks like a buying opportunity, 
market and sector weakness, downgrades, or just plain bad 
news can torpedo this play quickly.  Again, confirm market 
direction before playing.

SLR $54.06 -0.69 (-0.69) We noted Sunday that sellers had 
already done their damage.  Further evidence came today as 
SLR flew under the radar and was missed by sellers trying 
to down the high-flying (just barely) Internet and 
Technology issues.  At the end of the day, SLR had lost 
only $0.69 on 56% of normal volume.  If the market gives us 
a break, SLR could start a small earnings run up to its 
announcement on June 14.  Don't chase. . .let SLR come to 
us.  We want to see an up market, sector and stock before 
we start the play.  No news to report today.

HWP $90.13 -4.19 (-4.19) With little fanfare, HWP announced 
that it will begin selling its products online with the 
expectation that 15% of its business customers will use the 
site initially.  Within a few years, it expects that more 
than a third of its business and retail sales to come over 
the Web.  A month ago, this would have been greeted with 
euphoria.  Not today.  HWP was pounded for (get this!) 
"concern that customers will cut spending later this year 
because of the Year 2000 computer glitch" (Bloomberg).  Bank 
of America Securities analysts must have acquired keen 
powers of logic over the long weekend to come up with this 
scoop, as they downgraded HWP, along with SUNW, to "hold".  
Lemmings promptly followed their lead by trading 16% 
greater than average volume on an otherwise slow day.  
Technically, today's action (or lack thereof) makes the 
chart look slightly weak.  Dumb as we think this analyst's 
call is, it is the market we are forced to deal with.  It's 
not right or wrong, it just is.  To that end, we must keep 
a cool head, confirm market direction and use stops to 
protect ourselves in just such cases.  Sometimes the market 
just doesn't cooperate.

BMCS $49.50 +0.06 (+0.06) BMCS continued to show strength in
the face of a nasty Tech slide today.  The average Software
& Services company lost 1.87%.  BMCS only traded below its
opening price of $49 briefly.  The stock reached a high of
$50.19.  BMCS is at its highest level since early December
of 1998.  BMCS also has a PE ratio about 40% below the 
industry average.  Though BMCS has held strong, wait for
confirmation from the market to initiate new plays.  The
market is in a state of flux so buying blindly can be very
dangerous.  Support for BMCS is about $44.00.  BMCS did seem
to form a small base around $49 intra-day today.
 
FNM $67.31 -0.63 (-0.63) FNM had an interesting day.  With the
concerns of possible interest rate hikes, FNM sunk to the 
bottom if its channel.  The good news is that this level held
once again.  By the end of the day, FNM had come back over a
$1 from its lows.  We get different news every day on things
that will effect the Fed.'s decision.  We still like FNM going
forward as a channeling stock.  In the news, Resource Bancshares
Mortgage Group, Inc. announced today that it has entered into a 
strategic alliance with Fannie Mae.  Under this alliance, the 
company will allocate a substantial portion of its conforming 
conventional production to Fannie Mae over the next two years.

LXK $134.69 -1.44 (-1.44) LXK had a bit of a struggle today
and closed down, but did come back $1.69 off its lows of the
day.  LXK seems to have formed a bit of support at the $133-
$134 level.  Even though LXK has a stock split on June 10th,
we still need to be careful about buying new calls.  A split
usually helps a stock rise, but a split will not override a
down turn in the market.  LXK is prone to move big when it
moves, so wait for confirmation of a new move up.

SONE $40.38 +2.00 (+2.00) SONE had a very strong gain today,
even with the negative market environment.  SONE reached an
intra-day high of just under $42 before succumbing to the 
markets pressure.  SONE is a stock that benefits from the
move of financial institutions from brick and mortar to the
Net.  The announcement today of E*Trade's purchase of Telebanc
has brought new excitement to the Internet financials.  This
will bring more buyers to companies that help these on-line
banks become established.  SONE fits this description.

BVSN $51.88 -0.13 (-0.13) BVSN traded virtually flat today,
as the stock lost just $.13.  This should be considered a 
positive, since BVSN's sector lost just under 2%.  BVSN has
a consensus 5-year growth rate of close to 55%.  We view this
stock as a less expensive way to play the Internet.  BVSN's
next earnings are estimated at increasing 267%.  As always,
make sure of market direction.  Even a great stock will be
hit in a down market.  There is slight support at $47.50, but
we hope it doesn't come into play.  Remember, BVSN was trading
at $70 just over a month ago.

EBAY $166.50 -10.69 (-10.69) EBAY was hit with many of the E-
tailors today.  We can blame it on Barron's.  Barron's ran an
article that pretty much tore into Amazon.  The magazine believes
that Amazon is way overvalued and has a long ways to drop.  The
writer obviously didn't like Amazon's business model.  CNBC had
many analysts disagree with the article, but it still took its
toll on Amazon, and in sympathy, EBAY.  EBAY did close off of
its lows and still could bounce strongly when the market decides
to move up.  When looking at a chart of EBAY, we see a 
consolidation taking place.  We mentioned many times in the 
newsletter this weekend that we feel the Internet's are at a 
bottom.  We still feel this way, but we need to be patient and
wait for confirmation.  EBAY should respond well after the news
is played out.  

ADPT $31.94 +1.06 (+1.06) ADPT had a strong day in a down market.
ADPT reached a new 52 week high and is trading higher than it
has since late 1997.  The stock closed right on its high of the
day and technicals are showing some positive buying pressure.  
ADPT's PE ratio is about 10% lower than its industry, yet it
still has a consensus 20% growth rate.  Earnings are expected
to come in at $.38 compared to $.10 same time last year.  We
like this stock going forward.  There isn't any resistance and
support is about $29.50.  

ABOV $32.13 -1.13 (-1.13)  In early trading on Tuesday, ABOV 
popped up and resumed the uptrend it established last week.  
Some brokerage comments may have been behind the strength.  
Lehman Brothers upgraded the stock to a "buy" up from the 
previous "outperform" rating.  Kaufman Bros. initiated 
coverage of ABOV with a "buy" also.  However, the down markets 
forced ABOV to give back those initial gains almost 
immediately.  After reaching as high as $35.38 in the first 
hour of trading, ABOV turned and headed back south for the 
rest of the day.  We feel that ABOV still has the potential 
to head higher if the Internets can rebound.  As always, it 
is extremely important to wait for the proper entry point.  
The Internets remain as volatile as ever.  However, ABOV has 
been one of the companies to show relative health in light of 
the fact that the markets and Internet sector remain shaky.  

EGRP $39.31 -5.19 (-5.19) EGRP announced this morning that 
they would acquire Telebanc, an Internet bank, in a stock 
transaction valued at $1.8 bln.  "Someday, we'll all bank 
this way?"  If the stock gets beat up like EGRP did today, 
we hope not.  Anyway, the drubbing EGRP took was probably a 
result of general Internet weakness stemming from a Baron's 
piece on AMZN, where AMZN was referred to as "Amazon.bomb".  
Poor sector equals poor stock.  Of course, Merrill Lynch's 
announcement that they would enter on-line trading also had 
some effect in causing investors to shun EGRP, as some 
supposed that Merrill, the 800 lb. gorilla might recapture 
some of the business it had previously lost to Internet
brokers.  EGRP basically got caught in a 1-2 punch with 
both AMZN and the MER news.  While the selling was a bit 
overdone, it happened on strong volume, which doesn't look 
good.  So we are putting EGRP on the "probation" list.
The probation list is kind of like the injured list.
Our player (EGRP) is too beat up to play but too good to 
throw away.  The probation list also means we do not
recommend any new option positions on this stock until
we have a better clue as to what direction it is headed.
From what we can see so far... this looks very oversold and
$39 should be the bottom.  Only time will tell.



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

IP $52.75 +2.75 (+2.75) Today we saw the rally we cautioned 
about on Sunday.  The stock had moved down so quickly last 
week that it made a technical bounce.  There was talk by 
traders that it was oversold last week.  Also weakness in 
the technology sector helps IP as it is considered a defensive 
play.  The main catalyst though was an upgrade for Georgia 
Pacific that spurred buying in the entire cyclical group.  
It will interesting to see if all these factors have worn 
off by tomorrow since they aren't that substantial.  Confirm 
market direction before playing.

IR $65.88 +2.19 (+2.19) Ingersoll-Rand participated in the 
cyclical relief rally today after the group was beaten down last
week.  Its hard to say if this is the real deal though after
only one day of trading.  We are watching to see if the group
will pullback tomorrow and confirm the down trend.  The NASDAQ
played a big role in the rally for IR as money flowed out
of technology and into safe haven plays.  Also there has been
no company specific news to trade on this week.  

UNM $53.88 +0.06 (+0.06) UNM was able to crawl back near even 
after being down for most of the session today.  The Insurance
sector was weak again today and we expect that trend to continue.
This has been a reoccurring theme lately.  The chart on UNM for 
the past two weeks has drawn a clear trend line and will help in 
choosing an entry point.  Watch the 50-dma for the next support 
level at $51.00.     

TBH $83.00 -0.50 (-0.50) More uncertainty in Brazil and weakness
in the U.S. markets caused more selling in TBH today.  The trigger
was the National Purchasing Managers report that came in stronger 
than expected and was the catalyst for a sell off in the bond 
market.  The stock traded as low as $81.25 before rebounding 
with the Dow Jones.  We are also watching developments in Brazil
for any indication of stability or a bottoming in the Bovespa 
market.  Use the volatility to your advantage in choosing entry
and exit points. 

MEA $39.31 +1.94 (+1.94) Meade is another stock that got a 
boost from the upgrade to Georgia Pacific from Paine Webber.  
The paper producers rallied today on that news.  It was untimely
for our play but may have provided an entry point.  We now need
to see if this will be the start of a bottoming for the stock
or just a knee-jerk to recent losses.  The stock was able to 
rally back to the top of the recent range but again turned lower. 
This has us thinking that the stock has more downside left. 
But watch the NASDAQ for weakness which could spark more money
flowing out of technology and into cyclicals (need we say,
"confirm stock direction")

ABF $25.38 -.50 (-.50) Aftershocks from the most recent downgrade
on Friday continued today.  The stock was unable to spend any 
time in the positive column.  It opened down and drifted lower 
all day.  Even a rally by others in the sector didn't help ABF.  
Today was the seventh down day in a row so we want to advise 
that you place your stops if you have opened a new play.  Any 
positive news could spark a relief rally.  Overall there 
is still no reason for buyers to come back in right now.  

EK $67.13 -.50 (-.50)  Still dropping and all technical 
indicators remain negative. EK has descended about $12 from 
its May high and has traded lower for 7 days in a row. It is 
due for an up day or two about now. If you are planning to 
start a new position in EK, you might look for the inevitable 
bump, then verify that EK starts down again before jumping in. 
Nothing in the news suggests a reversal in the general downtrend 
for EK. 

DOW $126.44 +4.94 (+4.94) Once again, news out of left 
field ends the game.  NAPM numbers and comments from the 
New York Federal Reserve Chief, both released today, 
convinced investors that inflation is here and a Fed rate 
hike is imminent (we don't think so, at least not yet).  
Who benefits?  Yes, cyclicals.  In very un-putlike fashion, 
tutu-clad DOW delivered a fantastic rendition of "Flight of 
the Internets" by adding almost $5 today on slightly less 
than average volume.  It was no help that DOW Corning won 
breast-implant claimant approval of its Chapter 11 
reorganization plan.  It removes uncertainty that normally 
keeps a stock down.  With Greenspan comments likely to make 
at least some news tomorrow and employment figures coming 
out at the end of the week, DOW may remain the proverbial 
"pig wearing lipstick" until inflation fears are assuaged.  
Confirm market and sector direction before starting a play.

CLX $103.88 +2.94 (+2.94)  CLX began trading on Tuesday by 
heading lower.  The stock fell as much as -$3.00 in the first 
hour and a half of trading.  However, CLX decided to make a 
hair pin turn at $98 and head higher for the rest of the day.  
Hopefully you weren't too quick to pull the trigger and buy CLX 
first thing in the morning.  That is usually the most volatile 
time of trading in the day and the worst time to place a trade.  
Always wait for the initial volatility to subside and then 
re-evaluate your entry point.  If you had done this, you would 
have missed the torture of buying too soon and watching your 
investment dwindle.  We are now issuing a caution with this 
play.  We had expected to see CLX slowly sink further.  Since 
it spiked down -$3.00 in less than 2 hours of trading and then 
recovered with pretty convincing strength, we will definitely 
be keeping our eye on CLX.  No new news in particular but 
the rally today was most likely a reaction to the cyclical
upgrade.  Confirm stock direction first before initiating
any new plays.


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

None


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

INTC - Intel Corp $50.69 -3.38 (-3.38 for the week)

Intel designs, manufactures, and markets microprocessors - 
its star performer is the Pentium. It has been providing the 
microcomputer components for IBM-compatible PCs since 1981. 
With an overwhelming 85% of the market share, Intel is dominant
in the industry.  

Profit margin concerns and negative analyst comments drove 
INTC down further today.  The stock headed south right from 
the starting gate and never looked back. Trading was heavy at 
over 28 mln. shares exchanging hands.  The profit margin 
concerns are real. Intel is aggressively cutting prices on its 
products and also selling more of their lower-priced Celeron 
chips - something analysts may not have accounted for.  Dan 
Niles, analyst for BBRS, is very negative on INTC.  He 
predicted earlier today that Intel could come in at .51 to 
.52 EPS which would be .02 shy of 2Q estimates.  Also in the 
news, Intel announced they'd be spending $780 mln. to buy 
Dialogic in a $44 p/s cash tender offer (this is approximately 
a 32% premium for Dialogic shares as of Friday's closing 
price).  This is Intel's latest move to diversify and expand 
into telecommunications.  Perhaps good strategy, but it'll 
certainly cut into the company's revenues.  Last week it 
appeared support was forming around $52-53.  Today it broke 
any support at $52.  The only real bottom is the 52-week low 
at $32.87, but short-term outlook is the question.  A 
conservative player will confirm both market sentiment and 
stock direction before jumping into a new position.  Its
200 dma may prove to be overhead resistance now and closing
near the lows of the day does not instill much confidence
for a rebound.

BUY PUT JUN-45 INQ-RI OI= 2624 at $0.63 SL=0.00
BUY PUT JUN-50*INQ-RJ OI=12898 at $2.13 SL=1.00
BUY PUT JUN-55 INQ-RK OI=13007 at $5.25 SL=3.50

Average daily volume = 19.8 mln.
Chart = http://quote.yahoo.com/q?s=INTC&d=3m

****

CVC - Cablevision Systems Corp $76.00 -2.88 (-2.88 for the week)

CVC owns and operates cable television systems which provide 
telecommunication and entertainment services.  They operate 
primarily in the northeast areas of New York City, Boston, and 
Cleveland.  Cablevision has over 3 million subscribers in the NY 
area alone.  Through their subsidiary, Rainbow Media, CVC owns 
80% of Madison  Square Garden, the NY Nicks and Rangers, and cable 
channels like American Movie Classics and Bravo.

CVC had found comfortable support around $86-88 a few weeks ago.  
The stock even spiked up over 5 points last Wednesday on 
speculation they were a target for acquisition.  But the news 
events that followed invariably pushed CVC into a downtrend.  On 
Thursday, the "Daily Variety" reported merger talks between MGM 
and CVC had collapsed earlier in the week.  Also analyst Gary 
Farber of SG Cowen let it be known he disagreed with any takeover 
speculation regarding Cablevision.  His premise is that CVC has 
enough subscribers and diversity in the industry to make it on 
its own.  The stock then fell $5.75 and has continued to steadily 
lose ground.  Even after a mid-day attempt to rally today, CVC 
shed almost 3 points and dipped below its 50 dma of $78-79.  This 
is a "bearish" indication.  If the descent confirms in the next 
day or two, CVC could be headed back towards its 200 dma at 
around $58-59.  In this volatile market, please do your homework 
and confirm direction before initiating a new play.  

BUY PUT JUN-70 CVC-RN OI=52 at $1.63 SL= 0.75
BUY PUT JUN-75*CVC-RO OI=80 at $3.50 SL=1.75

Average daily volume = 423 K
Chart = http://quote.yahoo.com/q?s=CVC&d=3m


******************
COMBINATION PLAYS   
******************
Economic Reports Rule The Markets...

Tuesday, June 1

U.S. markets were mixed on Tuesday after an economic report that
showed new strength caused investors to speculate that inflation
may be on the horizon. The Dow finished 36 points higher at 10,596
but the Nasdaq tumbled as technology shares took the brunt of the
beating. The index dropped 58 points to 2412. Declining issues
outpaced advancers by about 15-to-14 on volume of 685 million
shares on the NYSE.

Sunday's new plays (positions/prices):

ACO  DEC15C/DEC15P $2.12 debit  (quiet for most of the morning)
BEAM JUN25C/JUN15P $0.93 credit (slightly less than our target)
PAX  SEP15C/JUN15C $1.19 debit  (easy entry at the target price)
PSFT JAN17C/JUN17C $2.93 debit  (JAN-$17.50 call only $3.38)
TMK  AUG30/35C/40C $1.12 debit  (slightly less than our target)

PSFT and PAX were both opened at better-than-expected prices and
ACO was within reach during the morning session. Prices on the
ACO puts went up significantly in the latter half of the day
after two contracts of the straddle were opened. BEAM would not
have been available at the target entry without some 'legging'.
One trader opened the TMK straddle (at market) near 11 AM but
the spread was available earlier in the morning for a lower
overall debit.

Portfolio plays:

MER was the big mover today, falling $5 at the open (and closing
down almost $9) on news of their venture into online trading. It
doesn't have anything to do with the recent merger rumors but
you can see why we favor the ATM positions (highest time premium
and generally the greatest disparities) on volatility spreads.
I am still hopeful that MER will rebound for those of you that
chose the bullish play but my success has been much greater in
the neutral positions.

AMZN was also bombed by an unfavorable article from Barron's. We
will continue to watch this one closely for a complete technical
failure. Other bullish plays that are falling lower in the market
correction include KEY, TWX and PRD. The 'long' positions on KEY
and PRD are both above the break-even point and at some point you
will have to determine when the remaining value is more important
than the possibility of a rebound through the sold strike.

Our calendar spreads generally benefit on days like this and CNTO
was an excellent performer, climbing back to the sold position in
the morning session on news of recent success with their new drug
ReoPro in a mixture to help heart attack patients. A favorable
credit was available in the position; JUL45C/JUN50C. Our spread
on SKYT traded at $0.62 - $0.75 credit most of the day even after
the news of WCOM's buyout offer steadied the stock price near $20.
We have decided to let the June call expire; expecting the value
of the long position; SEP22C to be above our current debit ($0.50)
on June 18.

On Sunday, you may have read the excellent strategy article on
'diagonal' spreads by Robert Ogilvie (in the 'Brokers Corner').
Here are some candidates that will demonstrate the favorability
of that technique.

Good Luck!
***********
NEW PLAYS 
***********
CPU - CompUSA Inc.  $7.87     *** Merger Candidate ***

CompUSA is one of the nation's leading retailers and resellers
of personal computers and related products and services. CompUSA
currently operates 211 Superstores in 83 cities across the U.S.
that serve retail, corporate, government & education customers
and include technical service departments and classroom training
facilities.

CPU now offers its own build-to-order personal computer series;
the CompUSA PC, and Windows Magazine editors have selected CPU's
first build-to-order notebook computer as the best in its class.
The report says that the 7.4 pound portable has a combination of
high performance and attractive price that makes it a superior 
value in a top-of-the-line system. The 366MHz PII 'AmeriNote'
offers a 6.4GB hard drive, an LS-120 SuperDisk drive, a 2X DVD-
ROM drive, 128MB of SDRAM, an AGP graphics controller with 4MB of
SGRAM, a 14.1-inch TFT screen with great image quality, and an
integrated V.90 modem.

CPU also recently announced the appointment of Iang Jeon as vice
president of business development and strategy to enhance their
website site development. His experience in developing e-commerce
sites that optimize customer convenience, control and comfort is
expected to boost the company's image.

Implied volatility stayed strong and volume remained fairly high
Tuesday in options on CPU as rumors of the Staples (SPLS) buy-out
continued to circulate. One of the strategists also said that the
recent behavior could reflect a cyclical movement of investors
money among the computer retailers. In either case, the technical
character of the underlying issue is favorable and we are going
to use the small disparity in the front-month options to open a
long-term, bullish position.

PLAY (conservative/diagonal spread):

BUY  CALL AUG-7.50  CPU-HU OI=4279 A=$1.87
SELL CALL JUN-10.00 CPU-FB OI=6341 B=$0.25
INITIAL NET DEBIT TARGET=$1.50 TARGET ROI=50%

Note: In this type of diagonal spread, we are reducing the net
cost of the long-term option with the credit from the sale of
the nearer-term option. If the near term call expires worthless,
we may decide to hold the long-term position for future profits
or sell a July call to further reduce our debit. There are many 
other ways to exit this type of position and you should review
those techniques with your broker prior to entering the play.

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

****

AHG - Apria Healthcare  $21.68  *** Excellent Technicals ***

Apria Healthcare is a unit of Apria Healthcare Group, the largest
home healthcare company in the United States. The company provides
respiratory therapy, home infusion and home medical equipment
through 320 branches serving patients in 50 states.

The company recently announced that it has received approval from
its bank group for an amendment to its current credit agreement.
The amendment relieves the company from its obligation to pursue
additional funding for debt repayment and permits them to use
available cash-on-hand to make a $50 million prepayment on their
long term loan. The agreement also allows the company to complete
its previously planned acquisitions in 1999. This new arrangement
will avoid the need to conduct a rights offering of Convertible
Subordinated Debentures to stockholders and reduces the need for
any other financing from outside parties. It is viewed as a vote
of confidence by the bank group that AHG will continue to improve
its financial performance in the future.

With the debt properly secured, the company is expected to grow
favorably in the coming quarters and the excellent technical
trend should also continue without any major correction for some
time.

PLAY (aggressive/diagonal spread):

BUY  CALL SEP-20.00 AHG-ID OI=613 A=$3.50
SELL CALL JUN-22.50 AHG-FX OI=10  B=$0.56
INITIAL NET DEBIT TARGET=$2.75 TARGET ROI=60%

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

****

APCO - Automobile Protection Corp.  $11.50  *** More Rumors ***

APCO is a leading marketer and administrator of products and
services to automobile and recreational vehicle dealers. The
company's core business is the marketing and administration of
EasyCarea vehicle service contracts. They also administer
warranty and service contract products under private labels.

APCO recently announced record first quarter earnings and net
income with revenues the second highest for any quarter in the
company's history. The company experienced solid growth from
their core EasyCare service contract business and volumes from
third party administrative services also rose significantly over
the first quarter of 1998. The company expects the new business
to become an important contributor to the bottom line.

Most traders are attributing today's upward move to a rumor that
Ford (F) is planning to buy the service contract company some
time in the next few months. The recent technicals are favorable
and the option prices offer us an added benefit in this low-risk
speculation play.

PLAY (aggressive/diagonal spread):

BUY  CALL OCT-10.00 QFM-JB OI=204 A=$3.37
SELL CALL JUN-12.50 QFM-FV OI=168 B=$0.62
INITIAL NET DEBIT TARGET=$2.50 TARGET ROI=75%

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



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