Option Investor

Daily Newsletter, Monday, 11/29/1999

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The Option Investor Newsletter         Monday  11-29-99
Copyright 1998, 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)
        11-29-99           High     Low     Volume Advance Decline
DOW    10947.92 - 40.99 10987.38 10886.15   866,140k   994   2,118
Nasdaq  3421.47 - 26.44  3468.32  3421.36 1,544,588k 1,797   2,341
S&P-100  749.29 -  4.28   754.23   747.07    Totals  2,791   4,459
S&P-500 1407.83 -  8.79  1416.62  1404.15            38.5%   61.5%
$RUT     456.95 -  1.99   459.93   456.47
$TRAN   2900.19 -  8.97  2915.20  2896.82
VIX       23.69 -  0.46    24.31    22.82
Put/Call Ratio      .49

Another day, another 1.5 bln shares traded on the NASDAQ. . .

No record this time.  The first day of trading following the 
Thanksgiving weekend saw investors turning their prize winning 
birds into turkey soup.  The high flyers in the tech sector put 
up a heck of a fight, but could not escape the boiling interest 
rate caldron.  First Merrill Lynch, then Warburg Dillon Reed 
predicted another FED rate hike, possibly by year end as a result 
of strong initial holiday sales reported by retailers and e-
tailers alike.  To give you an idea of the negative sentiment in 
the bond market, even news that existing home sales fell 6.6%, 
which would normally have traders jumping for joy and chanting 
"yippee, the economy is cooling off", got the cold shoulder in 
the bond pit.  The focus is clearly on the NAPM numbers 
(wholesale producer sentiment) scheduled for release on 
Wednesday, and the non-farm payroll and jobless rate scheduled 
for release on Friday.  While we still contend that inflation is 
a non-issue thanks to productivity gains, right or wrong, the 
market doesn't care what we think and could remain in defensive 
mode most of the week.  Also, despite a slide in oil prices 
today, the prospect of generally higher prices until April still 
weighs heavily on the bond rate too.

Anyway, profit taking was the order of the day as higher interest 
rates finally put the brakes on the runaway equity train.  The 
DJIA broke below 11,000, a technical development that Jim alluded 
to Sunday, which could take us to 10,750.  If there is a silver 
lining in this, the lows of the day were at least getting higher 
indicating buying interest on dips is still intact.  Despite 
interest rate fears weighing heavily on equities, the technology 
issues initially kept the NASDAQ afloat until the last two hours 
when it shed almost 50 points to close at the low of the day.  
That too is an ugly development until you realize that it is 
still above last Wednesday's close.  As we've said before, as 
long as there is money flowing into equities, a day or two off 
isn't going to kill this bull market.  It is healthy to have a 
day to regroup in light of the gains we've seen over the last 4 
weeks.  So, is this just standard profit taking (a.k.a. buying 
opportunity) or a genuine reversal?  Only time will tell, but 
let's look at today's action for some clues.

First, the DJIA sank like a stone right from the open all the way 
to 10,886 before finding the strength to immediately recover to 
10,950 - nonetheless a clear violation of the 11,000 support 
level.  However, the gap down from Friday was severe enough that 
technical analysts might want to fill that void.  The heavy 
morning volume as the price was rising is indicative of nobody 
being in a hurry to unload.  There was good support at 10,900 and 
rising by the end of the day with volume.  Chalk it up to profit 
taking with underlying strength.  That is a positive in our book.  
The final score was not that bleak - down 40 points to 10,947.  
However, pessimists will note the horrific internals, with the 
A/D line showing just 10 advancers for every 21 decliners, and 
404 new lows besting just 56 new highs.  The deterioration 
doesn't look good.  Of course, there are many more financial and 
utility companies traded on the NYSE (than on the NASDAQ), the 
likes of whom really took it in the shorts today on the negative 
bond sentiment.  Only 326 mln shares traded up while 513 mln 
traded down.  Total volume was about 830 mln shares, which we 
characterize as "busy".

NASDAQ was a bit stronger in appearance until the final two-hour 
profit taking session into the close.  It finished down 26 points 
at 3421.  Advancer here too trailed decliners, but by "only" a 
23:18 margin.  Still 254 new highs were way ahead of just 81 new 
lows.  Volume was the third highest in history clocking in at 
1.55 bln shares.  Yes, down volume slightly outpaced up volume in 
the final two hours, but overall, the index nonetheless ended the 
day with about 800 mln shares trading up and about 700 mln shares 
trading down.  Note again the huge volume - NASDAQ is highly 
unlikely to experience a severe sell-off as long as volume 
remains high.  

In the overall scheme of things, and as we've noted before, 
volume will make up for and gloss over lots of problems.  When 
the volume dies, look out below.  That will be the clue that the 
buying has come to an end (or been temporarily suspended).  Then 
just the sellers will be left, in which case all of us will be 
making hasty retreats.  

Need proof that money is coming into the market?  $20.4 bln 
flowed into mutual funds in October.  The biggest month on record 
was January, 1997 with $28 bln of inflows.  November's figure is 
expected to blow that record away.  While close to home we have 
reason to be cautious (VIX continues its climb over 23; interest 
rates are moving up; oil prices on the rise; the market climbed 
to high too fast; index levels grossly exceed 200-dma; etc.), the 
perhaps bumpy ride is cloaked in the greater positive force of 
liquidity.  According to TrimTabs (the research firm headed by 
Charles Biderman), an average of $6.8 bln weekly flowed into 
mutual funds over the past 4 weeks.  Though margin debt climbed 
to an all-time high of $2.9 bln, the drop to just 1.15% of total 
market capitalization is a bullish sign.  That capitalization has 
risen by $1 trillion (with a "t") with IPO's shrinking going 
forward is testimony to the largesse of the inflows.  The net 
result of the research is that Biderman upped his stance to 
CAUTIOUSLY BULLISH, though in his own words, he runs the risk of 
"being the last guy on the train before it wrecks".  This is a 
guy whose model portfolio is up 81% this year and 1836% since 
July 12,1993, compared to 16% this year and 256% since July 12, 
1993 for the S&P 500.  He's credible.

Okay, so despite the bond market making gloomy sounds, what do we 
need to know about today's trading?  As noted earlier, retailers 
are off to a great start and are seeing trading volume increases 
in front of what is expected to be a record sales season.  Hot 
items this year are mostly electronics from digital handsets, 
digital cameras, and DVDs to plain old PCs (funny - not a peep 
about Poke Mon).  Unfortunately despite YHOO reporting online 
transaction volume up 400% over last year, and AOL reporting a 
300% increase with over 4 mln users making a purchase last week, 
Henry Blodgett threw cold water on the e-tail rally which began 
earlier this morning by noting that AMZN's expected revenue of 
$633 mln this quarter is "a strong number, but not amazing".  
Internets finished the day mostly negative, even though the 
Yankee group noted that 18 mln homes would spend $18.3 bln in 
online sales this coming year.

On the positive side, Redback Networks agreed to acquire 
privately held Siara in a $4.3 bln stock trade.  Siara is the 
former sister company of Cerent (started by the same group of 
engineers before parting ways in 1998), which was recently 
purchased by CSCO for $7.2 bln.  Siara is an optical equipment 
maker (what else?) supplying local communications companies with 
IP over optical equipment.  RBAK was up almost $14 today.  Back 
from the dead too, AMD announced the release of its Athlon chip 
running at 750 Mhz, besting Intel's best P-III running at 733 
Mhz.  AMD was up $2.81.  Drug stocks too got a big push at the 
end of the day with prices rising across the board on increased 
volume in the sector.

In summary, liquidity and volume still rule, but market internals 
are suffering a slight breakdown (more so on NYSE than on 
NASDAQ).  Despite a much needed profit taking, there are still 
plenty of profitable opportunities, but you must pick your entry 
points carefully - not all factors are currently in our favor, 
and may not be until the bond market works itself out of despair.  
On the positive side, a healthy dose of fear can provide that 
wall of worry for the market to scale.  We can't say whether or 
not this is a buying opportunity.  Today's close makes it suspect 
for tomorrow.  NASDAQ support is at 3400, then 3350.  DJIA 
support is mild at 10,900, then stronger at 10,750.  Watch the 
market tone, make your move.  Of course sell too soon.

Buzz Lynn
Research Analyst


IPO Calendar: The Party's Not Over
By Cindy Christ

As 1999 draws to a close, the red-hot IPO market isn't showing
any signs of cooling off. In fact, as the market heads into
December, a traditionally weak month for new issues, roughly
nine companies are slated to go public, including two Internet-
related offerings already seeing high demand from institutional

1999 has been a phenomenal year for the new issues market. In
November alone, 57 companies went public, up 200 percent from
last November's level, according to Thomson Financial Data. With
the release of United Parcel Service (UPS), November also saw
the launch of the biggest IPO ever.

Looking ahead to December, it looks like Santa Claus is coming
to town with two hot issues in his bag of goodies for lucky
institutional and well-connected investors, who for the most
part are the only ones with access to hot IPOs at their offering

This week's forerunner is Agency.com, an Internet services 
company that helps companies get online. The New York City-based
firm's litany of services includes interactive business and
marketing consulting, e-commerce services, brand management, and
web site design.

Advertising giant Omnicom owns about 50 percent of Agency.com. 

Analysts say that the unprecedented push by businesses worldwide
to establish a web presence is creating explosive growth for
Internet Services firms that help businesses build e-commerce
sites, integrate back-office and web-based computer systems and
software, and devise e-commerce marketing strategies.

Growth in Internet and e-commerce services is projected to
mushroom from $7.8 billion in 1998 to $78.6 billion in 2003,
according to market research firm International Data Corp. AMR
Research estimates there are now more than 75 companies
specializing in e-commerce solutions.

Street estimates have Internet services companies exceeding
expectations across the board in the third and fourth quarters.
After Y2K spending ratchets down in 2000, prospects get even

Since its founding in 1995, Agency.com revenues have expanded 12
times. In its inaugural year, the company reported revenues of
$2.16 million. Last year revenues exceeded $26 million.

During the first nine months of 1999, Agency.com earned $74.8
million in revenues, a 34 percent increase over the year-ago
period. For 1998, the company posted total revenues of $71
million and a net loss of $10.63 million.

Agency.com has a strong foothold overseas in major markets such
as London, Paris, Amsterdam and Singapore. Its 200-member client
roster includes garment maker Bennetton, British Airways Plc.,
Columbia/HCA Health Care Corp., Compaq Computer Corp., Hewlett
-Packard Co. and Sprint Co. 

Analysts warn investors not to be overly impressed by its Blue
Chip clients, since the company earns most of its revenue from a
small number of customers. British Airways, for example,
accounts for more than 13 percent of revenues, and 42 percent of
sales are generated by 10 of its biggest accounts.

Agency.com is expected to price 5.9 million shares at $10 to
$12. The lead underwriter is Goldman Sachs. Shares are set to
begin trading Thursday or Friday on the Nasdaq under the
proposed symbol "ACOM."

Analysts have high hopes for ACOM, based on the performance of
Internet services and design firm Razorfish (RAZF), which went
public in April at on offering price of $16 per share. Shares
now trade around $75.50 per share.

Company executives say they'll use the money from the offering
to pay down debt, expand operations and make strategic
investments or acquisitions.

In addition to RAZF, Agency.com will face competition from
Scient (SCNT), AppNet (APNT), Sapient (SAPE) and USWeb


Analysts predict that McAfee.com will be this week's other top
new issue. The well-known Santa Clara, Calif.-based computer
virus protection provider is a wholly owned subsidiary of
Network Associates.

Though more than 90 percent of McAfee.com's revenues come from
the virus protection software offered through its online store,
McAfee.com continues to boost online application hosting, repair
and other services. McAfee Clinic helps users protect their
systems from viruses and diagnose and fix configuration
problems. Consumers can also access year 2000 services and
technical support, according to Hoover's Online.

In 1998 McAfee.com posted sales of $6.3 million and a net loss
of $2 million. Year-over-year sales increased 148.7 percent. For
the nine months ended Sept. 30, the company had a net loss of
$21.8 million versus an $0.8 million loss in the year-ago

Lead underwriter for the offering is Morgan Stanley Dean Witter.
Shares are expected to price on Thursday and begin trading
Friday on the Nasdaq under proposed symbol "MCAF." The expected
offering price is $6 to $8 per share, and the company hopes to
raise almost $40 million.

Company execs say it will use offering proceeds for working
capital and general corporate purposes. After the sale, Network
Associates' stake in the company will exceed 85 percent.

Only Fools Rush In

IPO experts warn investors that unless you can get in at the
offering price, you shouldn't speculate on shares during the
first trading day. 

In fact, when it comes to trading IPOs, patience is clearly a
virtue. Research shows that most IPOs decline after their first
trading day, and can underperform the market by 30 to 50 percent
over three to five years, according to Ivo Welch, a UCLA finance
professor who tracks IPO performance.

Other experts say investors should watch the stock during its
"quiet period," which begins on the day the company registers
its S-1 filing with the SEC and continues for 25 days after the
offering is completed.

During this time the company and the offering's underwriters
can't say much about its business prospects, and share prices
can weaken as a result, according to Tom Taulli, author of
"Investing in IPOs."

Taulli also advises IPO investors to wait for general market
weakness or any bad news on inflation, which can hurt new IPOs
more than other stocks.

On the inflation front, this week investors are awaiting the
release of the November payrolls report due Friday.

In a research note this morning, Merrill Lynch chief economist
Bruce Steinberg said that a decline in retail payrolls might
spur another interest rate increase by the Fed because it would
indicate that the economy is running out of workers.

Steinberg said he expects the Fed to raise interest rates again
at its March 21 policy meeting, although it could act sooner if
economic data show that inflation is heating up.

Although higher interest rates are generally bad news for
stocks, they might work wonders for bloated share prices of hot
IPOs inflated beyond reason by a "get-rich-quick" investor


SNE - Sony Corp $191.75 +5.81 (+5.81 this wk.) 

Sony is a consumer electronics and multimedia entertainment 
company.  It sells products like TVs, VCRs, MiniDisc systems, 
stereos, digital camcorders, DVD video players, and the 
PlayStation home video game system.  It is also in the process 
of strengthening its position in the music and image-based 
software markets.  Some of Sony's entertainment assets include 
Columbia TriStar Motion Picture, Columbia TriStar Television, 
Sony Pictures Studio, and Columbia and Epic record labels.  
Other high-tech products include flat-screen TVs, digital 
TVs, CD-ROMs, and digital cellular telephones.  

Sony is the gift that just keeps on giving!  After Sony 
finished it's bout with the profit takers in the week before 
last, it resumed its beautiful positive momentum run with ease.  
Sony gained over $9 for the week and closed on Friday at the 
high of the day, posting nice volume for the shortened trading 
session.  Therefore, we look to be very well positioned heading 
into next week.  The problem, of course, is finding an entry 
point!  If you aren't in yet, your best bet is to wait for 
intraday dips to hop on board. Sony has support at it's 10-dma 
of $180.  There is no resistance in site, as SNE closed just 
pennies short of its all time high set Friday.

There was plenty of good news for Sony last week. The Sony 
Electronics Unit has given the go ahead for authorized dealers 
to resume Internet sales, including televisions, DVD players 
and camcorders.  There had been a restriction placed on such 
sales while Sony went through and reviewed various service and 
support issues.  Sony debuted their redesigned PlayStation Web 
site last week, which promises to have more, new and better 
features for PlayStation fans.  Sony also announced plans to 
increase their digital camera production output by an 
approximate 30% by launching production in Shanghai.  The 
Federal Trade Commission has asked for additional information 
from both Sony and Time Warner in regards to the proposed 
merger between Columbia House and CDNow.  Sony has stated that 
they remain committed to the deal and are working to provide
resolutions to any issues raised by the FTC.  When the merger 
is completed, Sony and Time Warner will own 37% each of the 
newly formed company.  And of course, there is that yearly 
phenomenon known as holiday shopping, which Sony is sure 
to benefit from.  

BUY CALL DEC-180 SNE-LP OI=361 at $14.38 SL=11.50
BUY CALL DEC-185 SMW-LQ OI= 27 at $10.38 SL= 8.50
BUY CALL DEC-190 SMW-LR OI=  0 at $ 7.38 SL= 5.50, new strike
BUY CALL JAN-185 SWM-AQ OI= 10 at $15.50 SL=12.00
BUY CALL JAN-190 SWM-AR OI=  2 at $12.75 SL=10.25 

Picked on Nov 7th at $164.69  P/E = 57
Change since picked   +22.12  52-week high=$192.00 
Analysts Ratings   0-1-0-0-0  52-week low =$ 65.50 
Last earnings 10/99 est= N/A  actual= N/A 
Next earnings 01-00 est= N/A  versus= N/A 
Average Daily Volume = 172 K 
Chart = http://quote.yahoo.com/q?s=SNE&d=3m


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