Option Investor

Daily Newsletter, Monday, 12/06/1999

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The Option Investor Newsletter         Monday  12-6-99
Copyright 1998, All rights reserved.	
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        12-6-99            High     Low    Volume Advances Decline
DOW    11225.00 -  61.20 11297.80 11193.50   917,007k 1,105  1,960
Nasdaq  3546.01 +  25.38  3570.91  3507.72 1,369,686k 1,880  2,234
S&P-100  762.75 -   4.73   767.94   760.47    Totals  2,985  4,194
S&P-500 1423.34 -   9.96  1431.02  1418.25            41.5%  58.5%
$RUT     465.75 +   1.17   468.85   464.58
$TRAN   2905.52 -  23.28  2937.92  2879.99
VIX       21.06 +   0.24    21.85    20.31
Put/Call Ratio       .45

Another day, another record. . .

Another loss for words.  The strength of the market is simply 
amazing, even in the DJIA, which lost 61 profit taking points 
today in the wake of an over 230-point gain last Friday.  While 
we have been fully expecting some retracement of late, we didn't 
see a huge amount today that is particularly meaningful, 
especially in the NASDAQ, which went on to close at another new 
high of 3546.  Let's go straight to the numbers.

The DJIA closed down 61 points at 11,225.  We expected some 
profit taking today and got it.  On the NYSE, 244 new lows 
outnumbered 127 new highs, while decliners outpaced advancers 
1639 to 933.  That doesn't look good, but one day doesn't make a 
trend.  Volume clocked in at a respectable 917 mln shares.  Stats 
are fine, but they don't tell the whole story.  The DJIA began 
its decline shortly after lunch today in what looked like orderly 
profit taking, but became rather substantial when traders looked 
up to notice that the index had fallen below 11,200, a level of 
resistance from last July that perhaps became support today.  
Anyway with all that cash looking for a home, fund managers began 
buying again from the bargain pile they had discarded earlier in 
the day, which made for 27 point recovery in the last hour of 
trading.  That's a short-term win that could carry through 
tomorrow morning.

On the technical side, a little yellow warning signal should be 
popping up right about now.  The difference between this and a 
yellow stoplight is that it may not necessarily turn red.  The 
fact is, the DJIA pushed through the old record of 11,327 on 
Friday and fell back (still a respectable finish), but could not 
muster another serious assault on the old record today.  With a 
second failed rally over 11,300, chartists are on edge.  They are 
waiting for a third try, then failure, in expectation of the 
world cracking open to swallow up all of us.  While it is 
entirely possible that we could see 11,100 or lower, liquidity 
and volume are making this very difficult.  We've said it before 
and we'll say it again, as long as volume and liquidity remain in 
tact, which we think is likely, we should expect to see new 
records.  It's all about demand outstripping supply.

By the way, since this has been such an outstanding year for the 
market, Wall Street is looking for $13 bln (with a "b") to paid 
in year end Bonus' (with a capital "B"!) to all those involved in 
its success.  Think anybody wants to jeopardize their bonus by 
getting out of the market in a strong economy with a better-
projected year ahead?  Not likely.  Y2K has shaped up to be 
nothing to worry about.  In the current environment, if you see a 
talking head on the financial airwaves or a market pontiff 
prattling on about Y2K as an excuse for a regular daily decline, 
it's probably a buying opportunity.  

On the other hand, in what appears to be a growing dichotomy, the 
tech stocks of the NASDAQ just keep on moving up.  While dropping 
about 25 points at the opening to 3507, it sprang right back all 
the way to a new trading high of 3570.  Like the DJIA, it sold 
off in the afternoon to 3525 (a higher low - that's good) only to 
stage a comeback in the last hour of trading.  While this looks 
good on the surface, the last 10 minutes showed renewed signs of 
deterioration.  Alas, saved by the bell, the NASDAQ was able to 
report a close of 3545, a gain of 25 points and a new closing 
record, with 1.376 bln shares traded.  The volume was a little 
off its recent 1.4-1.5 bln shares, but we're not complaining.  
Internally, 2065 advancers fell short of 2402 decliners while new 
highs actually bested new lows 333 to 258.  At one point late in 
the afternoon, only 45 of the NASDAQ 100 issues were up - the 
other 55 were in negative territory.  If you are thinking that 
there must be a few special issues holding up the index, boy are 
you right about that.  Of the 5 generals that comprise 40% of the 
NASDAQ 100, only CSCO finished in positive territory.  
Semiconductors (excluding Intel) and Internets, especially Yahoo! 
led the charge.  Why YHOO?  It will be added to the S&P 500 
tomorrow, making it necessary for purchase by index funds in 
order to accurately reflect the index makeup.  (It doesn't hurt 
that First Union set a new price target of $300, or that it is a 
split candidate either.)  

Other hot sectors today include international telecom companies, 
drug stores (led by Rite Aid who will get a new Chairman from 
Kroger) and (what else) networking stocks - seems like a daily 
occurrence any more.

Relegated to the dungeon today were financial stocks on news that 
regional banks may fall short of profit projections in 2000 
(interest rates made a little sneak down fractionally to 6.245%); 
retail chains, oil, beverages and drug companies too.  Few 
investors were sipping on Coke today once the announcement was 
made that 2-year-active CEO, Douglas Ivestor would step down in 
April.  KO spilled $3.71 on 3 times the ADV.

In other interesting news, at an analyst conference today, AT&T 
announced they will in fact issue a tracking stock for the 
wireless business, which is slated to become the largest IPO in 
history at about $10 bln.  Separately, they announced that they 
would open up their cable to ISP competitors on order to avoid 
future persecution (prosecution?) by the Justice Department, FTC, 
FCC and others.  It will not be immediate, but will be phased in 
as Excite AtHome ISP contracts expire.  Mindspring will be the 
first to gain access.  AT&T and others view the plan as better 
than any governmental regulation in the future.

Meanwhile, the good news from their analyst conference last week 
continues to spill over for NOK.  Merrill Lynch upped the price 
target to $220; DLJ made it a "Top pick"; and B of A named it a 
Strong Buy, while raising its price target to $225.  See?  
Cockroaches - where there's one, there are many.  NOK was up 
$14.44 today to $176.44.

So what about tomorrow and the rest of the week?  Salomon Smith 
Barney is hosting a conference with BRCD, NTAP, EMLX, ZOOX, SUNW, 
QLGQ, HWP, DELL, and EMC on the docket tomorrow.  Watch these 
issues for favorable news, upgrades, etc.  Tomorrow, we also get 
revised Productivity figures and Consumer Credit, which will 
likely be a non-event.  The biggie is the PPI on Friday and will 
give everyone an excuse to get scared of inflation again before 
and, perhaps, after the announcement.  

We are in nosebleed territory with lots of negative internals.  
Liquidity and volume are saving our bacon as money managers 
continue to buy the medium to large technology issues.  Support 
areas to target shoot are getting harder to find as new records 
are set every day.  Nonetheless, this is Santa Claus Rally 
season, and overall, we expect the trend to remain up.  Just 
remember nothing goes up in a straight line forever.  Plan your 
trades, trade your plan, and watch for failed rallies and 
breakouts.  As always, sell too soon.

Buzz Lynn
Research Analyst


VOD - Vodafone Group $53.00 +3.63 (+3.63 this wk.)(+0.69) 

Formed earlier this year, when the UK's Vodaphone group bought
AirTouch Comm, Vodafone AirTouch provides international
mobile telecommunications services.  VOD operates analog 
and digital cellular network services including voice 
communications, messaging, paging, and mobile data services.  
They serve over 31 million mobile phone customers in 23 
countries, with over nine million subscribers in the United 
States and more than seven million in the UK.  They take on 
the best, competing with AT&T, BT, and Cable & Wireless.  
VOD recently announced a bid for Germany's Mannesmann.

You've seen the name in the headlines almost on a daily basis.
Vodafone AirTouch has been in the process of attempting to buy
Germany's Mannesmann for some time now and it has turned ugly, 
well maybe just uglier.  In what started out as a friendly
takeover gesture has now evolved into almost a soap opera type
climate.  Early last month VOD offered $106 billion for the 
German telecom company.  Although VOD made it clear it wouldn't
be defeated easily, shares of the company's stock dropped from 
just above $52 to $43 as investors became uncertain whether
VOD could pull the deal off or not.  Well, this week with the 
current bid by Vodafone approaching $147 billion it appeared as
though the odds of a takeover are improving.  Investors in 
Mannesmann will have about 2 months to consider the after VOD
publishes the offer documents later this month.  During that 
time VOD could raise its offer or Mannesmann could find a partner
to ward off VOD's approach.  If Vodafone's shares keep rising,
investors say they probably would support the takeover, as the 
decision for Mannesman shareholders rests partly on what VOD's
share price is the day they have to decide.  Shares of VOD have
began to climb along with the volume.  Friday VOD gained $1.44
on better than average volume of 4.97 mln shares.  So how do we 
play this new addition to our call list?  VERY CAREFULLY.  This 
on-again, off-again hostile takeover bid for Mannesmann could
cause shares of VOD to skyrocket or fall out of bed.  It would
appear as though all the fuss coming from Mannesmann executives
is an attempt to drive the takeover bid higher.  It does appear 
at this time that the deal will probably happen.  In considering 
a position in VOD, remember this could be an extremely volatile 
play but once the merger news is finalized, VOD has a lot of 
make up ground to cover in this hot sector. 

Saturday morning several Hamburg-based shareholders in Mannesmann
filed a suit against the company's CEO for trying to woo selected 
investors in his favor to help fight the takeover.  The attorney
filing the suit says the company's lobbying isn't in the best
interest of shareholders and wants to prevent the German Company 
from spending money on advertising to promote its defense 
against Vodafone.  (Stay Tuned)

***December contracts expire in two weeks***

BUY CALL DEC-45*VOD-LI OI=5731 at $8.00 SL=6.25
BUY CALL DEC-50 VOD-LJ OI=4766 at $3.75 SL=2.00
BUY CALL DEC-55 VOD-LK OI=1607 at $1.13 SL=0.00
BUY CALL JAN-45 VOD-AI OI=2961 at $9.25 SL=7.00
BUY CALL JAN-50 VOD-AJ OI=8234 at $5.50 SL=1.75
BUY CALL JAN-55 VOD-AK OI=1752 at $3.00 SL=1.50

Picked on Dec 5th at     $53.00    P/E = 93
Change since picked       +6.63    52-week high=$53.63
Analysts Ratings      6-3-3-0-0    52-week low =$27.73
Last earnings 10/99    est= N/A    actual= N/A 
Next earnings 01-00    est= N/A    versus= N/A
Average daily volume = 3.55 mln
Chart = http://quote.yahoo.com/q?s=VOD&d=3m

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