Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/14/1999

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The Option Investor Newsletter         Tuesday 12-14-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com

Published three times weekly, Sunday, Tuesday, Thursday evenings.
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        12-14-99           High     Low     Volume Advance Decline
DOW    11160.20 - 32.40 11235.70 11143.00 1,027,880k 1,070   2,035
Nasdaq  3571.66 - 86.51  4127.38  3571.26 1,564,798k 1,492   2,710
S&P-100  758.62 -  4.51   765.99   757.37    Totals  2,562   4,745
S&P-500 1403.17 - 12.05  1418.30  1401.59            35.0%   65.0%
$RUT     462.75 -  7.63   470.86   462.40
$TRAN   2908.88 + 12.90  2918.14  2888.40
VIX       24.47 +  0.87    26.44    22.71
Put/Call Ratio      .49
*************************************************************

What was that noise?

It was not a bump in the night that wakes you from a sound sleep
with fears of monsters or burglars depending on your age. It was
not the crack of thunder after a lightning bolt landing nearby.
It was a horrible sucking sound as every trader took a deep breath 
as the tech market rolled over at 2:00pm. Is this "IT"? Is this the
"big one"? Millions of traders are going to have a sleepless night
tonight as they wait to exhale. If the market opens up tomorrow
and moves on up as usual then a collective sigh of relief will be
heard across the country. If the market opens down then everyone
who was bleeding at the close, and some I know were hemorrhaging,
will need transfusions of cash to cure their broken accounts.

Remember on Sunday I talked about potholes on the rally road?
We hit a big one today called the Retail Sales Report. The
government caught you red handed spending those paper profits
you made in the stock market this year. Retail sales were up
+.9%, almost twice what analysts were expecting. At the same
time the CPI was less than expected at +.1%. So why did the
retail sales trip the bull? The rampant consumer spending is
a major factor that the Fed watches for signs of the economy
over heating. The formality of a Fed meeting in December had
been ignored by many since there was no way the Fed would raise
rates only one week before Y2K with no inflation in sight. All
of a sudden the Fed meeting became a real threat. With the market
still setting new highs, the economy gaining speed and no Y2K
pull back in sight, there is no reason for the Fed to wait until
spring to pull the trigger on another round of rate increases.
OOPS! A rate increase next Tuesday? Yes, it may not be a sure
thing but it does not have to be a sure thing to put fear into
the markets.

All of a sudden locking in those 65% gains for the year looked
real inviting to many traders. The prospect of closing positions
and taking the next two weeks off to watch the Fed and Y2K from
the sidelines took on a whole new perspective. Yes, they might
give up another 5% or so and they may have to pay taxes on their
gains this year instead of next but at least they would have 
profits and they could relax for Christmas.


 


 


 

Maybe we actually hit on the real reason for the sell off. Not
the "excuse" of the retail sales report or the FOMC meeting next
week. Maybe investors are just tired of looking around every 
corner for the next disaster. Maybe they are just plain tired 
of worrying about a possible Y2K drop at any moment. Maybe the
increasingly bad market breadth is simply a leak in the dike
holding up the rally and the huge gains made this year. Maybe
all the tech bear warnings about excessive tech valuations simply
awakened the sleeping investor subconscious's. Whatever the 
reasons the damage was sharp and swift. Tech stocks were hammered 
for big losses and it all happened in two hours. The traders on
the sidelines bought the morning dip only to be blindsided by
the severity of the afternoon selling.  Intraday ranges were
amazing. CMGI +$18 to -6, QCOM from a high of $437 to a low of
$414 for a $23 spread. The QCOM chart here is an example of the
night and day difference in market sentiment. Up +20 at 3:30
it dropped almost -25 points to the low of the day in only 20
minutes.


 

The semiconductor sector took some serious hits across the board 
from the Solectron numbers. The major names lost gains in the high
single digits but the big gainers recently like MSTR just got
killed as the momentum players fled the scene. Rumors that some
companies had been hoarding chips in case of Y2K problems put
first quarter earnings in doubt. This was a pure case of over 
reaction but remember if you want logic don't look at the markets.


 

The results for the day probably would have been a lot worse
except for a strong rumor that Microsoft and the government
were close to settling their court case. Rumors started Monday
and gained speed today. MSFT was up +$4 at the height of the
speculation but both the government and MSFT eventually said
that the rumor was false. With MSFT a major component of both
the Nasdaq and the Dow both indexes were benefiting from the
price run up as well as other tech stocks in sympathy.


 


What happened to the techs today has been happening to the 
broader market for months. CNBC had some interesting facts after
the close. 52% of Nasdaq stocks are down for the year but 27%
are up over 50%. The majority of the stocks up are the big cap
tech stocks which are in the Nasdaq-100 and that is why the
Nasdaq index is up +65% for the year. That means half of the
Nasdaq stocks have been in a bear market correction while the
rest were celebrating the coming of Y2K. On the NYSE the numbers
were worse. 64% of the NYSE stocks are negative for the year. 
Last week there were 867 new lows on the NYSE accounting for
25% of all NYSE stocks. Today there were 567 new lows on the
NYSE accounting for 15% of all NYSE stocks. Only 25% of the 
NYSE stocks are over their 200 DMA. At one time today there 
were more than 10:1 new lows to new highs. The ending number 
was only about 8:1 but still significant. The breadth that 
everyone talks about was very negative with decliners beating 
advancers by 2:1 on both the Nasdaq and the NYSE. This breadth 
has been bad and getting worse for several weeks which makes 
me wonder if we are really seeing that leak in the Y2K dike. 
Not only has the breadth been bad during the day but the last 
two days the "order on close" orders have been almost completely 
sell orders.  Somebody, or more likely many traders wanted out 
of techs at the close today and wanted out bad. What had been 
orderly profit taking in the past with buyers at every dip 
turned ugly and nobody stepped into the gap today. Another
bad sign was the flow of money into cyclicals. That is the
kiss of death to a tech rally when stocks like MMM, IP and 
IR are up on a down day. 

If it looks like a duck, walks like a duck and smells like a 
duck is it a duck? If it looks like a correction feels like
a correction and sounds like a correction is it a correction?
Or is it a cleverly disguised buying opportunity? The key
here is 3520 on the Nasdaq and 11050 on the Dow. If we break
through those numbers to the down side then look out below.
We will be in a weak area on the Dow that could cost us a
couple hundred more points. The Nasdaq could also wander
aimlessly until about 3340 where it should find very strong
support. Hopefully neither of these scenarios will come to pass
but I think we need to be aware of the possible Y2K implications.
If traders were slowly moving to the sidelines before, then any
indications of panic, like the abrupt sell off today could be
like yelling fire in a crowded theater. Once a panic sell off
begins, previous support levels will have no significance. 
Could we see 10,000 again before Y2K? While I do not currently
expect it, there is still that possibility. The way I see it
we have two distinct possibilities forming.

1. This is just a normal profit-taking spell after a remarkable
rally. We have not had any serious profit taking in so long
that the sharp sell off today was simply the result of a hair
trigger on the part of traders with a lot of gains to lose. 
Another -100 points max and we are off to the races again.
After all, funds would rather not sell now and trigger a 
taxable event in 1999 when they can wait and have all of 2000
to handle the tax problem.

2. The trickle of bad breadth over the last several weeks was
a leak in the Y2K dike. The leak could be getting stronger as
we get closer to the magic event and today could have traumatized
traders planning to hold into joining the flow. If we are going
to have a group of investors move to the sidelines then their
time is getting short. With only 12 trading days left, in
reality only 7 days since they would probably want to be out
before Christmas, then tomorrow will be key. We should watch
for buyers coming in off the sidelines to buy the dip. If there
are no buyers then we should be sellers and move to the sidelines
ourselves and plan our strategy for the January bounce.
         
Another wild card here is the options/futures triple witching
expiration on Friday. Normally the bias is to the upside during
this week but the Y2K thing added an extra joker to the deck.

Staying invested, the rest of the year may take an incredible
cast iron stomach and a case of Rolaids. Picking market direction
in normal times should be left to the Psychic Hotline but 
uncovering the true direction for the next two weeks is something
even Fox Mulder and Dana Scully would be hard pressed to resolve. 

For me I think discretion may be the better part of valor and
barring a resumption of the rally tomorrow I am going to unwind
my trades and watch from the sidelines. 

Good Luck, Sell Too Soon.


Jim Brown
Editor



**********
STOCK NEWS
**********

3Com Shareholders Get a Stake in Palm IPO
By Cindy Christ

Shares in 3Com (COMS) bucked a sell-off in the technology
sector Tuesday after the No. 2 network equipment firm said 
it had filed with federal regulators to spin off its Palm
Computing unit.

At the close, shares in the Santa Clara, Calif.-based company
jumped $5.81, or 13 percent, to $50.63 after trading earlier
at a new 52-week high of $52.19. COMS was the Nasdaq's third
most active issue with volume of 29.7 million shares. Average
volume for COMS is about eight million shares.

/members/stocknews/121499_1.asp



**************
Market Posture
**************

As of Market Close - Tuesday, December 14, 1999 

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

DOW Industrials   10,750  11,320  11,160    Neutral  11.12
SPX S&P 500        1,340   1,400   1,403    BULLISH  12.03
OEX S&P 100          700     750     759    BULLISH  12.03
RUT Russell 2000     430     450     463    BULLISH  11.12
NDX NASD 100       2,650   3,150   3,167    BULLISH  12.03
MSH High Tech      1,340   1,630   1,672    BULLISH  12.03

XCI Hardware       1,075   1,160   1,224    BULLISH  11.11
CWX Software       1,000   1,160   1,248    BULLISH   9.03
SOX Semiconductor    570     660     588    Neutral  12.10
NWX Networking       650     800     842    BULLISH  12.03
INX Internet         525     675     751    BULLISH  12.07

BIX Banking          645     690     573    BEARISH  11.30
XBD Brokerage        395     450     427    Neutral  11.30
IUX Insurance        625     650     605    BEARISH  11.30

RLX Retail           875     910     974    BULLISH  11.23
DRG Drug             375     395     351    BEARISH  12.07
HCX Healthcare       750     790     701    BEARISH  12.07
XAL Airline          180     190     152    BEARISH   5.21
OIX Oil & Gas        285     315     291    Neutral  11.23

 
Posture Alert    
The Nasdaq party has momentarily stopped, thanks to the efforts of 
the bond market. The yield on the 30-year Treasury bumped up to 
6.30%, causing technology stocks to drop like a rock. Losing 
sectors Tuesday include Semiconductors (-6.82%), Internet (-4.91%), 
Morgan Stanley High Tech (-3.75%), and Brokerage (-3.09%). There 
are no current changes in posture, however, many sectors are on 
the verge of a downgrade if we don't see improvements from a 
technical standpoint.



***************
Market Sentiment 
***************

Tuesday December 14, 1999

Breaking Down!

Technology stocks got blistered today as selling pressure hit most 
sectors across the board. By now, you know the reason is due to the 
sell-off in the bond market, thanks primarily to the Retail Sales 
figures. What is always amazing is the speed at which the Street 
will turn-on-a-dime. Recently, this market has had numerous 
economic indicators proving to be positive, one after another. All 
of these positive events were thrown out the window with one 
shot today. The shift in sentiment can change extremely quickly, 
and with the latest in technology coming across millions of 
investors' desktops, we would view changes in perception to 
continue playing a major role in this market.

The 30-year Treasury is now back at 6.30%, which is getting close 
to the danger zone. Today's action now means that any major 
economic indicator will most likely throw the bond market into new 
52-week highs. This is not a positive scenario for the equity 
markets, and could spell trouble down the road. 

However, on the flip side, don't forget that the long bond was 
slightly higher that today's level, just 8 business days ago. 
In today's age, perception and reality are vastly opposite sides 
of the spectrum, and based on the media coverage, you would have 
thought that the long bond wasn't at these levels in many months. 
However, we were here just 8 days ago, so if we don't get any 
negative economic figures, and the bond holds support in this 
range, then this market can continue on its path. 

In this market, all investors have to remember that stocks & 
options drop twice as fast as they go up. It may take many weeks 
or months to make the gain, only to witness the gain evaporate over 
a couple of days. One sector that has gotten punished over the 
last few trading days has been the Semiconductors Index (SOX). 
With today's -6.8% drop, the index has lost 14% from just last 
week. The speed, at which market sentiment changes, whether it is
blamed as profit taking or a true fundamental change, is 
staggering. When looking at the chart of the SOX, we witnessed a 
nice reversal one week ago today. Since then, it has been all 
downhill. With today's close of 587.99, the index closed just above 
the 50-day moving average (587.74). From a technical standpoint, 
you would expect a nice bounce in that sector very soon. However, 
if this sector breaks support, it could spell trouble for 
investors. The reason we highlighted this sector is just to show 
how quickly gains can evaporate. We have recently witnessed many 
big gains in numerous technology sectors, so you must be careful 
to protect yourself to the downside and lock in some gains. From a 
technical standpoint, the Internet Index (INX), the Nasdaq 100 
(NDX), and the Software (CWX) Index, look very similar to the 
Semiconductor Index chart from last week. When you combine these 
strong reversal signals with the fact that investor sentiment can 
change so rapidly, you get a strong potential of a downdraft. Who 
knows, maybe these sectors bounce tomorrow with the help of 
Oracle's strong quarter, but if not, take aim, because you will 
see more sectors breaking down!    


BULLISH Signs: 

Cash Flow:
The amount of money being poured into this market continues to be  
Strong, as evidenced by this last week's record IPO's. 

Short Interest:
Short interest for the Nasdaq is at an all-time high, and increased 
another 1.4% from October. Short interest on the New York Stock 
Exchange rose 72,007,030 shares in the month ending Nov. 15 to a 
total of 4,061,057,060 shares.

S-Squeeze:
News events continue to squeeze the shorts, as lately evidenced by 
Yahoo's incredible run up in stock price.


Mixed Signs:

Volatility Index (24.47):
Once again, the VIX presaged a near-term market top, when it 
bounced off of 20. It is now safely off of the lows, however, a 
break through its 50dma may signal more downside in the market.

BEARISH Signs:

Interest Rates (6.30%):
The yield on the 30-yr Treasury is back into dangerous territory.
 
Advance/Decline Line:
The A/D line's continual break does not serve the best interests 
of the overall market.

Investor Intelligence:  
The rapid change from bearish to bullish sentiment has been too 
great, and may indicate a near term top in the market. However, we 
did see a slight downtick in sentiment this last week.

Energy Prices:
With the rapid rise in crude oil, everything from manufacturing to 
transportation will be affected by higher costs. These higher 
costs will be felt 1-2 quarters out, and could put pressure on 
profit margins.


OTM Call Analysis

As we move closer to the December expiration cycle, Pinnacle is 
tracking the level of call buying (OTM) between 720-810 among 
option speculators. As we have been documenting, excessive 
out-of-the-money (OTM) call may serve as overhead resistance.


November Expiration Cycle
OEX OTM Call Analysis (Open Interest November 680-780)
Date                 Open Interest     Change %    Alert

Friday, October 15        39,072          -
Friday, October 22        61,250       +56.8%
Friday, October 29        75,022       +92.0%
Friday, November 05       89,143      +128.1%
Friday, November 12       94,610      +142.1%


December Expiration Cycle
OEX OTM Call Analysis (Open Interest December 720-810)
Date                 Open Interest     Change %    Alert

Friday, November 19       36,165          -
Friday, November 26       55,598       +53.7%
Friday, December 03       66,323       +83.4%
Friday, December 10       86,405      +138.9%

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                       (12/10)     (12/14)

Overhead Resistance (770-800)    14.51       3.96
Overhead Resistance (750-765)      .85        .68

OEX Close                       763.49     758.62

Underlying Support (730-745)      3.01       3.51


What the Pinnacle Index is telling us:
Based on 12/14, overhead resistance (750-765) is very light, while 
and underlying support continues to build strength. Overhead 
(770-800) has dropped dramatically, but with option expiration 
this week, we doubt there will be any significant move to the 
upside.


Put/Call Ratio                  Friday     Tues
Strike/Contracts                (12/10)    (12/14)

CBOE Total P/C Ratio             .45         .40
CBOE Equity P/C Ratio            .35         .32
OEX P/C Ratio                   1.44        1.42


Peak Open Interest (OEX)
                     Friday           Tues
Strike/Contracts     (12/10)          (12/14)

Puts                 750 / 14,912     750 / 14,349
Calls                780 / 13,427     780 / 12,491
Put/Call Ratio         1.11              1.15


Volatility Index    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 14, 1999        Top                 25.01 

July 16, 1999       Top                 18.13 
August  5, 1999     Bottom              32.12 
October 15, 1999    Bottom              32.06
 
December 14, 1999                       24.47


Investors Intelligence
                    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

Oct. 13, 1999       Bottom?           39.2        37.5

November 24, 1999                     53.0        28.7
December 10, 1999                     51.7        29.3



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

Daily Results

Index      Last    Mon    Tue   Week
Dow     11160.17 -32.11 -32.42 -64.53
Nasdaq   3571.66  37.93 -86.51 -48.58
$OEX      758.62  -0.36  -4.51  -4.87
$SPX     1403.17  -1.82 -12.05 -13.87
$RUT      462.75   3.67  -7.63  -3.96
$TRAN    2908.88  21.04  12.90  33.94
$VIX       24.47   2.68   0.87   3.55

Calls              Mon    Tue   Week

QCOM      421.25  26.06   3.69  29.75  Bungee jumping anyone?
CMGI      205.75  17.81  -6.13  11.69  Dropped, hard to let go
NTAP      164.00   6.75   3.38  10.13  New, a quick split play
NXLK       66.69   5.13  -2.56   2.56  New, added to Nasdaq 100
GE        149.88   0.75   1.06   2.44  Board meeting on Friday
NT         88.06   0.69  -0.88  -0.19  Numbers don't tell story
VOD        48.94  -0.50  -0.38  -0.81  Sector approaches support
SNE       186.25  -1.88   0.81  -1.06  Dropped, SNE flattens out
ARBA      234.25  -2.25  -0.25  -2.50  ARBA split on Friday
AOL        88.50   2.31  -5.50  -3.00  Chalk up another for AOL
TMX       105.19  -2.38  -2.56  -4.94  Bombarded by good news
MACR       81.88  -2.81  -2.19  -5.00  Prices continue to surge
CLS        81.63   3.81  -8.94  -5.13  Delivers the pullback 
SUNW       75.56  -1.44  -4.88  -6.31  SUNW has some solid support
VRTS      102.75  -1.50  -4.81  -6.31  Will Oracle save VRTS??
INKT      161.06  10.50 -17.19  -6.69  Provides room for entry
PRGN       73.75  -0.25  -7.88  -8.13  Dropped, broke $80 
NOK       159.50  -1.50  -7.56  -8.50  Gives us a firm bounce
STM       127.38  -1.69  -7.75  -9.44  Closed right on support
USWB       40.88  -7.06  -2.94 -10.00  Dropped, botched buyout
NSOL      207.00 -10.50  -1.25 -11.75  New, we want a split!
DCLK      181.81   2.50 -16.69 -14.19  Looking for adventure?
JDSU      219.88 -10.19 -14.19 -24.38  On double secret probation!

Puts

KIDE       38.00  -2.19  -4.50  -6.69  Broke the 100-dma
GT         28.19  -0.19  -0.44  -0.56  Rolling downhill nicely
GILD       38.69   1.00  -1.31  -0.31  Declining relative strength
ETYS       46.50   0.81   0.56   1.38  Shrugs off amateur hour
PGR        79.38   2.25   0.56   2.81  Dropped, end of the trend



************
WOMANS WORLD
************
 
DECISIONS, DECISIONS....YHOO, QCOM and spelling???

Personally, I'm glad we got a sell off today. Let's just hope it 
stops. I've been very concerned about the euphoric feelings in 
the market, these last few weeks. Unfortunately, I am still 
dealing with the nightmares of my hard drive crash from Friday. 
Being the great computer technician that I am, (joke!) I promptly
messed up my back-up computer too. Talk about a contrarian 
indicator! I did not mind being out of the markets on Monday, 
but by today, my anxiety level had grown. Sunday, I was not able 
to read OIN or do any research. Like you, I felt like a fish out 
of water. Finally, I was able to get online for the last 15 
minutes of today's session. 

During that 15 minutes, I felt I had to prioritize potential 
trades and market sentiment. I have been on the phone with 
various computer technicians, all day Monday and Tuesday. 
Basically, I have been void of the Internet, OIN, research, 
CNBC, email and all quotes, since Friday mid-day. Fifteen 
minutes does not give one much time to sort things out and 
make decisions when they've been out of touch for several days. 
My reaction on Friday was automatic, sell my vulnerable positions 
and take profits. Monday didn't excite me. But TODAY, ...well this 
was a sell-off. I needed information, access to my online accounts 
and the ability to trade! 

I had 15 min to evaluate both my QCOM and YHOO positions. Deciding 
to focus on only a few strong plays going into Y2K proved beneficial 
to me today. I felt so unorganized. As I reviewed their charts, I 
realized that last Friday, I had been lucky to sell my YHOO positions 
at the high of the day, which continued to sell off on Monday and 
Tuesday of this week. I had already purchased QCOM on Thursday when 
it hit its 10 dma. A good entry for QCOM.

Today, I should have sold more YHOO in order to take additional 
profits, readying myself for the next buying opportunity. By the 
time I pulled the chart up, it had sold off and was stabilizing. 
I thought about buying more contracts, but as I reviewed the chart, 
I decided to hold off. Yhoo is now sitting below its 5 dma (339 7/16), 
which it hasn't done since the announcement was made to enter the S&P. 
Stochastics showed an overbought situation, as did my directional 
indicator.  With plenty of time before January earnings, triple witch 
Friday approaching and the10 dma (305 1/4) seeming to be inviting the 
5 dma to join it for dinner, I just decided to wait and see if I could 
get an even better entry tomorrow. 

Deciding not to sell more positions in this quick evaluation into 
the close, may prove to be a mistake. I still needed to evaluate 
QCOM and I was running out of time. YHOO could gap down in the 
morning. On the other hand, after selling off since Friday, it may 
be ready to start feeling better and that down draft may make a 
quick recovery. Basically, I'm in a buying mode. If YHOO is still 
sick tomorrow, I'll take more profits off the table. I'll be watching 
the interaction between the 5 & 10 dma from the daily chart, but 
watching the movement of the stock price on the 1 & 5 minute charts. 
Depending on its movement and the broader market, I may get a great 
entry tomorrow. 

As I flipped to QCOM, I saw that it had taken off again today after 
a nice run up yesterday. Nasdaq was selling off in the afternoon, 
but QCOM waited till late in the session, to erase most of its gains. 
I watched carefully. I expect QCOM to be a big mover this week, in 
front of the meeting next Monday. Granted it has moved up since Friday, 
but this late day sell-off seemed more of a gift to me. When I saw it 
bounce off its lower Bollinger Band about 6 minute before the close, 
I jumped in. 

At first I fought with limit orders, trying for a really cheap entry. 
But as the buying pressure continued, seen by using candlesticks, I 
changed to a market order, seconds before the close. I felt lucky to 
get 10 January contracts at what I think will prove to be another 
good entry. Since the meeting is imminent, I did not want to risk 
missing this entry. With a big Nasdaq hit this afternoon, buyers may 
resurface tomorrow, bringing QCOM with it. I could be wrong. If I am, 
I will get out quickly and wait for a better entry. A triple-witching 
option expiration week can be very volatile. Volatility can be 
profitable or costly.

Now, on to a little discussion about some email I have received. 
It has been brought to my attention that I can not spell the word 
LOSE. I always seem to type LOOSE instead and my spell checker has 
not cooperated by reading my mind. I've had a long talk with it, 
but all it will do is underline words in red or green. Being dyslexic, 
I've always had to learn unusual ways to deal with an occasional brick 
wall. For my readers, I promise to try to remind myself, that when I 
think it is LOOSE, to just automatically change it to LOSE. Trying to 
get a dyslexic to "think it through" doesn't help. Now if I can only 
remember to catch myself!! Hopefully, most understand the intent. 

To the few guys out there who keep reminding me of this, let me 
explain that I do know how to spell PROFIT and WIN. I'm not sure 
if you noticed, but neither one of those are four lettered words....
LOSE is!! Interesting, huh? Misspelling a four lettered word isn't 
too bad, is it?

Don't feel badly. I've been corrected for similar things all my life. 
Only last year I realized "in other words" was not "another words". 
The year before that, I learned that I ate "giblet gravy" instead of 
"chicklet gravy". Obviously there is a larger than usual gap in one 
of my synapse. Thank goodness it hasn't affected my professional 
career or trading life, which is what I really want to share with you.

One final note. I have not been on email successfully, since last 
Friday. I have been unable to send & receive consistently since 
Sunday. While writing this column, my new laptop finally arrived. 
Do you know how happy I am? I expect to have it up and running by 
tomorrow afternoon. 

Have a nice week!

Renee
renee@OptionInvestor.com



**************
TRADERS CORNER
**************

Frag Plan Y2K-1

My December Game Plan is going well, but it is time to think 
through what the Marines call a Fragmentary Plan, or Frag Plan, 
which adjusts the current plan but leaves most of it intact.

General Situation. This is a unique time of the annual financial 
cycle, indeed, a unique time due to the convergence of several 
factors. Because we are on the eve of Y2K, the Fed has increased 
the money supply to ensure that liquidity is available for 
whatever problems arise due to the dawn of the new millennium
(http://www.bog.frb.fed.us/). However, in 2000, I expect the Fed 
to begin to move against asset inflation (ie, the reason call 
plays have been so lucrative this year) recognizing that inflation 
is not the only benchmark of success (see The Economist's survey 
of trends for 2000). How the Fed handles this will be delicate and 
might be the difference between a "soft landing" and a "hard 
landing." Y2K is also a "wall of worry," with real potential 
consequences (eg, smaller countries & companies will have bigger 
legacy problems). The financial community is dedicated to 
minimizing Y2K problems, and if it means gross asset inflation 
for a month or two, that is relatively a small problem which can 
be easily "corrected" in February and the New Year. The net result 
is that I think that the markets will trade sideways with some 
volatility or trend upwards through the New Year. As well, I 
believe that the first week in January will be bullish due to 
the continued inflows of 401k and pension fund cash, and
individuals who waited until the New Year (though, clearly, many 
are jumping aboard this train now). 

Specific Situation. I have a little more than half of my Short 
Term Option Portfolio in January NOK, QCOM, and SCH plays. My 
ST Option Portfolio represents about 45% of my total financial 
assets. In my LT Stock Portfolio (about 55% of my total assets), 
I started trading a certain amount of money in options in early 
November. I had put that capital into a High Yield Bond Fund in 
July, when the market peaked, and had started taking that cash back
out and putting it into new stock and longer term option plays (eg, 
VRSN, SCH, GSTRF, AMZN Jan95, SCH Mar35) in October. By November, 
recognizing the significance of the large volume breakout on the 
last two days of October, I took all of that money out and went on 
the offensive. Now, almost 35% of my LT Stock Portfolio is in my 
"stocking stuffer" January Calls (SCH, EGRP, SNE, GTW, NOK) and 
cash from recent sales (YHOO, SUNW) of the "stocking stuffers" 
that went ballistic. My long term plan for that capital is to
enhance my LT Stock Portfolio with Jan02 LEAPs, which I dollar 
cost average into. Included in my mental accounting for the LT 
Stock Portfolio is my Roth IRA, a potent secret weapon (due to 
the tax free compounding which it will offer me for the next 4 
decades) in which I currently hold stock (VRSN, purchased at 58, 
split adjusted, in October), options (AMZN Jan95, which recently 
made a nice move into the money), and cash from the sale of half 
of the VRSN when it peaked with its split; I will make the maximum
contribution to my Roth as well this year. I also have a 403b, 
which is invested in the most aggressive growth option available; 
can't do a thing to accelerate the returns there, unless I become 
a mutual fund manager at TIAA-CREF. 

Mission. Make as much money as possible in this bullish period.

Execution. 

1. Overall Intent/ Desired Endstate. On December 31, have all 
available cash fully invested in call options on newsletter picks. 

2. In my ST Options Trading Portfolio, target shoot entry into 
January calls on newsletter picks on Dec 13-17, and 29 - 31. I 
am deliberately taking December 20 - 28 off from entering new 
plays to spend time with family and friends during Christmas. 
Last year, I started establishing larger positions in the last 
week of the year, and it was totally dead, with low volume and 
little movement. Good entry opportunities, but not much movement. 
This year may be different, but that is the plan that fits my
personal life.

3. Enter some LEAP positions now in my LT Stock Portfolio. Based 
on my belief that the market will continue to rise between now 
and mid January, as well as my research on the fundamentals of 
specific stocks I have traded, I am considering LEAPS on QCOM, 
NOK and SUNW. Sure, $13,000 for a QCOM LEAP might seem insane, 
but that contract will split along with the stock in a few weeks, 
and I think that the adoption of CDMA products in a whole variety 
of forms is only at a very early stage. So too with NOK-led
wireless access protocol (WAP), and SUNW Internet standards. It 
might not make sense to enter new LEAP plays until March, 
depending on the hangover from this Y2K euphoria.

4. Take profits, continuously, Dec 13 - 31 (monitoring the profit 
taking somewhat passively, Dec 20 - 28). Why take profits? Cash 
flow, cash flow, cash flow. I will take profits on parts of my 
current NOK, QCOM, and SCH plays at returns like 25 - 50%, even 
though I expect that in the first few weeks of 2000, these 
positions will yield even higher returns. By Dec 31, though, I 
want to have every last available dollar in a call play. 

5. Take profits heavily, Jan 3 - 5. I expect that there will be 
a heavy inflow of cash in the first trading days of the year when 
everything works. The largest, newest, and most technologically 
advanced companies (ie, most newsletter plays) will do the best 
with regard to Y2K preparedness. There will be problems with 
smaller companies and smaller countries. These problems will 
get coverage, but I expect that the impact will be cushioned
and spread out over a few weeks. My bias would be to go totally 
to cash by the middle or end of the first week of the New Year. 
The entire financial community, including the Fed, is holding its 
breath, and it doesn't care too much if there is a huge rally 
between now and the first week of the New Year... as long as there 
is not a major breakdown. 

6. (Maybe) Pick plays with individual earnings runs in January. 
Last year, January was a bullish month overall. The first week 
was strong, but it was followed by several weeks where the markets 
traded sideways with sharp volatility. YHOO, AOL, MSFT and other 
stocks report earnings in January, but given the overall run up 
in stock prices, I wonder whether there will be strong earnings 
runs. The key here is to be very cautious and not to overreach, 
especially if I already have strong gains. Last January, I made
100% plays on AOL and MSFT, but met a very educational waterloo 
with DELL in February. At a certain point in January (and it may 
be in the first week), the best investment I can make may be to 
buy a plane ticket somewhere that I simply enjoy part of my gains 
without putting any of them at risk. This is a decision that I 
need to make based on monitoring how well I am making and executing 
decisions. If I am making bonehead plays, off to somewhere warm! 
By that point, I will be long overdue for my monthly week off. 

Administration. 

1. I have to do my taxes. Ouch. 3 different brokerages, hundreds 
of trades. Lots of gains, but now I have to figure out how to 
keep as much of them as possible. A task for next week. Can't 
wait until 8/15 (with the 4 month extension) this year. On the 
plus side, I have a well optimized system with my current broker, 
and I have the right questions to ask my accountant, thanks to 
an SP Brown article a few weeks ago. Next year, I need to implement 
the use of Quicken to keep better records.

Long Term Goals. 

1. Own a House. In my last year of grad school, option trading 
has already given me the financial cushion to move out of a 
student apartment into a great condo which I rent in San 
Francisco's Richmond district -- an important move back home 
for me after 12 years in college, the Marines, teaching and 
graduate school. I set up a spare bedroom as an office where I
trade, complete with DSL line, high quality monitor, and other 
essential peripherals. But paying rent is a financial losers 
game -- the capital might as well disappear into thin air, and 
it is simply predictable cash flow for my landlord. Forget that! 
I trade like a madman because I plan to buy a first house within 
the next year. I plan to use a 15 year, instead of a 30 year, 
mortgage to build equity faster and to avoid paying so much in
interest over the life of the loan. I want to have enough capital 
built up so that I have a range of financing options, including 
putting down over 20% of the purchase price to avoid higher 
financing fees. I plan to keep trading through this first purchase 
to be able to afford a larger house in the next 5 years. Towards 
this end, I want to be able to keep trading while working in a 
professional career. A steady income will help me to qualify for 
a mortgage, which, in turn will allow me to build equity in my 
first house. But my trading style will have to transition into 
a longer term approach in which LEAPS and perhaps some of the 
advanced strategies, like spreads, play a larger role. As well, 
I will still be able to make the short term plays which Jim Brown 
advocates. Indeed, my trading experience now represents a kind of 
investment. However, I will have to maximize my use of the advanced 
order entry capabilities which Preferred Trade is pioneering. For 
instance, I can still target shoot entries with their buy to open, 
market, contingent on stock (now available for NYSE, soon available 
for NASDAQ, stocks) by planning trades in non-market hours, and
putting in the orders early in the trading day. When I have a 
good entry, I can enter a OCO (Order Cancels Order) order in which 
I set both a protective stop below the contract price, and a limit 
sell above the price (Preferred estimates early to mid 2000 for 
OCO capability). This will make it a lot easier to trade with 
peace of mind while working.  

2. Career Flexibility. At this stage in my life, as a 30 year old 
finishing a professional degree, I have a lot of human capital. 
If I add to that a significant amount of financial capital, I can 
do different things after a few years, such as jump into a risky 
start up, run a search fund to buy a small business in a mini-LBO 
type of transaction, or continue in the professional career which 
I have chosen as a first step. My personal passion is for 
technology and education, and, in the San Francisco Bay Area, 
there are many, many opportunities to pursue that kind of career.
Having a cash cushion will make it easier to pursue those 
opportunities. Renee's last piece about the pros & cons of trading 
full time was quite interesting. I for one, could never just trade. 
Trading is about making money, which is about being able to do what 
I really am passionate about in my career.

3. Lifestyle. This is an amorphous goal, right now. I am a former 
Marine and teacher, and, to be quite honest, I was probably 
happiest when I was living out of a pack, walking up and down 
hills in Korea; or when I was teaching and coaching high school 
for an annual salary less than some of my daily gains last week. 
Of course my future family will probably not share the same taste, 
so cash, and the flexibility it brings, will be key. The paradox 
is that, because I am still single, I can put a lot more at risk
than I would if I had a mortgage and family right now. If I put 
all of it on the table, and lose, I can call my high school buddy 
who initially recommended OptionInvestor.com, tell him he's an 
idiot, joke about it, and go get a job. 

Janar Joseph Wasito
janar@OptionInvestor.com



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:
*****

SNE $186.25 +0.81 (-1.06) It has been a lengthy and successful 
play but at last the time has come to bid Sony adieu.  Sony 
does not appear to have the momentum to make it through $190 
and looks to have flattened out a bit, as we have been trading 
in a narrow range for some time now.  Though Sony does have 
solid support, it is simply not making the kind of moves to 
warrant a continuation of our call play.  

CMGI $205.75 -6.13 (+11.69) Sometimes its hard to say goodbye 
to an old friend.  That's the case with our play in CMGI.  The
Internet venture company has been a fantastic play.  Since its
addition to our list of plays CMGI has ran up over $100 in
3 weeks.  A great example of not only how profitable an Internet
play can be but also the volatility involved in some of these 
stocks.  CMGI reports earnings Wednesday after the close.  We
will stand back from CMGI at least for now.  We are expecting
a split announcement either with earnings or when the 
stockholders meet on the 17th.  After hitting a high of $226.13 
right out of gate this morning traders began to pull some 
money off the table.  CMGI finished the day down -6.13 with
a range of over $22 for the session.  Volume was heavy with
just under 8 million shares exchanging hands, indicating this 
could be it for the time being.  We will keep our eye on CMGI
as we will probably meet again soon.

USWB $40.88 -2.94 (-10.00) Whitman-Hart's all stock offer for 
USWeb leaves a lot to be desired, but the logic makes sense.
Too bad the market does not trade on logic.  Traders were not 
waiting around to figure it out, they just dumped the stock.  
USWB initially opened at $58 on Monday but quickly headed lower 
as WHIT was tanking on the news.  WHIT is now off over $27 on 
the week.  Obviously a kicker for USWB when you have a stock 
deal.  We will move away from this position over the near-term, 
although we believe that this merger will be a beneficial 
combination over the long-term.  This is a situation an investor 
could ride out, but not a trader.  There are better short-term 
opportunities that we can take advantage of.     

PRGN $73.75 -7.88 (-8.13) Directly from the open today, a "no 
buts about it" sell-off took place and returned PRGN to firm 
support at $70.  PRGN was consolidating at near-term support in 
the proximity of its 5-dma ($82.10) and 10-dma ($81.51) after 
hitting a 52-week high at $96.75 last Tuesday.  There was no 
specific news event to affect trading.  PRGN was a pure momentum 
play and the negative pressure played a vital role in today's 
performance.  We're exiting the play tonight for the above-
mentioned $80 violation.    


PUTS:
*****

PGR $79.38 +0.56 (+2.81) It has been excruciating to watch 
this stock rally despite all of the good reasons for it not 
to be doing that.  Unfortunately the risk that Progressive's 
stock has found a bottom and will attempt to break its 
downtrend is too great to continue recommending buying puts on 
this issue.  It is significant that PGR traded up to important 
resistance at the $79.50 level and failed to climb above it.  
It is possible that PGR could get weak again in the face of 
the fear that its profits may be impacted by an increase in 
property damage from Y2K disturbances.  If it were to weaken 
again look for support at the $71.88 level, a possible exit 
point if you decide to continue holding puts.  



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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 12-14-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

TMX $105.19 -2.56 (-4.94) TMX pulled back on mild profit-taking 
and concerns of Mexico's 2000 budget may be delayed in Congress.  
Coming off Friday's all-time high of $110.50, the ADR is now 
consolidating at near-term support of $105 in the vicinity of 
the 5-dma ($106.13).  Firm support is well established at $100.  
A return to this level should raise red flags as it sits under 
the 10-dma ($102.07) and could signal the momentum has subsided 
for the time being.  Recall the stock is splitting 2:1 but not 
until Feb 1st.  Still TMX was bombarded by positive analyst 
forecasts and trading momentum was very strong last week.  Just 
yesterday Dresdner Kleinwort Benson Securities reiterated a Buy 
rating and issued a $126 target price.  The conservative trader 
will wait for a confirming bounce and bullish market sentiment 
before opening any call positions.

INKT $161.06 -17.19 (-6.69) Yikes!  A 17+ point downdraft 
sounds so drastic.  Actually INKT has simply returned to the 
upper spectrum of near-term support ($155-160) effectively 
providing traders with another solid entry into this split play.  
Yesterday players saw a $10.75 final advance and all-time highs 
intraday at $185.  The news that Microsoft had reopened its 
doors to the search provider prompted traders to bid up the 
shares.  Inktomi's award-winning Search Engine will once again 
be the search provider for all of MSN.  INKT 2:1 stock split is 
expected on or about December 30th.  If the market can rebound 
from today's episode, this could be a blessing of an entry point.  

AOL $88.50 -5.50 (-3.00) Chalk up another one for AOL.  For the 
3rd consecutive day, AOL set a new 52-week record high on Monday 
as shares continued to rise amid rumors of a cross-marketing deal 
with Wal-Mart (WMT).  Officially there's no comment, but there's 
speculation that WMT will either sell AOL products and services 
on their new Website (to debut next month) or there'll be an ISP 
partnership in the future.  Our holiday momentum play took a 
breather today as profit-taking took center stage amongst the 
Internets.  Still AOL remains perched on its lofty pedestal.  
Firm support is much lower at $80-$82 just a smidgen under the 
10-dma ($83.63).  In the news on Monday, AOL reported that at 
this mid-point in the holiday season, first-time online buyers 
have doubled since last year and six mln of its members have 
already made online holiday purchases. 

ARBA $234.25 -0.25 (-2.50) ARBA shares will be splitting this 
Friday and we are looking for a split run to get us there.  ARBA 
did a nice job of providing some room for points of new entry 
today, offering a trading range of nearly $12.  $240 has been 
providing a bit of resistance for ARBA.  ARBA has support at 
it's 5-dma of $232.50 and further support at $230, if needed.  
If you are going to play ARBA at this point, exercise caution, 
as there is not much time left for this play.  Your best bet for 
new entries is to target shoot on an intra-day dip.  It will be 
important to keep an eye on this one if you are in, and remember 
to use your stops.  It will also be important to close out your 
positions before the close on Thursday.  Any kind of market 
downdraft similar to today, would likely kill the final leg of 
this split run.  

GE $149.88 +1.06 (+2.44) We had a nice open yesterday for GE. 
The quick drop gave us another opportunity to initiate a call 
position at favorable prices.  We had to act quick though, 
because the decline did not last long.  After bottoming in the 
A.M. at $145.75, GE had a nice steady rise to just over $150 to 
justify its role as a market leader.  Today, GE was unable to 
make another new intraday high, but it did manage to make a new 
closing high.  We now have two day resistance at $150.50.  GE 
was an excellent performer on a day when a lot of market 
leaders got beat up.  New positions can be added if GE trades 
above $150.50.  Support remains at $140.00.  Keep those stops 
in, and consider raising them to lock in profits as GE looks 
to continue rising.  In a rare conference call meeting with 
analysts today, GE CEO Jack Welch made several announcements.  
Most importantly, he revealed a very good profit outlook for 
next year.  Welch said that GE is on track to grow earnings 
by 15 percent in 1999 and 2000.  He stated that their "e-
business" which is the new "E" in GE, should be a big 
contributor to the company's growth in the future.  He also 
announced that General Electric is aggressively expanding 
overseas and plans to make up to $25 billion in acquisitions 
this year.  Welch gave no indication as to whether the board 
will announce a split on Friday.

CLS $81.63 -8.94 (-5.13) When we first introduced Celestica 
to our subscribers we mentioned that we had grown tired of 
waiting for a pullback in the price of the shares so that we 
may get a good entry point to take advantage of the upcoming 
split.  Sure enough, two days later we got the pullback we 
wanted.  The largest company in Celestica's industry group 
(CLS is third), Solectron announced earnings that were in 
line with estimates but fell short on revenue expectations.  
The news sent shockwaves through the entire sector and CLS 
was not spared the carnage.  Analysts said a shortage of 
key components had hurt Solectron and was part of a broader 
problem for printed circuit board makers.  Fears that CLS may 
be experiencing the same problems as Solectron may be unfounded.  
An analyst with CIBC Worldmarkets reiterated his Strong Buy 
rating on CLS and kept his 12-month price target of C$180.  The 
sector analyst at Bank of America went so far as to say that 
CLS was seeing no component issues and continues to forecast 
"significant upside" to revenue and earnings estimates.  Their 
price target remains $130 on Celestica.  We need to be cautious 
about buying CLS down here.  It did do some technical damage 
today by dropping more than 10% on three times normal volume 
and closing on its low for the day.  There is some support for 
the stock at $80.  Aggressive investors could buy calls if CLS 
bounces at that level.  If CLS trades below that level, a drop 
to $76 seems likely as it would close a gap.  The $76 level 
would be an excellent entry point.  It is possible that neither 
of those scenarios will occur and investors relieved to hear 
the positive reiterations from analysts may start bidding up 
shares right away.  If that happens a very aggressive investor 
could attempt to jump on the momentum but be very wary of the 
support level at $80 where a stop should be placed. 

VOD $48.94 -0.38 (-0.81) Our play in VOD is struggling a bit.
As we've said, this play is driven primarily by speculation of
a takeover of German telecom giant Mannesmann AG.  Yesterday
VOD said they would file a hostile takeover for Mannesmann
under German law, rather than in the UK.  Under Germany rules
VOD could choose to alter their bid a later date.  VOD has 
lost -0.81 for the week and is sitting near a support level 
of $49.  It's somewhat concerning that VOD has closed below
its 10-dma for two days in a row, which tonight sits at $50.05.
Tuesday afternoon a state court threw out a suit filed by
three shareholders of Mannesmann who were trying to block 
its chairman's attempts to stave off the hostile takeover.
We will stay with our VOD play for now.  The telecom index
lost about 1.5 percent in trading today and is approaching
intraday support.  We will watch the VOD for a bounce and 
another opportunity to buy calls.  Should we see a bounce
in shares of VOD, check the volume to make sure the move is
being supported by solid volume, and not a head fake.

VRTS $102.75 -4.81 (-6.31) The software sector gave back some
of its recent gains today to the tune of just under three
percent.  Traders joined in selling shares of VRTS from the
opening bell.  The retail sales report this morning didn't
do anything to help our cause, with the numbers coming in
nearly twice as high as the street was expecting.  VRTS
did stick its head out of the recent trading range early
Monday morning.  After hitting $110.63 shares of VRTS began 
to decline yesterday and the selling continued today.  If 
you entered a play in VRTS you should have been stopped out
yesterday.  The intraday chart does look a little rough
but we are looking for the $100 area to provide support for
the software company.  VRTS did close below its 10-dma at
$103.79 but the volume the last two days on the decline has
been about average, indicating the selling is orderly and
probably just profit taking at this point.  Oracle reported 
earnings after the close today and posted a solid gain in 
both earnings and revenues.  This should help the entire sector 
to rally tomorrow.

STM $127.38 -7.75 (-9.44) The weakness in the Semiconductor 
stocks was said to be more than just profit-taking from traders. 
There was some institutional selling taking place late in the 
trading day that had the $SOX index down 43.05 points today.  
The signals being sent in the sector are mixed, as a number 
of the Semi stocks being hit this week have been receiving 
positive comments, for instance STM received two upgrades.
Lehman Bros reiterated their Buy rating and raised the price 
target to $170.  Goldman Sachs raised there price target to $185.  
But this positive sentiment going forward was not enough to keep 
the stock from falling.  The market sell-off was overriding most 
of the individual stories today in the sector.  Good support 
levels at $134 gave way in the midst of this overall weakness, 
but not on major volume or negative sentiment.  This is being 
called a great buying opportunity by many analyst, and does 
not look like a case of WE SELL, WHILE WE TELL YOU TO BUY.  
Today the $127 level held up well and this is why we are keeping 
STM as a play.  If the market is just taking a breather, but is 
still planning to go higher, the $127 level is worth a look for 
an entry point.  

MACR $81.88 -2.19 (-5.00) Prices continued to surge this week
in the shares of MACR, hitting another 52-week high on Monday
at $88.69, at this point profit-takers stepped up as usual. 
The stock closed in the middle of the trading range at $84.06,
bouncing up from the low of the day $81.44.  The trading range
remains wide and volatile, but consistent with previous trading
sessions.  Today's overall market sell-off did not effect the 
trading pattern of MACR, and has provided us another buying 
opportunity.  Going forward we remain bullish in the midst of 
some overall market weakness.  We should be able to trade MACR 
at current levels.  Support levels held up well at $80.  If 
there is any further weakness, look for a bounce near $77.25.

DCLK $181.81 -16.69 (-14.19) Alliance news, stock split rumors, 
and new advertising deals signed this week was not enough to keep 
DCLK from falling today.  The stocks in the Internet software
and services space were getting hammered across the board.  This
kind of profit-taking is something that many stock and option 
traders were hoping for so they could get into stocks like DCLK 
at lower prices.  We were looking to enter the stock on a bounce 
near the $190 level and on Monday that is exactly what we got. 
The stock traded as high as $202.50 after that bounce.  If you 
were adventurous, you had a nice ride to the upside, and 
hopefully you took profits accordingly.  Today after gapping up 
at the open, DCLK just continued to get weaker with the market 
all day.  The Nasdaq finally took a break, as traders took some 
profits.  This could be setting up for a nice buying opportunity,
but we will have to target shoot our way in.  Remember that this 
is a very risky stock to trade.  Adventurous Traders only.

NT $88.06 -0.88 (-0.19) The final numbers don't tell the whole 
story.  Despite an S.G. Cowan reiteration of a Buy rating and 
upward revised price target of $105, NT chalked up a small gain 
yesterday.  With daily volume moving up following the breakout 
of a trading range last week, we expected good things, but 
nothing compares to today's buying frenzy wherein NT scaled a 
cliff of market terror all the way $94 during amateur hour.  
While a lousy time for a slip and fall, NT did just that, 
skipping along in the $90 range for most of the rest of the day, 
until it fell off another ledge to $88.06 in the final 30 
minutes.  By the closing action (almost 115,000 shares in the 
last minute), it would appear there were buyers, but not at the 
ask price.  There may be a bit more room to fall in the morning, 
and there is no solid base of support until NT approaches $85 
again.  The doji on the chart does not look good (the upside down 
"T" with a tail pointing up).  NT still has a great story to tell 
(see Sunday's write-up), but with the market as volatile as it 
is, today's action may just be a hiccup of profit-taking, and the 
buy the dip crowd may show up for the garage sale.  There is 
still a lot of money to be put to work.  Don't isolate yourself 
to watching just this issue for an entry.  Let an improvement in 
the market be your guide.

NOK $159.50 -7.56 (-8.50) Recall from Sunday, we noted that NOK 
may have gotten ahead of itself a bit and that any move south of 
$165 would set NOK up to test $155.  It did just that today and 
gave us a firm bounce north back up to $160, but had trouble 
holding.  This has put us firmly at the low end of the trading 
channel.  Under normal circumstances we would expect another 
bounce back up, but the market is anything but normal.  If volume 
picks up and the price moves south, we will want to close the 
play.  There is one saving grace keeping NOK on the list tonight 
- it is a split candidate.  We have learned that Nokia will 
likely hold a board of directors meeting this week, though we are 
unable to verify that it will actually happen, let alone the 
exact date.  It is conceivable that they could announce a split 
should there actually be such a meeting.  We'll keep you posted, 
but be on your guard for more selling.  NOK is on thin ice.  It 
too will melt if the rest of the market does, even though the 
long-term outlook remains good.

QCOM $421.25 +3.69 (+29.75) QCOM is the stock market's version 
of bungee jumping.  Will the cord snap QCOM back before it hits 
dirt?  The answer today appeared to be "yes".  However, what's 
really important is that we finally got that breakout over 
$407.50 on strong volume yesterday.  Today, the trend continued 
as QCOM rose to another all-time trading high of $437.50 on 
strong volume.  That's where the bungee cord comes in.  No sooner 
did it hit the high than it fell a total of $23 in 20 minutes 
into negative territory.  It would have been a bad technical sign 
to see it close below yesterday's close and today's opening.  
Fortunately for us, it reclaimed $7 to close up $3.69 on the day.  
The bungee cord worked as a result of what appeared to be strong 
buying volume activity in the final 7 minutes of trade.  Good 
support is found at $414, less so at $421.  As long as the rest 
of the market doesn't roll over too sharply, we expect the volume 
to continue pushing the price up in anticipation of the 
shareholders approving a stock reauthorization to enable the 4:1 
split.  The meeting is on December 20th; the split date is 
tentatively set for December 30th, pending shareholder approval 
according the QCOM's investor relations department.  Target shoot 
at your comfort level if the market permits, but if you lack an 
iron stomach, you may want to consider a less volatile play.

JDSU $219.88 -14.19 (-24.38)  JDSU is on dangerously thin ice.  
Thus we are putting it on double-secret probation tonight for 
consistent bad behavior.  Were it not for the potential reward 
that the 2:1 split promises on December 30, this slacker would 
be kicked off the team in a nano-second.  In short, the 10-dma 
(currently $242) did not hold, nor did support at $228.  While 
there is historic support at $220 from late November, JDSU is 
precariously close to falling through that ice too.  Should it 
fail to hold $220, the next move would be a plunge into cold 
water at $200.  This has all been happening on increased volume, 
which indicates some "distribution" or institutional selling 
taking place - not a vote of confidence for the future.  We still 
believe there will be a split run, but it had better get going.  
There are a couple ways to play JDSU from here.  First, target 
shoot at $200 and hope you've picked the bottom (certainly safe, 
but maybe not realistic).  Second, take a position at this level 
with the expectation that we found a bottom today (just make sure 
you can find it with both hands!), though we consider this a 
risky strategy since the market may carry JDSU further down.  
Third, wait for the volume to show itself and a new upward trend 
to begin before taking a position.  We'd opt for the latter.  The 
market internals make it tough to predict when the slide will 
end.  As such, we don't recommend trying to catch the falling 
knife and would rather wait for the new trend to show itself.  
(not for the weak-hearted)

SUNW $75.56 -4.88 (-6.31) Wow, that's some retracement - roughly 
75% of the gain experienced since its split last week.  Support 
needs to hold at $74, which it did today, but just by the hair 
on its chinny-chin-chin.  Though today's sell-off of the issue 
happened on whopping volume (more than twice the ADV), SUNW still 
managed a bounce off that support level during the last hour of 
trade - no small feat today.  If there is a positive spin to 
this, it's that $74 also happens to be the 10-dma, a historical 
level of trading support for SUNW.  Nonetheless, the waters are 
treacherous now and we need to proceed with caution.  Support is 
at $74; after that, quite solid at $72.  Target shoot to your 
level of comfort or wait for a new trend to establish itself.  
Otherwise, you'll have to wait for a breakout over $83 for a 
"safer" position.



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

KIDE $38.00 -4.50 (-6.69) KIDE fell out of bed this morning 
and was in a sour mood for the rest of the day.  $40 tried to 
hold KIDE up with no luck and this level wound up providing 
KIDE's resistance for the rest of the session.  KIDE has 
additional resistance at it's 100-dma of $44 and it's 10-dma
of $46.50.  KIDE has exhausted all of it's moving average 
support with the exception of its 200-dma, which is all the way 
down at $27.  Being that the next level of solid support for 
KIDE is $30, we could be cleared for a healthy fall from here.  
Watch for any moves up backed with holding resistance for 
possible new entries.  As always, if you are in, keep your 
stops tight to protect your profits.  Next stop, $30?  That 
would certainly make for some happy holidays, for us anyway!

GT $28.19 -0.44 (-0.56) I was under the impression that tires 
bounce!  Apparently, I was mistaken but they certainly do 
roll downhill nicely, don't they?  GT found some support this 
morning at $28.50, however, this level was unable to hold as 
GT fell to a low of $28.06 and closed just pennies higher, 
positioning GT well for a continuation of this seemingly 
never-ending downward trend.  GT has immediate resistance at 
it's 5-dma of $28.50 with further resistance at it's 10-dma 
of $30 (this should provide some formidable resistance being 
that $30 is a strong psychological number as well).  At this 
point, it is somewhat difficult to identify any kind of support 
aside from the levels and the 52-week low of $27.81.  Time new 
entries very carefully at this point, being that we are now in 
territory that GT has not dwelled in since 1993!  Watch for 
the GT mini-rallies (we saw a very small example of this in 
today's session) backed by holding resistance.

GILD $38.69 -1.31 (-0.21) The shares of Gilead Sciences popped 
up yesterday but it has been downhill ever since, finishing 
today on its low.  The little rise on Monday gave us an good 
entry point to enjoy what could be a nice downslide.  GILD was 
weak today even though Biotechs in general where unchanged.  
That is the kind of declining relative strength we are looking 
for when buying puts.  If GILD follows through to the downside 
it could test support of $35 pretty quickly where we will 
consider taking profits.

ETYS $46.50 +0.56 (+1.38) We got a bit of a scare on Monday
morning with the Goldman Sachs upgrade to Buy with a $65
price target.  After the initial 'amateur hour' spike though,
investors shrugged it off and ETYS bounced south from
resistance at $50, providing a very nice entry.  Volume was
extremely heavy at 6.6 mln shares, as ETYS fell to close
near the low of the session at $45.81, up fractionally for
the day.  On Tuesday, shares jumped to $48 shortly after the
open, but then slowly bled throughout the day, closing near
the low of the day on volume slightly higher than the ADV.
There was a jump in volume near the close, bringing prices
off of the session low.  ETYS is continuing to obey the 5-dma,
dropping anew each time it gets close, forming resistance at
$48.  At this point we would like to see convincing weakness
in ETYS before opening a new position.  Look for a break
through the $46 support level on strong volume, and we could
see a drop to long-term support near $40.



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

NTAP - Network Appliance $164.00 +3.38 (+13.50 for the week)

The idea was inspired.  Yet simple.  Separate storage from an 
application server and put all that data on a special 
"appliance" tasked with serving data at high speeds.  In 1992, 
NTAP originated this high-performance network appliance 
concept.  Today they're a recognized leader in data storage 
and access.  Corporations and ISPs, including 3Com, Adobe 
Systems, Tripod, John Deere, NationsBanc, and GTE use NTAP's 
solutions to reduce the cost and complexity of managing their 
mission-critical data. 

NTAP is quick in-and-out split play.  Shares will split 2:1 
after the bell on Monday, December 20th so there's only four 
trading days to play this one.  Today the stock hit another 
all-time high at $167.75 on strong volume despite the negative 
market pressure.  Technically near-term support is at $160, 
then $150 just above the 10-dma ($147.54).  It's likely you'll 
need to target shoot for a bottom intraday around $160 to get 
an entry into this powerful mover however, keep your eyes open 
for a bounce off the 10-dma if market conditions and time 
permits.  NTAP has the additional bonus of being in a charged 
up sector.  Storage is a key component in the Internet revolution 
and NTAP is reaping the benefits.  Watch other sector players 
to gauge sentiment in helping to choose your entry points.  Just 
remember, this is a short-term play that needs to be closed by 
the end of trading on Monday.  

As an added bonus, NTAP is being added to the NASDAQ 100 Index.  
This event and the upcoming split should keep the momentum 
intact this week.  Analysts have also been positive on NTAP 
and on Thursday, AG Edwards rated the stock an Accumulate with 
a price target between $175 and $185.

BUY CALL JAN-155 NUL-AK OI=131 at $23.00 SL=18.00
BUY CALL JAN-160*NUL-AL OI=505 at $20.25 SL=15.75
BUY CALL JAN-165 NUL-AM OI=  0 at $17.63 SL=13.75 New Strike

Picked on Dec 14th at  $164.00    P/E = 267
Change since picked      +0.00    52-week high=$167.75
Analysts Ratings     7-2-1-0-0    52-week low =$ 33.68
Last earnings 10/99  est= 0.17    actual= 0.19 surprise=+11.76
Next earnings 02-17  est= 0.20    versus= 0.12
Average Daily Volume =   954 K
Chart = http://quote.yahoo.com/q?s=NTAP&d=3m

****

NXLK - Nextlink Communications $66.69 -2.56 (+2.56 this week)

Nextlink delivers broadband communications services to 
businesses over fiber optic and broadband wireless facilities.  
The Company currently provides these services in 41 markets 
across the U.S..  Nextlink is the largest holder of fixed 
wireless spectrum in North America, with licenses covering 95 
percent of the population in the top 30 markets in the U.S.  
Additionally, Nextlink has acquired exclusive rights to a 
16,000 mile high-speed, IP-centric fiber optic backbone network 
that will connect over 50 cities in the United States and 
Canada.  Completion is expected by the end of 2001.

Nextlink has been a very good performer in this red hot sector.  
From a 52-week low of $11.25, NXLK's stock reached an intraday 
high today of $73.94 before succumbing to broad selling in NASDAQ 
shares into today's close.  Nextlink was launched into new high 
ground on Monday when it was announced that NXLK will become 
the newest member of the NASDAQ 100.  By making it into the 
NASDAQ 100, NXLK will now be among the elite technology companies 
that are driving the changing face of corporate America.  This 
added exposure typically results in an increase in overall 
investor interest as well as mandatory buying of the company's 
shares for Index funds.  Today's pullback could provide an 
excellent entry point for a call position.  With a little follow 
through selling on the open it may be possible to go long on 
NXLK at the $65 level.  This price point was the old high before 
the recent breakout and could prove to be a good support area.  
If for some reason $65 does not hold, then $60 would be the 
next significant support level.  A rally above today's opening 
price of $70.50 could also prove to a good entry point for a 
bullish position on Nextlink.

Nextlink had another very good news item in addition to the 
news of being added to the NASDAQ 100.  On December 8th it was 
announced that Forstman Little will invest approximately $850 
million in Nextlink in the form of convertible preferred stock 
with a conversion price of $63.25.  The investment represents 
ownership of approximately 8 percent of Nextlink's fully 
diluted shares.  The conversion price will provide excellent 
long term support.  NXLK also agreed on December 7th to acquire 
Eagle River Investment's 50 percent ownership interest in 
INTERNEXT LLC for common stock.  The deal which should close 
early next year provides advantages for Nextlink if it's stock 
price is above $64.20 at the time of the closing.  This price 
dynamic provides another support level for the shares of NXLK.

BUY CALL JAN-55 QNF-AK OI= 141 at $13.75 SL=11.00
BUY CALL JAN-60 QNF-AL OI= 343 at $10.13 SL= 7.50
BUY CALL JAN-65*QNF-AM OI= 329 at $ 7.25 SL= 5.25
BUY CALL JAN-70 QNF-AN OI=1474 at $ 5.00 SL= 3.25

Picked on Dec 14th at   $66.69    P/E = N/A
Change since picked      +0.00    52-week high=$73.94
Analysts Ratings     8-5-2-0-0    52-week low =$11.19 
Last earnings 11/99 est= -1.40    actual= -1.27 
Next earnings 02-23 est= -1.45    versus= -1.04
Average Daily Volume =   977 K 
Chart = http://quote.yahoo.com/q?s=NXLK&d=3m

****

NSOL - Network Solutions $207.00 -1.25 (-11.75 this week)

Network solutions is the leading Internet domain registration
services provider worldwide.  At one time NSOL was the only 
registrar of Internet addresses ending in domains .com, .org,
. Net, and .EDU.  In 1999 the U.S. government opened the market
To competition.  By registering Internet domain names the company
enables businesses and other organizations and individuals to
establish an Internet identity.  NSOL has registered more than
4 million .com Web addresses representing businesses around the
world.  Network Solutions received competition in 1999 from
AOL, France Telecom and others pursuing the .com registration 
business.  NSOL is now marketing its network engineering and
security services.

We welcome NSOL to our play list as well as the Nasdaq 100.
December 20th NSOL will join  a group of other high flying tech
stocks in the Nasdaq 100 list of top technology stocks in the 
country.  In early August NSOL was trading near the $50
level when it began its climb to unprecedented levels.  In 
October NSOL reported better than expected earnings and the 
ascent continued.  NSOL has been another stock that has been
well received by investors and analysts alike.  Monday analyst
Stephen H. Sigmond at Dain Rauscher Wessels reiterated a Buy
rating on the .com registrar.  His 12-month projected price 
target for NSOL was $250.  The rate the stock has been moving 
lately it may it $250 by Y2K.  All the brokers that cover the 
company have either a Buy or Strong Buy rating.  Another reason 
we've added NSOL to our play list is the possibility of a split 
announcement.  NSOL has already split this year back in late 
March.  Technically the chart for NSOL couldn't look better.  
Friday NSOL hit a high of $233.88 and began to see some profit-
taking set in.  NSOL is down $11.75 for the week and is now 
approaching its 10-dma at $202.50.  The weakness may not be 
over yet but we are looking for a bounce in shares of NSOL stock.  
Intraday support for NSOL can be seen near $204.  Should we see 
a bounce accompanied by better than average volume we would look 
to buy calls.  Notice the volatility in the price of the calls 
listed below.  This may not be a play for everyone to consider, 
due to the high volatility.  Prior to entering a play check the 
direction of the stock and the volume to make sure it has a 
solid backing prior to placing your order.

There is no other news at this time.

BUY CALL JAN-200*JNU-AT OI=105 at $32.13 SL=25.25
BUY CALL JAN-210 JNU-AB OI= 99 at $27.38 SL=21.50
BUY CALL JAN-220 JNU-AD OI=325 at $23.13 SL=18.25

Picked on Dec 14th at   $207.00    P/E = 334
Change since picked       +0.00    52-week high=$233.88
Analysts Ratings      7-6-0-0-0    52-week low =$ 47.00
Last earnings 10/99   est=-0.19    actual= 0.21 surprise=+10.5%
Next earnings 01-27   est= 0.23    versus= 0.11
Average daily volume = 1.05 mln
Chart = http://quote.yahoo.com/q?s=NSOL&d=3m



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

No new put plays for today.



**********
PLAY OF THE DAY
**********

MACR - Macromedia Inc. $81.88 -2.19 (-5.00 this week)

Macromedia is a leading provider of Web authoring and 
production software for professional Web developers.  Its
products range from Dreamweaver, the market-leading
professional Web authoring environment, to Flash, the 
industry standard for high-impact, vector-based Web sites 
that deliver motion, sound, interactivity and graphics.  
The company recently announced a new corporate strategy
known as the Macromedia eBusiness Infrastructure, which will 
provide developers and companies with the first comprehensive,
integrated solution for creating, managing, personalizing and
analyzing Web content.

Sunday's Write Up

MACR was getting a lot of positive press this past week and
traders were rewarding the company by pushing the stock 
price up over 10 points.  The intra-day trading pattern is
perfect for stock and option traders.  The recent pattern
has the stock surging up 5 or 6 points, profit-takers then
step up to the plate to take some of the chips off of the
table, the stock bounces back off of support levels,
currently between $77-$79, then the stock surges again to 
new highs.  $87.50 is the current 52-week high.  This has been 
a consistent pattern to the upside since we began initial 
coverage of the stock, the stock is now up close to 20 points
in three weeks.  Going forward, the bullish scenario is still 
firmly in place and we believe that at current levels the 
stock is setting up for higher-highs.  The stock closed up
strongly on Friday at $86.88, closing at the high end of the 
range, if history repeats itself we should see a pullback the
following trading session, look for a bounce near $80.  Trailing 
stops are a must after positions have been taken.  

At the Streaming Media West '99 conference this week, Chairman
and chief executive Rob Burgess said the company's Shockwave.com
Web site has signed the creators of "South Park" to produce 39
original animated shorts based on the show.  He added that the
Macromedia Flash Player has been installed by more than 180
million consumers worldwide.     

Tuesday's Write Up

Prices continued to surge this week in the shares of MACR, 
hitting another 52-week high on Monday at $88.69, at this point 
profit-takers stepped up as usual. The stock closed in the 
middle of the trading range at $84.06, bouncing up from the low 
of the day $81.44.  The trading range remains wide and volatile, 
but consistent with previous trading sessions.  Today's overall 
market sell-off did not effect the trading pattern of MACR, 
and has provided us another buying opportunity.  Going forward 
we remain bullish in the midst of some overall market weakness.  
We should be able to trade MACR at current levels.  Support 
levels held up well at $80.  If there is any further weakness, 
look for a bounce near $77.25.

BUY CALL JAN-80 MRQ-AP OI=118 at $11.50 SL= 9.00 
BUY CALL JAN-85 MRQ-AQ OI= 61 at $ 9.38 SL= 6.75 low OI
BUY CALL FEB-80 MRQ-BP OI= 33 at $15.00 SL=11.75 low OI
BUY CALL FEB-85 MRQ-BQ OI= 43 at $11.13 SL= 8.75 low OI

Picked on Nov 23rd at   $67.56    P/E = 142
Change since picked     +14.31    52-week high=$88.69
Analyst Ratings      5-4-1-0-0    52-week low =$26.25
Last earnings 10/99  est= 0.31    actual= 0.19
Next earnings 01-26  est= 0.15    versus= 0.12
Average daily volume =   937 K 
Chart = http://quote.yahoo.com/q?s=MACR&d=3m



************************
COMBOS/SPREADS/STRADDLES
************************

Seasonal Shopping Sends Inflation Signal..

Monday, December 13
 
Blue-chip stocks fell on Monday as finance issues weakened ahead
of this week's key inflation report. Technology issues saved the
day, driving the Nasdaq to another record close. The technology
index climbed 37 points to an all-time high of 3,658. Stocks in
the Dow Jones Industrials dropped 32 points to 11,192 while the
S&P 500 index was off 2 points at 1,415. In the broader market,
declining issues led advances 18 to 12 on active volume of more
than 977 million shares on the NYSE. There were 87 stocks at new
highs while 472 made new lows. The U.S. Treasury 30-year bond was
off 17/32, and the yield rose to 6.21%.

Sunday's new plays (positions/opening prices/strategy):

Southwest Banc   SWBT   MAY20C/DEC20    $2.25   debit   calendar     
Geron            GERN   MAR12C/DEC15C   $1.62   debit   diagonal  
American Ins.    AIG    JAN96C/J110C    $10.88  debit   bull-call 
American Ins.    AIG    JAN104/D115C    $9.00   debit   diagonal 
Ciber            CBR    MAY25C/MAY30P   $10.25  debit   straddle    
Jones Pharm.     JMED   MAR37C/MAR40P   $8.12   debit   straddle

The majority of our new positions were active in early trading
and the day's downward movements allowed favorable prices in the
bullish plays. AIG was the first candidate and our choice was the
diagonal spread. Unfortunately, the large drop during the session
reduced the premium for the short position to almost nothing. In
any event, the target price was available. Geron also moved lower
at the open and prices for the long (MAR-$12.50) option were well
below Friday's quotes. We adjusted the target accordingly and our
opening price was $0.25 less than originally planned. The spread
traded as low as $1.50 debit. Southwest Bancorp was not nearly as
cooperative and the best observed price in the (neutral) calendar
spread was $2.25. The straddles were more difficult to gauge with
almost no volume during the session. There was plenty of movement
in the underlying stocks for target-shooting but the market makers 
inflated the 'ask' prices soon after the opening limit orders were 
entered. Our recorded entries are based on observed quotes during
the session.

Portfolio plays:

Technology stocks dominated the leaders but analysts said anxiety
about Tuesday's release of the Consumer Price Index and a rise in
bond yields weighed on the broader market. The record close of the 
Nasdaq composite came after the Nasdaq-Amex Market Group replaced
15 companies in its Nasdaq 100 index but pressure on big financial
companies dragged the majority of issues lower. One of the better
groups was the airline sector with the S&P airline index up almost
3% after many of the major carriers raised business-class ticket
prices in select markets. United Airlines (UAL) is one of our most
recent LEAPS/CC's plays and the stock price moved up to our sold
(short) strike near $75 on the rally. We will monitor that spread
position closely for a move to the January options.

Internet stocks were higher today and ExciteAtHome (ATHM), which
provides high-speed Internet access over cable lines was up $5 at
$51.38. Unfortunately, last week's drop took us out of the issue
early and we did not benefit from the rally. Those of you in the
bullish spreads can thank our well-known version of Murphy's Law
for the move. Lycos (LCOS) was another headline stock, climbing
$4 to close at $85. Share value in the Internet portal has moved
up 25% in the past five days and both of our new positions have
profited from the recent rally. Communications stocks were also
higher and Qwest (QWST) was our leading performer in that group.
The stock price rose $3 to a 26-week high near $42. Shares of the
telecom company were higher after being listed in Barron's as one
of the favorite picks of York Capital Management fund managers.
Bell Atlantic (BEL) was another participant in the sector rally,
climbing $2 to the top of a well establishing range near $65. BEL
is one position that will have to be moved to January this week.
Etek Dynamics (ETEK), InterVu (ITVU), and TV guide (TVGIA) also
climbed higher during the day's trading and each of the spreads
on these issues is at maximum profit.

Many of the smaller-cap technology stocks also performed well in
today's session. Youth Networks (NETS) was one of our best movers
with a $2.50 rally to a new all-time high near $31. Our (bullish)
diagonal spread will need to be adjusted into January during the
next few days to maximize profit. Cohu (COHU) climbed $0.75 to a
a recent high near our sold strike at $30. With the short-term
resistance at the current price, we decided to roll the position
into January. Our new diagonal spread is FEB25C/JAN30C at $2.88
debit. Kmart (KM) has been moving up since we opened the new play
last week and today the stock finished $1 higher at $11.50. Our
bullish diagonal position is now profitable with a $0.62 credit.
Another short-term mover in this group is Pillowtex (PTEX). The
stock price rose $0.75 to a technically favorable close at $6 and
our spread is now in positive territory. ProxyMed (PILL) finally
returned to the living with a midday rally to $11.50. A roll-out
to the JAN-$15 options provided a $0.31 credit for the long-term
calendar spread at $15. Net@Bank (NTBK) climbed to $23.50 during
the session, once again providing a favorable credit for the move
to January with a $0.25 cost basis in the new play; JAN22C/JAN25C.

Tuesday, December 14

U.S. stocks fell Tuesday after long-term interest rates jumped
on news that the economy may be overheating. The Dow Industrial
average ended down 32 points at 11,160 while the Nasdaq index
plunged 86 points to 3,571. The broad market S&P 500 index was
12 points lower at 1,403. Declining stocks outnumbered advances
2,035 to 1,070 on active volume of 1 billion shares on the NYSE.
The 30-year bond plunged 1-8/32 and the yield jumped to 6.30%.

Portfolio plays:

Despite the swell of profit-taking in the market, 3Com (COMS) was
a big winner today. The stock price gapped up in pre-open trading
on news it will spin-off its Palm Incorporated, maker of the Palm
Pilot hand-held computer devices, in an IPO slated for February.
Shares in the company were up almost $6 after reports that 3Com
filed with federal regulators to raise up to $100 million in the
initial public offering. The Palm division garnered $176 million
in the last quarter with net income of $9.7 million for the period.
Goldman, Sachs and Morgan Stanley Dean Witter will underwrite the 
offering. Both of our spreads on this issue are at maximum profit.

In the LEAPS/CC's portfolio, United Airlines (UAL) continued to
move higher today, and the rally provided a good opportunity for
a roll-out to January options in our deep ITM position. The new
spread, LJAN60C/JAN70C has a debit of $13.25. We will adjust the
the calendar position (LJAN75C/DEC75C) at the end of the week.
Computer Associates (CA) also rallied during the morning session, 
allowing a favorable move to January. The position, LJAN60C/JAN65C
remains bullish with a $4.88 debit, but the upside risk has been
eliminated. Market bellwethers moved higher during the sell-off
with Johnson & Johnson (JNJ) and Proctor & Gamble (PG) rising in
heavy trading. Recent leaders Sun Micro (SUNW) and Solectron (SLR)
were both hammered by profit-taking but neither is in danger of
a significant loss. The SUNW correction actually boosted our net
credit in the play and we will use the favorable movement to roll
forward (and up) into January options.

The Straddles section has endured some less-than-exciting activity
in recent weeks but many of the plays are starting to benefit from
the incredible volatility of the market. Ames Department Stores
(AMES) rallied almost $6 at midday after Banc of America said that
analyst Tom Tashjian has upgraded retailers, expecting investors
to return to consumer stocks. Other profitable straddles include:
Cullen Frost Bankers (CFR) which has moved well below the trading
range near $30, providing a $1.31 profit in the MAR-$30 position;
Allegheny Technologies (ATI) which has fallen $4 since the first
of the month, offering $0.88 profit; and our new winner, Station
Casinos (STN) which dropped $2 today to close at $20. The January
$25 straddle now offers a closing credit of $5. Those of you that
didn't take profits in the Lycos (LCOS) straddle should certainly
be out now with this week's move to $90. Our best exit credit was
$33, an $18 profit for the one-month play.

Questions & comments on spreads/combos to ray@OptionInvestor.com


*********
NEW PLAYS
*********

With a much-needed correction now occurring, we decided to search
for some new speculation plays. These positions are less likely
to suffer from current investor anxiety in the broad-market and
the long-term outlook allows plenty of time for eventual profit.

****

NAV - Navistar  $41.31     *** New Merger Rumors ***

Navistar International operates in one principal business segment,
the manufacture and marketing of diesel trucks and school buses,
mid-range diesel engines and service parts in the United States
and Canada, and in selected export markets. Navistar is the #3
truck-maker in the world behind Freightliner and PACCAR. Navistar
also provides financing and insurance for dealers and customers
and sells its diesel engines to other truck-makers such as Ford.
The company operates plants all over the western hemisphere and
exports its products to more than 70 countries.

The merger rumors are back and investors are again speculating on
Navistar as a takeover candidate, buying the stock out of a recent
slump since early November. A few months ago, Volvo was rumored to
be a potential suitor but no deal was announced. The stock surged
today as rumors circulated among floor traders and demand for call
options increased on heavy volume.

Regardless of the potential merger outcome, Navistar has performed
well fundamentally. In early December, the company reported solid
results for 1999 and forecast a continued strong performance in
the year 2000. NAV's quarterly operating income was excellent with
gross margins at 18% and a 42% return-on-equity. After the report,
Salomon Smith Barney reiterated their "buy" rating with a target
of $60, based on the upside earnings surprise.

Technically, the stock is coming out of a short-term base near
$38 with favorable divergences in money-stream and time-segmented
volume. We will position both plays with favorable profit and no
upside risk in the event of a possible buyout announcement.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL JUL-35 NAV-GG OI=200  A=$12.12
SELL CALL JAN-45 NAV-AI OI=3062 B=$2.75
INITIAL NET DEBIT TARGET=$9.00-$9.12 TARGET ROI=50%

- Short-Term Position -

PLAY (speculative - bullish/diagonal spread):

BUY  CALL JAN-40 NAV-AH OI=5501 A=$5.12
SELL CALL DEC-45 NAV-LI OI=608  B=$0.53
INITIAL NET DEBIT TARGET=$4.50 TARGET ROI=25%

Note: Our plan is to roll this position into a debit spread
(JAN40C/JAN45C) after Friday's expiration.

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


***************
TECHNICALS ONLY
***************

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing. Current news and market sentiment will have an
effect on these issues. Review each play individually and make
your own decision about the future outcome of the position.

****

AGTX - Applied Graphics Tech.  $8.88    *** On The Rebound! ***

Applied Graphics Technologies is a major provider of outsourced
advanced digital imaging management and archiving services
through its proprietary Digital Link system, to magazine and
newspaper publishers, advertisers, entertainment companies,
cataloguers and retailers, as well as major corporations. AGT
supplies a complete range of digital and traditional processes
for images; scanning, color enhancement, editing, archiving and
electronic distribution.

In early November, Applied Graphics reported quarterly earnings
of $0.01 a share, well below the analysts' expectation of $0.17
a share. The report sounds terrible and yet the stock began to
move higher because of a bold statement included in the release.
The text suggested that their newly organized E-business had
landed important business with Wal-Mart, the largest retailer in
the United States. It went on to imply that this new business
should generate one-time revenue from E-commerce applications
and the company was hopeful that the real payoff would be the
recurring revenue streams from future E-commerce opportunities.
Of course Wal-Mart has recently announced online partnerships
with a number of smaller public companies so this speculation
may have some merit.

In any case, the technicals are favorable. Support exists near
$7 with plenty of time to complete a double bottom (AMJ - OND)
from the two-year lows. An increase in volume on any rally to
the $10 area would signal the move to a higher trading range
and our position will benefit in any future rally.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL JUN-7.50  QDF-FU OI=0  A=$3.00
SELL CALL JAN-10.00 QDF-AB OI=58 B=$0.62
INITIAL NET DEBIT TARGET=$2.18 TARGET ROI=50%

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

****

BIDS - Bid.com  $5.05     *** Takeover Speculation ***

Bid.Com is one of e-commerce's leading international online sales
and marketing organizations. The company offers a compelling, 
entertaining and cost-effective method of selling a wide array
of goods and services over electronic distribution channels. BIDS
is strategically positioned to leverage its business-to-consumer
technological leadership by offering an online auction platform
for ventures into business-to-business markets, licensing custom
branded e-commerce and for distribution through cable media. In
addition to strategic alliances with CapGemini, NBCi, America
Online, Chapters.ca and Rogers New Media, the company has also
achieved agreements in the heavy machinery, automotive and travel 
sectors.

In plain terms, the company sells computer equipment, jewelry, 
electronics and other merchandise through its auction web-site.
Most of its offerings are new products, shipped directly from
the supplier. In recent weeks, BIDS has surged to highs near $7
on rumors that online auction giant eBay (EBAY) was preparing to
buy the Toronto based firm. Regardless of the possible outcome,
this issue appears to be poised for upside movement in the months
ahead. Our bullish speculation play offers a favorable method to
participate in a possible rally with very little downside risk.

PLAY (conservative - bullish/calendar spread):

BUY  CALL MAY-7.50 BDU-EU OI=1780 A=$1.06
SELL CALL JAN-7.50 BDU-AU OI=925  B=$0.25
INITIAL NET DEBIT TARGET=$0.68 TARGET ROI=50%

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



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************
See Disclaimer in section one
************


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