Option Investor
Newsletter

Daily Newsletter, Thursday, 01/20/2000

HAVING TROUBLE PRINTING?
Printer friendly version

The Option Investor Newsletter         Thursday  1-20-2000  1 of 2
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       1-20-2000           High     Low     Volume Advance Decline
DOW    11351.30 - 131.80 11558.70 11275.00 1,106,357k 1,216  1,815
Nasdaq  4189.51 +  38.22  4164.65  4084.73 1,843,800k 2,067  2,110
S&P-100  783.33 -   6.99   797.17   779.66    Totals  3,283  3,925
S&P-500 1445.57 -  10.33  1465.71  1438.54            45.5%  54.5%
$RUT     527.28 +   7.26   528.23   520.02
$TRAN   2784.31 -  53.73  2845.76  2768.32
VIX       24.16 +   0.89    24.89    22.69
Put/Call Ratio       .50
*************************************************************

Earnings and splits, a volatile mix!

The earnings headlines and a flurry of stock split announcements
combined to power the Nasdaq to another new record high and the
largest volume day ever. The big names are all lining up to wow
investors with their record results and many are opting to through
a stock split into the earnings fray as well. Notable earnings
last night and today were IBM, AOL, GTW, LU, INKT, SUNW, ATHM, 
AMD and APPL.  The excitement was rampant the open but the
Dow faded fast and hit the low of the day just after 1:PM.


 


 

The big winners this morning included IBM who announced a drop
in earnings last night. IBM opened up +$7.00 and briefly traded
well over $124 before closing under $120 for the day. IBM 
announced a -4% drop in revenues to $24.2 bln but proving "it
is all in the call" they rallied today on their positive 2000
outlook.

Another high flyer today was SUNW. SunMicro announced earnings
of +$.21 beating the street by +.01 on record revenues of
$3.55 bln. SUNW fell on the news in after hours trading but
they had gained almost $30 since their low on Jan-7th. The 
big news today in my opinion was the deal announced with Enron
(ENE). Enron has announced a deal to "trade" bandwidth between
the major carriers much the same way they trade "energy" now.
They announced a deal to buy 18,000 servers from SunMicro to 
power their regional data centers like Intel and Exodus. This 
was on top of an order from Digital Island (ISLD)for 5,000 
servers earlier this week. Clearly SUNW has the right stuff 
and the heavyweights are beating a path to their door.

Gateway (GTW) also announced after the bell today posting a
+$.42 exactly inline with already reduced estimates. GTW had
warned recently that the shortage of Intel chips had reduced
their sales in the fourth quarter. They announced today that
the supply problem had been solved by a new deal with AMD to
supply high performance processors. AMD also announced results
and blew away estimates with a huge gain. Posting a +$.43 vs
whisper estimates of +$.05 on heavy sales. AMD felt the outlook
was bright and they were positioned better than ever to take
more market share from Intel. Intel was down -$4.44 on the news
and after spiking over +$6.00 at the open AMD also closed down
-$2.00 on post earnings profit taking.

The bad boy on Wall Street today was Lucent who missed even
the analysts downwardly revised numbers and posted only a
+$.36 vs revised estimates of $.37. Lucent had closed around
$54 and traded down to $52.50 in after hours. Lucent broke a
string of 16 consecutive quarters of meeting estimates.

The big winner was Apple Computer (AAPL) which traded as high
as +$14 intraday on strong earnings of $1.03 compared to
estimates of $.90. Apple gave half of the gains back but still
finished up +6.94. Steve Jobs was the really big winner with
the Apple board voting unanimously to "give" him a Gulfstream
jet ($90 mln) including paying all the taxes and fees for him,
and $870 mln in stock. WOW! Almost a $1 bln payday for Steve.
Of course the shareholders were thrilled since he literally
brought APPL back from the brink of oblivion and helped them
post nine consecutive profitable quarters under his direction.
APPL stock which closed today at $113 was trading close to
$10 in 1997 just after Jobs took over. Good job, Jobs!

Stock splits were like popcorn this week, popping up everywhere.
Some of the major players were SEPR 2:1, PMCS 2:1, CRA 2:1,
PEB 2:1, USAI 2:1, MUSE 2:1, QLGC 2:1, CTXS 2:1, CLZR 3:2, 
CBXC 2:1, ASMLF 3:1, NTLI 5:4, PRGN 2:1, NDN 4:3. The gold
rush on splits was brought on by the huge gains in the last
quarter and the soaring stock prices for these high flyers.
Earnings season is the prime announcement time and this is
going to provide us with dozens of great trading opportunities
over the next month. If the market trades sideways or down 
these split runs may be the bright spots in an otherwise drab
February.

Bond yields stopped their drop at midday today and started
creeping up towards the magic 7% again. After trading in the 
6.75% range this morning, the yield fell to under 6.68% midday 
but rebounded back to 6.73% at the close. Oil prices continue 
to weigh heavily on the bonds as traders worry that the $30 bbl
oil will eventually lead to higher inflation. The markets were
watching and as earnings begin to fade the focus on the interest
rates and the Feds policy will continue to move to the front 
burner. 

The markets were mixed with the Dow posting a -138 loss and
the Nasdaq setting another record with a +38 gain. Still the
familiar pattern of declines beating advancers and new lows
beating new highs, returned on both major exchanges. The Nasdaq
was up strongly +75 in early morning and then turned negative
at midday. The turn around was nice but it was far from strong.
The Dow continues to slide after reaching an intraday high well
over 11700 on Monday. The Dow has now lost almost -400 points
from that intraday high. We are continuing to bleed gains and 
it is likely to accelerate as we get closer to the Fed meeting.
The market has already priced in a +.25% rate hike but the
uncertainty surrounding the Fed should prevent any major gains
before the Feb-1st meeting.  On the bright side the Russell-2000
is going vertical. It has a great chart (below) and shows
evidence of the broadening out of the rally into small caps.
Should this trend continue any profit taking on the Dow/Nasdaq
could be light. 


 
  
I am still cautious about the market direction once the earnings
begin slowing next week. With the Fed meeting only a week away
and the Employment Cost Index just before the meeting we could
see the market continue to trend downward or trade sideways.
One reader emailed today that he was sure losing a lot of money
since I wrote about my bearish outlook on February last Sunday. 
Well, I am still bearish on February and the almost -400 points 
on the Dow this week was not a positive event on my charts. I
have very rarely said "get out" or "stay out" of the markets.
First, I do not have a crystal ball and most readers do what 
they want any way. I only tell you what I see developing. It 
is up to you to decide which way you want to play. History in 
the markets is a wonderful thing. It almost always repeats itself
in one form or another. The stock market is probably the most
over analyzed invention known to man and also the hardest to
exactly predict. If we analyze history we can prevent the 
major trading disasters again. We may not buy exactly at the 
bottom or get out exactly at the top but we will not suffer large
losses either. Trading is as much a money management game as
any other table game I know. If you bet on long shots in
poker very often you will go broke. If you hit 17 in blackjack
you will lose more often than not. Sure there will be times
when you get the 4 but the overall odds are heavily against
you. In trading you need to invest heavily when the market
is strongly in your favor and invest sparingly when the odds
are against you. In blackjack, you would not continue to bet
double or nothing after six blackjacks in a row. Trees do 
not grow to the sky and streaks do not run forever. 
Historically February has been rocky. Choose your own path. 
Good Luck, Sell too Soon

Jim Brown 
Editor


*****************************
SEMINAR UPDATE - IMPORTANT !!
*****************************

The four day Option Investor Option Expo in Denver 
on March 25-28th is sold out!

Because of the huge response we have decided to schedule
another identical seminar the same week. 

The second seminar will start with the repeat of the Boot 
Camp refresher course on Tuesday March 28th and the three 
day advanced seminar will be on March-29-30-31st. (Wed/Thr/Fri)

If you were thinking about going but had not made up your
mind then this is your last chance. We were fortunate that
the hotel had meeting rooms available and there will not
be another Opportunity until next year.

The four day Option Investor Seminar will be taught by 15 
of the Option Investor staff and will have several well known 
"guest" speakers. 

The first day, Saturday March-28th is optional. This is a
special Options Boot Camp session for newer traders who need
to better understand the basic strategies before attending 
the Wed/Thr/Fri advanced classes.

The four day seminar will focus on explaining in detail each
of the option strategies you need to be a successful trader
in all kind of markets. You will learn how to choose what
strategy is right for you in every situation. You will learn
how to make money in any market and recognize the difference.
This is intensive instruction with real time, real life examples.
We will use live examples and study real plays as they occur.

Representatives will be available to answer your questions
from many of the brokers, charting and quote services we use 
at OIN. 

The tax saving information you will receive in the tax 
classes will more than pay for the entire trip.

This is our annual event and will not be repeated until 2001.

You can lose more than the price of the seminar in only 
one trade. Why not invest the same money in education and
profit from the experience the rest of your life?

For more information click below.

http://www.OptionInvestor.com/bootcamp/oinmain.html





***********************Advertisement***********************

               *** WIN $8,764 ***
Play CEO for a day and win $8,764 (the average daily pay of
a Fortune 500 CEO); a free trip to California; and $1,000
in computer equipment! Just go to OfficeClick.com, the web
site designed specifically for admins, and tell us how you'd
do things if you were a CEO.

http://www.officeclick.com/?MPC=0,8

***********************************************************

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

Lucent Acquires High-Speed Chip Maker
By Cindy Christ

Lucent Technologies (LU) Microelectronics Group said Thursday
it would acquire Agere, an Austin, Texas-based manufacturer of
high-speed, programmable network processors in a deal valued
at about $415 million.

Lucent will issue eight million shares of common stock to make
the purchase, which is slated to close in June 2000.

http://members.OptionInvestor.com/stocknews/012000_1.asp



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

As of Market Close - Thursday, January 20, 2000 

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

DOW Industrials   11,000  11,350  11,351    BULLISH   1.13
SPX S&P 500        1,340   1,400   1,448    BULLISH  12.03
OEX S&P 100          700     750     783    BULLISH  12.03
RUT Russell 2000     430     450     527    BULLISH  11.12
NDX NASD 100       3,200   3,850   3,842    Neutral   1.06
MSH High Tech      1,650   1,900   1,892    Neutral   1.06

XCI Hardware       1,300   1,350   1,430    BULLISH   1.14
CWX Software       1,210   1,420   1,347    Neutral   1.07
SOX Semiconductor    640     660     813    BULLISH  12.21
NWX Networking       820     900     899    Neutral   1.07
INX Internet         665     800     749    Neutral   1.06

BIX Banking          645     690     522    BEARISH  11.30
XBD Brokerage        410     450     427    Neutral  11.30
IUX Insurance        625     650     569    BEARISH  11.30

RLX Retail           900     935     954    BULLISH  11.23
DRG Drug             380     400     362    BEARISH  12.07
HCX Healthcare       760     790     737    BEARISH  12.07
XAL Airline          180     190     138    BEARISH   5.21
OIX Oil & Gas        280     315     290    Neutral   1.06

 
Posture Alert    
The Nasdaq led the way again on Thursday, as the technology index 
closed up another +39, on massive volume of 1.85 billion. The Dow 
continues to languish as it closed down another -138 points on 
volume of 1.1 billion. The market once again looks a little top 
heavy, and many of the leading sectors are getting near the 
previous breakdown levels (INX, CWX, NWX, MSH, and NDX). For a 
true breakout to occur in some of these sectors, we need to get 
confirmation with "true" higher highs and good volume. Even 
though several sectors are close to bullish levels, at this time, 
there are no changes in posture.



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

Thursday, January 20, 2000

Is That Your Final Answer?

The yo-yo that we call our stock market continues to be just that, 
a twisting, unforgivable, roller coaster going 90 miles-per-hour. 
Earnings season continues to crank out and the results so far have 
been stellar. However, we continue to watch many equities take the 
good news and promptly sell off. This buy-the-rumor, sell-the-news 
mentality is in full effect.

Now, should you be one of the unlucky to own an equity that 
actually makes a mistake, the month of January will not go down as 
your favorite. Shareholders of Legato Systems (LGTO) are feeling 
that not-so-fuzzy feeling after the company's auditors recommended 
that they restate earnings. Not only did they restate the earnings, 
but they also took nearly half their market capitalization with it, 
as the stock tanked -23 7/8 or (44.5%) on the news. Another 
casualty today was the laser surgery maker Visx (VISX), which 
reported earnings in-line, and lost -13 (29%) just today, to close 
at 32 , after hitting $90 less than 5 weeks ago. The point of 
these two examples is that trading stocks/options in the 
"goldilocks market" during the earnings run can be very dangerous, 
and with the market trading in nosebleed territory, anything less 
than perfect will get crushed. We've seen some of the biggest and 
best companies in the world (General Electric, Microsoft, AOL) come 
out with solid earnings and sell off after the fact. If big 
bellwethers like these can't hold on after earnings, then there is 
no need to be speculating on the long side just for an earnings 
surprise, because the surprise will be on you.     

On Tuesday, Pinnacle Capital highlighted the extreme positive 
sentiment in the OEX at the 800 benchmark. Not only did this level 
not break, but is had sold off dramatically. Several other leading 
sectors (NDX, INX, CWX, NWX, MSH) are showing signs of fatigue, 
and with the volatility index breaking it's 50-day moving average 
as well as the long bond breaking into new highs, we would not be 
surprised to see a failed rally. Several of these sectors are at 
the exact breakdown point from the 1st week of January, so should 
we see any weakness soon, we may see it compound. From the bulls' 
perspective, we need to see confirmation by having these indexes 
close at new highs on good volume, not the tweezer-tops that we 
witnessed today. There are still plenty of earnings left to help 
spark the market, however, with most of the biggest and best 
already reporting, we would not be surprised to see some weakness 
in technology in the near future. And that is our final answer! 


BULLISH Signs: 

Corporate Earnings:
Major corporate earnings are coming out left and right, and so far, 
it looks to be another very solid quarter!

Cash Flow:
The cash that has been sitting on the sidelines was put to use 
today, as the Dow traded over a billions shares, while the Nasdaq 
traded 1.85 billion.


Mixed Signs: None


BEARISH Signs:

Volatility Index (24.16):
The VIX proved continues to prove that the low 30's are an 
excellent buying opportunity, and the high teens continue to be a 
great selling opportunity. The VIX recently bottomed at 20.14 on 
1/14, and with today's action, we have crossed over the 50dma, 
suggesting potential weakness ahead.


Interest Rates (6.727%):
The yield continues to break new highs, with the next stop being 
6.75-7.00%. The market has already priced a 25 basis point 
increase this February, however the market is also pricing in a 
30% chance of a 50 basis point hike.

Valuation:
Low price to earnings stocks have been a safe haven so far in 2000, 
while high P/E stocks have gotten blistered. Is value coming back 
into play?
 
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.


The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

 
Pinnacle Index OEX              Friday      Tues       Thurs
Benchmark                       (1/14)     (1/18)      (1/20)

Overhead Resistance (800-820)     7.82      8.67       10.72

OEX Close                       797.52    795.68      783.33

Underlying Support  (770-790)     1.20      1.38        1.40


What the Pinnacle Index is telling us:
Based on January 20, like we have mentioned, direct overhead was 
building and continues to build. To see the OEX sell off from just 
under 800 was almost expected. Support continues to be light but 
is building up slowly.

Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (1/14)    (1/18)      (1/20)

CBOE Total P/C Ratio             .42       .44         .50
CBOE Equity P/C Ratio            .31       .35         .41
OEX P/C Ratio                   1.83       .83         .92


Peak Open Interest (OEX)
                     Friday           Tues            Thurs
Strike/Contracts     (1/14)           (1/18)          (1/20)

Puts                700 / 10,484     750 / 11,862     700 / 10,699
Calls               800 / 22,600     800 / 22,217     800 / 21,477
Put/Call Ratio        0.46             0.53               .50



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

Daily Results

Index     Last     Tue   Wed     Thu    Week
Dow    11351.30 -162.26-71.36 -138.06 -371.68
Nasdaq  4189.51   66.54 20.48   38.22  125.24
$OEX     783.33   -1.84 -5.37   -6.98  -14.19
$SPX    1445.57  -10.01  0.76  -10.33  -19.58
$RUT     527.28    5.90  6.56    7.26   19.72
$TRAN   2784.31  -38.02-15.57  -53.73 -107.32
$VIX      24.16   -1.47 -0.04    0.89   -0.62

Calls              Tue   Wed     Thu    Week

MSTR     287.81   13.44 23.63   22.81   59.88  What a week!
JDSU     238.88    3.50 16.25   26.94   46.69  Good to be smart
AFFX     232.50    6.00  9.50   30.25   45.75  Like clockwork
HGSI     211.50    9.50 -1.00   18.38   26.88  Keeps on moving!
NTAP     115.00   24.44 -9.63    6.50   21.31  Upward momentum
EXDS     125.00   18.00 -0.16    1.16   19.00  Plenty of news
SEPR     140.50    4.13 -3.00   13.25   14.38  A nice boost
TQNT     143.19    4.75  1.38    7.06   13.19  Very strong day
LVLT      98.13    5.31  2.81    3.25   11.38  Gotta love it!
MFNX      67.88    3.88  3.81    3.06   10.75  Great chart!
PCS      108.00    2.81  4.94    2.50   10.25  New, sprinting!
ANAD      80.50   -0.94  6.81    1.63    7.50  Three times!
EMC      116.75   -0.34  4.00    1.63    6.25  Answers clearly
LSI       78.56    6.50 -0.69    0.00    5.81  One more push?
CMVT     152.81   -3.94  1.63    6.81    4.50  Buyer interest!
GMST      80.50    7.56 -1.75   -2.13    3.69  Consolidation?
AMGN      71.81    0.75  2.94   -0.19    3.50  Dropped
VOD       55.44    4.63  0.00   -2.56    2.75  Entry point?
ADI       99.44   -2.88  2.94   -2.00   -1.94  Sheer momentum!
NOK      179.75    5.13 -1.38   -0.25   -4.31  Will it rally?
VIGN     196.13   -2.69 -4.25    2.13   -4.81  Breakout coming?
INTU      76.38   -4.63 -2.25    1.88   -5.00  Dropped

Puts

RLM       66.88   -2.38  0.88   -5.13   -6.63  New, more product
WCOM      43.38   -2.06  0.56   -1.69   -3.19  Go, baby, go!
FD        46.25    0.06 -0.13   -1.56   -1.94  It's a sale!
CMGI     120.56   -5.63  6.06   -1.81   -1.38  CMGI falls back
SBC       41.00   -0.88 -0.56    0.44   -1.00  Dropped
IIJI      85.38   -1.50  0.13    1.25   -0.13  A little time
ISLD      80.00    4.88 -1.00   -1.00    2.88  Dancing shoes
ICGE     152.25    5.25 11.63    1.88   18.75  Risky!



************
WOMANS WORLD
************

There is no Womans World article tonight, as Renee is on
vacation.


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

There is no Traders Corner article tonight.



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:
*****

INTU $76.38 +1.88 (-5.00) As we warned earlier in the week, 
INTU was being kept on a short leash.  INTU had slipped under 
near-term support ($80) on Tuesday.  This wasn't a good sign.  
Over the past two days there was unfortunately no significant 
upward movement.  Consequently for lack of upward movement and 
for violation of its 10-dma (77.12) we're dropping the stock 
from our call list.  

AMGN $71.81 -0.19 (+3.50) AMGN is looking positively boring 
in comparison to the Human Genome stocks, despite a nice 
effort to break through resistance and establishing a new 
high.  If AMGN was working on the "project" in any way the 
stock would probably be $180.  Today, it almost seemed like 
they were selling AMGN to buy Genomics stocks.  The technical 
picture for AMGN is still very solid.  By taking out the $70
resistance and closing comfortably above it today, AMGN is 
still in a solid uptrend.  However, our capital might be put 
to better use in something a little stronger.  Holding support 
at $70 is critical and we could get a mini-rally of a couple 
points if the stock can trade above today's new high of $74.50.
Earnings are expected after the close on Tuesday.


PUTS:
*****

SBC $41.13 +0.56 (-0.94) We said SBC seemed to be looking for
a bottom.  We believe the telecom company just may have found
what it was looking for.  Although it is not our practice to 
pick tops or bottoms, the lack of any follow-though selling, 
the stiff resistance seen at $40 and the bounce higher tells
us its time to let this put play go.  SBC jumped up $0.56 
today, but the volume behind the move is what is a bit 
concerning.  SBC saw over 10 million shares change hands for 
the session.  The long-term downtrend could continue, however 
today's bounce suggests their may be more upward movement.  
Depending on your entry point SBC did give us a chance to make
a small profit.  Sometimes a small profit is better than none
at all.  For now we will concentrate our efforts elsewhere.



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

ADI $99.44 -2.00 (-1.94) Sheer momentum continues to push ADI 
to higher-highs.  Yesterday and today ADI stretched into new 
territory bucking the negative pressure of the DOW.  Although 
mild profit-taking did occur in today's afternoon session 
following the stock's record peak at $104.  The downdraft 
however provides players with solid entry points just above the 
5-dma ($98.91).  This technical indicator has so far acted as 
support during the recent uptrend and unless there's an earth-
shattering event, ADI is still poised to climb further upward.  
In the industry, Silicon Laboratories announced they have filed 
for an $80 man IPO.

ANAD $80.50 +1.62 (+7.50) It's done it three times this week, 
can ANAD finish off the week with another all-time high?  Wow! 
That would make seven consecutive new highs.  But let's return 
to earth for a moment.  When will Anadigics balloon deflate a 
bit?  This is a good question.  Remember traders always want to 
take a little cash off the table at some point.  The strategy is 
to get out of your call positions before that happens.  Near-
term support evolved at $79 and $83.06 now serves as overhead 
resistance.  Take notice that today is the first time ANAD 
really sagged intraday.  Be careful at this level.  There's only 
five days left to play this run.  Earnings are confirmed for 
next Friday January 28th, before the bell.

LVLT $98.13 +3.25 (+11.38) You've got to love this earnings' 
run.  At the beginning of the week we were looking for LVLT to 
simply show strength above $90 and it didn't let us down.  Near-
term support is now higher at $94 and $95.  The rapid movement 
has also out-paced the 5-dma technical which is much lower at 
$91.75.  The stock is clearly making a charge for its 52-week 
high at $100.13, the psychological hump.  Today however, $98 
acted as a resistance level that is until the last trade when 
LVLT tagged $98.13.  Still be prepared for some opposition 
especially after the huge gains.  Don't get impatient, there's 
a couple more weeks left before earnings.  LVLT is confirmed to 
report on February 3rd, before the bell.    

AFFX $232.50 +30.25 (+45.75) The ego trip continues for 
research analysts.  Like clockwork, all you have to do is 
raise the target price of a high flyer and it will do its best 
to hit the new target that day.  Such was the case for the 
shares of Affymetrix.  This morning, the Biotech analyst from 
CSFB raised the target price for AFFX to $250.  The stock got 
as high as $244.38 before a little profit-taking.  Today's 
volume was very strong at over two times ADV, which is another 
good sign that the stock could continue its rally tomorrow.
In Tuesday's report we mentioned that a strong close above 
$200 could result in a nice rally.  With plenty of 
opportunities to enter a position yesterday and today many 
subscribers could be sitting on some huge profits.  Intraday 
support was established at $223.  If the stock is going to 
take a look at $250, it will have to break above $235 and then 
$244.50.  Trading above these levels might be good entry 
points for momentum traders.  Considering the volatile nature 
of this stock it would be advisable to watch it closely and 
perhaps to use trailing stops.  Never let a winner turn into 
a loser.

MSTR $287.83 +22.83 (+59.88) Do you believe in psychological 
support and resistance levels?  Take a look at the high print 
of $300 on MSTR for evidence of this phenomenon.  When we 
mentioned on Tuesday that it looked like MSTR had established 
a nice support level at $219 giving it a base from which to 
launch itself higher we had no idea that the stock would be 
one of the absolutely best NASDAQ performers of the past two 
days.  Volume finally picked up a little today.  Yesterday, 
MSTR announced a partnership with Active Research, a provider 
of Web based Market Research services, resulting in an 
innovative new kind of market intelligence service.  MSTR 
seems to trade very true to the technical norm of rallying 
nicely after taking out resistance.  With 30 point ranges 
becoming commonplace for this stock you need a very well 
defined trading plan when entering a position.  Pick your exit 
points and have the discipline to stay with them.  Support is 
at the old breakout point (two days old!) of $250.  Strength 
tomorrow could result in a test of $300 pretty quickly.  
Reminder: Earnings will be reported next Thursday.

TQNT $143.19 +7.06 (+13.19) A very strong day for TriQuint.  
Shares of this leading Semiconductor company broke above three 
days worth of resistance at $138.88.  Breaks above triple-tops 
are very bullish and the stock did not disappoint, ploughing 
convincingly into new high ground.  Everyday, TQNT is looking 
more and more like a must own stock for Tech Fund managers, 
and with volume picking up, we may be seeing institutional 
buyers.  We could see a few more days of strong buying in the 
stock as long as the overall market stays strong.  Do not 
forget what the sentiment was like two weeks ago.  TriQuint 
might be a good candidate for using trailing stops.  If you 
get out you can always get back in at the next support level.
You can not go broke taking profits.  Intraday support was 
established at $141.  Further down we can find support at the 
breakout point of $138.  Resistance is the new high of $146.

GMST $80.50 -2.13 (+3.69) Please allow us to give ourselves 
kudos for a good call.  Hey, it happens sometimes.  In 
Tuesday's update we noticed that GMST looked a little 
overbought in the very short-term and that a gap up on 
Wednesday might be a good opportunity to take some quick 
profits before a subsequent pullback into the mid to high 
$70's.  No dust on that crystal ball.  Gemstar's high for the 
week occurred on the open yesterday at $88.50.  Today GMST 
pulled all the way back to $76.75 before a nice comeback to 
$80.50.  Now what?  We are not sure if this pullback was the 
end of a very short-term consolidation.  If GMST can test 
today's low again then we will have more confidence that it is 
ready to resume its uptrend.  A move above today's high of 
$83.50 might be the confirmation we need to get GMST moving 
again.  In a developing story that needs to be monitored 
closely, Gemstar filed a patent infringement suit against TiVo 
alleging that TiVo's deployment, marketing, offers to sell and 
sale of personalized video recorder devices contain an 
unlicensed interactive program guide.  Gemstar is seeking an 
injunction and monetary damages.  

CMVT $152.81 +6.81 (+4.50) Taking a bit of a breather, CMVT
posted a fairly quiet inside day yesterday with volume only
about half the ADV.  Today was a different story as CMVT moved
up strongly at the open, found support at $149 (old resistance)
and then moved up strongly into the close for almost a $7 gain.
It looks like buyers are starting to get interested again as
volume moved up to the daily average.  Remember that the
primary catalyst for this play (other than momentum) is our
anticipation of a split announcement.  Our next resistance point
is the 52-week high of $155.88, and support seems to be forming
near $149.  Below that, we have strong support at $144 which is
further supported by the 10-dma at $142.  New positions can be
considered either on continuing strength or an intra-day
pullback.  In the news yesterday, Ulticom, a subsidiary of CMVT
that provides network signaling software, filed for an IPO
with the Securities and Exchange Commission.  Lehman Brothers
will serve as the lead managing underwriter.



********************************************
PICK NEWS - CALLS - CONTINUED IN SECTION TWO
********************************************



************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


FREE TRIAL READERS
******************
If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

http://www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an email to

Contact Support

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333


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         Thursday  1-20-2000  2 of 2
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


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

EMC $118.63 +1.63 (+6.25) So much for resistance!  Yesterday,
EMC moved up to $116 early and danced around this resistance
(support?) level for the rest of the day.  This morning, the
answer became clear as buyers pushed the price up to $120 before
the sellers arrived.  Dropping with overall market weakness, EMC
showed us that $116 is now support as it bounced smartly from
that level at 1:00pm EST.  Volume was strong (20% over the ADV) 
as EMC made its way back up to $120 (new resistance) before 
giving some of its gains back at the close.  An intraday pullback 
will probably be your best strategy for opening new positions, 
as EMC will likely remain strong with earnings on the horizon
(Wednesday before the open).  For those of you with open
positions, keep your stops in place in case the NASDAQ decides
to take a rest.  Continuing the long history of cooperation
between the two companies in serving the Storage Area Network
(SAN) market, Qlogic announced that their QLA2200 Fibre Channel
host bus adapters have joined the ranks of connectivity
solutions that have met EMC's rigorous interoperability testing.

VIGN $196.13 +2.13 (-4.81) Is the breakout coming?  Showing us
a pattern of higher-lows and obeying support at the 10-dma
(currently at $188), VIGN looks like it is getting ready to
surge higher.  Volume has been light (about half the ADV) all
week as VIGN has consolidated its recent gains, gathering its
strength for another move up as earnings approach.  We still do
not have a date, but the company is telling us to expect them
at the end of the month.  With the light volume, it has been
encouraging to see buyers appear whenever VIGN gets close to
support, and we expect another strong move up when the buyers
return in force.  Any pullback near the 10-dma is buyable, but
don't get complacent about the quiet trading in VIGN this week.
It is still a volatile internet, so keep your stops in place.
Yesterday, Adero, Inc., the leader in global Internet content
distribution, announced a partnership with VIGN in which the
Vignette StoryServer 4 will be deployed across the AderoWorld
Service network.

VOD $55.63 -2.38 (+2.75) Round 8, and Mannesmann comes out
swinging!  Not content simply to reject VOD's latest buyout
offer, Mannesmann spokesman Manfred Soehnlein called it "wholly
inadequate".  There are also rumors that Mannesmann is close to
striking a deal with French conglomerate Vivendi that could help
fend off VOD's buyout bid.  With the dynamics of this ongoing
battle, it has been encouraging to see the strength in VOD
shares.  Volume has been about average and the sellers have
not been able to push the price down to the top of the gap up
on Tuesday ($55).  VOD tested $55.50 early in the day today
and the bears were able to bring prices close to that level
again by the close.  Whether this is a good entry point or
the beginning of another trading range remains to be seen.
Consider entering new positions if VOD bounces at support
between $54-55, but stand aside if this level is violated on
a closing basis.

NOK $179.75 -0.75 (-4.31) ZZZZZZZZ.  NOK is putting our feet to 
sleep as volume is falling to the floor and the price remains 
flat.  While there has been enough volatility between $175 
(strong support) and $185 to make small profits, timing an entry 
on a gapping ADR is difficult at best.  NOK really needs to get 
the lead out soon if it is going to start an earnings run at all.  
The confirmed date is February 1 BEFORE the open (approx. 5:00 
a.m. ET).  NOK could also announce a split (over $150 is the 
historical range), but that likely won't come until the 
conference call gets started at approximately 8:00 a.m. ET.  Low 
volumes may be indicative of a coming rally any day now, and 
earnings could be the catalyst.  While we fully expect a big move 
in NOK on that basis, consider getting into the play only when 
you see the volume start to increase again.  Tomorrow doesn't 
count since options expiration could artificially inflate the 
volume as contracts are settled.  However, if you are inclined 
to accept more risk, consider buying intraday dips. 

JDSU $238.88 +26.91 (+46.69) It's good to be smart.  It's even 
better to be lucky.  Not only has news of JDSU's acquisition of 
ETEK helped to drive the price up, but today a Wall Street 
Journal article noting that JDSU is poised to expand the 
Internet, and the announcement of an extension of a multi-year 
supply agreement with Lucent have both acted to flip the switch 
for JDSU.  With earnings on tap for January 26 and volume at 
almost three times the ADV today, JDSU is definitely on a run.  
Buying activity at the end of the day was fierce as JDSU closed 
at a new high, $0.13 short of its all-time trading high (also set 
today).  Options expiration day is typically supportive of stocks 
and we could see the trend continue.  Beware though.  This is a 
lofty gain even for this volatile stock.  Assuming traders have 
figured out the earnings run pattern (ala YHOO), JDSU could sell 
off prior to earnings, or become more volatile yet as the date 
nears.  That's not a prediction, but a reminder to be nimble in 
getting out of the trade if it moves against us.

EXDS $125.00 +1.16 (+19.00) After an $18 jump on Tuesday from 
news that they were teaming up with Foundry Networks to speed up 
clients' Internet connections, EXDS needed a rest.  Volume though 
still remains well above the ADV, telling us the buyers are still 
hanging around.  News continues to come from the company 
highlighting new partnerships.  Today they announced that they 
would partner with Anderson Consulting to provide services to the 
financial industry.  Mild support comes at $122.  A bit further 
down the chart, it's at $113 and $110 - not much in between. 
Earnings are scheduled January 26, wherein EXDS could announce 
a split too.  Barring any bad news from the market, or a bout 
of profit-taking stemming from traders' recognition of a pattern 
of selling off before earnings (see YHOO), we expect EXDS to 
continue climbing into January 26.  It's volatile so keep your 
stops tight, and consider buying intraday dips for the best entry 
if your risk tolerance allows it.

MFNX $61.00 +3.88 (+10.75) The Tasmanian Devil's on the loose!  
Meanwhile, the wild goose chase continues with MFNX's IR 
department.  The latest is that earnings will "likely be in early 
March - check back with us in mid-February".  All we can say is 
don't base your play on an earnings run.  Furthermore, MFNX has 
the propensity to announce earnings in mid-session.  Thus you 
should consider exiting the play if MFNX announces early, say by 
February 7 like Zack's has listed.  No matter, it's still a great 
looking chart as MFNX whirls through its ninth day of sequential 
gains on volume well above the ADV of 2.8 mln shares.  The action 
has been steady and without much volatility on its ascent.  
Though today, there was definite selling action into the close.  
Finally MFNX may stop to breathe, giving us a good buying 
opportunity.  The difficulty is that there is no discernable 
support to pick as a target for shooting.  While it moves in 
roughly $2 increments, $60 appears to be the nearest thing 
resembling support.  Otherwise you can pick a target that suits 
your risk.  Just wait for the bounce with renewed buying interest 
and avoid the temptation to catch the falling knife.

HGSI $211.50 +18.38 (+26.88) As the broader markets exhibited 
a tug of war, HGSI just kept moving higher.  HGSI gained $18.38
to finish the day at $211.50.  Volume was strong with over
1.1 million shares changing hands.  Its hard to tell exactly 
what motivated buyers today, as investors poured money into the
Biotech sector and technology stocks.  Our interest in HGSI,
is the 2-for-1 split the company's stock on Jan 31st.  Our 
advice at this point, is move your stops up.  Intraday support
is seen at $207.75.  The next level would be down at $195.  
HGSI did gain 9.5% today, so a brief pullback would not be out 
of the question.  A bounce off either support level would 
provide an opportunity to add to, or enter a new position.  
HGSI did announce Wednesday, Phase II human clinical trials of
a drug called Repifermin.  Repifermin is being tested for the
treatment of mucositis associated with bone marrow 
transplantation for the treatment of cancer.

SEPR $140.50 +13.25 (+14.38) Our earnings run play received a 
nice boost today, as SEPR's board of directors announced a 
2-for-1 stock split this morning.  On the news SEPR turned what
was already a good day into a great day, adding $13.25 to close
at $140.50.  The split will be payable Feb 25th.  SEPR is 
scheduled to report earnings Jan 28th, before the market opens, 
so we have time for this play to continue.  Although earnings 
aren't expected to be that solid, investors seem to be betting 
more on future expectations of new products and developments. 
The biotech sector was up today over 3%, as investors continued 
to take money out of blue-chip stocks and buy the Drug and 
Biotech sectors.  Recent upgrades and the split announcement 
have helped propel this stock to new highs.  $136 and $132 
should provide good support for SEPR, should we see a 
retracement.  The volume today was strong at 1.1 mln shares,
and we expect the trend to continue higher.

NTAP $115.00 +6.50 (+21.31) After a brief pause Wednesday,
shares of NTAP resumed the upward momentum today.  NTAP 
gained $6.50 on volume of 2.1 million shares.  The computer
networking sector has had a great week, as investors continue
to rotate out of blue-chip issues and buy technology stocks.
This morning analysts at PaineWebber reiterated their Buy rating
on NTAP.  Their 12-month target price was adjusted to $150.
The rate NTAP has moved recently the $150 level could be reached
by the end of the month.  Although we may see a pullback in 
the Nasdaq, and NTAP, we believe the current philosophy among 
investors and traders is to stay in the technology issues.  
Support is found at $108 and $102.  Wednesday Veritas Software 
and NTAP announced the availability of a fully integrated and 
qualified high-availability application solution for NTAP's 
storage appliances.  

LSI $78.56 +0.00 (+5.81) The Semiconductor sector did see a
gain today, even though LSI struggled a bit on the session.
After a decline to $75.63 on Wednesday early in the day, shares 
of LSI did recover and spent most of the day consolidating.
Volume for the chipmaker dropped today to 1.4 million shares,
and simply appears as though investors are catching their 
breath.  The upgrade from Merrill Lynch Tuesday, should 
help the company in the near-term.  Our earnings play has 
three more trading days to run before LSI reports earnings.
Analysts are looking for EPS to come in at $0.43, compared
to breaking even a year ago.  We believe LSI has the ability
to make one more push to the upside prior to Tuesday's 
earnings announcement.  Intraday support is seen at $78 and $76.
Should we see a bounce off those levels, that would provide 
a good entry point for a last minute entry.  We will drop
this play on Sunday, due to the next publication coming out 
Tuesday evening.  If you have a position in this play, remember
you will want to exit by the close of business Tuesday.



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

WCOM $43.38 -1.69 (-3.19) Go, Baby, Go!  WCOM doesn't seem to
have any reserve strength to call on as it continues to bleed.
Merger and revenue concerns continue to plague this Telecom
giant, as it looks ready to test the lows from last Tuesday,
near $41.  Being pushed out of the Magellan Fund's top 10 on
Tuesday didn't help either.  Volume was heavy again today and
closing very near the low of the day doesn't paint a pretty
picture for WCOM.  The 10-dma, which has been providing
resistance, is now down at $45.50, and a southward bounce 
from there is buyable.  Just beware of the rogue news event 
or analyst upgrade and keep your stops in place.

IIJI $85.38 +1.25 (-0.13) Alright, so IIJI felt more like 
"hanging out" around $85 instead of $80.  We are going to give 
IIJI some more time to make up its mind as to what direction 
it is going to head.  We saw volume less than half the daily 
average backing today's move up, which is indicative of the 
continuing lack of investor interest in this stock.  IIJI's 
10-dma, currently at $96.75, could continue to provide 
resistance as it has done in the past.  Proceed with caution.  
Until we see a drop below $80 backed by a pick up in volume, 
we are definitely going to want to hold off on new entries.  
Even if we do see a move below this level, do not forget that 
we have yet another near term support level to conquer at $80.  
If we get the go ahead to play, be sure to use your stops.  

ISLD $80.00 -1.00 (+2.88) Yesterday afforded us some nice 
opportunities for new entry with a trading range pushing $8.  
Today, Digital Island once again put on its dancing shoes and 
did a nice little number across $80 throughout the session.  
It did a bit of late day dipping, however, this move was not 
at all impressive, as ISLD quickly came right back up to close 
smack dab on $80.  ISLD has turned the overhead opposition of 
its 5-dma, which is now at $79.50, into support.  ISLD does 
have some resistance overhead at its 10-dma of $85.50.  At this 
point, we are not recommending any new entries until we see a 
drop below $80 backed by a pick up in volume, as the volume 
backing today's decline was very weak.  
 
FD $45.94 -1.88 (-1.94) It's a sale but there are not a lot of 
buyers!  After what looks to have been roughly three sessions 
of consolidation, FD decided today was the day to take the 
plunge.  FD opened at its high for the day and it was pretty 
much all downhill from there.  FD traded right through its 
50-dma at $46.50 and headed even lower to flirt with its 
100-dma at $45.50.  It was a rough day overall for the retail 
sector with the RLX down nearly 21 points.  FD spent some time 
trading around $45 back in the beginning of December so we are 
at a level of support which as we mentioned above is backed by 
FD's 100-dma.  Use caution at this point as FD has additional 
support right around $43.  FD looks to have some solid resistance 
right around $48.  Should FD make a move up, watch for this level 
to hold FD down and take advantage for possible new entry points.  
New entries may be a bit risky at this current level because of 
the amount of support backing FD. 

ICGE $152.25 +1.88 (+18.75) It doesn't get much riskier than
this play so watch yourselves.  When you look at ICGE and the
Nasdaq, relative strength is good for ICGE.  They accomplished
breaking resistance of $150.  Today's trading can result in two 
things.  The first would be if ICGE retreats back to $150 and 
bounces up again (the old resistance becomes support theory) 
that the next step for ICGE is an upward trend.  That may take
ICGE up to the next resistance level right around $170.  The 
second result could be there was not a lot of volume backing 
that breakout over resistance, which would indicate that buyers
are not that aggressive.  Obviously this is what we are expecting.  
ICGE follows closely behind CMGI which isn't doing so well even 
with such good market conditions.  So we might not be looking 
at an upward trend, but one in the other direction.  Support is 
at down at $130 still.  The break above the 10-dma is always a 
warning sign for put plays so don't enter any new plays until 
ICGE falls back below that level.  The 10-dma is at $148.50.

CMGI $120.56 -1.81 (-1.38) Despite a strong open at old 
support, CMGI quickly yielded.  It fell back to its first line 
of opposition at $119 and $120, trading relatively flat for the 
remainder of the session.  Nevertheless CMGI is still tucked 
under the 30-dma ($125.37) and is just a 15.4% slip away from 
the 50-dma ($101.97).  The next line of resistance to crack is 
the $112.50 mark which represents Tuesday's and Wednesday's 
intraday low.  For those readers just joining us, CMGI is a 
HIGH-RISK put play so know your tolerance for volatility.  Today 
CMGI announced one of its majority owned companies, Engage, a 
tracker of online customers' tastes, is acquiring Adsmart, an 
Internet ad buyer, and Flycast, an Internet ad seller, in a $2.6 
bln internal stock deal.  The strategy is to form a single 
organization to deliver online advertising and marketing.  The 
deal is expected to be closed during the 2Q of 2000.  As a 
result of this pact CMGI's holdings will exceed $11 bln dollars, 
an astonishing eight-fold increase from last year.



******************************
NEW CALL PLAY/PLAY OF THE DAY
******************************

PCS - Sprint PCS Group $108.00 +2.50 (+10.25 this week)

Sprint PCS operates the largest 100 percent digital, 100 percent 
PCS nationwide wireless network in the United States, already 
serving the majority of the nation's metropolitan areas 
including more than 4,000 cities and communities across the 
country.  Sprint PCS has licensed PCS coverage of nearly 270 
million people in all 50 states, Puerto Rico and the U.S. 
Virgin Islands.  Sprint PCS is a wholly owned tracking group 
of Sprint Corporation.  Sprint is a global communications 
company at the forefront in integrating long distance, local
and wireless communications services and one of the world's 
largest carriers of Internet traffic.  Sprint built and 
operates the United States' only nationwide all-digital, 
fiber optic network and is a leader in advanced data 
communications services. 

We are looking for a nice sprint from PCS as it heads toward 
a stellar beginning to February.  Not only do we get an earnings 
announcement on February 1st, we also have a 2:1 stock split on 
February 4th.  We are looking for these two upcoming events 
to provide us with a nice run to finish out January.  PCS looks
to have its eye on breaking through its 52-week high of $114.44. 
PCS looks to have some support right around $101 where its 5 
and 30-dmas are working to converge.  PCS has some additional 
support in the neighborhood of $98, if needed.  PCS has immediate 
resistance at $110, though we do not expect this to be too much 
of an issue.  After that, we could be cleared for a nice run.  
Try and time new entries toward the early part of the day, as 
PCS has established a pattern of moving steadily up throughout 
the session.  The weekly trend on this stock looks good, barely 
succumbing to the Nasdaq pullbacks.  Note: We will only be 
holding this play up to the earnings announcement on the first.  

As if the earnings announcement and the upcoming stock split 
were not enough.  Today, Paine Webber increased their price 
target on PCS from $110 to $160 citing several sector wide 
factors including an increase in expected 2000 net subscriber 
addition. 

BUY CALL FEB-105*PCS-BA OI=381 at $8.50 SL=6.50
BUY CALL FEB-110 PCS-BB OI=777 at $5.88 SL=4.00
BUY CALL FEB-115 PCS-BC OI=418 at $4.13 SL=2.50

SELL PUT FEB- 95 PCS-NS OI=130 at $1.88 SL=3.50
(See risks of selling puts in play legend)

Picked on Jan 20th at   $108.00     P/E = N/A
Change since picked       +0.00     52-week high=$114.44
Analysts Ratings      9-8-7-0-1     52-week low =$ 25.56
Last earning 10/99    est=-1.24     actual=-1.31
Next earning 02-01    est=-1.45     versus=-1.43
Average Daily Volume = 2.40 mln
Chart = http://quote.yahoo.com/q?s=PCS&d=3m



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

RLM - Reynolds Metals $66.88 -5.13 (-6.63 for the week)

Reynolds Metal is the #3 aluminum producer in the world.  
RLM may be best known for its aluminum foil, but they also 
serve customers in the aluminum fabricating, packaging and 
consumer, construction, distribution, and automotive markets.  
The company has over 100 operations in 24 countries.  In the 
future, it's expected that Reynolds Metal will be acquired by 
Alcoa (AA) pending a decision by the governments anti-trust 
regulators.

A steady downtrend preceded Reynolds' solid earnings yesterday, 
but today's descent was piercing.  RLM spiked down $5.13, or 
7.1% on investors' concerns that Alcoa's decision to boost 
aluminum production by 7% by the end of the year could drive 
down prices and profits of other aluminum companies.  For Alcoa 
the decision is two-fold.  First, the demand for product 
naturally increases with the recovery of Asian economies and 
it's simple preparing for the inevitable.  Second, this move 
could put a favorable light on the Reynolds' acquisition 
endeavor; hence indicating the company isn't trying to bully the 
aluminum market with low production and higher prices.  RLM 
however was already suffering a $10, or 12.2% loss from an $82 
high on January 10th.  This news was another nail in the coffin.  
Today RLM penetrated the 50-dma ($69.80) and is heading for the 
200-dma ($62.88).  Take a look at a six-month chart and notice 
that $58 has served as bottom support when the stock was down in 
the trenches in September, October, and November, but before 
that support is firm $62 and $63.  This level is our first goal.  
Look for a negative market sentiment to aid the stock's demise.  

BUY PUT FEB-70 RLM-NN OI=2806 at $5.38 SL=2.75
BUY PUT FEB-65*RLM-NM OI=2285 at $2.75 SL=1.50

Average Daily Volume = 480 K
Chart = http://quote.yahoo.com/q?s=RLM&D=3m




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

Solid Earnings Propel Technology Issues Higher..

Blue-chip stocks moved lower Wednesday as rising bond yields and
earnings reports unnerved wary investors. The Dow ended 71 points
lower at 11,489 while demand for Internet stocks drove the Nasdaq
composite index to a new record high at 4,151. The S&P 500 index
was relatively unchanged at 1455.90. Trading volume on the Big
Board reached 1 billion shares with winners beating losers 1,517
to 1,510. The 30-year Treasury closed up 12/32, pushing its yield
down to 6.71%.
 
Tuesday's new plays (positions/opening prices/strategy):

Agco Corp.      AG    MAY15C/FEB15C	  $0.75   debit   calendar
Pride Intl.     PDE   APR17C/JAN17C   $1.68   debit   calendar
Global Marine   GLM   FEB20C/JAN20C   $0.00   debit   calendar

Our new calendar spread plays were a mixed lot with two of the
positions offering favorable entries while the third failed to
produce the required net debit. Target prices on both Agco and
Pride were at or near the suggested entry points but the short
option in the Global Marine position was well below Tuesday's
closing quote of $0.31; the recommended debit was unavailable.

Portfolio plays:

Technology stocks continued to shine in what appears to be a
market of no limits and small-cap issues performed well with the
Russell 2000 up 1% to 520. The group has surged over 5% since last
week and a number of our positions on lower priced stocks are
trading at maximum profit. The top performers in that category
include: Geron Corporation (GERN), up $1.31 at $20; Marketing
Services Group (MSGI), up $2.06 at $19.75; P-Com (PCMS) up $1.62
at $14.12 and our new bullish issue Splash Technologies (SPLH),
which rallied $1.81 to close at $14.25, a 52-week high.

Economically sensitive issues have been negatively impacted by
the rising interest rates but financial stocks were beginning
to show some resilience after a number of companies reported
better-than-expected earnings. Personal computer stocks also
rallied Wednesday and that affected a number of our hardware
issues. Cohu (COHU) was the leader in that group with a $5 move
to a new all-time high at $41.50. Needless to say, our bullish
position is at maximum profit. Helix (HELX) enjoyed a nice rally,
also climbing to a new all-time high at $57.62. Our new debit
spread returns maximum profit above $45. Two of our LEAPS/CC's
issues, Sun Microsystems (SUNW) and Solectron (SLR) also traded
higher during the session.

Among other sectors, transport stocks slumped while major oil
issues moved higher amid a continued cold weather snap in the
Northeast. Crude oil closed up $0.60 at $29.45 per barrel. Our
top oil stock, Exxon-Mobil (EXOM) rose $1 to $85.75, just above
the sold strike in our bullish LEAPS/CC's play. One of the recent
losers, United Airlines (UAL) reported favorable earnings after
pre-warning of lower revenues. The company earned $1.92 a share,
beating estimates of $1.75 per share. Investors however were not
impressed and the stock ended relatively unchanged near $63.

In the long-term portfolio, Proctor and Gamble (PG) made the news
after Warner-Lambert announced they are in preliminary talks with
the global foods and consumer goods producer. Sources familiar
with the situation said the talks were about P&G possibly buying
the drug maker and its merger partner, American Home Products.
The stock recovered $1.56 to close just above $115 on the news.
Our long-term position is profitable above $110.

Thursday, January 20

The Nasdaq rallied to a new high Thursday while blue-chip stocks
slumped as investors moved back into market-leading issues. The
Nasdaq composite closed 38 points higher at 4,189 on its busiest
day ever with volume at record levels. The Dow Jones industrial
average dropped 138 points to 11,351 as profit-taking exacted a
heavy toll. The broader S&P 500 index slipped 10 points to 1,445.
Declining shares beat advances 18 to 12 with more than 1 billion
shares traded on the NYSE. There were 125 stocks at new lows and
95 at new highs. The U.S. Treasury 30-year bond weakened late in
the day, falling 8/32 to push the yield up to 6.74%.
 
Portfolio plays:

A number of our portfolio positions continued higher in today's
session even as investors sought refuge from falling blue-chip
issues. Once again, small-cap stocks were the leaders and well
known companies were at the top of the list. Globalstar (GSTRF)
climbed $4.62 to close at $45 on optimism about plans to expand
its network. The satellite company is talking to investors as it
prepares to sell 7 million shares to finance capital spending
and marketing. Globalstar would raise about $313 million from
the sale and hopes to be the first satellite-phone company to
make a profit after rivals Iridium and ICO Global Communications
both filed for bankruptcy last year. Our new bullish diagonal
position is near maximum profit with two months remaining until 
expiration. In a widely unexpected move, Legato Systems (LGTO)
fell $23.88 to $29.75 after the network storage software company
missed Wall Street's profit expectations. The issue was the most
actively traded Nasdaq stock and fortunately, our current play
was bearish (and now it appears, profitable).

Unisys (UIS) was a surprise winner today, rising over $3 on news
that the technology behind its award-winning e-action Natural
Language Speech Assistant (NLSA) has been recognized with the
grant of a United States Patent. NLSA is the only cross-platform,
end-to-end solution for the rapid deployment of speech-based
applications for electronic business and other mission-critical
requirements. Our bullish spread position returned $8 on $4.88
invested for just two months. Cohu (COHU) and Helix (HELX) also 
continued their winning ways adding gains to yesterday's all
time highs, and today's unexpected $2 rally in Tekelec (TKLX)
pushed our new debit spread position into profitable territory
after just one week in play.

In the long-term portfolio, Computer Associates (CA) led the way
with a $5 rally to end at $69 on rumors of favorable quarterly
earnings. The company will Webcast the results on January 27 and
the program will be a live broadcast of the quarterly securities
analyst meeting. CA will also provide supplemental financial data 
relating to its earnings report, scheduled for next Wednesday.
The move was perfectly timed with tomorrow's expiration and our
transition to February options. Cabletron Systems (CS) was also
on the move, climbing $1.31 to $27.50 after it has reached an
agreement for Flextronics International (FLEX) to take over its 
manufacturing operations (in New Hampshire and Ireland) in a deal
valued at $100 million. In addition, Compaq Computer (CPQ) agreed
to pay $123 million to Cabletron to cancel a pact that required
the giant PC maker to resell Cabletron's networking equipment.
Compaq had signed a deal last summer to buy $300 million worth of
Cabletron equipment a year. The PC manufacturer was planning to
resell CS's products under its own name, but wanted out of the
agreement after deciding to exit the networking business. Our
bullish LEAPS/CC's play is at maximum profit above $22.50.

The recent incredible rally in the stock market has provided the
Spreads/Combos portfolio with its most profitable month since
inception and we expect another solid performance in February.
We have a few adjustments to make before expiration and the
expected volatility will provide an excellent opportunity to
boost our potential profit in many of the current positions. A
summary of January's results along with the complete list of
portfolio plays will be posted in next Tuesday's edition of the
OIN.

Questions & comments on spreads/combos to Click here to email Ray Cummins


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

Friday will certainly be exciting as investors move to lock-in
profits and option traders exit positions and roll forward to
next month's plays. Rather than try to outguess the market's
direction after tomorrow's key session, we decided to ride the
wave of the January effect with two conservative positions on
bullish, small-cap issues.

****

WDC - Western Digital  $5.56     *** On The Rebound! ***

Western Digital designs, develops, manufactures and markets a
range of hard drives for the desktop PC market, the high-end
hard drive market and for the emerging market for hard drives
specifically designed for audio-visual applications. WDC is one
of the world's largest independent makers of hard disk drives and
they also produce devices for corporate computer networks. Well 
known computer companies account for the majority of their sales
and those include Compaq , Dell, Hewlett-Packard, and NEC.

Today Western Digital said it expects to report a quarterly net
loss of $0.55 to $0.58 a share, well below analysts' forecasts.
Analysts had been expecting a loss of almost $1.00 for the fiscal
second-quarter. Western Digital said it attributed its operating 
performance to increased pricing and demand conditions in the PC
desktop hard-drive business, improved operating efficiencies, cost 
cutting, and a successful a product recall begun in September. The
company also reported it would exit the market for enterprise hard 
drives used in network and workstation computers, thus decreasing
losses associated with that sector of its business.

The company is due to report the actual results on January 25 but
the news is already factored into the stock and there may be a
favorable entry opportunity in the next few days. We will watch
for consolidation in the issue and try to achieve a cost basis
near the recent support (November-December highs) at $4.25.


PLAY (conservative - bullish/covered-combo):

BUY STOCK - WDC  ASK=$5.62
SELL CALL FEB-5 WDC-BA OI=5287 A=$1.00
SELL PUT  FEB-5 WDC-NA OI=939  B=$0.50
OVERALL COST-BASIS=$4.50  COMBINED ROI(approx)=15%

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

****

TERA - Tera Computer  $6.62   *** Cray Competitor ***

Tera Computer designs, develops and markets high performance
general purpose parallel computer systems. Tera's Multithreaded
Architecture System addresses a wide range of scientific and
engineering applications, such as simulation and visualization
of complex mechanical and biochemical systems, and emerging
commercial applications such as computer-aided design and
visualization, information-on-demand and database mining. Their
multithreaded system architecture represents a breakthrough in
high performance computing that will enable the company to offer
systems with several times the price/performance of currently
available commercial high performance computer systems. Tera's
prospective customers include government agencies, supercomputer
centers and research laboratories that are expected to use the
MTA system for a variety of applications, including research in
the fields of biology, chemistry, environmental science,
materials science and physics.

The market for complex scientific research systems is HOT and
the recent break-out above resistance near $5.50 signals the
return of this forgotten leader in supercomputing technology.
The relatively long time frame provides us with a low risk
position that can profit in the short-term with a continued
upside movement and the potential for reward is excellent.


PLAY (conservative - bullish/diagonal spread):

BUY  CALL JUN-5.00 QIP-FA OI=3253 A=$2.50
SELL CALL FEB-7.50 QIP-BU OI=23   B=$0.56
INITIAL NET DEBIT TARGET=$1.81 TARGET ROI=35%

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


************************Advertisement*************************
Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


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

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives