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Daily Newsletter, Monday, 01/31/2000

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The Option Investor Newsletter         Monday  1-31-2000
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.

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

Also provided as a service to The Online Investor Advantage
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       1-31-2000           High     Low     Volume Advance Decline
DOW    10940.50 + 201.60 10956.70 10701.60   993,800k 1,448  1,620
Nasdaq  3940.35 +  53.28  3940.46  3748.03 1,503,633k 1,591  2,595
S&P-100  754.26 +  16.22   754.35   731.43    Totals  3,039  4,215
S&P-500 1394.46 +  34.30  1394.50  1350.05            41.9%  58.1%
$RUT     496.23 -   8.39   504.62   488.53
$TRAN   2571.65 -  10.10  2604.47  2551.02
VIX       26.20 -   2.89    30.06    25.32
Put/Call Ratio       .56
******************************************************************

What a Relief...

It was another volatile day on Wall Street for investors on 
Wall Street.  Another day where traders experienced moves of
100 points or more.  The Dow headed lower at the open when 
buyers stepped in focusing on banking, financial, and telecom 
stocks.  The blue-chips just dipped into negative territory, 
down only -37.00 before the bulls entered the picture.  Over at
the Nasdaq it was a different story.  The tech index found 
itself in the red, to the tune of -139, before buyers began to
test the waters.  3748 was the magic number at the Nasdaq, when
shortly before noon, traders began to bid the price of some of
some of their recent favorites higher.  Keep in mind, the Nasdaq
was at a record high, of just over 4300, one week ago today. 
This morning analysts confirmed the Nasdaq had "officially" 
shifted into correction mode as it had declined over 10% from 
the high.  Just as the dreaded "C" word was being uttered, in 
almost every other sentence, by analysts on CNBC, the Nasdaq 
began its stunning reversal.  Whether we like it or not, it is 
beginning to appear, that the volatility experienced recently may 
become the norm, at least in the near term.  With the kinds of 
moves seen in 1999, 
a 10% correction means very little to many investors.

At the NYSE one of the biggest loser early in the day, ended 
the session on top.  SBC Communications jumped 9.2% to close at
$42.88, while AT&T picked up +3.88 to finish at $52.75.  HON 
gained 6.2% after a favorable article in the Wall Street Journal.
JPM finished the day +4.88 at 122.94 as the financial sector 
turned in a stellar performance, adding about 4%.  Citigroup(C)
was up +1.25 to $57.38, while Bank of America(BAC) rose +1.75 to 
$47.50.  Today's bounce was welcomed with open arms.  As Jim
pointed out Sunday, we were due for a relief rally, as Friday's 
debacle left the Dow stuck deep in oversold territory.  The 
question remains whether or not the major indices can maintain
the momentum. 


 
A glimpse inside the numbers today shows the rally was a relief
rally and not necessarily a change of trend.  The volume was
light, compared to what we seen since the first of the year,
with just 972 million shares changing hands.  Today was only
the second day in 2000 that the NYSE has not seen at least 1 billion.
shares traded.  Up-volume did outshine the down-volume at a rate
of 2-to-1.  Declining stocks edged advancing issues by 16 to 14,
with only 22 stock making a new high, while 181 hit a new 52-week
low.  We aren't complaining, but we will need to see more follow-
through before we are ready to jump on that bandwagon.  With the
FOMC meeting tomorrow and Wednesday and the Non-farm payrolls 
report on Friday, that could be a tough nut to crack.

Stocks at the Nasdaq could no longer resist the blue-chip rally
and jumped on board, gaining +53.28 for the day or 1.37 percent.
Like we said the after being down -139, to come back and close
+53 points to the good, equates to a 192 point run which is 
definitely impressive.  A few of the stars at the Nasdaq were
INTC, QCOM, 3Com.

INTC ended the day +4.94 higher after a Credit Suisse First Boston
note adding the chip-maker to its Focus One List and forecasting 
the company will beat its earnings estimates.  Investors bid the
price of QCOM shares up to $127 on reports they may be close to 
inking a deal with China Unicom, China second largest telephone
provider.  3Com rose +4.19, to finish the day at $50.75 after 
the company reported Palm, a subsidiary that makes the popular
hand-held Palm Pilot device, has filed with the SEC for an IPO.
SG Cowen jumped its rating from a Neutral to a Buy with a $60
price target.  IMNX jumped +14.63, after a panel of experts for 
the FDA approved the chemotherapy drug, Novantrone, for use in 
the treatment of MS.  BGEN fell $6, over concerns the Novantrone 
approval could hurt future revenues at the biotech company. 
   
The Internet index held the Nasdaq back, dropping 2.1%.  Free-
Markets(FMKT) fell 16.0%, down -42.81 to $229, although its 
fourth-quarter loss was less than expected.

A peak at the numbers inside the Nasdaq shows declining issues
leading advancing stocks by a 25 to 16 margin, on light volume
of 1.49 billion shares.  Up-volume versus down-volume was even,
with 113 stocks making a new low and 71 touching a new high.
As we said the 3750 area provided support for the tech index,
when buyers decided enough was enough.  Note the 3790 area
in Sunday's Market Wrap


 
So we've made it through the month of January, with most of 
the major indices finishing the month lower.  The Dow finished
down -4.8%, the Nasdaq gave back 3.2% and the S&P 500 lost 5.1%
for the month.  The one major index that manage to finish the 
month in the plus column was the Dow Jones Utilities, which added
11.2% for the month.  Investors and analysts that follow the 
January Effect, will say it could be a tough year for equities, 
with the S&P showing a loss at the end of January.  Our question
is, was this really a "January Effect" or a "Greenspan Effect".

Equity and bond traders paid little attention to this morning's
Chicago Purchasing Managers Index numbers as well.  The January 
Chicago PMI came in at 55.6 with the prices paid component at
a reading of 67.8.  Both numbers were in-line with economists 
estimates.  Bonds did decline a bit today dropping -13/32, with
the yield sitting at 6.48%.  Tuesday traders will get release of 
the National Association of Purchasing Managers index.  Alan 
Greenspan and his partners will begin their two day meeting, with
most a 25 basis point hike to be announced Wednesday afternoon.  
Once the Fed decision is out of the way, providing there are no
surprises, and we don't anticipate any, we could see a rally 
continue at least for one day, until the Non-farm payroll report
is released Friday.  Aggressive traders may choose to target shoot
any dips on their favorite plays, while conservative traders
may choose to wait for the Fed.  

Be Patient, Trade smart and be prepared to sell too soon.



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

Energy Deregulation 101: How Exactly Does It Work?

What is energy deregulation? How does it affect me? Most of us 
have heard of energy deregulation, but do we really know what 
it is? 

Efforts to deregulate the electric utility industry began in 
the early 1990s with passage of the National Energy Policy Act 
in 1992, which allowed both utilities and non-utilities to 
build electric generating plants and provide power to 
wholesale customers outside their service boundaries. 
California was the first state to deregulate, in March of 
1998. The act left it up to the individual states to determine 
how to make customer choice available to retail customers. The 
National Energy Policy Act deregulated only the generating 
side of the business. The "wires and pipes" side-the part that 
carries the electricity to your home or business-remained 
regulated.

Traditionally, the same company that generated your 
electricity also delivered it to your home or business. Now, 
with deregulation, some people have the chance to choose the 
supplier that generates their power. If you have this choice, 
you have many factors to base your selection on. You should 
consider factors such as where and how the energy is 
generated, enhanced customer service, any conveniences you can 
gain, the range of other available products and services 
offered by the supplier, along with the overall value.

As electricity competition has come to many states, companies 
have spent millions on marketing and public image campaigns. 
Some utilities have changed their names to sound more 
appealing, others offered discounts on long-distance telephone 
service and even spruce seedlings to convince customers that 
they care about the environment. As enticing as some of the 
lures have been around the country, electricity deregulation 
also has ushered in consumer bewilderment, rip-offs and market 
risks to what has been a staid, monopolistic industry. 

All 50 states are deregulating their utility companies, hoping 
to increase competition and reduce rates for their citizens. 
The trend has great possibilities, and problems. With full 
disclosure about sources of power, removal of government 
subsidies and regulatory loopholes, the true costs of power 
generation will become apparent, opening a gateway for 
alternative energy suppliers. 

Many consumers may chose to buy from the least expensive 
supplier, sending power from a highly polluting plant, which 
is far away. Without structured deregulation and national 
standards, a race to the bottom will ensue. We, as consumers 
will fall victim, as higher pollution would most likely 
increase as more demand for cheaper energy suppliers prevail. 
For folks in New Jersey, for example, this is especially 
harmful: over 33% of their pollution blows in from out of 
state, largely from coal burning power plants in the Midwest. 
This poses a grave threat to the people's health. 

Deregulation could also open up the doors for scam artists who 
try to prey upon consumer confusion of industry changes. 
California, for instance, allowed anyone who paid a small fee 
to market power to homes and businesses. Several hundred power 
marketers signed up in expectation of big profits under 
competition, many who know nothing and had no capacity to 
generate power. After that scandal, California investigators 
investigated the criminal and financial backgrounds of other 
electricity marketing companies. Only a few of the original 
marketers were allowed to continue operating. 

Stranded costs are something you may have heard of regarding 
deregulation. Stranded costs are investments made by utilities 
in order to service customers with the understanding that the 
investments would be recovered through future electric rates. 
It is the difference between the utility's investment in its 
plant, and the market value of the plant after deregulation 
begins. For electric utilities, the biggest issue is what to 
do with their high-cost power plants-the older, less efficient 
generating stations as well as the nuclear plants-once 
competition begins and other suppliers are able to undercut 
their costs. The issue is complicated by the fact that many of 
these costs were incurred with approval from state regulatory 
commissions. The states are now trying to decide who should 
pay for those high-cost plants-the utilities' customers or 
their stockholders-and how the costs will be recovered.

The key to understanding deregulation will be to read 
everything you can about the subject. The possibility of 
having several different companies handling the components of 
your energy needs is daunting and confusing. Keep in mind, 
licensed power marketers and brokers are not required to 
generate electricity, but they can purchase it from others and 
pay local utilities for delivery to your home or business. 
Local utilities will only be required to guarantee delivery, 
not the supply, of electricity through their local system. 
Competitive market forces will balance supply and demand 
introducing a measure of risk not currently part of the 
service equation. With natural gas supply, you will need to 
evaluate suppliers to determine the best total value for you 
in terms of service, reliability, and price. You will need to 
find an accurate and objective information source about the 
coming competitive electricity environment in order to compare 
supplier claims and offers. 

Do your homework and always be wary of the scams out there. 
Good luck! 



**********************
PLAY OF THE DAY - CALL
**********************

ICIX - Intermedia Communications $43.00 -2.00 (-2.00)

Intermedia Communications is an integrated communications 
provider with products and services that encompass the broadest 
range of networking solutions available from any single 
supplier.  These solutions include local and long distance 
services, frame relay networking, Internet, ATM, and bundled 
services, which provide both voice and data connectivity on a 
single access circuit.  Intermedia's ViewSPAN offers performance
monitoring across numerous platforms, integrating even those 
networks owned by other carriers.  Intermedia's products and 
services include industry-leading guarantees, customer service,
technical support for design, implementation, and operations.

Sunday's Write Up

Perhaps the most impressive quality for ICIX last week was the 
relative strength it demonstrated, particularly on Friday.  We
saw the Nasdaq Telecommunications Index down over 40 points 
and yet ICIX managed a nice gain of nearly $2.  Not to mention 
that ICIX traded to a new 52-week high of $46.38 and posted 
volume over two times the daily average.  Apparently, there 
are plenty of investors interested in this stock.  ICIX has 
been trending upward since roughly the beginning of November 
and has picked up the pace a bit throughout the last two months. 
January 12th turned out to be a very good day for ICIX.  Digex 
(DIGX), which is a subsidiary of ICIX, announced that it would 
be working with Compaq and Microsoft (MSFT) to develop 
application hosting services.  It was also announced that CPQ 
and MSFT would each invest $50 million in DIGX to help with the 
funding of the service development.  It was reported that DIGX 
had acquired roughly $700 million total in strategic financing 
from various sources.  On the same day, Duff & Phelps Credit 
Rating Company raised their Rating Outlook for ICIX from Stable 
to Positive, citing the strategic financing announcement as the 
reason for the upgrade.  On January 13th, ICIX was upgraded by 
AG Edwards from an Accumulate to a Buy.  ICIX gained $1.75 on 
the 12th and $4 on the 13th.  ICIX has some nice support backing 
it.  Its 5 and 10-dmas have converged at $42.25, which could 
provide some solid support if needed.  The $42 level looks to 
have provided some support several times last week, so this 
could be a good level for possible entry points on pullbacks.  
ICIX has additional support at $41, $40 and $37. ICIX did 
encounter some resistance at $46 on Friday, but could have the 
momentum to keep climbing through this level next week. 
 
We have an unconfirmed date of February 24th for an upcoming 
earnings announcement.  We will be confirming this date with 
the company next week.  Last Wednesday, ICIX announced their
strategies for continuing growth and expansion.  These 
initiatives included expanding their DSL service, an 
enhancement in their ability to offer voice and data 
communications services, and improvement in the area of 
global connectivity.  They also announced that they had 
signed on to the Optical Domain Service Interconnect 
agreement to "collaboratively develop and encourage open 
interfaces and protocols within the telecommunications 
industry." 

BUY CALL FEB-40 QIX-BH OI=1777 at $5.38 SL=3.50
BUY CALL FEB-45 QIX-BI OI=1677 at $2.94 SL=1.50
BUY CALL FEB-50 QIX-BJ OI=1409 at $1.38 SL=0.00 High Risk!
BUY CALL MAR-40*QIX-CH OI= 261 at $7.75 SL=6.75
BUY CALL MAR-45 QIX-CI OI=1572 at $5.38 SL=4.75

Picked on Jan 25th at    $45.00     P/E = N/A
Change since picked       -2.00     52-week high=$46.38
Analysts Ratings      6-5-3-0-0     52-week low =$13.06
Last earnings 11/99   est=-2.98     actual=-2.97
Next earnings 02-24   est=-3.08     versus=-2.84
Average Daily Volume = 1.38 mln
/charts/charts.asp?symbol=ICIX




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