Option Investor
Newsletter

Daily Newsletter, Tuesday, 02/01/2000

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The Option Investor Newsletter         Tuesday 2-1-2000
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)
************************************************************
       2-01-2000           High     Low     Volume Advance Decline
DOW    11041.00 + 100.50 11073.30 10908.00   981,000k 1,680  1,318
Nasdaq  4051.98 + 111.63  4053.16  3911.84 1,409,362k 2,326  1,824
S&P-100  769.09 +  12.63   769.09   751.38    Totals  4,006  3,142
S&P-500 1412.49 +  14.82  1412.49  1384.79            56.0%  44.0%
$RUT     503.75 +   7.52   503.75   492.65
$TRAN   2576.63 +   4.98  2578.38  2553.97
VIX       26.90 +   0.70    26.90    23.97
Put/Call Ratio       .45
*************************************************************

Is the fourth time the charm?

On December 31st the Nasdaq closed at 4065. Since then the 
Nasdaq has been up to 4192 then crashed to 3711 (-481 points). 
It then rebounded to 4072 (+361) then crashed to 3834 (-238 
points). Another rally took it to 4303 (+469) then a correction
of -555 points took us back to 3748. Dizzy yet? In two days
this week we have now rebounded +303 points to the close today.
The volatility swings on the Nasdaq for the 21 trading days of
2000 have been enormous. -481, +361, -238, +469, -555, +230!
All but one of these swings have been more than the total point
spread from high to low for the entire month of February in
1999. From the Feb-1st high of 2532 to the Feb-18th low of 2224
there was only a -308 point drop. Average daily volume last 
February was less than half of the average volume for January
of 1.6 bln shares. This is not your fathers market! As active
traders today we are learning to survive and prosper in the 
most prosperous period in history and what a market!

The Dow managed back to back triple digit days and the best
two day gain since Jan-7th. After teetering on the edge of
the correction cliff the Dow squeaked out a close back over
11000 support again. The new market strength is based on the
analysis of cooler heads after last Friday's stronger than
expected economic numbers. The worry that the Fed would raise
more than the traditional +.25% increase has eased since there
is no rate noise coming from any of the Fed heads. The Fed has
been very good about telegraphing rate hikes in advance and
this pre-meeting has actually been fairly quiet. Greenspan
watchers almost all agree that he will only raise in small
increments. There is more ink and airtime devoted to analysis
of this event than almost anything else in the financial sector.
By the time we get to this point the actual announcement is
anticlimactic. We often get a post announce spike and then a
pullback as the "buy the rumor, sell the news" becomes the
trading rule. Still the nice rally we had so far this week
has taken some of the sting out of the correction.


  


 


 

After a triple digit Tuesday for both the Dow and the Nasdaq
should we expect a continued rally if the Fed only raises by
+.25%? Ahh! The million dollar question. NYSE stocks have been
beaten down for so long that they could rally on the news but
nobody cares. Techs are it and the Dow this year will suffer
from the flight to the Nasdaq stocks. In reality we only need
to be concerned with the NASDAQ's future. Yes, the Dow can
and will cause us problems if it starts a downward spiral 
but as long as the Nasdaq is strongly positive the Dow will
not sink completely.

The Nasdaq crossed over the 4000 mark today for the fourth
time ever. This level has been weak support several times
in the past. Will this fourth time prove to be the one that
sticks? Analysts are mixed on whether the two -10% corrections
already this year were enough. Considering the gains made on
the Nasdaq last year many were expecting a more severe drop,
something in the -20% to -25% range. But instead are we moving
into a new trading era? The number of active traders increases
every day and with them comes increasing volume and competition
for available shares. Thousands of investors who have never
traded stocks before now plug in every day and experience for
the first time the shot of adrenaline that comes from trading 
stocks instead of investing long term. Up at dawn placing
trades and up late at night researching plays for the next
day. The worker productivity, which Greenspan tracks, would be 
much higher without the millions of online trading junkies 
watching live quotes/charts and reading streaming news to
monitor their positions while at work. Times have changed and 
maybe the trading patterns of even last year are changing also. 
The current group of traders has never seen a real correction.
The term "buy the dip" means any 200 to 300 point drop. With
the ability to be in or out of the market in just moments
the need for long term planning has been ignored. After all,
techs always go up. Right? Margin debt is at the highest
on record. The stocks held by this new generation of traders
are in historically weak hands. But are they weak if every
time the market dips millions of traders simply buy another
100 shares? Institutions have tried to sell off the market
and every hundred points we drop has just brought in more
retail buyers. 

Now the quandary. Cash flow watchers claim $24 billion of new
cash came into funds in January. If institutions are sitting 
on piles of cash waiting for a February sell off that never
comes then they will be forced to chase stocks as they continue
to move up. When will this decision be made? Wait or chase?
I am guessing next week. After the Fed smoke clears and the
market direction is determined the funds will decide to buy 
or wait. Compounding the problem is the close of earnings
season. Earnings are the fuel for every stock market rally.
With earnings almost over for the fourth quarter period there
is no excitement left in the market for February. This is 
normally the period when institutions regroup, reshuffle
and invest for the next cycle. Institutions historically
move slowly due to the logistics involved in buying/selling
millions of shares in dozens of companies. Without a cooling 
off period in February they will be forced to throw money at
the stocks they want before they get away. This will be
similar to a short covering rally and could be strong.

The key to this puzzle will be first the Fed. +.25% or +.50%
I don't think it matters. Still we must wait for the dealer
to show his hole card before placing future bets. The rally 
this week has been a combination of relief rally and investors
betting against Greenspan acting out of character. Once this
Fed event is over the real conviction must come out. Do we 
believe in the market and are we willing to maintain our 
convictions or is this simply a trading rally before the 
next correction cycle begins? We had two bear trap rallies
in January, should February be any different? The next market 
cycle is the April earnings run. This normally begins with 
traders taking positions beginning around Feb-18th. That gives 
us two weeks before the market should establish a direction 
for the next ten weeks. Two weeks without direction. Two weeks 
of waiting to exhale. Two weeks, long enough for another 
correction and recovery. Should that happen, it would really 
be a buyable dip. 

Trading the next two weeks could be tricky. The Nasdaq is
only 19 points away from the 1999 close. Only 19 points
when the average weekly movement has been 400. Since the
Nasdaq was up 85% in the last twelve months there should
be volatility at this level. Still, unless we can hold over
4000 this week we are doomed to another, possibly more
severe correction. It would be welcomed by the institutional
community and would be the last major dip in my opinion
until May. Although the markets have put together two
nice days there is still weakness under the numbers. For
instance Nasdaq leaders, CSCO is up $18 in two days, MSFT 
+$7, INTC +$8, ORCL +$8, QCOM +31. These stocks could see 
some pullback on profit taking. Some Nasdaq favorites did 
not participate in the rally. Stocks like YHOO -4.69, VIGN 
-4.00, JDSU -2, RHAT -2.64, AOL -1.69 all finished lower 
with the Nasdaq adding +111. The Internet gains were on the 
back of a select few huge gainers. NSOL +32, EXDS +10, DCLK 
+9, VRSN +8, BVSN +7. If the rally broadens it should hold. 
If the regular names don't participate it will fail.  

My suggestion would be to trade the rally but keep your
eye out for weakness. Look under the surface for confirmation
by individual stocks. Beware the possible "buy the rumor,
sell the news" drop after the Fed meeting. Monitor your long
positions carefully. Keep your stops close. On the surface
it looks too good to be true and you know what that means.

Seminar update: Session two is now sold out also. We are
taking names for the waiting list in case someone cancels.
If you have previously registered and HAVE NOT RECEIVED
A CONFIRMATION, please contact us immediately.



  We have added another speaker for the second session. 
A name you have probably never heard before, Howard Ruff.
In 1975, Howard Ruff began publishing THE RUFF TIMES, a 
financial advisory newsletter written for Main Street, not 
Wall Street, which became the largest-circulation financial 
advisory newsletter in the world.

Trade smart, sell too soon.

Jim Brown
Editor



****************************************************
ANNUAL OPTION INVESTOR SEMINAR UPDATE - IMPORTANT !!
****************************************************

The second seminar is sold out. We are taking names
for the waiting list on each seminar. Sometimes plans
change and people cannot attend. We will contact the
readers on the waiting list in the order they registered.
If you decide you want to attend you need to register
quickly to get your name on the list. 


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



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

Correlation or Causation
By S. P. Brown

January's gone, thank goodness.  And now that winter's longest 
month has finally been delegated to the annals of history, 
market pundits have started pontificating on what effect, if 
any, the month's shoddy equity performance forebodes for the 
rest of the year.  

http://members.OptionInvestor.com/stocknews/020100_1.asp


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

As of Market Close - Tuesday, February 1, 2000 

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

DOW Industrials   10,700  11,250  11,041    Neutral   2.01  *
SPX S&P 500        1,350   1,500   1,409    Neutral   2.01  *
OEX S&P 100          730     800     768    Neutral   2.01  *
RUT Russell 2000     475     500     504    BULLISH  11.12
NDX NASD 100       3,200   3,850   3,702    Neutral   1.06
MSH High Tech      1,650   1,900   1,806    Neutral   1.06

XCI Hardware       1,300   1,460   1,390    Neutral   1.28
CWX Software       1,200   1,420   1,287    Neutral   1.07
SOX Semiconductor    700     745     802    BULLISH  12.21
NWX Networking       800     900     875    Neutral   1.07
INX Internet         700     800     722    Neutral   1.06

BIX Banking          645     690     557    BEARISH  11.30
XBD Brokerage        400     450     417    Neutral  11.30
IUX Insurance        625     650     560    BEARISH  11.30

RLX Retail           950   1,000     918    BEARISH   1.28
DRG Drug             340     400     360    Neutral   1.28
HCX Healthcare       700     790     743    Neutral   1.28
XAL Airline          180     190     128    BEARISH   5.21
OIX Oil & Gas        280     315     274    BEARISH   1.27


Posture Alert
The pre-Fed relief rally continued Tuesday, with investors picking 
up shares in all sectors across the board. The volatility 
continues, as the NASDAQ posted it's 4th largest point gain ever 
on volume of 1.4 billion shares. Sector leaders today include 
Retail (+4.89%), NASDAQ 100 (+3.69%), Software (+3.59%), and 
Hardware (+3.19%). With this week's quick reversal, we have upped 
the Dow, S&P 100, and S&P 500 to Neutral from Bearish. 



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

Tuesday, February 1, 2000

Ahhh, relief!

The Pre-Fed relief rally is starting to become very trendy and 
almost expected, as the NASDAQ and Dow have both been strong 
these last two days before the big announcement. Last year, the 
NASDAQ rallied into the other interest-rate hikes which occurred 
on June 30, Aug. 24 and Nov. 16. The Dow, on the other hand, 
posted gains on only two of those occasions. This now makes the 
NASDAQ 4 for 4, and the Dow 3 out of 4. Pretty good batting 
averages by any standard. Now, with the bond market pricing in 
another rate hike in the springtime, we should be more prepared 
for the volatility down the road and take full advantage of both 
the upswing and the downswing. Unless, CNBC starts hyping the 
likelihood of a Pre-Fed rally, then we will all run the opposite 
direction.

In Sunday's letter, Pinnacle Capital stated that, due to all the 
put speculation that was rampant on Friday's downdraft, we though 
that the sentiment was too bearish and that a relief rally would 
be in store for this week. Well, we got the relief. With the big 
jump in the broad market, sentiment has slightly shifted to the 
bullish side. However, at this time, sentiment is not overwhelming 
in either direction. What this tells us is that the market has a 
good chance of trending slightly higher, but most likely, in the 
short-term; we may be trading range bound. The trump card for the 
bears or bulls in the short term will come down to Greenspan & Co. 
and what their future indications are for the bond market. Below, 
we have highlighted the yields on the major T-Bond issues and have 
reflected some thoughts for your benefit.

Currently, the yields on the Treasury Bond are as follows:
5-year:   6.661%
10-year:  6.617%
30-year:  6.421%

Most of our readers should know (especially fixed income buyers) 
that the longer the maturity of a bond, the higher yield you will 
receive. However, this is currently not the case in the Treasury 
market. The yields right now are inverted, which indicates a 
incredible demand in long-term issues. For those of you who have 
purchased bonds in the past, you may recall that 1994 was a very 
poor year for the bond market. Towards the end of 1994 and 
beginning of 1995, yields on the Treasury became inverted as they 
are today, with shorter-term maturities yielding higher rates. 
 
Below is a graph of the 30-year Treasury since the beginning of 
1994. As you can see, the long bond has rallied considerably 
since that time-span when interest rates were inverted as they are 
today. The stock market has also done pretty well over that time 
span to boot. The bottom line is that in the short-term horizon, 
we will see more rate hikes and with it, pressure on equities. 
Looking out longer term past this current market noise, the bond 
market is indicating lower rates, and lower rates will help a 
stock market head higher!


 

BULLISH Signs: 

Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of 
analyst expectations.

Cash Flow:
The cash that has been sitting on the sidelines has been put to 
use as of late, as record volumes for the major indexes have been 
shattered.

Short Interest:
From a contrarian stand, short interest (JAN-14) on the NYSE is 
still very high, totaling 3,973,256,735 shares. The short interest 
on the Nasdaq rose another 2.11% in the latest figures, its 
fourth consecutive record, to 2,413,628,695 shares. 


Mixed Signs: 

Interest Rates (6.421):
The current yield is now off of the highs, but any major 
economic indicator can knock it back to the highs. Currently, 
there is an inverted yield in the treasury market, which is 
technically bullish long term.


BEARISH Signs:

Volatility Index (24.82):
The VIX continues to prove that the low 30's are an excellent 
buying opportunity, and the low 20's continue to be a great 
selling opportunity. 

 
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
Benchmark                       (1/28)      (2/1)

Overhead Resistance (765-785)     1.02        1.59

OEX Close                       738.04      766.89

Underlying Support  (740-760)     0.54        1.25
Underlying Support  (700-735)    18.11       10.38


What the Pinnacle Index is telling us:
In Sunday's letter, we stated that based upon the Pinnacle Index 
numbers, we would not be surprised to see a relief rally this 
week on the OEX. Well, we got it. From here, the sentiment is not 
overwhelming in either direction. Overhead resistance (765-785) 
is moderately light and underlying support is gaining strength, 
but is still light. Based upon the sentiment numbers, we do have 
upside potential, but will most likely be trading range bound. 


Put/Call Ratio                  Friday     Tues
Strike/Contracts                (1/28)     (2/1)

CBOE Total P/C Ratio             .60        .45
CBOE Equity P/C Ratio            .45        .38
OEX P/C Ratio                   1.41       1.05



Peak Open Interest (OEX)
                     Friday           Tues
Strike/Contracts     (1/28)           (2/1)

Puts               700 / 7,185      700 / 7,748
Calls              800 / 6,190      800 / 7,307
Put/Call Ratio         1.16            1.06



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

January 28, 2000    Bottom?             29.09

February 1, 2000                        24.82



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

Daily Results

Index      Last   Mon    Tue   Week
Dow     11041.05201.66 100.52 302.18
Nasdaq   4051.98 53.28 111.63 164.91
$OEX      766.89 16.22  12.63  28.85
$SPX     1409.28 34.30  14.82  49.12
$RUT      503.75 -8.39   7.52  -0.87
$TRAN    2576.63-10.10   4.98  -5.12
$VIX       24.82 -2.89  -1.38  -4.27

Calls             Mon    Tue   Week

PMCS      205.56 -9.56  25.06  15.50  A fabulous day for PMCS!
LVLT      119.56 13.00   1.63  14.63  Dropped, a fond farewell
BRCM      296.75  5.31   7.44  12.75  BRCM zeroing in on high?
CMGI      115.44  7.06   2.88   9.94  CMGI takes it to heart
NTAP      107.81  1.19   7.44   8.63  What we were looking for
LLTC       97.69  3.94   3.00   6.94  New, accelerating to $100
MUSE      169.38  0.31   6.19   6.50  MUSE showing resiliency
PSIX       86.75 -0.75   6.88   6.13  New, a split and earnings
MFNX       70.19  2.53   2.50   5.03  A new Buy rating for MFNX
VOD        59.00  1.38   2.06   4.25  Getting the upper hand?
VECO       58.75 -1.13   3.88   2.75  VECO has been range bound
BGEN       94.38 -6.00   8.13   2.13  Buyers jump in to BGEN
AFFX      229.00  3.38  -2.50   0.88  Dropped, earnings Thurs.
COVD       74.00 -2.44   3.25   0.81  New, pending breakout??
LU         55.75  0.25   0.25   0.44  We have three words
ICIX       44.63 -2.00   1.63  -0.38  Investors feeling good
EMIS       39.13 -1.75   1.25  -0.50  EMIS is feeling better
FRX        68.31 -1.75   0.81  -0.94  One of the best in group
TQNT      158.38 -7.72   5.59  -2.13  Can you say trading range?
PEB       151.00-15.25   1.25 -14.00  Did PEB find its feet?
SILK      142.38-14.38  -5.25 -19.63  Could be good opportunity
ADAP       99.00 -6.47 -20.00 -26.47  Dropped, stomach to test

Puts

ADBE       55.88 -2.50   0.81  -1.69  A very accommodating play
UAL        57.94 -0.75   0.81   0.06  Seat belt sign still on
BBY        49.69 -2.25   1.94   0.94  News today, gone tomorrow
IPG        48.19 -1.00   2.19   1.19  Day one right on track
SLR        73.69  2.56   1.06   3.63  Dropped, bottom forming?
INTU       64.81  2.56   4.50   7.06  Dropped, talk about bounce



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

EVALUATING THE MARKETS IN HAIRY TIMES AFTER ABSTINENCE

If you had been away from the markets for 10 days, what would you
buy tomorrow? I've had a nice 10-day break from trading which was
badly needed. My challenge now is deciphering both the short and
long term market conditions, and deciding how I want to play it.
My trading time in February will be markedly decreased due to
other professional commitments, including more traveling at the
end of the month. These factors will influence my short-term 
trading decisions. I want to share with you how I think through 
re-entry after a vacation, returning to uncertain markets. 

Preparing to travel, I made a point do things differently this 
time. I closed out option positions so I did not feel compelled
to stay current with the market. I know from past experience, if 
you leave town with open positions (not a good idea), and expect 
to watch things occasionally from your hotel room, it can drive 
you absolutely nuts! A market crisis will always happen once you 
leave town with open positions and leaving your hotel room then 
becomes an "iffy" situation as you forget about the conference 
you went to attend. What is worse, is that eventually someone will 
find out.... usually as you start to stutter, trying to come up 
with an explanation that makes sense, other than you were stuck 
in your hotel room watching your positions. I hate to admit it, 
but I've done that once, back when I was a type A personality. I 
think I learned my lesson. I always learn lessons when I loose 
money! Imagine how crazy one could get, if they were fighting a 
brutal sell-off with lots of open positions, right when it was 
time to pack, check out and rush to the airport to come home. No, 
uh huh, I don't know anything about that!! 

The safer alternative, is exiting to cash so you travel with
total peace of mind. Sitting on cash has a calming effect, which 
turns to euphoria if you come back to a sold-off market with 
buying opportunities. The challenge becomes evaluating if it is
a real buying opportunity. 

First, I look at the big picture. The 4th quarter of 1999 saw an 
upside, which was unprecedented. Y2K was a once in a lifetime 
event. It affected the markets from April '99 earnings, till the 
end of the year; be that from fear, sidelined cash or opportunity 
buying. To me, with a run-up that severe, regardless what happened 
on January 1st, 2000, the market was bound to slide backwards like 
a bungee cord. After that run-up, who wouldn't try to beat the 
clock and take profits off the table early? February has been a 
weak month for many years, so why invest then? Add to that, the
anxiety over increasing interest rates for February and most 
likely March too, and jumping in for enthusiastic long term 
trading gives this trader reason to pause. Sure, there may be a 
relief rally, but those are sometimes only quick head fakes. 

The big picture is that earnings came in strong, companies appear 
healthy, oil is up, employment tight and significant inflation 
signs are sketchy. The Feds job is to keep all in check, by way of
rate adjustments, to keep this economic expansion going. Since the 
last time Greenspan raised rates 50 basis points, the markets 
crashed in October 1987, my gut tells me they are not likely to 
do that again unless under very extreme circumstances. Since it 
takes roughly 6 months for the economy to adjust to interest rate 
changes, with the confusion of Y2K, I don't think it is clear what 
affects the rates have had, especially since Y2K may also skew 
some economic data in this first quarter. Certainly it will take 
time for the dust to settle from the extremities seen in late 
1999. I'm not sure it is any clearer for the Fed, than to all of 
us. With Greenspan being an "incrementalist" since Oct. '87 and it
being an election year, my gut tells me that I see no reason to 
lose faith in the bullish undertones of the long-term market.

But, I am an option trader and therefore I must be very critical 
of the short term conditions, since options have deteriorating 
time premium. Entry points are critical and entering prematurely 
only to wait for a temporary correction to be over, can quickly 
put one in the poor house. Going to cash before my trip protected 
me from this sell-off disaster. That was not done by accident. I 
anticipated the sell-off due to the upcoming fed meeting. I also 
anticipate another one, before the March meeting. 

I've learned that stock prices do not follow common sense and 
market movements can be extreme. "The trend is your friend". 
Don't fight it, or you will be crying in the soup line. Also, 
I've learned that uncertainty is the most damaging sentiment to 
an option trader. Uncertainty causes indecisiveness in the big 
players which can take the wind out of your option premiums. 
Many players have a hard time trading consolidation patterns 
and stocks that trade range bound in a sideways market. Look 
at your current plays. If the stock stays flat, will you still 
make money? Have you taken the time to learn how to trade during 
those times? Probably not. 

Short term I saw the correction which hit -10%, which 
is typically playable for me. I reviewed Daily Charts of the 
Nasdaq, Dow and VIX, which hit over 30 (entry level alert), 
before pulling back. I checked the 30 yr bond rates and indexes. 
I reviewed OIN for an overview of news and sentiment. I looked 
at market leaders to observe their strength, then my personal watch 
list. I observed pertinent daily charts and the activity around 
moving averages. Next comes a quick glance at particular charts. 
The daily, the 30-min to look at the last days activity, along 
with the 1-min because I always like to know if the stock closed 
pushing up or down, with or without increased volume. 

After this review, I did not feel comfortable with any particular
Singular stock. But, yesterday I recognized the Nasdaq entry point 
on the correction and bought February 174 calls of QQQ (the Nasdaq 
100 index tracking stock). Today I bought OEX expecting a 
short-term rally after the announcement. I do not expect to hold 
these positions long. At this time, I am still concerned about 
continued weakness later in February. Until I feel differently, 
I will back off, play with less money, less often, less contracts, 
lesson my profit expectations, and take profits much more 
frequently. Also, it's a nice time to review trading strategies 
for sideway markets. 

Renee White
Contact Support



**************
Traders Corner
**************

The Anatomy of a Major Turning Point
By Pinnacle Capital Advisors 

Sometimes key turing points in the market reveal themseleves
when traders least expect them and if you blinked Monday
(1/31), you missed one!   

With everyone focused on the pending interest rate hike at 
the FOMC meeting Tuesday (2/1) and Wednesday (2/2), who would 
have thought that we would get a major turing point in the 
market. But that's exactly what we got acorss the key sectors 
of the market including the S&P 100 and several technology 
sectors.

At Pinnacle Capital Advisors, we believe that savvy investors 
can remain above the fray by focusing on one of three key 
technical reversal signals.  What's more, when these signals 
occur at key moving averages, such as the 50 day moving 
average, they become even more profitable.

We will be talking about these powerful reversal signals in 
the days ahead and at the upcoming March Options Expo in 
Denver.  But check out the major bottom reversal signal 
known as the "Tweezer Bottom" that appeard across several of 
the major indices on Monday, January 31st.  Among candlestick 
charting technicians, a Tweezer Bottom is when a big DOWN day 
is followed by a big UP day.   

Depending upon the market index, the reversal occurred either 
at/above or below their respective 50- day moving averages 
and may have different implications.  For example, when major 
indices reverse course at or above their respective 50-dma, 
this is generally a postive sign for the market.  If however, 
the reversal appears BELOW their 50-dma, investors will want 
to make sure that the index does not fail when it finally 
reach its 50-dma.

At / Above 50dma:
Nasdaq         NDX
Hardware       XCI
Software       CWX
Semiconductor  SOX
Networking     NWX

BELOW 50dma:
S&P 100        OEX
S&P 500        SPX


 


 


 


 


 


 


 

*****

Skiing, Swimming, Opera & Trading

I am writing this from my Art & the Law class (last semester 
of school!), so that explains my creative references to skiing, 
swimming, opera & trading. When you ski down the hill, you 
constantly have to think of your next turn. Indeed, you generate 
the momentum to take you through the next turn from your current 
path down the hill. Movement in one direction builds power for 
the move in the opposite direction. So too, the markets -- 400 
points down on any index builds power for a move in the opposite 
direction. Jim writes about 3 up days followed by 2 down days in 
a regular cycle even in an uptrending market. Successful traders 
figure out the markets direction, and ski down the oscillations 
between oversold and overbought -- both conditions create 
opportunities.

Swimming is not about being strong. It is about efficient 
application of strength to achieve the flow of water over the 
body, thus moving the swimmer forward. Good swimmers glide. 
Novice swimmers "beat up the water" with lots of strokes -- I 
know! My Masters swimming coach made us do a drill called, 
"distance per stroke." The key is to generate power with one 
arm's stroke while one puts the other arm out in front of the 
body to glide for a second before executing the next stroke. So 
too, good traders do not trade more often than bad traders. Good 
traders achieve maximum cash flow per trade without paying brokers 
every day, if possible (sorry, preferred, I love you guys, but 
would rather not pay you every day, if possible). That's the 
beauty of efficient selling of puts & calls. If you sell calls 
at overbought levels, and if you sell puts below oversold levels, 
then you can simply sit in the bleachers and let the premiums 
evaporate. Moving forward in the water is like compounding. I 
swim in the ocean at the pier down at Santa Cruz. Sometimes there 
are waves, most of the time, it is just beautiful. I look out 500 
or 800 meters, and pick a point, just like now I pick a financial 
goal. I take a stroke, and do it again, attempting to get maximum 
glide per stroke. Eventually, I get to my goal. So too, with each 
trade. Each trade increases my cash position, increasing my margin 
& buying power, and my ability to sell calls & puts at strategic 
moments. Moving me through the tides & waves towards my financial 
goals.

Leitmotivs are the themes which swirl in operas, often established 
in one act, to be recalled throughout changes of scenery and 
situation throughout the work. So too, there are themes in the 
market (buy tech stocks on the dip) strongly established during 
one act, or regime of volatility (eg, Nov - Dec 99), but which 
fade into the background as Alphonso the Great and the BEAR-itones 
warm up in the wings. Now, we move into a new act in the market 
-- with earnings over, with the liquid triumph of the market over 
Y2K in the rear view mirror, the Fed takes center stage. Yet, all 
the Red Hots are just as good fundamentally as they were in the 
last week of December. Some of the dips during the Feb - Mar period 
will indeed be worth buying, but the background for the scenery has 
changed. More of those dips will be better opportunities to sell 
deep OTM puts with great care -- a subdued version of the dominant 
theme of this big cap, tech lead bull market.

Which brings me to my trades --

Sold BRCM Feb 270 Puts
 


Sold AFFX Feb 210 Puts
 


I did this early on Monday morning, before both of these stocks 
dropped to the strikes, then rebounded strongly, both finishing 
20 points out of the money. My lessons --

1. Be prepared to buy these stocks if you sell the puts. Chips & 
biotechs are taking center stage... and, as one trader in our 
local group noted, intellectual agility in following the newest 
"Red Hots" is at least as important as trading agility.
2. Look for market & sector support.
3. Red Hot specific Technical Analysis -- lots of resistance 
becomes support out there in the most volatile stocks. Will that 
support hold???
4. Be patient. I should have waited 2 hours and sold the BRCM 
Feb 260s and the AFFX Feb 200s.

 


In another trade, I was monitoring my short VRSN Feb 145 Puts 
(from a coffee house in San Francisco's Richmond district!), 
which came very close to my action line. My lessons --

1. Be Prepared to Hedge at your action line. If you have to hedge 
too often (have a limit, such as 4 trades in an out of a hedge), 
then just buy the contracts back and take the loss. Don't get 
tumbled in a wave so you can't swim to your goal. Protect your 
endurance & capital.
2. Give a big buffer zone. 15 points looked big on Friday when 
I sold those puts, but the stock dipped to 146.5 -- too close 
for comfort!
3. Be Patient. Should have sold Feb 135 Puts on Monday morning.
4. Cash Flow is King. Same basic principle, different form.
5. The beauty of writing calls and puts in this environment is 
that you don't need to be exactly right. Close only counts in 
horseshoes, hand grenades & naked option writing (and the last 
two have a great deal in common!)

A good one from my corporate tax prof: 

Amazon.com = America always needed a not for profit bookstore

Think Creatively, Good Luck!

Janar Wasito
Contact Support


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:
*****

ADAP $99.00 -20.00 (-26.47) Well, we said this one was not for 
the weak stomached, but even if you had a stomach of steel, 
today's session would have put it to the test.  ADAP gapped 
down $4 at the open and was trading in the $100 neighborhood 
just over an hour into today's session.  Being that the 2:1 
stock split is not happening until March, we are concerned about 
the near-term picture for ADAP.  There was no new news on ADAP 
other than a reiteration of ADAP's earnings report from last 
week, which admittedly, we found slightly puzzling.  Though we 
see some support at $95, we believe that the risk of continuing 
on with this play is not worth it at this point.  We will be 
keeping this one on our radar screen. 

LVLT $119.56 +1.63 (+14.63) What a great run we have seen 
from LVLT!  We began playing LVLT on January 16th at $86.75.  
We cited our anticipation of LVLT's building momentum to carry 
us through to earnings as the reason for initiating the play.  
Since then, LVLT has traded up to a new 52-week high of $120.25 
and offered a trading range of $35.50.  Not bad at all, if we 
do say so ourselves.  Unfortunately, the time has come that we 
must bid LVLT adieu, as earnings are set to be announced on 
Thursday before the open.  Be sure to close out your positions 
before the market close tomorrow.   

AFFX $229.00 -2.50 (+0.88) It is eerie when we make a call that 
is right on-the-money, but that is what happened with AFFX.  
It is hard to drop AFFX because of the earnings announcement 
pending on Thursday.  Nevertheless, we are disciplined in our 
approach.  The following update is for those who want to keep 
following the stock tomorrow and Thursday.  The selloff on Monday 
took the stock right down to support in the $207-$208 area.  A 
call position placed in that area would be up 20+ points as the 
stock rebounded right back to the closing range of the upper 
$220's.  Today's action was surprisingly muted as the sideline 
cash found other places to go.  By taking out yesterday's high 
print of $234.38, the short-term trend is still bullish.  By 
selling into the close to finish the day down a little is also 
bearish.  Let's call it a wash.  Another strong day in the NASDAQ 
coupled with a break above $237 could take the stock to $250.  
Otherwise, look for the stock to continue trading in 15 point 
ranges, zeroing in on closes in the high $220's.  A competitor 
of AFFX burst onto the scene today with a stellar IPO.  SQNM 
was up over 200% in its first day of trading and closed at 
$79.25.  It appears that some of the money destined for AFFX 
might have found its way into this new issue.  Keep a watchful 
eye out to see if this is a developing trend. 


PUTS:
*****

SLR $73.69 +1.06 (+3.63) Does anyone else sense a bottom forming?  
If you answered yes, you may be right.  SLR put in a double 
bottom on Thursday and Friday of last week and has traded up 
since.  That bounce just under $70 also correlates with the 
100-dma, currently at $71.75.  Morgan Stanley Dean Witter also 
played a role in killing our call play by upgrading the stock 
on Monday from an Outperform to a Strong Buy.  Not a bad entry 
point for an upgrade really with a stock split just over a 
month away.  Besides, we knew our play was ending with the 
split coming.  Overall, we will take our profits from a good 
play and walk away happy.  

INTU $64.81 +4.50 (+7.06) We thought INTU might bounce a little
and provide us with a great entry point for our new put play.
Well INTU bounced all right, so far it jumped up over $7 this 
week.  We are dropping our play in INTU, not so much for the 
jump in price, rather for the conviction or strength behind the
move.  With the volume a bit light in the major indices, INTU 
saw volume near its average.  We could see the software giant 
fall from these levels, but at this point in time, we believe 
the prudent move is to step back and let the bulls have their 
way with this one for now.



********************
PLAY UPDATES - CALLS
********************

SILK $142.38 -5.25 (-19.63) After almost a $20 bump in the road,
SILK looks like it is finally setting up to give us the entry
point we've been waiting for.  The correction has taken place
on light volume, indicating there is not a rush for the exits.
SILK needed to have some air let out in preparation for the next
leg up.  Sitting right near support at $140, SILK has stronger
support near $132.  New positions can be considered on a bounce
from either of these levels, but more conservative players may
want to wait for SILK to trade through the 10-dma (currently
$151.50).  Any renewed upward move should be accompanied by
increasing volume, so confirm that the buyers have returned
before opening new positions.  Recall that this is a volatile
internet, susceptible to large daily price swings.  Evaluate
your risk profile accordingly and protect yourself with stops.
Analyst Richard Davis at Tucker Anthony Cleary Gull initiated
coverage of SILK today with an Accumulate rating.

VOD $58.88 +1.94 (+4.25) VOD seems to be getting the upper hand
in the ongoing merger battle with Mannesmann and investors
responded today by pushing shares to a new 52-week high of
$59.43.  The move over the past 2 days has been accompanied by
strong volume, reinforcing the strength of the move.  Amateur
hour on Monday saw sellers push shares as low as $53.38, before
the bounce, which was accompanied by increasing volume.
Returning to its familiar pattern, VOD gapped up this morning
and headed higher for the balance of the day, closing above the
old 52-week high of $58.50.  The negotiations continue between
the two companies and although the outcome is anything but
certain, the tide seems to be shifting towards VOD as the
victor.  The surprise announcement of an alliance between VOD
and French Telecom group Vivendi this weekend was a double blow
to Mannesmann.  The German company has been courting Vivendi
in an effort to ward off the hostile takeover, and the fact
that VOD got the nod will make the takeover that much more
attractive to Mannesmann shareholders.  Use caution with this
play as the expiration date (Feb 7) of VOD's offer approaches.
A rejection by Mannesmann shareholders will likely be negative
for the shares of both companies.



***********************************************
PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO
***********************************************



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DISCLAIMER
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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 
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information provided has been obtained from sources deemed 
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The newsletter staff makes every effort to provide timely 
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delivery times due to factors beyond our control.


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


********************************
PLAY UPDATES - CALLS - CONTINUED
********************************

LU $55.75 +0.25 (+0.44) We have three words for the current 
trading in Lucent.  Boring, boring, boring.  You could sum up 
today's trading by realizing that the stock never hit the tape 
without the number $55 in front of it.  That's right, the high 
was $55.81 and the low was $55.13.  Not what you like to see 
on a day like the Nasdaq had today, but this has been a value 
play for tech investors and they left it for momentum today.  
We are keeping LU to see if it can muster a rally after the 
Fed announcement.  In reality, it did a good job in the face 
of the Nasdaq downdraft in recent days and the downside appears 
limited.  The unknown is the upside.  If we get more dull action 
like today, we will undoubtedly be dropping LU soon.  Support 
looks strong at the 10-dma at $54.50.  Resistance was on every 
up tick today, almost painful to watch.  Technical resistance 
is still between $58 and $58.50.  

CMGI $115.00 +2.88 (+9.94) We still insist that you shouldn't 
try to pick a bottom, but in retrospect, that is where we entered 
our play of CMGI.  The stock closed Friday near $106 and we said 
that $100 would be support and a buying opportunity.  Someone 
out there must have taken that to heart because after a brief 
morning dip to $100 on Monday, CMGI really took off.  You could 
see from the first bounce off $100 in the early moments of 
trading on Monday that buyers were ready because it shot the 
stock back up $6 instantly.  Then it traced down to $100 again 
and this time the bounce really took hold.  CMGI has been trending 
up since noon on Monday to close above the 10-dma ($114.25) and 
right near the day high.  No real news out there to drive the 
stock, just lots of money wanting to buy this stock.  Now its 
up to the Fed as to whether this will continue.  It's obvious 
that investors are ready to buy if we get the green light, i.e. 
no 50-basis point move.  Support is at $112.50.  Resistance which 
was at $115 is now at $120.  This stock should remain active 
tomorrow with the Fed decision so pay close attention.  

BGEN $94.38 +8.13 (+2.13) What goes down, sometimes doesn't stay
down, or at least that's been the sentiment the past two days.
Monday traders sold shares of BGEN like there was no tomorrow, 
after the announcement from IMNX, that their drug Novantrone, had
been approved by an FDA panel.  Apparently investors had concerns 
that the potentially strong sales of Novantrone, would cut into
BGEN profits.  Today BGEN, spun their own tale with a company 
press release citing a CHAMPS study which has shown the highly
significant beneficial effect of AVONEX, in delaying the 
development of clinically definite multiple sclerosis.  Buyers
jumped back into BGEN stock in a big way, bidding the price of
BGEN +8.13 higher for the session, closing at $94.38, its high
of the day.  BGEN closed back above its 5-dma at $93.91, which 
technically, is positive for this play.  Until yesterday $90
had provided support for the Biotech company.  If we get a 
pullback, we would look for that level to once again provide
support.  Continued momentum to the upside would also be an
chance to re-enter this play.  If anything, we are seeing a 
lot of volatility spurring wide trading ranges and a lot of 
play opportunities within.

NTAP $107.81 +7.44 (+8.63) We said Sunday we were anticipating
another chance to enter our play in NTAP.  Monday's early 
sell-off and late day recovery gave us just what we were 
looking for.  NTAP got clobbered early in the day falling all
the way to $90.63, which was down -8.56 for the day.  Shortly
after noon ET, buyers began to enter the Nasdaq and the tech
stocks they had dumped only hours earlier.  NTAP finished the
day +1.19 at $100.38.  Most traders were expecting today would
be fairly direction-less and choppy, due to the FOMC meeting.
Buying started out slowly, but gained momentum as the session
continued.  At the close today NTAP finished +7.44, at $107.81.
That's an 18% recovery in two days.  There was no real company
specific news behind the move in NTAP, just anxious buyers.
Hopefully somewhere in the move, you found the nerve to re-enter
this play.  NTAP is now in the middle of a recent trading range.
$100 would be seen as support, with the $115 level providing the
next resistance.  We would consider entering this play on further
moves higher, but would do so cautiously, as profit-taking could
occur at any time.

BRCM $296.75 +7.44 (+12.75) The reported death of the tech stocks
was greatly exaggerated.  Things did look somewhat bleak early 
Monday, as investors sold shares of BRCM for most of the morning.
Talk about volatility.  BRCM head south at the open, trading down
to $266, before buyers jumped in with both feet.  Remember our
primary interest in BRCM is for its split run potential.  The 
company will split its stock 2-for-1 on Feb 14th.  BRCM appears
to be zeroing in on the high of $332.13 set back in the middle 
of January.  We would point out the volume behind yesterday's 
decline and today's move was a bit light, compared to the ADV 
seen in BRCM.  If you entered this play, be prepared to take 
some money off the table, as the FOMC meeting will end Wednesday 
approximately 2:15 ET, with an announcement from the Fed 
regarding interest rates.  Some traders are seeing the rally
the past two days as a "buy the rumor-sell the fact" scenario.
If that's the case, we could see a sell-off as the Fed makes
their announcement tomorrow.  We do believe regardless of the
Fed decision BRCM will end up with a nice split run, however 
the road getting there could be a bit bumpy.

PMCS $205.56 +25.06 (+15.50) Monday turned out to be a gift 
from PMCS, as it yielded some wonderful opportunities for 
possible entry points.  PMCS shot up to tag its $191.25 high 
for the day shortly after the open.  Then once again, the 
profit-takers emerged from the woods and dragged the stock 
down to a low of $170.25.  This level held as support and 
turned out to be a great entry level.  PMCS closed the session 
just above $180.  Today, PMCS put on its running shoes and 
made a break for it.  PMCS opened up over $4, made a quick 
jaunt down to test $180 and then traded all the way up to 
a close over $200.  We could not have asked for a better day 
for a call play.  There was opportunity to get on board, good 
volume and a breakthrough and a close above a strong 
psychological number.  PMCS looks to have a plethora of 
support starting at $200, with $194 (5-dma), $190 (10-dma), 
$185, $180 and $170 playing back up.  We are roughly $3 under 
the 52-week high, which is serving as the only resistance at 
this point.  Being that we have seen such a big run up today, 
we are bound to see some profit-taking in the near future.  
Watch for bounces at the above mentioned support levels followed 
by a reclamation of momentum for possible points of new entry.  
The 2:1 stock split is payable on the 11th of this month, so 
we have just over one week left of this play.  Remember to use 
those stops to protect profits!

PEB $151.00 +1.25 (-14.00) PEB obviously had a rough start to 
the week.  Monday, PEB gave back $15.25, closed at the low of 
the day and posted volume double the daily average.  Needless 
to say, we were concerned.  PEB continued downhill for the 
first half of today before flattening out a bit and finally 
making a move up to close just pennies under its high for the 
day.  It was this late day move up that has afforded PEB more 
time on our play list.  PEB has support at $150 and looks 
to have some additional support right around $146, $143.  PEB 
may encounter some resistance right around $155 and $161, where 
its 5 and 10-dmas are working to converge.  A new competitor 
for PEB entered onto the scene today.  A company by the name 
of Sequenom (SQNM) IPO'd this morning and closed up $56, which 
probably helped add some pressure to PEB shares.  Don't forget, 
we have an upcoming 2:1 stock split on February 18th.  Hopefully, 
we have seen a shake out of the profit-takers and are now 
cleared for a split run.  Confirm continuing momentum before 
entering and remember to use your stops.   

EMIS $39.13 +1.25 (-0.50) Though the Biotechs rallied nicely 
late day on Monday, EMIS headed south to close the session 
smack dab on its low for the day.  EMIS found some morning 
resistance on Monday at $39.50, a level which again provided 
the resistance for today's session.  One point of concern, and
therefore something to keep an eye on, is the volume levels.  
We saw volume slightly higher than average backing the decline 
yesterday and volume less than half ADV backing today's ascent.  
Obviously, we would like to see the reverse as an indication 
of continuing investor interest.  EMIS does look to have some 
support at $39 with additional support backing right around 
$38.50, where its 5 and 10-dmas have converged.  EMIS looks 
to have additional support at We are still looking for some 
trading and a close above the $40 level with a pickup in volume 
to confirm the positive momentum necessary to make this a 
worthwhile play. 

ICIX $44.63 +1.63 (-0.38) Monday, ICIX's 10-dma did a great 
job of providing support on a day that saw shares close $2 
lower and just slightly above the low for the session.  Today, 
ICIX did a nice job of regaining the majority of the ground 
lost.  ICIX traded as high as $45.25.  ICIX did seem to 
struggle with the $45 level throughout the day.  We saw strong 
volume behind today's move up, a good indication that investors 
are still feeling good about owning this stock.  ICIX does seem 
to have some support at $44 with $43 playing some solid looking
back up.  Look for ICIX's 10-dma, currently at $42.50, to 
continue to provide additional support when needed.  Take 
advantage of pullbacks with holding support levels, as we saw
yesterday, for possible entry points.  Look for ICIX to trade 
through $45 to confirm continuing positive momentum.  More good 
news on Monday from ICIX subsidiary, Digex.  Digex announced 
that it was launching new Fail-Over services to provide better 
and more reliable service for ASP's and e-Business's.

MUSE $169.38 +6.19 (+6.50) Micromuse has shown resiliency on the 
downside, but resistance on the upside the past two days.  The 
stock is due to breakout one way or the other.  With today's 
late strength it appears that the path of least resistance is 
to the north.  However, the stock still needs to prove that 
assertion by trading above $172-$173 where it seems that the 
stock keeps running out of steam.  There is some pretty good 
short-term support at $160.  As long as support is not violated, 
an aggressive trader might consider buying dips.  Some of 
today's rally can be attributed to the announcement that MUSE 
landed another monster client for its Netcool software product.
Cox Communications, one of the largest broadband communications 
companies, will now be using Netcool to support end-to-end 
proactive management of its broadband network infrastructure.

FRX $68.31 +0.81 (-0.94) A sizable trading range yesterday of 
5 1/2 points was followed by an inside day today.  The right side 
triangle formation that the stock is forming indicates that the 
stock may experience a sharp rally if it can take out resistance 
at the old high of $70.75.  A close above that price could 
possibly take the stock much higher.  As long as the bottom 
trendline holds at around $66.50 it might be possible to 
initiate potentially profitable bullish positions.  FRX has been 
one of the best performers in the drug group.  If money keeps 
spreading out to include "safe" drug stocks then look for Forest 
Labs to continue its leadership within the group.

TQNT $158.38 +5.63 (-2.13) Can you say trading range?  This is 
the single best way to describe the action of TriQuint's shares 
over the past several days.  Day traders are having a lot of 
fun, but those of us who are looking for profits over a longer 
time span (say a week or two) will continue to have to be 
patient.  The range is $152-$163.  There is a little technical 
concern about the stock making slightly lower highs in each of 
the past four days.  TQNT will have to reverse that pattern 
quickly if it is to continue as a favorite among momentum 
players.  It appears that the SOX Index had a very nice reversal 
day.  Semiconductors were the leaders of the last rally but seem 
to have cooled off this week.  If they can re-establish their 
leadership, look for TQNT to make a nice move.  Otherwise, make 
sure you are using a disciplined approach, just in case the past 
two days prove to be a counter-rally in an overall pullback and 
consolidation phase.  Note the strong support at $152 on an 
intraday chart during the past week too.

VECO $58.75 +3.88 (+2.75) The shares have Veeco have been range 
bound the past two days (sound familiar?).  Dips are being 
bought and rallies are being sold.  If this pattern continues 
there could be trading opportunities between $54.50 and $60.  
We had a bit of a scare yesterday when the stock tried to move 
below the range, bottoming out at $52.  A break above $60.13 is 
still shaping up to be a possible entry point for a rally into 
new high ground with a follow through to around $65 or beyond.
Veeco was a presenter today at the Banc of America Securities 
Technology 2000 conference.  Their presentation was a possible 
influence on today's rally.  Let's see if we can get a follow 
through tomorrow.

MFNX $70.19 +2.50 (+5.03) In Sunday's report we were looking for 
a test of support at $62.50 to initiate a call position.  The 
selling took the stock to $61.  Hopefully, you did not get 
stopped out because the bounce has been very nice.  Despite the 
bounce, we are looking at a stock that appears to be holding on 
and trying to consolidate in the mid $60's.  The trend of four 
lower-highs needs to be broken for this stock to skip along its 
merry way to new highs.  Today's close ran right into the 
downtrend line and stopped.  Even though it was a generally 
strong day for communications stocks.  We would be strongly 
encouraged that MFNX is back on its way if it could trade above 
$72.  The next resistance is the old high of $75.81.  The first 
support level is $67 followed the low $60's.  It might be 
prudent to make sure that support holds before trying to buy 
into selloffs.  MFNX received new coverage with a Buy rating 
from Wasserstein Perella on Monday.



*******************
PLAY UPDATES - PUTS
*******************

UAL $57.94 +0.81 (+0.06) The descent in shares of UAL have 
begun to slow, but the captain hasn't turned off the fasten 
seat belt sign just yet.  Actually, the 10-dma is still trying 
to catch up after the earnings warning of two weeks ago.  The 
10-dma is currently at $59.20 and falling fast.  For those 
who typically watch our put section, you know that the 10-dma 
will usually be our guide and that is the case here.  We want 
to see the 10-dma become resistance and to be watched for a 
possible entry point.  Any close above that mark would be a 
good reason to close up shop and head for another play.  We 
think UAL will weaken if the market heats up again.  Those who 
are currently buying this as a defensive play will leave for 
greener pastures.  With that said, watch the relative strength 
for signs of more deterioration.  

IPG $48.19 +2.19 (+1.19) Day one of play on IPG was right on 
track, while day two of our play left us tied to the track 
with a train approaching.  After continuing the descent from 
last week during Monday trading, IPG bounced right off the 
100-dma at $45 on Tuesday.  The debate to whether the decline 
is over is a different story.  IPG has had these moves of late 
where it goes down for a few days followed by a few days up, 
but the overall trend is still lower.  We want to see if IPG 
can rally above the 10-dma at $50.36 currently.  If not, we 
will have ourselves a new entry point.  Support for IPG is at 
the bounce from Monday at $45.25.  In the news today, IPG was 
mentioned in an article about e-dialog.com, but it wouldn't 
have done much for the stock.  Volume was average signifying 
there may not be much in the way of power behind this rally, 
but IPG did hit the bottom of the Bollinger Bands yesterday 
signaling it was due for a small bounce.  Therefore, let it 
bounce if it must, but we will be watching for resistance at 
the 10-dma for new plays.     

BBY $49.69 +1.94 (+0.94) The daily sector rotation continues,
with retail stocks getting a boost today.  BBY was not
unaffected, managing to gain almost $2 on slightly less than
average volume.  Although it was an up day, BBY still sits
below both its 30-dma ($51.63) and its 50-dma ($52.50).  These
levels should continue to provide resistance as investors
rotate back out of retail stocks in the next day or two, and
we should be presented with a nice entry point as BBY rolls
over.  The next support level looks to be in the $43-44 range
and further market weakness could take us there rather quickly.
Keep your stops in place, as a positive surprise from the FOMC
meeting tomorrow could be supportive for BBY.  Further support
for BBY comes from today's announcement that the company will
buy back an additional $400 million worth of their outstanding
shares.  This should be a one-day news event, forgotten by 
tomorrow.  

ADBE $55.88 +0.81 (-1.69) This stock was very accommodating in 
allowing us to put on a bearish position early Monday morning 
before really beginning to selloff.  The breakdown confirms the 
downtrend.  A new recent low was established at $53.44 before 
a bounce. Today the stock staged another rally, which is 
reasonable considering the overall strength of the market.  It 
was critical that the stock did not even come close to Monday's 
high of $58.13.  If ADBE stays below that resistance point look 
for it to possibly resume its downtrend during the next market 
selloff.  A drop below yesterday's low of $53.44 could take the 
stock to the next support level at $52-$50.  There is a lot of 
support in this area going back to August-September.  It is 
possible that a good bounce could occur in this area so keep 
that in mind when determining your exit point.



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

PSIX - PSINet Inc. $86.75 +6.88 (+6.13 this week)

PSINet wants to hook you up.  Providing Internet access to
businesses, government agencies, and ISPs in 22 countries,
the company offers dial-up and dedicated Internet access,
Web hosting, remote access to enterprise networks and
e-commerce solutions.  Much of the company's recent growth 
has come through the acquisition of an assortment of ISPs 
in several countries.   

Welcome to another combined split and earnings play.  PSIX has
been in correction mode with the rest of the NASDAQ for the past
week, but bounced firmly at the 30-dma ($74) yesterday.  We
expect investors to start thinking about the upcoming split,
payable on February 11th.  Add in earnings, which are scheduled
for the 14th, and we have the ingredients for a nice quick run.
Moving up strongly today, PSIX closed near the high of the day
on light volume.  The nearest resistance is at the $90 level,
with the 10-dma at $89.  If volume returns and there are no
surprises from the FOMC meeting tomorrow, PSIX could be ready
to charge up to its 52-week high ($107.19), set only a week ago.
Any return to support near the 30-dma, followed by a resurgence
of buying volume is buyable, although more conservative
investors may want to wait for a convincing break through
resistance at $90.  PSIX can have large daily moves, so play
this issue with caution and stops.  

On January 27th, PSIX announced that it had sold 14 million
shares of its 7% Series D cumulative convertible preferred
stock in accordance with SEC rule 144A.  The net proceeds are
expected to be used for general corporate purposes including
more acquisitions and alliances.

BUY CALL FEB-85*SQP-BQ OI=568 at $ 9.13 SL=6.75
BUY CALL FEB-90 SQP-BR OI=974 at $ 6.50 SL=4.75
BUY CALL FEB-95 SQP-BS OI=573 at $ 4.88 SL=3.25
BUY CALL MAR-90 SQP-CR OI=414 at $11.00 SL=8.75
BUY CALL MAR-95 SQP-CS OI=131 at $ 8.75 SL=6.75

Picked on Feb 1st at     $86.75     P/E = N/A
Change since picked       +0.00     52-week high=$107.19
Analysts Ratings      9-3-1-0-0     52-week low =$ 30.38
Last earnings 10/99   est=-1.38     actual=-1.35
Next earnings 02-14   est=-1.71     versus=-1.02
Average Daily Volume = 2.92 mln
/charts/charts.asp?symbol=PSIX 

****

LLTC - Linear Technology $97.69 +3.00 (+6.94 this week)

Linear Technology is a manufacturer of high performance linear 
integrated circuits.  LLTC products include operational, 
instrumentation and audio amplifiers; voltage regulators, power 
management devices, DC-DC converters and voltage references; 
communications interface circuits and sample-and-hold devices.
Applications for LLTC's circuits include telecommunications, 
cellular telephones, networking products and satellite systems,
notebook and desk top computers, computer peripherals, 
video/multimedia, automotive electronics and military and 
space systems.

Wow!  It certainly is exhausting to try and list every product 
and product application for Linear Technology.  It is that 
depth in product that makes LLTC a must own for any serious 
investor in the semiconductor industry.  LLTC does not make the 
"sexy" chips that seem to get people's attention.  Rather, they 
make everything else that keeps our technological world whirring 
away.  The most recent tech rally seems to be dominated by old 
standbys.  Comfortable names that have been core holdings for 
years, and LLTC is one of them.  LLTC has garnered the interest 
of the shorter term investor by announcing a 2-for-1 split 
payable March 27th (a bit far off for a split trade, but an 
influencing factor, nevertheless).  January was a great month 
for chip stocks and LLTC was definitely one of the beneficiaries.
LLTC began the year in a straight uptrend from $73 to a new high 
of $99.69.  After a pullback and consolidation into a range of 
$89-$95 for several days, the shares of LLTC seem to have 
gathered the strength to tackle that always critical price level 
of $100.  Early traders may want a position now in anticipation 
of an attempt to break through $100.  Other investors may want 
to wait for a close above $100 before initiating a position.  
Either way, LLTC is in a strong uptrend that should continue as 
long as this accumulation phase of major technology names 
continues.  If the market sells off look for support around $89-
$90 followed by more support in the low $80's.

One of the reasons for all of the strength in Semiconductor 
sector last month was strong earnings and LLTC had one of the 
best reports.  Sales for the second quarter were up 35% and 
earnings were up 41%.  Guidance for the March quarter was very 
bullish.  Because of the strong report, Goldman Sach's raised 
their earnings estimates for the company and CSFB raised their 
target to $105.

BUY CALL FEB- 90 LLQ-BR OI=296 at $ 9.75 SL=7.25
BUY CALL FEB- 95*LLQ-BS OI=168 at $ 6.75 SL=5.00
BUY CALL FEB-100 LLQ-BT OI=460 at $ 3.88 SL=2.00
BUY CALL MAR- 95 LLQ-CS OI=  9 at $10.38 SL=7.75 low OI
BUY CALL MAR-100 LLQ-CT OI= 56 at $ 7.38 SL=5.25

SELL PUT FEB- 90 LLQ-NR OI= 30 at $ 2.88 SL=4.50
(See risks of selling puts in play legend)

Picked on Feb 1st at    $97.69    P/E = 67
Change since picked      +0.00    52-week high=$99.69
Analysts Ratings    7-10-4-0-0    52-week low =$41.75
Last earnings 01/00  est= 0.38    actual= 0.40
Next earnings 04-13  est= 0.41    versus= 0.31
Average Daily Volume = 1.6 mln
/charts/charts.asp?symbol=LLTC

****

COVD - Covad Communications $74.00 +3.25 (+0.81 this week) 

Covad communications is in the high speed Internet business.
The motto at their Web site says "The Internet, the way it 
should be".  COVD has more than 350 qualified ISP partners 
across the U.S. to offer Covad DSL.  They concentrate primarily 
in the metro areas, operating more than 16,700 lines.  They 
have formed strategic alliances with AT&T, Nextlink and Quest.
Operating over existing copper phone lines allows the company 
to offer lower rates and 24 hour connectivity.  Their primary 
competition comes from NorthPoint and Rhythms Netconnections. 

COVD is one of the three major providers of digital subscriber
line (DSL) services.  Recently they have pulled ahead of their
competition in the high-speed Internet business.  Investors
have rewarded COVD by bidding the price of their stock higher
During the fourth-quarter COVD installed more DSL lines than 
its other two competitors combined.  Although they showed an
-$0.80 per share loss last quarter, COVD came in well ahead of
analyst estimates of -$0.94 per share.  Sales rose from $2.76
million to $30.9 million.  Not only did they beat the street
last quarter, they have exceeded expectations the last three
quarters.  Bear Sterns analyst James Henry last week issued a
Buy rating on the telecommunications company due to the recent
strength and performance.  Actually many analyst had forecasted
a drop in the per share price due to the increased competition
in the industry.  COVD hit a high at $79.25 Thursday before 
the major indices fell apart.  Tuesday in the early sell-off
COVD bounced off a support at $66 and began to rebound, as buyers
stepped up to the plate at the Nasdaq.  The buying continued
today as COVD added another $3.25.  The volume was a bit light,
but could probably be attributed to traders on the sidelines,
with the FOMC meeting going on today and tomorrow.  COVD appears
to be poised to make a run at its old high of $81.  Intraday
support for COVD is seen at $72.50 and down at $68.   

Last week two analysts jumped on the bandwagon with COVD.  
Axxel Knutson at Platinum Securities reiterated his Strong Buy 
rating of COVD, while analysts at Frost securities reiterated 
their Buy rating of the telecommunications company and raised
their price target from $62 to $82 over the next twelve months.

BUY CALL FEB-65 COU-BM OI=802 at $11.13 SL=8.75
BUY CALL FEB-70 COU-BN OI=511 at $ 7.63 SL=5.75
BUY CALL FEB-75 COU-BO OI=301 at $ 4.88 SL=3.25
BUY CALL MAR-70*COU-CN OI=453 at $11.38 SL=9.00
BUY CALL MAR-75 COU-CO OI=110 at $ 8.50 SL=6.50

Picked on Feb 01st at    $74.00    PE = N/A
Change since picked       +0.00    52-week high=$81.00
Analysts Ratings      6-7-1-0-0    52-week low =$24.83
Last earnings 01/00   est=-0.97    actual=-0.80 
Next earnings 04-25   est=-1.05    versus=-0.56
Average daily volume = 2.61 mln
/charts/charts.asp?symbol=COVD



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

No new put plays tonight.


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

BRCM - Broadcom Corp. $296.75 +7.44 (+12.75 this week) 

Broadcom develops integrated circuits used in broadband data
and video transmission products.  The company's integrated
circuits are in more than 80% of all cable modems and in digital
set-top boxes.  The company depends on two company's for the 
majority of their business, General Instruments, which is now 
part of Motorola and 3Com.  BRCM's integrated circuits are also
used in Ethernet networking, digital broadcast satellite, and 
digital subscriber line products.  The competition in the
industry is stiff, but they hold their own against Conexant 
Systems, Lucent and Texas Instruments.

Sunday's Write Up

After a shaky start at the first of the year, BRCM experienced
a great earnings run.  Now we are adding BRCM to our list of 
plays for its potential to give us an equally fantastic split
run.  This earnings season investors have bid the price of many 
companies stock higher going into earnings, only to punish
them by selling shares after the announcement, regardless of 
the report.  Jan 18th, BRCM reported solid earnings, beating the 
street by 14%, with revenues increasing by 116%.  That same day
the company declared a 2-for-1 stock split.  Since that time 
BRCM has seen the share price fall from its high at $332.13 all
the way back to Friday's low of $272.44.  The ex-date for the 
split is Valentines Day, February 14th, and we believe BRCM is
setting up to provide us with a sweet play as well.  Friday 
during the carnage in the broader markets, BRCM found buyers
late in the day and managed to finish the day in the plus 
column.  BRCM and the Internet sector has taken a drubbing this
week.  The $274 area has provided good support for BRCM on 
three different occasions during the week.  The fact that we 
saw buyers step in and buy shares of BRCM, on a day like Friday
tells us the split run is about ready to begin.  BRCM can
obviously be a volatile stock and may not fit everyone's
risk profile.  The option premiums are a bit expensive due to
the volatility, but if we get a good split run, it should 
provide a nice return.

Although the price of BRCM stock has declined, it hasn't 
changed the mind of analysts that follow the company.  After
reporting earnings, Morgan Stanley Dean Witter reiterated an
Outperform rating for BRCM, raising year 2000 earnings 
estimates and the target price from $250 to $400.     

Tuesday's Write Up

The reported death of the tech stocks was greatly exaggerated.  
Things did look somewhat bleak early Monday, as investors sold 
shares of BRCM for most of the morning.  Talk about volatility.  
BRCM head south at the open, trading down to $266, before buyers 
jumped in with both feet.  Remember our primary interest in BRCM 
is for its split run potential.  The company will split its 
stock 2-for-1 on Feb 14th.  BRCM appears to be zeroing in on the 
high of $332.13 set back in the middle of January.  We would 
point out the volume behind yesterday's decline and today's move 
was a bit light, compared to the ADV seen in BRCM.  If you entered 
this play, be prepared to take some money off the table, as the 
FOMC meeting will end Wednesday approximately 2:15 ET, with an
announcement from the Fed regarding interest rates.  Some traders 
are seeing the rally the past two days as a "buy the rumor-sell 
the fact" scenario.  If that's the case, we could see a sell-off 
as the Fed makes their announcement tomorrow.  We do believe 
regardless of the Fed decision BRCM will end up with a nice split 
run, however the road getting there could be a bit bumpy.  

BUY CALL FEB-280 RDW-BP OI=1516 at $30.13 SL=23.50
BUY CALL FEB-290*RDW-BR OI= 791 at $25.00 SL=19.50
BUY CALL FEB-300 RDW-BT OI=1739 at $20.38 SL=16.00 
BUY CALL FEB-310 RDU-BB OI= 632 at $16.38 SL=12.75
BUY CALL FEB-320 RDU-BD OI= 658 at $13.00 SL=10.00

Picked on Jan 30th at   $284.00    PE = 401
Change since picked      +12.75    52-week high=$332.13
Analysts Ratings     8-13-1-0-0    52-week low =$ 46.25
Last earnings 01/00   est= 0.27    actual= 0.31 
Next earnings 04-18   est= 0.31    versus=-0.19
Average daily volume = 2.09 mln
/charts/charts.asp?symbol=BRCM



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

Stocks Rally As Investors Ignore Potential Rate Increase..

Monday, January 31
 
Banking stocks led the Dow to solid recovery just one day before
officials of the Federal Reserve meet to discuss interest rates.
The blue-chip index surged 201 points to end at 10,940 while the
Nasdaq closed 53 points higher at 3940. The S&P 500 Index was up
34 points at 1,394. On the Big Board, declines beat advances 16
to 14 on 972 million shares traded. There were 21 stocks at new
highs and 175 at new lows. The 30-year U.S. Treasury bond slipped
14/32 and the yield closed at 6.49%.

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

Chris Craft   CCN    FEB70P/FEB65P   $0.93   credit   bull-put
Extreme       EXTR   FEB70P/FEB65P   $0.62   credit   bull-put
Newbridge     NN     MAR17C/FEB25C   $6.25   debit    diagonal
Triquint      TQNT   FEB135/F140C    $3.75   debit    bull-call
Applix        APLX   JUL15C/JUL15P   $6.50   debit    straddle

Portfolio plays:

Monday's session provided most traders with a welcome reprieve
from the recent slumping market. Our portfolio was no different
with a number of issues rising to the occasion. Unfortunately,
the majority of gains were simply rebounds to previous trading
ranges and only a few of the positions offered favorable exit
opportunities. Boston Communications (BCGI) moved up $0.50 to
$7.25 on news they are offering BCGI Prepaid Connection, their
latest prepaid wireless solution, at a discounted rate to all
RCA members. BCGI, recently approved as the preferred vendor of
prepaid wireless for RCA members, created this prepaid wireless
solution so carriers in small to mid-size markets can provide
their customers with seamless, roaming prepaid wireless service.
Our bullish diagonal position; JUN5C/FEB7C, is now offering a
$0.75 profit on $1.31 cost basis. Another of our recent bullish
issues actually fell during the day's trading. Silicon Valley
Graphics (SVGI) dropped $1.75 to close near $21. Our original
spread; JUN17C/FEB20C at a debit of $2.88, was in need of an
adjustment and the decline provided an excellent opportunity to
roll-forward and up to the MAR-$22 calls. There was no cost for
the transition and our new position has better upside potential
(at the loss of a small amount of downside protection).

The big mover today was Sprint PCS (PCS). The stock gapped-up
almost $10 in anticipation of positive earnings on Tuesday. The
company is expected to report a loss of $1.44 a share, with an
adjustment for the 2-for-1 stock split. Traders say the earnings
will come in higher based on an increase in operating income and
the record pace of new customer acquisitions. Regardless of the
eventual outcome, today's rally offered a favorable early-exit
opportunity on the aggressive portion of our current debit spread
position. Another portfolio surprise was General Motors (GM). The
stock closed above $80 after The Wall Street Journal reported the
world's largest auto-maker is close to a deal with Toyota Motors
to offer GM's Onstar in-car communications system in Toyotas sold
in the United States. The deal would be a boon to GM, which hopes
to develop Onstar into a major source of revenue from consumers
even after cars are sold. Toyota would be the first auto-maker
unaffiliated with GM to offer Onstar, which combines a cellular
phone and global-positioning equipment to link drivers to a help
center for auto services and emergencies. Our long-term position;
LJAN75C/FEB80C, is at maximum profit near the current price but
will need an adjustment if the stock moves significantly higher.
Keep in mind that speculation of the Hughes (GMH) spin-off will
also have an effect on the stock price in the coming weeks.

Tuesday, February 1

The markets roared and the U.S. economy set a record for growth
just a day before the FOMC's much anticipated interest rate hike.
The Dow Jones industrial average ended 100 points higher at 11,041
while the technology-laced Nasdaq composite rallied 111 points to
4,051. The S&P 500 Index was up 14 points at 1,409. On the NYSE,
advancers edged-out decliners 16 to 13 with 978 million exchanged.
There were 33 stocks at new highs and 136 at new lows. The 30-year
U.S. Treasury bond climbed 22/32 while the yield fell to 6.43%.

Portfolio plays:

Today's rally came right on schedule as investors decided that
any rate increase has already been factored into market prices.
The majority of issues in our portfolio made favorable moves and
there were a number of new winners. Newbridge Networks (NN) was
by far the most surprising, climbing over $4 on news the company
would sell 1.3 million shares of Crosskeys (CKEY), lowering its 
ownership in the telecommunications software company to 19%. The
network gear developer, whose sale is said to be imminent, has
rallied in recent weeks on buyout speculation. Rumors suggest
European telecom group Alcatel Alsthom is leading the list of
suitors, which includes German industrial firm Siemens AG and
Swedish telecoms equipment maker Ericsson. North American firms
named as potential buyers include Nortel Networks (NT), Cisco
Systems (CSCO) and Tellabs (TLAB). Our new diagonal position
offered a its first early-exit opportunity with a $0.75 profit
available on $6.25 invested for just two days. Another issue that
rallied today was Tera Computer (TERA). The stock price jumped
$1.12, closing at $7.75 on an increase in institutional buying.
Analysts suggest Tera is poised to steal the high-performance
computing mantle from SGI/Cray and expand the market for their
computing systems. They lead this unique industry in development
of multi-threaded computer systems and expect to become dominant
in the production of high-performance computer systems in the
next decade. The stock is now trading near an area of maximum
profit for our bullish diagonal position but the play will need
an upside adjustment (or early exit) if the issue moves higher.

General Motors (GM) announced plans today to issue $15 billion in
new shares of the stock that tracks the performance of its Hughes
Electronics (GMH) unit. GM said it will offer its shareholders $8
billion in Hughes tracking stock in return for their regular GM
shares. GM will also contribute $7 billion of Hughes' stock to
trust funds for retiree benefits. The move will reduce the number
of GM shares on the market, driving up their earnings per share.
The transaction will also reduce GM's holdings of Hughes stock to
35%. GM shares climbed $4 on the news, ending at $85. Our bullish
LEAPS/CC's position may need an adjustment to maintain its upside
potential. We will watch for any consolidation in the issue to
assist with the move. The wireless industry also helped lead the
market higher and Sprint PCS (PCS), the wireless segment of long
distance company Sprint (FON) rose $1.75 to close near $112 after
announcing it had added more than 1 million new customers in the
fourth quarter. Their earnings were also favorable and our recent
bullish debit positions are expected to expire at maximum profit.

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


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

PFE - Pfizer  $37.00     *** Cheap Speculation ***
 
Pfizer is a global health care company operating in two business
segments. The Pharmaceutical segment includes prescription drugs
for treating cardiovascular and infectious diseases, central
nervous system disorders, diabetes, erectile dysfunction,
allergies, arthritis as well as non-prescription medications.
The Animal Health segment makes anti-parasitic, anti-infective
and anti-inflammatory medicines, and vaccines for livestock,
poultry and companion animals. Pfizer's major pharmaceutical
products include a number of well known drugs like Procardia and
Viagra. Their popular over the counter brands are Visine, Bengay,
Cortizone, Unisom, Desitin, Bain de Soleil, Plax and Barbasol.
Pfizer's leading animal health products include market leaders
Nemex and Terramycin among others.

Analysts suggest that Pfizer may conclude a bitter, three-month
takeover battle for Warner-Lambert (WLA) sometime this week. The
company originally made an unsolicited bid for Warner-Lambert in
early November but Warner-Lambert opposed Pfizer's advances in
favor of a deal with American Home Products (AHP). A deal between
Pfizer and Warner Lambert would create a drug giant second only
to the proposed conglomerate (merger) of Glaxo and SmithKline
Beecham. Pfizer's current offer is 2.5 PFE shares for each WLA
share, but they may raise the bid to complete the deal.

Experts believe the outcome will be favorable and the ratings on
PFE are positive. Last week, Salomon Smith Barney reiterated their
BUY recommendation with a $45 target. Gruntal posted a new target
of $44 in the short-term, with a bullish future outlook after key
products post solid growth. They also expect the stock to rally
from the recent oversold conditions. Our contention is that PFE
will move higher in the next few weeks and this position offers
a simple, low cost method of speculating on the eventual outcome
of the current activity.

PLAY (conservative - bullish/calendar spread):

BUY  CALL MAR-40 PFC-EH OI=13586 A=$0.93
SELL CALL FEB-40 PFC-BH OI=7716  B=$0.25
INITIAL NET DEBIT TARGET=$0.62 TARGET ROI=25%

Chart =
/charts/charts.asp?symbol=PFE

****

PZL - Pennzoil/Quaker State  $11.69     *** On The Move! ***

Pennzoil-Quaker State is a premier automotive (after-market)
products and consumer car care company. They are engaged in the
manufacturing and marketing of lubricants, car care products,
base oils and specialty industrial products and in franchising,
ownership and operation of fast-lube centers. Pennzoil-Quaker
State has strong brand-name recognition in key products such as
motor oil with Pennzoil, Quaker State and Wolf's Head, fast-lube
centers with Jiffy Lube and numerous car care products such as
Slick 50, Rain-X, Blue Coral, Black Magic, Westley's, Gumout,
Fix-A-Flat, The Outlaw, Snap, and Classic car wax.

This week's technical break-out above a recent trading range
near $10 surprised a number of analysts. Josepthal & Company is
the leading brokerage for this issue and today they reiterated
their BUY rating based on expected favorable earnings. PZL is
planning to report in the next few weeks and Josepthal says the
numbers will exceed quarterly (consensus) estimates. Apparently
investors agree as the stock has risen 10% on heavy volume over
the past two days.

We will participate in the new bullish trend with a conservative,
low cost position.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL APR-10.00 PZL-DB OI=259 A=$2.19
SELL CALL FEB-12.50 PZL-BV OI=20  B=$0.38
INITIAL NET DEBIT TARGET=$1.68 TARGET ROI=30%

Chart =
/charts/charts.asp?symbol=PZL

****

CVD - Covance  $14.38     *** Technicals Only *** 

Covance is a leading contract research organization that provides
a wide range of integrated product development services on a
worldwide basis to the pharmaceutical, biotechnology and medical
device industries. Covance also provides health economics and
outcomes services for managed care organizations, hospitals and
other health care providers and laboratory testing services to
the chemical, agrochemical and food industries. The services
Covance provides constitute two segments: early development
services (preclinical and Phase I clinical), and late-stage
development services (clinical and clinical support services).
Covance is one of the world's largest biopharmaceutical research
organizations and one of a few that are capable of providing
comprehensive global product development services.

Last week the company reported favorable quarterly earnings and
a solid future outlook based on a $1 billion backlog of business.
In addition to focusing on stronger financial performance in 2000,
the company will continue to develop new products including a
Web-enabled service entirely focused on enhancing the efficiency
of drug development.

The recent technical change of character indicates that investors
are also positive about the company's outlook and today we found
a low risk position that returns a favorable profit for those of
you who don't mind owning the stock.


PLAY (conservative - bullish/covered-combo):

BUY STOCK - CVD  ASK = $14.50
SELL CALL FEB-12.50 CVD-BV OI=112 B=$2.25
SELL PUT  FEB-12.50 CVD-NV OI=148 B=$0.25 
INITIAL NET DEBIT TARGET=$12.25 COMBINED ROI (MARGIN)=8%

Chart =
/charts/charts.asp?symbol=CVD


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

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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