Option Investor
Newsletter

Daily Newsletter, Thursday, 02/10/2000

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The Option Investor Newsletter         Thursday  2-10-2000
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)
************************************************************
       2-10-2000           High     Low     Volume Advance Decline
DOW    10643.60 -  55.60 10738.30 10606.40 1,050,510k 1,225  1,797
Nasdaq  4485.63 + 122.39  4485.67  4357.69 1,813,246k 2,189  2,002
S&P-100  768.98 +   3.51   771.68   762.21    Totals  3,414  3,799
S&P-500 1416.83 +   5.12  1422.10  1406.43            47.3%  52.7%
$RUT     542.21 +   6.21   542.21   536.01
$TRAN   2475.27 -  75.05  2556.64  2467.56
VIX       24.38 -   0.27    25.80    23.87
Put/Call Ratio       .51
*************************************************************

Dell, the Oracle and the Greater Fool

Simply amazing! The Nasdaq continued to power forward to another
new high even in the face of many negative factors. The records
continue to fall as cash pours into the market at a record rate.
The Nasdaq is now up +10% for the year and is now up +100% in
just the last twelve months. The Dow however is now down -7% for 
the year. At this rate of divergence we are only 34 trading days
from parity, the Nasdaq equaling the Dow, which would occur 
somewhere around 8500. While this would be extremely unlikely 
it does illustrates the rate of sentiment change between the two 
indexes.


 


 
 

The bond market tried to derail the markets again today after the 
30 yr bond auction failed due to lack of interest. The new bonds, 
some going at a yield of 6.34%, only had a bid to cover ratio of 
1.33:1. This means there were barely enough bidders to buy the 
total offering and there was no real competition in the bidding. 
Many large buyers simply did not show. With the government 
planning to buy back $30 billion in existing notes and bonds the 
bond yields have been on a roller coaster. After touching 6.12% 
last week the yields have now floated back to close at 6.43% 
today. The significance of the rising rates were lost on the 
Nasdaq.

So much for profit taking! The Nasdaq is rewriting the rules for 
investing. As I mentioned before, investors are not just buying 
tech stocks, they are fleeing from non-tech stocks in droves. Even 
the addition of MSFT and INTC to the Dow has not helped stop the 
bleeding. Today the Dow techs had a good day. MSFT +2, INTC +3, 
IBM +1.75, HWP +1.88 but they could not make up for drops in the 
old line materials stocks. Many of the older Dow stocks are at or 
near 52 week lows and dropping rapidly. There are just no buyers 
for non-techs.

Can you blame anyone for not wanting to be in techs? With the 
Nasdaq up +100% in the last twelve months and on track to beat 
that performance why would you want to own Alcoa or International 
Paper? The financial components in the Dow are responding to the 
current rise in interest rates as well as the expected future Fed 
hikes. No relief there. What we are seeing is simply sector 
rotation. Biotechs, Internets, Chips, software and computer 
stocks just keep astounding with record gains and record earnings. 
The previous benchmark for comparing your portfolio performance 
was the S&P-500. That trend is changing. 


  

Fund managers who only equal S&P performance are in danger of 
losing their bonuses and their jobs. Value funds are hemorrhaging 
money. After getting their statements for last year and realizing 
their 21% returns were only one fourth what tech investors 
received, investors are not just readjusting their portfolios. 
They are cleaning house. Anything not in favor is history. What 
has been overvalued to most investors for years has now become 
undervalued every time we get a down day on the Nasdaq. Instead 
of advertising next year, "we beat the S&P by 3%" the really good 
funds will be advertising, "compared to the Nasdaq...".

The Nasdaq rally is also being powered by record inflows of new 
cash. Trimtabs.com estimates that almost $21 billion in new cash 
came into the market in just the first seven days of February. 
This is on track to be the highest month on record. The previous 
high month was Jan 1997 with $29 bln for the entire month. Almost 
all of this money went into tech funds according to Trimtabs. 

One of the major drivers for the Nasdaq today was CSCO. After
reporting record earnings this week they appear to have taken on
a Qualcomm complex. With a +7.13 today CSCO is starting to act like
the Internet stock it really is. Still gains by other Internet big
names continue to astound. Network Solutions soared today after
posting record earnings and saying good things about future 
business. NSOL gained +36. Other big gainers included VRSN +25, 
on computer security fears, JNPR +22, DCLK +15, ITWO +13, 
RNWK +13, BRCM +12. But before you start throwing money at just 
any Internet stock there is evidence of a rotation inside the 
Internet sector. Amazon, the poster child of Ecommerce last week 
has lost ground for two consecutive days, -$4 today. Ebay has 
also been trending down as well as CMGI and YHOO. This is 
encouraging. As long as rotation is taking place within the 
sector there is probably more upside.

Another of the big gainers on the Nasdaq was Dell. After warning
on Jan 28th they would miss estimates the stock had plunged to an
eight month low of $35. Assuming the worst was over and hoping 
for good news after the bell today, investors took positions and
added +3.25 to the price. After the bell Dell announced no surprises
and only met reduced estimates. The outlook, more important than
the actual numbers was rosy. Dell said they had +50% growth in
the quarter from their new services effort. Services produced
$490 mln in revenue. The Gigabuys website also showed record growth
and added $610 mln in revenue. Dell said sales in Asia/Pacific/Japan
soared +56% compared to 33% for the Americas and only 8% for Europe.
They view the Asian markets as their biggest growth area. Servers
and workstations continue to be strong with +55% growth. Now that
the chip shortage is easing Dell should be back on track for this
quarter. Still several analysts downplayed the results as fighting
the "law of large numbers" and claimed Dell would be just another
PC maker soon. We are seeing this happen. Historically Dell's
growth has been 50% overall. Last year it dropped to 40% and this
year CFO Tom Meridith is forecasting 30% with only a 7% profit
margin. It is a sad day when you are embarrassed by 30% growth.

So what can kill this tech rally and bring us all back to reality?
1. Higher interest rates. Got that, 6.43% and climbing. 2. Rising 
oil prices. Got that, $27 bbl and climbing. 3. Disruption in flow 
of money into stocks with a triple digit PE. Not yet. You have to 
wonder however, at what point does Alcoa, McDonalds and similar blue 
chip stocks start looking attractive. Many of these are already down 
to near single digit PE levels and there will come a time when they 
will provide such a bargain that investors will not be able to resist. 
Just look at a chart for PG, AA, IP, IR. There is a battle going on 
between historical methods of stock valuation and the new momentum 
investor model. Historically a company needed increasing earnings, 
solid growth and hard products. The new valuation is based on last 
weeks price. If it is higher this week then buy it. If the Nasdaq 
drops one day, buy more. If it drops for a week, wire another $27 
bln and buy lots more. Buy, buy, buy. This game has been called the 
greater fool theory. As long as you can find somebody to pay more 
than you did, you win. They are the greater fool. The last fool 
holding when the game is over loses. We are not there yet or 
even close to hearing the music stop. As long as tech companies 
continue to post greater earnings based on the new Internet paradigm
people will continue to buy tech stocks. This does not mean that 
we will not see some pullbacks along the way. Nothing goes up in 
a straight line. Well, almost nothing in the case of the Nasdaq.

The oracle of Omaha had been rumored to be sick recently. So many
rumors had surfaced that Warren Buffet’s office finally issued a
press release saying he was in perfect health. This is not true.
We have it on good authority that Warren is going crazy. With all
the old line stocks dropping so fast many people have reported him
running in circles inside his office chanting, "so many stocks, so
much value, so little time. More money, I need more money!"  As
a true value investor Warren must be overwhelmed at the bargains.

Where to from here? Don't look now but the Dow is now over -200
points below the 200DMA and showing no signs of slowing. If we 
don't get a bounce on Friday from the -62% retracement point which
is exactly on the current trend line then the next chance is 10550
which would be a -10% correction. This may provide some temporary
relief and produce a bear trap rally. Below 10550 is 10000 and that
is a long drop. The Nasdaq is now up 8 of the last 9 days for over
+700 points. It closed at the high of the day on strong volume. 
This would point to a carry through into Friday's trading. You
want to be on the lookout Friday afternoon for profit taking.
With the Nasdaq extended so far there may be a rush to the exits
as traders lock in profits and wait for the next cycle.

Trade smart and sell too soon.


Jim Brown
Editor



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

AppNet: These Guys are on a Roll 

The world of e-business consulting is one of the most 
competitive areas on the Internet today.  These days, it seems 
like everyone is claiming to be a B2B e-commerce solution 
provider.  Then again, why not?  The way the share prices of 
some of these companies are trading, it’s easy to see why.  

http://members.OptionInvestor.com/stocknews/021000_1.asp


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

As of Market Close - Thursday, February 10, 2000 

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

DOW Industrials   10,700  11,250  10,643    Bearish   2.10   *
SPX S&P 500        1,350   1,500   1,417    Neutral   2.01
OEX S&P 100          730     800     769    Neutral   2.01
RUT Russell 2000     475     500     542    BULLISH  11.12
NDX NASD 100       3,200   3,850   4,090    BULLISH   2.03
MSH High Tech      1,650   1,900   1,992    BULLISH   2.03

XCI Hardware       1,300   1,460   1,528    BULLISH   2.08
CWX Software       1,200   1,420   1,467    BULLISH   2.08
SOX Semiconductor    700     745     943    BULLISH  12.21
NWX Networking       800     900   1,021    BULLISH   2.03
INX Internet         700     800     784    Neutral   1.06

BIX Banking          645     690     514    BEARISH  11.30
XBD Brokerage        400     450     427    Neutral  11.30
IUX Insurance        625     650     512    BEARISH  11.30

RLX Retail           950   1,000     937    BEARISH   1.28
DRG Drug             340     400     347    Neutral   1.28
HCX Healthcare       700     790     717    Neutral   1.28
XAL Airline          180     190     120    BEARISH   5.21
OIX Oil & Gas        280     315     258    BEARISH   1.27


Posture Alert
A tale of two markets as Technology and Russell 2000 extend 
record levels while the blue chips drift lower including Drug, 
Healthcare, Airline and financial stocks.  After taking out 
Thursday’s low, we have turned Bearish across the Dow Jones 
Industrial average.  



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

Thursday, February 10, 2000

Return to 10K?
By Pinnacle Capital Advisors

With the DJIA violating its 200-day moving average and failing to 
hold above 11,000, will we see a return to 10,000 soon?  It was 
April ’99 when CNBC covered the 10K event with a special extended 
news coverage.  Will CBNC also invite guests to celebrate the 
return to 10,000?  Even though many investors think the Bull 
market will continue, it’s not beyond reach for the return to 
10K, a key benchmark set in October 1999.  It was only five short 
years ago when the Dow eclipsed 5,000.  Since then, the equity 
markets have soared.     

1995    5,000
1996    6,250
1997    8,000
1998    9,500
1999   11,200


As Pinnacle has been highlighting over the past couple of months, 
earnings and interest rates represent two key market pillars.  
Strong earnings and falling interest rates cause multiples to 
expand, while weak earnings and rising interest rates force 
contraction.  And in an environment marked by strong earnings yet 
rising interest rates multiples do little of anything, much as 
they have in the broad, nontech market for so long.  The S&P 500 
hasn't budged since last July.
 
Earnings remain strong, as the generally outstanding set of 
fourth-quarter reports show.  But the recent action
in the bond market has made the second half of the equation a
lot tougher to game. 

It's no secret that the prospect of a shrinking supply of 30-year 
bonds as the Treasury moves to pay down debt has been keeping 
long-term yields lower than they otherwise might have been.  The 
five-year and 10-year notes have become better indicators of 
bond-market sentiment.  The sentiment is also notably more 
negative than the artificially low yields on the long bond have 
been suggesting. 

Still, throughout it all, many stock-market participants have 
shown few reservations about interpreting the 30-year Treasury's
outperformance as a sign of the long-term sustainability of 
benign inflation.  They may be right, but the past week's 
reversal of the long bond's rally may be making more than a few 
traders revisit that theory.  The bottom line is that the stock 
market may have a tough time finding its feet until the bond 
market does. 


 


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 on the NYSE is 
still very high, eclipsing 4 billion shares. The short 
interest on the Nasdaq is more than 2.4b shares. 


Mixed Signs: 

Interest Rates (6.220):
Although the bond market rally has helped bring the current yield 
down near 6.0 last week, it closed Tuesday (2/8) at 6.220.


BEARISH Signs:

Volatility Index (25.38):
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     Thurs
Benchmark                       (2/4)      (2/8)     (2/10)

Overhead Resistance (780-830)     4.76      3.50       4.37

OEX Close                       775.51    782.21     767.00

Underlying Support  (740-760)     2.10      2.45       2.50
Underlying Support  (700-735)    10.31     10.55      10.25


What the Pinnacle Index is telling us:
Overhead resistance is building and could stall a broad market 
advance. 


Peak Open Interest (OEX)
                     Friday           Tues           Thurs
Strike/Contracts     (2/4)           (2/8)           (2/10)

Puts               700 / 9,281     740 / 9,312     740 / 9,937
Calls              800 / 7,350     800 / 7,222     800 / 7,806
Put/Call Ratio        1.26             1.29           1.27



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  4, 2000                       22.95
February  8, 2000                       22.24
February 10, 2000                       24.38



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

Daily Results

Index      Last    Mon    Tue     Wed    Thu    Week
Dow     10643.63 -58.01  51.81 -258.44 -55.53 -320.17
Nasdaq   4485.63  77.63 105.73  -64.36 122.39  241.39
$OEX      768.98  -2.62   9.32  -16.74   3.51   -6.53
$SPX     1416.83  -1.37  18.75  -30.04   5.12   -7.54
$RUT      542.21   6.87   5.10   -1.49   6.21   16.69
$TRAN    2475.27 -36.75  10.59  -32.48 -75.05 -133.69
$VIX       24.38   0.77  -1.60    2.55  -0.27    1.45

Calls              Mon    Tue     Wed    Thu    Week

AMCC      258.25  27.75   3.81    4.75  36.13   72.44  "Whoa mama"
INSP      191.50   7.00  10.13   15.19   9.06   41.38  New
BRCM      349.00  28.31  -4.31    1.94  12.06   38.00  Dropped
PMCS      284.25  18.81   4.38   18.25  -4.38   37.06  Dropped
MUSE      214.13   5.50  17.44   -4.06   8.13   27.00  A-knockin'
BEAS      108.50  10.56   6.06   -0.50   3.13   19.25  Moves up
MLNM      232.31   8.00  -0.25   -5.19  11.78   14.34  New
TXN       145.00   2.50   4.38    2.00   4.13   13.00  Momentum
CUBE       92.03   2.31   3.19    2.88   3.47   11.84  Not tired
NTAP      139.25  -2.56   6.63   -3.31  10.56   11.31  Earnings
COVD       86.38   1.69   3.00    2.81   2.31    9.81  Strength!
LLTC      110.19   3.47   3.09   -2.50   4.69    8.75  Opportunity
ASPT       66.50   1.63   2.88   -1.13   3.13    6.50  New high
SNDK      148.13   3.13  -2.06   -0.94   6.00    6.13  Breakout?
ADIC       63.00   1.63  -1.88    0.50   4.38    4.63  Unleashes
MFNX       82.88  -2.38   0.94    3.13   2.88    4.56  Nice gains
CLRN      102.69  -2.63   0.69    0.63   5.00    3.69  New
ICIX       52.25   3.94   0.38   -0.69  -0.63    3.00  Entry?
BCE       121.19  -3.19   3.19    2.13   0.06    2.19  Breaks out
CMGI      117.81   1.38   5.44   -4.88  -2.69   -0.75  Dropped
PSIX       91.00  -0.63   4.25   -2.38  -2.88   -1.63  Dropped
EBAY      162.38   1.50   0.19   -5.75  -1.63   -5.69  E-thugs!

Puts

PVN        64.38  -2.38  -2.75   -4.94  -3.88  -13.94  Lawsuits
KMG        47.75  -3.75  -1.00   -2.56   1.19   -6.13  Low fuel
PGR        55.81   0.00  -0.75   -2.19  -1.50   -4.44  An auction
CAT        38.06  -1.06  -0.25   -1.88  -1.06   -4.25  New
UAL        51.31  -0.50  -0.13   -2.38  -1.19   -4.19  Bearish
VERT      222.50   0.00   6.97   -6.03  -4.44   -3.50  Opportunity
GD         42.19  -1.06  -1.50   -1.25   0.44   -3.38  Lower highs
PG         91.44  -1.50   2.50   -1.75  -2.56   -3.31  Slumps
MMM        86.00  -1.44   0.06   -0.06  -1.63   -3.06  Goes lower
GBIX       42.88  -1.00  -2.56    1.63   4.81    2.88  Dropped



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

Don’t Lay Pennies In Front Of A Freight Train
By Renee White

Okay, I give up. I get it now. This is not your typical February. 
Nasdaq is experiencing intermittent cluadication, needing only 
moments of rest to catch its breath, before continuing its 
journey northbound. Don’t blink if you are looking for a dip to 
buy into. NAS seems to be getting a little arrogant by ignoring 
the deterioration in the DOW, in addition to movements in interest 
rates. It has a mind of its own. I guess it is to be expected, 
when you have the best toys on the block, for everyone to play 
with. Everyone wants to go to your house to play. Nothing seems 
to be able to lure them away for anything else, for very long. 

I was expecting a larger correction in Nasdaq since Monday. 
After having a 7 day rally, one would think its legs were getting 
weak and it might need to rest a little. I added to my put 
position on a rolling high, anticipating a late day sell off 
yesterday. The 10 yr note auction did not go well Wednesday and 
the sell off began in the afternoon. Feeling happy, I decided 
to stand in front of the freight train with my hand up, asking 
permission to lay a new shiny penny on the track. I thought I 
heard the brakes squeak and thought I could tell the train was 
slowing into the close yesterday. Feeling safe with my position, 
I took my eyes away, and bent over to place the penny. Just as I 
did, the brakes stopped squeaking and the engine revved this 
morning, catching me frozen on the tracks not having time to 
take the smile off my face from yesterday’s late day sell-off. 
Seconds later **SPLAT* *Squish**!! The penny, me and the QQQ 
puts, got flattened. Lesson learned: never stand in front of 
a moving freight train and smile. 

I had entered the Nasdaq index puts for two reasons. The first 
was as a protective downside play, against the nice gains from 
last week in my other Nasdaq near-term plays. As a hedge, they 
have performed their duties. The second reason I bought was 
because I anticipated weakness with the bond/note auctions this 
week on top of an already top heavy Nasdaq. Now that’s the one 
that got me! I know better than to try to time a market top, 
when there is no level of resistance above it. Being a little 
spunky sometimes gets me in trouble. These puts stink, as a 
profit play. They were supposed to shine, as interest rates went 
up from the bond auctions. Usually, they do. Yesterday, as 
Cisco’s opening strength started weakening, I noticed Nasdaq 
rolling in harmony. Once the auction results were known, 
interest rates went up which weighted on the Nasdaq into the 
close. I held last night anticipating continued weakness from 
the recent run up, higher interest rates and one more auction. 

But this time, I’m not sure Ole Nas even noticed that the 30 yr 
yields went up today. Few wanted the safety of the treasury 
yields, preferring to hedge their bets by playing the techs 
instead. That says a lot for the strength of this market. What 
happened to the rule that interest rate fears rattle the markets? 
When Greenspan raised rates earlier this month, Nasdaq acted like 
it could care less with a yawn and an Okay, Next mentality. No, 
so far, this is not a typical February. Play where the toys are, 
the trend is your friend. If you play against it, you may very 
well get squished. 

Although to hedge is to play both sides of the market, only one 
side can be profitable at a time. I sure am glad I had good 
entries on my February bull plays, which are still performing 
beautifully. I am ahead of the game with my bull plays 
significantly up and my puts, moderately down. I did not load 
up with plays during this run. I entered last week after the 
correction, at good entry points, then entered the puts for 
downside protection. I did not trust the volatile action of 
the market seen in early February. I was aware of the 
historical patterns without a Y2K effect. I weighed my risks 
and decided to trade lightly due to other non-market 
responsibilities, staying more in cash until closer to a more 
predictable April earnings, or for a good entry if there is a 
major correction in late February or March. Over-trading during 
volatile markets can yank money out of your hand faster than a 
cute kid in a candy store. That is why I am sticking to my plan.

Another part of my plan of trading during this time, is to use 
the VIX to give me some indication of things to come. To me, we 
are in virgin territory in uncertain times, while trading this 
market near term. The post Y2K effect has no history we can look 
at to study, nor does the tech revolution, or the screwy bond 
market. Our current economic parameters, with its theories of 
whys and therefores, against the backdrop of other uncertainties, 
only adds to the confusion. Since I am not smart enough to figure 
it all out, I decided to become even more aware of the intra-day 
movement of the VIX. The extreme ranges of playing the VIX are 
the most profitable, but of course these extremes are fairly rare 
also. A whole lot of action goes on in between the extremity 
plays of 30 and 20, which only occur a few times a year. The 
saying is, When the VIX is High, it’s time to Buy. When the VIX 
is Low, it’s time to Go. Or the one I prefer is, Get ready to 
play dirty when the VIX is near 30. Take your profits and Go 
when the VIX is Low. 

Bernie Shaffer’s comment on the VIX gives one plenty to think 
about for the contrarian play. "The VIX's reaction to a short 
market pullback of a few hours or a few days is an excellent 
indicator of how market participants are currently reacting to 
the market and what they expect will follow. If market weakness 
is met with an increased demand for puts, the VIX will spike 
upwards. Such spikes are a telltale sign of fear in the market - 
a very healthy and bullish view for expectational analysts; 
speculators will tend to buy puts after they have sold out of 
their long positions. This often signals an end to short-term 
selling pressure. If the VIX does not increase on a pullback, 
it signals that the public is meeting the market downturn with 
complacency and has expectations of a quick recovery. In these 
cases, there is often more downside motion to follow. As such, 
the VIX plays a key role in our ability to predict future market 
performance." After reading that, where do you think we are 
after yesterday’s profit taking? 

Looking at the VIX chart this year, I see it has traded at the 
30 level (a sign of market fear due to a sell-off, which is 
typically bullish for the contrarian), on January 5th, 28th, and 
31st. This frequency is just as unusual as two 10% corrections in 
one month. It also pierced through the upper Bollinger Bands on 
those days. It has not met the 20 level yet, although it has 
seen the 20-22 level several times. This is the range one should 
be considering taking profits. The 23-28 levels are more 
cyclical. I will be watching the 5 and 10 min charts, looking 
for patterns I can use in this mid range, to improve my short 
term trades, until earnings season excitement heats up again. 
I will not try to stop a freight train again, by smiling and 
standing in front of it. 

Renee White
Contact Support



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

Notes from Market Wizards & How I Watch The Market
By Janar Wasito

Here are some notes that I have been keeping from other traders 
in our local Silicon Valley Club, as well as some notes from 
Market Wizards.

G’s Rule: Success in Trading is determined by how much you put 
into stable assets like cash & real estate, not by how big your 
trading account gets.

Corollary to G’s Rule: Success in Trading is determined by what 
you do with your non-trading time, not by how much time & effort 
you put into trading.

Ed Seykota: Everyone Gets What They Want from the Markets.
* I want ___ dollars, after taxes -- not more, not less.

Paul Tudor Jones: Play Great Defense, Not Great Offense.
* Always look at what I can lose first.

Larry Hite: Aim for best growth rate consistent with extremely 
rigorous risk control.
* Never risk more than 2% of total equity in any trade; aim for 
1% within a year.

David Ryan: Plays should be profitable on the first day; Learn 
from every trade you make.
* Cut losses at 15% on every option trade, and after 2 days if 
not profitable.
* Keep a trading journal.

Marty Schwartz (see Pit Bull)
Ethos:
1. By nature, I am a risk taker with a feel for good attacks 
   & sound defense.
2. Harvard taught me how to think creatively.
3. Stanford grad school taught me what to think about.
4. The Marines taught me how to perform under fire
5. My dreams of a family, house, triathlons & financial freedom 
   taught me the importance of good money management Methodology
1. Averages: DOW, TICK. TRIN, TIKI, SPX, SPX, QCHA.
2. Keep a daily blotter
3. Use online resources OIN, research Fontainills’ Trade Options 
   Online.
4. 10 day EMA on averages & stocks.
5. Chart Stocks: resistance & support
6. Tricks of the Trade:
a. Gaps in Charts
b. Mutual Fund Cash
c. Three Day Rule
d. Put/ Call Ratio
e. How Market Reacts to News
f. New Highs/ New Lows
g. Up Mondays
h. Market Probability Calendar
i. Option Expirations
j. Trading on the Half Hour
k. Take Out the Highs/ Take Out the Lows
l. First Trade Back
m. Worst Fears Not Realized
n. Ego: I can tell you how I became a winner I learned how to 
   lose.

Checklist for Taking Positions

* Check Charts & Moving Averages prior to making a trade moving 
  averages work better than any tool I know. Don’t go against them.
o Are we above or below moving averages, i.e., in positive or 
  negative mode?
o Are we above or below a dominant trend line?
o Has recent price action taken out previous highs or lows?
o Is the MTO (magic T oscillator) in positive or negative mode?
* Always ask before taking a position: do I really want to have 
  this position?
* Always know the amount I am willing to lose before taking a 
  position. Know the uncle point and honor it.
* After a very profitable run of trading, reduce the position size.
* After a successful period, take a day off as a reward.

On a day to day basis, I am starting to keep a daily blotter, also 
described in the last chapter of Pit Bull. Down the left side, I 
have the day, broken into half hour segments. In each segment, I 
record statistics such as VIX, DOW & NASDAQ. These will get more 
sophisticated. I make annotations about questions throughout the 
day, which I shoot off to other members of our local list. On the 
bottom, I have my plan for current open positions.

In the long run, the trader with consistent methodology will be 
successful.

Janar
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:
*****

PMCS $284.25 -4.38 (+37.06) How can we say farewell to this 
play with the kind of fanfare that it deserves?  We introduced 
PMCS to our call list back on Tuesday, January 25th.  PMCS 
had closed the session at $196.88.  Here we are just two weeks 
later and closing a session that saw a new all time high of 
$298.75.  Now that is what we call a run.  Unfortunately, as 
the saying goes, "all good things must come to an end".  Because 
PMCS is set to split 2:1 tomorrow after the market closes, we 
are dropping PMCS from our play list to avoid a post-split 
depression.  Though it will probably be a tearful farewell for 
many, it is important to close out your positions before 
tomorrow's close.  Yesterday, Deutsche Banc Alex Brown initiated 
coverage of PMCS with a Strong Buy.  PMCS is definitely one for 
your radar screens going forward.

PSIX $91.00 -2.88 (-1.63) Interest in PSIX this week has been
rather anemic, especially for a stock splitting 2:1.  There just
hasn’t been enough interest to push through resistance at $97.
The weakness this week has come in the midst of strong gains in
the NASDAQ - not very encouraging for our play.  Earnings,
currently scheduled for the week of February 21, may exert some
upward pressure, but prudence demands that we follow our own
advice and sell too soon.  With the split occurring tomorrow
after the close, we want to exit our play before the normal
post-split depression.

BRCM $349.00 +12.06 (+38.00) Boy sometimes you really hate to
see your guests leave.  That's the case with BRCM.  Although
we've said many times before, nothing moves in a straight line.
BRCM has continued to head strongly higher since being added on
January 30th.  BRCM has given us numerous opportunities to jump
in on the $65 move.  Wednesday, analysts at DB Alex Brown came 
out with a Strong Buy rating on BRCM, which helped the company
move to a new high today at $354.88.  We won’t forget to send 
them a Valentine’s day card.  The payable date for BRCM's
2:1 split is tomorrow, with the ex-date on Monday.  If you
didn't close your positions today, we would suggest you do so
Friday.  We close this one with a tip of our hat and a standing
invitation for BRCM to join our list in the future.

CMGI $117.81 -2.75 (-0.75) CMGI continued to lose ground today 
after it ended yesterday's session on the downside at its first 
support level ($120).  Today news was behind the descent.  The 
announcement that CMGI plans to acquire uBid.com (UBID) for 
$407 mln was a bit puzzling to investors and analysts alike. 
Typically their strategy has been to invest in Internet 
Advertising or International ventures, but instead it’s the 
Internet auction business.  All said and done, the announcement 
was not well received.  CMGI dived as much as 5.3%, or $6.38 at 
its low point today.  The stock is now perched at its 10-dma 
($117.93).  It appears the momentum has fizzled and we're not 
very enthusiastic that there'll be a confirming bounce any time 
soon so we're exiting CMGI tonight 


PUTS:
*****

GBIX $42.88 +4.81 (+2.88) Globix did a little more than just 
warm up today.  GBIX gapped up over $2 at the open and traded
up as high as $43.50.  The catalyst backing today's move?  Wit
Soundview raised their price target on GBIX from $34 to $100,
obviously a healthy upgrade.  Investors welcomed the news and 
quickly moved in to snatch up shares of GBIX, pushing the volume 
level up to nearly four times the daily average.  GBIX managed 
to penetrate and re-enlist the support of its 10-dma.  Today 
simply yielded too many bullish indications for us to keep GBIX 
on our put play list. 



********************
PLAY UPDATES - CALLS
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AMCC $258.25 +36.06 (+72.44) In the words of Bart Simpson, "Whoa, 
Mama!"  To heck with gravity, momentum reigns, especially in the 
Semiconductor sector.  Not so puzzling in the news is that 
funds, Navallier and Kemper Technology commented that they own 
AMCC.  Under the cockroach theory (where there is one, there are 
many), other funds are going to be interested in it too.  Volume 
increases over the ADV suggest that's already true.  Need more 
evidence?  Volume acceleration in the final hour today sent the 
price up an amazing $28 during that time period.  That should 
come as no surprise since Charles Bidderman or Trim Tabs noted 
that $20 bln had flowed into the markets over the first week in 
February.  Liquidity is clearly driving the momentum of these 
high flyers.  That said look for the trend to continue.  Remember 
too, AMCC is screaming to split.  However, we know it's hard not 
to salivate watching these big moves and suggesting that you be 
careful playing AMCC will probably fall on deaf ears.  
Nonetheless, trees don't grow to the sky, gravity will eventually 
take over, nothing goes up forever in a straight line, etc.  
There, we said it.  Support is in $10 increments all the way down 
to $200.  Target shoot where you feel comfortable, and remember 
to use those trailing stops.  There is no reason to give back an 
$18 gain (50% delta on $36 move) just because you earned it in 
one incredibly lucky hour. 

ICIX $52.25 -0.63 (+3.00) On Wednesday, ICIX once again tested 
support right around $52.25 (currently ICIX's 5-dma) and found 
resistance for the day at $55.  Today, ICIX gapped up slightly 
at the open and found resistance at a lower $54 level.  Though 
it did trade through $52.50 late day, it did make a bounce at 
$51.25 and made a move up to spend the night resting back on 
its 5-dma.  Being that this level of support seems to be holding, 
it could provide a nice area for potential entry.  Merrill Lynch
initiated coverage of several Competitive Local Exchange 
Carriers (CLECS), including ICIX with a near-term Accumulate 
and a long-term Buy.  In the news for ICIX subsidiary Digex 
(DIGX), Clorox announced today that it had chosen DIGX to host 
its corporate website.  The American Stock Exchange announced 
that it plans to list options for Digex on Monday, Feb 14th.    

ADIC $63.00 +4.38 (+4.63) Unleash the power within!  With 
apologies to Tony Robbins, that is our buzz phrase for wanting 
to get long ADIC.  Recently we have had success in this section 
isolating companies who have substantial investments in other 
high-flying companies.  Such is the case for ADIC which owns 2.6 
million shares of Crossroads Systems (NASDAQ:CRDS) which is a 
storage router company.  ADIC also has an OEM agreement with 
Crossroads.  CRDS has recently seen an incredible explosion in 
their share price due in large part to the market's recent love 
affair with nearly every router stock.  See JNPR and CSCO to 
name two.  The past four trading days have seen CRDS rally over 
70 points resulting in paper profits of over $180 million for 
ADIC.  With a strong move today it appears that the "Street" is 
finally attempting to give ADIC a little credit for their 
stellar investment.  The close at its high of the day coupled 
with a break above a four day base indicates to us that ADIC may 
be ready to make its next move.  New 52-week highs are only 3 
and a half points away and if the NASDAQ can stay strong we are 
anticipating an attempt to surpass these levels.  Support is 
back in the previously mentioned basing area of $58-$62 which 
could prove to be a good area to initiate a position if we get 
some weakness.  An open tomorrow above today's high of $63 could 
prove to be a strong indication that new highs are only a hop-
skip-and-jump away.  Don't forget, earnings are set for Wednesday 
after the close.  Also note the big options volume that came 
in this morning across all strikes from 45 to 70.  Could it be 
that word of strong earnings or a surprise announcement at the 
shareholder meeting on the 16th is leaking out early?  Don't 
know, but someone is acting like they do. 

MUSE $214.13 +8.13 (+27.00) With the market still a-rocking MUSE 
keeps a-knocking on the door of new highs.  Relative strength is 
the name of the game for momentum investors and Micromuse has 
plenty of it.  The only thing that has us bring out the caution 
flag on MUSE is the lack of volume the past two days.  We really 
want to see volume get back to at least the ADV level.  2 or 3 
times ADV in new high ground could be indicative of a blow-off 
top which may prove to be an excellent exit point.  Much of the 
move in MUSE can be contributed to two factors.  First there is 
a 2-for-1 split coming up on February 23rd and the company has 
recently added several new customers for its Netcool suite of 
software.  Technically, today's new high was a good sign that 
MUSE could continue to be a leader in this recent NASDAQ rally. 
Pullbacks into the low $200's have proven to be excellent entry 
points for intraday rallies.  If momentum continues, buying in 
new high ground may be profitable, but also very aggressive.  
Be cautious of getting whipsawed and set your stops within your 
risk tolerance parameters.

CUBE $92.06 +3.94 (+11.84) It never gets tiring writing the same 
thing over and over again if we are making nice profits.  
Semiconductors are leading this market higher and C-Cube is one 
of the strongest in the group.  Thursday was a wonderful day for 
the stock which saw it climb above $90.  As we mentioned in the 
initial write-up, stocks have the peculiar habit of running 
straight to double digits once they cross $90.  Although there 
is no guarantee of this for the shares of CUBE, we certainly 
like the odds.  C-Cube has also been the beneficiary of strong 
consumer demand for home electronics which CUBE provides many of 
the chips for.  After six straight days of moving higher, look 
for CUBE to take a breather if it finishes down on any given 
day.  Otherwise, enjoy the ride hopefully to $100 and perhaps 
beyond.

LLTC $110.19 +4.69 (+8.75) Yesterday's break to the downside in 
the share price of LLTC probably got a lot of traders to take 
profits.  The stock closed just above its low for the day and 
certainly looked like it was ready to slow down and consolidate 
for a few days.  That said, it was critical that LLTC stayed 
above Tuesday's low of $104.50.  Hindsight tells us that 
yesterday's selling was just an opportunity to get long at more 
favorable prices because the chip rally was again in full force 
today.  LLTC is clearly not a stock to chase because the 
intraday pullbacks can be very painful.  It seems that buying 
LLTC on pullbacks is the more profitable strategy than buying on 
breakouts.  This has been the trend for the past several days.  
LLTC had an "outside" day (traded above and below yesterday's 
trading range) today which is very bullish because LLTC closed 
on the upside of this range.  The uptrend is clearly still 
intact but we would like to reiterate that chasing this stock 
appears to be inadvisable.  If the Semiconductors stay strong 
buying pullbacks seems to be the way to go.

SNDK $148.13 +6.00 (+6.13) How’s your memory?  If you use a
portable device like a palmtop computer or digital camera, SNDK
has your solution.  Benefiting from the apparently insatiable
demand for its compact storage products, SNDK continues to
garner investor attention.  Of course the occasional positive
analyst comment never hurts.  Dan Niles at Robertson Stephens
reiterated his Buy rating yesterday and issued a six-month
price target of $200.  Although volume this week has not been
exceptionally strong, the intraday chart shows a nice pennant
forming.  With lower-highs and higher-lows, the convergence of
the pennant lines points to an imminent breakout.  With a 2:1
split payable on February 22nd, we think the break will be to
the upside.  Since the price jump in late January, prompted 
by strong earnings and the split announcement, SNDK has been
moving steadily higher, using the 5-dma ($144) as support.  In
the event of a pullback (always a possibility, given the gains
in the NASDAQ), SNDK has support at $140 and then $137.
Bounces near either the 5-dma or the $140 support level are
buyable, as is a breakthrough of resistance near $150.  Look
for an increase in volume to confirm the stock’s direction,
and as always, use stops to protect your gains.

TXN $145.00 +4.13 (+13.00) The rate of ascent has slowed, but
TXN’s momentum is still intact.  Market up or down, investors
continue to bid the price higher.  Adding fuel to the climb is
continued positive press, highlighting the strong growth in the
Semiconductor industry and increasing demand for the core of
TXN’s business - Digital Signal Processing.  Giles Delfassy, VP
of TXN’s worldwide wireless communications business was very
upbeat at the Goldman Sachs Technology Symposium today, citing
continued strong growth in the wireless communications market.
Eight out of ten digital phones shipped worldwide have TXN
semiconductors inside.  Volume today was a little on the light
side at 3.4 million shares, but closing at the high of the day
with over a $4 gain is decidedly bullish.  The breakout today
turns the old resistance at $142 into support which is further
supported at $139.  A retreat to the 5-dma (currently $138.25)
would be a gift of an entry point, but given TXN’s strength, we
may have to settle for target shooting any intraday weakness.



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



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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
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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         Thursday  2-10-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


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

BEAS $108.50 +3.13 (+19.25) We just can't say enough good things
about BEAS.  Wednesday during the decline in the Nasdaq, BEAS
did pullback to our support level near $102.  Buyers came to the
rescue and bought shares of BEAS, driving the price back up to
close at $105.38.  BEAS held up very well, on the rare occasion
the Nasdaq has traded lower.  After a brief decline again this
morning, BEAS again saw buyers enter the market, pushing it
to a new high.  BEAS continues to get the red carpet treatment
not only from us, but from other heavy weights in the industry 
as well.  Today, BEAS received an honorable mention for its 
place in the $4.7 billion Kemper Technology Fund.  Jim Burkart,
co-lead manager for the fund said "he looks for segments in 
technology that are growing at above average rates."  Although 
they own some big names, Burkart has also found "bigger is not
necessarily better" adding that companies like BEAS and others
are some of his favorites as well.  BEAS is scheduled to report 
earnings on February 22 and is in the process of a solid earnings 
run.  Intraday support is now up to $106 with $102 bringing 
up the rear.   

COVD $86.38 +2.31 (+9.81) The strength we saw in the last two
hours on Tuesday afternoon proved to be for real Wednesday and 
today.  COVD made a new high in each of the past two sessions. 
Volume has been a bit light, but we will take the better than
$5 gain and say thank you.  Besides the recent breakout, one of
our reasons for finding COVD attractive, is the numerous upgrades
and favorable comments from analysts.  COVD may be coming into
its own, in the communications industry.  This morning Merrill
Lynch initiated coverage on several competitive local exchange
carriers (CLECs).  COVD was given an intermediate and long-term
Buy rating.  If that wasn't enough, Wednesday Netopia (NTPA), a
DSL Internet equipment company announced they had selected COVD
to provide circuits for their company.  None of these deals are
earth moving contracts, but COVD continues to form strategic 
alliances in the right places at the right time.  Support for
COVD is seen at $85 and 82.50, which would provide entry points
to either add to or enter new positions in COVD.

NTAP $139.25 +10.56 (+11.31) Not much news on this one.  So 
what's moving this networker higher?  We believe it's several
things.  First is probably earnings.  NTAP is scheduled to
report earnings next Tuesday after the close and it appears 
as though traders have been on an earnings run.  CSCO, the 
leader in the networking sector, beat the street and saw 
a bit of profit-taking yesterday as did NTAP.  NTAP, CSCO and
the Nasdaq got back on track today, all reaching new highs.
Basically right now tech stocks are where the money is flowing
and NTAP is in the right place at the right time.  Volume
has lightened up a bit so if you have current positions in NTAP
we would look to move your stops up.  NTAP has good support at
$135 and moved higher into the close today, ending the session
near its high of the day.  This suggests we may see more 
strength tomorrow.  If you planning to enter a new play or 
add to existing positions, remember you will want to close 
your plays by Tuesday.

EBAY $162.38 -1.63 (-5.69) The brazen e-thugs hit the various 
Web sites hard over the past few days.  EBAY was not immune and 
its site was shut down Tuesday evening.  This invasion has put 
quite a scare in the market; particularly shaking the confidence 
in stocks like EBAY, AMZN, and YHOO.  Internet security stocks, 
on the other hand, soared on the news and kept the Internet 
sector afloat.  But to us EBAY is still a viable momentum play.  
In all likelihood the hoo-ha will subside and buyers will put 
cash back into these Internet powerhouses.  Essentially the 
downdraft has effectively offered a variety of entry points 
between the 10-dma ($159.83) and the 5-dma ($166.75).  If there 
are any conservative Internet players out there, you'll wait for 
a move through short-term resistance at $165 before opening a 
new position.

ASPT $66.50 +3.25 (+6.50) ASPT rode the Nasdaq wave to another 
all-time high today.  By mid-session the stock pinnacled at 
$67.25 on moderate volume.  The intraday high prompted some 
minor selling, but ASPT made a strong bounce off $64 and 
redeemed itself.  Although it's disappointing to note that 
volume was light the past two days.  Optimal conditions would, 
of course, be for the trading levels to pick back up.  For the 
dma watchers, the 10-dma is back in the shadows at $58.22 and 
represents previous resistance.  While the rising 5-dma ($63.20) 
is a good reference point for an entry into this momentum play.  
In the news yesterday, Aspect announced the appointment of two 
new VP's "to strengthen and enhance customer support and 
consulting services".

MFNX $82.88 +2.88 (+4.56) Finally, a communique from MFNX's IR 
department with regard to an earnings date.  Y'all ready for 
this?  "The third or fourth week of March; very little chance of 
anything in February".  Thank you very much!  At least we're 
unlikely to be surprised mid-day anytime soon by an earnings 
release.  Technically, we've seen nice gains from MFNX since 
Tuesday, but they have come with volume as low as 50% of the ADV 
in today's case.  It's hard to feel comfortable with very little 
conviction by buyers.  Our guess is that with the flood of money 
entering the market since February 1 (a new 7-day record of over 
$20 bln), the rising tide is floating this boat.  While it' nice 
to get your boat floated every now and then, it also makes the 
play a bit more volatile.  The weak breakout over $80 may not 
stick.  If you have profits, you may want to tighten your stops a 
bit while we wait for a real breakout with volume over 3 mln 
shares.  On a short-term basis, dips to $79.50 followed by a 
bounce would reinforce current support at that level and get us 
more comfortable with the current price.  One news item: MFNX 
announced yesterday that they had expanded their Pan-European 
network by 6000 route miles.

BCE $121.19 +0.16 (+2.19) No sooner had we said $119-120 is 
resistance, then BCE popped over it for a "breakout".  Careful 
though.  Yesterdays doji (upside down "t" on a candlestick chart) 
and declining volume may presage a reversal.  The point is that 
without volume, the move over $120 wasn't very convincing.  
Nonetheless, $120 has provided good support since our Tuesday 
write-up.  The NT chart looks a little better, and after all, BCE 
unlocking the value of its NT ownership is what this play is all 
about.  CSCO's earnings certainly speak well for the industry 
since they further validate the robust business of Internet 
backbone builders, a category which NT dominates on the optical 
networking end.  Anyway, as long as the market cooperates, look 
for $120 hold.  If you want to target shoot at lower numbers, 
feel free, but we'd rather see volume flood in to carry BCE up 
convincingly over $121.



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

PGR $55.81 -1.50 (-4.44) Ever been to an auction where everybody 
stands around looking at each other waiting for someone else to 
place a bid?  We are sure that the Specialists at the PGR post 
have got to be feeling that way recently as the stock keeps 
slipping lower.  Good thing value investors are a very patient 
lot.  The prevailing wisdom this week (and the last ten years!) 
has been to dump your losers and buy momentum stocks if you want 
to make any money.  PGR has the added handicap of being a 
financial company in a rising interest rate environment.  We 
feel profitable put positions could possibly be placed on any 
small rallies as the share price of PGR continues to look like 
it wants to disintegrate further.  Be advised that whenever PGR 
does bounce and take out a previous day's high it tends to make 
a nice counter-move that can last a couple of days. 

GD $42.19 +0.44 (-3.38) It was the 5th largest point gain in 
Nasdaq history and GD didn’t show much life.  Early in the day 
GD was climbing right beside the Nasdaq, but at about the time 
the Nasdaq soared, GD turned and went the opposite direction.
Looking at stock's movement and lower-highs is signaling more 
downside to come.  Especially with volume backing the point 
drops rather than the gains.  Today, for example, we had less 
than average volume and it was the only day GD has been up for 
awhile.  So obviously we are ready to enter puts on any of these 
rebounds.  Support is still at $40, with the possibility of $32 
after that. Aggressive investors can target shoot entry points 
off the rebounds, but cautious players will want to see the 
break below $40.   

VERT $222.50 -4.44 (-3.50) Wednesday turned out to be a day 
of opportunity if you were willing to take on some risk.  VERT 
offered a $19 trading range and tagged the high for the day 
fairly early on in the session, giving traders looking to play 
VERT on the downside with some great options for entry points.  
VERT finished Wednesday out just under a dollar over the low 
for the day and continued right where it had left off at 
today's open.  Though we are encouraged by VERT spending the 
majority of today's session beneath the "cautionary" $225 level 
that we mentioned in Tuesday's write up, we are looking for 
VERT to take the initiative and break below the $220 level 
and head toward the $200 goal.  For new entries, you really 
have one of two options available to you.  Make your decision 
based on your own personal risk tolerance.  You can try and 
target shoot your way in on the intraday rallies met by holding
resistance, which currently look to be right around $236 and 
$230, for the higher risk play.  Another option is to wait for 
VERT to make the break below $220 on strong volume to confirm 
negative momentum. 

KMG $47.75 +1.19 (-6.13) Oil prices reached a new nine-year 
high today, inching closer to the $30 a barrel level and 
helping to move many of the oils stocks higher.  It has been 
24 years since the oil supply situation has been this tight.  
Though there is some debate as to when a move may be made to 
alleviate the tightening world oil inventory situation, many 
seem to believe that action will have to be taken in the near 
future to avoid the situation having negative global economic 
impact.  Though the oil sector did rally today, it quickly 
found resistance and was unable to come up with anything too 
impressive.  In looking at an intraday chart for KMG, you will 
find pretty much the same story.  KMG made a morning move up 
and quickly found resistance at $48.  KMG spent the remainder 
of the session flirting with this level and though it had 
strong volume backing its move up, it never came up with the 
fuel to break it through.  We believe that oil investors could
continue to proceed with caution ahead of the March OPEC meeting, 
which in turn could continue to drive shares of KMG down.  Look 
for the $48 level to continue holding KMG back and take advantage 
of this level for possible entry points. 

MMM $86.00 -1.63 (-3.06) Like rats jumping off a sinking ship,
the flow of sellers has continued to push MMM lower.  With
volume remaining strong and the stock now testing last summer’s
lows, our put play is behaving very nicely.  Adding to the
downward pressure is the weakness in the DOW.  As long as the
broad, non-tech market declines, MMM will have a hard time
moving higher.  The 5-dma ($87.50) continues to provide
resistance and bounces near this level are buyable.  A
continuation of the weakness seen in the last 2 weeks should
continue to drag MMM lower as it heads for support near $81.
A broad-based market recovery could buoy MMM’s share price, so
keep your stops in place.

UAL $51.31 -1.88 (-4.19) At first glance Tuesday evening, there 
was the question as to whether or not $53 would begin to 
establish itself as a bottom.  But Wednesday's late day sell-off 
turned up the heat.  The negative pressure pushed UAL down to a 
bearish close smack on its daily low of $52.50.  You couldn't 
ask for a more bullish sentiment.  And today, the news of UAL's 
decision to cut leisure fares by 40-45% resurfaced causing 
analyst and investors concerns of weaker airline revenues to 
rekindle.  Shares fell another 3.6%, or $1.88 on strong volume; 
and notably, UAL couldn't rally above $52.88.   Remember there 
is no support below.  Do not try to guess the bottom.  Keep 
stops in place to protect against a reversal.  In the news, UAL 
and Safeway grocery stores (SWY) announced the first "frequent 
flyer miles for groceries".  Together they're launching Grocery 
Miles.  For every $250 you spend on groceries at SWY, you'll 
earn 125 miles for UAL's Mileage Plus.  On another front, UAL 
and On2.com will develop an Internet travel site to increase 
online ticket sales and other travel arrangements.  As part of 
the deal, UAL will acquire a stake in On2.com.  No financial 
terms were available.

PG $91.44 -2.56 (-3.31) Robust volume persevered and PG finally 
cracked that comfortable $92 and $93 trading range today. 
Coming off highs near the resistant 5-dma on Tuesday, PG's broke 
down.  On news that it was suing the British company, Reckitt & 
Colman, for patent infringement and monetary damages, the stock 
slumped.  Today's market gave PG another push late day.  With 
lawsuits in the wings, warnings of a weak 3Q, and the DOW 
falling apart, it's conceivable PG could even further down.  
Nevertheless, play smart.  Keep stop losses in place to protect 
against long-term buyers coming in off the sidelines.  The next 
level of any support was seen back in July at $88 and $90.  

PVN $64.38 -3.88 (-13.94) Nobody seems to want to dispel the 
rumors that PVN may be subjected to a federal lawsuit on grounds 
of deceptive or fraudulent consumer practices.  Not that they 
have actually done that, but there were already four lawsuits 
filed in San Francisco that accuse Providian of charging 
consumers for credit products and services they didn't want, 
transferring balances from other credit cards without customer 
approval and imposing excessive late fees, according to a Forbes 
article published as far back as July, 1999.  Anyway, the play is 
more technically oriented now that support at $75 vanished into 
thin air on Tuesday.  In fact, investors have kicked PVN into the 
basement, taking out yet another mild level of support at $70 on 
the way to $60, maybe even $56 if the current pace keeps up.  
Price drops with high volume never look good.  Neither does 
further price descent south of every moving average ever 
invented.  To show you how bad it is, PVN can't even hold its 
three-day moving average, let alone its 5, 10, 50 and 200-dma.  
Temporarily, as long as volume is high, this put play should 
continue to perform as more sellers are shaken out.  The ideal 
entry would be after you see a bounce south of $65 or $67.  Those 
two price points should provide some temporary resistance if 
buyers step in to try to save PVN.  Be on the lookout though for 
any company press releases of good news or analyst upgrades based 
on the recent selloff.



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

CLRN - Clarent Corporation $102.69 +5.00 (+3.69 this week)

Bent on keeping information moving, CLRN is a leading provider
of scalable Internet protocol (IP) telephony systems which
permit the simultaneous transmission of voice, fax and data
over the Internet.  The Clarent system is built around packet-
switched technology, which breaks information into pieces,
transmits it, and reassembles it at its destination.  This
method makes more efficient use of network bandwidth because
it only takes up space during the actual transmission.  AT&T
accounts for 36% of sales and customers outside the US make
up another 50%.

CLRN’s message is coming in loud and clear and investors are
listening.  Since it’s IPO last July, shares of the company
have increased almost 450%.  Still a fairly small player
relative to giants like Lucent and Cisco, the company has
plenty of room to grow as it pursues its singular focus of
providing voice traffic over communication networks.  The
positive reaction to the company’s strong earnings on January
20th propelled shares as high as $109.50, just shy of a new
52-week high.  After the euphoria subsided, CLRN returned to
its familiar pattern of providing higher highs and lows.
Moving up throughout the day was just the first act, as a
surge of buyers in the last hour helped CLRN punch through
resistance at $100.  With volume over 2.5 times the daily
average, and a close very near the high of the day, CLRN looks
to be in breakout mode.  Consistent with the theory that old
resistance becomes support, look for CLRN to use this level as
support going forward.  Below that, $97 should provide stronger
support, followed by $94.  Upside resistance comes in the form
of the 52-week high ($110.25), most recently tested the day
after earnings.  Now that CLRN has built a staircase of higher
highs and lows up above $100, a breakout to new highs will
likely happen sooner than later.  Either a bounce off of support
or a continuation of the move upwards can be used as entry
triggers.  As evidenced by this week’s move, volume will be the
key to a continued move up.  Investors already have a lot of
profit in CLRN, so watch out for profit-takers (Translation -
Use Stops).

Speaking to SmartMoney.com yesterday, COO Rich Hopps
crystallized the company’s focus, stating Voice is, if you
look downstream, the most lucrative application of a converged
voice and data network.  On February 3rd, CLRN and ACT
teleconferencing, a full-service global provider of audio,
video, data and Internet conferencing products and services,
introduced the first-ever full duplex IP telephony
conferencing solution.  The new solution, Action VOIP gives
customers the ability to conduct attended, unattended and
fully automated audio conferences via IP telephony, regardless
of the location of conference participants.

***February contracts expire in next week***

BUY CALL FEB-100 KGQ-BT OI=172 at $ 6.75 SL= 5.00
BUY CALL FEB-105 KGQ-BA OI= 12 at $ 3.88 SL= 2.25
BUY CALL MAR-100 KGQ-CT OI=  6 at $15.63 SL=12.25 low OI
BUY CALL MAR-105 KGQ-CA OI=  2 at $11.13 SL= 8.75 low OI
BUY CALL*MAR-110 KGQ-CB OI=864 at $ 9.25 SL= 7.00

Picked on Feb 10th at $102.69     P/E = N/A
Change since picked     +0.00     52-week high=$110.25
Analysts Ratings    1-4-0-0-0     52-week low =$ 19.88
Last earnings 01/00 est=-0.10     actual=-0.05
Next earnings 04-20 est=-0.06     versus= N/A
Average Daily Volume =  447 K
/charts/charts.asp?symbol=CLRN

****

INSP - InfoSpace.com Inc $191.50 +9.06 (+41.38 for the week)

InfoSpace.com provides content and commerce solutions for Web 
sites and Internet appliances. Their focus is on content such 
as yellow pages, maps, classified ads, real-time stock quotes, 
sports and other information.  InfoSpace.com has 100+ online 
customers including the likes of American Online and Microsoft.  
Founder and CEO, Naveen Jain, has a 38% stake while Acorn 
Ventures owns 12% of the company.

InfoSpace.com's share price is indeed rocketing into space!  
This is a company that has climbed more than 40-fold since its 
$15 IPO in December 1998.  Many analysts believe it's just the 
beginning and predict INSP will rise significantly as the demand 
for cell-phone Web services grows.  Our play is much more short-
term and specific.  On January 31st, the company's BoD announced 
another 2:1 stock split payable March 15th.  The split is 
subject to shareholders' approval and a vote to increase 
authorized share from 200 mln to 900 mln is expected by written 
consent.  Presently there are 48.2 mln shares issued.  Now some 
of you may be thinking...didn't INSP just split last month?  
And the answer is an indubitable yes!  The stock split 2:1 on 
January 4th, after the bell.  Following that split, INSP 
announced stellar earnings on January 26th and that marked 
"take-off".  Earnings came in at $0.09 shooting past 4Q 
estimates of $0.00 by a First Call consensus.  Traders lost no 
time driving up the share price 40% to an all-time high today at 
$192.81.  Near-term support is first at $185, then $180.  The 5-
dma ($169.69) has yet to catch up with the recent surge, but 
should be watched in the event of a pullback.  

Many analysts have raved about INSP's future.  Merrill Lynch's 
infamous Blodgett has a Buy rating and both Dain Rauscher 
Wessels and US Bancorp Piper Jaffray have Strong Buy rating for 
INSP.  Recently Merrill Lynch upped their price target to $175 
and Paine Webber also raised their target price to $200 from 
$160.

***February contracts expire in next week***

BUY CALL FEB-170 FHY-BN OI=173 at $25.00 SL=19.50
BUY CALL FEB-175*FHY-BO OI=939 at $20.38 SL=16.00
BUY CALL MAR-185 FHY-CQ OI=  0 at $30.50 SL=23.75 Wait for OI!
BUY CALL MAR-190 FHY-CR OI=  0 at $28.00 SL=21.75 Wait for OI!
BUY CALL MAR-195 FHY-CS OI=  0 at $22.13 SL=17.25 Wait for OI!
BUY CALL MAR-200 FHY-CT OI= 23 at $24.00 SL=18.75 low OI

Picked on Feb 10th at   $191.50    P/E = N/A
Change since picked       +0.00    52-week high=$192.81
Analysts Ratings      6-3-0-0-0    52-week low =$ 10.00
Last earnings 01/00   est= 0.00    actual= 0.09
Next earnings 05-01   est=-0.12    versus=-0.01
Average Daily Volume = 1.69 mln
/charts/charts.asp?symbol=INSP

****

MLNM - Millennium Pharmaceuticals $232.31 +11.75 (+14.31 this wk) 

Millennium Pharmaceuticals is a leading drug discovery and
development company.  They incorporate large-scale genetics,
genomics, high throughput screening and informatics in an 
integrated science and technology platform.  MLNM develops 
treatments and diagnostics for such conditions as obesity, type
II diabetes, asthma and cancer.  They have a number of research
and development alliances with Hoffmann-La Roche, Eli Lilly 
and Bayer.  MLNM also licenses technology to Monsanto for use 
in plant agriculture and human health care. 

Take one look at the chart and you can see why MLNM made to our
list of recommended plays.  However there are more reasons why 
we believe MLNM could turn out to be an good play.  Yes they 
are in the hot Biotech sector, but this company is has more
going for than just being in strong sector.  Late last week MLNM
and Wyeth-Ayerst announced the discovery of a family of proteins
called Potassium Channel Interacting Proteins that associate with
and regulate the activity of certain potassium ion channels,
"A-type" channels.  In short, this discovery could be extremely 
beneficial in time in the treatment of such including anxiety,
depression, ischemia and epilepsy.  Granted the benefits from
these discovery may be well into the future, but it is this kind
of announcement that has drawn investor attention, in the biotech
and genomics field the past few months.  MLNM doesn't have an
abundance of analysts that follow the company, but it is popular
with institutions, with over 59% of the outstanding shares owned
by the big boys.  Some are predicting a stock split for MLNM as
well.  Honestly there's no news on a split yet, but they do have
the available shares.  MLNM closed just above support at 230 
today.  Should we see a pull back $220 would also provide a good
entry point for this new play.  The $220 level was tested many 
times this week and hold strong every time.

Lexicon Genetics a company that has established collaborative 
agreement with MLNM, today filed for a $100 million public 
offering.  Lexicon said the proceeds would be used to increase
its functional genomics research efforts.

***February contracts expire in next week***

BUY CALL MAR-220 QMR-CD OI=13 at $34.63 SL=26.50
BUY CALL MAR-230 QMR-CU OI= 1 at $30.13 SL=24.00 low OI
BUY CALL MAR-240*QMR-CV OI=16 at $25.88 SL=20.00

Picked on Feb 10th at   $232.31   PE = N/A
Change since picked       +0.00   52 week high=$237.25
Analysts Ratings      3-3-2-0-0   52 week low =$ 28.00
Last earnings 01/00   est= 0.02   actual= 0.05 
Next earnings 04-25   est=-0.35   versus= 0.05
Average daily volume =    668 K
/charts/charts.asp?symbol=MLNM



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

CAT - Caterpillar Inc. $38.06 -1.06 (-4.25 this week)

Headquartered in Peoria, Ill., Caterpillar is the world's 
largest manufacturer of construction and mining equipment, 
diesel and natural gas engines and industrial gas turbines.  
As one of the Fortune 500, Caterpillar and its dealers sell 
products in nearly 200 countries and sponsor events that 
promote the company's growth-oriented, high-tech strategy.

What do you get when you cross a bear and a cat?  Well, you 
either get an omnivore that hisses, sheds and hibernates or 
a put play on the world's largest construction equipment maker. 
Fears of rising interest rates have plagued heavy equipment 
companies and as many investors believe that increasing rates 
will equal a decrease in demand for heavy equipment.  It is 
these fears that have worked to grab the CAT by the tail and 
drag it to new 52-week lows.  This week, CAT spent some time 
flirting around between $41 and $40, trying to decide if this 
level was going to serve as support.  Yesterday, the decision 
was made as CAT moved lower and closed at its low for the day, 
which was below $40.  But, as you know, one day does not a 
trend make and we were waiting to see if CAT was going to 
continue on with its negative momentum.  Today gave us the go 
ahead as CAT traded to yet another new 52-week low and never 
even made it up to $40.  The volume backing CAT's decline has 
been very strong, a nice bearish indicator showing us that 
there are plenty of investors that have decided that CAT is 
a dog.  CAT could continue to encounter resistance at $39 
which is backed by the $40-$41 level.  CAT does tend to offer 
some fairly narrow intraday ranges.  Therefore, your best bet 
for new entries is probably to try enter toward the early part 
of the session.  Be prepared to stay on board for a bit to 
make the play worthwhile, as CAT is not known for being a 
fast mover.  

***February contracts expire in next week***

BUY PUT FEB-45 CAT-NI OI=1600 at $7.00 SL=5.50
BUY PUT FEB-40 CAT-NH OI=1095 at $2.19 SL=1.75
BUY PUT MAR-40*CAT-OH OI= 758 at $3.00 SL=2.25

Average Daily Volume = 1.96 mln
/charts/charts.asp?symbol=CAT


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

ADIC - Advanced Digital Info. $63.00 +4.38 (+4.63 this week)

ADIC is a leading global provider in the market to manage and 
protect information for computer networks.  The company has 
over 50,000 automated tape libraries installed and a suite of 
software solutions and Storage Area Networking (SAN) products.  
These products are marketed under ADIC and ADIC/GRAU brands of 
OEM partners including Dell, Exabyte and Unisys.  The company's 
own storage management tools include AMASS, FileServ and 
CentraVision which are software products that provide users 
with shared access to network data.

Sunday's Write Up

If there is one universal desire in the technological age, it is 
to have as much memory capacity and access to it as possible.  
ADIC is one company that seeks to provide the most cutting edge 
tools to allow companies to fulfill their ever growing capacity 
needs.  Smaller technology firms are starting to participate 
again and ADIC is no exception.  With earnings expected after 
the close on February 16th, we are looking for the possibility 
of a continued run of the company's share price.  ADIC announced 
year end results in early December that showed a 95% increase in 
sales for the year and they beat the Street's estimate by $0.04.  
If those trends continue then it is entirely possible that an 
earnings run could occur as investors are always interested in 
the fastest growing companies.  After establishing a new high in 
mid-January after breaking out of a nice base around $50, ADIC 
has had a very volatile past two weeks which has seen the stock 
reverse course and start to head back up higher.  The selloff 
down below $43 appears to have been an aberration and the stock 
has recovered nicely.  Friday's move beyond $56.38 was an 
encouraging sign that the stock may be back on its way to 
challenge for another new high.  If we get a selloff you may 
want to try and go long around $55 where we find some pretty 
good support.  If ADIC takes out Friday's high print of $60.13 
an attempt for a new high could occur very quickly.

Part of the recent excitement about ADIC occurred after a new 
product was revealed last Tuesday.  The company has added new 
Fibre Channel routers to its suite of Open SAN Backup Solution 
products, making the package the first in the industry to build 
support for direct-to-tape, server-less backup within SAN's.  
Also, ADIC will hold its annual shareholder meeting on the 
16th, the same day as their earnings release.  Look for more 
good news to be announced at that time.  CEO's rarely say 
anything but good news and investors know it so don't expect 
much selling in ADIC ahead of this date. 

Tuesday's Write Up

The disappointing start this week for the shares of ADIC have 
not discouraged us from this play.  We believe that the "Street" 
has yet to recognize the hidden value found in owning shares of 
ADIC.  The company owns a big chunk of high flyer, Crossroads 
Systems (NASDAQ:CRDS).  CRDS is a storage router company and 
ADIC has an OEM agreement to distribute these products.  ADIC 
owns 2.6 million shares of CRDS.  CRDS has rallied over 60 
points in the past three days resulting in over $120 million 
in paper profits for ADIC.  The rally for CRDS could easily 
continue on the heels of CSCO's strong earnings report.  At 
some point this incredible rally in CRDS could be realized in 
a strong move for the shares of ADIC.  In the meantime, ADIC 
is in the middle of a range between roughly $50-$65.  There 
is some support around $55 which might prove to be a good 
entry point for a bullish position.  If ADIC can trade above 
$62 a more substantial rally may ensue.

Thursday's Write Up

Unleash the power within!  With apologies to Tony Robbins, that
is our buzz phrase for wanting to get long ADIC.  Recently we 
have had success in this section isolating companies who have 
substantial investments in other high-flying companies.  Such 
is the case for ADIC which owns 2.6 million shares of Crossroads
Systems (NASDAQ:CRDS) which is a storage router company.  ADIC 
also has an OEM agreement with Crossroads.  CRDS has recently 
seen an incedible explosion in their share price due in large 
part to the market's recent love affair with nearly every router 
stock.  See JNPR and CSCO to name two.  The past four trading 
days have seen CRDS rally over 70 points resulting in paper 
profits of over $180 million for ADIC.  With a strong move 
today it appears that the "Street" is finally attempting to 
give ADIC a little credit for their stellar investment.  The 
close at its high of the day coupled with a break above a four
day base indicates to us that ADIC may be ready to make its 
next move.  New 52-week highs are only 3 and a half points 
away and if the NASDAQ can stay strong we are anticipating 
an attempt to surpass these levels.  Support is back in the
previously mentioned basing area of $58-$62 which could prove 
to be a good area to initiate a position if we get some weakness.  
An open tomorrow above today's high of $63 could prove to be a 
strong indication that new highs are only a hop-skip-and-jump 
away.  Don't forget, earnings are set for Wedensday after the 
close.  Also note the big options volume that came in this 
morning across all strikes from 45 to 70. Could it be that word 
of strong earnings or a surprise announcement at the shareholder 
meeting on the 16th is leaking out early?  Don't know, but 
someone is acting like they do. 

***February contracts expire in less than two weeks*** 

BUY CALL FEB-55 QXG-BK OI=107 at $ 8.50 SL= 6.50
BUY CALL FEB-60*QXG-BL OI=427 at $ 5.00 SL= 3.75
BUY CALL FEB-65 QXG-BM OI=154 at $ 3.25 SL= 2.50
BUY CALL MAR-55 QXG-CK OI=242 at $13.13 SL=10.25
BUY CALL MAR-60 QXG-CL OI=276 at $10.25 SL= 8.00

SELL PUT FEB-55 QXG-NK OI=177 at $2.50 SL=4.00
(See risks of selling puts in play legend)

Picked on Feb 6th at    $58.38    P/E = 80
Change since picked      +4.63    52-week high=$66.38
Analysts Ratings     3-3-0-0-0    52-week low =$ 6.63
Last earnings 12/99  est= 0.22    actual= 0.26
Next earnings 02-16  est= 0.23    versus= 0.13
Average Daily Volume =   420 K
/charts/charts.asp?symbol=ADIC



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

Dow Stumbles As Nasdaq Rage Continues..

Wednesday, February 9

Blue chip issues plummeted Wednesday on falling bond prices and
new fears of rising interest rates. The Dow Jones Industrials
closed down 258 points at 10,699. A series of attacks on major
web-sites humbled Internet stocks and the Nasdaq slid 64 points
to 4363. The S&P 500 index was down 30 points at 1411. Volume on
the Big Board reached 1 billion shares, with declines outpacing 
advances 1,966 to 1,034. The long bond fell 30/32 with the yield
closing at 6.3%.


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

Cirrus       CRUS   JUN20C/MAR20C   $0.88   debit   calendar
Adv. Fibre   AFCI   MAR40C/FEB50C   $8.75   debit   diagonal
Valence      VLNC   MAR20C/MAR25C   $4.25   debit   bull-call


Portfolio plays:

The market slumped today as bond yields rose and new concerns of
inflation plagued investors. Higher bond yields generally make
fixed-income debt more competitive with stocks and analysts say
there was an abrupt change of heart after Tuesday's rally, which
was sparked by a favorable employment report. Now investors are
preparing for a new batch of economic data that could provide
additional indications of the future of interest rates. Financial,
drug and technology stocks all suffered in the sell-off and there
were few bright spots in the market. Gold and metal stocks were
in the minority, rising as the broad market wilted in afternoon
trading.

One of our leading Internet issues was Aspect Development (ASDV),
up $21 to a new all-time high at $118 after Robertson Stephens
Senior eBusiness Software Analyst Kash Rangan today reiterated
his BUY rating and raised the price target on Aspect to $130. The
upgrade was based on the company’s solidification of its strategy
for B2B E-commerce. Extreme Networks (EXTR) was also a big mover, 
climbing almost $6 to a recent high near $99. Today EXTR reported
its Gigabit Ethernet switching solutions are powering a unique
Metropolitan Area Network that enables Internet Service Providers
and Internet Content Providers to transmit local Internet traffic
at increased speeds and lower costs. With leading-edge Ethernet
switching solutions, EXTR is securing a dominant position in the
growing industry. Sun Microsystems (SUNW) rallied $5, closing at
$92 after officials at the company told Wall Street analysts that
SUNW was angling for higher sales growth. Chief financial officer
Michael Lehman said that SUNW is aiming to boost revenues by 25%
or more with new products and services. We decided to use the new
buying surge to roll up and forward (to March) in our LEAPS/CC's
position. The new spread is LJAN37C/MAR85C at $32 debit. Motorola
(MOT) was another candidate for adjustment and our transition to
the (short) $145 calls required an additional $5.00 debit. The new
position is LJAN105C/MAR145C at a cost of $27.50. Adobe Systems
(ADBE) continued it record run, adding another $3 to close at $87.
Our long-term position offers a 100% profit in just three months
and rather than chase the issue, it may be better to simply close
the position and look for a new entry point.

Unfortunately, the majority of issues in our portfolio fell with
the market sell-off and a number of failing positions were closed
to limit losses. Two of our recent speculation plays, Deluxe (DLX)
and Marshall & Ilsley (MI) were on the hit list. Deluxe plummeted
after last week’s spin-off announcement, allowing little time for 
an exit strategy and the merger speculation on Marshall vanished
early in Wednesday’s session. Both of the (long) positions were
closed on these plays. Pfizer (PFE) has also been disappointing
and with increasing coverage of the costs of the Warner Lambert
(WLA) acquisition, shareholders have yet to see it in a positive
light. There is certainly a possibility for recovery (with a March
expiration) but it may be prudent to simply move the remaining
capital to a new play.

One of the surprising issues in the portfolio was beverage and
snack-foods giant PepsiCo (PEP), which rose $0.68 to $34 after
posting better-than-expected fourth-quarter profits. Revenues
were driven by strong gains in Frito-Lay and the Tropicana juice
businesses. The company also said it would split its Frito-Lay
snack unit into regional groups in an attempt to build upon its
growth. Our new bearish position at $35 was tested throughout the
session but eventually survived on the weakness in the overall
market. The conservative exit strategy would be to close the
credit spread for $0.75 debit, a $0.38 loss. Those of you with
an aggressive outlook should wait for a technical confirmation
of the recovery in tomorrow's session.


Thursday, February 10

Blue-chip issues fell from favor Thursday as Technology companies
dominated the headlines with soaring earnings. The Nasdaq Index
gained 122 points to 4,485, another record close. The Dow Jones
Industrial Average lost 55 points, closing near a three-month low
at 10,643. The S&P 500 Index edged up 5 points to 1,416. On the
NYSE, decliners beat advances 17 to 12 with 1.05 billion shares
exchanged. There were 76 stocks at new highs and 255 at new lows.
The long bond dropped 1-16/32, pushing the yield up to 6.43%.

Portfolio plays:

Today the Nasdaq Composite powered ahead as investors continued
to pack their portfolios with technology issues. The majority of
stocks in our collection ended higher and a number of positions
are now trading at maximum profit. Triquint (TQNT) was again the
top performer, climbing $16 to a new all-time high near $228.
This issue has rocketed $90 since we added it to our pick list
last month. Corning (GLW) rallied to a new all-time high after
reporting favorable earnings and a bullish future outlook. The
company finished the year with strong positive momentum and now
expects productivity benefits from restructuring and business
process re-engineering to have a positive effect on the bottom
line. Our bullish credit spread at $130 will expire comfortably
OTM. Emulex (EMLX) ended $6 higher at $117 with the rally in
computer hardware issues. The stock has been struggling to remain
above technical support near $100 and we expect it will finish
far from our sold strike (and the maximum profit range) at $95
next week.

In the small-cap portfolio we had a number of surprises. Network
Associates (NETA) rebounded almost $4 to end at $28 on news of the
recent rampage of Internet hackers. NETA quickly deployed the
first and only on-line solution available to detect a family of
computer vulnerabilities and zombie agents, stopping hackers'
ability to link networked computer systems in distributed denial
of service (DDoS) attacks. The new detector service, which will
help protect companies like Yahoo!, Ebay, Amazon, E-Trade and
Microsoft is now available at their web-site. The rally provided
a perfect opportunity to move the bullish LEAPS/CC’s play into
March. Our new position is LJAN15C/MAR25C at $7.88 debit. The
new spread has no upside risk and a reasonable margin of safety
for any future corrections. Our new position in Cirrus (CRUS) is
off to a great start. Today the stock bounded $2 after confirming
its support of the recent definitive agreement entered into by
Intel and Ambient Technologies, a privately held firm in which
Cirrus Logic holds a minority interest. Ambient was formed last
year when Cirrus Logic entered into an agreement to spin off its
PC-modem business unit. The divestiture of Ambient has enabled
Cirrus Logic to expand its core audio and storage businesses,
while focusing its high-performance analog and DSP expertise on
Internet entertainment applications. Cirrus has yet to report the
specific financial impact of the agreement but investors expect it
to be favorable. In our case, the only adjustment made was in the
older diagonal position (JUN10C/FEB12C at $2.25 debit). The new
spread is short at $15 in March with a cost basis of $3.75. The
new calendar spread (JUN20C/MAR20C) is already profitable.

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


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

With the majority of big-cap technology companies trading at
astronomic levels, we decided to look for some lower-priced
issues with bullish character and favorable option premiums.
These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing. Current news and market sentiment will have an
effect on these issues. Review each play individually and make
your own decision about the future outcome of the position.

****

DRMD - Duramed  $10.12     *** Drugs Are Still Hot! ***

Duramed Pharmaceuticals currently develops, manufactures and
markets a line of prescription drug products in tablet, capsule
and liquid forms to customers throughout America. The products
sold by the company include those of its own manufacture and
those it markets under arrangements with other manufacturers.
Duramed sells its products to drug store chains, wholesalers,
private label distributors, health maintenance organizations,
hospitals, nursing homes, retiree organizations, mail order
distributors, other drug manufacturers, mass merchandisers and
governmental agencies. Last year, Duramed received FDA approval
of its first branded prescription product, Cenestin, which is a
new plant-derived synthetic conjugated estrogens product for
the treatment of severe vasomotor symptoms associated with
menopause.

The recent consolidation in the drug sector has made a number of
small-cap companies targets for their larger brethren and Duramed
fits the bill precisely. Investors are convinced that a major
announcement is due for the company and Monday’s break-out above
a well-defined trading range appears to confirm the speculation.
In any case, the option premiums are favorable and the technical
outlook is bullish, providing fair risk/reward for this unique,
speculative position.


PLAY (speculative - bullish/diagonal spread):

BUY  CALL JUN-5.00  DUQ-FA OI=32   A=$5.75
SELL CALL MAR-10.00 DUQ-CB OI=2772 B=$1.81
INITIAL NET DEBIT TARGET=$3.75 TARGET ROI=33%

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

****

ESPI - e.spire Communications  $10.88   *** Telecom Play ***

E.spire is a facilities-based Integrated Communications Provider
to businesses primarily in major markets in the southern half of
the United States. The company was one of the first Competitive
Local Exchange Carriers to combine the provision of dedicated,
local and long distance services with frame relay, asynchronous
transfer mode and Internet services. ESPI’s facilities-based
network infrastructure is designed to provide services to its
customers on an end-to-end basis. With this established suite of
telecommunications services, which emphasizes data capabilities
in addition to traditional CLEC offerings, ESPI has evolved into
a leading ICP.

ESPI has finally become a formidable company in the competitive
world of local telephone/data services and today Merrill Lynch
initiated coverage of the telecom provider based on their growing
regional fiber network. Merrill also expects the entire sector to
experience strong fourth-quarter results with excellent sequential
growth in revenues. The initial rating for ESPI is long-term
accumulate and that will magnify the recent momentum that has
boosted the issue from December’s lows near $5.

Our long-term position is very conservative but some of you may
also wish to participate in the cheap speculation play.


PLAY (conservative - bullish/diagonal spread):

BUY  CALL JUN-5.00  AQ-FA OI=332  A=$6.38
SELL CALL MAR-10.00 AQ-CB OI=2412 B=$1.93
INITIAL NET DEBIT TARGET=$4.25 TARGET ROI=17%

-or- 

PLAY (speculative - bullish/calendar spread):

BUY  CALL MAR-12.50 AQ-CV OI=2218 A=$0.88
SELL CALL FEB-12.50 AQ-BV OI=1167 B=$0.25
INITIAL NET DEBIT TARGET=$0.50 TARGET ROI=25%

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

****

RMII - RMI.Net  $11.00     *** ISP’s Are On The Move! ***

RMI.Net is a provider of E-Business, Web Solutions, and other
communication services to business enterprises, as well as
dial-up residential customers. RMI.Net monitors and controls
its network through its Network Operations Center in Denver,
Colorado. Through the company's nationwide network of owned and
leased dial-up access sites, subscribers are able to access the
Internet in 90 of the largest 100 metropolitan areas in the
United States via a local telephone call. Internet services
include dedicated access service; co-location; wireless service;
Internet backbone access; web site production; web site hosting;
info-highway/portal; turnkey software package solutions for
electronic commerce of e-sell; web site marketing; Traffic
Builder Plus software; and web training. Telecommunications
services include IP telephony or e-phone; traditional long
distance service; local phone services; and dedicated line
services.

A recent bullish analysts’ report listed a number of reasons for
the future growth of this company including; an estimates 100% top
line revenue growth in 2000, an exponentially increasing customer
base and significantly improving cash flow. The brokerage offered
a Strong Buy rating with a 12-month price target of $23 based on
the incredible potential for B2B e-commerce infrastructure. We
agree with the outlook and the bullish technicals suggest it may
not be too optimistic.


PLAY (conservative - bullish/debit spread):

BUY  CALL MAY-5.00  RMU-EA OI=90  A=$6.38
SELL CALL MAY-10.00 RMU-EB OI=505 B=$3.00
INITIAL NET DEBIT TARGET=$3.12-$3.25 ROI(max)=50%

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



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

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