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Daily Newsletter, Monday, 03/13/2000

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The Option Investor Newsletter                   Monday  3-13-2000
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.

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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       3-13-2000           High     Low     Volume Advance Decline
DOW     9947.10 +  18.30  9998.50  9735.50   998,134k 1,158  1,861
Nasdaq  4907.24 - 141.38  5027.73  4839.26 1,684,472k 1,455  2,864
S&P-100  743.00 -   6.50   752.13   732.64    Totals  2,613  4,725
S&P-500 1383.62 -  11.45  1398.39  1364.84            35.6%  64.4%
$RUT     590.14 -  13.67   603.81   582.92
$TRAN   2391.94 +  26.65  2401.76  2333.03
VIX       25.36 +   1.56    27.08    23.85
Put/Call Ratio       .44
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BOO!  A Scare from the Ghost of Markets Past. 
The sharp drop this morning in the NYSE and NASDAQ sent scared 
traders into a mad rush of fresh underwear purchases, though maybe 
not enough to bring Fruit of the Loom out of bankruptcy.  From the 
sell-off in the overnight markets, we awoke to see the ghost of 
markets past.  Dickens has nothing on a trader's imagination first 
thing Monday morning with the S&P down 30 points.  What had them 
so spooked?

Look no further than across the Pacific to Japan.  The Japanese 
Government announced that their Q4 1999 equivalent of our GDP was 
a negative 1.4%, when negative 1.0% was expected.  Apparently, 0% 
interest rates were not enough to stimulate the economy back to 
health.  Traders assumed that meant the Japanese economy was in 
poor health and wouldn't recover as soon as originally thought.  
The Nikkei closed down 2.8% overnight.  Lost in the translation 
was the fact that capital outlays actually increased 4.7% over the 
same period, the largest jump in five years.  Japanese industry 
captains have placed their bets on growth.

Not to be left out of the game of dominos, Europe followed suit.  
Associated Press (AP) reports Britain's FT-SE 100 was down 1.5 
percent, Germany's Xetra DAX index fell 3.5 percent and France's 
CAC-40 fell 2.7 percent.  Media, telecom and technology stocks 
were hit the hardest, according to European analysts.  From that, 
you can probably guess which stocks got nailed the hardest over 
here.

Suffice it to say "shoot first and ask questions later" was the 
sentiment adopted before the open.  Both the NYSE's and NASDAQ's 
immediate move south confirmed the fear, dropping to 9738 (-190) 
and to 4838 (-209), respectively, in the first 15 minutes.  It 
also helps to explain the Friday price decline phenomenon.  Nobody 
wants to go home with a basket full of issues for fear of what may 
happen over the weekend.  This morning was a painful reminder for 
those willing to take that risk.  Let's take a closer look at the 
action for the day.

The Dow as noted opened down from Friday's close, but quickly 
found support at 9738.  This was the third time in five trading 
days the Dow had descended south of the 9800 level to test 9740 
and recover nicely to close above 9800.  Can you say short-term 
triple bottom?  Technically, we may continue to see some strength 
here as investors pick over the rubble for bargains buried in the 
last two months slide.  Even so, the longer-term trend is still 
down, and will require a breakout back over 10,000 on a high 
volume day to convince us the Dow's downtrend is over.  For its 
part today the Dow staged a nice recovery, moving as much as +70 
points to 9998.  Alas, from failure to pierce and hold over 10,000 
on three afternoon tries, the index tail-slid back into negative 
territory before closing up 18 points at 9947.  Volume was under 1 
bln shares at 998 mln, but decliners beat advancers by greater 
than a 3:2 margin.  Down volume was 30% greater than up volume.  
Similarly, new lows are still outpacing new highs 226 to 37, which 
should be no surprise.  By definition, it's pretty hard for 
individual issues to set new highs when the index is off 15% from 
the high of 11,700 set in mid-January.


 

 
No one stock, not even Microsoft (MSFT, 98, -3, equal to 14 Dow 
points), the largest Dow point loser, is responsible for either 
supporting or hurting the Dow today.  Frankly, we're surprised to 
see MSFT in the red considering it announced a $1 bln joint 
venture with Anderson consulting (called Avenade; pronounced av' 
ah nod) under the premise of opening up more probable adoption for 
Windows 2000 among Anderson clients.

Other tidbits of NYSE news include the following:  Northwest and 
Southwest Airlines didn't join Continental in price hikes over the 
weekend, while Delta and U.S Air dropped prices to last week's 
level to rejoin the other two.  Next, GM (77.81, unch) took a 20% 
stake in Italian car maker, Fiat, much to the chagrin of Daimler 
Chrysler (DCX, 61.06, +0.75), who was reported to be a bit ticked 
about it.  Then Tribune Co., publisher of the Chicago Tribune, 
announced they would acquire Times Mirror, publisher of the L.A 
Times for $6.3 bln.  Finally in late breaking news, Sony (SNE 
225.50, -18.25) reconfirmed their announced a 2:1 split, hoping to 
remind investors that it will eventually happen.  This news might 
help the stock price up slightly following the faulty chip gaff in 
their new Playstation 2, just released to market.

In an unusual role reversal, the NASDAQ didn't fare as well today, 
finishing down 141 points at 4907, logging the fourth biggest drop 
in its history.  While it showed incredible strength by erasing 
about 180 of its 200-point deficit by mid-day, the recovery did 
not last, as profit takers stepped up the selling all afternoon 
into the close.  On paper, it wasn't pretty.  Decliners trailed 
advancers by 2:1 while nearly the same ratio held for down volume 
over up volume.  New highs were one issue shy of dead even - 163 
new highs; 164 new lows.  While we're used to seeing 1.8 to 2.0 
bln shares trade hands, only 1.7 bln traded today, telling us that 
not everybody was headed for the exits - a scant positive for the 
day (we knew there was a pony in there somewhere!).


Chart of Nasdaq



Technically, we've tested 4720 on two occasions since the first 
of the month.  4838 gave us a hard bounce today, though the 
recovery didn't last.  One could make a case that the lows are 
getting higher.  However, if history is any indicator, 4830 looks 
to be the closest level of solid support since it coincides with a 
top on March 2 and a previous floor on March 3.  If it can't 
hold in the turmoil this week, then look for 4720 on your screen - 
that's only an 8% correction anyway.  10% takes us to 4620.  
That's a scary thought.  And while getting there is possible from 
a technical standpoint, the 10-dma (currently 4880) has held up 
well since NASDAQ passed the 4500 level back on February 23.

Individual issues in the index held up exceptionally well and 
bucked the overall trend.  Dan Niles of BBRS can't hold up a 
market, but he sure made Intel (INTC 122.06, +1.94) and Dell (DELL 
54.75, +3.50) look good with favorable comments on both today.  In 
particular regarding INTC, he has a new price target of $150 by 
mid-year.  Michael Dell baked his own cake today by noting that 
the previous problems of the Y2K slowdown and a component squeeze 
were over.  Thus profits should continue to grow at least 30% - 
not the 50% we used to see, but good enough to get the price to 
new intraday and record closing highs.  Icing came in the form of 
a new B2B alliance with Ariba (ARBA 298, -7.38) utilizing ARBA 
software technology by Dell's small and medium sized business 
customers.

In other news, i2 (ITWO 191.19, -16.81) announced they would 
purchase Aspect Development (ASDV 96.81, +11.81) in what is 
currently the largest B2B software acquisition.  It was also noted 
today that the venerable Fidelity Magellan fund had moved from 27% 
technology to 30% technology holdings.  Maybe they've single 
handedly moved the NASDAQ up?  We doubt it.  There's more to 
liquidity than just Fidelity, and there's plenty more to go 
around.  Once the market shakes off its current nervousness, tech 
will again garner the market's attention.

Until then we have retail sales figures staring us in the face 
tomorrow.  The consensus is for a 1% increase overall, and a 0.8% 
increase without the car business.  Industrial production and 
capacity utilization will be out Wednesday.  Thursday brings us 
the PPI, housing starts and Philadelphia Fed comments, followed by 
the CPI on Friday.  There are plenty of landmines to step on here, 
and we encourage you to tread lightly until the market gives us 
more clarity on Thursday morning (CPI will be less consequential 
once we see the PPI).  

The VIX is of no help right now since its dead center between 
optimistic (20) and pessimistic (30).  We're in choppy waters 
with no wind.  Overall, a weaker than expected Japan and 
continued huge productivity gains here at home, not to mention 
OPEC's comment today that here would be no further decrease in 
oil output tells us that inflation is well in check.  The market 
already expects the Fed to raise rates next week, and we think 
the fear is a bit overdone.  Technology is slightly overbought 
and could see further correction in anticipation of bad inflation 
news this week, however earnings season, which will pick up a 
more frantic pace, begins in April.  Protect what you've got with 
trailing stops and consider any NASDAQ dips to 4700 a gift.
As always, sell too soon and keep your sneakers handy in case you 
need to find new cheese (see January 24 Market Wrap)

Buzz Lynn
Research analyst

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

Analysts Raise Outlook on Dell Computer
By Cindy Christ 

Shares in No. 1 online computer seller Dell (DELL) got a lift
Monday from three brokerage upgrades suggesting the former
Wall Street darling may be on the road to regaining its former
rock-solid earnings record.

Despite near-panic selling that punched the Nasdaq down more
than 200 points and the Dow nearly 178 just minutes after the
open, Dell trudged steadily higher, closing up $3.50, or 6.8
percent, at $54.75, a new all-time high.

The initial sell-off in both major indexes was sparked by a
government report showing a higher-than-expected decline in
Japan's Gross Domestic Product and overnight selling in Europe
and Asia, as investors took profits in technology and Internet
issues.

Heavy institutional buying pushed Dell to the top of the
Nasdaq's most-active list, with 76.4 million shares trading
hands.

"With estimates lower and the current quarter looking solid,
Dell looks ready to get back on its solid path of consistently
meeting or beating estimates and periodically generating
estimate increases," Banc of Securities analyst Kurt King said
in a research note.

King lifted his investment rating on Dell shares from "buy" to
"strong buy," and upped his price target to $72 from $52.

In a morning report, Robertson Stephens analyst Dan Niles
raised his outlook on Dell from "buy" to "strong buy" and
boosted his price target to $65 per share.

Niles said that Y2K concerns, which dragged down fourth-
quarter results, are over and that Dell is seeing a pickup in
demand, especially among corporate buyers in the U.S. and
Europe.  

"Dell's 70 percent revenue exposure to medium and large
business is now a benefit versus an albatross in Q4," Niles
wrote in the report. "In general, Windows 2000 is going as
expected with a slow ramp that is expected to build momentum
as we go through the year."

Niles also said that sales of multiprocessor systems are
becoming more common, a trend that should drive increased
revenues, profit margins and prices for computer servers that
run Internet sites and large-scale corporate networks. 

Dell holds the No. 2 position for server sales behind leader
Sun Microsystems (SUNW), with a 25 percent market share in the
U.S. and 15 percent worldwide, according to Niles.

Bear Stearns analyst Andrew Neff also raised his investment
rating on Dell to "buy" from "attractive," citing improved
component pricing and Dell's strong relationships with
corporate customers. 

Neff increased his price range on Dell to $70 to $80 per share
from $55 to $65.

In the fourth quarter, Dell matched analysts' lowered profit
estimates after warning that component shortages would reduce
total sales.

Fourth quarter profits hit $436 million, or 15 cents a share,
on revenues of $6.8 billion.

For first quarter 2001, consensus estimates for Dell are 16
cents a share.

Late in the session, Dell also announced a deal with
electronic commerce software maker Ariba (ARBA) to create an
online marketplace for small- and medium-sized businesses.

Shares of other computer sellers also were higher intraday
Monday, but rival Gateway Inc. (GTW) backed off to close down
$3, or 4.8 percent, at $59.50 amid profit taking.

Compaq Computer (CPQ) managed to hold onto its gains,
finishing up $0.19, or 0.7 percent, at $28.75.



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

DELL - Dell Computer $54.75 +3.50 (+3.50 this week)

Dell Computer is the world's #1 direct-sale computer vendor and 
one of the world's top PC makers.  Therefore it's understandable 
that the company designs, develops, manufactures, markets, 
services, and supports a variety of computer systems including 
desktops, notebooks, workstations, network servers, and storage 
products.  Dell's clients include the government, corporations, 
the medical and education industries, as well as the individual 
consumer.  Founder Michael Dell is still the CEO and maintains a 
14% stake in the company.

Sunday's Write up

A strengthening sector, signs that corporate customers are 
interested in purchasing more PCs, and recent news that Dell will 
introduce a new line of servers to offset any slowing in overall 
PC sales and we have the ingredients for a short-term momentum 
play.  By February 9th, DELL plummeted to a low of $35.56 before 
regaining its present composure.  After such a devastating 
decline, DELL remarkably just set a new 52-week record high on 
Friday ($54.03) and is poised to move higher.  The "bump in the 
road" as Dell puts it is over and analysts agree.  Granted Dell 
admits it won't be making stellar earnings number like the 50% 
increases from year earlier quarters, but a 30% goal is very much 
within their grasp.  Ashok Kumar, analyst for USB Piper Jaffray, 
is confident that Dell "should have no problem exceeding the re-
calibrated earnings" and noted he rates DELL as a Strong Buy.  
Earlier in the week, he upped DELL's price target to $65 from 
$55.  And in regard to PC sales, Trent May, manager of the 
Invesco Growth Fund, declared that "over the last two weeks, 
we've seen reports of improving corporate PC demand, which 
obviously Dell would be the biggest beneficiary of".  These 
comments follow Thursday's press release that Dell Computer 
became the global market leader in both portable and desktop 
personal computer shipments to medium and large businesses in the 
4Q of 1999 according to the market research firm IDC.  This puts 
rivals Compaq (CPQ) and IBM in the backseat as they struggle to 
move from largely indirect to direct sales models.  Additionally, 
Dell will introduce "appliance servers", a new line of servers as 
early as this month aimed at small businesses that use the 
Internet.  These new servers increase power of Web sites and 
manage Internet traffic, but the kicker is that they are much 
cheaper and user friendly than conventional servers.  On 
Thursday, the stock's dynamism demonstrated a growing intensity 
and sprung off the 5-dma (then at $47.24) and didn't look back at 
the comfortable support zone.  The bold move was backed by heavy 
volume (more than double the ADV) of over 71 mln shares 
exchanging hands.  Friday's performance was also very bullish.  
Analyst Donald Young of Paine Webber gave DELL a boost with an 
upgrade to a Buy from an Attractive.  He also upped the price 
target by 56% to $78 from a mere $50.  DELL shot up immediately 
and cleared the path of resistance by first setting a new all-
time high at $54.03.  The rest of day it held firm trading in a 
tight range between $53 and $54.  A typical late day pullback 
before the weekend did knock a couple dollars off the share 
price, but this effectively offered traders entries.  A lower 
level of support is at $47 and $48.  Although if there's a severe 
correction, and the stock returns to $44 and $45 near the 10-dma 
($45.72) take out the red flag.  At the moment, earnings aren't 
expected until the beginning of May.  Therefore let's keep in 
mind this play is based on sheer momentum and always, always keep 
your eyes peeled for the profit mongers.

Dell along with IBM and Hewlett-Packard are to be the "chosen 
ones" to roll out Intel's new 1GHz Pentium III, a chip they claim 
is faster than anything fierce competitor, Advanced Micro Devices 
(AMD), has in its inventory.  Talking about chips...Dell warned 
owners of a faulty memory chip in its Latitude and Inspiron 
computers shipped between February 1 and November 20, 1999.  As 
many as 400 K, or 48% of the notebook computer are likely to 
contain the defective memory chip.  On a more positive note, Dell 
announced it began online product sales in Hungary.  This new 
online venture marks the first of its kind in central and Eastern 
Europe according to Glenn Jones, Dell marketing director in 
Europe, the Middle East and Africa.

Comments

Seemingly impervious to the market uncertainty, DELL didn't
even dip this morning (it seems to have gotten that out of the
way last week), staying positive all day and posting volume more
than twice the daily average.  By 10:30am EST, buyers had pushed
through Friday's resistance at $54 and managed to touch $56
before fear of darkness arrived.  DELL settled a bit, but closed
over $54 (now acting as support), managing to post a new 52-week
high in the process.  For that we can thank Dan Niles of BBRS for 
the upgrade, Michael Dell for the positive comments to analysts, 
and Ariba for the alliance that will help Dell's small and medium 
sized business users

BUY CALL APR-50 DLQ-DJ OI=21495 at $7.25 SL=5.50
BUY CALL APR-55 DLQ-DK OI= 7006 at $4.50 SL=2.75
BUY CALL MAY-50 DLQ-EJ OI=20797 at $8.38 SL=6.50
BUY CALL MAY-55 DLQ-EK OI=20324 at $5.63 SL=3.75

Picked on March 9th at   $50.44    P/E = 85
Change since picked       +4.31    52 week high=$54.03
Analysts Ratings    14-18-3-0-0    52 week low =$31.38
Last earnings 12/99   est= 0.15    actual= 0.16
Next earnings 05-18   est= 0.16    versus= 0.16
Average daily volume = 32.4 mln
/charts/DELL


***
PUT
***

BVF - Biovail Corp $48.88 -1.38 (-1.38 this week)

Biovail is a full-service pharmaceutical company that applies it 
proprietary drug delivery technologies in developing "oral 
controlled release products.  Biovail applies it proprietary drug 
delivery technologies to successful drug compounds that are free 
of patent protection to develop both branded and generic oral 
controlled-released products.  They also engage in the 
formulation, testing, registration, manufacturing, and direct 
marketing of these oral controlled-released products.  Its 
branded antihypertensive Tiazac, accounts for most of its sales, 
but it does have high hopes for its generic version of 
hypertensive Cardizem CD, which is awaiting regulatory approval.
Most Recent Write-up

Just when you think you found a winner in the Drug and Biotech 
sector someone steps in and pulls the plug.  For now, that's the 
case with one of our new put plays.  On Monday, Biovail received 
FDA approval for its novel once daily controlled release 
formulation of Diltiazem Hcl.  Biovail has granted to Forest 
Laboratories, Biovail's license of Tiazac, an option to acquire 
the exclusive right to market the product in the United States.  
Should be good news right?  Well it appeared to be as shares of 
BVF began to bounce off support at the $59 area.  The next day 
Biovail announced it had received consent of a majority of the 
holders of its 10 7/8% Senior Notes, in connection with a debt 
tender offer.  On the news traders began to dump shares of BVF 
stock.  It only gets worse from here as Wednesday a U.S. District 
Judge in Florida found that Andrx Pharmaceutical's formulation of 
a generic version of Tiazac does not infringe on Tiazac's patent.  
Andrx had claimed that Biovail's patent was invalid, but the 
court said otherwise.  Biovail announced Wednesday it would 
appeal the District Court decision.  It's a mess and will get 
sorted out through court system in time.  Traders didn't spend 
time worrying about who's right or wrong, they just continued to 
sell.  The only thing that stopped BVF from continuing its 
decline Friday was the closing bell.  Technically BVF is nearing 
a support area at $48 and could be getting a bit over sold.  
Oversold or not the volume was picking up at the end of the 
session on Friday, which would indicate there's more to come.  
BVF could bounce back up to between $52 and $54 but for now that 
would appear to provide some tough resistance.  Further weakness 
should be viewed as an opportunity to buy puts.

Comments

Continuing the decline from last week, and encouraged by the 
chaos in the broad markets this morning, BVF quickly plunged 
through the $50 support level.  Finally finding help at $46.13, 
bottom-fishing propped the stock up, allowing it to move back up 
to $50 (now acting as resistance) before it rolled over and 
declined for the rest of the day.  Icing on the cake?  Volume was 
nearly 1.2 million shares vs. the measly average of 414 k.

BUY PUT APR-55 BVF-PK OI=54 at $ 8.38 SL=6.50
BUY PUT APR-50 BVF-PJ OI= 1 at $ 4.88 SL=2.25 Wait for more OI!
BUY PUT APR-45 BVF-PI OI=23 at $ 2.38 SL=1.00

Average Daily Volume =  414 K
/charts/BVF


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