Option Investor

Daily Newsletter, Monday, 04/10/2000

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The Option Investor Newsletter                Monday  4-10-2000
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.

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MARKET WRAP  (view in courier font for table alignment)
       4-10-2000           High     Low     Volume Advance Decline
DOW    11186.60 +  75.10 11287.70 11097.20   858,441k 1,376  1,606
Nasdaq 4,188.20 - 258.25  4475.20  4188.17 1,443,763k 1,205  3,047
S&P-100  817.14 +   4.87   828.89   816.57    Totals  2,581  4,653
S&P-500 1504.49 +   3.72  1527.19  1503.35            35.7%  64.3%
$RUT     518.67 -  24.32   545.90   518.67
$TRAN   2843.13 +  15.41  2883.82  2827.87
VIX       28.01 +   1.07    28.57    26.48
Put/Call Ratio       .37

Have Analysts' Comments Changed Technology Stock Sentiment?

Earnings season is upon us, which would normally speak well for 
the future of technology stock prices.  However, if today's 
NASDAQ action is any indication, earnings may not be enough to 
keep the tech-heavy index advancing.  As we've noted in a few 
market wraps over the last week, it doesn't appear to be getting 
any better in front of tax day (April 17), while low volume and 
low liquidity help confirm this.

So how do the analysts fit in?  It seems that more than just 
investors were listening when Abbey Joseph Cohen, chief equity 
strategist for Goldman Sachs, announced two weeks ago that she 
was lightening up on the tech sector issues.  Today, four more 
brokerages chimed in with similar tunes of their own.  Merrill 
Lynch noted that they felt technology had run its course for now 
and advised clients to sell into strength on the rebound.  Ouch!  
Not enough?  Salomon Smith Barney thinks speculative tech stocks 
will see further decline all the way to a 38% NASDAQ correction.  
Next, Warburg called for a volatile NASDAQ index to trade range-
bound in the 3650-4450 area for the next two quarters.  (Where's 
Tom Galvin when we need him?  He's the DLJ analyst that last week 
said to look for 20%-30% increases by year end.  That was one day 
before last Tuesday's selloff.)  Finally, along came CS First 
Boston advising clients that they foresee a $2 trillion equity 
shift (with a "t" - think Bill Gate's net worth x 250) away from 
technology into new leadership sectors, which includes consumer 
products and cyclicals.  Huh?  Aren't those "old economy" stocks?  
Yes, and once again they have revenue and earnings growth thanks 
to productivity gains borne of "new economy" companies.  

No matter, all that set a negative tone right from the open on 
the NASDAQ.  B2B stocks and biotech were hit particularly hard, 
but more on that in a minute.  Let's quickly get to a few other 
items that may help us clear some of the fog surrounding the 
crystal ball.

Recall that last week's volumes on Wednesday, Thursday, and 
Friday were particularly weak, registering some of the lowest 
volume days this year.  It doesn't lend much credibility to the 
strength of the rebound if volume doesn't confirm the gains.  The 
fact is with tax bills coming due next week, there doesn't appear 
to be a bunch of money waiting around to get put to work either - 
at least not in technology.  

Also weighing heavy in the sentiment department is the relatively 
light put/call ratio, currently at .43, and the Volatility Index 
(VIX.X) at 28.01.  The VIX.X reversed course today after falling 
from its intraday Tuesday high of 35.43 to 26.04 by Friday.  
While 30 has historically proven to be a buying opportunity, 
previous deep corrections have been marked by put/call ratios of 
.70 or better.  A wall of worry is something that we all look to 
climb over on the way to new highs.  Showing how many puts 
investors are buying compared to how many calls represents the 
wall of worry.  When you strip away the math, it's just an 
indicator of how many people are scared.  The current level says 
investors, as a whole, aren't sufficiently scared yet.  It's 
tough to imagine that last week's tech crater wasn't considered 
by some to be a capitulation.  However, based on volume, it sure 
looked like it to us.  But the P/C ratio tells a different story.

Alan Greenspan still looms in the background too.  Today he spoke 
to the Electronic Systems Payment Association, but made no 
mention of the markets.  All was well, thus largely ignored.  He 
speaks again tomorrow on job skills (no biggie we think), then 
again Thursday in front of Congress (possibly a biggie), and 
Friday to the American Enterprise Conference (probably a non-

So is this end of the technology stock gains forever?  The answer 
is no, however we will qualify that by noting that it will likely 
be harder to make a buck this week as this market trades range-
bound with great volatility.  We just don't think it's likely 
that buying volume will pick up to take technology issues (we 
include biotech here) back to previous levels with taxes due next 
week.  That specter should keep liquidity low and selling 
pressure on the previous high-flyers.  If you owned B2B or 
biotech companies today, you are not likely a happy camper - lots 
of holes in those tents by now.  Take a look at some of today's 
more notable issues.  We've listed them with today's change, 
closing price, and recent high.  

ARBA (-12.75, 93.75, 183.33); 
CMRC (-19.50, 121.50, 275.63); 
CRA (-30.38, 100, 276); 
ITWO (-28.88, 108.06, 223.50); 
VIGN (-29.44, 171.50, 302.00); 
VERT (-7.33, despite completing their $100 mln MSFT cash 
infusion, 50.88, 148.38); 
MLNM (-23.75, 149.50, 316.00); 
EMLX (-16.75, 95.81, 225.50).  

You get the picture.  Biogen (BGEN) isn't going to help at all 
tomorrow since they missed estimates by $0.02.  Though they 
closed at $65 today, after the announcement, they traded down to 
$57.  Biotech index puts, anyone?

In the end, it was no prettier for the NASDAQ index, which 
finished with its second largest one-day point decline ever, down 
258 to 4188, also its low of the day.  This is painful following 
the highest one-day gain ever last Friday.  It seems that market 
cycles have shrunk from 18 months down to 18 hours over the last 
15 years.  3051 decliners turned just 1205 advancers into dust, 
while surprisingly, new lows outpaced new highs by a much 
narrower margin of 75 to 45.  However, down volume of 1.17 bln 
shares skunked just 231 mln shares of up volume.  Technically, 
after hovering for a bit around 4400 following today's open, the 
NASDAQ tested 4300, didn't hold, bumped its head trying to retest 
4300, then rolled over and died starting two hours before the 
close.  Closing at the low never looks good for forward 
sentiment.  We are in no man's land.  The next support is at 
4000, then 3850, followed by 3650.  We may soon get the retest 
that analysts were talking about last week.  Any silver lining?  
Just like when the market seems to perfect, it finds a way to 
humiliate the most people, so too could it humiliate those 
betting against it now.  It is darkest just before the dawn, and 
as Harrison says, this too shall pass.  Just remember, that means 
volatility and no clear direction yet.

Lest you think bears invaded our camp, we're pretty pleased with 
the way the Dow behaved today, though the volume was darned light 
at just 855 mln shares.  Not even the Dow tech losers (HWP, MSFT, 
IBM, and INTC) could keep the index down.  While it ran into 
resistance at 11,287, the lows have been getting consistently 
higher since the mid-March return from 9800, which is a positive 
in our book.  Near term support is at 11,100. 11,000 is more 
solid, with 10,900 more solid yet.  While the Dow was up as much 
as 175 points in today's trading, it could not completely escape 
the negative sentiment zapping the NASDAQ.  For its part the Dow 
still managed a respectable 75-point gain to close at 11,186.  
Motorola may be of some help tomorrow.  Not only did they beat 
the street's earnings estimate of $0.58 by a penny, but better 
still, clocked in with $8.77 bln. in revenue this quarter 
compared to expectations of $8.5 bln.  Their conference call went 
well and their picture looks good going forward.  Anyway, 
concerning the index, advancers lost out slightly to decliners 
1379 to 1597.  Up volume edged out down volume by a mere 14 mln 
shares, even as the NYSE registered just 30 new lows.

We actually have financials and consumer products to thank today 
for the Dow's performance, a trend that may continue to grow legs 
if the technology sector remains weak and inflation remains 
scarce.  AXP gained $1.13 to $143.19.  C moved up $3.25 to 
$62.25, while JPM tacked on $4.69 to $134.56.  In the consumer 
product end, PG moved up $2.56 to a new recent high of $65.88 
from its shellacking 30 days ago, while JNJ moved up $1.94 to 
$76.13 from the beating it took in late March.  Retailers 
including Wal-Mart (WMT +2.06, 63.56) and Home Depot (HD +2.56, 
66.69) moved up nicely too.  So you see, it's not as bleak as it 

In the meantime, maybe analyst Joe Battapaglia from Gruntal (the 
lone remaining bull, it seems) will get more TV exposure.  He 
believes that the tech sell-off is overdone and tech earnings are 
going to come in strong to prove the naysayers wrong.  That's one 
analyst we'd like to have heard from today.  

In closing, don't let hope, fear or greed cloud your judgement.  
Trade only when it is profitable to do so, and pick your entries 
carefully.  Jim did an excellent job of describing this in the 
weekend Market Wrap - check it out!  While it's tough to sit on 
your hands, "when in doubt, stay out" might make a more 
applicable catch phrase in periods of high volatility.  Dust off 
your put plays too in case the market provides us that 
opportunity.  In case you are still in calls from last Friday, as 
we noted last Monday night before the Tuesday meltdown, it's 
never too late to sell too soon. 

Buzz Lynn
Research Analyst

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Investors Look to IRAs to Fund Retirement
By Cindy Christ

The Individual Retirement account, or IRA, is undergoing a

As more investors than ever approach their 50th birthdays,
they're beginning to realize they must rely on personal
savings to help fund their golden years.

According to a recent poll by Salomon Smith Barney, upper
-income Americans are now counting on IRAs as their No. 1
source of income in retirement, slightly ahead of tax-deferred
company retirement plans such as popular 401(k) accounts.

The poll shows that investors expect IRAs to provide 30
percent of their retirement income versus 25 percent for
company retirement plans.

Investors expect to receive just 16 percent of their income
from Social Security and 7 percent from guaranteed company

"Clearly, investors have gotten the message that if they want
to enjoy a secure retirement, they will have to do it
themselves and not rely on the government or guaranteed
pensions," said Ellen Breslow, director of Individual
Retirement Planning services at Salomon Smith Barney.

"Along with the creation of the new Roth IRA in 1997, this
realization is perhaps the main reason for the comeback of
IRAs," Breslow added.

The number of new, traditional IRA accounts opened at Salomon
in 2000 is up 35 percent over the same period last year, the
company said.

Although traditional IRAs outnumber newer Roth IRAs by 2-to-1
among investors polled by Salomon, the Roth seems to be the
vehicle of choice for future contributions because it allows
for tax-free withdrawals.

By and large, investors said they won't convert their
traditional IRAs to Roths despite the advantages, including
greater after-tax retirement income and estate-planning
benefits. Investors cited confusion about how to convert and
unwillingness to pay upfront taxes as the main reasons they're
sticking with their old IRAs.

If investors could choose only one retirement option for
future contributions, it would be a 401(k) account due to the
advantages of employer-matched contributions.

Experts estimate that about one-third of all Americans are
covered by a 401(k) plan.

Overall, more than 40 percent of upper-income Americans,
defined as those with annual household income of at least
$50,000, hold an IRA. Among college graduates in the Salomon
sample, the number jumps to 54 percent.

The survey results come at a time when experts say Americans
are facing a retirement crisis, especially among women.

The National Center for Women & Retirement Research estimates
that more than 58 percent of female baby boomers have less
than $10,000 saved in a pension or 401(k) plan. In comparison,
male boomers have saved three times as much.

With median assets of $35,000 in their retirement accounts,
most baby boomers say they're worried about paying for
retirement, and for good reason. Estimates currently place
retirement needs for an average couple at $500,000.

Why aren't boomers -- the most affluent and best-educated
generation of Americans ever -- doing more to prepare for

"Many boomers and those of the X-Generation either ignore or
feel helpless in contemplating their retirement financial
needs because it reminds them of the classical Myth of
Sisyphus (the impossible task of trying to roll a boulder
uphill), and they doubt their ability to do it," writes
Christopher Hayes, Ph.D., executive director of the National
Center for Women & Retirement Research.

Hayes says that in the long run, boomers' low savings rate,
excessive use of high-interest credit cards, desire for
expensive lifestyles and need for immediate gratification
heighten their negative attitudes about retirement funding.

If you weren't depressed about retirement funding before,
Hayes' comments will take care of that.

But is the picture really that bleak?

In some cases, yes. To be sure, Americans who don't have the
wherewithal to save for retirement and who must rely solely on
Social Security will most likely never retire.

On the other hand, thanks to an unprecedented economic boom,
today's adults are wealthier than any generation before and a
record number will inherit family legacies estimated atof dollars.

Data show too that women are making huge strides when it comes
to accumulating wealth. According to a February study by the
Spectrum Group and the U.S. Census, women are getting richer
faster than men are.

Between 1996 and 1998, the number of affluent women grew by 68
percent, while the number of affluent men increased by 36
percent. Spectrum defines affluent as households with at least
$100,000 in annual income and/or $500,000 in net worth.

Growth in female affluence is attributed to a number of
factors, including more women in the work force and those with
graduate degrees, an increased divorce rate, and women's
longer life spans. As the population ages, more women are
widowed and inherit wealth from spouses or parents.

The Internet also contributes to the number of affluent women
by bringing more financial information into homes and
increasing their confidence as investors. 

As women have become more self-assured, the number investing
online is growing rapidly, and they tend to invest more
aggressively, like men do. And as the Salomon Smith Barney
poll shows, both genders are beginning to get it when it comes
to saving for retirement.

Survey results show that respondents are planning to rely on
three sources of retirement income, Social Security, employer
-sponsored plans, and personal savings, just like the best
retirement models recommend.

With IRAs on the rise, the once-neglected issue of retirement
funding has clearly been revived.


WLA - Warner-Lambert Co. $107.31 +3.38 (+3.38)

Warner-Lambert has undergone a dramatic business transformation
during the last decade, a transformation marked by dynamic sales
and profit growth.  The introduction of breakthrough health care
and consumer products has helped lead the company's rise in
prominence.  To foster future growth WLA is expanding its role
in medical care by developing innovative pharmaceuticals.  They
also are striving to further bolster their position as a leader
in over-the-counter health care products.  WLA finds its top
competition coming from Bristol-Myers Squibb, Gillette and Merck.

Most Recent Write-up

It isn't that we are getting impatient, but since adding WLA,
it's been a bit of a struggle.  Actually the results could have
been worse.  Industry news this week could have put a real crimp
in our play, but WLA has managed to hold its own.  Analysts at
Paine Webber downgraded BMY, yet raised their price target for
the drug maker, which put a cloud over the whole drug sector on
Wednesday.  The analyst cited the Presidential campaign, and
decreasing chances of a major Medicare benefit this year, as the
reason for the downgrade in BMY.  WLA fell about 2.7% on the 
news, however the volume was light.  Thursday's obstacle appeared 
in the form of news from the government.  The Medicaid program 
will revise the drug-pricing system used to reimburse doctors and
health-care providers for medicines.  A nationwide investigation
by state and federal agencies has revealed "a pattern of
misrepresentations by some drug manufacturers of the average
wholesale prices", according to a letter signed by officials of
the national Medicaid fraud-control organization.  Analysts say
the revision of the Medicaid pricing system could hurt WLA and
other drugmakers.  WLA finished Thursday's session with a small
gain, and tacked on another 1.0% on Friday.  As we said, all
things considered WLA has held up well.  Our play could be at
a crossroads, however the damage this week has been minimal and
the volume light.  Technically, support is found at $101 and at
its 10-dma at $99.14.  The trend is still our friend, and would
look at further advances as an opportunity to buy calls.

Friday Shire Pharmaceuticals Group did lend support for WLA and
the drug sector.  The company announced a new study of its
Alzheimer's disease treatment Reminyl, shows the drug can help
patients function in daily life by boosting their memories and
sense of direction.  A five-month study showed patients taking
the drug scored "significantly better" in memory, language,
orientation and cognitive tests.


Some days, a trader just needs to follow the money to find the 
best trades.  With Drug stocks beaten up so badly over the last 
few months and technology stocks now moving to the whipping post, 
the drug sector makes a nice port in the storm.  Remember that 
PFE is buying WLA, and WLA shareholders will get 2.75 shares of 
PFE for every one share of WLA . . .a good reason to play 
options.  While the trend looked great today, we need to see PFE 
break out of current resistance over $40 on some good volume 
before starting a new play.  Technically, WLA hit a new high 
today on volume that exceeded the ADV by 10%, which of course 
looks great.  Just make sure the drug sector and PFE are moving 
in a positive direction.  If traders tech boats are dashed on 
tomorrow's rocks, there could be a continued "float" (not flight 
- don't want to mix that metaphor) to safety with the consumer 
products and drug stocks.  WLA combines both.

***April contracts expire in two weeks***

BUY CALL APR-100*WLA-DV OI=4931 at $ 8.00 SL=5.75
BUY CALL APR-105 WLA-DA OI=1029 at $ 4.13 SL=2.50
BUY CALL MAY-110 WLA-EB OI= 333 at $ 4.13 SL=2.50
BUY CALL JUL-110 WLA-GB OI= 136 at $ 7.75 SL=5.50

SELL PUT APR-100 WLA-PA OI=  75 at $ 1.44 SL=2.75
(See risks of selling puts in play legend)

Picked on Apr 04th at   $105.50    PE = 53
Change since picked       -1.56    52 week high=$106.75
Analysts Ratings     12-4-8-0-0    52 week low =$ 60.81
Last earnings 01/00   est= 0.52    actual= 0.55
Next earnings 04-19   est= 0.56    versus= 0.45
Average daily volume = 3.73 mln

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only. The information provided herein is not to be construed 
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newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
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